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 March 31, 1997
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
- -------------------------------------------------------------------------------
(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.
10,448,390 shares, Common Stock, $.10 Par Value, at May 2, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or group of companies for which report is filed: Zygo Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, (1) Ended March 31, (1)
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 22,476 $ 15,231 $ 61,729 $ 40,541
Cost of goods sold 11,381 8,200 32,338 22,460
---------- ---------- ---------- --------
Gross profit 11,095 7,031 29,391 18,081
Selling, general and administrative
expenses 3,489 2,331 9,563 6,787
Research, development and engineering expenses 1,815 1,414 5,054 4,160
Nonrecurring acquisition-related charges -- -- 11,083 --
Amortization of goodwill 140 -- 371 --
---------- ---------- ---------- --------
Operating profit 5,651 3,286 3,320 7,134
---------- ---------- ---------- --------
Other income (expense):
Interest income 157 372 700 618
Miscellaneous (expense), net (37) (73) (114) (203)
---------- ---------- ---------- --------
120 299 586 415
---------- ---------- ---------- --------
Earnings before income taxes 5,771 3,585 3,906 7,549
Income tax expense 2,078 1,038 5,058 2,502
---------- ---------- ---------- --------
Net earnings (loss) $ 3,693 $ 2,547 $ (1,152) $ 5,047
========== ========== ========== ========
Net earnings (loss) per share (2) $ 0.31 $ 0.22 $ (0.11)(3) $ 0.48
========== ========== ========== ========
Weighted average common shares
and common dilutive equivalents
outstanding (2) 12,105 11,606 10,369 (3) 10,568
========== ========== ========== ========
</TABLE>
(1) All 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) Restated to reflect the 2-for-1 stock split effected in the form of a 100%
stock dividend declared on January 23, 1997 and paid on February 27, 1997
to shareholders of record on February 3, 1997.
(3) 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.
<PAGE>
-2-
CONSOLIDATED BALANCE SHEETS
As of March 31, 1997 and June 30, 1996
(Thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1997 (1) 1996 (1)
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,986 $ 18,449
Marketable securities 12,914 20,035
Receivables 19,399 10,627
Inventories:
Raw materials and manufactured parts 9,323 3,126
Work in process 3,443 3,558
Finished goods 954 478
-------- --------
Total inventories 13,720 7,162
-------- --------
Prepaid expenses and taxes 562 233
Deferred income taxes 2,197 1,506
Costs in excess of billings 1,493 252
-------- --------
Total current assets 56,271 58,264
-------- --------
Property, plant and equipment, at cost 20,487 17,988
Less accumulated depreciation 12,607 11,476
-------- --------
Net property, plant and equipment 7,880 6,512
-------- --------
Goodwill and other intangible assets 8,059 600
Other assets, net 1,016 519
-------- --------
Total assets $ 73,226 $ 65,895
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,963 $ 4,302
Accrued expenses and customer progress
payments 7,501 5,570
Federal and state income taxes 1,421 1,244
-------- --------
Total current liabilities 12,885 11,116
-------- --------
Deferred income taxes 3,291 692
Stockholders' Equity:
Common stock, $.10 par value per share:
15,000,000 shares authorized; 10,655,990
shares issued (10,337,972 at June 30, 1996) (2) 1,066 517
Additional paid-in capital 38,895 34,846
Retained earnings 17,382 19,060
Net unrealized gain (loss) on marketable securities 8 (35)
-------- --------
57,351 54,388
Less treasury stock, at cost; 207,600 shares (2) 301 301
-------- --------
Total stockholders' equity 57,050 54,087
-------- --------
Total liabilities and stockholders' equity $ 73,226 $ 65,895
======== ========
</TABLE>
(1) All 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) Restated to reflect the 2-for-1 stock split effected in the form of a 100%
stock dividend declared on January 23, 1997 and paid on February 27, 1997
to shareholders of record on February 3, 1997.
<PAGE>
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended March 31, 1997, and 1996
(Thousands of dollars)
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
-------- --------
<S> <C> <C>
Cash provided by (used for)
operating activities:
Net (loss) earnings $(1,152) $ 5,047
Adjustments to reconcile net (loss) earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 1,831 1,044
Deferred income taxes 832 (62)
Loss on disposal of assets 191 183
Nonrecurring acquisition-related costs 10,084 -
Gain on sale of marketable securities (49) (1)
Intangible and other assets 406 -
Changes in operating accounts
Receivables (6,783) (3,675)
Costs in excess of billings (1,241) -
Inventories (2,825) (1,393)
Prepaid expenses 47 (876)
Accounts payable and accrued expenses (3,585) 2,721
------- -------
Net cash (used for) provided by operating activities (2,244) 2,988
------- -------
Cash used for
investing activities:
Additions to property, plant and equipment (2,956) (2,088)
Investment in marketable securities (2,104) (12,590)
Investment in other assets (157) (131)
Acquisition of business (11,786) (52)
Proceeds from sale of marketable securities 4,849 -
Proceeds from maturity of marketable securities 4,345 1,160
Proceeds from sale of assets 18 4
------- -------
Net cash used for investing activities (7,791) (13,697)
------- -------
Cash provided by (used for)
financing activities:
Repayment of long-term debt (2,662) -
Net proceeds from issuance of common stock - 22,692
Exercise of employee stock options 234 150
------- -------
Net cash (used for) provided by financing activities (2,428) 22,842
------- -------
Net (decrease) increase in cash and cash equivalents (12,463) 12,133
Cash and cash equivalents, beginning of period 18,449 2,647
------- -------
Cash and cash equivalents, end of period $ 5,986 $14,780
======= =======
</TABLE>
(1) All 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.
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 March 31,
1997 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 consolidated financial statements and notes included
in the Company's June 30, 1997 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.
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.
Results of Operations
- ---------------------
Net sales of $22,476,000 for the three months and $61,729,000 for the nine
months ended March 31, 1997, increased by $7,245,000 or 48% and $21,188,000 or
52%, respectively, from the net sales in the comparable prior year periods. Net
sales of the Companys instruments and systems increased by 87% to $17,006,000
and net sales of modules and components decreased by 11% to $5,470,000 in the
third quarter of fiscal 1997, each from the comparable quarter in fiscal 1996.
Net sales of the Companys instruments and systems and net sales of modules and
components increased by $20,538,000 or 80% and $650,000 or 4%, respectively, for
the nine months ended March 31, 1997 as compared to the nine-month period ended
March 31, 1996. The increase in net sales in the third
<PAGE>
-5-
quarter ended March 31, 1997 was mostly attributable to the Company's
instruments and systems, particularly its interferometric based large aperture
and microscope systems. Partially offsetting the increase in net sales were
lower net sales of the Company's motion control components which are used in
many applications, most notably, in semiconductor photolithography, principally
as a result of reduced requirements from the semiconductor industry in the
fourth quarter of fiscal 1996 and in the first quarter of fiscal 1997. The
$7,245,000 increase in net sales in the quarter as compared to the comparable
quarter in the prior year was also partially attributed to the addition of TIC
in the first quarter of this fiscal year. Including TIC on a pro forma basis in
the third quarter of fiscal 1996, the increase in net sales in the third quarter
of fiscal 1997, which already included TIC, amounted to $5,630,000 or 33%.
Gross profit for the three months and nine months ended March 31, 1997, amounted
to $11,095,000 and $29,391,000, respectively, an increase of $4,064,000 or 58%
and $11,310,000 or 63%, respectively, from the comparable prior year periods.
Gross profit, as a percentage of sales, for the quarter and nine months ended
March 31, 1997, amounted to 49% and 48%, respectively, compared to 46% and 45%
for the three months and nine months ended March 31, 1996. Gross profit dollars
and gross profit as a percent of sales increased in both the third quarter and
the nine months ended March 31, 1997, from the comparable prior year periods
primarily as a result of the increases in the volume of net sales, certain
volume-related manufacturing efficiencies, and product mix.
Selling, general and administrative expenses in the three months and nine months
ended March 31, 1997 amounted to $3,489,000 and $9,563,000, respectively, an
increase of $1,158,000 or 50% and $2,776,000 or 41%, respectively, from the same
periods the year earlier. The increases in the three-month and nine-month
periods ended March 31, 1997, were primarily due to the impact of including TIC
from August 8, 1996, infrastructure additions, and volume-related expenses, such
as commissions paid to the Companys direct sales personnel and external sales
agents. As a percentage of sales, selling, general and administrative expenses
amounted to 16% and 15%, respectively, as compared to 15% and 17%, respectively,
in the comparable prior year periods.
Research, development and engineering expenses ("R&D") in the three months and
nine months ended March 31, 1997, amounted to $1,815,000 and $5,054,000,
respectively, an increase of $401,000 or 28% and $894,000 or 21% from the
comparable three- and nine-month periods in the prior fiscal year. The increases
in R&D expenses were principally due to the impact of including TIC from August
8, 1996. Research and development expenses as a percentage of sales in the
three- and nine-month periods were both 8%, as compared to 9% and 10%,
respectively, in the comparable prior year periods.
The Company recorded nonrecurring acquisition-related charges in the amount of
$11,083,000 in the three months ended September 30, 1996. The nonrecurring
charges related to approximately $999,000 of expenses incurred to complete the
Companys acquisition of NexStar and the write-off of approximately $10,084,000
of in-process research and development costs in conjunction with the Companys
acquisition of TIC.
Operating profit in the three months ended March 31, 1997 amounted to
$5,651,000, an increase of $2,365,000 or 72% from the $3,286,000 of operating
profit in the comparable prior year period. Excluding the nonrecurring charges,
the Company's operating profit in the nine months ended March 31, 1997 was
$14,403,000, an increase of $7,269,000 or 102% from the $7,134,000 of operating
profit in the nine months ended March 31, 1996. The Company reported an
operating profit, including the nonrecurring charges, of $3,320,000 for the nine
months ended March 31, 1997.
Income tax expense in the three months ended March 31, 1997 totaled $2,078,000
as compared to $1,038,000 in the comparable prior period. The Company recorded
$5,058,000 of income tax expense in the nine months ended March 31, 1997 on
earnings before income taxes of $3,906,000 as
<PAGE>
-6-
a result of the nontax deductible nature of the $10,084,000 of in-process
research and development charge to earnings in the quarter ended September 30,
1996.
Net earnings totaled $3,693,000 in the three-month period ended March 31, 1997,
an increase of $1,146,000 or 45% from the $2,547,000 reported in the three-month
period ended March 31, 1996. The Company reported per share earnings of $.31 in
the quarter ended March 31, 1997, an increase of 41% over the per share earnings
of $.22 in the comparable quarter in the prior year, both periods adjusted for
the 2-for-1 stock split effected in February 1997. Excluding nonrecurring
charges, net income for the first nine months of fiscal 1997 totaled $9,931,000,
an increase of $4,884,000 or 97% from the first nine months of fiscal 1996.
Earnings per share adjusted for the 2-for-1 stock split, excluding the
nonrecurring charges, were $.83, up 73% from $.48 in the first nine months of
fiscal 1996 despite a 13% increase in shares outstanding. The Company reported a
net loss, including the nonrecurring charges, of $1,152,000 or $.11 per share
for the first nine months of fiscal 1997, adjusted for the stock split.
The Company's backlog at March 31, 1997 totaled a record of $30,515,000, an
increase of $10,333,000 or 51% over the $20,182,000 backlog at March 31, 1996,
and an increase of $1,535,000 or 5% from the backlog at December 31, 1996.
Stronger demand in each of the Companys product groups accounted for the
increase in backlog from the year earlier period. When compared to the quarter
ended December 31, 1996, orders from the semiconductor industry for motion
control components continued to improve while the mask section remained strong.
Orders from the Companys data storage industry customers for microscope systems
and flying height testers all were higher in the most recent quarter.
Financial Condition
- -------------------
At March 31, 1997, the Company had cash and cash equivalents of $5,986,000 and
marketable securities of $12,914,000 for a total of $18,900,000, a decrease of
$194,000 from December 31, 1996. Working capital at March 31, 1997 was
$43,386,000, an increase of $3,622,000 or 9% from December 31, 1996 and a
decrease of $3,763,000 from June 30, 1996. The increase in working capital in
the quarter was principally due to increased levels of accounts receivable. When
compared to June 30, 1996, the decline in working capital was principally a
result of the decline in cash and cash equivalents due to the acquisition of
TIC, which included 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. As of March 31, 1997, 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.
Forward Looking Statements
- --------------------------
This report contains forward looking statements which are subject to a number of
risks and uncertainties that may cause actual results to differ materially from
expectations. These uncertainties include, but are not limited to, general
economic conditions, competitive conditions in markets served by the Company,
most notably high technology markets such as data storage and semiconductor, and
political developments in countries where the Company conducts business.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the period
covered by this Form 10-Q.
<PAGE>
-7-
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: May 14, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule for the quarterly report on
Form 10-Q for the period ended March 31, 1997.
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,986
<SECURITIES> 12,914
<RECEIVABLES> 19,765
<ALLOWANCES> 728
<INVENTORY> 13,720
<CURRENT-ASSETS> 56,271
<PP&E> 20,487
<DEPRECIATION> 12,607
<TOTAL-ASSETS> 73,226
<CURRENT-LIABILITIES> 12,885
<BONDS> 0
0
0
<COMMON> 1,066
<OTHER-SE> 55,984
<TOTAL-LIABILITY-AND-EQUITY> 73,226
<SALES> 61,729
<TOTAL-REVENUES> 61,729
<CGS> 32,338
<TOTAL-COSTS> 58,409
<OTHER-EXPENSES> 203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,906
<INCOME-TAX> 5,058
<INCOME-CONTINUING> (1,152)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,152)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
