-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kf2QR6nP/o05XoxJza55DfI05XBwCiZ4D22x/L6o8AUbXD99b496U902Acc1NGVc QB5aiBjBm65qTHOz+qYeew== 0000950117-04-001666.txt : 20040430 0000950117-04-001666.hdr.sgml : 20040430 20040430172332 ACCESSION NUMBER: 0000950117-04-001666 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040326 FILED AS OF DATE: 20040430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZYGO CORP CENTRAL INDEX KEY: 0000730716 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 060864500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12944 FILM NUMBER: 04770836 BUSINESS ADDRESS: STREET 1: LAUREL BROOK RD CITY: MIDDLEFIELD STATE: CT ZIP: 06455 BUSINESS PHONE: 8603478506 MAIL ADDRESS: STREET 1: LAUREL BROOK ROAD CITY: MIDDLEFIELD STATE: CT ZIP: 06455 10-Q 1 a37581.txt ZYGO CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 26, 2004 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- --------------- Commission File Number 0-12944 ZYGO CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 06-0864500 ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Laurel Brook Road, Middlefield, Connecticut 06455 ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (860) 347-8506 -------------------------------------------------- Registrant's telephone number, including area code N/A --------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed 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. [X] YES [_] NO Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] 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. 17,865,591 shares of Common Stock, $.10 Par Value, at April 28, 2004 1 FORWARD LOOKING STATEMENTS All statements other than statements of historical fact included in this Form 10-Q Quarterly Report, regarding our financial position, business strategy, plans, anticipated growth rates, and objectives of management for future operations are forward-looking statements. Forward-looking statements are intended to provide management's current expectations or plans for the future operating and financial performance based upon information currently available and assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plans," "strategy," "project," and other words of similar meaning in connection with a discussion of future operating or financial performance. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are fluctuations in capital spending in the semiconductor industry, fluctuations in net sales to our major customer, manufacturing and supplier risks, dependence on new product development, rapid technological and market change, international operations, dependence on proprietary technology and key personnel, length of the sales cycle, environmental regulations, and changes in expected costs of discontinued operations. Further information on potential factors that could affect our business is described in our reports on file with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended June 30, 2003. 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 26, March 28, March 26, March 28, 2004 2003 2004 2003 --------- --------- --------- --------- Net sales Products $23,425 $22,450 $66,996 $ 62,003 Development services 5,008 6,560 13,338 13,726 ------- ------- ------- -------- 28,433 29,010 80,334 75,729 ------- ------- ------- -------- Cost of goods sold Products 14,878 14,250 42,050 38,906 Development services 4,153 5,258 10,718 10,960 ------- ------- ------- -------- 19,031 19,508 52,768 49,866 ------- ------- ------- -------- Gross profit 9,402 9,502 27,566 25,863 Selling, general, and administrative expenses 5,358 5,716 16,802 16,574 Research, development, and engineering expenses 2,725 2,510 9,344 8,696 ------- ------- ------- -------- Operating profit 1,319 1,276 1,420 593 ------- ------- ------- -------- Other income (expense): Interest income 219 220 638 712 Miscellaneous income (expense), net 138 (108) 213 (275) ------- ------- ------- -------- Total other income 357 112 851 437 ------- ------- ------- -------- Earnings from continuing operations before income taxes and minority interest 1,676 1,388 2,271 1,030 Income tax expense (637) (515) (863) (384) Minority interest (71) (93) (175) (324) ------- ------- ------- -------- Earnings from continuing operations 968 780 1,233 322 ------- ------- ------- -------- Discontinued TeraOptix operations, net of tax (340) (338) (1,221) (2,482) Charges and adjustments on the disposal of TeraOptix, net of tax (327) 39 (1,520) (9,079) ------- ------- ------- -------- Loss from discontinued operations (667) (299) (2,741) (11,561) ------- ------- ------- -------- Net earnings (loss) $ 301 $ 481 $(1,508) $(11,239) ======= ======= ======= ======== Basic - Earnings (loss) per share: Continuing operations $ 0.05 $ 0.04 $ 0.07 $ 0.02 Discontinued operations $ (0.03) $ (0.01) $ (0.15) $ (0.66) ------- ------- ------- -------- Net earnings (loss) $ 0.02 $ 0.03 $ (0.08) $ (0.64) ======= ======= ======= ======== Diluted - Earnings (loss) per share: Continuing operations $ 0.05 $ 0.04 $ 0.07 $ 0.02 Discontinued operations $ (0.03) $ (0.01) $ (0.15) $ (0.65) ------- ------- ------- -------- Net earnings (loss) $ 0.02 $ 0.03 $ (0.08) $ (0.63) ======= ======= ======= ======== Weighted average shares outstanding: Basic shares 17,858 17,560 17,775 17,527 ======= ======= ======= ======== Diluted shares 18,422 17,738 18,248 17,708 ======= ======= ======= ========
See accompanying notes to consolidated financial statements. 3
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Thousands of dollars, except share amounts) March 26, 2004 June 30, 2003 -------------- ------------- Assets Current assets: Cash and cash equivalents $ 18,830 $ 31,209 Marketable securities 7,931 14,929 Receivables 19,808 12,868 Inventories 21,128 18,444 Prepaid expenses 1,234 1,791 Deferred income taxes 5,529 5,179 Assets of discontinued unit held for sale 9,595 11,899 -------- -------- Total current assets 84,055 96,319 Marketable securities 7,344 6,712 Property, plant, and equipment, net 27,265 26,648 Deferred income taxes 27,568 26,364 Intangible assets, net 4,821 4,464 Other assets 1,138 561 -------- -------- Total assets $152,191 $161,068 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ - $ 11,374 Payables 8,943 5,254 Progress payments received from customers 603 2,319 Accrued salaries and wages 3,522 3,612 Other accrued liabilities 3,679 5,129 Income taxes payable 1,593 1,750 -------- -------- Total current liabilities 18,340 29,438 Other long-term liabilities 328 609 Minority interest 1,101 1,161 -------- -------- Total liabilities 19,769 31,208 -------- -------- Stockholders' equity: Common Stock, $.10 par value per share: 40,000,000 shares authorized; 18,312,371 shares issued (18,042,917 at June 30, 2003); 17,865,166 shares outstanding (17,595,712 at June 30, 2003) 1,831 1,804 Additional paid-in capital 140,952 138,333 Retained earnings (accumulated deficit) (4,097) (2,589) Accumulated other comprehensive income (loss): Currency translation effects (1,050) (1,623) Net unrealized loss on swap agreement - (914) Net unrealized gain on marketable securities 73 136 -------- -------- 137,709 135,147 Less treasury stock, at cost (447,205 shares) 5,287 5,287 -------- -------- Total stockholders' equity 132,422 129,860 -------- -------- Total liabilities and stockholders' equity $152,191 $161,068 ======== ========
See accompanying notes to consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Thousands of dollars) Nine Months Ended --------------------- March 26, March 28, 2004 2003 --------- --------- Cash provided by (used for) operating activities: Net loss $ (1,508) $(11,239) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Loss from discontinued operations 2,741 11,561 Depreciation and amortization 4,271 4,277 Gain on disposal of assets 173 740 Deferred income taxes 629 234 Other, net 347 57 Changes in operating accounts: Receivables (7,086) 230 Inventories (2,684) 3,559 Prepaid expenses 559 567 Accounts payable and accrued expenses 2,003 3,794 Minority interest 175 324 -------- -------- Net cash provided by (used for) continuing operations (380) 14,104 Net cash used for discontinued operations (1,852) (4,522) -------- -------- Net cash provided by (used for) operating activities (2,232) 9,582 -------- -------- Cash provided by (used for) investing activities: Additions to property, plant, and equipment (5,521) (3,446) Investment in marketable securities (4,941) (5,019) Investments in other assets (743) (893) Interest and restricted cash from sale of Automation Systems Group - 1,225 Proceeds from the sale or maturity of marketable securities 11,226 2,696 -------- -------- Net cash provided by (used for) continuing operations 21 (5,437) Net cash provided by discontinued operations - 2,822 -------- -------- Net cash provided by (used for) investing activities 21 (2,615) -------- -------- Cash provided by (used for) financing activities: Dividend payments to minority interest (235) (268) Employee stock purchase 578 731 Exercise of employee stock options 863 6 -------- -------- Net cash provided by continuing operations 1,206 469 Net cash used for discontinued operations (11,374) (628) -------- -------- Net cash used for financing activities (10,168) (159) -------- -------- Net increase (decrease) in cash and cash equivalents (12,379) 6,808 Cash and cash equivalents, beginning of period 31,209 28,513 -------- -------- Cash and cash equivalents, end of period $ 18,830 $ 35,321 ======== ========
See accompanying notes to consolidated financial statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Presentation Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services for the semiconductor capital equipment and industrial markets. The accompanying consolidated financial statements include the accounts of Zygo Corporation and our subsidiaries ("ZYGO," "we," "our," "us," or "Company"). All material intercompany transactions and accounts have been eliminated from the consolidated financial statements. The results of operations for the three and nine month periods ended March 26, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. The Consolidated Balance Sheet at March 26, 2004, the Consolidated Statements of Operations for the three and nine months ended March 26, 2004 and March 28, 2003, and the Consolidated Statements of Cash Flows for the nine months ended March 26, 2004 and March 28, 2003 are unaudited but, in management's opinion, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of the interim periods. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our June 30, 2003 Annual Report on Form 10-K, including items incorporated by reference therein. Earnings (Loss) Per Share Basic and diluted earnings (loss) 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 basic weighted average shares outstanding and diluted weighted average shares outstanding:
Three Months Ended Nine Months Ended ----------------------- ----------------------- March 26, March 28, March 26, March 28, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Basic weighted average shares outstanding 17,858,346 17,559,978 17,774,599 17,526,965 Dilutive effect of stock options 563,322 178,053 473,561 181,365 ---------- ---------- ---------- ---------- Diluted weighted average shares outstanding 18,421,668 17,738,031 18,248,160 17,708,330 ========== ========== ========== ==========
Stock Compensation Plans As of March 26, 2004, we have two stock-based compensation plans, which are described below. A third stock-based compensation plan expired in September 2002. We apply Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our plans. Since all options were granted with an exercise price equal to the market value of the stock on the date of grant, no compensation cost has been recognized for our fixed option plans. Pro forma 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 we have accounted for our 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-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 market value of the stock on the date of grant. Under the terms of the Plan, as amended on August 19, 2003, each new non-employee director (other than a person who was previously an employee of ZYGO or any of our subsidiaries) is granted an option to purchase 12,000 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 6,000 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. 6 The Zygo Corporation 2002 Equity Incentive Plan permits the granting of restricted stock and stock options to purchase shares of common stock up to a total of 1,500,000 shares. 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 market value per share on the date of grant. The Plan will expire on August 27, 2012. Pursuant to the terms of the Plan, 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 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 market value of the stock 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 fair value of options at date of grant was estimated using the Black-Scholes model. Our pro forma information is as follows:
Three Months Ended Nine Months Ended --------------------- --------------------- March 26, March 28, March 26, March 28, 2004 2003 2004 2003 --------- --------- --------- --------- Net income (loss), as reported $ 301 $ 481 $(1,508) $(11,239) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,446) (1,093) (4,272) (3,861) ------- ------- ------- -------- Pro forma net loss $(1,145) $ (612) $(5,780) $(15,100) ======= ======= ======= ======== Net income (loss) per share Basic - as reported $ 0.02 $ 0.03 $ (0.08) $ (0.64) ======= ======= ======= ======== Basic - pro forma $ (0.06) $ (0.03) $ (0.33) $ (0.86) ======= ======= ======= ======== Diluted - as reported $ 0.02 $ 0.03 $ (0.08) $ (0.63) ======= ======= ======= ======== Diluted - pro forma $ (0.06) $ (0.03) $ (0.32) $ (0.86) ======= ======= ======= ========
Comprehensive Income (Loss) Our total comprehensive income (loss) was as follows:
Three Months Ended Nine Months Ended --------------------- --------------------- March 26, March 28, March 26, March 28, 2004 2003 2004 2003 --------- --------- --------- --------- Net income (loss) $ 301 $ 481 $(1,508) $(11,239) Unrealized gain (loss) on marketable securities, net of tax (16) (21) (63) 15 Unrealized gain (loss) on swap agreement, net of tax - 29 337 (317) Reclassification adjustment for loss on swap agreement included in net loss, net of tax - - 577 - Foreign currency translation effect (212) (221) 573 307 ----- ----- ------- -------- Comprehensive income (loss) $ 73 $ 268 $ (84) $(11,234) ===== ===== ======= ========
7 Inventories Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At March 26, 2004 and June 30, 2003, inventories were as follows:
March 26, June 30, 2004 2003 --------- -------- Raw materials and manufactured parts $11,341 $10,103 Work in process 9,276 7,816 Finished goods 511 525 ------- ------- $21,128 $18,444 ======= =======
Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates, on an ongoing basis, the carrying value of our property, plant, and equipment and makes adjustments when impairments are identified. Depreciation is based on the estimated useful lives of the various classes of assets and is computed using the straight-line method. At March 26, 2004 and June 30, 2003, property, plant, and equipment were as follows:
Estimated March 26, June 30, Useful Life 2004 2003 (Years) --------- -------- ----------- Land $ 615 $ 615 - Building and improvements 11,437 11,355 15-40 Machinery, equipment, and office furniture 39,083 39,545 3-8 Leasehold improvements 314 166 1-5 Construction in progress 5,109 2,222 - ------- ------- 56,558 53,903 Accumulated depreciation (29,293) (27,255) ------- ------- $27,265 $26,648 ======= =======
Depreciation expense for the three months ended March 26, 2004 and March 28, 2003 was $1,131 and $1,322, respectively. Depreciation expense for the nine months ended March 26, 2004 and March 28, 2003 was $3,917 and $4,077, respectively. Intangible Assets Intangible assets include patents, trademarks, and license agreements. The cost of intangible assets is amortized on a straight-line basis, which ranges from 4-20 years. Intangible assets, at cost, at March 26, 2004 and June 30, 2003 were as follows:
March 26, June 30, 2004 2003 --------- -------- Intangible assets $ 6,454 $ 5,775 Accumulated amortization (1,633) (1,311) ------- ------- $ 4,821 $ 4,464 ======= =======
Intangible amortization expense was $110 and $99 for the three months ended March 26, 2004 and March 28, 2003, respectively. Intangible amortization expense was $322 and $394 for the nine months of fiscal 2004 and fiscal 2003, respectively. Amortization expense related to certain intangible assets is included in cost of goods sold in the Consolidated Statements of Operations. 8 Warranty A limited warranty is provided on our products for periods ranging from 3 to 12 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 the expense may be required. The following is a reconciliation of the beginning and ending balances of our accrued warranty liability, which is included in the "Other accrued liabilities" line item in the Consolidated Balance Sheets:
Nine Months Ended --------------------- March 26, March 28, 2004 2003 --------- --------- Beginning balance $ 1,215 $ 830 Reductions for payments made (1,894) (724) Changes in accruals related to warranties issued in the current period 1,216 183 Changes in accruals related to pre-existing warranties 757 1,098 ------- ------ Ending balance $ 1,294 $1,387 ======= ======
Supplemental Cash Flow Information Interest payments on debt were $480 and $765 for the nine months ended March 26, 2004 and March 28, 2003, respectively. We also paid $1,109 in the second quarter of fiscal 2004 in connection with the settlement of the interest rate swap agreement. Income tax payments amounted to $92 and $109 for the nine months ended March 26, 2004 and March 28, 2003, respectively. NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS In April 2003, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments. SFAS No. 149 became effective for us in July 2003. The adoption of SFAS No. 149 did not have a material affect on our results of operations or financial position. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Generally, the statement is effective for financial instruments entered into or modified after November 5, 2003 and is otherwise effective for the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material affect on our results of operations or financial position. The FASB's Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material effect on our results of operations or financial position. In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits," which expands financial statement disclosures for defined benefit plans. The change replaces existing FASB disclosure requirements for pensions. The adoption of SFAS No. 132 (revised) did not have a material affect on our results of operations or financial position. 9 NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS In September 2002, we recognized an after-tax loss of $9,352, net of a tax benefit of $5,870, for the planned disposition of our TeraOptix business unit ("TeraOptix"). The charges related to the disposal of TeraOptix consisted of impairment charges recorded on the equipment and Westborough, Massachusetts 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 remainder of fiscal 2003, adjustments made to the estimated charges resulted in an overall fiscal 2003 after-tax loss of $9,652, net of a tax benefit of $5,101. In December 2003, we recorded an additional impairment charge on the vacant facility of $2,304 reflecting the continued weakness of the local real estate market for this type of facility. This charge is recorded, net of tax, as "charges and adjustments on the disposal of TeraOptix, net of tax" in the consolidated statements of operations. The current estimated fair market value of the facility is $9,595, net of selling expenses, based on a third-party appraisal. We are presently marketing the facility and the asset is classified under current assets as "assets of discontinued unit held for sale" in the consolidated balance sheets. In December 2003, we paid off the remaining mortgage debt of $10,955 on the facility. The mortgage debt had carried interest at 7.5% per annum at the time of repayment, and required monthly principal payments of $70, plus interest, until April 2007 and a balloon payment of $8,200 in May 2007. In connection with the debt repayment, the Company also paid the balance of a related interest rate swap agreement of $1,109. This payment resulted in an additional charge to discontinued TeraOptix operations, recorded net of tax. Prior to the payment, in accordance with SFAS No. 133, as amended, the swap liability was recorded with a corresponding debit, net of tax, to stockholders' equity. The aggregate payment of $12,064 on the mortgage debt and swap agreement was funded from the Company's available cash and marketable securities. 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 TeraOptix operations, net of tax", for all periods presented. The components of cash flow from discontinued operations are as follows:
Nine Months Ended --------------------- March 26, March 28, 2004 2003 --------- --------- Cash flow from operating activities from discontinued operations: Loss from discontinued operations $ (2,741) $(11,561) Depreciation and amortization - - Loss on sale and impairment of assets 2,304 12,880 Deferred income taxes (1,413) (5,674) Receivables - 845 Income taxes - (1,311) Inventories - 815 Accounts payable and accrued expenses - (726) Other, net (2) 210 -------- -------- Net cash used for operating activities from discontinued operations (1,852) (4,522) -------- -------- Cash flow from investing activities from discontinued operations: Proceeds from sale of assets - 2,822 -------- -------- Net cash provided by investing activities from discontinued operations - 2,822 -------- -------- Cash flow from financing activities from discontinued operations: Payment of long-term debt (11,374) (628) -------- -------- Net cash used for financing activities from discontinued operations (11,374) (628) -------- -------- Net cash used by discontinued operations $(13,226) $ (2,328) ======== ========
10 NOTE 4: SEGMENT INFORMATION We operate 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 the nine months in fiscal year 2003 was restated to reflect our exit from the telecommunications segment.
Three Months Ended Nine Months Ended --------------------- --------------------- March 26, March 28, March 26, March 28, 2004 2003 2004 2003 --------- --------- --------- --------- Semiconductor Sales $18,027 $17,793 $46,401 $44,132 Gross profit 6,289 4,773 15,388 14,939 Gross profit as a % of sales 35% 27% 33% 34% Industrial Sales $10,406 $11,217 $33,933 $31,597 Gross profit 3,113 4,729 12,178 10,924 Gross profit as a % of sales 30% 42% 36% 35% Total Sales $28,433 $29,010 $80,334 $75,729 Gross profit 9,402 9,502 27,566 25,863 Gross profit as a % of sales 33% 33% 34% 34%
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. Substantially all of our operating expenses, assets, and depreciation and amortization are U.S. based. Sales by geographic area were as follows:
Three Months Ended Nine Months Ended --------------------- --------------------- March 26, March 28, March 26, March 28, 2004 2003 2004 2003 --------- --------- --------- --------- Americas (primarily United States) $ 6,567 $ 9,124 $21,136 $23,379 Far East: Japan 16,342 16,127 43,736 39,601 Pacific Rim 3,624 1,118 10,491 5,230 ------- ------- ------- ------- Total Far East $19,966 $17,245 $54,227 $44,831 Europe and Other (primarily Europe) 1,900 2,641 4,971 7,519 ------- ------- ------- ------- Total $28,433 $29,010 $80,334 $75,729 ======= ======= ======= =======
11 NOTE 5: RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMER Sales to Canon Inc., one of our significant stockholders, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc., amounted to $19,493 (69% of net sales) and $44,328 (55% of net sales) for the three months and nine months ended March 26, 2004, as compared with $15,606 (54% of net sales) and $38,640 (51% of net sales) for the comparable prior year periods. These sales include revenues generated from the development agreements referenced below. 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 the development agreements are recorded on a cost-plus basis. At March 26, 2004 and June 30, 2003, there were, in the aggregate, $9,412 and $3,972, respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co., Inc. In September 2002, we entered into a contract with Canon Inc. related to the development of certain interferometers. The contract had a total value of $29,690, which was fully billed to Canon by the end of the second quarter of fiscal 2004. We are continuing the development work with approval from Canon, which will result in the total contract value exceeding $33,000. During the three months and nine months ended March 26, 2004, we recognized revenue in the semiconductor segment of $3,420 and $11,750, respectively, from this contract. During the quarter we signed a new agreement letter with Canon Inc. authorizing the start of a new project with the expectation that a follow-on agreement will be signed by the fall of this year. Revenue of $1,588 related to this agreement was recognized during the three months ended March 26, 2004. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Introduction Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. Optical instruments products encompass non-contact optical measurement instruments. Optics products consist of high performance macro-optics components, optical coatings, and optical system assemblies. In September 2002, we entered into a development services agreement with Canon Inc. We have generated a total of approximately $33 million in revenues from this agreement, including $3.4 million and $11.7 million in the third quarter and first nine months of fiscal 2004, respectively. Delivery under this agreement will be in July 2004. During the third quarter of fiscal 2004 we signed an agreement letter that allows us to begin a new developmental project with the expectation that a follow-on contract will be signed by the fall of this year. For the third quarter of fiscal 2004, revenue of $1.6 million has been recognized under this new agreement. Significant revenues can be expected from any such follow-on contract. Our period over period comparable sales would be significantly adversely affected if we do not continue to provide these development services. We achieved an order level for the third quarter of fiscal 2004 of $31.6 million as compared to $23.7 million for the third quarter of fiscal 2003. This order flow boosted backlog at March 26, 2004 to $49.0 million, which is our highest level since fiscal 2001. Orders for the third quarter of fiscal 2004 were down $4.8 million from the second quarter of fiscal 2004. As expected, bookings for the industrial segment decreased to $12.7 million, down 22% over the second quarter of fiscal 2004, due to several large orders that occurred in the second quarter within the industrial markets. We discontinued our telecommunications TeraOptix business unit during fiscal 2003. Accordingly, the results of TeraOptix have been presented as a separate line item on the Consolidated Statements of Operations as discontinued TeraOptix operations, net of tax, for all periods presented. In addition, the charges on the disposal of TeraOptix, net of tax, have been recorded as a separate line item for all periods presented. All continuing operations line items presented exclude TeraOptix results. Continuing Operations We recorded earnings from continuing operations for the third quarter of fiscal 2004 of $1.0 million, or $0.05 per share, as compared with $0.8 million, or $0.04 per share, for the third quarter of fiscal 2003; earnings from continuing operations for the first nine months of fiscal 2004 were $1.2 million, or $0.07 per share, as compared with earnings of $0.3 million, or $0.02 per share, for the first nine months of fiscal 2003. Net sales of $28.4 million for the third quarter of fiscal 2004 decreased by $0.6 million, or 2%, over the comparable prior year period sales of $29.0 million. Net sales for the third quarter of fiscal 2004 included $5.0 million from development services agreements with Canon, Inc., as compared with $6.6 million in the comparable prior year period. Net sales of $80.3 million for the first nine months of fiscal 2004 increased by $4.6 million, or 6%, over the comparable prior year period sales of $75.7 million. Net sales for the first nine months of fiscal 2004 included $13.3 million from the development services agreements, as compared with $13.7 million in the comparable prior year period. For the third quarter of fiscal 2004, net sales in the semiconductor segment were $18.0 million, or 63% of total net sales, as compared with $17.8 million, or 61% of total net sales, in the prior year period; and net sales in the industrial segment were $10.4 million, or 37% of total net sales, as compared with $11.2 million, or 39% of total net sales, in the prior year period. Semiconductor product sales increased $1.8 million, primarily due to shipments to the Pacific Rim region for flat panel systems, partially offset by a decrease in revenues from the development services agreements. Industrial sales decreased primarily due to the weak economy in Europe. For the first nine months of fiscal 2004, net sales in the semiconductor segment were $46.4 million as compared with $44.1 million in the comparable prior year period (58% of total net sales in both periods), and net sales in the industrial segment were $33.9 million, as compared with $31.6 million in the comparable prior year period (42% of total net sales in both periods). The increase in the nine month sales in both semiconductor and industrial segments is primarily due to an increase in sales to Canon, including under the development services agreements, and the delivery of flat panel systems to the Pacific Rim region. 13 Sales in the Americas, substantially all of which are in the United States, amounted to $6.6 million in the third quarter of fiscal 2004, a decrease of $2.5 million, or 27%, from the third quarter of fiscal 2003 levels of $9.1 million. Sales in the third quarter of fiscal 2003 included the delivery of several large systems, which we did not have in the current quarter. Sales outside the Americas amounted to $21.8 million in the third quarter of fiscal 2004, an increase of $1.9 million, or 10%, from the third quarter of fiscal 2003 levels of $19.9 million. Sales in Japan during the third quarter of fiscal 2004 amounted to $16.3 million, an increase of $0.1 million, or 1%, from the third quarter of fiscal 2003 sales levels. Europe/Other, primarily Europe, amounted to $1.9 million, a decrease of $0.7 million, or 27%, from the third quarter of fiscal 2003. Sales in the Pacific Rim during the third quarter of fiscal 2004, excluding Japan, amounted to $3.6 million, an increase of $2.5 million, or 227%, from the third quarter of fiscal 2003 sales levels. This increase was primarily due to the delivery of a greater number of large metrology systems, including flat panel systems, in the first nine months of fiscal 2004 than in the comparable prior year period. Sales in the Americas amounted to $21.1 million in the first nine months of fiscal 2004, a decrease of $2.3 million, or 10%, from the first nine months of fiscal 2003 of $23.4 million. Sales outside the Americas amounted to $59.2 million in the first nine months of fiscal 2004, an increase of $6.9 million, or 13%, from the first nine months of fiscal 2003 levels of $52.3 million. Sales in Japan during the first nine months of fiscal 2004 amounted to $43.7 million, an increase of $4.1 million, or 10%, from the first nine months of fiscal 2003 sales levels. Sales in Europe/Other during the first nine months of fiscal 2004, primarily Europe, amounted to $5.0 million, a decrease of $2.5 million, or 33%, from the first nine months of fiscal 2003. Sales in Europe continue to be impacted negatively by the weak economy. Sales in the Pacific Rim, excluding Japan, during the first nine months of fiscal 2004 amounted to $10.5 million, an increase of $5.3 million, or 102%, from the first nine months of fiscal 2003 sales levels. This increase was primarily due to increased sales of flat panel systems. Sales in U.S. dollars for the third quarter of fiscal 2004 were $25.9 million, or 91%, of all net sales for the period. For the first nine months of fiscal 2004, sales in U.S dollars were $72.2 million, or 90% of all net sales for the period. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can impact the sales of our products in export markets, as would changes in the general economic conditions in those markets. Sales outside the Americas represent approximately 70-80% of our total sales. For our sales which are based in local currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in local currency until collection occurs. The majority of our foreign currency transactions are in euros and Japanese yen. The impact of changes in foreign currency values on our sales cannot be measured. Gross profit for the third quarter of fiscal 2004 totaled $9.4 million, a decrease of $0.1 million, or 1%, from $9.5 million in the third quarter of fiscal 2003. Gross profit as a percentage of sales for the third quarters of fiscal 2004 and 2003 were both 33%. Gross profit as a percentage of sales in the third quarter of fiscal 2004 was negatively impacted by low margins on the delivery of our initial flat panel systems. Gross profit for the first nine months of fiscal 2004 totaled $27.6 million, an increase of $1.7 million, or 7%, from $25.9 million in the first nine months of fiscal 2003. Gross profit as a percentage of sales for the first nine months of fiscal 2004 and 2003 was 34%. We are continually working on improvements in the manufacturing process in order to increase our gross profit as a percentage of sales. Selling, general, and administrative expenses ("SG&A") in the third quarter of fiscal 2004 amounted to $5.4 million, a decrease of $0.3 million, or 5%, from $5.7 million in the third quarter of fiscal 2003. As a percentage of net sales, SG&A for the third quarter of fiscal 2004 and fiscal 2003 was 19% and 20%, respectively. For the first nine months of fiscal 2004, SG&A was $16.8 million, an increase of $0.2 million, or 1%, from $16.6 million in the first nine months of fiscal 2003. As a percentage of net sales, SG&A for the first nine months of fiscal 2004 and fiscal 2003 was 21% and 22%, respectively. The decrease in SG&A for the third quarter of fiscal 2004 was primarily a result of a cost savings initiative partially offset by costs related to one-time personnel costs and increased insurance costs. The increase during the first nine months of fiscal 2004 is primarily due to one-time personnel costs and increased insurance costs. Research, development, and engineering expenses ("R&D") for the third quarter of fiscal 2004 totaled $2.7 million, an increase of $0.2 million, or 8%, from $2.5 million in the third quarter of fiscal 2003. For the first nine months of fiscal 2004, R&D expenses totaled $9.3 million, an increase of $0.6 million, or 7%, from $8.7 million in the first nine months of fiscal 2003. These increases were primarily due to costs associated with our Zygo Applied Optics group in Southern California, which commenced operations in the second half of fiscal 2003, and costs with certain projects associated with new products and improvements to existing products. 14 The income tax expense from continuing operations in the third quarter of fiscal 2004 totaled $0.6 million, or 38% of pre-tax earnings, which compares with income tax expense of $0.5 million, or 37% of pre-tax earnings, in the third quarter of fiscal 2003. The income tax expense from continuing operations in the first nine months of fiscal 2004 totaled $0.9 million, or 38% of pre-tax earnings, which compares with income tax expense of $0.4 million, or 37% of pre-tax losses, in the first nine months of fiscal 2003. Our overall effective tax rate, including discontinued operations, was 29% for the first nine months of fiscal 2004 as compared with 37% for the first nine months of fiscal 2003. The change in the overall effective tax rate is due to a shift in the mix of pre-tax income between domestic and foreign operations and a reduction in anticipated R&D credits. Discontinued Operations In September 2002, we made a decision to discontinue our TeraOptix telecommunications business unit. The discontinuation of this business unit has had a significant impact on our financial position and results of operations. For the quarter and first nine months ended March 26, 2004, we recorded charges for discontinued operations, net of tax, of $0.7 million and $2.7 million, respectively ($0.03 and $0.15, respectively, per share). The charges for the quarter ended March 26, 2004 were primarily related to a change in the tax rate applied to existing charges after calculating the overall effective tax rate for the nine months ended March 26, 2004. We anticipate future expenses to maintain the facility to approximate $0.1 million per quarter until the facility is sold. In addition, we may incur a further impairment charge on the value of the facility in the event we are unable to dispose of it at its current carrying value. The facility is presently being marketed for sale. RELATED PARTY TRANSACTIONS In September 2002, we entered into a contract with Canon, Inc. related to the development of certain interferometers (refer to note 5 of our unaudited financial statements for additional information). The original contract was for $29.7 million, which was fully billed to Canon by the end of the second quarter of fiscal 2004 and an additional billing of $3.4 million related to this contract occurred in the third quarter of fiscal 2004. Our net sales for the first nine months of fiscal 2004 included $11.8 million from this contract. Delivery under this contract will be made in July 2004. During the quarter we signed an agreement letter with Canon Inc. authorizing the initial start of a new project with the expectation that a follow-on agreement will be signed by the fall of this year. Revenue of $1.6 million related to this follow-on agreement was recognized during the third quarter of fiscal 2004. LIQUIDITY AND CAPITAL RESOURCES At March 26, 2004, working capital was $65.7 million, a decrease of $1.2 million from $66.9 million at June 30, 2003. We maintained cash, cash equivalents, and marketable securities at March 26, 2004 totaling $34.1 million, a decrease of $18.7 million from June 30, 2003. The decrease was due to the pay off of the mortgage debt of $11.0 million and the swap agreement of $1.1 million associated with our TeraOptix facility in Westborough, Massachusetts, with the balance of $6.6 million comprised of increases in accounts receivable, inventory and purchases of capital equipment, partially offset by an increase in accounts payable. The payment of the mortgage debt and swap agreement was funded from the Company's available cash and marketable securities. The mortgage debt had required monthly principal payments of $0.1 million, plus interest (7.5% at the time of repayment), until April 2007, and a principal balloon payment of $8.2 million in May 2007. We are currently marketing for sale the facility of our discontinued TeraOptix unit located in Westborough, Massachusetts. The net proceeds from the sale of the facility would be an addition to our cash balances. Our cash used by continuing operations was $0.4 million for the first nine months in fiscal 2004, a decrease of $14.5 million from the $14.1 million in cash provided by operations for the first nine months in fiscal 2003. This difference was primarily related to changes in accounts receivable and inventories. Accounts receivable accounted for $7.3 million of the change in periods and inventories accounted for $6.2 million of the change between periods. The change in accounts receivable is primarily due to an increase in receivables from Canon for product sales and sales related to the development services agreements, all of which are within terms at March 26, 2004, and an increase in receivables in the Pacific Rim region on large shipments. The changes in inventories are due to the increase in orders while the prior year decrease was primarily due to shipments of optics with long lead times. There were no borrowings outstanding under our $3.0 million bank line of credit at March 26, 2004. The line of credit was extended to November 2004. 15 Acquisitions of property, plant, and equipment were $1.6 million and $5.5 million for the three and nine month periods ended March 26, 2004, respectively. In addition to normal recurring acquisitions, we expect to build an addition to our existing facility at an anticipated cost of $2.5-$3.0 million over the next six months to be funded from existing cash reserves. The additional space is expected to be used primarily for manufacturing. Although cash requirements will fluctuate based on the timing and extent of various factors, management believes that cash generated from operations, together with the liquidity provided by existing cash balances, will be sufficient to satisfy our liquidity requirements for the next 12 months. CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures at the date of our consolidated financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, warranty obligations, income taxes, and long-lived assets. Management bases its estimates and judgments on historical experience and current market conditions and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition and allowance for doubtful accounts, inventory valuation, warranty costs, accounting for income taxes, and valuation of long-lived assets to be critical policies due to the estimates and judgments involved in each. Revenue Recognition and Allowance for Doubtful Accounts We recognize revenue based on guidance provided in Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition" and in accordance with EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, there is no significant risk pertaining to customer acceptance, our price is fixed or determinable, and collectibility is reasonably assured. We maintain an allowance for doubtful accounts based on a continuous review of customer accounts, payment patterns, and specific collection issues. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit to be issued by the customer before a shipment is made. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required. Inventory Valuation Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. Management evaluates the need to record adjustments for impairment of inventory on a monthly basis. Our policy is to assess the valuation of all inventories, including raw materials, work-in-process, and finished goods. Obsolete inventory or inventory in excess of management's estimated future usage is written down to estimated market value, if less than its cost. Contracts with fixed prices are evaluated to determine if estimated total costs will exceed revenues. A loss provision is recorded when the judgment is made that actual costs incurred plus estimated costs remaining to be incurred will exceed total revenues from the contract. Inherent in the estimates of market value are management's estimates related to current economic trends, future demand for our products, and technological obsolescence. Significant management judgments must be made when providing for obsolete and excess inventory and losses on contracts. If actual market conditions are different than those projected by management, additional inventory write-downs and loss accruals may be required. Warranty Costs We provide for the estimated cost of product warranties at the time revenue is recognized. We consider historical warranty costs actually incurred and specifically identified circumstances to establish the warranty liability. The warranty liability is reviewed on a quarterly basis. Should actual costs or revised estimated costs differ from management's prior estimates, revisions to the estimated warranty liability would be required. Accounting for Income Taxes Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting 16 for Income Taxes," requires the establishment of a valuation allowance to reflect the likelihood of the realization of deferred tax assets. We record a valuation allowance to reduce our deferred tax assets to an estimated realizable amount based on historical and forecasted results. While management has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event management were to determine that Zygo would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should management determine that Zygo would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the valuation allowance would be charged to income in the period such determination was made. Our effective tax rate may vary from period to period, generally based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal, state or foreign tax laws, and deductibility of certain costs and expenses by jurisdiction. Valuation of Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors we consider important, which could trigger the impairment review, include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection that demonstrates continuing losses, and a current expectation that, more likely than not, a long-lived asset will be disposed of significantly before the end of its estimated useful life. If such circumstances exist, we evaluate the carrying value of long-lived assets to determine if impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and comparing that value with the carrying value of the assets. If the carrying value of the assets is greater than the estimated future cash flows, the assets are written down to the estimated fair value. We determine the estimated fair value of the assets based on a current market value of the assets. If a current market value is not readily available, a projected discounted cash flow method is applied using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Our cash flow estimates are based upon management's best estimates, using appropriate and customary assumptions and projections at the time. Off-Balance Sheet Arrangements We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating parts of our business that are not consolidated into our financial statements. We have not guaranteed any obligations of a third party. RISK FACTORS THAT MAY IMPACT FUTURE RESULTS Risk factors that may impact future results include those disclosed in our Form 10-K for the year ended June 30, 2003. Item 3. Quantitative and Qualitative Disclosures about Market Risk The payment of the mortgage debt and related interest rate swap agreement eliminated interest rate risks associated with the debt. Other than this reduction in risk, there were no other material changes that have occurred in our quantitative and qualitative market risk disclosures during the first nine months of fiscal 2004. For discussion of our exposure to market risk, refer to Item 7a. Quantitative and Qualitative Disclosures about Market Risk, presented in our Annual Report filed with the Securities and Exchange Commission on Form 10-K for the year ended June 30, 2003. Item 4. Controls and Procedures ZYGO maintains "disclosure controls and procedures," as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief 17 Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation, as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that material information relating to ZYGO is made known to the Chief Executive Officer and Chief Financial Officer by others within our company during the period in which this report was being prepared. There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 18 PART II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 14.1 Zygo Corporation Code of Ethics 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) 32.1 Certification of Chief Executive Officer and Chief Financial Officer (b) Current Reports on Form 8-K during the fiscal quarter ended March 26, 2004. Zygo Corporation Earnings Press release, dated January 27, 2004. 19 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/ WALTER A. SHEPHARD -------------------------------------- Walter A. Shephard Vice President, Finance, Chief Financial Officer, and Treasurer Date: April 30, 2004 20 STATEMENT OF DIFFERENCES The registered trademark symbol shall be expressed as..................... 'r' EX-14 2 ex14-1.txt EXHIBIT 14.1 EXHIBIT 14.1 [Zygo'r' LOGO] Code of Business Conduct and Ethics February 20, 2004 - -------------------------------------------------------------------------------- 1. Policy Statement The NASDAQ corporate governance rules require each listed company to provide a code of conduct for its officers, employees and directors. This Code of Business Conduct and Ethics reflects the Company's commitment to conduct business in an honest and ethical manner. In this regard, each of you, the individuals who work for or serve the Company, is an extension of the Company. Our commitment to honesty and ethical conduct only can be achieved if you, individually, accept your responsibility to promote integrity and demonstrate the highest level of ethical conduct in all of your activities. Activities that may compromise the Company's reputation or integrity must be avoided. While the Company realizes that not every situation is black or white, the key to compliance with this Code is exercising good judgment. This means following both the letter and the spirit of this Code and all applicable laws, doing the "right" thing, and acting ethically at all times, even when the law or this Code may not address specifically the issue at hand. When you are faced with a business situation where you must determine the proper cause of action, you should ask yourself the following questions: o Is my action the "right" thing to do? o Would I want my actions reported on the nightly news? o What would my family, friends or neighbors think of my actions? o Will my actions have a negative impact on the Company? o Am I following the spirit, as well as the letter, of any applicable law or Company policy? We rely in part on our Managers to set an example for other employees and to supervise the actions of others. Every manager and supervisor is expected to take any action necessary to ensure compliance with this Code, to provide guidance and assist employees in resolving questions concerning the Code and to permit employees to express any concerns regarding compliance with this Code. No one has the authority to order another employee to act contrary to this Code. 2. Conflicts of Interest and Corporate Opportunities You must avoid any situation in which your personal interests conflict or even appear to conflict with the Company's interests. You owe a duty to the Company to advance the Company's legitimate interests when the opportunity to do so arises in the course of your employment or service. You should NEVER compromise any of the Company's legitimate interests. You must perform your duties to the Company in an honest and ethical manner. You must handle all actual or apparent conflicts of interest between your personal and professional relationships in an ethical manner. You should avoid situations in which your immediate family, financial or other personal interests conflict, or even appear to conflict, with those of the 1 Company. You may not engage in activities that compete with the Company or place the Company's interests at risk. You should not take, for your own benefit, opportunities discovered in the course of employment that may otherwise benefit the Company. The following are examples of actual or potential conflicts: o you, or a member of your immediate family, receive improper personal benefits (including but not limited to the receipt of gifts) as a result of your position in the Company; o you use the Company's property for your personal benefit; o you engage in activities that interfere with your loyalty to the Company or your ability to perform Company duties or responsibilities effectively; o you work simultaneously (whether as an employee or a consultant) for a competitor, customer or supplier; o you, or a member of your immediate family, have a financial interest in a customer, supplier, or competitor which is significant enough to cause divided loyalty with the Company or the appearance of divided loyalty (the significance of a financial interest depends on many factors, such as size of investment in relation to your income, net worth and/or financial needs, your potential to influence decisions that could impact your interests, and the nature of the business or level of competition between the Company and the supplier, customer or competitor); o you, or a member of your immediate family, acquire an interest in property (such as real estate, patent or other intellectual property rights or securities) in which you have reason to know the Company has, or might have, a legitimate interest; o you, or a member of your immediate family, receive a loan or a guarantee of a loan from a customer, supplier or competitor (other than a loan from a financial institution made in the ordinary course of business and on an arm's-length basis); o you make gifts or payments, or provide special favors, to customers, suppliers or competitors (or their immediate family members) with a value significant enough to cause the customer, supplier or competitor to make a purchase, or take or forego other action, which is beneficial to the Company and which the customer, supplier or competitor would not otherwise have taken; or o you are given the right to buy stock in other companies or you receive cash or other payments in return for promoting the services of an advisor, such as an investment banker, to the Company. Neither you, nor members of your immediate family, are permitted to solicit or accept gifts, payments, special favors or other consideration from customers, suppliers or competitors. The existence of a conflict is not always readily apparent. If you become aware of a conflict described above or any other conflict, potential conflict, or have a question as to a potential conflict, you should consult with higher levels of management or the Company's Disclosure Control Committee and/or follow the procedures described in Sections 9 and 10 of this Code. If you become involved in a situation that gives rise to an actual conflict, you must inform higher levels of management or the Company's Disclosure Control Committee of the conflict. Our Disclosure Control Committee is identified in Section 10 of this Code. 3. Confidentiality All confidential information concerning the Company is the property of the Company and must be protected. 2 Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. You must maintain the confidentiality of such information entrusted to you by the Company, its customers and its suppliers, except when disclosure is authorized by the Company or required by law. Examples of confidential information include, but are not limited to: the Company's trade secrets; business trends and projections; information about financial performance; new product or marketing plans; research and development ideas or information; manufacturing processes; information about potential acquisitions, divestitures and investments; stock splits, public or private securities offerings or changes in dividend policies or amounts; significant personnel changes; and the acquisition, loss or changes of or to existing or potential major contracts, orders, suppliers, customers or finance sources. The Company's Nondisclosure and Assignment of Inventions Agreement, which each officer, employee and director has signed upon commencement of employment or service with the Company, may contain additional restrictions on the disclosure of information, which you also must continue to adhere to. Your obligation with respect to confidential information extends beyond your activities in the workplace. In that respect, it applies to communications with your immediate family members and continues to apply even after your employment or director relationship with the Company terminates. 4. Insider Trading You should never trade securities on the basis of confidential information acquired through your employment or fiduciary relationship with the Company. Under both federal law and Company policy, you are not permitted to purchase or sell Company stock, directly or indirectly, on the basis of material non-public information concerning the Company. Any person possessing material non-public information about the Company must not engage in transactions involving Company securities until this information has been released to the public. Generally, material information is information that would be expected to affect the investment decisions of a reasonable investor or the market price of the stock. You are not allowed to trade in the stock of other publicly held companies, such as existing or potential customers or suppliers, on the basis of material confidential information obtained in the course of your employment or service as a director. It also is illegal to recommend a stock to (i.e., "tip") someone else on the basis of such information. If you have a question concerning appropriateness or legality of a particular securities transaction, consult with the Company's Compliance Officer. Directors, officers and certain other employees of the Company are subject to additional responsibilities under the Company's insider trading compliance policy, a copy of which has been provided to each such director, officer and employee, and which can be obtained from the Company's Compliance Officer. 5. Fair Dealing Our goal is to conduct our business with integrity. You should make every effort to deal honestly with the Company's customers, suppliers, competitors, and employees. Under federal and state laws, the Company is prohibited from engaging in unfair methods of competition, and unfair or deceptive acts and practices. You should not take unfair advantage of anyone 3 through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing. Examples of prohibited conduct include, but are not limited to: o bribery or payoffs to induce business or breaches of contracts by others; o acquiring a competitor's trade secrets through bribery or theft; or o making false, deceptive or disparaging claims or comparisons about competitors or their products or services. 6. Protection and Proper Use of Company Assets You should endeavor to protect the Company's assets and ensure their proper use. Company assets, both tangible and intangible, are to be used solely for legitimate business purposes of the Company and only by authorized employees or consultants. Intangible assets include intellectual property such as trade secrets, patents, trademarks and copyrights, business, marketing and service plans, engineering and manufacturing ideas, designs, databases, Company records, salary information, and any unpublished financial data and reports. Unauthorized alteration, destruction, use, disclosure or distribution of Company assets violates Company policy and this Code. Theft or waste of, or carelessness in using, these assets have a direct adverse impact on the Company's operations and profitability and will not be tolerated. The Company provides computers, voice mail, electronic mail (e-mail), internet access, and other Company resources to certain employees for the purpose of achieving the Company's business objectives. As a result, the Company has the right to access, reprint, publish, or retain any information created, sent or contained in any of the Company's computers or e-mail systems of any Company machine. You may not use any Company resource for any illegal purpose, or in any manner that is contrary to the Company's policies or the standards embodied in this Code. You should not make copies of, or resell or transfer (externally or internally), copyrighted publications, including software, manuals, articles, books, and databases being used in the Company, that were created by another entity and licensed to the Company, unless you are authorized to do so under the applicable license agreement. In no event should you load or use, on any Company computer, any software, third party content or database without receiving the prior written permission of the Information Technology Department to do so. You must refrain from transferring any data or information to any Company computer other than for Company use. You may use a handheld computing device or mobile phone in connection with your work for the Company, but must not use such device or phone to access, load or transfer content, software or data in violation of any applicable law or regulation or without the permission of the owner of such content, software or data. If you should have any question as to what is permitted in this regard, please consult with the Company's Chief Financial Officer. 7. Compliance with Laws and Regulations The Company seeks to comply with both the letter and spirit of the laws and regulations in all countries in which it operates. The Company is committed to total compliance with the laws and regulations of the cities, states and countries in which it operates. You must comply with all applicable laws, rules and regulations in performing your duties for the Company. Various federal, state and local laws and regulations define and establish obligations with which the Company, its officers, employees, directors and agents 4 must comply. Under certain circumstances, local country law may establish requirements that differ from this Code. You are expected to comply with all local country laws in conducting the Company's business. If you violate these laws or regulations in performing your duties for the Company, you not only risk individual indictment, prosecution and penalties, and civil actions and penalties, you also subject the Company to the same risks and penalties. Any violation of these laws may subject you to immediate disciplinary action, up to and including termination of your employment or affiliation with the Company. 8. Ethics Obligations for Employees with Financial Reporting Responsibilities Senior management bears a special responsibility for promoting integrity throughout the Company. Furthermore, senior management has a responsibility to foster a culture throughout the Company as a whole that mandates the fair and timely reporting of the Company's results of operations and financial condition and other financial information. Because of this special role, senior management is bound by the following senior management code of ethics, and by accepting the Code of Business Conduct and Ethics, each agrees that he or she will: o perform his or her duties in an honest and ethical manner; o address all actual or apparent conflicts of interest between his or her personal and professional relationships in an ethical manner; o undertake all necessary actions to ensure complete, accurate, thorough, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, government agencies and in other public communications; and o proactively encourage and provide an example of ethical behavior in the work environment. 9. Reporting Violations of Company Policies and Receipt of Complaints Regarding Financial Reporting or Accounting Issues You should report any violation or suspected violation of this Code to the appropriate Company personnel or via the Company's anonymous and confidential reporting procedures. The Company's efforts to ensure observance of, and adherence to, the goals and policies outlined in this Code require that you promptly bring to the attention of the Disclosure Control Committee, any material transaction, relationship, act, failure to act, occurrence or practice that you believe, in good faith, is inconsistent with, in violation of, or reasonably could be expected to give rise to a violation of, this Code. You should report any suspected violations of the Company's financial reporting obligations or any complaints or concerns about questionable accounting or auditing practices in accordance with the procedures set forth below. Here are some approaches to handling your reporting obligations: o In the event you believe a violation of the Code, or a violation of applicable laws and/or governmental regulations has occurred, or you have observed or become aware of conduct which appears to be contrary to the Code, immediately report the situation to your supervisor, the Disclosure Control Committee or call the Company's confidential Compliance Hotline at (866) 311-9946. (If you are calling from the 860 area code, you should call 860-704-3951.) Supervisors or managers who receive any report of a suspected violation must report the matter to the Disclosure Control Committee. 5 o If you have or receive notice of a complaint or concern regarding the Company's financial disclosure, accounting practices, internal accounting controls, auditing, or questionable accounting or auditing matters, you must immediately advise your supervisor, or the Disclosure Control Committee. If you wish to report any such matters anonymously or confidentially, then you may do so as follows: o Mail a description of the suspected violation or other complaint or concern to: Diana Midolo Zygo Corporation Laurel Brook Road Middlefield, CT 06455 or o Call our toll free Compliance Hotline at (866) 311-9946 (860-704-3951 if you are calling from the 860 area code). Other Guiding Principles 1. Use common sense and good judgment. Act in good faith. You should become familiar with and understand the requirements of this Code. If you become aware of a suspected violation, do not try to investigate it or resolve it on your own. Instead, promptly disclose the violation to the appropriate parties in order to assure a thorough and timely investigation and resolution. The circumstances should be reviewed by appropriate personnel as quickly as possible, since a delay may affect the results of an investigation. A violation of the Code, or of applicable laws and/or governmental regulations, is a serious matter and could have legal implications. Allegations of such behavior are not taken lightly, and should not be made to embarrass someone, or put him or her in a false light. Reports of suspected violations always should be made in good faith. 2. Internal investigation. When an alleged violation of this Code, applicable laws and/or governmental regulations is reported, the Company will take appropriate action in accordance with the compliance procedures outlined in Section 10 of the Code. You are expected to cooperate in internal investigations of alleged misconduct or violations of the Code or of applicable laws or regulations. 3. No fear of retaliation. It is the Company's policy that there will be no intentional retaliation against any person who provides truthful information to a company or law enforcement official concerning a possible violation of any law, regulation or Company policy, including this Code. Persons who retaliate may be subject to civil, criminal and administrative penalties, as well as disciplinary action, up to and including termination of employment. In cases in which you report a suspected violation in good faith and are not engaged in the questionable conduct, the Company will attempt to keep its discussions with you confidential to the extent reasonably possible. In the course of its investigation, the Company may find it necessary to share information with others on a "need to know" basis. No retaliation will be taken against you by the Company for reporting alleged violations while acting in good faith. Similarly, if you believe you are being retaliated against, as a result of your having reported a suspected violation in good faith, you should immediately report that information to your supervisor or the Disclosure Control Committee. 10. Compliance Procedures The Company has established this Code as part of its overall policies and procedures. To the extent that other Company policies and procedures conflict with this Code, you should follow this Code. The Code applies to all Company directors and Company employees, including all officers, in all locations. 6 The Code is based on the Company's core values, good business practices and applicable law. The existence of a Code, however, does not assure that officers, employees and directors will comply with it or act in a legal and ethical manner. To achieve optimal legal and ethical behavior, the individuals subject to this Code must know and understand the Code as it applies to them and as it applies to others. You must promote the Code and assist others in knowing and understanding it. o Compliance. You are expected to become familiar with and understand the requirements of this Code. Most importantly, you must comply with it. o CEO Responsibility. The Company's Chief Executive Officer ("CEO") shall be responsible for ensuring that this Code is established and effectively communicated to all officers, employees and directors. Although the day-to-day compliance issues will be the responsibility of the Company's managers, the CEO has ultimate accountability with respect to the overall implementation of and successful compliance with the Code. o Corporate Compliance Management. The CEO shall choose a team of employees who will report to the CEO and be responsible for assuring that the Code becomes an integral part of the Company's culture (the "Disclosure Control Committee"). The current members of the Disclosure Control Committee are Diana Midolo, George Neale, Dom Rutigliano, Flemming Tinker and Mike Vehlies. The Company, in conjunction with our Board of Directors, periodically will review the individuals who comprise the Disclosure Control Committee and will notify, in writing, all officers, employees and directors of any changes to this Committee. The Disclosure Control Committee's charter is to assure communication, training, monitoring, and overall compliance with this Code. The Disclosure Control Committee, with the assistance and cooperation of the Company's officers, directors and managers, will foster an atmosphere where employees are comfortable in communicating and/or reporting concerns and possible Code violations. The Company will maintain a confidential Compliance Hotline at (866) 311-9946 (860-704-3951 if calling from the 860 area code) which will be monitored by the Disclosure Control Committee. A record of all calls received on the Compliance Hotline will be maintained by the Disclosure Control Committee. The Disclosure Control Committee shall provide the Audit Committee, on a quarterly basis, a log of all calls to the Hotline, and a summary of all other communications expressing complaints or concerns received by the Disclosure Control Committee. To the extent any of these complaints or concerns relates to the Company's financial disclosures, accounting, internal controls and auditing matters, the Disclosure Control Committee will promptly inform the Chairman of the Audit Committee of any such matter. o Internal Reporting of Violations. The Company's efforts to assure observance of, and adherence to, the goals and policies outlined in this Code mandate that all officers, employees and directors of the Company report suspected violations in accordance with Section 9 of this Code. o Screening of Employees. The Company shall exercise due diligence when hiring and promoting employees and, in particular, when conducting an employment search for a position involving the exercise of substantial discretionary authority, such as a member of the executive team, a senior management position or an employee with financial management responsibilities. The Company will make reasonable inquiries into the background of each individual who is a candidate for such a position. All such inquiries shall be made in accordance with applicable law and good business practice. o Access to the Code. The Company shall assure that employees, officers and directors may access this Code on the Company's web site. In addition, each current employee will be provided with a copy of the Code. New employees will receive a copy of the Code as part of their new hire information. 7 o Monitoring. The officers of the Company shall be responsible to review the Code with all of the Company's managers. In turn, the Company's managers with supervisory responsibilities should review the Code with their direct reports. Managers are the "go to" persons for employee questions and concerns relating to this Code, especially in the event of a potential violation. Managers or supervisors will immediately report any violations or allegations of violations to the Disclosure Control Committee. Managers will work with the Disclosure Control Committee in assessing areas of concern, potential violations, any needs for enhancement of the Code or remedial actions to effect the Code's policies and overall compliance with the Code and other related policies. o Auditing. Resources selected by the Nominating and Corporate Governance Committee of the Board of Directors will be responsible for auditing the Company's compliance with the Code. o Internal Investigation. When an alleged violation of the Code is reported, the Company will take prompt and appropriate action in accordance with the law and regulations and otherwise consistent with good business practice. If the suspected violation appears to involve either a possible violation of law or an issue of significant corporate interest, or if the report involves a complaint or concern of any person, whether an employee, a shareholder or other interested person regarding the Company's financial disclosure, internal accounting controls, questionable auditing or accounting matters or practices or other issues relating to the Company's accounting or auditing, then the manager or investigator should immediately notify the Disclosure Control Committee and/or his or her Vice President or other corporate officer. If a suspected violation involves any director or executive officer, or if the suspected violation concerns any fraud, whether or not material, involving management or other employees who have a significant role in the Company's internal controls, the Manager, the Disclosure Control Committee or any person who received such report should immediately report the alleged violation to the Disclosure Control Committee, if appropriate, the Chief Executive Officer and/or Chief Financial Officer, and, in every such case, the Chairman of the Audit Committee of the Board of Directors. The Disclosure Control Committee or the Chairman of the Audit Committee, as applicable, shall assess the situation and determine the appropriate course of action. At a point in the process consistent with the need not to compromise the investigation, a person who is suspected of a violation shall be apprised of the alleged violation, and shall have an opportunity to provide a response to the investigator. o Disciplinary Actions. Subject to the following sentence, the Disclosure Control Committee, after consultation with the Vice President of Human Resources and legal counsel, shall be responsible for implementing the appropriate disciplinary action in accordance with the Company's policies and procedures for any employee who is found to have violated this Code. If a violation has been reported to the Audit Committee or another committee of the Board, that Committee shall be notified as to the expected appropriate disciplinary action. Any violation of applicable law or any deviation from the standards embodied in this Code will result in disciplinary action, up to and including termination of employment. Any employee engaged in the exercise of substantial discretionary authority, including any Senior Officer, who is found to have engaged in a violation of law or unethical conduct in connection with the performance of his or her duties for the Company, shall be removed from his or her position and not assigned to any other position involving the exercise of substantial discretionary authority. In addition to imposing discipline upon employees involved in non-compliant conduct, the Company also will impose discipline, as appropriate, upon an employee's supervisor, if any, who directs or approves such employee's improper actions, or is aware of those actions but does not act appropriately to correct them, and upon other individuals who fail to report known non-compliant conduct. In addition to imposing its own discipline, the Company will bring any violations of law to the attention of appropriate law enforcement personnel. o Retention of Reports and Complaints. All reports and complaints made to, or received by, the Disclosure Control Committee or the Chair of the Audit Committee 8 shall be logged into a record maintained for this purpose by the Disclosure Control Committee and this record of such report shall be retained for not less than five (5) years. o Required Government Reporting. Whenever conduct occurs that requires a report to the government, the Disclosure Control Committee, after consultation with legal counsel, shall be responsible for complying with such reporting requirements. o Corrective Actions. Subject to the following sentence, in the event of a violation of this Code, the manager and members of the Disclosure Control Committee should assess the situation to determine whether the violation demonstrates a problem that requires remedial action as to Company policies and procedures. If a violation has been reported to the Audit Committee or another committee of the Board, that committee shall be involved in the determination of appropriate remedial or corrective actions. Corrective action may include providing revised public disclosure, retraining Company employees, modifying Company policies and procedures, improving monitoring of compliance under existing procedures and other action necessary to detect similar non-compliant conduct and prevent it from occurring in the future. Any corrective action shall be documented, as appropriate. 11. Complete, Timely and Understandable Disclosure It is of crucial importance that all disclosure in reports and documents that the Company files with, or submits to, the SEC, and in other public communications made by the Company is full, fair, accurate, timely and understandable. You must take all steps available to aid the Company in these responsibilities consistent with your role within the Company. In particular, you are required to provide prompt and accurate answers to all inquiries made to you in connection with the Company's preparation of its public reports and disclosure. The Company's CEO and CFO are responsible for designing, establishing, implementing, reviewing and evaluating, on a quarterly basis, the effectiveness of the Company's disclosure controls and procedures (as such term is defined by applicable SEC rules). The Company's CEO, CFO, principal accounting officer or controller and persons performing similar functions, persons who meet the requirements of Item 406 of Regulation S-K, and such other Company officers as are designated from time to time by the Audit Committee of the Board of Directors, shall be deemed the Senior Officers of the Company. Senior Officers shall take all steps necessary and suitable to ensure that all disclosure in reports and documents filed with or submitted to the SEC, and all disclosure in other public communication made by the Company is full, fair, accurate, timely and understandable. Senior Officers are also responsible for implementing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles. The Senior Officers will take all necessary steps to ensure compliance with established accounting procedures, the Company's system of internal controls and Generally Accepted Accounting Principles. Senior Officers will make sure that the Company maintains and keeps books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company. Senior Officers also will assure that the Company devises and implements a system of internal accounting controls sufficient to provide reasonable assurances that: o transactions are executed with management's general or specific authorization; o transactions are recorded as necessary (a) to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles or any other criteria applicable to such statements, and (b) 9 to maintain accountability for assets; o access to assets is permitted, and receipts and expenditures are made, only in accordance with management's general or specific authorization; and o the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences, all to permit prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the Company's financial statements. Any attempt to enter inaccurate or fraudulent information into the Company's accounting system will not be tolerated and will result in disciplinary action, up to and including termination of employment. 12. Publication of the Code of Business Conduct and Ethics; Amendments and Waivers The most current version of this Code will be posted and maintained on the Company's web site and filed as an exhibit to the Company's next succeeding Annual or Quarterly Report filed with the SEC. That Report shall disclose that the Code is maintained on the Company's web site and shall disclose that substantive amendments and waivers also will be posted on our web site. Only substantive amendments relating to the specified elements of this Code of Business Conduct and Ethics must be disclosed. Any waiver of the Code for executive officers or directors may be made only by the Board of Directors or a Board Committee, and must be promptly disclosed to shareholders. Any amendment to the Code of Business Conduct and Ethics, or the approval of any waivers by the Board or Board Committee, will be disclosed within five (5) business days of such action (a) on the Company's web site for a period of not less than twelve (12) months and (b) in a Form 8-K filed with the Securities and Exchange Commission. Such disclosure shall include the reasons for any waiver. The Company will retain the disclosure relating to any such amendment or waiver for not less than five (5) years. It is the Company's intention that this Code of Business Conduct and Ethics be its written code of ethics under Section 406 of the Sarbanes-Oxley Act of 2002 complying with the standards set forth in Securities and Exchange Commission Regulation S-K Item 406. 10 EX-31 3 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF DISCLOSURE IN THE REGISTRANT'S QUARTERLY REPORT I, J. Bruce Robinson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Zygo Corporation; 2. Based on my knowledge, this 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 this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 this 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-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, 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 this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 30, 2004 /s/ J. Bruce Robinson ------------------------ J. Bruce Robinson Chairman, President, and Chief Executive Officer EX-31 4 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION OF DISCLOSURE IN THE REGISTRANT'S QUARTERLY REPORT I, Walter A. Shephard, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Zygo Corporation; 2. Based on my knowledge, this 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 this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 this 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-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, 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 this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 30, 2004 /s/ Walter A. Shephard ------------------------ Walter A. Shephard Vice President, Finance Chief Financial Officer EX-32 5 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, J. Bruce Robinson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Zygo Corporation on Form 10-Q for the fiscal quarter ended March 26, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Zygo Corporation. A signed original of this written statement required by Section 906 has been provided to Zygo Corporation and will be retained by Zygo Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Dated: April 30, 2004 /s/ J. Bruce Robinson -------------------------- J. Bruce Robinson Chairman, President, and Chief Executive Officer of Zygo Corporation I, Walter A. Shephard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Zygo Corporation on Form 10-Q for the fiscal quarter ended March 26, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Zygo Corporation. A signed original of this written statement required by Section 906 has been provided to Zygo Corporation and will be retained by Zygo Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Dated: April 30, 2004 /s/ Walter A. Shephard -------------------------- Walter A. Shephard Vice President, Finance, Chief Financial Officer of Zygo Corporation -----END PRIVACY-ENHANCED MESSAGE-----