-----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, AhlWS66MYVYok4+4O/tMWQ9XdNKZxtG8++HYaenhhr9f8VqTOSaNLk+OTEWxZmzT f4UeSE1g+k4vfKWbxu7JIQ== 0000950117-04-003811.txt : 20041105 0000950117-04-003811.hdr.sgml : 20041105 20041105153519 ACCESSION NUMBER: 0000950117-04-003811 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041105 DATE AS OF CHANGE: 20041105 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: 041122725 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 a38674.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 September 30, 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 incorporation or organization) (I.R.S. Employer Identification No.) Laurel Brook Road, Middlefield, Connecticut 06455 - ----------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (860) 347-8506 - ----------------------------------------------------------------------------------------------------- Registrant's telephone number, including area code N/A - ----------------------------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [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. 17,927,932 shares of Common Stock, $.10 Par Value, at November 2, 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 of our customers, 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, 2004. 2 PART I - Financial Information Item 1. Financial Statements CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Thousands, except per share amounts)
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Net sales Products $25,883 $19,812 Development services 1,695 4,435 ------- ------- 27,578 24,247 ------- ------- Cost of goods sold Products 15,168 12,813 Development services 1,297 3,657 ------- ------- 16,465 16,470 ------- ------- Gross profit 11,113 7,777 Selling, general, and administrative expenses 5,659 5,838 Research, development, and engineering expenses 3,208 3,309 ------- ------- Operating profit (loss) 2,246 (1,370) ------- ------- Other income (expense): Interest income 179 204 Miscellaneous income (expense), net (29) 45 ------- ------- Total other income 150 249 ------- ------- Earnings (loss) from continuing operations before income taxes and minority interest 2,396 (1,121) Income tax benefit (expense) (862) 448 Minority interest (122) 10 ------- ------- Earnings (loss) from continuing operations 1,412 (663) ------- ------- Discontinued TeraOptix operations, net of tax (61) (162) Charges and adjustments on the disposal of TeraOptix, net of tax (4) -- ------- ------- Loss from discontinued operations (65) (162) ------- ------- Net earnings (loss) $ 1,347 $ (825) ======= ======= Basic - Earnings (loss) per share: Continuing operations $ 0.08 $ (0.04) Discontinued operations $ -- $ (0.01) ------- ------- Net earnings (loss) $ 0.08 $ (0.05) ======= ======= Diluted - Earnings (loss) per share: Continuing operations $ 0.08 $ (0.04) Discontinued operations $ (0.01) $ (0.01) ------- ------- Net earnings (loss) $ 0.07 $ (0.05) ======= ======= Weighted average shares outstanding: Basic shares 17,923 17,678 ======= ======= Diluted shares 18,115 17,678 ======= =======
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Thousands of dollars, except share amounts)
September 30, 2004 June 30, 2004 ------------------ ------------- Assets Current assets: Cash and cash equivalents $ 15,796 $ 17,462 Marketable securities 9,173 8,428 Receivables, net 20,401 26,338 Inventories 26,713 21,547 Prepaid expenses 1,909 1,915 Deferred income taxes 3,471 3,999 Assets of discontinued unit held for sale 2,012 2,012 -------- -------- Total current assets 79,475 81,701 Marketable securities 9,495 8,503 Property, plant, and equipment, net 28,626 27,433 Deferred income taxes 31,086 31,738 Intangible assets, net 5,090 4,999 Other assets 1,075 1,078 -------- -------- Total assets $154,847 $155,452 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Payables $ 10,424 $ 10,384 Progress payments received from customers 1,129 615 Accrued salaries and wages 4,275 5,794 Other accrued liabilities 3,198 4,389 Income taxes payable 2,059 2,038 -------- -------- Total current liabilities 21,085 23,220 Other long-term liabilities 244 350 Minority interest 1,360 1,238 -------- -------- Total liabilities 22,689 24,808 -------- -------- Stockholders' equity: Common Stock, $.10 par value per share: 40,000,000 shares authorized; 18,373,312 shares issued (18,332,933 at June 30, 2004); 17,926,107 shares outstanding (17,885,728 at June 30, 2004) 1,837 1,833 Additional paid-in capital 141,528 141,151 Retained earnings (accumulated deficit) (4,649) (5,996) Accumulated other comprehensive income (loss): Currency translation effects (1,321) (1,119) Net unrealized gain on marketable securities 50 62 -------- -------- 137,445 135,931 Less treasury stock, at cost (447,205 shares) 5,287 5,287 -------- -------- Total stockholders' equity 132,158 130,644 -------- -------- Total liabilities and stockholders' equity $154,847 $155,452 ======== ========
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Thousands of dollars)
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Cash provided by (used for) operating activities: Net earnings (loss) $ 1,347 $ (825) Adjustments to reconcile net earnings (loss) to cash provided by (used for) operating activities: Loss from discontinued operations 65 162 Depreciation and amortization 1,506 1,489 Deferred income taxes 1,216 (453) Other, net 53 52 Changes in operating accounts: Receivables 5,941 (1,406) Inventories (5,129) (242) Prepaid expenses 62 228 Accounts payable, accrued expenses, and taxes payable (2,443) (1,172) Minority interest 122 (10) ------- ------- Net cash provided by (used for) continuing operations 2,740 (2,177) Net cash used for discontinued operations (157) (317) ------- ------- Net cash provided by (used for) operating activities 2,583 (2,494) ------- ------- Cash provided by (used for) investing activities: Additions to property, plant, and equipment (2,599) (1,898) Purchase of marketable securities (3,515) (870) Additions to intangibles and other assets (247) (264) Proceeds from the sale or maturity of marketable securities 1,750 2,230 ------- ------- Net cash used for investing activities (4,611) (802) ------- ------- Cash provided by (used for) financing activities: Employee stock purchase 328 249 Exercise of employee stock options 34 315 ------- ------- Net cash provided by continuing operations 362 564 Net cash used for discontinued operations -- (210) ------- ------- Net cash provided by financing activities 362 354 ------- ------- Net decrease in cash and cash equivalents (1,666) (2,942) Cash and cash equivalents, beginning of period 17,462 31,209 ------- ------- Cash and cash equivalents, end of period $15,796 $28,267 ======= =======
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 developer and supplier of high performance metrology instruments, high precision optics, optical assemblies, and automation for the semiconductor and industrial markets. The accompanying consolidated financial statements include the accounts of Zygo Corporation and its subsidiaries ("ZYGO," "we," "us," "our" or "Company"). All material transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements. The results of operations for the three month period ended September 30, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. The Consolidated Balance Sheet at September 30, 2004, the Consolidated Statements of Operations for the three months ended September 30, 2004 and September 26, 2003, and the Consolidated Statements of Cash Flows for the three months ended September 30, 2004 and September 26, 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, 2004 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 ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Basic weighted average shares outstanding 17,923,000 17,678,000 Dilutive effect of stock options 192,000 -- ---------- ---------- Diluted weighted average shares outstanding 18,115,000 17,678,000 ========== ==========
For the three months ended September 26, 2003, we recorded net losses. Due to these net losses, stock options to acquire 248,000 shares of common stock for the three months ended September 26, 2003, were excluded from the computation of diluted earnings per share because of the anti-dilutive effect on loss per share. Stock Compensation Plans As of September 30, 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 September 24, 1999, each new non-employee director (other than a person who was previously an employee of ZYGO or any of our subsidiaries) was granted an option to purchase 8,000 shares of common stock, generally, on his or her first day of service as a non-employee director; and each other non-employee director was granted an option to purchase 3,000 shares of common stock on an annual basis. All options were fully exercisable on the date of grant and have a 10-year term. The Plan, as amended, will 6 expire on November 17, 2009. The Company does not intend to grant further options under the Non-Employee Director Stock Option Plan. 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. These options generally vest over a four year period in quarterly increments. 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. Non-employee directors are now granted fully exercisable options to purchase 6,000 shares of common stock on an annual basis and each new non-employee director is granted fully exercisable options to purchase 12,000 shares of common stock, generally, on their first day of service, in all instances at the market value per share on the date of grant. 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 ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Net earnings (loss), as reported $ 1,347 $ (825) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,252) (1,165) ------- ------- Pro forma net earnings (loss) $ 95 $(1,990) ======= ======= Net earnings (loss) per share Basic - as reported $ 0.08 $ (0.05) ======= ======= Basic - pro forma $ 0.01 $ (0.11) ======= ======= Diluted - as reported $ 0.07 $ (0.05) ======= ======= Diluted - pro forma $ 0.01 $ (0.11) ======= =======
7 Comprehensive Income (Loss) Our total comprehensive income (loss) was as follows:
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Net earnings (loss) $1,347 $(825) Unrealized gain (loss) on marketable securities, net of tax (12) (31) Unrealized gain (loss) on swap agreement, net of tax -- 193 Foreign currency translation effect (202) 606 ------ ----- Comprehensive income (loss) $1,133 $ (57) ====== =====
Inventories Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At September 30, 2004 and June 30, 2004, inventories were as follows:
September 30, June 30, 2004 2004 ------------- -------- Raw materials and manufactured parts $13,252 $11,155 Work in process 12,711 9,794 Finished goods 750 598 ------- ------- $26,713 $21,547 ======= =======
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 September 30, 2004 and June 30, 2004, property, plant, and equipment were as follows:
Estimated September 30, June 30, Useful Life 2004 2004 (Years) ------------- -------- ----------- Land $ 615 $ 615 -- Building and improvements 11,973 11,941 15-40 Machinery, equipment, and office furniture 41,691 40,602 3-8 Leasehold improvements 657 657 1-5 Construction in progress 5,218 3,917 -- -------- -------- 60,154 57,732 Accumulated depreciation (31,528) (30,299) -------- -------- $ 28,626 $ 27,433 ======== ========
Depreciation expense for the three months ended September 30, 2004 and September 26, 2003 was $1,377 and $1,366, respectively. 8 Intangible Assets Intangible assets include patents, trademarks, and license agreements. The cost of intangible assets is amortized on a straight-line basis over estimated useful lives ranging from 4-20 years. Intangible assets, at cost, at September 30, 2004 and June 30, 2004 were as follows:
September 30, June 30, 2004 2004 ------------- -------- Intangible assets $ 6,960 $ 6,759 Accumulated amortization (1,870) (1,760) ------- ------- $ 5,090 $ 4,999 ======= =======
Intangible amortization expense was $113 and $101 for the three months ended September 30, 2004 and September 26, 2003, respectively. Amortization expense related to certain intangible assets is included in cost of goods sold in the Consolidated Statements of Operations. 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:
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Beginning balance $1,486 $1,215 Reductions for payments made (525) (519) Changes in accruals related to warranties issued in the current period 194 211 Changes in accruals related to pre-existing warranties 7 225 ------ ------ Ending balance $1,162 $1,132 ====== ======
Supplemental Cash Flow Information Interest payments on debt were $243 for the first three months ended September 26, 2003. Income tax payments amounted to $199 for the three months ended September 30, 2004. There were no income tax refunds or payments for the first three months ended September 26, 2003. Reclassifications Certain amounts included in the consolidated financial statements for the prior year have been reclassified to conform with current year presentation. 9 NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") Issued Financial Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" and a related revision, FIN 46R. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the equity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. FIN 46 is effective for all variable interest entities created or acquired prior to February 1, 2003 for the first reporting period ended after March 15, 2004. The adoption of FIN 46 did not have an impact on our consolidated 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. NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS In September 2002, we committed to a planned disposition of our TeraOptix business unit ("TeraOptix"). We discontinued all operations by January 2003. We have marketed the facility previously used by the TeraOptix unit for sale and have recorded impairment charges since then related to the decline in the fair market value of the facility. We announced in August 2004 that we have entered into an agreement to sell our TeraOptix facility. The sales transaction, anticipated to be completed in the second quarter of fiscal 2005, is expected to generate approximately $2,000 in cash, net of selling expenses. In the first quarter of fiscal 2005 and 2004, discontinued operations reflected the carrying costs, net of tax, of the facility. 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:
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Cash flow from operating activities from discontinued operations: Loss from discontinued operations $ (65) $(162) Deferred income taxes (36) (132) Other, net (56) (23) ----- ----- Net cash used for operating activities from discontinued operations (157) (317) ----- ----- Cash flow from financing activities from discontinued operations: Payment of long-term debt -- (210) ----- ----- Net cash used for financing activities from discontinued operations -- (210) ----- ----- Net cash used by discontinued operations $(157) $(527) ===== =====
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.
Three Months Ended ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Semiconductor Sales $16,002 $12,251 Gross profit 6,563 3,174 Gross profit as a % of sales 41% 26% Industrial Sales $11,576 $11,996 Gross profit 4,550 4,603 Gross profit as a % of sales 39% 38% Total Sales $27,578 $24,247 Gross profit 11,113 7,777 Gross profit as a % of sales 40% 32%
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 ----------------------------- September 30, September 26, 2004 2003 ------------- ------------- Domestic $ 8,044 $ 6,302 ------- ------- Far East: Japan 14,057 13,810 Pacific Rim 2,829 3,228 ------- ------- Total Far East 16,886 17,038 Europe and Other (primarily Europe) 2,648 907 ------- ------- Total $27,578 $24,247 ======= =======
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 $12,592 (46% of net sales) for the three months ended September 30, 2004, as compared with $12,296 (51% of net sales) for the comparable prior year period. 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 September 30, 2004 and June 30, 2004, there were, in the aggregate, $7,770 and $10,913, 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. In March 2004, we signed a preliminary agreement to begin further add-on work, with a definitive agreement expected to be signed in the second quarter of fiscal 2005. During the three months ended September 30, 2004 and September 26, 2003, we recognized revenue in the semiconductor segment of $1,695 and $4,435, respectively, for the original contract and subsequent add-on work. 11 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. We conduct the majority of our manufacturing in our 135,500 square foot facility in Middlefield, Connecticut. We are currently constructing an 18,000 square foot addition to our Middlefield, Connecticut, facility to increase our overall manufacturing space. We also perform several development services, which have produced a significant amount of our revenue over the past two years. In September 2002, we entered into a development services agreement with Canon Inc. In March 2004, we signed a preliminary agreement to begin further add-on work, with a definitive agreement anticipated to be signed in the second quarter of fiscal 2005. In the first quarter of fiscal 2005, we recognized $1.7 million of revenue from these developmental services contracts as compared with $4.4 million in the prior year comparable quarter. We anticipate significant revenues from this expected 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 first quarter of fiscal 2005 of $34.1 million as compared with $24.1 million for the first quarter of fiscal 2004 and $42.1 million for the fourth quarter of fiscal 2004. This order flow boosted backlog at September 30, 2004 to $61.4 million. Orders for the first quarter of our fiscal year are normally lower than the remaining quarters in our fiscal year. Orders in the semiconductor segment decreased $13.1 million, or 54%, as compared with the fourth quarter of fiscal 2004, and $5.6 million, or 34%, as compared with the first quarter of fiscal 2004, primarily due to an overall slowdown in the semiconductor market. A continued slowdown in the semiconductor segment could impact our orders in the remaining quarters of our fiscal year. In the first quarter of fiscal 2005, strong orders in the industrial segment partially offset the decrease in semiconductor orders. Orders in the industrial segment increased $5.1 million, or 28%, as compared with the fourth quarter of fiscal 2004 and $15.6 million, or 208%, as compared with the first quarter of fiscal 2004, due to strong demand across most of our regions. We continue to receive orders from the flat panel market of the semiconductor segment. We expect flat panel orders to continue for the immediate future, which could help offset the expected overall semiconductor slowdown. 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. During fiscal 2003 and 2004, we marketed for sale our former telecommunications facility located in Westborough, Massachusetts. In August 2004, we entered into an agreement to sell the facility. The sales transaction is expected to be completed in the second quarter of fiscal year 2005 and is to generate approximately $2.0 million of cash, net of selling expenses. At September 30, 2004, the carrying value of the facility, net of estimated selling expenses, is $2.0 million. Continuing Operations We recorded earnings from continuing operations for the first quarter of fiscal 2005 of $1.4 million, or $0.08 per diluted share, as compared with a loss of $0.7 million, or $0.04 per diluted share, for the first quarter of fiscal 2004. Net sales of $27.6 million for the first quarter of fiscal 2005 increased by $3.4 million, or 14%, compared with the prior year period. For the first quarter of fiscal 2005, net sales in the semiconductor segment were $16.0 million, or 58% of total net sales, as compared with $12.2 million, or 50% of total net sales, in the comparable prior year period, primarily due to an increase in sales to our lithography customers. This offset a decrease in revenues of $2.7 million from the development services agreements with Canon, Inc. compared with the comparable prior year period revenues of $4.4 million. The year over year decline in developmental service agreement revenue is primarily attributable to the winding down of the initial development agreement and a slower than anticipated start on the further add-on work under the expected follow-up agreement. Net sales in the industrial segment were $11.6 million, or 42% of total net sales, as compared with $12.0 million, or 50% of total net sales, in the prior year period. Industrial sales in the first quarter of fiscal 12 2005 were slightly down as compared with the first quarter of fiscal 2004, primarily due to large aperture systems that shipped in the prior year. Domestic region sales amounted to $8.0 million in the first quarter of fiscal 2005, an increase of $1.7 million, or 27%, from the first quarter of fiscal 2004. International region sales amounted to $19.6 million in the first quarter of fiscal 2005, an increase of $1.7 million, or 9%, from the first quarter of fiscal 2004. Sales in Japan during the first quarter of fiscal 2005 amounted to $14.1 million, an increase of $0.3 million, or 2%, from the first quarter of fiscal 2004. Europe/Other sales, primarily Europe sales, amounted to $2.7 million in the first quarter of fiscal 2005, an increase of $1.8 million, or 200%, from the first quarter of fiscal 2004 primarily due to strong optics and automotive sales. Sales in the Pacific Rim during the first quarter of fiscal 2005, excluding Japan, amounted to $2.8 million, a decrease of $0.4 million, or 13%, from the first quarter of fiscal 2004 sales levels. Sales in U.S. dollars for the first quarter of fiscal 2005 were $23.3 million, or 85%, of total net sales for the period. For our sales which are based in foreign currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in foreign currency until collection occurs. 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. Management believes the percentage of sales in foreign currencies may increase in the coming year due to an increase in sales denominated in yen to Japanese customers. The majority of our foreign currency transactions and foreign operations are in the euro and Japanese yen. In the absence of a substantial increase in sales orders in currency other than U.S. dollars, we believe a 10% appreciation or depreciation of the U.S. dollar against the euro and yen would have an immaterial impact on our consolidated financial position and results of operations. Gross profit for the first quarter of fiscal 2005 totaled $11.1 million, an increase of $3.3 million, or 42%, from $7.8 million in the first quarter of fiscal 2004. Gross profit as a percentage of sales for the first quarters of fiscal 2005 and 2004 were 40% and 32%, respectively. Gross profit as a percentage of sales in the first quarter of fiscal 2005 was favorably impacted by continued success with factory cost reduction programs as well as changes in product mix. In the first quarter of fiscal 2004, we experienced several manufacturing issues which reduced the gross profit as a percentage of sales below expected levels. Selling, general, and administrative expenses ("SG&A") in the first quarter of fiscal 2005 amounted to $5.7 million, a decrease of $0.1 million, or 2%, from $5.8 million in the first quarter of fiscal 2004. As a percentage of net sales, SG&A for the first quarter of fiscal 2005 and fiscal 2004 was 21% and 24%, respectively. The decrease in SG&A as a percentage of sales was due to the costs remaining stable on a higher sales volume. Research, development, and engineering expenses ("R&D") for the first quarter of fiscal 2005 totaled $3.2 million, a decrease of $0.1 million, or 3%, from $3.3 million in the first quarter of fiscal 2004. This decrease was primarily due to costs associated with flat panel display projects nearing completion partially offset by increases due to various optics initiatives. The income tax expense from continuing operations in the first quarter of fiscal 2005 totaled $0.9 million, or 36% of pre-tax earnings, which compares with an income tax benefit of $0.4 million, or 40% of pre-tax loss, in the first quarter of fiscal 2004. Our overall effective tax rate, including discontinued operations, was 36% for the first quarter of fiscal 2005 as compared with 41% in the comparable prior year period. The decrease in the overall effective tax rate is primarily due to an increase in the percentage of pre-tax income from domestic operations, which has a lower effective tax rate than income from foreign operations. Research and development credits, which have historically been included in our effective tax rate calculation, were excluded in the first quarter of fiscal 2005 due to the expiration of the credit under United States tax law. The credit has been renewed during our second fiscal quarter of 2005 and will be reflected in our effective tax rate in future quarters. Historically, it had an impact of 2-4% on our effective tax rate. In future quarters, the effect may be less to the extent there is increased pre-tax income. 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 consolidated financial statements for additional information). In March 2004, we signed a preliminary agreement to begin further add-on work, with a definitive agreement expected to be signed in the second quarter of fiscal 2005. During the three months ended September 30, 2004 and September 26, 2003, we recognized revenue in the semiconductor segment of $1.7 million and $4.4 million, respectively, from these development services for Canon, Inc. 13 LIQUIDITY AND CAPITAL RESOURCES At September 30, 2004, working capital was $58.4 million, a decrease of $0.1 million from $58.5 million at June 30, 2004. We maintained cash, cash equivalents, and marketable securities at September 30, 2004 totaling $34.5 million, which remained consistent with the $34.4 million at June 30, 2004. Major fluctuations in working capital included a reduction in accounts receivable of $5.9 million due to collections of receivables from the high sales experienced in the fourth quarter of fiscal 2004 and an increase in inventories of $5.1 million due to an increase in anticipated shipments in the second and third quarters of fiscal 2005. There were no borrowings outstanding under our $3.0 million bank line of credit at September 30, 2004. The line of credit expires in November 2004. We recently announced that we entered into an agreement to sell our vacant Westborough, Massachusetts, facility. The sale transaction, anticipated to be completed in the second quarter of fiscal 2005, is expected to generate approximately $2.0 million in cash, net of selling expenses. Acquisitions of property, plant, and equipment were $2.6 million the first quarter ended September 30, 2004, which includes $0.6 million for the construction of an addition to our existing Middlefield, Connecticut, facility. The building addition is expected to be completed during fiscal 2005 for an additional $2.0-$2.5 million, and will be funded from existing cash balances. The additional space is expected to be used primarily for manufacturing. 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 consolidated 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, 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, 14 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 consolidated 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 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. Health Insurance Beginning in January 2004, we became self-insured for the majority of our group health insurance. We rely on claims experience in determining an adequate liability for claims incurred, but not reported. To the extent actual claims exceed estimates, we may be required to record additional expense. A one percent change in actual claims would have an annual impact of approximately $25,000 on our financial condition and results of operations. 15 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, 2004. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes that have occurred in our quantitative and qualitative market risk disclosures during the first three months of fiscal 2005. 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, 2004. 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 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. 16 PART II - Other Information Item 6. Exhibits (a) Exhibits: 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 17 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: November 5, 2004 18 EX-31 2 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 our 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: November 5, 2004 /s/ J. Bruce Robinson ------------------------- J. Bruce Robinson Chairman, President, and Chief Executive Officer EX-31 3 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 our 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: November 5, 2004 /s/ Walter A. Shephard ------------------------- Walter A. Shephard Vice President, Finance Chief Financial Officer EX-32 4 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 September 30, 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: November 5, 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 September 30, 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: November 5, 2004 /s/ Walter A. Shephard ------------------------- Walter A. Shephard Vice President, Finance, Chief Financial Officer of Zygo Corporation -----END PRIVACY-ENHANCED MESSAGE-----