UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 28, 2003
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to ___________
Commission File Number 0-12944
Zygo Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0864500
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Laurel Brook Road, Middlefield, Connecticut 06455
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(Address of principal executive offices) (Zip Code)
(860) 347-8506
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Registrant's telephone number, including area code
N/A
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(Former name, former address, and former fiscal year, if changed from
last report)
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
17,562,712 shares of Common Stock, $.10 Par Value, at May 02, 2003
EXPLANATORY NOTE
Zygo Corporation is filing this Quarterly Report on Form 10-Q/A for the quarter
ended March 28, 2003 in order to revise pro forma information appearing in Note
1 -- "Stock Compensation Plans," to Consolidated Financial Statements. The
Company's Consolidated Statements of Operations and Cash Flows, and Consolidated
Balance Sheets for all periods presented were reported accurately. The revised
pro forma information in Note 1 does not affect any previously reported
historical operating results of the Company. As indicated in Note 1, 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
earnings (loss) and pro forma net earnings (loss) per share included in Note 1
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 each of the three months and
nine months ended March 28, 2003 and March 31, 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 each period, including
the unamortized portions of the pro forma stock option expense from applicable
prior periods, which should have been included in the fiscal 2003 and 2002 pro
forma expense. Instead, the pro forma expense amounts provided by the outside
service only related to the portion of the expense for each of these three and
nine month periods in fiscal 2002 and 2003, without inclusion of any unamortized
portions from the applicable prior periods. This resulted in the pro forma
information presented in Note 1 to Consolidated Financial Statements to be
incorrect.
The revised pro forma net loss for the three months and nine months ended March
28, 2003 is $(612,000) and $(15,100,000), respectively, as compared to pro forma
net earnings originally reported of $370,000 and a pro forma net loss originally
reported of $(11,574,000). The revised pro forma fully diluted loss per share
for the three months and nine months ended March 28, 2003 is $(0.03) and
$(0.86), respectively, as compared to pro forma fully diluted earnings per share
originally reported of $0.02 and a pro forma fully diluted loss per share
originally reported of $(0.66).
The revised pro forma net loss for the three months and nine months ended March
31, 2002 is $(6,001,000) and $(15,936,000), respectively, compared to
$(3,866,000) and $(9,398,000) as originally reported; and the revised pro forma
fully diluted loss per share for the three months and nine months ended March
31, 2002 is $(0.34) and $(0.92), respectively, compared to $(0.22) and $(0.54)
as originally reported.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended,
the complete text of Item 1 of Form 10-Q as revised is presented in this filing.
Other than changes to the pro forma information in Note 1, no other revisions
have been made to Item 1 of this Quarterly Report on Form 10-Q/A from the Form
10-Q originally filed with the Commission for the third quarter of fiscal 2003.
This amendment does not reflect events occurring after the filing of the
original quarterly report on Form 10-Q.
2
PART I - Financial Information
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands, except per share amounts)
Three Months Ended Nine Months Ended
--------------------- ------------------------
March 28, March 31, March 28, March 31,
2003 2002 (1) 2003 2002 (1)
--------- --------- --------- ---------
Net sales
Products $22,450 $20,185 $ 62,003 $ 57,757
Development services 6,560 -- 13,726 --
------- -------- -------- --------
29,010 20,185 75,729 57,757
------- -------- -------- --------
Cost of goods sold
Products 14,250 13,162 38,906 38,537
Development services 5,258 -- 10,960 --
------- -------- -------- --------
19,508 13,162 49,866 38,537
------- -------- -------- --------
Gross profit 9,502 7,023 25,863 19,220
Selling, general, and administrative expenses 5,716 6,022 16,470 17,380
Research, development, and engineering expenses 2,510 4,457 8,696 14,262
Amortization of intangibles -- 185 104 555
Exit costs for Automation Systems Group -- -- -- 1,920
------- -------- -------- --------
Operating profit (loss) 1,276 (3,641) 593 (14,897)
------- -------- -------- --------
Gain on sale of Automation Systems Group -- -- -- 6,117
Other income (expense):
Interest income 220 281 712 1,124
Miscellaneous income (expense), net (108) 74 (275) (106)
------- -------- -------- --------
Total other income 112 355 437 1,018
------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes and minority interest 1,388 (3,286) 1,030 (7,762)
Income tax (expense) benefit (515) 1,446 (384) 3,449
Minority interest 93 94 324 246
------- -------- -------- --------
Earnings (loss) from continuing operations 780 (1,934) 322 (4,559)
------- -------- -------- --------
Discontinued TeraOptix operations, net of tax (338) (1,788) (2,482) (4,553)
Charges and related adjustments on the disposal of
TeraOptix, net of tax 39 -- (9,079) --
------- -------- -------- --------
Loss from discontinued operations (299) (1,788) (11,561) (4,553)
------- -------- -------- --------
Net earnings (loss) $ 481 $(3,722) $(11,239) $ (9,112)
======= ======== ======== ========
Basic -- Earnings (loss) per share:
Continuing operations $ 0.04 $ (0.11) $ 0.02 $ (0.26)
Discontinued operations (0.01) (0.10) (0.66) (0.26)
------- -------- -------- --------
Net earnings (loss) $ 0.03 $ (0.21) $ (0.64) $ (0.52)
======= ======== ======== ========
Diluted--Earnings (loss) per share:
Continuing operations $ 0.04 $ (0.11) $ 0.02 $ (0.26)
Discontinued operations (0.01) (0.10) (0.66) (0.26)
------- -------- -------- --------
Net earnings (loss) $ 0.03 $ (0.21) $ (0.64) $ (0.52)
======= ======== ======== ========
Weighted average shares outstanding:
Basic 17,560 17,434 17,527 17,404
======= ======== ======== ========
Diluted 17,738 17,434 17,527 17,404
======= ======== ======== ========
(1) The consolidated statements of operations for the three and nine
month-periods ended March 31, 2002 have been reclassified to conform with
the current period presentations of the loss from discontinued operations.
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
(Thousands)
March 28, 2003 June 30, 2002
(Unaudited)
--------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 35,321 $ 28,513
Restricted cash -- 1,225
Marketable securities 11,057 8,734
Receivables 19,405 21,241
Income tax receivable 2,072 --
Inventories 19,238 23,612
Prepaid expenses 857 1,444
Deferred income taxes 4,579 4,899
Assets of discontinued unit held for sale 11,919 --
-------- --------
Total current assets 104,448 89,668
Property, plant, and equipment, net 26,053 55,045
Deferred income taxes 25,756 19,981
Intangible assets, net 5,010 4,507
-------- --------
Total assets $161,267 $169,201
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 11,583 $ 837
Accounts payable 6,922 5,020
Progress payments received from customers 3,503 368
Accrued salaries and wages 3,475 3,451
Other accrued liabilities 4,167 5,132
Income taxes payable -- 929
-------- --------
Total current liabilities 29,650 15,737
Long-term debt, excluding current portion -- 11,374
Other long-term liabilities 1,026 1,115
Minority interest 1,026 970
-------- --------
Total liabilities 31,702 29,196
-------- --------
Stockholders' equity:
Common Stock, $.10 par value per share:
40,000 shares authorized;
18,009 shares issued (17,892 at June 30, 2002)
17,562 shares outstanding (17,445 at June 30, 2002) 1,801 1,789
Additional paid-in capital 138,172 137,390
Retained earnings (accumulated deficit) (3,258) 7,981
Accumulated other comprehensive income (loss):
Currency translation effects (1,062) (1,369)
Net unrealized loss on swap agreement (832) (515)
Net unrealized gain on marketable securities 31 16
-------- --------
134,852 145,292
Less treasury stock of 447 common shares, at cost: 5,287 5,287
-------- --------
Total stockholders' equity 129,565 140,005
-------- --------
Total liabilities and stockholders' equity $161,267 $169,201
======== ========
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands)
Nine Months Ended
-------------------------------
March 28, 2003 March 31, 2002
-------------- --------------
Cash provided by (used for) operating activities:
Net loss $ (11,239) $ (9,112)
Adjustments to reconcile net loss to cash
provided by (used for) operating activities:
Loss from discontinued operations 11,561 4,553
Depreciation and amortization 4,277 4,577
Gain on sale of Automation Systems Group -- (6,117)
Loss on disposal of assets 740 435
Deferred income taxes 234 (1,754)
Non-cash compensation charges related to stock options 57 64
Changes in operating accounts:
Receivables 230 3,017
Costs in excess of billings -- (1,772)
Inventories 3,559 29
Prepaid expenses 567 (15)
Accounts payable and accrued expenses 3,794 (5,531)
Minority interest 324 246
-------- --------
Net cash provided by (used for) continuing operations 14,104 (11,380)
Net cash used for discontinued operations (4,522) (3,578)
-------- --------
Net cash provided by (used for) operating activities 9,582 (14,958)
-------- --------
Cash used for investing activities:
Additions to property, plant, and equipment (3,446) (8,381)
Investment in marketable securities (5,019) (7,512)
Investments in other assets (893) (303)
Proceeds from sale of Automation Systems Group, net of cash sold -- 12,077
Interest and restricted cash from sale of Automation Systems Group 1,225 (1,221)
Proceeds from the sale or maturity of marketable securities 2,696 5,998
-------- --------
Net cash provided by (used for) continuing operations (5,437) 658
Net cash provided by (used for) discontinued operations 2,822 (6,826)
-------- --------
Net cash used for investing activities (2,615) (6,168)
-------- --------
Cash provided by financing activities:
Employee stock purchase 731 1,098
Exercise of employee stock options 6 23
Dividend payments to minority interest (268) (131)
Issuance and repurchase of common stock - (270)
-------- --------
Net cash provided by continuing operations 469 720
Net cash used for discontinued operations (628) (140)
-------- --------
Net cash provided by (used for) financing activities (159) 580
-------- --------
Net increase (decrease) in cash and cash equivalents 6,808 (20,546)
Cash and cash equivalents, beginning of period 28,513 52,630
-------- --------
Cash and cash equivalents, end of period $ 35,321 $ 32,084
======== ========
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
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. The results of operations for the periods ended March 28,
2003 are not necessarily indicative of the results to be expected for the full
fiscal year.
The Consolidated Balance Sheet at March 28, 2003, the Consolidated Statements of
Operations for the three and nine months ended March 28, 2003 and March 31,
2002, and the Consolidated Statements of Cash Flows for the nine months ended
March 28, 2003 and March 31, 2002 are unaudited but, in the opinion of the
Company, include all adjustments, consisting only of normal recurring accruals,
necessary for a fair statement of the results of the interim periods. The
accompanying consolidated financial statements should be read in conjunction
with the financial statements and notes included in the Company's June 30, 2002
Annual Report on Form 10-K including items incorporated by reference therein.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
The following table sets forth the reconciliation of weighted average shares
outstanding and diluted weighted average shares outstanding:
Three Months Ended Nine Months Ended
--------------------------- --------------------------
March 28, March 31, March 28, March 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic weighted average shares
outstanding 17,560,000 17,434,000 17,527,000 17,404,000
Dilutive effect of stock options 178,000 -- -- --
---------- ---------- ---------- ----------
Diluted weighted average shares
outstanding 17,738,000 17,434,000 17,527,000 17,404,000
========== ========== ========== ==========
For the nine months ended March 28, 2003 and the three and nine months ended
March 31, 2002, the Company recorded net losses. Due to these net losses, stock
options to acquire 325,000 shares of common stock for the three months ended
March 31, 2002, and 181,000 shares and 327,000 shares of common stock for the
nine months ended March 28, 2003 and March 31, 2002, respectively, were excluded
from the computation of diluted earnings per share because of the anti-dilutive
effect on loss per share.
Stock Compensation Plans
As of March 28, 2003, the Company has three stock-based compensation plans,
which are described below. The Company applies Accounting Principles Board
("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 grant, no
compensation cost has been recognized for its fixed option plans. Pro forma
6
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 Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan
permitted 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. Options generally became exercisable at the
rate of 25% of the shares each year commencing one year after the date of grant.
The Plan, as amended, expired on September 3, 2002.
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.
The Zygo Corporation 2002 Equity Incentive Plan permits the granting of
incentive stock options, non-qualified stock options, or restricted stock to
purchase a total of 1,500,000 shares of common stock. The exercise price per
share of common stock covered by an option may not be less than the par value
per share on the date of grant, and in the case of an incentive stock option,
the exercise price may not be less than the fair market value per share on the
date of grant. The Plan will expire on August 27, 2012. The Board of Directors
may also amend the Plan to authorize the grant of other types of equity-based
awards, without further action by our stockholders.
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:
Three Months Ended
--------------------------------------------------------------------
REVISED ORIGINAL (1) REVISED ORIGINAL (1)
------- ------------ ------- ------------
March 28, 2003 March 28, 2003 March 31, 2002 March 31, 2002
-------------- -------------- -------------- --------------
Net earnings (loss), as reported $ 481 $ 481 $ (3,722) $ (3,722)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (1,093) (111) (2,279) (144)
------- ------ -------- ---------
Pro forma net (loss) earnings $ (612) $ 370 $ (6,001) $ (3,866)
======= ====== ======== =========
Net earnings (loss) per share
Basic - as reported $ 0.03 $ 0.03 $ (0.21) $ (0.21)
======= ====== ======== =========
Basic - pro forma $ (0.03) $ 0.02 $ (0.34) $ (0.22)
======= ====== ======== =========
Diluted - as reported $ 0.03 $ 0.03 $ (0.21) $ (0.21)
======= ====== ======== =========
Diluted - pro forma $ (0.03) $ 0.02 $ (0.34) $ (0.22)
======= ====== ======== =========
7
Nine Months Ended
---------------------------------------------------------------------------
REVISED ORIGINAL (1) REVISED ORIGINAL (1)
------- ------------ ------- ------------
March 28, 2003 March 28, 2003 March 31, 2002 March 31, 2002
-------------- -------------- -------------- --------------
Net earnings (loss), as reported $(11,239) $(11,239) $(9,112) $(9,112)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (3,861) (335) (6,824) (286)
-------- -------- -------- -------
Pro forma net (loss) earnings $(15,100) $(11,574) $(15,936) $(9,398)
======== ======== ======== =======
Net earnings (loss) per share
Basic - as reported $(0.64) $(0.64) $(0.52) $(0.52)
======== ======== ======== =======
Basic - pro forma $(0.86) $(0.66) $(0.92) $(0.54)
======== ======== ======== =======
Diluted - as reported $(0.64) $(0.64) $(0.52) $(0.52)
======== ======== ======== =======
Diluted - pro forma $(0.86) $(0.66) $(0.92) $(0.54)
======== ======== ======== =======
(1) "Original" refers to information presented in Note 1 to Consolidated
Financial Statements included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 28, 2003, previously filed with the Securities and
Exchange Commission on May 7, 2003. In estimating the fair value of options at
the date of grant using the alternative methodology under SFAS No. 123, the
Company utilized an unaffiliated outside service to determine the pro forma
stock option expense for each of the three months and nine months ended March
28, 2003 and March 31, 2002, 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 each period, including the unamortized
portions of the pro forma stock option expense from applicable prior periods
which should have been included in the fiscal 2003 and 2002 pro forma expense.
Instead, the pro forma expense amounts provided by the outside service only
related to the portion of the expense for each of these three and nine month
periods in fiscal 2003 and 2002, without inclusion of any unamortized portions
from the applicable prior periods. This resulted in the pro forma information
previously presented in Note 1 to Consolidated Financial Statements to be
incorrect.
Comprehensive Income (Loss)
The Company's total comprehensive income (loss) was as follows:
Three Month Ended Nine Months Ended
--------------------------- -----------------------------
March 28, March 31, March 28, March 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $481 $(3,722) $(11,239) $(9,112)
Unrealized gain (loss) on marketable
securities, net of tax (21) (151) 15 (122)
Unrealized gain (loss) on swap
agreement, net of tax 29 282 (317) (311)
Foreign currency translation effect,
net of tax (221) (248) 307 144
----- ------- -------- -------
Comprehensive income (loss) $ 268 $(3,839) $(11,234) $(9,401)
===== ======= ======== =======
8
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. At March 28, 2003 and June 30, 2002, inventories were as
follows:
March 28, June 30,
2003 2002
------- -------
Raw materials and manufactured parts $12,118 $15,114
Work in process 6,754 8,477
Finished goods 366 21
------- -------
$19,238 $23,612
======= =======
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Costs of additions,
replacements, and improvements are capitalized. Maintenance and repairs are
charged to expense as incurred. At March 28, 2003 and June 30, 2002, property,
plant, and equipment were as follows:
March 28, June 30,
2003 2002
------- -------
Land and land improvements $1,460 $3,822
Buildings and building improvements 9,705 25,252
Machinery, equipment, and office furniture 39,348 47,640
Leasehold improvements 167 237
Construction in progress 1,873 2,878
------- -------
52,553 79,829
Accumulated depreciation (26,500) (24,784)
------- -------
$26,053 $55,045
======= =======
Depreciation is based on the estimated useful lives ranging from 3-40 years for
the various classes of assets and is computed using the straight-line method.
During the nine months ended March 28, 2003, the Company reclassified $14,178 of
property, plant, and equipment to current assets, as assets of discontinued unit
held for sale, of which $11,919 is remaining at March 28, 2003 (See note 3).
Warranty
A limited warranty is provided on the Company's products for periods ranging
from 3-27 months and allowances for estimated warranty costs are recorded during
the period of sale. The determination of such allowances requires management to
make estimates of product return rates and expected costs to repair or replace
products under warranty. If actual return rates or repair and replacement costs,
or both, differ significantly from management's estimates, adjustments to
recognize additional expense may be required.
9
The following is a reconciliation of the beginning and ending balances of the
Company's accrued warranty liability, which is included in the "Other accrued
liabilities" line item in the Company's Consolidated Balance Sheet:
Three Months Ended Nine Months Ended
March 28, 2003 March 28, 2003
-------------- --------------
Beginning balance $1,364 $ 701
Reductions for payments made (235) (722)
Changes in accruals related to warranties issued in the
current period 162 1,098
Changes in accrual related to pre-existing warranties 54 268
------ ------
Ending Balance $1,345 $1,345
====== ======
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("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 Opinion 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. The adoption of SFAS No. 142 did not have a material effect on our results
of operations or statements of 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. The adoption of SFAS No. 143 in our fiscal 2003 did not
have a material effect on our results of operations or statements of financial
position.
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,
10
"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. See note 3 for discontinued 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 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. The adoption of SFAS No. 146 did not have a material effect on our
results of operations or statements of financial position.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees that have been
issued. The recognition provisions of FIN 45 are effective for any guarantees
issued or modified after December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material effect on our
results of operations or statements of financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure", which addresses the alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. If a company adopts the recognition provisions of SFAS
No. 148 in a fiscal year beginning before December 16, 2003, that change in
accounting principle must be reported using one of three methods: Prospective
Method, Modified Prospective Method or Retroactive Restatement Method. If a
company adopts the recognition provisions of SFAS No. 148 for fiscal years
beginning after December 15, 2003, only the Modified Prospective Method and
Retroactive Restatement Method may be used. In the absence of a single
accounting method for stock-based employee compensation, SFAS No. 148 requires
disclosure of comparable information for all companies regardless of whether,
when, or how a company adopts the fair value based method of accounting. SFAS
No. 148 is effective for fiscal years ending after December 15, 2002 and interim
periods beginning after December 15, 2002. The Company has adopted the
disclosure requirements of this SFAS.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities". In general, a variable interest entity is a corporation, partnership,
trust, or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a variable interest entity to be consolidated by a
company if that
11
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of FIN 46 did not have a
material affect on our results of operations or statements of financial
position.
NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS
On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. ("Brooks") of Chelmsford, Massachusetts in
a cash transaction for $12,165. Substantially all of the assets were sold to
Brooks and substantially all the liabilities were assumed by Brooks. The gain on
the sale was $6,117 before related exit costs of $1,920, inventory write-downs
of $808, and tax expense of $1,288. In February 2003, a final settlement on the
sale was reached, which resulted in additional charges to costs of sales of
$142.
In September 2002, the Company recognized an after-tax loss of $9,352 (net of a
tax benefit of $5,870) for the planned disposition of its TeraOptix business
unit ("TeraOptix"). The charges related to the disposal of TeraOptix consisted
of impairment charges recorded on the equipment and facility of $13,349,
estimated severance payments of $850, a write-down to fair market value of the
inventory of $650, and $373 of other costs and write-downs related to the
disposition of the remaining assets. During the second quarter of fiscal 2003,
the Company reduced reserves associated with selling costs of the equipment and
facility by $469. The remaining value of the equipment and facility of $11,919
at March 28, 2003 represents the estimated fair market value, based on
third-party appraisals, for the remaining assets to be disposed of, which is
primarily the building. The estimated fair market value is subject to future
market conditions. The assets are classified under current assets as assets of
discontinued unit held for sale. The Company is presently marketing the facility
for sale and proceeds from any sale of the facility will be used to pay down a
related mortgage loan and swap agreement, which are described below. The
mortgage loan and swap agreement have been classified as current liabilities
based on the Company's intention to pay down the debts with the sale proceeds.
The value of the facility is estimated at $11,844, which is net of estimated
selling expenses. As of March 28, 2003, the mortgage balance was $11,583 and the
swap agreement liability was $1,343. If the Company is able to sell the facility
for its estimated value, an additional $1,082 of cash on hand would be used to
pay down the related debts. Factors which could influence the actual amount of
cash used to pay the related debts include a selling price which differs from
the current estimated value, the timing of the sale of the facility, and changes
in the value of the swap agreement, which is based on financial market
conditions.
The mortgage, which has an interest rate of LIBOR plus 150 basis points
(approximately 2.8% in total at March 28, 2003), is payable in full on May 14,
2007. Interest only payments were made through February 14, 2002. The mortgage
principal is amortizing on a 15-year level amortization schedule requiring
monthly principal and interest payments through May 2007. Future mortgage
principal payments by fiscal years ended June 30 will total $209 for 2003; $837
for each year 2004-2006; and $698 for the first 10 months of 2007 with a final
payment of $8,165 in May 2007. The mortgage loan agreement contains financial
covenants, which among
12
others relate to debt service and consolidated debt ratios. As of March 28,
2003, the Company is in compliance with the financial covenants.
In conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of approximately 7% for the
duration of the mortgage. As of March 28, 2003, the market value of the
agreement is ($1,343) and is recorded as a current liability with a
corresponding charge to stockholders' equity, net of taxes.
The results and loss on disposal of the TeraOptix business unit have been
presented as separate line items in the accompanying consolidated statements of
operations as discontinued operations, net of tax, for all periods presented.
The components of cash flow from discontinued operations are as follows:
Nine Months Ended
--------------------------------
March 28, March 31,
2003 2002
------------- -------------
Cash flow from operating activities from discontinued operations:
Loss from discontinued operations $(2,482) $(4,553)
Depreciation and amortization -- 835
Deferred income taxes -- 172
Receivables 662 (95)
Income taxes (1,311) --
Inventories 165 (170)
Prepaid expenses 20 32
Accounts payable and accrued expenses (1,576) 201
------- -------
Net cash used for operating activities from discontinued operations $(4,522) $(3,578)
------- -------
Cash flow from investing activities from discontinued operations:
Additions to property, plant, and equipment $ -- $(6,826)
Proceeds from sale of assets 2,822 --
------- -------
Net cash provided by (used for) investing activities from discontinued operations $ 2,822 $(6,826)
------- -------
Cash flow from financing activities from discontinued operations:
Payment of long-term debt $ (628) $ (140)
------- -------
Net cash used for financing activities from discontinued operations $ (628) $ (140)
------- -------
NOTE 4: SEGMENT INFORMATION
FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards, using a management approach, for reporting
information regarding operating segments in annual financial statements. The
management approach designates the internal reporting that is used by the chief
operating decision-maker when making operating decisions and assessing
performance as the source of the Company's reportable segments. The Company's
president has been determined to be its chief operating decision-maker, as
defined under Statement 131.
The Company operates in two principal business segments globally: Semiconductor
and Industrial. The segment data is presented below in a manner consistent with
management's internal measurement of the business. Segment data for fiscal year
2002 periods was restated to reflect the Company's exit from the
telecommunications segment.
13
Three Months Ended Nine Months Ended
----------------------------------- --------------------------------------
March 28, March 31, March 28, March 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Semiconductor
Sales $17,793 $8,599 $44,132 $27,102
Gross profit 4,773 2,808 14,939 8,468
Gross profit as a % of sales 27% 33% 34% 31%
Industrial
Sales $11,217 $11,586 $31,597 $30,655
Gross profit 4,729 4,215 10,924 10,752
Gross profit as a % of sales 42% 36% 35% 35%
Total
Sales $29,010 $20,185 $75,729 $57,757
Gross profit 9,502 7,023 25,863 19,220
Gross profit as a % of sales 33% 35% 34% 33%
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. See note 5 for
additional information regarding sales in the semiconductor segment.
Substantially all of the Company's operating expenses, assets, and depreciation
and amortization are U.S. based. The Company's sales by geographic area were as
follows:
Three Months Ended Nine Months Ended
------------------------------------ --------------------------------
March 28, March 31, March 28, March 31,
2003 2002 2003 2002
----------------- --------------- --------------- -----------
Americas (primarily United States) $9,124 $11,356 $23,379 $30,592
Far East:
Japan 16,127 4,236 39,601 13,721
Pacific Rim 1,118 1,550 5,230 4,316
------- ------- ------- -------
Total Far East 17,245 5,786 44,831 18,037
Europe and Other (primarily Europe) 2,641 3,043 7,519 9,128
------- ------- ------- -------
Total $29,010 $20,185 $75,729 $57,757
======= ======= ======= =======
NOTE 5: 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 $15,606 (54% of net sales) and $38,640 (51% of net sales), for the
three and nine months ended March 28, 2003, respectively, as compared to $3,764
(19% of net sales) and $10,942 (19% of net sales) for the comparable prior year
periods. Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc.
are based, generally, on the terms customarily given to distributors. Revenues
generated from a development contract are recorded on a cost-plus basis. At
March 28, 2003 and June 30, 2002, there were, in the aggregate, $7,790 and
$3,849, respectively, of trade accounts receivable from Canon Inc. and Canon
Sales Co., Inc.
14
In September 2002, the Company and Canon Inc. entered into a contract related to
the development of certain interferometers. The contract currently has a value
of $29,690 and is expected to continue through June 2004, subject to meeting
certain milestones during that period. During the three and nine months ended
March 28, 2003, the Company recognized revenue in the semiconductor segment of
$6,560 and $13,726, respectively, for this contract.
15
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) None.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zygo Corporation
-------------------------------
(Registrant)
/s/ J. BRUCE ROBINSON
---------------------------------------
J. Bruce Robinson
President, Chairman, and Chief Executive Officer
/s/ RICHARD M. DRESSLER
-------------------------------------
Richard M. Dressler
Vice President, Finance, Chief Financial
Officer, and Treasurer
Date: July 14, 2003
17
CERTIFICATION OF DISCLOSURE IN REGISTRANT'S AMENDMENT TO QUARTERLY REPORT
I, J. Bruce Robinson, certify that:
1. I have reviewed this Amendment to the Quarterly Report on Form 10-Q/A
(the "Amendment to Quarterly Report") of Zygo Corporation;
2. Based on my knowledge, the Amendment to Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Amendment to Quarterly 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 Quarterly 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 Quarterly Report is being prepared;
(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 Quarterly 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
<Page>
CERTIFICATION OF DISCLOSURE IN REGISTRANT'S AMENDMENT TO QUARTERLY REPORT
I, Richard M. Dressler, certify that:
1. I have reviewed this Amendment to the Quarterly Report on Form 10-Q/A
(the "Amendment to Quarterly Report") of Zygo Corporation;
2. Based on my knowledge, the Amendment to the Quarterly 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 the Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Amendment to the Quarterly 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 the Quarterly 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 the Quarterly Report is being prepared;
(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 the Quarterly 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