================================================================================
FORM 10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 2000
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. YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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.
14,398,834 Common Stock, $.10 Par Value at May 10, 2000
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
----------------------------- ----------------------------
2000 1999 2000 1999
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 21,663 $ 13,056 $ 60,836 $ 44,473
Cost of good sold 13,039 10,143 35,538 30,067
-------- -------- -------- --------
Gross profit 8,624 2,913 25,298 14,406
Selling, general and administrative expenses 3,684 5,991 12,484 14,614
Research, development and engineering expenses 2,534 2,314 6,696 7,147
Amortization of goodwill and other intangibles 399 403 1,205 896
-------- -------- -------- --------
Operating profit (loss) 2,007 (5,795) 4,913 (8,251)
-------- -------- -------- --------
Other income (expense):
Interest income 341 247 860 871
Miscellaneous (expense), net (139) (39) (209) (153)
-------- -------- -------- --------
202 208 651 718
-------- -------- -------- --------
Earnings (loss) before income taxes and
minority interest 2,209 (5,587) 5,564 (7,533)
Income tax expense (benefit) 609 (1,789) 1,833 (2,328)
-------- -------- -------- --------
Earnings (loss) before minority interest 1,600 (3,798) 3,731 (5,205)
Minority interest (6) 0 67 0
-------- -------- -------- --------
Net earnings (loss) (note 2) $ 1,606 $ (3,798) $ 3,664 $ (5,205)
======== ======== ======== ========
Earnings (loss) per share:
Basic (1) $ .14 $ (.34)(2) $ .32 $ (.47)(2)
======== ======== ======== ========
Diluted (1) $ .13 $ (.34)(2) $ .30 $ (.47)(2)
======== ======== ======== ========
Weighted average number of shares:
Basic 11,564 11,179 11,370 11,133
======== ======== ======== ========
Diluted 12,555 11,179 12,346 11,133
======== ======== ======== ========
</TABLE>
(1) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 991,000 in the three months ended March 31, 2000
and 976,000 in the nine months ended March 31, 2000.
(2) As per generally accepted accounting principles, the computation of the net
loss per share is based on the weighted average basic shares outstanding.
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and June 30, 1999
(Thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 2000 1999
- ------ ---------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,991 $ 13,020
Marketable securities 8,270 8,351
Receivables 21,525 12,094
Inventories:
Raw materials and manufactured parts 6,245 7,866
Work in process 2,969 4,622
Finished goods 2,479 2,985
-------- --------
Total inventories 11,693 15,473
-------- --------
Costs in excess of billings 2,529 660
Income taxes receivable 1,633 741
Prepaid expenses and taxes 769 799
Deferred income taxes 3,678 3,683
-------- --------
Total current assets 73,088 54,821
-------- --------
Property, plant and equipment, at cost 35,176 33,708
Less accumulated depreciation 18,885 17,460
-------- --------
Net property, plant and equipment 16,291 16,248
-------- --------
Goodwill and other intangible assets, net 8,938 9,939
Other assets 1,130 819
-------- --------
Total assets $ 99,447 $ 81,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,043 $ 4,989
Accrued expenses and customer progress payments 6,699 6,251
-------- --------
Total current liabilities 15,742 11,240
-------- --------
Deferred income taxes 2,213 2,213
Minority interest 223 0
Stockholders' Equity:
Common stock, $.10 par value per share:
15,000,000 shares authorized; 11,981,297 1,198 1,140
shares issued (11,402,442 at June 30, 1999)
Additional paid-in capital 51,914 42,587
Retained earnings (note 2) 28,738 25,074
Currency translation effects (180) (57)
Net unrealized (loss) on marketable securities (101) (69)
-------- --------
81,570 68,675
Less treasury stock, at cost; 207,600 shares 301 301
-------- --------
Total stockholders' equity 81,269 68,374
-------- --------
Total liabilities and stockholders' equity $ 99,447 $ 81,827
======== ========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2000 and 1999
(Thousands of dollars)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash provided by (used for)
operating activities:
Net earnings (loss) (note 2) $ 3,664 $ (5,205)
Adjustments to reconcile net earnings (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization 3,725 3,175
Loss on disposal of assets 532 308
Gain on sale of marketable securities 0 (38)
Changes in operating accounts:
Receivables (6,114) 5,625
Costs in excess of billings (1,869) (23)
Inventories 575 664
Prepaid expenses 30 (87)
Accounts payable and accrued expenses 8,586 (7,064)
Minority interest 67 0
-------- --------
Net cash provided by (used for) operating activities 9,196 (2,645)
-------- --------
Cash (used for) provided by
investing activities:
Additions to property, plant and equipment (3,088) (3,026)
Investment in marketable securities (1,477) (11,363)
Investment in other assets (554) (2,262)
Proceeds from sale of marketable securities 1,500 8,616
Proceeds from maturity of marketable securities 0 2,545
-------- --------
Net cash (used for) investing activities (3,619) (5,490)
-------- --------
Cash provided by financing activities:
Repayment of long-term debt 0 0
Exercise of employee stock options 4,238 331
Contributions from minority interest of consolidated subsidiaries 156 0
-------- --------
Net cash provided by financing activities 4,394 331
-------- --------
Net increase (decrease) in cash and cash equivalents 9,971 (7,804)
Cash and cash equivalents, beginning of year 13,020 22,023
-------- --------
Cash and cash equivalents, end of period $ 22,991 $ 14,219
======== ========
</TABLE>
These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 1999 Annual
Report on Form 10-K405 including items incorporated by reference therein.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet at March 31, 2000, the consolidated statements of
earnings for the three- and nine-months ended March 31, 2000 and 1999, and the
consolidated statements of cash flows for the nine-months ended March 31, 2000
and 1999 are unaudited but, in the opinion of the Company, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
statement of the results of the interim periods. The consolidated statements
include the accounts of Zygo Corporation and all consolidated subsidiaries,
including a consolidated joint venture, which the Company entered into in
October 1999. The minority interest represents the 40% of the joint venture not
owned by the Company. The results of operations for the three-month and
nine-month periods ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's reported
net income or stockholders' equity. Comprehensive income (loss) is defined as
net income plus nonstockholder direct adjustments to stockholders' equity which
consist of foreign currency translation adjustments and adjustments for the net
unrealized gains (losses) related to the Company's marketable equity securities.
Comprehensive income totaled $1,526,000 and $3,509,000 in the three-month and
nine-month periods ended March 31, 2000, respectively, as compared to
comprehensive losses of $3,916,000 and $5,262,000 in the comparable prior-year
periods.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards using
a management approach, for reporting information regarding operating segments.
The Company has viewed its operations as one segment providing sales and service
in metrology, process control, and yield enhancement solutions for high
precision manufacturing industries. Substantially all of the Company's operating
results, assets, depreciation, and amortization are U.S. based. The Company's
export sales are as follows:
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
(Thousands of dollars)
Far East:
Japan $ 4,550 $ 2,815 $12,562 $10,651
Pac Rim 5,210 1,959 10,519 3,342
------- ------- ------- -------
Total Far East 9,760 4,774 23,081 13,993
Europe and other 2,487 1,169 7,402 5,834
------- ------- ------- -------
Total $12,247 $ 5,943 $30,483 $19,827
======= ======= ======= =======
<PAGE>
NOTE 3: SUBSEQUENT EVENT
On May 5, 2000, the Company completed its previously announced merger with
Firefly Technologies, Inc. ("Firefly"), a manufacturer of heads and related
products for the optical storage industry as well as metrology, micro optics,
switches and filters for the telecommunications industry located in Holliston,
MA. The Company issued approximately 2.3 million shares of its common stock in
exchange for all of the outstanding capital stock and options of Firefly, a
privately held company. This merger will be accounted for under the pooling of
interests method of accounting, and accordingly, historical financial
information in future reports will be restated to include Firefly.
For the year ended December 31, 1999, Firefly had total revenues of
approximately $3.1 million and at December 31, 1999, had total assets of
approximately $1.1 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net sales of $21,663,000 for the three months and $60,836,000 for the nine
months ended March 31, 2000, increased by $8,607,000 or 66% and $16,363,000 or
37%, respectively, from the net sales in the comparable prior year periods. Net
sales of the Company's instruments and systems during the third quarter of
fiscal 2000 increased by 61% to approximately $15,285,000 over the third quarter
of fiscal 1999, mainly as a result of sales growth in the mask metrology and
automation markets. Net sales of modules and components totaled approximately
$6,378,000, an increase of 80% from the comparable quarter in the prior year as
a result of strong shipments for motion measurement and optical components to
semiconductor industry OEMs. Net sales of the Company's instruments and systems
and net sales of modules and components increased by $12,932,000 or 43% and
$3,431,000 or 24%, respectively, for the nine months ended March 31, 2000 as
compared to the nine-month period ended March 31, 1999.
Gross profit for the three months and nine months ended March 31, 2000, amounted
to $8,624,000 and $25,298,000, respectively, an increase of $5,711,000 and
$10,892,000 from the comparable prior year periods. Gross profit as a percentage
of net sales for the quarter and nine months ended March 31, 2000, amounted to
40% and 42%, respectively, an increase of 18 and 10 percentage points,
respectively, from gross profit as a percentage of net sales of 22% and 32%,
respectively, for the three months and nine months ended March 31, 1999. The
increase in gross profit and gross profit as a percentage of net sales were
primarily due to the significant increase in sales levels, partially offset in
the case of gross profit as a percentage of net sales for the quarter ended
March 31, 2000 by sales of low margin atomic force microscopy equipment. 1999
third quarter gross profit levels were impacted by $1.1 million of inventory
write offs.
Selling, general and administrative expenses of $3,684,000 and $12,484,000,
respectively, in the three months and nine months ended March 31, 2000,
decreased by $2,307,000 or 39%, and $2,130,000 or 15%, respectively, from the
same periods the year earlier. During the current quarter sales related cost
increases associated with the additional infrastructure, such as sales offices
in Japan and a new joint venture in Europe (ZygoLOT), were offset by a $1.0
million legal award for patent infringement (by Wyko). For the nine months ended
March 31, 1999, selling, general and administrative costs included $2.2 million
of costs associated with creating additional infrastructure, consolidation of
operations and severance costs. As a percentage of net sales, selling, general
and administrative expenses decreased in the three months and nine months ended
March 31, 2000, to 17% and 21%, respectively, as compared to 46% and 33%,
respectively, in the comparable prior year period.
<PAGE>
Research, development and engineering expenses ("R&D") amounted to $2,534,000 or
12% of net sales and $6,696,000 or 11% of net sales, respectively, for the three
months and nine months ended March 31, 2000. In the comparable three- and
nine-month periods in the prior year, R&D expenses totaled $2,314,000 or 18% of
net sales and $7,147,000 or 16% of net sales, respectively. Current quarter
increases in expenditures from prior year levels are largely a result of
material purchases associated with specific industrial projects. On an annual
basis the decrease in R&D expenses is primarily a result of cost reduction
actions taken in fiscal 1999. The Company's management continues to focus
considerable attention on projects that will enhance the Company's value.
The Company recorded operating profit in the three months ended March 31, 2000
totaling $2,007,000, as compared to an operating loss in the comparable prior
year period of $5,795,000. The Company's operating profit in the nine months
ended March 31, 2000 was $4,913,000, as compared to an operating loss of
$8,251,000 in the nine months ended March 31, 1999.
The Company recorded net income of $1,606,000 in the three-month period ended
March 31, 2000, as compared to a net loss of $3,798,000 in the three-month
period ended March 31, 1999. The net earnings on a per share basis was $.13 for
the quarter ending March 31, 2000, compared with a net loss on a per share basis
in the comparable prior year period of $(.34). The Company recorded net income
of $3,664,000 or $.30 per share for the first nine months of fiscal 2000, as
compared to a net loss in the comparable prior-year period of $5,205,000 or
$(.47) per share.
Financial Condition
At March 31, 2000, working capital was $57,346,000, an increase of $13,765,000
from the amount at June 30, 1999 and of $8,883,000 from December 31, 1999
levels. The Company at March 31, 2000 had cash and cash equivalents of
$22,991,000 and marketable securities of $8,270,000 for a total of $31,261,000,
an increase of $8,348,000 from December 31, 1999. During the quarter, cash
proceeds of $3,706,000 were generated via stock option exercises. The increase
in working capital in the quarter was principally due to the increase in the
level of cash and cash equivalents. Quarterly increases in accounts payable and
accrued liabilities totaling $4,011,000 were offset by cost in excess of billing
increases of $1,003,000 and tax receivable increases of $3,241,000. Tax
receivable benefits were generated via the tax benefits associated with gains
from stock option exercises. As of March 31, 2000, 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 March 31, 2000 totaled $36,377,000, an increase of
$4,390,000 or 14% from December 31, 1999. The increase in the Company's backlog
from December 31, 1999 was due to increased demand for capital equipment in the
semiconductor market.
During the quarter the Company announced it had entered into an agreement to
terminate the distribution agreement to market and sell Atomic Force Microscope
products. As part of the agreement, Zygo has been granted a nonexclusive license
to AFM technology for the next three years and may continue to license the
technology for additional terms thereafter. Zygo has entered into an additional
agreement with a third party for support and service of AFM products previously
sold by Zygo.
On March 7, 2000, the Company announced the signing of a letter of intent with
Firefly Technologies, Inc. of Holliston, Massachusetts and the transaction was
completed on May 5, 2000. Firefly is a manufacturer of heads and related
products for the optical storage industry as well as metrology, micro optics,
switches, and filters for the telecommunications industry. Firefly's optical
storage products enable optical storage manufacturers to build high capacity
storage devices. Firefly's telecommunications components are used in wave
division multiplexers to increase the capacity of optical fibers. Firefly also
manufactures metrology designed to measure the quality of micro optics and
<PAGE>
related components. As a result of the merger, Firefly became a wholly-owned
subsidiary of Zygo and became the foundation of a new division to be named Zygo
TeraOptix. For the year ending December 31, 1999, Firefly recorded revenues of
approximately $3.1 million.
During the second quarter, the Company entered into an agreement with LOT-Oriel
GmbH establishing a European joint venture. Zygo owns a 60% interest in this new
company, called ZygoLOT GmbH. The Company's results include the financial
performance of ZygoLOT GmbH, effective October 1, 1999.
Year 2000
The Company has transitioned into the year 2000 with minimal interruptions. We
are continuing to monitor our products, product design tools, manufacturing
tools, information systems, business infrastructure, material and service
suppliers and customers. Overall, there has been no significant impact on the
Company. The cost spent on the year 2000 problem has been immaterial to date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our investment portfolio.
A move in interest rates of 10% of our weighted-average worldwide interest rate
in fiscal 2000 affecting our financial investments as of March 31, 2000 would
have an insignificant effect on our pretax earnings. In fiscal 1999, the same
move in the interest rate affecting our interest sensitive investments would
have had an insignificant effect on our financial position, results of
operations and cash flows.
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, semiconductor, and
telecommunications, and economic and political developments in countries where
the Company conducts business.
<PAGE>
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 and Chief Executive Officer
/s/ MICHAEL J. AUTH
----------------------------------------
Michael J. Auth
Vice President Finance, Treasurer,
and Chief Financial Officer
Date: May 12, 2000
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial Data Schedule.
(b) 1. None.
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule for the quarterly report
on Form 10-Q for the period ended March 31, 2000.
<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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,991
<SECURITIES> 8,270
<RECEIVABLES> 18,947
<ALLOWANCES> 1,173
<INVENTORY> 11,693
<CURRENT-ASSETS> 73,088
<PP&E> 35,176
<DEPRECIATION> 18,885
<TOTAL-ASSETS> 99,447
<CURRENT-LIABILITIES> 15,742
<BONDS> 0
0
0
<COMMON> 1,198
<OTHER-SE> 80,071
<TOTAL-LIABILITY-AND-EQUITY> 99,447
<SALES> 60,836
<TOTAL-REVENUES> 60,836
<CGS> 35,538
<TOTAL-COSTS> 35,538
<OTHER-EXPENSES> 20,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,564
<INCOME-TAX> 1,833
<INCOME-CONTINUING> 3,731
<DISCONTINUED> 0
<EXTRAORDINARY> (67)
<CHANGES> 0
<NET-INCOME> 3,664
<EPS-BASIC> .32
<EPS-DILUTED> .30
</TABLE>
