UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 26, 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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Laurel Brook Road, Middlefield, Connecticut 06455
(Address of principal executive offices) (Zip Code)
(860) 347-8506
Registrant's telephone number, including area code
N/A
(Former name, former address, and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
17,858,267 shares of Common Stock, $.10 Par Value, at February 2, 2004
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form
10-Q Quarterly Report, regarding our financial position, business strategy,
plans, anticipated growth rates, and objectives of management for future
operations are forward-looking statements. Forward-looking statements are
intended to provide management's current expectations or plans for the future
operating and financial performance based upon information currently available
and assumptions currently believed to be valid. Forward-looking statements can
be identified by the use of words such as "anticipate," "believe," "estimate,"
"expect," "intend," "plans," "strategy," "project," and other words of similar
meaning in connection with a discussion of future operating or financial
performance. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors. Among the
important factors that could cause actual events to differ materially from those
in the forward-looking statements are fluctuations in capital spending in the
semiconductor industry, fluctuations in net sales to our major customer,
manufacturing and supplier risks, dependence on new product development, rapid
technological and market change, international operations, dependence on
proprietary technology and key personnel, length of the sales cycle,
environmental regulations, and changes in expected costs of discontinued
operations. Further information on potential factors that could affect our
business is described in our reports on file with the Securities and Exchange
Commission, including our Form 10-K for the fiscal year ended June 30, 2003.
2
PART I - Financial Information
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands, except per share amounts)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales
Products $23,759 $21,852 $43,571 $ 39,553
Development services 3,895 4,458 8,330 7,166
------- ------- ------- --------
27,654 26,310 51,901 46,719
------- ------- ------- --------
Cost of goods sold
Products 14,360 13,664 27,172 24,656
Development services 2,907 3,651 6,565 5,702
------- ------- ------- --------
17,267 17,315 33,737 30,358
------- ------- ------- --------
Gross profit 10,387 8,995 18,164 16,361
Selling, general, and administrative expenses 5,606 5,294 11,444 10,858
Research, development, and engineering expenses 3,310 3,188 6,619 6,186
------- ------- ------- --------
Operating profit (loss) 1,471 513 101 (683)
------- ------- ------- --------
Other income (expense):
Interest income 215 248 419 492
Miscellaneous income (expense), net 30 17 75 (167)
------- ------- ------- --------
Total other income 245 265 494 325
------- ------- ------- --------
Earnings (loss) from continuing operations
before income taxes and minority interest 1,716 778 595 (358)
Income tax (expense) benefit (674) (301) (226) 131
Minority interest (114) (87) (104) (231)
------- ------- ------- --------
Earnings (loss) from continuing operations 928 390 265 (458)
------- ------- ------- --------
Discontinued TeraOptix operations, net of tax (719) (462) (881) (2,144)
Charges on the disposal of TeraOptix, net of tax (1,193) 234 (1,193) (9,118)
------- ------- ------- --------
Loss from discontinued operations (1,912) (228) (2,074) (11,262)
------- ------- ------- --------
Net earnings (loss) $ (984) $ 162 $(1,809) $(11,720)
======= ======= ======= ========
Basic - Earnings (loss) per share:
Continuing operations $ 0.05 $ 0.02 $ 0.01 $ (0.03)
======= ======= ======= ========
Discontinued operations $ (0.10) $ (0.01) $ (0.11) $ (0.64)
======= ======= ======= ========
Net earnings (loss) $ (0.05) $ 0.01 $ (0.10) $ (0.67)
======= ======= ======= ========
Diluted - Earnings (loss) per share:
Continuing operations $ 0.05 $ 0.02 $ 0.01 $ (0.03)
======= ======= ======= ========
Discontinued operations (0.10) (0.01) (0.11) (0.64)
======= ======= ======= ========
Net earnings (loss) $ (0.05) $ 0.01 $ (0.10) $ (0.67)
======= ======= ======= ========
Weighted average shares outstanding:
Basic shares 17,785 17,511 17,732 17,510
======= ======= ======= ========
Diluted shares 18,355 17,706 18,163 17,510
======= ======= ======= ========
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Thousands of dollars, except share amounts)
December 26, 2003 June 30, 2003
----------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 21,960 $ 31,209
Marketable securities 7,682 14,929
Receivables 18,502 12,868
Inventories 21,348 18,444
Prepaid expenses 1,223 1,791
Deferred income taxes 5,701 5,179
Assets of discontinued unit held for sale 9,595 11,899
-------- --------
Total current assets 86,011 96,319
Marketable securities 6,799 6,712
Property, plant, and equipment, net 26,870 26,648
Deferred income taxes 29,049 26,364
Intangible assets, net 4,725 4,464
Other assets 1,183 561
-------- --------
Total assets $154,637 $161,068
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ -- $ 11,374
Payables 11,296 5,254
Progress payments received from customers 1,121 2,319
Accrued salaries and wages 4,196 3,612
Other accrued liabilities 3,261 5,129
Income taxes payable 1,631 1,750
-------- --------
Total current liabilities 21,505 29,438
Other long-term liabilities 434 609
Minority interest 1,030 1,161
-------- --------
Total liabilities 22,969 31,208
-------- --------
Stockholders' equity:
Common Stock, $.10 par value per share:
40,000,000 shares authorized;
18,248,680 shares issued (18,042,917, at June 30, 2003);
17,801,475 shares outstanding (17,595,712 at June 30, 2003) 1,825 1,804
Additional paid-in capital 140,277 138,333
Retained earnings (accumulated deficit) (4,398) (2,589)
Accumulated other comprehensive income (loss):
Currency translation effects (838) (1,623)
Net unrealized loss on swap agreement -- (914)
Net unrealized gain on marketable securities 89 136
-------- --------
136,955 135,147
Less treasury stock, at cost (447,205 common shares) 5,287 5,287
-------- --------
Total stockholders' equity 131,668 129,860
-------- --------
Total liabilities and stockholders' equity $154,637 $161,068
======== ========
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of dollars)
Six Months Ended
---------------------------
December 26, December 27,
2003 2002
------------ ------------
Cash provided by (used for) operating activities:
Net loss $ (1,809) $(11,720)
Adjustments to reconcile net loss to cash provided by (used for)
operating activities:
Loss from discontinued operations 2,074 11,262
Depreciation and amortization 3,018 2,923
Gain on disposal of assets 84 393
Deferred income taxes (466) (347)
Other, net 9 38
Changes in operating accounts:
Receivables (5,718) 3,466
Inventories (2,904) 1,086
Prepaid expenses 568 364
Accounts payable and accrued expenses 5,486 4,782
Minority interest 104 230
-------- --------
Net cash provided by continuing operations 446 12,477
Net cash used for discontinued operations (1,701) (2,908)
-------- --------
Net cash provided by (used for) operating activities (1,255) 9,569
-------- --------
Cash provided by (used for) investing activities:
Additions to property, plant, and equipment (3,906) (1,966)
Investment in marketable securities (2,729) (3,477)
Investments in other assets (504) (652)
Interest and restricted cash from sale of Automation Systems Group -- 707
Proceeds from the sale or maturity of marketable securities 9,830 1,600
-------- --------
Net cash provided by (used for) continuing operations 2,691 (3,788)
Net cash provided by discontinued operations -- 1,036
-------- --------
Net cash provided by (used for) investing activities 2,691 (2,752)
-------- --------
Cash provided by (used for) financing activities:
Dividend payments to minority interest (235) --
Employee stock purchase 249 441
Exercise of employee stock options 675 --
-------- --------
Net cash provided by continuing operations 689 441
Net cash used for discontinued operations (11,374) (419)
-------- --------
Net cash provided by (used for) financing activities (10,685) 22
-------- --------
Net increase (decrease) in cash and cash equivalents (9,249) 6,839
Cash and cash equivalents, beginning of period 31,209 28,513
-------- --------
Cash and cash equivalents, end of period $ 21,960 $ 35,352
======== ========
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
Zygo Corporation is a worldwide developer and supplier of high performance
metrology instruments, high precision optics, optical assemblies, and automation
for the semiconductor and industrial markets. The accompanying consolidated
financial statements include the accounts of Zygo Corporation and our
subsidiaries ("ZYGO," "we," "our," "us," or "Company"). All material
transactions and accounts with the subsidiaries have been eliminated from the
consolidated financial statements. The results of operations for the three and
six month periods ended December 26, 2003 are not necessarily indicative of the
results to be expected for the full fiscal year.
The Consolidated Balance Sheet at December 26, 2003, the Consolidated Statements
of Operations for the three and six months ended December 26, 2003 and December
27, 2002, and the Consolidated Statements of Cash Flows for the six months ended
December 26, 2003 and December 27, 2002 are unaudited but, in management's
opinion, 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 consolidated financial statements and notes included in our June 30,
2003 Annual Report on Form 10-K, including items incorporated by reference
therein.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) 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 Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Basic weighted average shares outstanding 17,785,000 17,511,000 17,732,000 17,510,000
Dilutive effect of stock options 570,000 195,000 431,000 --
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 18,355,000 17,706,000 18,163,000 17,510,000
========== ========== ========== ==========
For the six months ended December 27, 2002 we recorded a loss from continuing
operations. Due to this loss, stock options to acquire 183,000 shares of common
stock for the six months ended December 27, 2002 were excluded from the
computation of diluted earnings (loss) per share because of the anti-dilutive
effect on loss per share.
Stock Compensation Plans
As of December 26, 2003, we have two stock-based compensation plans, which are
described below. A third stock-based compensation plan expired in September
2002. We apply Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
our 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 our 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 we have
accounted for our 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-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 August 19, 2003, each new non-employee director (other than a person who was
previously an employee of ZYGO or any of our
6
subsidiaries) is granted an option to purchase 12,000 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 6,000 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
restricted stock and stock options to purchase shares of common stock up to 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. Pursuant to the terms of the Plan, 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 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 fair value of options at date of grant was estimated using the Black-Scholes
model. Our pro forma information is as follows:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income (loss), as reported $ (984) $ 162 $(1,809) $(11,720)
Deduct: Total stock-based
employee compensation
expense determined under fair
value based method for all
awards, net of related tax
effects (1,661) (1,587) (2,826) (2,768)
------- ------- ------- --------
Pro forma net loss $(2,645) $(1,425) $(4,635) $(14,488)
======= ======= ======= ========
Net income (loss) per share
Basic -- as reported $ (0.05) $ 0.01 $ (0.10) $ (0.67)
======= ======= ======= ========
Basic -- pro forma $ (0.15) $ (0.08) $ (0.26) $ (0.83)
======= ======= ======= ========
Diluted -- as reported $ (0.05) $ 0.01 $ (0.10) $ (0.67)
======= ======= ======= ========
Diluted -- pro forma $ (0.14) $ (0.08) $ (0.26) $ (0.83)
======= ======= ======= ========
7
Comprehensive Income (Loss)
Our total comprehensive income (loss) was as follows:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net loss ($984) $ 162 ($1,809) ($11,720)
Unrealized gain (loss) on marketable securities, net of tax (16) 7 (47) 36
Unrealized gain (loss) on swap agreement, net of tax 144 (25) 337 (346)
Reclassification adjustment for loss on swap agreement
included in net loss, net of tax 577 -- 577 --
Foreign currency translation effect 179 (105) 785 528
----- ----- ------- --------
Comprehensive income (loss) ($100) $ 39 ($ 157) ($11,502)
===== ===== ======= ========
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. At December 26, 2003 and June 30, 2003, inventories were as
follows:
December 26, June 30,
2003 2003
------------ --------
Raw materials and manufactured parts $11,633 $10,103
Work in process 9,114 7,816
Finished goods 601 525
------- -------
$21,348 $18,444
======= =======
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred. Management evaluates, on an ongoing basis, the
carrying value of our property, plant, and equipment and makes adjustments when
impairments are identified. Depreciation is based on the estimated useful lives
of the various classes of assets and is computed using the straight-line method.
At December 26, 2003 and June 30, 2003, property, plant, and equipment were as
follows:
Estimated
December 26, June 30, Useful Life
2003 2003 (Years)
------------ --------- ----------
Land $ 615 $ 615 --
Building and improvements 11,408 11,355 15-40
Machinery, equipment, and office furniture 38,658 39,545 3-8
Leasehold improvements 314 166 1-5
Construction in progress 4,537 2,222 --
-------- --------
55,532 53,903
Accumulated depreciation (28,662) (27,255)
-------- --------
$ 26,870 $ 26,648
======== ========
Depreciation expense for the three months ended December 26, 2003 and December
27, 2002 was $1,420 and $1,408, respectively. Depreciation expense for the six
months ended December 26, 2003 and December 27, 2002 was $2,786 and $2,755,
respectively.
8
Intangible Assets
Intangible assets include patents, trademarks, and license agreements. The cost
of intangible assets is amortized on a straight-line basis, which ranges from
4-20 years. Intangible assets, at cost, at December 26, 2003 and June 30, 2003
were as follows:
December 26, June 30,
2003 2003
------------ --------
Intangible assets $ 6,249 $ 5,775
Accumulated amortization (1,524) (1,311)
------- -------
$ 4,725 $ 4,464
======= =======
Intangible amortization expense was $111 and $98 for the three months ended
December 26, 2003 and December 27, 2002, respectively. Intangible amortization
expense was $213 and $295 for the first half of fiscal 2004 and fiscal 2003,
respectively. Amortization expense related to certain intangible assets is
included in cost of goods sold in the Consolidated Statements of Operations.
Warranty
A limited warranty is provided on our products for periods ranging from 3 to 12
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.
The following is a reconciliation of the beginning and ending balances of our
accrued warranty liability, which is included in the "Other accrued liabilities"
line item in the Consolidated Balance Sheets:
Six Months Ended
---------------------------
December 26, December 27,
2003 2002
------------ ------------
Beginning balance $ 1,215 $ 830
Reductions for payments made (1,188) (488)
Changes in accruals related to warranties
issued in the current period 1,057 935
Changes in accruals related to pre-existing
warranties 87 169
------- ------
Ending balance $ 1,171 $1,446
======= ======
Supplemental Cash Flow Information
Interest payments on debt were $500 and $500 for the six months ended December
26, 2003 and December 27, 2002, respectively. We also paid $1,109 in the second
quarter of fiscal 2004 in connection with the settlement of the interest rate
swap agreement.
Income tax payments amounted to $45 and $72 for the six months ended December
26, 2003 and December 27, 2002, respectively.
9
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("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 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 December 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 December 31, 2003,
regardless of when the variable interest entity was established. Management
believes the adoption of FIN 46 will not have a material affect on our results
of operations or financial position.
In April 2003, the FASB issued Statement of Financial Standards ("SFAS") No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," which amends and clarifies financial accounting and reporting for
derivative instruments. SFAS No. 149 became effective for us in July 2003. The
adoption of SFAS No. 149 did not have a material affect on our results of
operations or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Generally, the statement is effective for financial instruments entered into or
modified after November 5, 2003 and is otherwise effective for the beginning of
the first interim period beginning after June 15, 2003. The adoption of SFAS No.
150 did not have a material affect on our results of operations or financial
position.
The FASB's Emerging Issues Task Force ("EITF") reached a consensus on Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services, and/or rights to use assets. The
provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No.
00-21 did not have a material effect on our results of operations or financial
position.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which expands
financial statement disclosures for defined benefit plans. The change replaces
existing FASB disclosure requirements for pensions. The adoption of SFAS No. 132
(revised) did not have a material affect on our results of operations or
financial position.
10
NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS
In September 2002, we recognized an after-tax loss of $9,352, net of a tax
benefit of $5,870, for the planned disposition of our TeraOptix business unit
("TeraOptix"). The charges related to the disposal of TeraOptix consisted of
impairment charges recorded on the equipment and Westborough 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 remainder of fiscal 2003,
adjustments made to the estimated charges resulted in an overall fiscal 2003
after-tax loss of $9,652, net of a tax benefit of $5,101. In December 2003,
we took an additional impairment charge on the vacant facility of $1,193,
net of tax benefit of $1,111, reflecting the continued deterioration of the
local real estate market for this type of facility. This charge is classified as
charges on the disposal of TeraOptix, net of tax. The current estimated fair
market value of the facility is $9,595, net of selling expenses, based on a
third-party appraisal. We are presently marketing the facility and the asset is
classified under current assets as "assets of discontinued unit held for sale".
In December 2003, we paid off the remaining mortgage debt of $10,955 on the
facility. The mortgage debt had carried interest at 7.5% per annum, and required
monthly principal payments of $70, plus interest, until April 2007 and a balloon
payment of $8,200 in May 2007. In connection with the debt repayment, the
Company also paid the balance of a related interest rate swap agreement of
$1,109. This payment resulted in an additional charge to discontinued TeraOptix
operations, net of tax, of $577 in the quarter. Prior to the payment, in
accordance with SFAS No. 133, as amended, the swap liability was recorded with a
corresponding debit, net of tax, to stockholder's equity. The aggregate payment
of $12,064 on the mortgage debt and swap agreement was funded from the Company's
available cash and marketable securities.
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 TeraOptix operations, net of tax", for all periods
presented. The components of cash flow from discontinued operations are as
follows:
Six Months Ended
---------------------------
December 26, December 27,
2003 2002
------------ ------------
Cash flow from operating activities from discontinued operations:
Loss from discontinued operations $ (881) $(2,144)
Depreciation and amortization -- 379
Deferred income taxes (820) (1,120)
Receivables -- 611
Inventories -- 164
Accounts payable and accrued expenses -- (798)
-------- -------
Net cash used for operating activities from discontinued operations (1,701) (2,908)
-------- -------
Cash flow from investing activities from discontinued operations:
Proceeds from sale of assets -- 1,036
-------- -------
Net cash provided by investing activities from discontinued operations -- 1,036
-------- -------
Cash flow from financing activities from discontinued operations:
Payment of long-term debt (11,374) (419)
-------- -------
Net cash used for financing activities from discontinued operations (11,374) (419)
-------- -------
Net cash used by discontinued operations $(13,075) $(2,291)
======== =======
11
NOTE 4: SEGMENT INFORMATION
We operate 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 the six
months in fiscal year 2003 was restated to reflect our exit from the
telecommunications segment.
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Semiconductor
Sales $16,123 $15,589 $28,374 $26,339
Gross profit 5,925 5,988 9,099 10,166
Gross profit as a % of sales 37% 38% 32% 39%
Industrial
Sales $11,531 $10,721 $23,527 $20,380
Gross profit 4,462 3,007 9,065 6,195
Gross profit as a % of sales 39% 28% 39% 30%
Total
Sales $27,654 $26,310 $51,901 $46,719
Gross profit 10,387 8,995 18,164 16,361
Gross profit as a % of sales 38% 34% 35% 35%
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.
Substantially all of our operating expenses, assets, and depreciation and
amortization are U.S. based. Sales by geographic area were as follows:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Americas (primarily United States) $ 8,267 $ 7,416 $14,569 $14,255
Far East:
Japan 13,584 14,407 27,394 23,473
Pacific Rim 3,639 2,572 6,867 4,113
------- ------- ------- -------
Total Far East $17,223 $16,979 $34,261 $27,586
Europe and Other (primarily Europe) 2,164 1,915 3,071 4,878
------- ------- ------- -------
Total $27,654 $26,310 $51,901 $46,719
======= ======= ======= =======
12
NOTE 5: RELATED PARTY TRANSACTIONS
Sales to Canon Inc., one of our significant stockholders, and Canon Sales Co.,
Inc., a distributor of certain of our products in Japan and a subsidiary of
Canon Inc., amounted to $12,539 (45% of net sales) and $24,835 (48% of net
sales) for the three months and six months ended December 26, 2003, as compared
with $15,290 (58% of net sales) and $24,290 (52% of net sales) for the
comparable prior year periods. These sales include revenues generated from the
development contract referenced below. 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 the development contract are
recorded on a cost-plus basis. At December 26, 2003 and June 30, 2003, there
were, in the aggregate, $5,461 and $3,972, respectively, of trade accounts
receivable from Canon Inc. and Canon Sales Co., Inc.
In September 2002, we entered into a contract with Canon Inc. related to the
development of certain interferometers. The contract had a total value of
$29,690, which was fully billed to Canon by the end of the second quarter of
fiscal 2004. We are continuing the development work with approval from Canon,
which will result in the total contract value exceeding $30,000. During the
three months and six months ended December 26, 2003, we recognized revenue in
the semiconductor segment of $3,895 and $8,330, respectively, from this
contract.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Introduction
In September 2002, we entered into a development services agreement with Canon
Inc. We have generated a total of approximately $30 million in revenues from
this agreement, including $3.9 million and $8.3 million in the second quarter
and first half of fiscal 2004, respectively. The agreement will be substantially
complete by June 2004. At the request of Canon, we are currently negotiating the
terms of a follow-on contract. Significant revenues can be expected from any
such follow-on contract; while our period over period comparable sales will be
significantly adversely affected if we do not continue to provide these
development services.
We are encouraged by orders achieved in both the semiconductor and industrial
segments for the second quarter of fiscal 2004. Bookings in the semiconductor
segment were $20.1 million, up 21% over the first quarter of fiscal 2004, while
bookings for the industrial segment were $16.3 million, up 117% over the first
quarter of fiscal 2004. In addition, the industry forecasts show increasing
strength in calendar 2004 for capital spending in the semiconductor market,
which has traditionally been a positive indicator for our business. While we
expect continuing orders in the industrial segment from the defense and
aerospace markets, we do not expect orders of the same magnitude in the next
quarter in this segment.
During the second quarter of fiscal 2004, we also expended approximately $12.1
million to pay off the remaining mortgage on the Westborough facility and the
balance of a related interest rate swap agreement. These payments were funded
from our available cash and marketable securities. At December 26, 2003, we had
cash, cash equivalents and marketable securities totaling $36.4 million.
We discontinued our telecommunications TeraOptix business unit during fiscal
2003. Accordingly, the results of TeraOptix have been presented as a separate
line item on the Consolidated Statements of Operations as discontinued TeraOptix
operations, net of tax, for all periods presented. In addition, the charges on
the disposal of TeraOptix, net of tax, have been recorded as a separate line
item for all periods presented. All continuing operations line items presented
exclude TeraOptix results.
Continuing Operations
We recorded earnings from continuing operations for the second quarter of fiscal
2004 of $0.9 million, or $0.05 per share, as compared with $0.4 million, or
$0.02 per share, for the second quarter of fiscal 2003; earnings from continuing
operations for the six months of fiscal 2004 were $0.3 million, or $0.01 per
share, as compared with a loss of $0.5 million, or $0.03 per share, for the six
months of fiscal 2003.
13
Net sales of $27.7 million for the second quarter of fiscal 2004 increased by
$1.4 million, or 5%, over the comparable prior year period sales of $26.3
million. Sales to Canon, a related party, represented 45% of our second quarter
sales of fiscal 2004, as compared with 58% in the comparable prior year period.
Prior year sales to Canon included more metrology systems than were shipped in
the current year. This decrease was partially offset by a slight increase in
semiconductor product sales to Canon. Net sales for the second quarter of fiscal
2004 included $3.9 million from a development services agreement with Canon,
Inc., as compared with $4.5 million in the comparable prior year period. Net
sales of $51.9 million for the first six months of fiscal 2004 increased by $5.2
million, or 11%, over the comparable prior year period sales of $46.7 million.
Sales to Canon in each of the six month periods were approximately the same,
representing 48% of our six month sales in fiscal 2004, as compared with 52% in
the comparable prior year.
For the second quarter of fiscal 2004, net sales in the semiconductor segment
were $16.1 million, or 58% of total net sales, as compared with $15.6 million,
or 59% of total net sales, in the prior year period; and net sales in the
industrial segment were $11.6 million, or 42% of total net sales, as compared
with $10.7 million, or 41% of total net sales, in the prior year period. For the
first six months of fiscal 2004, net sales in the semiconductor segment were
$28.4 million, or 55% of total net sales, as compared with $26.3 million, or 56%
of total net sales; in the prior year period and net sales in the industrial
segment were $23.5 million, or 45% of total net sales, as compared with $20.4
million, or 44% of total net sales, in the prior year period. The increase in
the six month sales is primarily due to an increase in industrial sales across
all regions and an increase in semiconductor sales in the Pacific Rim.
Sales in the Americas, substantially all of which are in the United States,
amounted to $8.3 million in the second quarter of fiscal 2004, an increase of
$0.9 million, or 12%, from the second quarter of fiscal 2003 levels of $7.4
million. Sales outside the Americas amounted to $19.4 million in the second
quarter of fiscal 2004, an increase of $0.5 million, or 3%, from the second
quarter of fiscal 2003 levels of $18.9 million. Sales in Japan during the second
quarter of fiscal 2004 amounted to $13.6 million, a decrease of $0.8 million, or
6%, from the second quarter of fiscal 2003 sales levels. This decrease in sales
was offset by an increase in sales to Europe and the Pacific Rim. Europe/Other,
primarily Europe, amounted to $2.2 million, an increase of $0.3 million, or 13%,
from the second quarter of fiscal 2003. Sales in the Pacific Rim, excluding
Japan, amounted to $3.6 million, an increase of $1.0 million, or 38%, from the
second quarter of fiscal 2003 sales levels. This increase was primarily due to
the delivery of more large metrology systems, including flat panel systems, in
the six months of fiscal 2004 than in the comparable prior year period.
Sales in the Americas amounted to $14.6 million in the first half of fiscal
2004, an increase of $0.3 million, or 2%, from the first half of fiscal 2003 of
$14.3 million. Sales outside the Americas amounted to $37.3 million in the first
half of fiscal 2004, an increase of $4.9 million, or 15%, from the first half of
fiscal 2003 levels of $32.4 million. Sales in Japan during the first half of
fiscal 2004 amounted to $27.4 million, an increase of $3.9 million, or 17%, from
the first half of fiscal 2003 sales levels. Europe/Other, primarily Europe,
amounted to $3.1 million, a decrease of $1.8 million, or 37%, from the first
half of fiscal 2003. Sales in Europe continue to be impacted negatively by the
weak economy. Sales in the Pacific Rim, excluding Japan, during the first half
of fiscal 2004 amounted to $6.8 million, an increase of $2.8 million, or 68%,
from the first half of fiscal 2003 sales levels.
Sales in U.S. dollars for the three months ended December 26, 2003 were $24.4
million, or 88%, of all net sales for the period. For the first half of fiscal
2004, sales in U.S dollars were $46.3 million, or 89%. Significant changes in
the values of foreign currencies relative to the value of the U.S. dollar can
impact the sales of our products in export markets, as would changes in the
general economic conditions in those markets. For our sales which are based in
local currency, we are exposed to foreign exchange fluctuations from the time
customers are invoiced in local currency until collection occurs. The majority
of our foreign currency transactions are in euros and Japanese yen. The impact
of changes in foreign currency values on our sales cannot be measured.
Gross profit for the second quarter of fiscal 2004 totaled $10.4 million, an
increase of $1.4 million, or 16%, from $9.0 million in the second quarter of
fiscal 2003. Gross profit as a percentage of sales for the second quarters of
fiscal 2004 and 2003 were 38% and 34%, respectively. The increase in gross
profit as a percentage of sales was primarily due to an increase in industrial
segment sales in regions that generally carry a higher gross profit percentage.
Gross profit included $1.0 million for the second quarter of fiscal 2004 for the
development services agreement with Canon, Inc., as compared with $0.8 million
for the second quarter of fiscal 2003. Gross profit for the first half of fiscal
2004 totaled $18.2 million, an increase of $1.8 million, or 11%, from $16.4
million in the first half of fiscal 2003. Gross profit as a percentage of sales
for the first halves of fiscal 2004 and 2003 was 35%. Several
14
manufacturing issues which contributed to low 2004 first quarter margins were
resolved in the second quarter. We are continuing to address manufacturing
issues in order to improve our gross margins.
Selling, general and administrative expenses ("SG&A") in the second quarter of
fiscal 2004 amounted to $5.6 million, an increase of $0.3 million, or 6%, from
$5.3 million in the second quarter of fiscal 2003. As a percentage of net sales,
SG&A for the second quarter of fiscal 2004 and fiscal 2003 was 20%. For the
first half of fiscal 2004, SG&A was $11.4 million, an increase of $0.5 million,
or 5%, from $10.9 million in the first half of fiscal 2003. As a percentage of
net sales, SG&A for the first half of fiscal 2004 and fiscal 2003 was 22% and
23%, respectively. The increase in SG&A for the second quarter and first half of
fiscal 2004 is primarily due to an increase in personnel and insurance costs.
Research, development, and engineering expenses ("R&D") for the second quarter
of fiscal 2004 totaled $3.3 million, an increase of $0.1 million, or 3%, from
$3.2 million in the second quarter of fiscal 2003. For the first six months of
fiscal 2004, R&D expenses totaled $6.6 million, an increase of $0.4 million, or
6%, from $6.2 million in the first half of fiscal 2003. The increase was
primarily due to costs associated with our Zygo Applied Optics group in
Southern California, which commenced operations in the second half of
fiscal 2003.
The income tax expense from continuing operations in the second quarter of
fiscal 2004 totaled $0.7 million, or 39% of pretax earnings, which compares with
an income tax expense of $0.3 million, or 39% of pretax earnings, in the second
quarter of fiscal 2003. The income tax expense from continuing operations in the
first half of fiscal 2004 totaled $0.2 million, or 38% of pretax earnings, which
compares with an income tax benefit of $0.1 million, or 37% of pretax losses, in
the first half of fiscal 2003. Our overall effective tax rate, including
discontinued operations, was 50% for the first six months of fiscal 2004 as
compared with 37% for the first six months of fiscal 2003. The increase in the
overall effective tax rate is due to a shift in the mix of pretax income between
domestic and foreign operations and a reduction in anticipated R&D credits.
During the first quarter of fiscal 2004, we received notification that the
federal income tax returns for the fiscal years ended June 30, 1999 through 2001
had been examined and accepted as filed.
Backlog at December 26, 2003 totaled $45.8 million, an increase of $8.6 million,
or 23%, from $37.2 million at June 30, 2003. Backlog at December 26, 2003
increased $8.7 million, or 23%, from $37.1 million at September 26, 2003. Orders
by segment for the second quarter of fiscal 2004 consisted of $20.1 million, or
55%, in the semiconductor segment and $16.3 million, or 45%, in the industrial
segment. Orders in the semiconductor segment increased by 23% over the prior
year quarter and orders in the industrial segment increased 19% over the prior
year quarter. The increase in the semiconductor segment is due to an increase in
orders from Japan. The increase in the industrial segment is partially due to
several large orders in the defense and aerospace markets for optics and
optomechanical assemblies. We do not expect orders of the same magnitude in the
next quarter.
Discontinued Operations
In September 2002, we made a decision to discontinue our TeraOptix
telecommunications business unit. The discontinuation of this business unit has
had a significant impact on our financial position and results of operations.
For the quarter and six months ended December 26, 2003, we recorded charges for
discontinued operations, net of tax, of $1.9 million and $2.1 million,
respectively ($0.10 and $0.11, respectively, per share). These charges during
the second quarter of fiscal 2004 primarily related to two items: (1) the
write-down of the market value of our vacant Westborough, Massachusetts facility
because of the continued deterioration in the local real estate market for clean
room space and (2) the cost of exiting an interest rate swap agreement in
conjunction with our paying off the remaining $11.0 million mortgage debt in
December 2003 on the Westborough facility. We anticipate future expenses to
maintain the facility to approximate $75,000 per quarter until the facility is
sold. In addition, we may incur a further impairment charge on the value of the
facility in the event we are unable to dispose of it at current carrying values.
The facility is presently being marketed for sale.
RELATED PARTY TRANSACTIONS
In September 2002, we entered into a contract with Canon Inc. related to the
development of certain interferometers (refer to note 5 for additional
information). The original contract was for $29.7 million, which was fully
billed to Canon by the end of the second quarter of fiscal 2004. Our net sales
for the second quarter and first half of fiscal
15
2004 included $3.9 million and $8.3 million, respectively, from this contract.
We are continuing the development work with approval from Canon, which will
result in the total contract value exceeding $30 million. The development work
will be substantially complete by June 2004.
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 2003, working capital was $64.5 million, a decrease of $2.4
million from $66.9 million at June 30, 2003. We maintained cash, cash
equivalents, and marketable securities at December 26, 2003 totaling $36.4
million, a decrease of $16.4 million from June 30, 2003. The decrease was due to
the pay off of the mortgage debt of $11.0 million and the swap agreement of $1.1
million, with the balance of $4.3 million comprised of purchases of capital
equipment, an increase in accounts receivable, payments of year-end accrued
employee benefits, and a decrease in progress payments. Inventories also
increased in the period and this increase was partially offset by an increase in
accounts payable. The aggregate payment of $12.1 million for the mortgage debt
and swap agreement was funded from the Company's available cash and marketable
securities. The mortgage debt had required monthly principal payments of
$70,000, plus interest, until April 2007, and a principal balloon payment of
$8.2 million in May 2007.
We are currently marketing for sale the facility of the discontinued TeraOptix
unit located in Westborough, Massachusetts. The net proceeds from the sale of
the facility would be an addition to our cash balances.
Our cash provided by operations increased $0.4 million for the first six months
in fiscal 2004. This was a decrease of $12.1 million from the $12.5 million in
cash provided by operations for the first six months in fiscal 2003. For the
first six months of fiscal 2003, the increase was due primarily to progress
payments received from customers, a reduction in accounts receivable resulting
from increased collection efforts, and a reduction in inventory. In addition,
for the first six months of fiscal 2004, our accounts receivable increased $5.7
million primarily due to large quarter end shipments for which payment was not
yet due and customers holding back payments until after the end of the calendar
year. We also increased our inventory to meet shipment dates in the next six
months.
There were no borrowings outstanding under our $3.0 million bank line of credit
at December 26, 2003. The line of credit was extended to November 2004.
Acquisitions of property, plant, and equipment were $2.0 million and $3.9
million for the three and six month periods ended December 26, 2003,
respectively. In addition to normal recurring acquisitions, we expect to build
an addition to our existing facility at an anticipated cost of $2.5-$3.0 million
over the next nine months to be funded from existing cash reserves. The
additional space is expected to be used primarily for manufacturing.
Although cash requirements will fluctuate based on the timing and extent of
various factors, management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and borrowing
capability, will be sufficient to satisfy our liquidity requirements for the
next 12 months.
CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and related disclosures at the date of our consolidated
financial statements. On an on-going basis, management evaluates its estimates
and judgments, including those related to bad debts, inventories, warranty
obligations, income taxes, and long-lived assets. Management bases its estimates
and judgments on historical experience and current market conditions and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We consider certain accounting policies related to
revenue recognition and allowance for doubtful accounts, inventory valuation,
warranty costs, accounting for income taxes, and valuation of long-lived assets
to be critical policies due to the estimates and judgments involved in each.
16
Revenue Recognition and Allowance for Doubtful Accounts
We recognize revenue based on guidance provided in Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition" and in accordance with EITF Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables." We recognize revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, there
is no significant risk pertaining to customer acceptance, our price is fixed or
determinable, and collectibility is reasonably assured.
We maintain an allowance for doubtful accounts based on a continuous review of
customer accounts, payment patterns, and specific collection issues. We perform
on-going credit evaluations of our customers and do not require collateral from
our customers. For many of our international customers, we require an
irrevocable letter of credit to be issued by the customer before a shipment is
made. If the financial condition of our customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances would
be required.
Inventory Valuation
Inventories are valued at the lower of cost or market, cost being determined on
a first-in, first-out basis. Management evaluates the need to record adjustments
for impairment of inventory on a monthly basis. Our policy is to assess the
valuation of all inventories, including raw materials, work-in-process, and
finished goods. Obsolete inventory or inventory in excess of management's
estimated future usage is written down to estimated market value, if less than
its cost. Contracts with fixed prices are evaluated to determine if estimated
total costs will exceed revenues. A loss provision is recorded when the judgment
is made that actual costs incurred plus estimated costs remaining to be incurred
will exceed total revenues from the contract. Inherent in the estimates of
market value are management's estimates related to current economic trends,
future demand for our products, and technological obsolescence. Significant
management judgments must be made when providing for obsolete and excess
inventory and losses on contracts. If actual market conditions are different
than those projected by management, additional inventory write-downs and loss
accruals may be required.
Warranty Costs
We provide for the estimated cost of product warranties at the time revenue is
recognized. We consider historical warranty costs actually incurred and
specifically identified circumstances to establish the warranty liability. The
warranty liability is reviewed on a quarterly basis. Should actual costs or
revised estimated costs differ from management's prior estimates, revisions to
the estimated warranty liability would be required.
Accounting for Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases, and operating loss and tax credit carryforwards. Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
requires the establishment of a valuation allowance to reflect the likelihood of
the realization of deferred tax assets. We record a valuation allowance to
reduce our deferred tax assets to an estimated realizable amount based on
historical and forecasted results. While management has considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event management were to
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the valuation allowance
would increase income in the period such determination was made. Likewise,
should management determine that it would not be able to realize all or part of
its net deferred tax asset in the future, an adjustment to the valuation
allowance would be charged to income in the period such determination was made.
Our effective tax rate may vary from period to period, generally based on
changes in estimated taxable income or loss, changes to the valuation allowance,
changes to federal, state or foreign tax laws, and deductibility of certain
costs and expenses by jurisdiction.
Valuation of Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. Some
factors we consider important, which could trigger the impairment review,
include a significant decrease in the market value of an asset, a significant
change in the extent or manner in which an asset is used, a significant adverse
change in the business climate that could affect the value of an asset, an
accumulation of costs for an asset in excess of the amount originally expected,
a current period operating or cash flow loss combined with a history of
operating or cash flow
17
losses or a projection that demonstrates continuing losses, and a current
expectation that, more likely than not, a long-lived asset will be disposed of
significantly before the end of its estimated useful life.
If such circumstances exist, we evaluate the carrying value of long-lived assets
to determine if impairment exists based upon estimated undiscounted future cash
flows over the remaining useful life of the assets and comparing that value with
the carrying value of the assets. If the carrying value of the assets is greater
than the estimated future cash flows, the assets are written down to the
estimated fair value. We determine the estimated fair value of the assets based
on a current market value of the assets. If a current market value is not
readily available, a projected discounted cash flow method is applied using a
discount rate determined by management to be commensurate with the risk inherent
in the current business model. Our cash flow estimates are based upon
management's best estimates, using appropriate and customary assumptions and
projections at the time.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance
sheet entities for the purpose of raising capital, incurring debt, or operating
parts of our business that are not consolidated into our financial statements.
We have not guaranteed any obligations of a third party.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Risk factors that may impact future results include those disclosed in our Form
10-K for the year ended June 30, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The payment of the mortgage debt and related interest rate swap agreement
eliminated interest rate risks associated with the debt. Other than this
reduction in risk, there were no other material changes that have occurred in
our quantitative and qualitative market risk disclosures during the first half
of fiscal 2004.
For discussion of our exposure to market risk, refer to Item 7a. Quantitative
and Qualitative Disclosures about Market Risk, presented in our Annual Report
filed with the Securities and Exchange Commission on Form 10-K for the year
ended June 30, 2003.
Item 4. Controls and Procedures
ZYGO maintains "disclosure controls and procedures," as such term is defined
under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. We have carried out an evaluation, as of the end of the period
covered by this report, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon their evaluation and subject to the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in ensuring that material information
relating to ZYGO is made known to the Chief Executive Officer and Chief
Financial Officer by others within our company during the period in which this
report was being prepared.
There were no changes in our internal controls over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
18
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on November 13, 2003. The following
matter was submitted to a vote of the Company's stockholders:
Proposal No. 1 - Election of Board of Directors
The following individuals, all whom were Zygo Corporation directors
immediately prior to the vote, were elected as a result of the
following vote:
- -------------------------------------------
For Against
- -------------------------------------------
Eugene G. Banucci 16,292,776 167,419
- -------------------------------------------
Paul F. Forman 13,834,926 2,625,269
- -------------------------------------------
Samuel H. Fuller 16,291,776 168,419
- -------------------------------------------
Seymour E. Liebman 13,485,387 2,974,808
- -------------------------------------------
Robert G. McKelvey 14,200,278 2,259,917
- -------------------------------------------
J. Bruce Robinson 16,288,290 171,905
- -------------------------------------------
Robert B. Taylor 16,292,730 167,465
- -------------------------------------------
Bruce W. Worster 16,289,439 170,756
- -------------------------------------------
Carl A. Zanoni 16,277,322 182,873
- -------------------------------------------
There were no other matters submitted to a vote of our stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Master Reaffirmation and Amendment No. 4 to Loan Documents
dated December 18, 2003, between Fleet National Bank and the
Company
31.1 Certification of Chief Executive Officer under Rule 13a-14(a)
31.2 Certification of Chief Financial Officer under Rule 13a-14(a)
32.1 Certification of Chief Executive Officer and Chief Financial
Officer
(b) Current Reports on Form 8-K during the fiscal quarter ended December 26,
2003.
Zygo Corporation Earnings Press Release, dated October 30, 2003.
On December 23, 2003 we filed a Current Report of Form 8-K announcing the
pay-off of the mortgage debt on our Westborough facility and related
interest rate swap agreement, and an expected charge to earnings related
to the discontinued telecommunications business.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zygo Corporation
----------------------------
(Registrant)
/s/ J. BRUCE ROBINSON
---------------------------
J. Bruce Robinson
President, Chairman, and
Chief Executive Officer
/s/ RICHARD M. DRESSLER
----------------------------
Richard M. Dressler
Vice President, Finance,
Chief Financial Officer, and
Treasurer
Date: February 6, 2004
20