10-Q/A 1 a35734.txt ZYGO CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 (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 28, 2003 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 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X 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. 17,562,712 shares of Common Stock, $.10 Par Value, at May 02, 2003 EXPLANATORY NOTE Zygo Corporation is filing this Quarterly Report on Form 10-Q/A for the quarter ended March 28, 2003 in order to revise pro forma information appearing in Note 1 -- "Stock Compensation Plans," to Consolidated Financial Statements. The Company's Consolidated Statements of Operations and Cash Flows, and Consolidated Balance Sheets for all periods presented were reported accurately. The revised pro forma information in Note 1 does not affect any previously reported historical operating results of the Company. As indicated in Note 1, Zygo applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock compensation plans. Since all of Zygo's stock options were granted at an exercise price equal to the fair market value on the date of grant, pursuant to APB Opinion No. 25 no compensation cost is recognized for these stock option grants. The pro forma net earnings (loss) and pro forma net earnings (loss) per share included in Note 1 are computed as if Zygo accounted for its stock options under an alternate methodology, in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Zygo does not use this alternate methodology in reporting its actual financial results. In estimating the fair value of options at the date of grant under this alternate methodology, Zygo utilized an unaffiliated outside service to determine the pro forma stock option expense for each of the three months and nine months ended March 28, 2003 and March 31, 2002, using the Black-Scholes model. Based, in part, upon written material provided by this outside service, Zygo believed that this outside service provided the Company with a consolidated dollar amount of the pro forma stock option expense for each period, including the unamortized portions of the pro forma stock option expense from applicable prior periods, which should have been included in the fiscal 2003 and 2002 pro forma expense. Instead, the pro forma expense amounts provided by the outside service only related to the portion of the expense for each of these three and nine month periods in fiscal 2002 and 2003, without inclusion of any unamortized portions from the applicable prior periods. This resulted in the pro forma information presented in Note 1 to Consolidated Financial Statements to be incorrect. The revised pro forma net loss for the three months and nine months ended March 28, 2003 is $(612,000) and $(15,100,000), respectively, as compared to pro forma net earnings originally reported of $370,000 and a pro forma net loss originally reported of $(11,574,000). The revised pro forma fully diluted loss per share for the three months and nine months ended March 28, 2003 is $(0.03) and $(0.86), respectively, as compared to pro forma fully diluted earnings per share originally reported of $0.02 and a pro forma fully diluted loss per share originally reported of $(0.66). The revised pro forma net loss for the three months and nine months ended March 31, 2002 is $(6,001,000) and $(15,936,000), respectively, compared to $(3,866,000) and $(9,398,000) as originally reported; and the revised pro forma fully diluted loss per share for the three months and nine months ended March 31, 2002 is $(0.34) and $(0.92), respectively, compared to $(0.22) and $(0.54) as originally reported. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of Item 1 of Form 10-Q as revised is presented in this filing. Other than changes to the pro forma information in Note 1, no other revisions have been made to Item 1 of this Quarterly Report on Form 10-Q/A from the Form 10-Q originally filed with the Commission for the third quarter of fiscal 2003. This amendment does not reflect events occurring after the filing of the original quarterly report on Form 10-Q. 2 PART I - Financial Information Item 1. Financial Statements CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Thousands, except per share amounts)
Three Months Ended Nine Months Ended --------------------- ------------------------ March 28, March 31, March 28, March 31, 2003 2002 (1) 2003 2002 (1) --------- --------- --------- --------- Net sales Products $22,450 $20,185 $ 62,003 $ 57,757 Development services 6,560 -- 13,726 -- ------- -------- -------- -------- 29,010 20,185 75,729 57,757 ------- -------- -------- -------- Cost of goods sold Products 14,250 13,162 38,906 38,537 Development services 5,258 -- 10,960 -- ------- -------- -------- -------- 19,508 13,162 49,866 38,537 ------- -------- -------- -------- Gross profit 9,502 7,023 25,863 19,220 Selling, general, and administrative expenses 5,716 6,022 16,470 17,380 Research, development, and engineering expenses 2,510 4,457 8,696 14,262 Amortization of intangibles -- 185 104 555 Exit costs for Automation Systems Group -- -- -- 1,920 ------- -------- -------- -------- Operating profit (loss) 1,276 (3,641) 593 (14,897) ------- -------- -------- -------- Gain on sale of Automation Systems Group -- -- -- 6,117 Other income (expense): Interest income 220 281 712 1,124 Miscellaneous income (expense), net (108) 74 (275) (106) ------- -------- -------- -------- Total other income 112 355 437 1,018 ------- -------- -------- -------- Earnings (loss) from continuing operations before income taxes and minority interest 1,388 (3,286) 1,030 (7,762) Income tax (expense) benefit (515) 1,446 (384) 3,449 Minority interest 93 94 324 246 ------- -------- -------- -------- Earnings (loss) from continuing operations 780 (1,934) 322 (4,559) ------- -------- -------- -------- Discontinued TeraOptix operations, net of tax (338) (1,788) (2,482) (4,553) Charges and related adjustments on the disposal of TeraOptix, net of tax 39 -- (9,079) -- ------- -------- -------- -------- Loss from discontinued operations (299) (1,788) (11,561) (4,553) ------- -------- -------- -------- Net earnings (loss) $ 481 $(3,722) $(11,239) $ (9,112) ======= ======== ======== ======== Basic -- Earnings (loss) per share: Continuing operations $ 0.04 $ (0.11) $ 0.02 $ (0.26) Discontinued operations (0.01) (0.10) (0.66) (0.26) ------- -------- -------- -------- Net earnings (loss) $ 0.03 $ (0.21) $ (0.64) $ (0.52) ======= ======== ======== ======== Diluted--Earnings (loss) per share: Continuing operations $ 0.04 $ (0.11) $ 0.02 $ (0.26) Discontinued operations (0.01) (0.10) (0.66) (0.26) ------- -------- -------- -------- Net earnings (loss) $ 0.03 $ (0.21) $ (0.64) $ (0.52) ======= ======== ======== ======== Weighted average shares outstanding: Basic 17,560 17,434 17,527 17,404 ======= ======== ======== ======== Diluted 17,738 17,434 17,527 17,404 ======= ======== ======== ========
(1) The consolidated statements of operations for the three and nine month-periods ended March 31, 2002 have been reclassified to conform with the current period presentations of the loss from discontinued operations. See accompanying notes to consolidated financial statements. 3 CONSOLIDATED BALANCE SHEETS (Thousands)
March 28, 2003 June 30, 2002 (Unaudited) --------------- ------------- Assets Current assets: Cash and cash equivalents $ 35,321 $ 28,513 Restricted cash -- 1,225 Marketable securities 11,057 8,734 Receivables 19,405 21,241 Income tax receivable 2,072 -- Inventories 19,238 23,612 Prepaid expenses 857 1,444 Deferred income taxes 4,579 4,899 Assets of discontinued unit held for sale 11,919 -- -------- -------- Total current assets 104,448 89,668 Property, plant, and equipment, net 26,053 55,045 Deferred income taxes 25,756 19,981 Intangible assets, net 5,010 4,507 -------- -------- Total assets $161,267 $169,201 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 11,583 $ 837 Accounts payable 6,922 5,020 Progress payments received from customers 3,503 368 Accrued salaries and wages 3,475 3,451 Other accrued liabilities 4,167 5,132 Income taxes payable -- 929 -------- -------- Total current liabilities 29,650 15,737 Long-term debt, excluding current portion -- 11,374 Other long-term liabilities 1,026 1,115 Minority interest 1,026 970 -------- -------- Total liabilities 31,702 29,196 -------- -------- Stockholders' equity: Common Stock, $.10 par value per share: 40,000 shares authorized; 18,009 shares issued (17,892 at June 30, 2002) 17,562 shares outstanding (17,445 at June 30, 2002) 1,801 1,789 Additional paid-in capital 138,172 137,390 Retained earnings (accumulated deficit) (3,258) 7,981 Accumulated other comprehensive income (loss): Currency translation effects (1,062) (1,369) Net unrealized loss on swap agreement (832) (515) Net unrealized gain on marketable securities 31 16 -------- -------- 134,852 145,292 Less treasury stock of 447 common shares, at cost: 5,287 5,287 -------- -------- Total stockholders' equity 129,565 140,005 -------- -------- Total liabilities and stockholders' equity $161,267 $169,201 ======== ========
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Thousands)
Nine Months Ended ------------------------------- March 28, 2003 March 31, 2002 -------------- -------------- Cash provided by (used for) operating activities: Net loss $ (11,239) $ (9,112) Adjustments to reconcile net loss to cash provided by (used for) operating activities: Loss from discontinued operations 11,561 4,553 Depreciation and amortization 4,277 4,577 Gain on sale of Automation Systems Group -- (6,117) Loss on disposal of assets 740 435 Deferred income taxes 234 (1,754) Non-cash compensation charges related to stock options 57 64 Changes in operating accounts: Receivables 230 3,017 Costs in excess of billings -- (1,772) Inventories 3,559 29 Prepaid expenses 567 (15) Accounts payable and accrued expenses 3,794 (5,531) Minority interest 324 246 -------- -------- Net cash provided by (used for) continuing operations 14,104 (11,380) Net cash used for discontinued operations (4,522) (3,578) -------- -------- Net cash provided by (used for) operating activities 9,582 (14,958) -------- -------- Cash used for investing activities: Additions to property, plant, and equipment (3,446) (8,381) Investment in marketable securities (5,019) (7,512) Investments in other assets (893) (303) Proceeds from sale of Automation Systems Group, net of cash sold -- 12,077 Interest and restricted cash from sale of Automation Systems Group 1,225 (1,221) Proceeds from the sale or maturity of marketable securities 2,696 5,998 -------- -------- Net cash provided by (used for) continuing operations (5,437) 658 Net cash provided by (used for) discontinued operations 2,822 (6,826) -------- -------- Net cash used for investing activities (2,615) (6,168) -------- -------- Cash provided by financing activities: Employee stock purchase 731 1,098 Exercise of employee stock options 6 23 Dividend payments to minority interest (268) (131) Issuance and repurchase of common stock - (270) -------- -------- Net cash provided by continuing operations 469 720 Net cash used for discontinued operations (628) (140) -------- -------- Net cash provided by (used for) financing activities (159) 580 -------- -------- Net increase (decrease) in cash and cash equivalents 6,808 (20,546) Cash and cash equivalents, beginning of period 28,513 52,630 -------- -------- Cash and cash equivalents, end of period $ 35,321 $ 32,084 ======== ========
See accompanying notes to consolidated financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of Zygo Corporation and its subsidiaries ("Company"). All material transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements. The results of operations for the periods ended March 28, 2003 are not necessarily indicative of the results to be expected for the full fiscal year. The Consolidated Balance Sheet at March 28, 2003, the Consolidated Statements of Operations for the three and nine months ended March 28, 2003 and March 31, 2002, and the Consolidated Statements of Cash Flows for the nine months ended March 28, 2003 and March 31, 2002 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 accompanying consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's June 30, 2002 Annual Report on Form 10-K including items incorporated by reference therein. Earnings Per Share Basic and diluted earnings per share are calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
Three Months Ended Nine Months Ended --------------------------- -------------------------- March 28, March 31, March 28, March 31, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Basic weighted average shares outstanding 17,560,000 17,434,000 17,527,000 17,404,000 Dilutive effect of stock options 178,000 -- -- -- ---------- ---------- ---------- ---------- Diluted weighted average shares outstanding 17,738,000 17,434,000 17,527,000 17,404,000 ========== ========== ========== ==========
For the nine months ended March 28, 2003 and the three and nine months ended March 31, 2002, the Company recorded net losses. Due to these net losses, stock options to acquire 325,000 shares of common stock for the three months ended March 31, 2002, and 181,000 shares and 327,000 shares of common stock for the nine months ended March 28, 2003 and March 31, 2002, respectively, were excluded from the computation of diluted earnings per share because of the anti-dilutive effect on loss per share. Stock Compensation Plans As of March 28, 2003, the Company has three stock-based compensation plans, which are described below. The Company applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Since all options were granted with an exercise price equal to the fair market value on the date of grant, no compensation cost has been recognized for its fixed option plans. Pro forma 6 information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation," which requires that the information be determined as if the Company has accounted for its stock options granted in fiscal years beginning after December 15, 1994 under the fair value method of the Statement. The Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan permitted the granting of non-qualified options to purchase a total of 4,850,000 shares (adjusted for splits) of common stock at prices not less than the fair market value on the date of grant. Options generally became exercisable at the rate of 25% of the shares each year commencing one year after the date of grant. The Plan, as amended, expired on September 3, 2002. The Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan permits the granting of non-qualified options to purchase a total of 620,000 shares (adjusted for splits) of common stock at prices not less than the fair market value on the date of grant. Under the terms of the Plan, as amended on September 24, 1999, each new non-employee director (other than a person who was previously an employee of the Company or any of its subsidiaries) is granted an option to purchase 8,000 shares of common stock, generally, on his or her first day of service as a non-employee director; and each other non-employee director is granted an option to purchase 3,000 shares of common stock on an annual basis. All options are fully exercisable on the date of grant and have a 10-year term. The Plan, as amended, will expire on November 17, 2009. The Zygo Corporation 2002 Equity Incentive Plan permits the granting of incentive stock options, non-qualified stock options, or restricted stock to purchase a total of 1,500,000 shares of common stock. The exercise price per share of common stock covered by an option may not be less than the par value per share on the date of grant, and in the case of an incentive stock option, the exercise price may not be less than the fair market value per share on the date of grant. The Plan will expire on August 27, 2012. The Board of Directors may also amend the Plan to authorize the grant of other types of equity-based awards, without further action by our stockholders. The fair value of options at date of grant was estimated using the Black-Scholes model. The Company's pro forma information is as follows:
Three Months Ended -------------------------------------------------------------------- REVISED ORIGINAL (1) REVISED ORIGINAL (1) ------- ------------ ------- ------------ March 28, 2003 March 28, 2003 March 31, 2002 March 31, 2002 -------------- -------------- -------------- -------------- Net earnings (loss), as reported $ 481 $ 481 $ (3,722) $ (3,722) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,093) (111) (2,279) (144) ------- ------ -------- --------- Pro forma net (loss) earnings $ (612) $ 370 $ (6,001) $ (3,866) ======= ====== ======== ========= Net earnings (loss) per share Basic - as reported $ 0.03 $ 0.03 $ (0.21) $ (0.21) ======= ====== ======== ========= Basic - pro forma $ (0.03) $ 0.02 $ (0.34) $ (0.22) ======= ====== ======== ========= Diluted - as reported $ 0.03 $ 0.03 $ (0.21) $ (0.21) ======= ====== ======== ========= Diluted - pro forma $ (0.03) $ 0.02 $ (0.34) $ (0.22) ======= ====== ======== =========
7
Nine Months Ended --------------------------------------------------------------------------- REVISED ORIGINAL (1) REVISED ORIGINAL (1) ------- ------------ ------- ------------ March 28, 2003 March 28, 2003 March 31, 2002 March 31, 2002 -------------- -------------- -------------- -------------- Net earnings (loss), as reported $(11,239) $(11,239) $(9,112) $(9,112) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (3,861) (335) (6,824) (286) -------- -------- -------- ------- Pro forma net (loss) earnings $(15,100) $(11,574) $(15,936) $(9,398) ======== ======== ======== ======= Net earnings (loss) per share Basic - as reported $(0.64) $(0.64) $(0.52) $(0.52) ======== ======== ======== ======= Basic - pro forma $(0.86) $(0.66) $(0.92) $(0.54) ======== ======== ======== ======= Diluted - as reported $(0.64) $(0.64) $(0.52) $(0.52) ======== ======== ======== ======= Diluted - pro forma $(0.86) $(0.66) $(0.92) $(0.54) ======== ======== ======== =======
(1) "Original" refers to information presented in Note 1 to Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 2003, previously filed with the Securities and Exchange Commission on May 7, 2003. In estimating the fair value of options at the date of grant using the alternative methodology under SFAS No. 123, the Company utilized an unaffiliated outside service to determine the pro forma stock option expense for each of the three months and nine months ended March 28, 2003 and March 31, 2002, using the Black-Scholes model. Based, in part, upon written material provided by this outside service, the Company believed that this outside service provided the Company with a consolidated dollar amount of the pro forma stock option expense for each period, including the unamortized portions of the pro forma stock option expense from applicable prior periods which should have been included in the fiscal 2003 and 2002 pro forma expense. Instead, the pro forma expense amounts provided by the outside service only related to the portion of the expense for each of these three and nine month periods in fiscal 2003 and 2002, without inclusion of any unamortized portions from the applicable prior periods. This resulted in the pro forma information previously presented in Note 1 to Consolidated Financial Statements to be incorrect. Comprehensive Income (Loss) The Company's total comprehensive income (loss) was as follows:
Three Month Ended Nine Months Ended --------------------------- ----------------------------- March 28, March 31, March 28, March 31, 2003 2002 2003 2002 --------- --------- --------- --------- Net income (loss) $481 $(3,722) $(11,239) $(9,112) Unrealized gain (loss) on marketable securities, net of tax (21) (151) 15 (122) Unrealized gain (loss) on swap agreement, net of tax 29 282 (317) (311) Foreign currency translation effect, net of tax (221) (248) 307 144 ----- ------- -------- ------- Comprehensive income (loss) $ 268 $(3,839) $(11,234) $(9,401) ===== ======= ======== =======
8 Inventories Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At March 28, 2003 and June 30, 2002, inventories were as follows:
March 28, June 30, 2003 2002 ------- ------- Raw materials and manufactured parts $12,118 $15,114 Work in process 6,754 8,477 Finished goods 366 21 ------- ------- $19,238 $23,612 ======= =======
Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Costs of additions, replacements, and improvements are capitalized. Maintenance and repairs are charged to expense as incurred. At March 28, 2003 and June 30, 2002, property, plant, and equipment were as follows:
March 28, June 30, 2003 2002 ------- ------- Land and land improvements $1,460 $3,822 Buildings and building improvements 9,705 25,252 Machinery, equipment, and office furniture 39,348 47,640 Leasehold improvements 167 237 Construction in progress 1,873 2,878 ------- ------- 52,553 79,829 Accumulated depreciation (26,500) (24,784) ------- ------- $26,053 $55,045 ======= =======
Depreciation is based on the estimated useful lives ranging from 3-40 years for the various classes of assets and is computed using the straight-line method. During the nine months ended March 28, 2003, the Company reclassified $14,178 of property, plant, and equipment to current assets, as assets of discontinued unit held for sale, of which $11,919 is remaining at March 28, 2003 (See note 3). Warranty A limited warranty is provided on the Company's products for periods ranging from 3-27 months and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires management to make estimates of product return rates and expected costs to repair or replace products under warranty. If actual return rates or repair and replacement costs, or both, differ significantly from management's estimates, adjustments to recognize additional expense may be required. 9 The following is a reconciliation of the beginning and ending balances of the Company's accrued warranty liability, which is included in the "Other accrued liabilities" line item in the Company's Consolidated Balance Sheet:
Three Months Ended Nine Months Ended March 28, 2003 March 28, 2003 -------------- -------------- Beginning balance $1,364 $ 701 Reductions for payments made (235) (722) Changes in accruals related to warranties issued in the current period 162 1,098 Changes in accrual related to pre-existing warranties 54 268 ------ ------ Ending Balance $1,345 $1,345 ====== ======
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. SFAS No. 142 provides specific guidance for testing goodwill and intangible assets that will not be amortized for impairment. In addition, SFAS No. 142 expands the disclosure requirements for goodwill and other intangible assets in the years subsequent to their acquisition. SFAS No. 142 is effective for our fiscal year 2003. The adoption of SFAS No. 142 did not have a material effect on our results of operations or statements of financial position. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which addresses financial accounting and reporting for retirement obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. SFAS No. 143 requires a company to record the fair value of an asset retirement obligation in the period in which it is incurred. When the retirement obligation is initially recorded, the company also records a corresponding increase to the carrying amount of the related tangible long-lived asset and depreciates that cost over the useful life of the tangible long-lived asset. The retirement obligation is increased at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the initial fair value measurement. Upon settlement of the retirement obligation, the company either settles the retirement obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 with earlier application encouraged. The adoption of SFAS No. 143 in our fiscal 2003 did not have a material effect on our results of operations or statements of financial position. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and also affects certain aspects of accounting for discontinued operations. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, " and certain aspects of APB No. 30, 10 "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. See note 3 for discontinued operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with the exit or disposal activities. SFAS No. 146 nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires companies to record liabilities for exit or disposal activities in the period in which they are incurred, except for certain types of transactions. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on our results of operations or statements of financial position. In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees that have been issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on our results of operations or statements of financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure", which addresses the alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. If a company adopts the recognition provisions of SFAS No. 148 in a fiscal year beginning before December 16, 2003, that change in accounting principle must be reported using one of three methods: Prospective Method, Modified Prospective Method or Retroactive Restatement Method. If a company adopts the recognition provisions of SFAS No. 148 for fiscal years beginning after December 15, 2003, only the Modified Prospective Method and Retroactive Restatement Method may be used. In the absence of a single accounting method for stock-based employee compensation, SFAS No. 148 requires disclosure of comparable information for all companies regardless of whether, when, or how a company adopts the fair value based method of accounting. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and interim periods beginning after December 15, 2002. The Company has adopted the disclosure requirements of this SFAS. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities". In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that 11 company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 did not have a material affect on our results of operations or statements of financial position. NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS On December 12, 2001, the Company sold its Automation Systems Group in Longmont, Colorado, to Brooks Automation, Inc. ("Brooks") of Chelmsford, Massachusetts in a cash transaction for $12,165. Substantially all of the assets were sold to Brooks and substantially all the liabilities were assumed by Brooks. The gain on the sale was $6,117 before related exit costs of $1,920, inventory write-downs of $808, and tax expense of $1,288. In February 2003, a final settlement on the sale was reached, which resulted in additional charges to costs of sales of $142. In September 2002, the Company recognized an after-tax loss of $9,352 (net of a tax benefit of $5,870) for the planned disposition of its TeraOptix business unit ("TeraOptix"). The charges related to the disposal of TeraOptix consisted of impairment charges recorded on the equipment and facility of $13,349, estimated severance payments of $850, a write-down to fair market value of the inventory of $650, and $373 of other costs and write-downs related to the disposition of the remaining assets. During the second quarter of fiscal 2003, the Company reduced reserves associated with selling costs of the equipment and facility by $469. The remaining value of the equipment and facility of $11,919 at March 28, 2003 represents the estimated fair market value, based on third-party appraisals, for the remaining assets to be disposed of, which is primarily the building. The estimated fair market value is subject to future market conditions. The assets are classified under current assets as assets of discontinued unit held for sale. The Company is presently marketing the facility for sale and proceeds from any sale of the facility will be used to pay down a related mortgage loan and swap agreement, which are described below. The mortgage loan and swap agreement have been classified as current liabilities based on the Company's intention to pay down the debts with the sale proceeds. The value of the facility is estimated at $11,844, which is net of estimated selling expenses. As of March 28, 2003, the mortgage balance was $11,583 and the swap agreement liability was $1,343. If the Company is able to sell the facility for its estimated value, an additional $1,082 of cash on hand would be used to pay down the related debts. Factors which could influence the actual amount of cash used to pay the related debts include a selling price which differs from the current estimated value, the timing of the sale of the facility, and changes in the value of the swap agreement, which is based on financial market conditions. The mortgage, which has an interest rate of LIBOR plus 150 basis points (approximately 2.8% in total at March 28, 2003), is payable in full on May 14, 2007. Interest only payments were made through February 14, 2002. The mortgage principal is amortizing on a 15-year level amortization schedule requiring monthly principal and interest payments through May 2007. Future mortgage principal payments by fiscal years ended June 30 will total $209 for 2003; $837 for each year 2004-2006; and $698 for the first 10 months of 2007 with a final payment of $8,165 in May 2007. The mortgage loan agreement contains financial covenants, which among 12 others relate to debt service and consolidated debt ratios. As of March 28, 2003, the Company is in compliance with the financial covenants. In conjunction with the mortgage, the Company entered into an interest rate swap agreement that provides for a fixed interest rate of approximately 7% for the duration of the mortgage. As of March 28, 2003, the market value of the agreement is ($1,343) and is recorded as a current liability with a corresponding charge to stockholders' equity, net of taxes. The results and loss on disposal of the TeraOptix business unit have been presented as separate line items in the accompanying consolidated statements of operations as discontinued operations, net of tax, for all periods presented. The components of cash flow from discontinued operations are as follows:
Nine Months Ended -------------------------------- March 28, March 31, 2003 2002 ------------- ------------- Cash flow from operating activities from discontinued operations: Loss from discontinued operations $(2,482) $(4,553) Depreciation and amortization -- 835 Deferred income taxes -- 172 Receivables 662 (95) Income taxes (1,311) -- Inventories 165 (170) Prepaid expenses 20 32 Accounts payable and accrued expenses (1,576) 201 ------- ------- Net cash used for operating activities from discontinued operations $(4,522) $(3,578) ------- ------- Cash flow from investing activities from discontinued operations: Additions to property, plant, and equipment $ -- $(6,826) Proceeds from sale of assets 2,822 -- ------- ------- Net cash provided by (used for) investing activities from discontinued operations $ 2,822 $(6,826) ------- ------- Cash flow from financing activities from discontinued operations: Payment of long-term debt $ (628) $ (140) ------- ------- Net cash used for financing activities from discontinued operations $ (628) $ (140) ------- -------
NOTE 4: SEGMENT INFORMATION FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes standards, using a management approach, for reporting information regarding operating segments in annual financial statements. The management approach designates the internal reporting that is used by the chief operating decision-maker when making operating decisions and assessing performance as the source of the Company's reportable segments. The Company's president has been determined to be its chief operating decision-maker, as defined under Statement 131. The Company operates in two principal business segments globally: Semiconductor and Industrial. The segment data is presented below in a manner consistent with management's internal measurement of the business. Segment data for fiscal year 2002 periods was restated to reflect the Company's exit from the telecommunications segment. 13
Three Months Ended Nine Months Ended ----------------------------------- -------------------------------------- March 28, March 31, March 28, March 31, 2003 2002 2003 2002 --------- --------- --------- --------- Semiconductor Sales $17,793 $8,599 $44,132 $27,102 Gross profit 4,773 2,808 14,939 8,468 Gross profit as a % of sales 27% 33% 34% 31% Industrial Sales $11,217 $11,586 $31,597 $30,655 Gross profit 4,729 4,215 10,924 10,752 Gross profit as a % of sales 42% 36% 35% 35% Total Sales $29,010 $20,185 $75,729 $57,757 Gross profit 9,502 7,023 25,863 19,220 Gross profit as a % of sales 33% 35% 34% 33%
Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not available and is not evaluated by the chief operating decision-maker of the Company. See note 5 for additional information regarding sales in the semiconductor segment. Substantially all of the Company's operating expenses, assets, and depreciation and amortization are U.S. based. The Company's sales by geographic area were as follows:
Three Months Ended Nine Months Ended ------------------------------------ -------------------------------- March 28, March 31, March 28, March 31, 2003 2002 2003 2002 ----------------- --------------- --------------- ----------- Americas (primarily United States) $9,124 $11,356 $23,379 $30,592 Far East: Japan 16,127 4,236 39,601 13,721 Pacific Rim 1,118 1,550 5,230 4,316 ------- ------- ------- ------- Total Far East 17,245 5,786 44,831 18,037 Europe and Other (primarily Europe) 2,641 3,043 7,519 9,128 ------- ------- ------- ------- Total $29,010 $20,185 $75,729 $57,757 ======= ======= ======= =======
NOTE 5: RELATED PARTY TRANSACTIONS Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of the Company's products in Japan and a subsidiary of Canon Inc., amounted to $15,606 (54% of net sales) and $38,640 (51% of net sales), for the three and nine months ended March 28, 2003, respectively, as compared to $3,764 (19% of net sales) and $10,942 (19% of net sales) for the comparable prior year periods. Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc. are based, generally, on the terms customarily given to distributors. Revenues generated from a development contract are recorded on a cost-plus basis. At March 28, 2003 and June 30, 2002, there were, in the aggregate, $7,790 and $3,849, respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co., Inc. 14 In September 2002, the Company and Canon Inc. entered into a contract related to the development of certain interferometers. The contract currently has a value of $29,690 and is expected to continue through June 2004, subject to meeting certain milestones during that period. During the three and nine months ended March 28, 2003, the Company recognized revenue in the semiconductor segment of $6,560 and $13,726, respectively, for this contract. 15 PART II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) None. 16 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, Chairman, and Chief Executive Officer /s/ RICHARD M. DRESSLER ------------------------------------- Richard M. Dressler Vice President, Finance, Chief Financial Officer, and Treasurer Date: July 14, 2003 17 CERTIFICATION OF DISCLOSURE IN REGISTRANT'S AMENDMENT TO QUARTERLY REPORT I, J. Bruce Robinson, certify that: 1. I have reviewed this Amendment to the Quarterly Report on Form 10-Q/A (the "Amendment to Quarterly Report") of Zygo Corporation; 2. Based on my knowledge, the Amendment to Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Amendment to Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in the Amendment to Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Amendment to Quarterly Report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Amendment to Quarterly Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the Amendment to Quarterly Report. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: July 14, 2003 /s/ J. Bruce Robinson --------------------------- J. Bruce Robinson Chairman, President, and Chief Executive Officer CERTIFICATION OF DISCLOSURE IN REGISTRANT'S AMENDMENT TO QUARTERLY REPORT I, Richard M. Dressler, certify that: 1. I have reviewed this Amendment to the Quarterly Report on Form 10-Q/A (the "Amendment to Quarterly Report") of Zygo Corporation; 2. Based on my knowledge, the Amendment to the Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Amendment to the Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in the Amendment to the Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Amendment to the Quarterly Report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Amendment to the Quarterly Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the Amendment to the Quarterly Report. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: July 14, 2003 /s/ Richard M. Dressler ------------------------------ Richard M. Dressler Vice President, Finance Chief Financial Officer