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, 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
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(Exact name of registrant as specified in its charter)
Delaware 06-0864500
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Laurel Brook Road, Middlefield, Connecticut 06455
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(Address of principal executive offices) (Zip Code)
(860) 347-8506
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Registrant's telephone number, including area code
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.
10,914,422 shares of Common Stock, $.10 Par Value, at November 7, 1997
<PAGE>
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)
-----------------------
1997 1996
------- -------
Net sales $24,316 $18,443
Cost of good sold 12,851 10,210
------- -------
Gross profit 11,465 8,233
Selling, general and administrative expenses 3,928 2,781
Research, development and engineering expenses 2,445 1,380
Nonrecurring acquisition-related charges 1,585 11,083
Failed merger costs 335 0
Amortization of goodwill and other intangibles 142 87
------- -------
Operating profit (loss) 3,030 (7,098)
------- ------
Other income (expense):
Interest income 285 387
Miscellaneous (expense), net (21) (27)
------- ------
264 360
------- ------
Earnings (loss) before income taxes 3,294 (6,738)
Income tax expense 1,596 1,206
------- ------
Net earnings (loss) $ 1,698 $(7,944)
======= =======
Net earnings (loss) per share $ .14 $ (.77)(2)
======= =======
Weighted average common shares
and common dilutive equivalents outstanding 12,241 10,260(2)
======= =======
(1) The period ended September 30, 1997 includes the results of Sight Systems,
Inc. from July 1, 1997 which is being accounted for as an immaterial
pooling-of-interests. The results of Syncotec Neue Technologien und
Instrumente GmbH are included in the consolidated results of the Company
from September 1, 1997 when the acquisition of the remaining 50% was
completed, and the results of Technical Instruments Company are included in
the consolidated results of the Company from August 8, 1996 when that
acquisition was effective, since both were accounted for as purchases.
(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.
<PAGE>
-2-
CONSOLIDATED BALANCE SHEETS
As of September 30, 1997 and June 30, 1997
(Thousands, except share amounts)
ASSETS September 30, June 30,
- ------ 1997 1997
------------- -------
Current Assets:
Cash and cash equivalents $13,231 $10,981
Marketable securities 10,855 12,766
Receivables 18,765 20,730
Inventories:
Raw materials and manufactured parts 8,879 7,435
Work in process 4,168 3,248
Finished goods 922 973
------- -------
Total inventories 13,969 11,656
------- -------
Costs in excess of billings 3,103 2,082
Prepaid expenses and taxes 412 590
Deferred income taxes 2,311 2,205
------- -------
Total current assets 62,646 61,010
------- -------
Property, plant and equipment, at cost 24,141 21,865
Less accumulated depreciation 13,489 12,691
------- -------
Net property, plant and equipment 10,652 9,174
------- -------
Goodwill and other intangible assets, net 8,911 7,818
Other assets 318 797
------- -------
Total assets $82,527 $78,799
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 5,734 $ 4,659
Accrued expenses and customer progress payments 6,288 8,246
Federal and state income taxes 1,025 472
------- -------
Total current liabilities 13,047 13,377
------- -------
Deferred income taxes 3,448 3,014
Stockholders' Equity:
Common stock, $.10 par value per share:
15,000,000 shares authorized; 11,122,022
shares issued (10,765,940 at June 30, 1997) 1,112 1,077
Additional paid-in capital 41,540 40,210
Retained earnings 23,646 21,405
Currency translation effects 15 0
Net unrealized gain on marketable securities 20 17
------- -------
66,333 62,709
Less treasury stock, at cost; 207,600 shares 301 301
------- -------
Total stockholders' equity 66,032 62,408
------- -------
Total liabilities and stockholders' equity $82,527 $78,799
======= =======
<PAGE>
-3-
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1997 and 1996
(Thousands of dollars)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash provided by (used for)
operating activities:
Net earnings (loss) $ 1,698 $ (7,944)
Adjustments to reconcile net earnings (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization 805 512
Deferred income taxes 0 1
Loss on disposal of assets 68 122
Nonrecurring in-process R&D 879 10,084
Gain on sale of marketable securities (20) (18)
Intangible and other assets -- 326
Changes in operating accounts:
Receivables 2,790 (2,282)
Costs in excess of billings (1,021) (764)
Inventories (1,838) (962)
Prepaid expenses 183 (639)
Accounts payable and accrued expenses (2,064) (3,439)
------- -------
Net cash provided by (used for) operating activities 1,480 (5,003)
------- -------
Cash provided by (used for)
investing activities:
Additions to property, plant and equipment (2,026) (1,145)
Investment in marketable securities (509) (744)
Investment in other assets (156) (99)
Acquisition of business (1,268) (11,786)
Proceeds from sale of marketable securities 0 2,897
Proceeds from maturity of marketable securities 2,400 1,750
Proceeds from sale of assets 0 17
Cash acquired from acquisitions 2,059 0
------- -------
Net cash provided by (used for) investing activities 500 (9,110)
------- -------
Cash provided by (used for)
financing activities:
Repayment of long-term debt 0 (2,662)
Exercise of employee stock options 270 77
------- -------
Net cash provided by (used for) financing activities 270 (2,585)
------- -------
Net increase (decrease) in cash and cash equivalents 2,250 (16,698)
Cash and cash equivalents, beginning of year 10,981 18,449
------- -------
Cash and cash equivalents, end of quarter $13,231 $ 1,751
======= =======
</TABLE>
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, 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
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, through its divisions and wholly owned subsidiaries,
Middlefield, Technical Instrument Company ("TIC"), and NexStar Automation, Inc.
("NexStar"), designs, develops, manufactures, and markets high performance
noncontact electro-optical measuring instruments and systems, automation
systems, and components. The Middlefield division also manufactures optical
components to precise tolerances both for sale and for use as key elements in
its own products. Utilizing proprietary laser and white light optical technology
combined with advanced software and electronics, Zygo's precision noncontact
measuring instruments and systems enable manufacturers in a variety of high
technology 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 interferometric and confocal components are sold
directly to OEMs for incorporation into their products. 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 components.
Predominantly all of Zygo's instruments and systems employ either a laser or
white light source to make noncontact measurements. Zygo is a leader in
interferometric and confocal metrology. Interferometric metrology, utilizing a
process called interferometry, whereby a pattern of bright and dark lines
(called fringes) results from an optical path difference between a reference and
a measurement beam. Zygo's products then analyze these patterns through a series
of steps and generate quantitative three-dimensional surface profiles, which are
used to determine conformity to dimensional specification and, increasingly, to
analyze and enhance manufacturing processes. Interferometric measurement
instruments and systems are used by a variety of industries, including by the
data storage industry to inspect and analyze the surface of computer hard disks
and read/write heads, and by the semiconductor industry for high precision
distance measurement and motion control. Confocal Scanning Optical Microscopy
("CSOM") is a key base technology employed in TIC's products. The majority of
TIC's microscope systems and subsystems employ white light CSOM technology. In a
microscope utilizing white light CSOM imaging, a high-intensity white light
illuminates a section of a spinning disk containing pinholes arranged in
multiple spiral patterns. Acting as point illumination sources, the pinholes
direct light to points on the sample. The reflected light from the sample
returns through the same section of the disk. Only light from points on the
sample near the focal plane will pass through the pinholes for imaging. Zygo's
NexStar Automation unit designs, develops, manufactures, and markets
comprehensive automated system solutions to enable manufacturers in a variety of
high technology industries, including the data storage, semiconductor, and
electronics 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.
The Company completed its acquisition of Sight Systems, Inc. ("SSI"), effective
August 19, 1997, a privately held business located in Newbury Park, California.
SSI is engaged in the business of designing, developing, manufacturing, and
marketing application-specific machine vision systems. SSI serves the data
storage industry and the semiconductor industry with application-specific vision
systems which are primarily used in production by its customers. These vision
systems are unique in that they are configured from a vast collection of
software and hardware components into a system which meets specific customer
requirements. Examples of such applications in the data storage industry where
SSI has sold the majority of its systems to date include: pole geometry
measurements and gap width on various types of read/write heads, straightness,
and measurements of read/write heads mounted on row bars in the manufacturing
process.
The Company also completed the acquisition of Syncotec Neue Technologien und
Instrumente GmbH ("Syncotec"), a German-based company, effective September 1,
1997. Zygo, prior to this acquisition, previously owned 50% of Syncotec as a
result of Zygo's acquisition of TIC in August 1996. Syncotec, located in Asslar,
Germany, designs, develops, manufactures, and markets high precision metrology
systems and components which incorporate TIC's confocal scanning optical
microscopy technology for European customers to improve their production
efficiency and manufacturing yields.
The acquisitions of both SSI and Syncotec will enhance the Company's ability to
provide yield improvement to the high technology market. The Company continues
to integrate the activities of all of its operations and is focused 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, 1997 totaled $24,316,000, an
increase of $5,873,000 or 32% from $18,443,000 in the three months ended
September 30, 1996. Net sales of the Company's instruments and systems increased
by 28% to $17,242,000 and net sales of its modules and components increased by
43% to $7,078,000, each from the comparable three months in the prior year. The
32% increase in net sales in the quarter was partially attributable to the
inclusion of SSI in the first quarter of fiscal 1998 from July 1, 1997 and
Syncotec from September 1, 1997, the effective date of that acquisition. On a
pro forma basis, including the results of SSI and Syncotec for the entire period
in both the first quarter of fiscal 1998 and the first quarter of fiscal 1997,
and including the results of TIC for the period July 1, 1996 to August 8, 1996,
the effective date of that acquisition, the increase in net sales in the first
quarter of fiscal 1998 would have amounted to $2,463,000 or 11%.
Gross profit for the three months ended September 30, 1997, amounted to
$11,465,000, an increase of $3,232,000 from gross profit of $8,233,000 for the
comparable prior year period. For the three months ended September 30, 1997,
gross profit as a percentage of sales amounted to 47.2%, an increase of 2.6
percentage points from gross profit as a percentage of sales of 44.6% in the
three months ended September 30, 1996. The increases in gross profit and gross
profit as a percentage of sales were primarily due to increased sales volume
over the comparable prior year quarter, improved manufacturing efficiencies, and
the inclusion of SSI from July 1, 1997 and Syncotec from September 1, 1997.
Partially offsetting these increases were lower gross profit margins on revenue
generated by the National Ignition Facility ("NIF") contract.
Selling, general and administrative expenses in the three months ended September
30, 1997, amounted to $3,928,000, an increase of $1,147,000 from $2,781,000 in
the three months ended September 30, 1996. This increase was primarily due to an
increase in product marketing and volume-related expenses, such as commissions
paid to the Company's direct sales personnel and external sales agents and
infrastructure additions, and partially due to the impact of including TIC for
the full quarter and SSI from July 1, 1997. As a percentage of sales, selling,
general and administrative expenses increased in the three months ended
September 30, 1997, to 16.2% as compared to 15.1% in the comparable prior year
period.
Research, development, and engineering ("R&D") expenses in the three months
ended September 30, 1997, totaled $2,445,000 or 10.1% of sales, as compared to
$1,380,000 or 7.5% of sales in the comparable prior year period. The increase in
R&D expenses primarily resulted from increased spending on new product
development and the inclusion of TIC for the full three months ended September
30, 1997 and SSI from July 1, 1997.
The Company recorded nonrecurring acquisition-related charges amounting to
$1,920,000 in the three months ended September 30, 1997. The nonrecurring
charges related to $707,000 of expenses incurred to complete the Company's
acquisition of SSI and the write-off of $878,000 of in-process research and
development costs in conjunction with the Company's acquisition of Syncotec.
Also included in the nonrecurring charges were costs amounting to $335,000 for
expenses relating to its merger discussions with Digital Instruments, Inc.
("DI") which were terminated in October 1997.
Excluding the nonrecurring charges, the Company's operating profit in the three
months ended September 30, 1997, was $4,950,000 an increase of $965,000 or 24%
from the $3,985,000 reported in the period ended September 30, 1996. The Company
reported an operating profit, including the nonrecurring charges, of $3,030,000
for the three months ended September 30, 1997, as compared to an operating loss
of $7,098,000, which included nonrecurring acquisition-related charges of
$11,083,000.
<PAGE>
-6-
The Company reported net income for the first quarter of fiscal 1998, excluding
the nonrecurring acquisition-related charges, totaling $3,618,000, an increase
of $479,000 or 15% from net income excluding nonrecurring charges of $3,139,000
in the first quarter of fiscal 1997. Earnings per share excluding the
nonrecurring charges were $.30, up 15% from $.26 in the first quarter of fiscal
1997 despite a 3% increase in shares outstanding. Including the nonrecurring
charges, the Company reported net income of $1,698,000 or $.14 per share for the
quarter as compared to a net loss in the comparable prior year period of
$7,944,000 or $(0.77) per share.
Financial Condition
- -------------------
At September 30, 1997, working capital was $49,599,000, an increase of
$1,966,000 from the amount at June 30, 1997. The Company had cash and cash
equivalents of $13,231,000 and marketable securities amounting to $10,855,000
for a total of $24,086,000 at September 30, 1997, an increase of $339,000 from
the amount of cash and cash equivalents and marketable securities at June 30,
1997. Receivables decreased by $2,790,000 and inventory increased by $1,838,000
from the amounts at June 30, 1997. The receivables decrease was due primarily to
aggressive collection of accounts receivable in the first quarter of fiscal
1998. Inventory increased primarily to support the growth in sales of the
Company's instruments and systems. Accounts payable increased by $868,000 in the
first quarter of fiscal 1998 to $5,734,000 primarily as a result of nonrecurring
expenses relating to both the SSI and Syncotec acquisitions and nonrecurring
charges relating to its merger discussions with DI, as well as trade accounts
payable on higher levels of inventories needed to support increased production
volume. As of September 30, 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.
Despite some softness in orders in the first quarter for its instruments and
systems due to normal seasonality, the Company's backlog at September 30, 1997
totaled a record $43,765,000, an increase of $18,577,000 or 74% from September
30, 1996 and an increase of $5,077,000 or 13% from June 30, 1997. The backlog of
the Company's instrument and systems at September 30, 1997 increased by
$2,017,000 or 9% from that at June 30, 1997. The backlog of the Company's
modules and components increased by $3,060,000 or 18% from the quarter earlier
primarily as a result of the Company's receiving additional funding of
approximately $4.5 million in the quarter from the University of California's
Lawrence Livermore National Laboratory ("LLNL") in conjunction with the
Department of Energy's construction of the National Ignition Facility.
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
economic and political developments in countries where the Company conducts
business.
<PAGE>
-7-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) 1. On July 29, 1997, the Company filed a Current Report on Form 8-K, dated
July 28, 1997, reporting that the Company had signed a letter of intent
providing for Zygo's acquisition of Digital Instruments, Inc. [Item 5
reporting]
2. On August 29, 1997, the Company filed a Current Report on Form 8-K,
dated August 19, 1997, reporting the completion of the acquisition of
Sight Systems, Inc. by Zygo Corporation. [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, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule for the quarterly report, on Form 10-Q,
for the period ended September 30, 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 13,231
<SECURITIES> 10,855
<RECEIVABLES> 19,124
<ALLOWANCES> 749
<INVENTORY> 13,969
<CURRENT-ASSETS> 62,646
<PP&E> 24,141
<DEPRECIATION> 13,489
<TOTAL-ASSETS> 82,527
<CURRENT-LIABILITIES> 13,047
<BONDS> 0
0
0
<COMMON> 1,112
<OTHER-SE> 64,920
<TOTAL-LIABILITY-AND-EQUITY> 82,527
<SALES> 24,316
<TOTAL-REVENUES> 24,316
<CGS> 12,851
<TOTAL-COSTS> 8,435
<OTHER-EXPENSES> 132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,294
<INCOME-TAX> 1,596
<INCOME-CONTINUING> 1,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,698
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
