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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 September 30, 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
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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
incorporation or organization) Identification No.)
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 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.
14,532,931 Common Stock, $.10 Par Value at November 9, 2000
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 2000 and 1999
(Thousands, except per share amounts)
2000 1999
-------- --------
Net sales $ 23,932 $ 18,603
Cost of good sold 13,963 11,007
-------- --------
Gross profit 9,969 7,596
Selling, general and administrative expenses 5,391 4,350
Research, development and engineering expenses 3,255 2,136
Amortization of goodwill and other intangibles 199 403
-------- --------
Operating profit 1,124 707
-------- --------
Other income (expense):
Interest income 319 264
Miscellaneous (expense), net (64) (45)
-------- --------
255 219
-------- --------
Earnings before income taxes and
minority interest 1,379 926
Income tax expense 469 354
-------- --------
Earnings before minority interest 910 572
Minority interest 93 0
-------- --------
Net earnings (note 4) $ 817 $ 572
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Earnings per share:
Basic (1) $ .06 $ .05
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Diluted (1) $ .05 $ .04
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Weighted average number of shares:
Basic 14,300 11,872
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Diluted 15,209 12,947
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(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 909,000 and 1,075,000 in the three months ended
September 30, 2000 and 1999, respectively.
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and June 30, 2000
(Thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
ASSETS ------------- --------
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,031 $ 15,598
Marketable securities 8,277 8,268
Receivables 22,036 20,138
Inventories:
Raw materials and manufactured parts 9,956 7,034
Work in process 4,354 3,471
Finished goods 1,460 1,374
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Total inventories 15,770 11,879
-------- --------
Costs in excess of billings 3,364 5,743
Income taxes receivable 3,083 866
Prepaid expenses and taxes 735 1,173
Deferred income taxes 8,963 9,020
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Total current assets 70,259 72,685
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Property, plant and equipment, at cost 42,424 37,991
Less accumulated depreciation 20,405 19,498
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Net property, plant and equipment 22,019 18,493
-------- --------
Goodwill and other intangible assets, net 4,813 3,078
Other assets 1,285 906
-------- --------
Total assets $ 98,376 $ 95,162
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,313 $ 8,380
Accrued salary and wages 1,160 3,485
Other accrued liabilities 3,890 4,270
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Total current liabilities 15,363 16,135
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Deferred income taxes and long-term debt 605 355
Minority interest 536 443
Stockholders' Equity:
Common stock, $.10 par value per share:
40,000,000 shares authorized; 14,532,431 1,453 1,444
shares issued (14,441,231 at June 30, 2000)
Additional paid-in capital 71,416 68,304
Retained earnings (note 4) 9,872 9,055
Currency translation effects (477) (182)
Net unrealized (loss) on marketable securities (91) (91)
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82,173 78,530
Less treasury stock, at cost; 207,600 shares 301 301
-------- --------
Total stockholders' equity 81,872 78,229
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Total liabilities and stockholders' equity $ 98,376 $ 95,162
======== ========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2000 and 1999
(Thousands of dollars)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash provided by (used for)
operating activities:
Net earnings (note 4) $ 817 $ 572
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 1,146 1,274
Deferred income taxes 0 (1)
Loss on disposal of assets 0 52
Changes in operating accounts:
Receivables (1,897) (3,630)
Costs in excess of billings 2,379 (566)
Inventories (3,891) (10)
Prepaid expenses 438 (261)
Accounts payable and accrued expenses (3,229) 187
Minority interest 93 0
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Net cash (used for) operating activities (4,144) (2,383)
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Cash (used for) provided by
investing activities:
Additions to property, plant and equipment (4,433) (989)
Investment in marketable securities (9) (248)
Investment in other assets (2,353) (199)
Proceeds from sale of marketable securities 0 250
Proceeds from maturity of marketable securities 0 0
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Net cash (used for) investing activities (6,795) (1,186)
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Cash provided by (used for) financing activities:
Repayment of long-term debt 250 0
Exercise of employee stock options 3,122 143
Contributions from minority interest of consolidated subsidiaries 0 0
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Net cash provided by financing activities 3,372 143
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Net (decrease) in cash and cash equivalents (7,567) (3,426)
Cash and cash equivalents, beginning of year 15,598 13,022
-------- --------
Cash and cash equivalents, end of period $ 8,031 $ 9,596
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</TABLE>
These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 2000 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 September 30, 2000, the consolidated
statements of earnings for the three-months ended September 30, 2000 and 1999,
and the consolidated statements of cash flows for the three-months ended
September 30, 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 consolidated financial
statements for the period ended September 30, 1999 have been restated to reflect
the May 2000 acquisition of Firefly Technologies, Inc. ("Firefly") which was
accounted for as a pooling of interests. The results of operations for the
three-months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statements of financial position and measure those instruments at fair value. In
addition, SFAS No. 133 permits hedge accounting when certain conditions are met.
SFAS No. 133, as amended by SFAS No. 137 and No. 138, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. This statement
will not have a significant impact, as the Company does not significantly
utilize derivatives or hedges.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, which summarizes views of the Commission staff in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements.
Subsequently, the SEC issued SAB No. 101A and SAB No. 101B, "Amendment: Revenue
Recognition in Financial Statements," that delays the implementation date of
certain provisions of SAB No. 101. Management currently is evaluating the
impact, if any, that this SAB will have on the results of operations or
financial position.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25." The Interpretation answers questions
dealing with APB No. 25 implementation practice issues.
Interpretation No. 44 will be applied prospectively to new awards, modifications
to outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: (a) requirements related to the definition of an employee
apply to new awards granted after December 15, 1998; (b) modifications that
directly or indirectly reduce the exercise price of an award apply to
modifications made after December 15, 1998; and (c) modifications to add a
reload feature to an award apply to modifications made after January 12, 2000.
Financial statements for periods prior to July 1, 2000 will not be affected. The
adoption of Interpretation No. 44 is not expected to have a material impact on
our results of operations or financial position.
<PAGE>
NOTE 3: SEGMENT INFORMATION
Under the criteria established by SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," the Company operates in three principal
business segments globally. These segments are based on the markets served by
the Company: Semiconductor/Data Storage, Industrial and Telecommunications. The
Company is reporting this information for the first time for the period ending
September 30, 2000. The segment data is presented below in a manner consistent
with management's internal measurement of the business.
<TABLE>
<CAPTION>
(Thousands of dollars)
Semiconductor Industrial Telecom Total
------------- ---------- ------- -----
<S> <C> <C> <C> <C>
Sales $15,090 $7,518 $1,324 $23,932
Gross Profit 6,226 3,141 602 9,969
Gross Profit as a % Sales 41% 42% 45% 42%
</TABLE>
Export sales by geographic area were as follows:
For the Three Months
Ended September 30,
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2000 1999
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(Thousands of dollars)
Far East:
Japan $5,197 $3,600
Pac Rim 2,050 2,629
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Total Far East 7,247 6,229
Europe and other 2,182 1,704
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Total $9,429 $7,933
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NOTE 4: COMPREHENSIVE INCOME
Comprehensive income totaled $522,000 in the three-months ended September 30,
2000, compared to comprehensive income of $610,000 in the comparable prior-year
period. Comprehensive income is defined as net income plus non-stockholder
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net sales for the first quarter ended September 30, 2000 totaled $23,932,000, an
increase of $5,329,000 or 29% from $18,603,000 in the three months ended
September 30, 1999. The increase in sales is primarily due to the increase in
sales volumes.
Gross profit for the three months ended September 30, 2000, amounted to
$9,969,000, an increase of $2,373,000 from the comparable prior year period.
Gross profit as a percentage of net sales for the quarter ended September 30,
2000, amounted to 42%, an increase of 1 percentage point, from gross profit as a
percentage of net sales of 41%, for the three months ended September 30, 1999.
The increases in gross profit and gross profit as a percentage of net sales were
primarily due to the significant increase in sales levels.
<PAGE>
Selling, general and administrative expenses of $5,391,000, in the three months
ended September 30, 2000, increased by $1,041,000 or 24%, from the same period
the year earlier. During the current quarter, the increases were primarily
associated with three new operations: Zygo TeraOptix, ZygoLOT GmbH, and Zygo
Automation - Delray Beach, and three new sales offices: Chicago, Japan and
Taiwan. As a percentage of net sales, selling, general and administrative
expenses in the three-month periods ended September 30, 2000 and 1999, remained
constant at 23%.
Research, development and engineering expenses ("R&D") amounted to $3,255,000 or
14% of net sales for the three months ended September 30, 2000. In the
comparable three-month period in the prior year, R&D expenses totaled $2,136,000
or 11% of net sales. The investment in R&D was due to increased expenditures
related to OEM opportunities in the semiconductor area and also to develop
prototypes for significant users in the optical module market. 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 September 30,
2000 totaling $1,124,000, as compared to operating profit in the comparable
prior year period of $707,000.
The Company recorded net income of $817,000 in the three-months ended September
30, 2000, an increase of 43% to the net income of $572,000 in the three months
ended September 30, 1999. This improvement in profitability was achieved in the
quarter largely due to sales volume increases, which led to improved gross and
operating margins. The net earnings on a basic per share basis was $.06 for the
quarter ending September 30, 2000, compared with $.05 in the comparable prior
year period.
Financial Condition
At September 30, 2000, working capital was $54,896,000, a decrease of $1,654,000
from the amount at June 30, 2000. The Company at September 30, 2000 had cash and
cash equivalents of $8,031,000 and marketable securities of $8,277,000 for a
total of $16,308,000, a decrease of $7,558,000 from June 30, 2000. Accounts
receivable increased by $1,898,000 and inventories increased by $3,891,000.
Accounts payable increased by $1,933,000 and accrued liabilities decreased
by$2,705,000. As of September 30, 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 September 30, 2000 totaled $56,479,000, an increase of
$10,536,000 or 23% from June 30, 2000 and an increase of $25,308,000 or 81% from
September 30, 1999. The Company had a positive book-to-bill ratio at 1.44 in the
quarter ended September 30, 2000.
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 2001 affecting our financial investments as of September 30, 2000
would have an insignificant effect on our pretax earnings.
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 semiconductor and
telecommunications, and economic and political developments in countries where
the Company conducts business.
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) None.
<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
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(Registrant)
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J. Bruce Robinson
President and Chief Executive Officer
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Michael J. Auth
Vice President Finance, Treasurer,
and Chief Financial Officer
Date: November 13, 2000
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
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27 Financial Data Schedule for the quarterly report
on Form 10-Q for the period ended September 30, 2000.
