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 September 30, 1996
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 Identification Number)
incorporation or organization)
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
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
5,183,670 shares of Common Stock, $.10 Par Value, at November 4, 1996
<PAGE>
-1-
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months
Ended September 30, (1)
-------------------------
1996 1995
-------- --------
Net sales $ 18,443 $ 11,831
Cost of goods sold 10,210 6,729
-------- --------
Gross profit 8,233 5,102
Selling, general and administrative expenses 2,781 2,188
Research, development and engineering expenses 1,380 1,426
Nonrecurring acquisition-related charges 11,083 --
Amortization of goodwill 87 --
-------- --------
Operating (loss) profit (7,098) 1,488
-------- --------
Other income (expense):
Interest income 387 102
Miscellaneous (expense), net (27) (41)
-------- --------
360 61
-------- --------
(Loss) earnings before income taxes (6,738) 1,549
Income tax expense 1,206 588
-------- --------
Net (loss) earnings $ (7,944) $ 961
======== ========
Net (loss) earnings per share $ (1.55)(2) $ 0.20
======== ========
Weighted average common shares
and common dilutive equivalents
outstanding 5,130(2) 4,920
======== ========
(1) Both periods include the results of NexStar Automation, Inc. which is being
accounted for as a pooling-of-interests. The results of Technical
Instruments Company are included in the consolidated results of the Company
from August 8, 1996 when the acquisition was effective, since it was
accounted for as a purchase.
(2) As per generally accepted accounting principles, the computation of the net
loss per share is based on the weighted average common shares outstanding
without common dilutive equivalents. Weighted average common shares and
common dilutive equivalents outstanding amounted to 5,930 at September
30, 1996.
<PAGE>
-2-
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and June 30,1996
(Thousands, except share amounts)
September 30, June 30,
ASSETS 1996 1996
------------- ---------
Current Assets:
Cash and cash equivalents $ 1,751 $ 18,449
Marketable securities 16,155 20,035
Receivables 14,898 10,627
Inventories:
Raw materials and manufactured parts 7,840 3,126
Work in process 3,372 3,558
Finished goods 645 478
-------- --------
Total inventories 11,857 7,162
-------- --------
Prepaid expenses and taxes 1,248 233
Deferred income taxes 2,219 1,506
Costs in excess of billings 1,016 252
-------- --------
Total current assets 49,144 58,264
-------- --------
Property, plant and equipment, at cost 19,003 17,988
Less accumulated depreciation (11,792) (11,476)
-------- --------
Net property, plant and equipment 7,211 6,512
-------- --------
Goodwill and other intangible assets 8,704 600
Other assets, net 501 519
-------- --------
Total assets $ 65,560 $ 65,895
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,765 $ 4,302
Accrued expenses and customer progress payments 6,948 5,570
Federal and state income taxes 1,318 1,244
-------- --------
Total current liabilities 13,031 11,116
-------- --------
Deferred income taxes 3,291 692
Stockholders' Equity:
Common stock $.10 par value per share:
10,000,000 shares authorized: 5,287,470
shares issued (5,168,986 at June 30, 1996) 529 517
Additional paid-in capital 37,911 34,846
Retained earnings 11,116 19,060
Net unrealized (loss) on marketable securities (17) (35)
-------- --------
49,539 54,388
Less treasury stock, at cost; 103,800 shares 301 301
-------- --------
Total stockholders' equity 49,238 54,087
-------- --------
Total liabilities and stockholders' equity $ 65,560 $ 65,895
======== ========
<PAGE>
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended September 30, 1996, and 1995
(Thousands of dollars)
1996 1995
-------- --------
Cash provided by (used for)
operating activities:
Net (loss) earnings $ (7,944) $ 961
Adjustments to reconcile net (loss)
earnings to cash provided by (used
for) operating activities:
Depreciation and amortization 512 336
Deferred income taxes 1 (63)
Loss or disposal of assets 122 2
Nonrecurring in-process R&D 10,084 --
Gain on sale of marketable securities (18) --
Intangible and other assets 326 2
Changes in operating accounts
Receivables (2,282) (979)
Costs in excess of billings (764) --
Inventories (962) (380)
Prepaid expenses (639) (79)
Accounts payable and accrued expenses (3,439) (577)
-------- --------
Net cash used for operating activities (5,003) (777)
-------- --------
Cash provided by (used for)
investing activities:
Additions to property, plant and equipment (1,145) (388)
Investment in marketable securities (744) --
Investment in other assets (99) (31)
Acquisition of business (11,786) --
Proceeds from sale of marketable securities 2,897 --
Proceeds from maturity of marketable securities 1,750 400
Proceeds from sale of assets 17 --
-------- --------
Net cash used for investing activities (9,110) (l9)
-------- --------
Cash provided by (used for)
financing activities:
Repayment of long-term debt (2,662) (12)
Exercise of employee stock options 77 23
Other -- 293
-------- --------
Net cash provided by (used for) financing
activities (2,585) 304
-------- --------
Net decrease in cash and cash equivalents (16,698) (492)
Cash and cash equivalents, beginning of year 18,449 2,428
-------- --------
Cash and cash equivalents, end of quarter $ 1,751 $ 1,936
======== ========
The interim financial statements furnished herein reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a normal
and recurring nature. The results for the quarter ended September 30, 1996 are
not necessarily indicative of the results to be expected for the entire fiscal
year. These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 1996 Annual
Report on Form 10-K including items incorporated by reference herein.
<PAGE>
-4-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Zygo Corporation ("Zygo" or "the Company") designs, develops, manufactures, and
markets high performance noncontact electro-optical measuring instruments,
systems and accessories, and optical components to precise tolerances both for
sale and for use as key elements in its own products. Utilizing proprietary
laser and optical technology combined with advanced software and electronics,
Zygo's precision noncontact measuring instruments and systems enable
manufacturers in a variety of industries, including data storage, semiconductor,
and precision optics, to increase operating efficiencies and production yields
by identifying and collecting quantitative data on product defects, both during
and after the manufacturing process. Zygo's optical components are used in many
applications, including laser fusion research, semiconductor manufacturing
equipment, and aerospace optical systems, as well as being an integral part of
precision optical instruments.
Through the acquisition of Technical Instrument Company ("TIC"), effective
August 8, 1996, Zygo has substantially broadened its product offering. TIC,
located in Sunnyvale, California, designs, develops, manufactures, markets, and
sells microscopy systems and subsystems, or modules to a variety of industries,
including manufacturers of photomasks used in semiconductor and flat panel
display manufacturing, manufacturers of components for the data storage
industry, biomedical research, and other high technology manufacturing and
research applications. The majority of TIC's microscope systems and subsystems
employ white light confocal scanning optical microscopy ("CSOM") technology.
Over the past several years, TIC has added other imaging systems to its product
offering, including laser scanning confocal and atomic force microscopy. Today
TIC specializes in integrating imaging modes, viewing accessories, and
measurement tools within its microscopy systems and subsystems for customers in
a wide variety of high technology fields.
During the quarter ended September 30, 1996, Zygo also completed the acquisition
of NexStar Automation, Inc. ("NexStar"), effective September 12, 1996. NexStar
designs, develops, manufactures, and markets comprehensive automated system
solutions to enable manufacturers in a variety of industries, including the data
storage, semiconductor, and medical disposables industries, to enhance
operational efficiencies and product yields. NexStar's high speed production
solutions reduce downtimes, especially in manufacturing processes adaptable to
the manufacture of multiple products differing in size, features, and
functionality. NexStar's automated solutions integrate its own proprietary
mechanical components and applications software with nonproprietary mechanical,
software, and robotics subsystems produced by third parties. NexStar's automated
solutions also enhance production control to ensure consistent high quality.
NexStar's sophisticated automation products and equipment are utilized in many
applications, including data storage media manufacturing, disk drive assembly,
semiconductor manufacturing, and packaging and assembly applications in medical
disposables production.
As a result of the completion of the acquisitions of TIC and NexStar, Zygo is
now better positioned to provide its high technology customers with fully
automated solutions to their test and measurement requirements. The Company is
integrating the activities of all of its operations and will focus on providing
both standalone systems and components as well as fully integrated systems to
its customers in the data storage, semiconductor, and other high technology
industries.
<PAGE>
-5-
RESULTS OF OPERATIONS
Net sales in the three months ended September 30, 1996 totaled $18,443,000, an
increase of $6,612,000 or 56% from the comparable prior year period. Net sales
of the Company's instruments and systems increased by 68% to $13,485,000 and net
sales of modules and components increased by 31% to $4,958,000, each from the
comparable three months in the prior year. The 56% increase in net sales in the
quarter was partially attributable to the inclusion of TIC in the first quarter
of fiscal 1997 from August 8, 1996. On a pro forma basis, including the results
of TIC for the entire period in both the first quarter of fiscal 1997 and the
first quarter of fiscal 1996, the increase in net sales in fiscal 1997 amounted
to $5,375,000 or 36%. The results of NexStar are included in the consolidated
results for both the first quarter of fiscal 1997 and the comparable quarter in
fiscal 1996, since the acquisition of NexStar is accounted for as a
pooling-of-interests.
Gross profit for the three months ended September 30, 1996, amounted to
$8,233,000 an increase of $3,131,000 from gross profit of $5,102,000 for the
comparable prior year period. For the three months ended September 30, 1996,
gross profit as a percentage of sales amounted to 44.6%, an increase of 1.5
percentage points from gross profit as a percentage of sales of 43.1% in the
comparable prior year period. These increases primarily resulted from the
inclusion of TIC from August 8, 1996 and higher sales volumes of the Company's
instruments and systems, which have higher average gross profit margins than the
Company's components.
Selling, general and administrative expenses in the three months ended September
30, 1996, amounted to $2,781,000, an increase of $593,000 from $2,188,000 in the
three months ended September 30, 1995. This increase was primarily due to an
increase in volume-related expenses, such as commissions paid to the Company's
direct sales personnel and external sales agents and partially due to the impact
of including TIC from August 8, 1996. As a percentage of sales, selling, general
and administrative expenses declined in the three months ended September 30,
1996, to 15.1% as compared to 18.5% in the comparable prior year period. The
decrease in percentage of sales was due to the sales growth.
Research, development, and engineering ("R&D") expenses in the three months
ended September 30, 1996, totaled $1,380,000 or 7.5% of sales as compared to
$1,426,000 or 12.1% of sales in the comparable prior year period. The decrease
in R&D expenses primarily resulted from lower spending on prototype development
materials in the three months ended September 30, 1996 as compared to the three
month period ended September 30, 1995.
The Company recorded nonrecurring acquisition-related charges amounting to
$11,083,400 in the three months ended September 30, 1996. The nonrecurring
charges relate to approximately $999,400 of expenses incurred to complete the
Company's acquisition of NexStar and the write-off of approximately $10,084,000
of in-process research and development costs in conjunction with the Company's
acquisition of TIC.
Excluding the nonrecurring charges, the Company's operating profit in the three
months ended September 30, 1996, was $3,985,000 an increase of $2,497,000 or
168% from the $1,488,000 reported in the period ended September 30, 1995. The
Company reported an operating loss, including the nonrecurring charges, of
$7,098,000 for the three months ended September 30, 1996.
<PAGE>
-6-
Income tax expense in the three months ended September 30, 1996 totaled
$1,206,000 as compared to $588,000 in the comparable prior year period. The
Company recorded the $1,206,000 of tax expense despite the loss before taxes of
$6,738,000 as a result of the non-tax deductible nature of the $10,084,000 of
in-process research and development charge to earnings in the quarter.
Excluding the nonrecurring, acquisition-related charges, the Company reported
net income for the first quarter of fiscal 1997 totaling $3,139,000, an increase
of $2,178,000 or 227% from the first quarter of fiscal 1996. Earnings per share
excluding the nonrecurring charges were $.53, up 165% from $.20 in the first
quarter of fiscal 1996 despite a 21% increase in shares outstanding. Including
these nonrecurring charges, the Company reported a net loss of $7,944,000 or
($1.55) per share for the quarter.
FINANCIAL CONDITION
At September 30, 1996, working capital was $36,113,000 a decrease of $11,035,000
from the amount at June 30, 1996. The Company had cash and cash equivalents of
$1,751,000 and marketable securities amounting to $16,155,000 for a total of
$17,906,000 at September 30, 1996, a decrease of $20,578,000 from the amount of
cash and cash equivalents and marketable securities at June 30, 1996. The
decline in cash, cash equivalents, and marketable securities principally related
to the acquisition of Technical Instrument Company, including the payment of
$11,700,000 for the cash portion of the purchase price plus the subsequent
payment of approximately $2,662,000 of indebtedness of TIC. Receivables
increased by $2,282,000 and inventory increased by $962,000 from the amounts at
June 30, 1996. The receivables increase was due primarily to the inclusion of
accounts receivable at TIC on the September 30, 1996 balance sheet. Inventory
increased primarily to support the growth in sales of the Company's instruments
and systems. Accounts payable decreased by $2,228,000 in the first quarter of
1997 to $4,765,000 primarily as a result of payments for acquisition-related
expenses for both the NexStar and TIC acquisitions, as well as the payment of
trade accounts payable which were at higher levels at TIC in anticipation of the
acquisition. As of September 30, 1996, there were no borrowings outstanding
under the Company's $3,000,000 bank line of credit. Unused amounts under the
line of credit are available for short-term working capital needs.
The Company's backlog at September 30, 1996 totaled $25,188,000, an increase of
$9,961,000 or 65% from September 30, 1995 and an increase of $2,824,000 or 13%
from June 30, 1996. While the Company experienced a lower level of orders in the
first quarter for its motion control components used in photolithographic
steppers, orders in other segments of the semiconductor industry, in particular
the mask sector, and in the data storage and precision optics markets, remained
higher when compared to the comparable prior year period. On a pro forma basis,
including TIC at September 30, 1996 and 1995, the Company's backlog at September
30, 1996 increased $7,746,000 or 44% from the year earlier.
<PAGE>
-7-
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) 1. On August 30, 1996, the Company filed a Current Report on Form
8-K, dated August 19, 1996, reporting the completion of an
acquisition of the proprietary products division of Technical
Instrument Company by Zygo Corporation.
[Item 5 reporting]
2. On September 27, 1996, the Company filed a Current Report on Form 8-K,
dated September 12, 1996, reporting the completion of the acquisition of
NexStar Automation, Inc. by Zygo Corporation. [Item 5 reporting]
3. On November 4, 1996, the Company filed an amended Current Report
on Form 8-K/A, dated August 19, 1996, reporting interim financial
statements and notes of Technical Instrument Company as of June
30, 1996 and for the six-month periods ended June 30, 1996 and
1995 and Consolidated Pro Forma Financial Statements and Notes as
of June 30, 1996 and for the year ended June 30, 1996. [Item 5
reporting]
4. On November 14, 1996, the Company filed an amended Current Report
on Form 8-K/A, dated September 12, 1996, reporting Interim
Financial Statements and Notes of NexStar Automation, Inc. as of
June 30, 1996 and for the six-month periods ended June 30, 1996
and 1995 and Combined Pro Forma Financial Statements and Notes as
of June 30, 1996 and for the year ended June 30, 1996.
[Item 5 reporting]
<PAGE>
-8-
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/ GARY K. WILLIS
----------------------------------
Gary K. Willis
President and
Chief Executive Officer
/s/ MARK J. BONNEY
----------------------------------
Mark J. Bonney
Vice President,
Finance and Administration,
Treasurer, and
Chief Financial Officer
Date: November 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule for the quarterly report, on Form 10-Q,
for the period ended September 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> $ 1,751
<SECURITIES> 16,155
<RECEIVABLES> 14,961
<ALLOWANCES> 728
<INVENTORY> 11,857
<CURRENT-ASSETS> 49,144
<PP&E> 19,003
<DEPRECIATION> 11,792
<TOTAL-ASSETS> 65,560
<CURRENT-LIABILITIES> 13,031
<BONDS> 0
0
0
<COMMON> 529
<OTHER-SE> 48,709
<TOTAL-LIABILITY-AND-EQUITY> 65,560
<SALES> 18,443
<TOTAL-REVENUES> 18,443
<CGS> 10,210
<TOTAL-COSTS> 25,541
<OTHER-EXPENSES> 47
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,738)
<INCOME-TAX> 1,206
<INCOME-CONTINUING> (7,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,944)
<EPS-PRIMARY> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
