UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended June 30, 2002
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file number 0-12944
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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 (IRS Employer Identification Number)
incorporation or organization)
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:)
Securities registered pursuant to Section 12(b) of the Act:
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None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.10 Par Value
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)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value at September 18, 2002, was $87,039,362
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
17,509,427 Shares of Common Stock, $.10 Par Value, at September 18, 2002
Documents incorporated by reference: Specified portions of the registrant's
Proxy Statement related to the registrant's 2002 Annual Meeting of Stockholders,
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
(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 10-K dated June 30, 2001 were filed by the Company on February 13,
2002.
EXPLANATORY NOTE
Zygo Corporation is filing this Annual Report on Form 10-K/A for the year ended
June 30, 2002 in order to revise pro forma information appearing in Note 14,
"Stock Compensation Plans," to Consolidated Financial Statements. The Company's
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows, and
Consolidated Balance Sheets for all periods presented were reported accurately.
The revised pro forma information in Note 14 does not affect any previously
reported historical operating results of the Company.
As indicated in Note 14, Zygo applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its stock
compensation plans. Since all of Zygo's stock options were granted at an
exercise price equal to the fair market value on the date of grant, pursuant to
APB Opinion No. 25 no compensation cost is recognized for these stock option
grants. The pro forma net (loss) earnings and pro forma net (loss) earnings per
share, diluted, included in Note 14 are computed as if Zygo accounted for its
stock options under an alternate methodology, in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Zygo does not use this alternate methodology in reporting its
actual financial results.
In estimating the fair value of options at the date of grant under this
alternate methodology, Zygo utilized an unaffiliated outside service to
determine the pro forma stock option expense for fiscal 2002 using the
Black-Scholes model. Based, in part, upon written material provided by this
outside service, Zygo believed that this outside service provided the Company
with a consolidated dollar amount of the pro forma stock option expense for
fiscal 2002, including the unamortized portions of the pro forma stock option
expense for fiscal years 1998, 1999, 2000, and 2001 which should have been
included in the fiscal 2002 pro forma expense. Instead, the pro forma expense
amount provided by the outside service only related to the portion of the
expense for fiscal 2002 stock option grants, without inclusion of any
unamortized portions from the prior years. This resulted in the "pro forma net
(loss) earnings" and "pro forma net (loss) earnings per share, diluted"
information presented in Note 14 for fiscal 2002 to be incorrect. In addition,
the pro forma net earnings (loss) and pro forma earnings (loss) per share,
diluted, information presented in Note 14 for fiscal 2001 has been revised in
accordance with the Form 10-K/A for the fiscal year ended June 30, 2001 filed
today with the Commission.
The revised pro forma net (loss) earnings for the years ended June 30, 2002 and
2001 is $(20,629,000) and $3,436,000, respectively, compared to $(12,161,000)
and $9,952,000 as originally reported; and the revised pro forma net (loss)
earnings per share, diluted, for the years ended June 30, 2002 and 2001 is
$(1.18) and $0.21, respectively, compared to $(0.70) and $0.62 as originally
reported. Revised Note 14 also reflects weighted average fair values at date of
grant for options granted during fiscal 2002, 2001 and 2000 of $7.91, $39.85 and
$17.18, respectively.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended,
the complete text of Item 8 of Form 10-K as revised is presented in this filing.
Other than changes to Note 14, no other revisions have been made to this Annual
Report on Form 10-K/A from the Form 10-K originally filed with the Commission
for fiscal 2002. This amendment does not reflect events occuring after the
filing of the original annual report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to this Item begin
on Page F-1 of this Report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules:
An index to the financial statements and financial statement
schedules filed is located on page F-1.
3. EXHIBITS
3.(i) Restated Certificate of Incorporation of the Company and
amendments thereto (Exhibit 3.(i) to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
3.(ii) Certificate of Amendment of Certificate of Incorporation,
filed June 3, 1996 (Exhibit 3.(ii) to the Company's Annual
Report on Form 10-K 405 for its year ended June 30, 1996)*
3.(iii) By-laws of the Company (Exhibit (3)(b) to Registration No.
2-87253 on Form S-1 hereinafter "Registration No. 2-87253")*
10.1 Confidentiality and Non-Competition Agreement dated October
25, 1983, between the Company and Carl A. Zanoni (Exhibit
(10)(b) to Registration No. 2-87253)*
10.2 Agreement dated May 27, 1975, between the Company and Canon
U.S.A., Inc., regarding information sharing and marketing
(Exhibit (10)(x) to Registration No. 2-87253)*
10.3 Agreement dated November 20, 1980, between the Company and
Canon Inc. regarding exchange of information (Exhibit (10)(y)
to Registration No. 2-87253)*
10.4 Amended and Restated Zygo Corporation Profit Sharing Plan
(Exhibit 10.15 to the Company's Annual Report on Form 10-K405
for its year ended June 30, 1995)*
10.5 Canon/Zygo Confidentiality Agreement dated March 7, 1990,
between the Company and Canon Inc. regarding confidential
technical information received from each other (Exhibit 10.42
to the Company's Annual Report on Form 10-K for its year ended
June 30, 1991)*
10.6 Services Agreement dated August 26, 1993, between the Company
and Paul F. Forman (Exhibit 10.26 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.7 Amendment Agreement dated as of December 31, 1996, between the
Company and Paul F. Forman (Exhibit 10.16 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1997)*
10.8 Non-Competition Agreement dated August 26, 1993, between the
Company and Paul F. Forman (Exhibit 10.27 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1993)*
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<Page>
10.9 Zygo Corporation Amended and Restated Non-Qualified Stock
Option Plan ratified and approved by the Company's
Stockholders on November 19, 1992 (Exhibit 10.30 to the
Company's Annual Report on Form 10-K for its year ended June
30, 1993)*
10.10 Renewal of Line of Credit dated June 4, 1997, between the
Company and Fleet Bank Connecticut, N.A. (Exhibit 10.23 to the
Company's Annual Report on Form 10-K for its year ended June
30, 1997)*
10.11 Zygo Corporation Non-Employee Director Stock Option Plan
ratified and approved by the Company's stockholders on
November 17, 1994 (Exhibit 10.30 to the Company's Annual
Report on Form 10-K405 for its year ended June 30, 1996)*
10.12 Subcontract B335188 between The Regents of The University of
California Lawrence Livermore National Laboratory and Zygo
Corporation dated May 9, 1997 (Exhibit 10.31 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1997)*
10.13 Agreement between Zygo Corporation and Dacon Corporation
covering an addition to the Company's Middlefield,
Connecticut, facilities (Project 1774) and the N.I.F.
Manufacturing Renovation (Project 1842) dated April 7, 1997
(Exhibit 10.32 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1997)*
10.14 Employment agreement dated January 15, 1999, between Zygo
Corporation and J. Bruce Robinson. (Exhibit 10.34 to the
Company's Annual Report on Form 10-K 405 for its year ended
June 30, 1999)*
10.15 Zygo Corporation Amended and Restated Non-Employee Director
Stock Option Plan ratified and approved by the Company's
stockholders on November 17, 1999. (Exhibit to the Company's
Definitive Proxy Statement for its year ended June 30, 1999)*
10.16 Employment agreement dated July 1, 1999, between Zygo
Corporation and Brian J. Monti. (Exhibit 10.22 to the
Company's Annual Report on Form 10-K405 for its year ended
June 30, 2000)*
10.17 Acquisition Agreement dated May 5, 2000, by and among Zygo
Corporation, Firefly Technologies Inc., and the Shareholders
of Firefly Technologies Inc. (Company's Current Reports on
Form 8-K dated May 8, 2000 and on Form 8-KA dated June 30,
2000)*
10.18 Employment agreement dated May 5, 2000, between Zygo
Corporation and John Berg. (Exhibit 10.01(e)(1) to the
Company's Current Reports on Form 8-K dated May 8, 2000 and on
Form 8-KA dated June 30, 2000)*
10.19 Employment agreement dated May 5, 2000, between Zygo
Corporation and Patrick Tan. (Exhibit 10.01(e)(2) to the
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<Page>
Company's Current Reports on Form 8-K dated May 8, 2000 and on
Form 8-KA dated June 30, 2000)*
10.20 Construction -- to Permanent Term Loan Promissory Note
(Exhibit 10.26 to the Company's Annual Report
on Form 10-K405 for its year ended June 30, 2001)*
10.21 Amended and restated credit agreement dated May 14, 2001,
between Zygo Corporation and Fleet National Bank
(Exhibit 10.21 to the Company's Annual Report
on Form 10-K for its year ended June 30, 2002)*
10.22 Amended and restated credit agreement dated November 22, 2001
between Zygo Corporation and Fleet National Bank
(Exhibit 10.22 to the Company's Annual Report
on Form 10-K for its year ended June 30, 2002)*
10.23 Amended and restated credit agreement dated June 26, 2002
between Zygo Corporation and Fleet National Bank
(Exhibit 10.23 to the Company's Annual Report
on Form 10-K for its year ended June 30, 2002)*
10.24 Subcontract B514527 between The Regents of The University of
California Lawrence Livermore National Laboratory and Zygo
Corporation dated April 14, 2001 (Exhibit 10.24 to the
Company's Annual Report on Form 10-K for its year ended
June 30, 2002)*
10.25 Subcontract B519044 between The Regents of The University of
California Lawrence Livermore National Laboratory and Zygo
Corporation dated January 14, 2002 (Exhibit 10.25 to the
Company's Annual Report on Form 10-K for its year ended
June 30, 2002)*
21. Subsidiaries of Registrant*
23. Accountants' Consent
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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* Incorporated herein by reference.
-5-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Richard M. Dressler Date July 14, 2003
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Richard M. Dressler
Vice President, Finance, Chief
Financial Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ J. Bruce Robinson Chairman, President, and Chief Date July 14, 2003
- --------------------------------- Executive Officer
J. Bruce Robinson
/s/ Richard M. Dressler Vice President, Finance, Chief Date July 14, 2003
- ---------------------------------
Richard M. Dressler Financial Officer, and Treasurer
/s/ Carl A. Zanoni Senior Vice President, Technology Date July 14, 2003
- ---------------------------------- and Director
Carl A. Zanoni
/s/ Eugene Banucci Director Date July 14, 2003
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(Eugene Banucci)
/s/ Paul F. Forman Director Date July 14, 2003
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(Paul F. Forman)
/s/ Samuel Fuller Director Date July 14, 2003
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(Samuel Fuller)
/s/ Seymour E. Liebman Director Date July 14, 2003
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(Seymour E. Liebman)
/s/ Robert G. McKelvey Director Date July 14, 2003
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(Robert G. McKelvey)
/s/ Robert B. Taylor Director Date July 14, 2003
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(Robert B. Taylor)
/s/ Bruce Worster Director Date July 14, 2003
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(Bruce Worster)
-6-
CERTIFICATION OF DISCLOSURE IN REGISTRANT'S
AMENDMENT NO. 1 TO ANNUAL REPORT
I, J. Bruce Robinson, certify that:
1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A
(the "Amendment to Annual Report") of Zygo Corporation;
2. Based on my knowledge, the Amendment to Annual Report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by the Amendment to Annual Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in the Amendment to Annual Report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in the
Amendment to Annual Report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which the Amendment to Annual Report is
being prepared; and
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Amendment to Annual Report.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
Date: July 14, 2003
/s/ J. Bruce Robinson
-------------------------------
J. Bruce Robinson
Chairman, President, and
Chief Executive Officer
-7-
CERTIFICATION OF DISCLOSURE IN REGISTRANT'S
AMENDMENT NO. 1 TO ANNUAL REPORT
I, Richard M. Dressler, certify that:
1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A
(the "Amendment to Annual Report") of Zygo Corporation;
2. Based on my knowledge, the Amendment to Annual Report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by the Amendment to Annual Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in the Amendment to Annual Report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in the
Amendment to Annual Report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which the Amendment to Annual Report is
being prepared; and
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Amendment to Annual Report.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
Date: July 14, 2003
/s/ Richard M. Dressler
-----------------------------
Richard M. Dressler
Vice President, Finance
Chief Financial Officer
-8-
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
- ----
F-2 Report of Management
F-3 Report of Independent Auditors
F-4 Consolidated balance sheets at June 30, 2002 and 2001
F-5 Consolidated statements of operations for the years ended June 30, 2002, 2001, and 2000
F-6 Consolidated statements of stockholders' equity for the years ended June 30, 2002, 2001, and 2000
F-7 Consolidated statements of cash flows for the years ended June 30, 2002, 2001, and 2000
F-8 to F-24 Notes to consolidated financial statements
F-25 Selected consolidated quarterly financial data for the years ended June 30, 2002 and 2001
Consolidated Schedules
----------------------
S-1 Independent Auditors' Report on Schedule II
S-2 Schedule II -Valuation and qualifying accounts
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedules or the information required is included in the consolidated
financial statements or notes thereto.
F-1
REPORT OF MANAGEMENT
Management is responsible for preparing the Company's consolidated financial
statements and related information that appears in this annual report. The
consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America appropriate in the
circumstances and, accordingly, include some amounts based on management's best
judgements and estimates. Financial information in this Annual Report is
consistent with that in the consolidated financial statements.
The Company maintains a system of internal controls and procedures which
provides reasonable assurance, at an appropriate cost/benefit relationship, that
assets are safeguarded and that transactions are authorized, recorded, and
reported properly. Management believes that the Company's system of internal
controls provides reasonable assurance that assets are safeguarded against
material loss from unauthorized use or disposition and that the financial
records are reliable for preparing financial statements and other data and for
maintaining accountability for assets.
The Audit Committee of the Board of Directors, composed solely of Directors who
are not officers or employees of the Company, meets with the independent
auditors and financial management periodically to discuss internal accounting
controls, auditing and financial reporting matters, and to discharge its
responsibilities outlined in its written charter. The Committee reviews with the
independent auditors the scope and results of the audit effort. The Committee
also meets with the independent auditors without management present to ensure
that the independent auditors have free access to the Committee.
The independent auditors, KPMG LLP, were recommended by the Audit Committee of
the Board of Directors and selected by the Board of Directors. KPMG LLP was
engaged to audit the 2002, 2001, and 2000 consolidated financial statements of
Zygo Corporation and its subsidiaries and conducted such tests and related
procedures as deemed necessary in conformity with auditing standards generally
accepted in the United States of America. The opinion of the independent
auditors, based upon their audits of the consolidated financial statements, is
included in this annual report.
Richard M. Dressler
Vice President, Finance,
Chief Financial Officer, and Treasurer
F-2
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ZYGO CORPORATION:
We have audited the accompanying consolidated balance sheets of Zygo Corporation
and subsidiaries as of June 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zygo Corporation and
subsidiaries as of June 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2002, in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Hartford, Connecticut
August 16, 2002
F-3
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)
JUNE 30, 2002 June 30, 2001
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 28,513 $ 52,630
Restricted cash ................................................... 1,225 --
Marketable securities (note 3) .................................... 8,734 7,121
Receivables (note 4) .............................................. 21,241 27,278
Inventories (note 5) .............................................. 23,612 24,261
Costs in excess of billings (note 6) .............................. -- 1,802
Prepaid expenses .................................................. 1,444 1,393
Deferred income taxes (note 17) ................................... 4,899 4,076
--------- ---------
Total current assets ........................................... 89,668 118,561
--------- ---------
Property, plant and equipment, net (notes 7 and 10) .......................... 55,045 47,475
Deferred income taxes (note 17) .............................................. 19,981 15,819
Goodwill and other intangibles, net (notes 8 and 20) ......................... 4,507 4,867
Other assets ................................................................. -- 110
--------- ---------
TOTAL ASSETS ................................................................. $ 169,201 $ 186,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (note 10) ............................. $ 837 $ 279
Accounts payable ........................................................ 5,020 8,648
Accrued progress payments ............................................... 368 549
Accrued salaries and wages .............................................. 3,451 7,153
Interest rate swap liability (note 10) .................................. 832 --
Other accrued expenses (note 2) ......................................... 4,300 4,688
Income taxes payable .................................................... 929 3,132
--------- ---------
Total current liabilities ......................................... 15,737 24,449
--------- ---------
Long-term debt (note 10) ..................................................... 11,374 12,281
Other long-term liabilities (note 2) ......................................... 1,115 --
Minority interest ............................................................ 970 963
--------- ---------
TOTAL LIABILITIES ............................................................ 29,196 37,693
--------- ---------
Commitments (note 11)
STOCKHOLDERS' EQUITY (NOTES 13, 14, 15, AND 16):
Common stock, $ .10 par value per share:
40,000,000 shares authorized (40,000,000 in 2001);
17,892,564 shares issued (17,803,812 in 2001);
17,445,359 shares outstanding (17,356,607 in 2001) ...................... 1,789 1,780
Additional paid-in capital ................................................ 137,390 134,380
Retained earnings ......................................................... 7,981 19,714
Accumulated other comprehensive income (loss):
Currency translation effects ........................................... (1,369) (1,786)
Net unrealized gain (loss) on swap agreement (note 10) ................. (515) 31
Net unrealized gain on marketable securities (note 3) .................. 16 37
--------- ---------
145,292 154,156
Less treasury stock, at cost; 447,205 common shares
(447,205 shares in 2001) ................................................ 5,287 5,017
--------- ---------
Total stockholders' equity ............................................. 140,005 149,139
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $ 169,201 $ 186,832
========= =========
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands except per share amounts)
Fiscal Year Ended June 30,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Net sales (notes 18 and 19) ........................... $ 84,426 $ 133,250 $ 87,243
Cost of goods sold .................................... 59,630 72,081 54,688
--------- --------- ---------
Gross profit .................................... 24,796 61,169 32,555
Selling, general and administrative expenses .......... 25,173 29,119 18,504
Research and development .............................. 21,346 17,673 11,270
Nonrecurring acquisition-related charges .............. -- -- 14,001
Amortization and impairment of goodwill
and other intangibles (note 2) ..................... 963 797 7,102
Automation Systems Group exit costs (note 2) .......... 1,856 -- --
--------- --------- ---------
Operating (loss) profit ......................... (24,542) 13,580 (18,322)
--------- --------- ---------
Gain on sale of Automation Systems Group (note 2) ..... 6,142 -- --
--------- --------- ---------
Other income (expense):
Interest income ................................. 1,686 1,641 1,250
Miscellaneous expense, net ...................... (1,443) (526) (240)
--------- --------- ---------
Total other income ........................... 243 1,115 1,010
--------- --------- ---------
(Loss) earnings before income taxes and
minority interest ........................ (18,157) 14,695 (17,312)
Income tax benefit (expense) (note 17) ................ 6,900 (3,454) 1,459
--------- --------- ---------
(Loss) earnings before minority interest .............. (11,257) 11,241 (15,853)
Minority interest ..................................... 476 582 194
--------- --------- ---------
Net (loss) earnings ................................... $ (11,733) $ 10,659 $ (16,047)
========= ========= =========
(Loss) earnings per common and common equivalent share:
Basic ........................................... $ (0.67) $ 0.69 $ (1.28)
========= ========= =========
Diluted ......................................... $ (0.67) $ 0.66 $ (1.28)
========= ========= =========
Weighted average common shares and common
dilutive equivalents outstanding:
Basic ........................................... 17,414 15,398 12,511
========= ========= =========
Diluted ......................................... 17,414 16,063 12,511
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars)
Accum.
Other
Comp. Comp.
Income Retained Income Common Treasury Paid-In
Total (Loss) Earnings (Loss) Stock Stock Capital
--------- ---------- --------- --------- --------- --------- ---------
Balance at June 30, 1999 ...................... $ 68,712 $ 25,102 $ (126) $ 1,370 $ (301) $ 42,667
Comprehensive loss
Net loss .................................... (16,047) (16,047) (16,047)
---------
Other comprehensive loss, net of tax
Unrealized loss on marketable securities .. (22) (22)
Foreign currency translation effect ....... (125) (125)
---------
Other comprehensive loss .................... (147) (147)
---------
Comprehensive loss ............................ (16,194)
=========
Unearned Compensation ......................... 12,024 12,024
Exercise of employee stock options
And related tax effect ...................... 13,687 74 13,613
--------- --------- --------- --------- -------- --------- ---------
Balance at June 30, 2000 ...................... $ 78,229 $ 9,055 $ (273) $ 1,444 $ (301) $ 68,304
Comprehensive income (loss)
Net earnings ................................ 10,659 10,659 10,659
---------
Other comprehensive income (loss),
net of tax
Unrealized gain on marketable securities 128 128
Unrealized gain on Swap Agreement ...... 31 31
Foreign currency translation effect .... (1,604) (1,604)
---------
Other comprehensive loss .................... (1,445) (1,445)
---------
Comprehensive income .......................... 9,214
=========
Repurchased common stock ...................... (4,716) (4,716)
Secondary offering ............................ 51,824 292 51,532
Exercise of employee stock options
and related tax effect ...................... 14,588 44 14,544
--------- --------- --------- --------- -------- -------- ---------
Balance at June 30, 2001 ...................... $ 149,139 $ 19,714 $ (1,718) $ 1,780 $ (5,017) $ 134,380
Comprehensive income (loss)
Net loss .................................... (11,733) (11,733) (11,733)
---------
Other comprehensive income (loss),
net of tax
Unrealized loss on marketable securities (21) (21)
Unrealized loss on Swap Agreement ...... (546) (546)
Foreign currency translation effect .... 417 417
---------
Other comprehensive loss .................... (150) (150)
---------
Comprehensive loss ............................ (11,883)
=========
Repurchased common stock adjustment ........... (270) (270)
Non-cash compensation charges
related to stock options .................. 83 83
Employee stock purchase ....................... 1,098 8 1,090
Exercise of employee stock options
and related tax effect ...................... 1,838 1 1,837
--------- -------- -------- -------- ------- ---------
Balance at June 30, 2002 ...................... $ 140,005 $ 7,981 $ (1,868) $ 1,789 $(5,287) $ 137,390
========= ========= ======== ======== ======= =========
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
Fiscal Year Ended June 30,
---------------------------------
2002 2001 2000
-------- -------- ---------
Cash provided by (used for) operating activities:
Net (loss) earnings ............................................... $(11,733) $ 10,659 $(16,047)
Adjustments to reconcile net (loss) earnings to cash
provided by (used for) operating activities:
Depreciation and amortization .................................. 7,251 3,996 11,318
Gain on sale of Automation Systems Group ....................... (6,142) -- --
Loss on disposal of assets ..................................... 2,320 869 1,176
Deferred income taxes .......................................... (4,705) 2,446 (7,247)
Non-cash compensation charges related to stock options ......... 83 -- 12,024
Changes in operating accounts:
Receivables ................................................. 3,975 (7,140) (7,657)
Costs in excess of billings ................................. (690) 3,942 (5,083)
Inventories ................................................. (727) (12,382) 3,594
Prepaid expenses ............................................ (72) 3,721 4,770
Accounts payable and accrued expenses ....................... (7,795) 3,306 4,654
Minority interest ........................................... 476 520 194
-------- -------- --------
Net cash provided by (used for) operating activities ........... (17,759) 9,937 1,696
-------- -------- --------
Cash provided by (used for) investing activities:
Additions to property, plant and equipment ........................ (17,640) (33,050) (6,513)
Investment in marketable securities ............................... (8,001) (2,155) (2,466)
Investments in other assets ....................................... (493) (1,790) --
Proceeds from the sale of assets .................................. 673 -- --
Proceeds from sale of Automation Systems Group,
net of cash sold ($88) ......................................... 12,077 -- --
Restricted cash with interest from sale of Automation Systems Group (1,225) -- --
Proceeds from the sale of marketable securities ................... 4,248 2,250 --
Proceeds from maturity of marketable securities ................... 2,155 1,180 2,500
-------- -------- --------
Net cash used for investing activities ......................... (8,206) (33,565) (6,479)
-------- -------- --------
Cash provided by (used for) financing activities:
(Payments) proceeds of debt ....................................... (349) 12,556 48
Dividend payments to minority interest ............................ (469) -- --
Employee stock purchase ........................................... 1,098 -- --
Exercise of employee stock options ................................ 1,838 996 7,062
Issuance and repurchase of common stock ........................... (270) 47,108 --
Contributions from minority interest of consolidated subsidiaries . -- -- 249
-------- -------- --------
Net cash provided by financing activities ...................... 1,848 60,660 7,359
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................. (24,117) 37,032 2,576
Cash and cash equivalents, beginning of year ......................... 52,630 15,598 13,022
-------- -------- --------
Cash and cash equivalents, end of year ............................... $ 28,513 $ 52,630 $ 15,598
======== ======== ========
See accompanying notes to consolidated financial statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002, 2001, and 2000
Dollars in thousands, except for share and per share amounts
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Zygo Corporation is a worldwide developer and supplier of high performance
metrology instruments, high precision optics, optical assemblies, and automation
for the semiconductor, industrial, and telecommunications markets. The
accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("Company"). All material transactions and
accounts with the subsidiaries have been eliminated from the consolidated
financial statements. As discussed in Note 2, all the outstanding shares of
Firefly Technologies, Inc. ("Firefly") were acquired by the Company on May 5,
2000, in a transaction accounted for as a pooling-of-interests. Accordingly the
financial statements of the Company have been restated to reflect the merger as
if it had occurred on July 1, 1997.
CASH AND CASH EQUIVALENTS
The Company considers cash and investments in securities with maturities at the
date of purchase of three months or less to be cash and cash equivalents.
MARKETABLE SECURITIES
The Company considers investments in securities with maturities at the date of
purchase in excess of three months as marketable securities. Marketable
securities primarily consist of corporate bonds, government agency securities,
and tax-exempt bonds. All securities held by the Company at June 30, 2002 and
2001, were classified as available-for-sale and recorded at fair value or held
to maturity and recorded at cost. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
DEPRECIATION
Depreciation is based on the estimated useful lives of the various classes of
assets and is computed using the straight-line method. See note 7.
IMPAIRMENT OF LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company evaluates the carrying value of its long-lived and
intangible assets at each balance sheet date to determine if impairment exists
based upon estimated undiscounted future cash flows. The impairment, if any, is
measured by the difference between carrying value and estimated fair value and
charged to expense in the period identified. The remaining depreciation and
amortization periods are periodically evaluated and would be revised if
considered necessary.
REVENUE RECOGNITION
Revenues, other than revenue from certain automation contracts (note 6), are
recognized when units are shipped unless there is significant uncertainty
concerning customer acceptance, in which case, revenue is recognized when the
customer accepts the product. Revenues related to certain automation contracts
are recognized under the percentage-of-completion method of accounting.
F-8
In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarized certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 was effective for the fourth quarter of fiscal 2001. The
adoption of SAB No. 101 did not have a material effect on the Company's
financial position or results of operations.
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:
JUNE 30, June 30, June 30,
2002 2001 2000
----------- ----------- ------------
Weighted average shares
outstanding .................. 17,414,000 15,398,000 12,511,000
Dilutive effect of stock
options ...................... -- 665,000 --
---------- ---------- -----------
Diluted weighted average
shares outstanding ........... 17,414,000 16,063,000 12,511,000
---------- ---------- ----------
For the fiscal years ended June 30, 2002 and June 30, 2000, the Company recorded
net losses. Due to these net losses, stock options of 319,000 and 1,547,000 for
the fiscal years ended 2002 and 2000, respectively, were excluded from the
computation because of the anti-dilutive effect on earnings per share.
GAIN ON LEGAL SETTLEMENT
The Company recorded a gain of $1 million in the third quarter of 2000 from the
settlement of a legal claim.
STOCK BASED COMPENSATION
Stock-based compensation awards to employees under the Company's stock option
plans are accounted for using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. The Company has adopted the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation."
The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional paid in capital. Except as
discussed in Note 2, no charges are reflected in the consolidated statements of
operations as a result of the grant or exercise of stock options, which are
granted with an exercise price at fair market value on the date of grant. The
Company realizes an income tax benefit from the exercise or early disposition of
certain stock options. This benefit results in a decrease in current income
taxes payable and an increase in additional paid-in capital.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that reporting entities provide, to the extent practicable, the fair value of
financial instruments, both assets and liabilities. The carrying amounts of
cash, accounts receivable, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
F-9
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America. On an ongoing basis, management evaluates its
estimates and judgements, including those related to bad debts, inventories,
long-lived assets, income taxes, and warranty obligations. Actual results could
differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" which addresses the financial accounting and
reporting for business combinations and supercedes 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. The adoption of SFAS No. 141 did not 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. 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. Management is
currently assessing the impact that SFAS No. 142 will have on our results of
operations and financial position.
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.
F-10
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 certain aspects of 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 No. 144 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.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued. This
statement provides guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain specified lease
transactions. The adoption of this statement will not have a material impact on
the Company's current financial position and results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" which addresses financial accounting and
reporting for costs associated with the exit or disposal activities. SFAS No.
146 nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires companies to record liabilities for exit or disposal activities in the
period in which they are incurred, except for certain types of transactions.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Management is
currently assessing the impact that SFAS No. 146 will have on the Company's
financial position and results of operations.
NOTE 2: MERGERS, ACQUISITIONS AND STRATEGIC INITIATIVES
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. Substantially all of the assets were sold to Brooks
and substantially all of the liabilities were assumed by Brooks. The gain on the
sale was $6,142 before related exit costs of $1,856 to be paid from the
proceeds, inventory write-downs of $808, and tax expense of $1,322. As of June
30, 2002, the restricted cash balance of $1,225 related to the Automation sale
is being held in escrow for a period of one year from the date of sale. The
Company established certain reserves of $2,333, which includes $1,115 for lease
costs classified as a long-term liability, for costs to be incurred as a result
of the sale.
On May 5, 2000, the Company entered into an agreement and plan of merger with
Firefly Technologies, Inc. ("Firefly"), a Delaware corporation, Zygo TeraOptix,
Inc., ("Zygo TeraOptix") a Delaware corporation and a wholly-owned subsidiary of
the Company, and the security holders of Firefly, pursuant to which the Company
agreed to acquire Firefly. Immediately thereafter, the acquisition was
consummated by the merger of Zygo TeraOptix with and into Firefly and Firefly
became a wholly-owned subsidiary of the Company under the new name Zygo
TeraOptix, Inc.
Under the terms of the acquisition, the Company exchanged an aggregate of
2,303,937 shares of its common stock, $.10 par value per share, for all of the
then outstanding capital stock and stock options of Firefly. The acquisition,
which is intended to be tax free for federal income tax purposes to the Firefly
security holders, has been accounted for as a pooling-of-interest transaction.
Firefly manufactures metrology equipment, micro-optics, switches, and filters
for the telecommunications industry, as well as heads and related products for
the optical data storage industry. The telecommunications components
F-11
are used in wave division multiplexers to increase the capacity of optical
fibers. The Company intends to continue to use the assets acquired in the
acquisition for these purposes.
Related to the transaction and the vesting of certain Firefly stock options, the
Company has recorded approximately $12,024 of additional compensation expense
and in addition recorded $1,977 in acquisition related costs for legal,
investment banking and accounting fees in fiscal 2000.
In the fourth quarter of fiscal 2000, the Company decided to discontinue its
investment in certain product lines, which were no longer compatible with its
strategic plan. Related to the discontinuance of these product lines, the
Company recorded approximately $10,567 of charges in the fourth quarter of
fiscal year 2000 which consisted of the write-down of goodwill and other
intangible assets ($5,478) and inventory ($5,089) which the Company will no
longer continue to develop.
NOTE 3: MARKETABLE SECURITIES
Marketable securities consisted primarily of corporate bonds, government agency
securities and tax-exempt bonds issued by various federal, state and municipal
agencies for both 2002 and 2001. Marketable securities at June 30, 2002 and June
30, 2001 are reported either at fair value or at cost depending on their
classification. The gross unrealized gains on marketable securities of $22 and
$51 at June 30, 2002 and 2001, respectively, are shown net of their related tax
effects, resulting in balances of $16 and $37, respectively, as a separate
component of stockholders' equity.
Dividend and interest income is recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The cost, gross unrealized holding gains (losses), and fair value of
available-for-sale securities at June 30, 2002 and 2001 were as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ----------- --------
AT JUNE 30, 2002
Corporate, federal, state and
local municipal bonds ........... $8,094 $75 ($ 53) $8,116
====== ==== ==== ======
At June 30, 2001
Corporate, state and local
municipal bonds ................. $5,320 $51 $ -- $5,371
====== ==== ==== ======
There were $59 gross realized gains recorded in 2002. There were no gross
realized gains or losses recorded in 2001.
F-12
Maturities of investment securities classified as available-for-sale were as
follows at June 30, 2002 and 2001:
JUNE 30, 2002 June 30, 2001
----------------- ------------------
AMORTIZED FAIR Amortized Fair
COST VALUE Cost Value
--------- ------- --------- --------
Due within one year ................. $ 44 $ 91 $ -- $ --
Due after one year through five years 8,050 8,025 5,320 5,371
------ ------ ------ ------
$8,094 $8,116 $5,320 $5,371
====== ====== ====== ======
Maturities of investment securities classified as held-to-maturity were as
follows at June 30, 2002 and 2001:
JUNE 30, 2002 June 30, 2001
--------------- -----------------
AMORTIZED FAIR Amortized Fair
COST VALUE Cost Value
------ ------ --------- ------
Due within one year ................. $ 618 $ 630 $1,750 $1,750
Due after one year through five years -- -- -- --
------ ------ ------ ------
$ 618 $ 630 $1,750 $1,750
====== ====== ====== ======
NOTE 4: ACCOUNTS RECEIVABLE
At June 30, 2002 and 2001, accounts receivable were as follows:
JUNE 30, June 30,
2002 2001
-------- --------
Trade (note 19) ........................ $ 20,737 $ 25,644
Other .................................. 1,453 2,015
-------- --------
22,190 27,659
llowance ............................... (949) (381)
-------- --------
$ 21,241 $ 27,278
======== ========
NOTE 5: INVENTORIES
At June 30, 2002 and 2001, inventories, net of reserves, were as follows:
JUNE 30, June 30,
2002 2001
------- --------
Raw materials and manufactured parts .... $18,695 $20,359
Work in process ......................... 8,477 5,674
Finished goods .......................... 179 1,308
------- -------
27,351 27,341
Reserve ................................. (3,739) (3,080)
------- -------
$23,612 $24,261
======= =======
F-13
NOTE 6: COSTS IN EXCESS OF BILLINGS
Revenues from certain automation projects were accounted for under the
percentage-of-completion method using total project costs incurred to date in
relation to estimated total costs of the contracts to measure the stage of
completion. The cumulative effects of revisions of estimated total contract
costs and revenues were recorded in the period in which the facts became known.
The differences between amounts billed and revenue recognized is shown as costs
in excess of billings on the accompanying balance sheets.
Totals of revenue earned and billings issued on uncompleted contracts as of June
30, 2001 were as follows:
Revenue recognized to date ............................ $ 50,529
Billings to date ...................................... 48,727
--------
$ 1,802
========
As a result of the sale of the Company's Automation Systems Group in Longmont,
Colorado, there were no outstanding projects accounted for under the
percentage-of-completion method as of June 30, 2002.
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Costs of additions,
replacements and improvements are capitalized and depreciated over a range of
3-40 years. Maintenance and repairs are charged to expense as incurred.
Management evaluates, on an ongoing basis, the carrying value of its property,
plant and equipment and makes adjustments when impairments are identified. At
June 30, 2002 and 2001, property, plant and equipment, at cost, were as follows:
JUNE 30, June 30,
2002 2001
--------- --------
Land .................................... $ 3,822 $ 3,778
Building ................................ 25,252 9,199
Machinery, equipment and office furniture 47,640 31,101
Leasehold improvements .................. 237 625
Construction in progress ................ 2,878 23,849
-------- --------
79,829 68,552
Less accumulated depreciation .......... (24,784) (21,077)
-------- --------
$ 55,045 $ 47,475
======== ========
NOTE 8: GOODWILL AND OTHER INTANGIBLES
The cost of goodwill and other intangible assets is amortized on a straight-line
basis, which ranges from 4 to 20 years. Management evaluates, on an ongoing
basis, the carrying value of its goodwill and other intangible assets and makes
adjustments when impairments are identified. Goodwill and other intangibles,
net, at June 30, 2002 and 2001 were as follows:
F-14
JUNE 30, June 30,
2002 2001
------- -------
Goodwill and other intangibles ............ $ 8,329 $ 7,726
Accumulated amortization .................. (3,822) (2,859)
------- -------
$ 4,507 $ 4,867
======= =======
NOTE 9: BANK LINE OF CREDIT
The Company has a $3,000 unsecured bank line of credit with interest at LIBOR
plus 60 basis points (approximately 2.4% at June 30, 2002). The line of credit
is available through November 21, 2002. At June 30, 2002 and 2001, no amounts
were outstanding under the bank line of credit.
NOTE 10: LONG-TERM DEBT
In May 2001 the Company entered into a mortgage on the newly constructed
facility located in Westborough, Massachusetts. The mortgage amount was $12,560
at an interest rate of LIBOR plus a variable interest rate of 1% to 1.5%, which
was based on a pricing grid related to a certain debt ratio and adjusted
quarterly. The mortgage agreement contains financial covenants which, among
others, relate to debt service and consolidated debt ratios. In June 2002, the
mortgage agreement was amended to revise the financial covenants and adjust the
variable interest rate pricing grid, such that the variable interest rate can
fluctuate between 1% and 2.5% based on the debt ratio. At June 30, 2002, the
LIBOR plus variable rate was 4.3%. The mortgage is amortizing on a 15-year
schedule requiring level monthly principal and interest payments and is payable
in full in May 2007. The Company made interest only payments through February
2002. As of June 30, 2002, long-term debt was $11,374 with a current portion of
long-term debt of $837. Principal payments for fiscal years 2003-2006 will be
$837 annually and the principal payment for the fiscal year 2007 will be $8,862,
including a balloon payment of $8,164 due in May 2007.
In conjunction with the mortgage, the Company entered into a $12,560 notional
principal interest rate swap that effectively converted the variable rate
LIBOR-based payments to a fixed rate of 6% for the duration of the mortgage. In
addition, the variable interest rate based on a pricing grid related to a
certain debt ratio will continue to be applied to the outstanding mortgage
amount. The effective interest rate at June 30, 2002 and 2001 was 8.5% and 7%,
respectively. In accordance with SFAS No. 133, as amended, the Company recorded
a liability for the present value of the increase in interest over the remaining
term of the mortgage of approximately $832. This amount, net of taxes of $317,
is reflected with a corresponding debit to the stockholders' equity of $515.
Interest payments on debt were $1,158, $107, and $6 in fiscal 2002, 2001, and
2000, respectively.
NOTE 11: LEASES
The Company leases certain manufacturing equipment and facilities under
operating leases, some of which include cost escalation clauses, expiring on
various dates through 2007. Total lease expense charged to operations was $1,603
in 2002, $1,562 in 2001, and $986 in 2000. At June 30, 2002 the minimum future
lease commitments under noncancellable leases payable over the remaining lives
of the leases were:
F-15
Minimum
Future Lease
Year ending June 30, Commitments
-------------
2003 .......................................................... $ 1,382
2004 .......................................................... 1,219
2005 .......................................................... 743
2006 .......................................................... 262
2007 .......................................................... 119
-------
Total minimum lease payments ................. $ 3,725
=======
NOTE 12: PROFIT-SHARING PLAN
The Company maintains a deferred profit-sharing plan under which substantially
all full-time employees of the Company are eligible to participate.
Profit-sharing expense for the years ended June 30, 2002, 2001, and 2000,
amounted to $0, $2,516, and $1,209, respectively. The profit-sharing plan
consists of a cash distribution and a contribution to the Company's 401(k)
program. Profit-sharing contributions are determined annually at the discretion
of the Board of Directors. The cash distribution for the years ended June 30,
2002, 2001, and 2000, amounted to $0, $930, and $709, respectively.
The Company also maintains a 401(k) tax deferred payroll deduction program and
an Employee Stock Ownership Program. Under the 401(k) program, employees may
contribute a tax-deferred amount of up to 15% of their compensation, as defined.
The Company may contribute to the 401(k) program an amount determined annually
at the discretion of the Board of Directors. The 401(k) contribution expense for
the years ended June 30, 2002, 2001, and 2000 amounted to $780, $1,586, and
$500, respectively.
As of January 1, 2001, the employees of Zygo TeraOptix have been incorporated
into the Company's 401(k) program for fiscal 2001. Prior to January 1, 2001, the
Company maintained a separate defined contribution retirement plan for the
employees of Zygo TeraOptix. The plan allowed employees to participate after
three months of employment with the Company by deferring up to 15% of their
salary on a pre-tax basis, and allowed the Company to make discretionary
contributions to the plan, which were allocated to the participants' accounts.
The Company did not make any contributions to the plan through January 1, 2001.
Under the Employee Stock Ownership Program, the Company may, at the discretion
of the Board of Directors, contribute its own stock or contribute cash to
purchase its own stock. The purchased stock's fair market value can not exceed
the maximum amount of employee stock ownership credit as determined under
Section 416 of the Internal Revenue Code. There were no purchases and no
contributions made under this program for the years ended June 30, 2002, 2001,
and 2000.
NOTE 13: STOCKHOLDERS' EQUITY
On July 31, 2000 the shareholders voted to increase the number of authorized
shares of common stock from 15 million to 40 million.
On March 7, 2001 the Company closed a secondary public offering of 2,924,500
shares of common stock including 424,500 shares sold to underwriters to cover
over-allotments. The offering price was $19 per share. The net proceeds to the
Company including the over-allotment shares, after deducting underwriting
discounts, commissions, and offering expenses totaled $51,824.
F-16
On April 11, 2001, the Company purchased 239,605 shares of its common stock from
two officers and directors, pursuant to stock purchase agreements; all at a
price per share of $20.81 (the closing price of the common stock in the public
markets on that day) for $4,986. The funding for the purchase came from cash
balances. The purpose of the purchase was to allow these two officers and
directors to satisfy their tax obligations arising from the Firefly acquisition,
in which they were principal stockholders, and to satisfy and extinguish the
margin loans they incurred to pay additional taxes, which arose from the
acquisition of Firefly. The common stock purchased is being held as treasury
stock.
NOTE 14: STOCK COMPENSATION PLANS
As of June 30, 2002, the Company has two stock-based compensation plans, which
are described below (see note 15). The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. Since all options were granted with an exercise price
equal to the fair market value on the date of the grant, no compensation cost
has been recognized for its fixed option plans. Pro forma information regarding
net income and earnings per share is required by SFAS No. 123 "Accounting for
Stock-Based Compensation," which requires that the information be determined as
if the Company has accounted for its stock options granted in fiscal years
beginning after December 15, 1994 under the fair value method of the Statement.
The fair value of options at date of grant was estimated using the Black-Scholes
model. The Company's pro forma information is as follows:
June 30, June 30, June 30,
2002(1) 2001(1) 2000
--------- --------- -----------
Pro forma net (loss) earnings $(20,629) $3,436 $(16,930)
Pro forma net (loss) earnings per share - diluted $ (1.18) $ 0.21 $ (1.35)
(1) The Company previously reported pro forma net loss of $(12,161) and pro
forma net loss per share-diluted of $(0.70) for the year ended June 30, 2002,
and pro forma net earnings of $9,952 and pro forma earnings per share-diluted of
$0.62 for the year ended June 30, 2001. In estimating the fair value of options
at the date of grant using the alternate methodology under SFAS No. 123 for
fiscal 2002, the Company utilized an unaffiliated outside service to determine
the pro forma stock option expense using the Black-Scholes model. Based, in
part, upon written material provided by this outside service, the Company
believed that this outside service provided the Company with a consolidated
dollar amount of the pro forma stock option expense for fiscal 2002, including
the unamortized portions of the pro forma stock option expense for prior fiscal
years which should have been included in the fiscal 2002 pro forma expense.
Instead, the pro forma expense amount provided by the outside service only
related to the portion of the expense for fiscal 2002 stock option grants,
without inclusion of any unamortized portions from the prior years. In addition,
with respect to the calculations for fiscal 2001, the Company internally
utilized computer software to determine the pro forma stock option expense
using the Black-Scholes model. The wrong column total erroneously was extracted
from the computer generated report. These factors resulted in the "pro forma
net (loss) earnings" and "pro forma net (loss) earnings per share, diluted"
information previously presented in note 14 for fiscal years 2002 and 2001
to be incorrect.
The fair value of these options at the date of grant was estimated with the
following weighted average assumptions of 2002, 2001 and 2000:
<Table>
<Caption>
June 30, June 30, June 30,
2002 2001 2000
--------- --------- ---------
Risk free rate of interest 4.3% 5.0% 5.9%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 76% 77% 67%
Expected life of option 4.5 years 4.8 years 5.6 years
</Table>
Weighted average fair values at date of grant for options granted during fiscal
2002, 2001, and 2000 were $7.91, $39.85, and $17.18, respectively.
The above pro forma information is based on historical activity and may not
represent future trends.
On June 26, 2001, the Board of Directors granted a warrant to purchase 25,000
shares of the Company's common stock to the Zetetic Institute, a non-profit
organization that provides assistance to the Company in connection with certain
research and development activities. The warrant has an exercise price of $18.64
per share, the closing price of the common stock on the date of the grant, and
will vest, in equal annual increments, over the four-year period following the
date of grant.
F-17
NOTE 15: STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLAN AND DATA
The Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan
permits the granting of non-qualified options to purchase a total of 4,850,000
shares (adjusted for splits) of common stock at prices not less than the fair
market value on the date of grant. There are 1,487,893 shares available under
the plan as of June 30, 2002. Options generally become exercisable at the rate
of 25% of the shares each year commencing one year after the date of grant. The
Plan, as amended, expires on September 3, 2002.
JUNE 30, 2002
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------- -------------
Outstanding at beginning of year 1,778,308 $ 50.223
Granted ........................ 325,075 $ 12.870
Exercised ...................... (2,125) $ 10.425
Expired or canceled ............ (150,539) $ 44.774
---------- -----------
Outstanding at end of year ..... 1,950,719 $ 44.527
========== ===========
June 30, 2001
---------------------------
Weighted
Average
Shares Exercise Price
----------- ---------------
Outstanding at beginning of year 798,299 $ 10.020
Granted ........................ 1,386,436 $ 61.810
Exercised ...................... (347,463) $ 3.508
Expired or canceled ............ (58,964) $ 58.527
---------- -----------
Outstanding at end of year ..... 1,778,308 $ 50.223
========== ===========
June 30, 2000
---------------------------
Weighted
Average
Shares Exercise Price
------------ ---------------
Outstanding at beginning of year 1,245,299 $ 7.228
Granted ........................ 182,650 $ 23.139
Exercised ...................... (519,200) $ 7.215
Expired or canceled ............ (110,450) $ 13.240
---------- -----------
Outstanding at end of year ..... 798,299 $ 10.020
========== ===========
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AND DATA
The Zygo Corporation Amended and Restated Non-Employee Director Stock Option
Plan permits the granting of non-qualified options to purchase a total of
620,000 shares (adjusted for splits) of common stock at prices not less than the
fair market value on the date of grant. Under the terms of the Plan, as amended
on September 24, 1999, each new non-employee director (other than a person who
was previously an employee of the Company or any of its subsidiaries) is granted
an option to purchase 8,000 shares of Common stock, generally, on his or her
first day of service as a non-employee director; and each other non-employee
director is granted an option to purchase 3,000 shares of Common stock on an
annual basis. All options are fully exercisable on the date of grant and have a
10-year term. The Plan, as amended, will expire on November 17, 2009. There are
89,000 shares available under the plan as of June 30, 2002.
F-18
JUNE 30, 2002
------------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
Outstanding at beginning of year ............. 182,000 $13.996
Granted ...................................... 23,000 $16.276
Exercised .................................... (10,000) $ 2.000
Expired or canceled .......................... -- $ --
-------- -------
Outstanding at end of year ................... 195,000 $14.880
======== =======
June 30, 2001
--------------------------------
Weighted
Average
Shares Exercise Price
------------ ----------------
Outstanding at beginning of year ............. 249,000 $ 5.792
Granted ...................................... 23,000 $55.873
Exercised .................................... (90,000) $ 2.000
Expired or canceled .......................... -- $ --
-------- -------
Outstanding at end of year ................... 182,000 $13.996
======== =======
June 30, 2000
-------------------------------
Weighted
Average
Shares Exercise Price
------------ -----------------
Outstanding at beginning of year ............. 450,000 $ 6.229
Granted ...................................... 15,000 $17.250
Exercised .................................... (216,000) $ 7.498
Expired or canceled .......................... -- $ --
--------- -------
Outstanding at end of year ................... 249,000 $ 5.792
========= =======
The following table summarizes information about all fixed stock options
outstanding at June 30, 2002:
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------------
Number Weighted Average
Range of Outstanding Remaining Weighted Number Weighted
Exercise as of Contractual Average Exercisable as of Average
Prices June 30, 2002 Life Exercise Price June 30, 2002 Exercise Price
------------------- ------------ ------------- -------------- ----------------- --------------
$ 1.92 - $ 2.00 ... 175,124 2.1 $ 2.00 175,124 $ 2.00
$ 7.44 - $11.10 ... 212,300 6.4 $ 10.16 144,652 $ 10.25
$11.40 - $17.10 ... 335,950 8.8 $ 12.92 36,200 $ 13.73
$17.18 - $24.56 ... 463,346 8.5 $ 18.93 164,434 $ 18.80
$26.38 - $39.13 ... 69,970 6.4 $ 29.73 44,630 $ 28.80
$40.38 - $58.75 ... 80,265 8.2 $ 45.21 37,210 $ 45.09
$60.75 - $90.81 ... 808,764 8.1 $ 84.59 223,951 $ 84.46
- ----------------------- --------- --- --------- ------- ---------
$ 1.92 - $90.81 ... 2,145,719 7.6 $ 41.82 826,201 $ 33.04
======================= ========= === ========= ======= =========
As discussed in Note 2, the Company recorded approximately $12,024 of additional
compensation expense to reflect the derived fair market value of certain Firefly
stock options, which were exercised by Firefly employees in connection with the
exchange of Firefly capital stock and stock options for the Company's common
stock. No Firefly options have been included in the tables above because all
Firefly options were exercised and converted to the Company's common shares in
connection with the merger.
F-19
NOTE 16: EMPLOYEE STOCK PURCHASE PLAN
In November 2000, the Company adopted a non-compensatory Employee Stock Purchase
Plan ("ESPP"). Under the ESPP, employees of the Company who elect to participate
have the ability to purchase common stock at a 15% discount from the market
value of such stock. The ESPP permits an enrolled employee to make contributions
to purchase shares of common stock by having withheld from his or her salary an
amount between 1% and 10% of compensation. The total number of shares of common
stock that may be issued under the ESPP is approximately 500,000. At June 30,
2002 and 2001, the Company had withheld $532 and $613, respectively, for
purchase of shares under this plan; and in July 2002 and 2001, issued
approximately 64,000 and 32,000, respectively, shares of common stock.
NOTE 17: INCOME TAXES
The components of income tax expense (benefit) for each year are as follows:
Fiscal Year Ended June 30,
-----------------------------
2002 2001 2000
-------- ------- -------
Currently payable:
Federal ....................... $(3,118) $ -- $ 1,136
State ......................... 4 -- (71)
Foreign ....................... 798 1,008 604
------- ------- -------
$(2,316) $ 1,008 $ 1,669
======= ======= =======
Deferred:
Federal ....................... $(3,859) $ 2,328 $(3,051)
State ......................... (725) 118 (77)
Foreign ....................... -- -- --
------- ------- -------
$(4,584) $ 2,446 $(3,128)
------- ------- -------
Total income tax (benefit) expense $(6,900) $ 3,454 $(1,459)
======= ======= =======
Income tax refunds, net of payments, amounted to $149, $1,979, and $2,539 in
fiscal 2002, 2001, and 2000, respectively.
The total income tax expense (benefit) differs from the amount computed by
applying the applicable U.S. federal income tax rate of 35% in each of the
fiscal years 2002, 2001, and 2000 to earnings before income taxes for the
following reasons:
F-20
Fiscal Year Ended June 30,
------------------------------
2002 2001 2000
------- ------- --------
Computed "expected" tax expense
(benefit) .................................. $(6,355) $ 5,143 $(5,886)
Increases (reductions) in taxes resulting from:
Acquisition-related charges ............... (72) (1,112) 4,329
State taxes, net of federal
income tax benefit ...................... (1,787) (331) (96)
Tax exempt interest income ................ (29) (43) (15)
Export tax incentives ..................... -- (254) (300)
Change in Valuation Allowance ............. 1,987 619 --
Research Credit ........................... (1,358) (1,114) (300)
Other, net ................................ 714 546 809
------- ------- -------
$(6,900) $ 3,454 $(1,459)
======= ======= =======
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of June 30, 2002 and
2001 are presented below:
JUNE 30, June 30,
2002 2001
--------- ----------
Deferred tax assets:
Accounts receivable .................... $ 358 $ 143
Accrued liabilities .................... 1,965 610
Inventory valuation .................... 1,066 1,492
One-time charges ....................... 1,725 1,943
Intangibles ............................ 262 96
Federal and state NOLs and credits ..... 26,207 17,486
Other .................................. 46 --
-------- --------
31,629 21,770
Less valuation allowance ............... 3,803 1,653
-------- --------
Deferred tax asset ..................... 27,826 20,117
-------- --------
Deferred tax liabilities:
Prepaid expenses ....................... (208) (92)
Plant and equipment .................... (2,731) (111)
Unrealized gain on marketable securities (7) (19)
-------- --------
Deferred tax liability ................. (2,946) (222)
-------- --------
Net deferred tax asset .................... $ 24,880 $ 19,895
======== ========
The net current deferred tax assets and net non-current deferred tax assets as
recorded on the balance sheet as of June 30, 2002 and 2001 are as follows:
JUNE 30, June 30,
2002 2001
------- --------
Net current deferred tax asset ............... $ 4,899 $ 4,076
Net noncurrent deferred tax asset ............ 19,981 15,819
------- -------
Net deferred tax asset ....................... $24,880 $19,895
======= =======
F-21
The Company has recorded a valuation allowance to reflect the uncertainty of
realizing certain state net operating loss and credit carryforwards. The
valuation allowance as of June 30, 2001 was $1,653. The net change in the total
valuation allowance for the year ended June 30, 2002 was an increase of $2,150.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of June 30, 2002 will be allocated as follows:
Income tax benefit ................ $ 1,987
Additional paid-in capital ........ 163
-------
$ 2,150
Management believes it is more likely than not that the remaining net deferred
tax assets of $24,880 will be realized as the results of future operations are
expected to generate sufficient taxable income to do so.
The deferred tax provision for 2002 does not reflect tax benefits of ($328)
allocated to other comprehensive income and ($73) allocated to paid in capital.
At June 30, 2002, the Company's share of the cumulative undistributed earnings
of foreign subsidiaries was $991. No provision has been made for U.S. or
additional foreign taxes on the undistributed earnings of foreign subsidiaries
because the Company intends to continue to reinvest these earnings.
Determination of the amount of unrecognized deferred tax liability associated
with these earnings is not practicable.
At June 30, 2002, the Company has federal and state net operating loss
carryforwards of approximately $45,405 and $73,089, respectively, and various
state credit carryforwards of $3,175, which are available to reduce income taxes
in various jurisdictions through 2022. The Company also has a federal general
business credit carryforward of approximately $4,592, which is available to
reduce federal taxable income, if any, through 2022. In addition, the Company
has alternative minimum tax credit carryforwards of approximately $206 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
NOTE 18: SEGMENT REPORTING
The Company has adopted the SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FASB No. 131 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 SFAS No. 131.
The Company operates in three principal business segments globally:
Semiconductor, Industrial, and Telecommunications. For fiscal 2000, the Company
operated in one segment, as a world leader in metrology, process control, and
yield solutions servicing high precision industries. Substantially all of the
Company's operating results, assets, depreciation, and amortization are U.S.
based. The segment data is presented below in a manner consistent with
management's internal measurement of the business.
F-22
Fiscal Year Ended June 30, 2002
----------------------------------------------------------------------------
Semiconductor Industrial Telecommunications Total
------------- ------------ ------------------ ------------
Sales .............................. $37,483 $40,336 $ 6,607 $ 84,426
Gross Profit ....................... 9,909 16,882 (1,995) 24,796
Gross Profit as a % Sales .......... 26% 42% (30)% 29%
Fiscal Year Ended June 30, 2001
----------------------------------------------------------------------------
Semiconductor Industrial Telecommunications Total
-------------- -------------- -------------------- -----------
Sales .............................. $84,561 $35,178 $13,511 $133,250
Gross Profit ....................... 38,737 15,969 6,463 61,169
Gross Profit as a % Sales .......... 46% 45% 48% 46%
The total gross profit and the Semiconductor segment gross profit for the fiscal
year ended June 30, 2002 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.
Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than 19% of
total Company sales for each of the years ended June 30, 2002, 2001, and 2000
(see note 19). No other individual customer accounted for more than 10% of total
Company sales for any year presented in the accompanying consolidated financial
statements. Substantially all of the Company's operating results, assets,
depreciation, and amortization are U.S. based. The Company's sales are noted
below.
Sales by geographic area were as follows:
Fiscal Year Ended June 30,
--------------------------------------
2002 2001 2000
-------- -------- --------
Americas (primarily United States) ................ $ 41,040 $ 68,299 $ 48,835
Far East:
Japan .......................................... 21,268 45,194 17,588
Pacific Rim .................................... 8,054 7,423 11,714
-------- -------- --------
Total Far East .................................... $ 29,322 $ 52,617 $ 29,302
Europe and Other (primarily Europe) ............... 14,064 12,334 9,106
-------- -------- --------
Total ............................................. $ 84,426 $133,250 $ 87,243
======== ======== ========
F-23
NOTE 19: 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 $17,636 (21% of net sales), $43,336 (33% of net sales), and $16,463
(19% of net sales), for the years ended June 30, 2002, 2001, and 2000,
respectively. Selling prices of products sold to Canon Inc. and Canon Sales Co.,
Inc. are based, generally, on the normal terms given to distributors. At June
30, 2002 and 2001, there was approximately, in the aggregate, $2,683 and $3,827,
respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co.,
Inc.
On April 11, 2001, the Company purchased 239,605 shares of its common stock from
two officers and directors for $4,986 (see note 13).
NOTE 20: MATERIAL CONTRACTS
In May 1997, the Company entered into a contract with the University of
California's Lawrence Livermore National Laboratory ("LLNL"), whereby the
Company will be a primary supplier of large plano optical components for the
National Ignition Facility ("NIF"). In April 2001 and January 2002, the Company
entered into related contracts with LLNL to supply additional optical components
to NIF. Revenues under the NIF contract, which is presently a fixed price
contract, are recorded as deliveries are made. Revenues recognized in fiscal
2002, 2001, and 2000 amounted to $3,834, $3,308, and $2,802, respectively.
During fiscal year 1999, the Company entered into an agreement with IBM, which
allows for marketing and servicing rights for its Atomic Force Microscope (AFM)
line of business for a four-year period. The Company made payments totaling
$2,250 to secure this relationship, which are being amortized over four years or
less.
On March 28, 2000, the Company entered into an agreement to terminate the
distribution agreement to market and sell AFM products. As part of the
agreement, the Company was granted a nonexclusive license to the IBM AFM
technology for the next three years and may continue to license the technology
for additional terms thereafter. The Company and Veeco Corporation, which
subsequently entered into the distribution agreement with IBM, have entered into
an additional agreement for support and service of AFM products previously sold
by the Company. As a result of this agreement, the Company's AFM sales and
service department was discontinued.
F-24
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands except per share amounts)
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
-------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, (1) MARCH 31, JUNE 30, (1)
------------- ---------------- --------- --------------
Net sales ............................. $ 20,956 $ 19,006 $ 21,298 $ 23,166
Gross profit .......................... $ 7,025 $ 4,678 $ 6,282 $ 6,811
Loss before taxes and minority interest $ (3,711) $ (4,737) $ (5,851) $ (3,858)
Income tax benefit .................... 1,410 1,800 2,223 1,467
Minority interest ..................... 70 82 94 230
-------- -------- -------- --------
Net loss .............................. $ (2,371) $ (3,019) $ (3,722) $ (2,621)
======== ======== ======== ========
Net loss per share:
Basic (2) .......................... $ (0.14) $ (0.29) $ (0.21) $ (0.15)
======== ======== ======== ========
Diluted (2) ........................ $ (0.14) $ (0.29) $ (0.21) $ (0.15)
======== ======== ======== ========
For the Fiscal Year Ended June 30, 2001
-----------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ ---------- ---------
Net sales ................................. $23,932 $32,731 $38,717 $37,870
Gross profit .............................. $ 9,969 $13,611 $19,489 $18,100
Earnings before taxes and minority interest $ 1,379 $ 3,063 $ 5,055 $ 5,198
Income taxes .............................. 469 1,041 1,719 225
Minority interest ......................... 93 117 129 243
------- ------- ------- -------
Net earnings .............................. $ 817 $ 1,905 $ 3,207 $ 4,730
======= ======= ======= =======
Net earnings per share:
Basic (2) (3) .......................... $ 0.06 $ 0.13 $ 0.21 $ 0.27
======= ======= ======= =======
Diluted (2) (3) ........................ $ 0.05 $ 0.13 $ 0.20 $ 0.26
======= ======= ======= =======
- ----------
(1) Loss includes the gain on sale of the Automation Systems Group of $6,142
and related exit costs of $1,856, inventory write-downs of $808, and tax
expense of $1,322 in the second and fourth quarters ended December 31, 2001
and June 30, 2002, 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.
(3) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 909, 764, 440, and 547 for fiscal 2001 quarters
ended September 30, December 31, March 31, and June 30, respectively.
F-25
INDEPENDENT AUDITORS' REPORT ON SCHEDULE II
The Board of Directors
Zygo Corporation
Under date of August 16, 2002, we reported on the consolidated balance sheets of
Zygo Corporation and subsidiaries as of June 30, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2002 as contained in
the 2002 annual report to stockholders. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Hartford, Connecticut
August 16, 2002
S-1
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 2002, 2001, AND 2000
(Thousands of dollars)
Balance Balance
at Beginning at End
Description of Period Provision Write-Offs of Period
- ----------- ------------- --------- ---------- ---------
YEAR ENDED JUNE 30, 2002:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS ....................... $ 381 $ 599 $ 31 $ 949
INVENTORY RESERVE ................ $3,080 $ 842 $ 183 $3,739
VALUATION ALLOWANCE ON NET
DEFERRED TAX ASSETS .............. $1,653 $2,150 $ -- $3,803
Year Ended June 30, 2001:
Allowance for Doubtful
Accounts ....................... $234 $ 246 $ 99 $ 381
Inventory Reserve ................ $2,846 $ 312 $ 78 $3,080
Valuation allowance on net
Deferred tax assets .............. $ -- $1,653 $ -- $1,653
Year Ended June 30, 2000:
Allowance for Doubtful
Accounts ....................... $1,324 $ 70 $1,160 $ 234
Inventory Reserve ................ $4,513 $ (24) $1,643 $2,846
Valuation allowance on net
Deferred tax assets .............. $ -- $ -- $ -- $ --
S-2
EXHIBIT INDEX
EXHIBIT
TABLE FORM 10K
NUMBER PAGE NUMBER
------ -----------
23. Accountants' Consent
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as................................. 'SS'
The greater-than-or-equal-to sign shall be expressed as.................. >=