Attached files
file | filename |
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EX-31.1 - ZYGO CORP | c65648_ex31-1.htm |
EX-32.1 - ZYGO CORP | c65648_ex32-1.htm |
EX-31.2 - ZYGO CORP | c65648_ex31-2.htm |
EX-32.2 - ZYGO CORP | c65648_ex32-2.htm |
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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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FORM 10-Q |
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2011 |
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or |
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o |
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
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ZYGO CORPORATION |
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(Exact name of registrant as specified in its charter) |
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Delaware |
06-0864500 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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Laurel Brook Road, Middlefield, Connecticut |
06455 |
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(Address of principal executive offices) |
(Zip Code) |
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(860) 347-8506 |
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Registrants telephone number, including area code |
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N/A |
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(Former name, former address, and former fiscal year, if changed from last report) |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o |
Accelerated filer x |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
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Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
17,765,361 shares of Common Stock, $.10 Par Value, at May 2, 2011
(1) The registrant is not currently required to submit Interactive Data Files pursuant to Rule 405 of Regulation S-T.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form 10-Q Quarterly Report regarding financial performance, condition and operations, and the business strategy, plans, anticipated revenues, bookings, market acceptance, growth rates, market opportunities, and objectives of management of the Company for future operations are forward-looking statements. Forward-looking statements are intended to provide managements current expectations or plans for the future operating and financial performance of the Company 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 revenues to our major customers; manufacturing and supplier risks; risks of booking cancellations, push-outs and de-bookings; dependence on timing and market acceptance of new product development; rapid technological and market change; risks in international operations; risks related to the reorganization of our business; dependence on proprietary technology and key personnel; length of the revenue cycle; environmental regulations; investment portfolio returns; fluctuations in our stock price; the risk that anticipated growth opportunities may be smaller than anticipated or may not be realized; risks related to recent business acquisitions, including the acquisition of substantially all the assets of ASML US, Inc.s Richmond, California facility and integration of the businesses and employees; the risk related to the Companys recent changes to senior management; and the risks associated with the recovery from the recent earthquake, tsunami and nuclear disaster in Japan and its impact on our customers, suppliers, and operations.
Any forward-looking statements included in this Quarterly Report speak only as of the date of this document. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q. Further information on potential factors that could affect our business is described in this Form 10-Q and in our reports on file with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended June 30, 2010.
2
PART I - Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
(Thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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2011 |
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2010 |
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2011 |
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2010 |
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Net revenues |
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$ |
40,235 |
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$ |
25,439 |
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$ |
107,440 |
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$ |
72,845 |
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Cost of goods sold |
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21,371 |
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13,962 |
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57,479 |
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43,241 |
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Gross profit |
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18,864 |
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11,477 |
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49,961 |
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29,604 |
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Selling, general, and administrative expenses |
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9,418 |
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7,972 |
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24,886 |
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23,113 |
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Research, development, and engineering expenses |
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3,739 |
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3,546 |
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10,872 |
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11,089 |
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Impairment of goodwill |
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2,003 |
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2,003 |
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Operating profit (loss) |
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5,707 |
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(2,044 |
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14,203 |
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(6,601 |
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Other income (expense) |
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Gain on acquisition |
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1,289 |
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Miscellaneous income (expense), net |
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(153 |
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(96 |
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71 |
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62 |
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Total other income (expense) |
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(153 |
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(96 |
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1,360 |
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62 |
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Earnings (loss) from continuing operations before income taxes, including noncontrolling interest |
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5,554 |
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(2,140 |
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15,563 |
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(6,539 |
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Income tax expense |
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(720 |
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(131 |
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(1,474 |
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(505 |
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Net earnings (loss) from continuing operations |
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4,834 |
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(2,271 |
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14,089 |
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(7,044 |
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Net earnings (loss) from discontinued operations, net of tax |
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(193 |
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91 |
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(2,667 |
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Net earnings (loss) including noncontrolling interest |
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4,834 |
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(2,464 |
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14,180 |
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(9,711 |
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Less: Net earnings attributable to noncontrolling interest |
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361 |
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232 |
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1,205 |
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677 |
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Net earnings (loss) attributable to Zygo Corporation |
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$ |
4,473 |
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$ |
(2,696 |
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$ |
12,975 |
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$ |
(10,388 |
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Basic - Earnings (loss) per share attributable to Zygo Corporation |
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Continuing operations |
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$ |
0.25 |
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$ |
(0.15 |
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$ |
0.73 |
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$ |
(0.45 |
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Discontinued operations |
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(0.01 |
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$ |
0.01 |
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(0.16 |
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Net earnings (loss) per share |
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$ |
0.25 |
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$ |
(0.16 |
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$ |
0.74 |
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$ |
(0.61 |
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Diluted - Earnings (loss) per share attributable to Zygo Corporation |
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Continuing operations |
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$ |
0.24 |
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$ |
(0.15 |
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$ |
0.71 |
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$ |
(0.45 |
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Discontinued operations |
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(0.01 |
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0.01 |
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(0.16 |
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Net earnings (loss) per share |
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$ |
0.24 |
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$ |
(0.16 |
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$ |
0.72 |
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$ |
(0.61 |
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Weighted average shares outstanding |
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Basic shares |
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17,693 |
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17,342 |
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17,600 |
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17,091 |
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Diluted shares |
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18,304 |
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17,342 |
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18,056 |
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17,091 |
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Amounts Attributable to Zygo Corporation |
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Net earnings (loss) from continuing operations attributable to Zygo Corporation |
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$ |
4,473 |
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$ |
(2,503 |
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$ |
12,884 |
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$ |
(7,721 |
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Discontinued operations, net of tax |
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(193 |
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91 |
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(2,667 |
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Net earnings (loss) attributable to Zygo Corporation |
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$ |
4,473 |
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$ |
(2,696 |
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$ |
12,975 |
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$ |
(10,388 |
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See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Thousands, except share amounts)
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March 31, 2011 |
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June 30, 2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
52,341 |
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$ |
46,536 |
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Marketable securities |
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1,000 |
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1,000 |
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Receivables, net of allowance for doubtful accounts of $1,331 and $1,975, respectively |
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30,819 |
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19,948 |
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Inventories |
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27,707 |
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25,220 |
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Prepaid expenses and other |
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1,702 |
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1,643 |
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Income tax receivable |
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1,050 |
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Current assets of discontinued operations |
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17 |
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Total current assets |
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113,569 |
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95,414 |
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Marketable securities |
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1,027 |
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922 |
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Property, plant, and equipment, net |
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31,633 |
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23,029 |
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Intangible assets, net |
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5,664 |
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5,387 |
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Other assets |
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413 |
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Total assets |
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$ |
151,893 |
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$ |
125,165 |
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Liabilities and Equity |
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Current liabilities: |
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Accounts payable |
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$ |
8,104 |
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$ |
8,426 |
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Accrued progress payments and deferred revenue |
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4,561 |
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5,700 |
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Accrued salaries and wages |
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6,727 |
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3,173 |
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Other accrued liabilities |
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6,352 |
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5,191 |
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Income tax payable |
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1,116 |
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152 |
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Current liabilities of discontinued operations |
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281 |
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287 |
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Total current liabilities |
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27,141 |
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22,929 |
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Other long-term liabilities |
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4,667 |
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1,359 |
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Long-term liabilities of discontinued operations |
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281 |
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Commitments and contingencies |
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Equity: |
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Common stock, $0.10 par value per share: |
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40,000,000 shares authorized; 19,963,381shares issued (19,663,414 at June 30, 2010); 17,744,238 shares outstanding (17,480,219 at June 30, 2010) |
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1,996 |
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1,966 |
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Additional paid-in capital |
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167,483 |
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163,052 |
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Accumulated deficit |
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(26,869 |
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(39,844 |
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Accumulated other comprehensive income (loss): |
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Currency translation effects |
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909 |
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(728 |
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Treasury stock, at cost, 2,219,143 shares (2,183,195 at June 30, 2010) |
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(26,329 |
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(26,043 |
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Total stockholders equity - Zygo Corporation |
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117,190 |
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98,403 |
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Noncontrolling interest |
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2,895 |
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2,193 |
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Total equity |
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120,085 |
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100,596 |
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Total liabilities and equity |
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$ |
151,893 |
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$ |
125,165 |
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See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands)
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Nine Months Ended March 31, |
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2011 |
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2010 |
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Cash provided by operating activities: |
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Net earnings (loss) including noncontrolling interest |
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$ |
14,180 |
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$ |
(9,711 |
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Adjustments to reconcile net earnings (loss) to cash provided by operating activities from continuing operations: |
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(Earnings) loss from discontinued operations |
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(91 |
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2,667 |
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Depreciation and amortization |
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4,718 |
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4,618 |
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Gain on acquisition, net of tax |
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(1,289 |
) |
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Deferred income taxes |
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(725 |
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(53 |
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Impairment of goodwill |
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2,003 |
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Provision for doubtful accounts |
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(365 |
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71 |
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Compensation cost related to share-based payment arrangements |
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2,962 |
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1,759 |
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Excess tax benefits from share-based payment arrangements |
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(28 |
) |
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(10 |
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Other |
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(360 |
) |
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(19 |
) |
Changes in operating accounts: |
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Receivables |
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(9,903 |
) |
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1,348 |
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Inventories |
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321 |
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6,046 |
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Prepaid expenses and other current assets |
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1,471 |
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(134 |
) |
Accounts payable, accrued expenses, and taxes payable |
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1,904 |
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(752 |
) |
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Net cash provided by operating activities from continuing operations |
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12,795 |
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7,833 |
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Net cash used for operating activities from discontinued operations |
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(263 |
) |
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(1,359 |
) |
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Cash provided by (used for) investing activities: |
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Additions to property, plant, and equipment |
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(1,025 |
) |
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(1,040 |
) |
Purchase of marketable securities |
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(1,998 |
) |
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(1,998 |
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Additions to intangibles |
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(427 |
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(427 |
) |
Acquisitions |
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(7,142 |
) |
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11 |
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Proceeds from the sale and maturity of marketable securities |
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2,089 |
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5,000 |
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Proceeds from the sale of other assets |
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62 |
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291 |
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Net cash provided by (used for) investing activities |
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(8,441 |
) |
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1,837 |
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Cash provided by financing activities: |
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Dividend payment to noncontrolling interest |
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(823 |
) |
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Excess tax benefits from share-based payment arrangements |
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28 |
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10 |
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Restricted stock vesting and related tax benefits |
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(285 |
) |
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(404 |
) |
Exercise of employee stock options |
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1,498 |
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465 |
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Net cash provided by financing activities |
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418 |
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71 |
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Effect of exchange rate changes on cash and cash equivalents |
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1,296 |
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(214 |
) |
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Net increase in cash and cash equivalents |
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5,805 |
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8,168 |
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Cash and cash equivalents, beginning of year |
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46,536 |
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32,723 |
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Cash and cash equivalents, end of period |
|
$ |
52,341 |
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$ |
40,891 |
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Supplemental Cash Flow Information
Net cash paid for income taxes was $361 for the nine months ended March 31, 2011. Net cash received for income taxes was $469 for the nine months ended March 31, 2010.
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
(Thousands, except
for share and per share amounts)
Note 1: Accounting Policies
Basis of Presentation and Principles of Consolidation
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. The accompanying condensed consolidated financial
statements include the accounts of Zygo Corporation and its subsidiaries
(Zygo, we, us, our or the Company). The Company follows accounting
principles generally accepted in the United States of America (US GAAP).
Zygos reporting currency is the U.S. dollar. The functional currency of the
majority of our foreign subsidiaries is their local currency and, as such,
amounts included in the consolidated statements of operations are translated at
the weighted-average exchange rates for the period. Assets and liabilities are
translated at period-end exchange rates and resulting foreign exchange
translation adjustments are recorded in the consolidated balance sheets as a
component of accumulated other comprehensive income (loss). All transactions
and accounts with the subsidiaries are eliminated from the condensed
consolidated financial statements. The results of operations for the three and
nine months ended March 31, 2011 are not necessarily indicative of the results
to be expected for the full fiscal year.
The condensed consolidated balance sheet at March 31, 2011, the condensed consolidated statements of operations for the three and nine months ended March 31, 2011 and 2010, and the condensed consolidated statements of cash flows for the nine months ended March 31, 2011 and 2010 are unaudited but, in managements opinion, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of the interim periods. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended June 30, 2010, including items incorporated by reference therein.
Discontinued Operations
The Company classifies operations as discontinued when the
operations have either ceased, or are expected to be disposed of in a sale
transaction in the near term, and the operations and cash flows of all
discontinued operations have been eliminated or will be eliminated upon consummation
of the expected sale transaction, and the Company will not have any significant
continuing involvement in the discontinued operations. Authoritative guidance
related to the impairment or disposal of long-lived assets requires the
calculation of estimated fair value less cost to sell long-lived assets for
assets held for sale. The calculation of estimated fair value less cost to sell
includes significant estimates and assumptions, including, but not limited to:
operating projections; discount rate; excess working capital levels; property
values; and the anticipated costs involved in the selling process. As more
fully described in Note 2, Discontinued Operations, we have discontinued the
Singapore IC packaging operations of our Vision Systems product line, which was
included in our Metrology Solutions segment.
Recent Accounting Guidance Not Yet Adopted
In January 2010, the Financial Accounting Standards
Board (FASB) issued amended standards that require additional fair value
disclosures. These disclosure requirements are effective in two phases. On
January 1, 2010, we adopted the requirements for disclosures about inputs and
valuation techniques used to measure fair value as well as disclosures about
significant transfers. The adoption of this portion of the guidance did not
have a material impact on our consolidated financial statements. Beginning in
fiscal 2012, the balance of these amended standards will require presentation
of disaggregated activity within the reconciliation for fair value measurements
using significant unobservable inputs (Level 3). We believe the adoption of the
balance of these amended standards will not have a material impact on our
consolidated financial statements.
Adoption of New Accounting Pronouncements
In October 2009, the FASB issued authoritative
guidance on revenue recognition that became effective for us on July 1, 2010.
Under the new guidance on arrangements that include software elements, tangible
products that have software components that are essential to the functionality
of the tangible product will no longer be within the scope of the software
revenue recognition guidance, and software-enabled products will now be subject
to other relevant revenue recognition guidance. Additionally, the FASB issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition guidance. Under the
new guidance, when vendor specific objective evidence or third party evidence
for deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The new guidance
includes new disclosure requirements on how the application of the relative
selling price method affects the timing and amount of revenue recognition. The
adoption of this new guidance did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities which became effective for us on July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of power over such entities, and additional disclosures for variable interests. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
6
Reclassifications
Certain amounts have been reclassified to conform to
current-year presentations related to other income.
Note 2: Discontinued Operations
We discontinued the Singapore IC packaging operations of our Vision Systems product line in fiscal 2010. In accordance with authoritative guidance, the results of operations for the aforementioned operations are presented in the Companys condensed consolidated financial statements as discontinued operations. In addition, adjustments were made to the carrying value of assets held for sale if the carrying value exceeded their estimated fair value less cost to sell.
The following table summarizes the operating results of our discontinued operations for the three and nine months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
665 |
|
Non-cash charge |
|
|
|
|
|
|
|
|
|
|
|
(678 |
) |
Other income and (operating expenses) |
|
|
|
|
|
(193 |
) |
|
91 |
|
|
(2,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax |
|
$ |
|
|
$ |
(193 |
) |
$ |
91 |
|
$ |
(2,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the assets and liabilities of our discontinued operations included in the condensed consolidated balance sheets of the Company as of March 31, 2011 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
||
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
Current assets of discontinued operations |
|
$ |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
$ |
281 |
|
$ |
287 |
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations |
|
$ |
281 |
|
$ |
287 |
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
$ |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
Long-term liabilites of discontinued operations |
|
$ |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
7
Note 3: Acquisitions
Richmond, California
On November 12, 2010, we completed a transaction with
ASML US, Inc. (ASML) to purchase substantially all the assets of ASMLs
Richmond, California facility, including a 55,300 square-foot manufacturing
facility. This acquisition expands our optical manufacturing capabilities. The assets
were acquired for $12,475, of which $7,142 was in cash and the balance was
future consideration, net present valued at $5,333 using a discount factor of
14%, based on the level of shipments to ASML over the subsequent three years
beginning January 1, 2011. On the acquisition date, the future consideration
was recorded as a liability at December 31, 2010, with $1,127 recorded as a
current liability and $4,206 recorded as a long-term liability. The future
consideration represented a supply agreement that was entered into with ASML
that provided for a volume discount. In addition, we hired key management and
employees working at the Richmond facility. These activities resulted in a
newly formed operation known as the Extreme Precision Optics Group (EPOG)
which is included in our Optical Systems Segment.
This transaction met the conditions of a business combination as defined by Accounting Standards Codification (ASC) 805 and, as such, is accounted for under ASC 805 using the purchase method of accounting. ASC 805 defines the three elements of a business as Input, Process, and Output. As a result of the acquisition of substantially all the Richmond facility assets, Zygo acquired the machinery and equipment utilized in the processes to manufacture product, the building that houses the entire operation and intellectual property needed in the process to manufacture the product. The ASML employees hired by Zygo in connection with the acquisition brought with them the skills, experience and know-how necessary to provide the operational processes that, when applied to the acquired assets, represent processes being applied to inputs to create outputs. Having met all three elements of a business as defined in ASC 805, we determined that the acquisition of substantially all the assets of ASMLs Richmond, California facility should be accounted for as a business acquisition.
The results of EPOG were included in our condensed consolidated statements of operations from the acquisition date. Zygo performed a preliminary fair value exercise to allocate the purchase price to the acquired assets and liabilities at November 12, 2010. The fair value exercise is complete with the exception of a final review of the market analysis of certain equipment acquired in the transaction. Due to the timing of the transaction, specialized nature of certain equipment purchased, and the fact that many of the equipment components are custom built specialty parts, the Company is still in the process of completing its review of this information. Zygo expects to finalize the purchase price allocation prior to the end of fiscal 2011. The following table summarizes the consideration paid for the business and the preliminary fair values of the assets acquired at the date of acquisition:
|
|
|
|
|
|
|
Fair Value On |
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
7,142 |
|
Future consideration |
|
|
5,333 |
|
|
|
|
|
|
Purchase price |
|
$ |
12,475 |
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired: |
|
|
|
|
Inventories |
|
$ |
2,399 |
|
Property and equipment |
|
|
11,467 |
|
Technology and customer relationships |
|
|
623 |
|
|
|
|
|
|
Total assets |
|
|
14,489 |
|
|
|
|
|
|
Less: gain on acquisition |
|
|
2,014 |
|
|
|
|
|
|
Purchase price |
|
$ |
12,475 |
|
|
|
|
|
|
In addition to recording the fair values of the assets acquired and the future consideration liability, we also recorded a gain on acquisition of $2,014 in the unaudited condensed consolidated statement of operations in accordance with ASC 805 using the purchase method of accounting. The gain on acquisition was primarily due to the difference between market value of the acquired real estate and its book value and the desire of ASML to sell the assets. In addition, a deferred tax liability of $725 was recorded in the opening balance sheet, which had the effect of reducing the gain on acquisition to $1,289. We maintain a full valuation allowance on our net deferred tax assets. Therefore, we recorded a tax benefit to reduce the valuation allowance to the net deferred tax asset balance. Prior to recording the gain, we reassessed whether we had correctly identified all of the assets acquired and all of the liabilities assumed. Additionally, we also reviewed the procedures used to measure the amounts of the identifiable assets acquired, liabilities assumed and consideration transferred.
8
The purchased inventory was comprised of raw materials and work in process. The fair value for work in process was $1,833 and was determined by considering the sales price of finished units to represent fair value. The fair value for the building and land was $6,080 and was determined by using the sales comparison approach to value the land and a combination of the sales and cost approach for the building and improvements. The fair value of the equipment was determined by the market approach to be $5,387. Management is still evaluating certain pieces of equipment and the value assigned to that equipment may change from the preliminary valuation included in the financial statements. Any change in the valuation of the assets would increase or decrease the amount of the gain recorded in the statements of operations. Fair value of customer relationships was determined to be $23 by using the multi-period excess earnings method. The fair value of technology was $600 and was determined using the relief from royalty method.
During the three months ended March 31, 2011, EPOG contributed revenue and net earnings of $6,279 and $2,096, respectively. During the nine months ended March 31, 2011, EPOG contributed revenue and net earnings of $8,775 and $2,617, respectively. Acquisition related expenses of $406 were recognized in administration expense for the nine months ended March 31, 2011. There were no acquisition related expenses during the three months ended March 31, 2011.
Proforma financial information of revenues and net earnings is impractical to provide. Prior to the acquisition, the Richmond operations were accounted for as a cost center within ASML. Therefore, sales were not recorded at the Richmond level within ASML and separate financial statements for the Richmond operations were not prepared. While ASML provided financial information sufficient for Zygo to conclude that the acquisition was not significant under Regulation S-X rule 3-05, ASML did not provide and Zygo does not have access to financial information for the appropriate periods to present pro forma financial information.
The following disclosure presents certain information regarding the Companys acquired intangible assets as of March 31, 2011. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of five years for both customer relationships and technology, in both instances with no estimated residual values. We review our intangible assets for impairment annually.
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer |
|
Technology |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Balance at November 12, 2010 |
|
$ |
23 |
|
$ |
600 |
|
$ |
623 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
(2 |
) |
|
(45 |
) |
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
21 |
|
$ |
555 |
|
$ |
576 |
|
|
|
|
|
|
|
|
|
|
|
|
Zemetrics
In January 2010, the Company entered into an agreement
to purchase all of the outstanding stock and to retire the outstanding
shareholder notes of Zemetrics, Inc., an Arizona corporation (Zemetrics), in
exchange for 361,217 shares of the Companys common stock. The value of the
common stock issued was $3,901, based on the fair value of the common stock on
the closing date of $10.80. In accordance with the purchase agreement, the
number of shares delivered was calculated by dividing the sum of $1,941 and the
outstanding shareholder notes (including accrued interest) of $856 by the
average of the closing prices of the Companys common stock reported by the
NASDAQ Stock Market during the forty trading days ended two days prior to the
closing date of January 22, 2010 of $7.74 (the Average Trading Price).
Dr. Chris L. Koliopoulos, Zygo President and CEO, was a major shareholder of Zemetrics as well as the major holder of Zemetrics outstanding shareholder notes. Dr. Koliopoulos received a total of 195,790 shares of Company common stock, consisting of 106,233 shares of Company common stock as consideration for the purchase of his shares of Zemetrics stock and 89,557 shares of Company common stock in payment of $680 principal amount of Zemetrics outstanding shareholder notes (plus accrued interest thereon) held by Dr. Koliopoulos. Acquisition costs for the three and nine months ended March 31, 2010 were $377 and $457, respectively, which are included in selling, general and administrative expenses.
9
The following is the final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition on January 22, 2010:
|
|
|
|
|
Cash |
|
$ |
11 |
|
Inventories |
|
|
403 |
|
Prepaid expenses |
|
|
18 |
|
Property and equipment |
|
|
15 |
|
Customer relationships |
|
|
112 |
|
Technology |
|
|
1,428 |
|
Goodwill |
|
|
2,003 |
|
|
|
|
|
|
Total assets |
|
|
3,990 |
|
Less: Liabilities assumed |
|
|
89 |
|
|
|
|
|
|
Total |
|
$ |
3,901 |
|
|
|
|
|
|
In addition, net deferred tax assets of $360, net of a full valuation allowance, was recorded in the opening balance sheet at zero value. Based on the Companys expectations of future U.S. taxable income, the Company believes it is more likely than not that such net deferred tax assets will not be realized.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based on their fair values. Analyses supporting the purchase price allocation included a valuation of assets and liabilities as of the closing date, an analysis of intangible assets and a detailed review of the opening balance sheet to determine other significant adjustments required to recognize assets and liabilities at fair value. Intangible assets of technology and customer relationships were valued on an income approach based on future earnings projections.
The following disclosure presents certain information regarding the Companys acquired intangible assets as of March 31, 2010. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of three years for customer relationships and seven years for technology, in both instances with no estimated residual values. We perform a review our intangible assets for impairment annually.
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer |
|
Technology |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Balance at January 22, 2010 |
|
$ |
112 |
|
$ |
1,428 |
|
$ |
1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
(6 |
) |
|
(34 |
) |
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
106 |
|
$ |
1,394 |
|
$ |
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded an impairment charge of $2,003 relating to acquired goodwill in the quarter ended March 31, 2010 subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In addition, the fair value of common stock issued as consideration on the closing date was $10.80 per share, which was in excess of the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based on the market price per share during the 40-day period prior to closing). In consideration of these factors, management determined the carrying value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010.
10
From the date of acquisition, the Zemetrics reporting unit had revenues of $0 and an operating loss of $2,320 (including the aforementioned $2,003 goodwill impairment charge), which are included in the consolidated financial statements for the period ended March 31, 2010. The following unaudited proforma condensed financial information shows the results of operations for the three and nine months ended March 31, 2010 as though the acquisition of Zemetrics had occurred at the beginning of such fiscal year. The proforma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time:
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
25,439 |
|
$ |
72,920 |
|
Net loss attributable to Zygo Corporation |
|
$ |
(2,797 |
) |
$ |
(11,132 |
) |
|
|
|
|
|
|
|
|
Loss per share amounts: |
|
|
|
|
|
|
|
Basic and Diluted - Loss per share |
|
$ |
(0.16 |
) |
$ |
(0.65 |
) |
Note 4: Restructuring and related costs
During fiscal 2009, we initiated restructuring actions related to ongoing cost reduction efforts comprised of workforce reductions and the consolidation of manufacturing operations in Tucson, Arizona.
The following table summarizes the accrual balances and utilization by cost type for the fiscal 2011 and fiscal 2010 restructuring actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
Facility |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
Balance at June 30, 2010 |
|
$ |
290 |
|
$ |
227 |
|
$ |
517 |
|
Payments |
|
|
(241 |
) |
|
(145 |
) |
|
(386 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
49 |
|
$ |
82 |
|
$ |
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
Facility |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
Balance at June 30, 2009 |
|
$ |
262 |
|
$ |
452 |
|
$ |
714 |
|
Restructuring charges |
|
|
602 |
|
|
|
|
|
602 |
|
Payments |
|
|
(569 |
) |
|
(168 |
) |
|
(737 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
295 |
|
$ |
284 |
|
$ |
579 |
|
|
|
|
|
|
|
|
|
|
|
|
11
Note 5: Earnings Per Share
For the three and nine months ended March 31, 2011, 399,214 and 963,623 (for the three and nine months ended March 31, 2010, 2,018,479 and 2,080,015) of the Companys outstanding stock options and restricted stock awards were excluded from the calculation of diluted earnings per share because they were antidilutive.
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average shares outstanding |
|
|
17,692,761 |
|
|
17,341,731 |
|
|
17,599,732 |
|
|
17,090,750 |
|
Dilutive effect of stock options and restricted shares |
|
|
611,693 |
|
|
|
|
|
456,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
18,304,454 |
|
|
17,341,731 |
|
|
18,055,971 |
|
|
17,090,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6: Comprehensive Income (Loss)
The following table sets forth Stockholders Equity and Noncontrolling Interest for the nine months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
||||||||||||||||
|
|
|
|
||||||||||||||||
|
|
2011 |
|
2010 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Stockholders |
|
Non- |
|
Total |
|
Stockholders |
|
Non- |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity, beginning of period |
|
$ |
98,403 |
|
$ |
2,193 |
|
$ |
100,596 |
|
$ |
98,583 |
|
$ |
1,444 |
|
$ |
100,027 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
12,975 |
|
|
1,205 |
|
|
14,180 |
|
|
(10,388 |
) |
|
677 |
|
|
(9,711 |
) |
Foreign currency translation effect |
|
|
1,637 |
|
|
320 |
|
|
1,957 |
|
|
399 |
|
|
(54 |
) |
|
345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
14,612 |
|
|
1,525 |
|
|
16,137 |
|
|
(9,989 |
) |
|
623 |
|
|
(9,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation charges related to stock awards |
|
|
2,962 |
|
|
|
|
|
2,962 |
|
|
1,824 |
|
|
|
|
|
1,824 |
|
Issuance - Zemetrics acquisition |
|
|
|
|
|
|
|
|
|
|
|
3,901 |
|
|
|
|
|
3,901 |
|
Restricted stock vesting and related tax effect |
|
|
(285 |
) |
|
|
|
|
(285 |
) |
|
(404 |
) |
|
|
|
|
(404 |
) |
Exercise of employee stock options and related tax effect |
|
|
1,498 |
|
|
|
|
|
1,498 |
|
|
466 |
|
|
|
|
|
466 |
|
Dividends attributable to noncontrolling interests |
|
|
|
|
|
(823 |
) |
|
(823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period |
|
$ |
117,190 |
|
$ |
2,895 |
|
$ |
120,085 |
|
$ |
94,381 |
|
$ |
2,067 |
|
$ |
96,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Note 7: Marketable Securities
Marketable securities consisted primarily of corporate and government agency securities for the nine months of fiscal 2011 and 2010. The Company classifies these securities as held-to-maturity and trading. Dividend and interest income is recognized when earned. Straight-line amortization related to discounts and premiums on the purchase of marketable securities is recorded in interest income. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
At March 31, 2011 and June 30, 2010, the held-to-maturity securities consisted of a government treasury bill. We have both the intent and the ability to hold the government treasury bill to maturity. The amortized cost, gross unrealized gains and losses, and fair value of held-to-maturity securities at March 31, 2011 and June 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 |
|
$ |
1,000 |
|
$ |
|
|
$ |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2010 |
|
$ |
1,000 |
|
$ |
|
|
$ |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The government treasury bill is being held in an account designated as loan collateral to cover our outstanding standby letters of credit.
Trading securities consist of a mutual fund investment corresponding to elections made in our deferred compensation program. In December 2010, we began quarterly distributions in accordance with the deferred compensation program agreement. The following table sets forth the beginning balance at July 1, 2010 and 2009, gross unrealized gains and losses, contributions, redemptions, and fair value of trading securities at March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
Gross |
|
Gross |
|
Contri- |
|
Redemp- |
|
Ending |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
March 31,
2011 |
|
$ |
922 |
|
$ |
194 |
|
$ |
|
|
$ |
|
|
$ |
(89 |
) |
$ |
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
$ |
499 |
|
$ |
191 |
|
$ |
|
|
$ |
290 |
|
$ |
|
|
$ |
980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of investment securities classified as held-to-maturity at March 31, 2011 and June 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
June 30, 2010 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Due within one year |
|
$ |
1,000 |
|
$ |
1,000 |
|
$ |
1,000 |
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no securities in a continuous unrealized loss position at March 31, 2011 and June 30, 2010.
In determining whether investment holdings are other than temporarily impaired, we consider the nature, cause, severity, and duration of the impairment. We and our investment advisors use analyst reports, credit ratings and other items as part of our review.
13
Note 8. Fair Value Measurements
Authoritative guidance related to fair value measurements and disclosures establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on managements assumptions used to measure assets and liabilities at fair value. The classification of financial assets and liabilities within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2011 and June 30, 2010:
Assets and Liabilities Measured at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at March 31, 2011 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Total carrying |
|
Quoted prices |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
19,930 |
|
$ |
19,930 |
|
$ |
|
|
$ |
|
|
Trading securities |
|
|
1,027 |
|
|
1,027 |
|
|
|
|
|
|
|
Foreign currency hedge |
|
|
(41 |
) |
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,916 |
|
$ |
20,957 |
|
$ |
(41 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at June 30, 2010 |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Total carrying |
|
Quoted prices |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
22,141 |
|
$ |
22,141 |
|
$ |
|
|
$ |
|
|
Trading securities |
|
|
922 |
|
|
922 |
|
|
|
|
|
|
|
Foreign currency hedge |
|
|
(70 |
) |
|
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,993 |
|
$ |
23,063 |
|
$ |
(70 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When available, the Company uses quoted market prices to determine the fair value of its assets and liabilities included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.
14
Note 9: Share-Based Payments
We recorded share-based compensation expense for the three months ended March 31, 2011 and 2010 of $1,081 and $654, respectively, with a related tax benefit of $389 and $235, respectively. We recorded share-based compensation expense for the nine months ended March 31, 2011 and 2010 of $2,962 and $1,824, respectively, with a related tax benefit of $1,067 and $657, respectively. For the three and nine months ended March 31, 2010, $12 and $65, respectively, was recorded as part of discontinued operations.
Stock Options
We utilized the Black-Scholes valuation method to determine the weighted average fair value of the stock option grants for both fiscal 2011 and 2010 stock option valuations. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense. Under the assumptions indicated below, the weighted-average fair value of stock option grants for the three months ended March 31, 2011 and 2010 was $8.37 and $4.72, respectively, and the weighted-average fair value of stock option grants for the nine months ended March 31, 2011 and 2010 was $5.68 and $4.44, respectively. During the three months ended March 31, 2011 and 2010, we issued stock options for an aggregate of 50,000 and 375,000 shares of common stock, respectively. During the nine months ended March 31, 2011 and 2010, we issued stock options for an aggregate of 100,000 and 515,000 shares of common stock, respectively.
The table below indicates the key assumptions used in the option valuation calculations for options granted in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Term |
|
|
5.13 Years |
|
|
4.1-5.1 Years |
|
|
4.1-5.1 Years |
|
|
4.1-5.1 Years |
|
Volatility |
|
|
57.1% |
|
|
45.7%-60.9% |
|
|
45.7%-57.1% |
|
|
45.7%-60.9% |
|
Dividend yield |
|
|
0.0% |
|
|
0.0% |
|
|
0.0% |
|
|
0.0% |
|
Risk-free interest rate |
|
|
2.6% |
|
|
2.0%-2.4% |
|
|
1.1%-2.6% |
|
|
2.0%-2.5% |
|
Forfeiture rate |
|
|
7.9% |
|
|
0-10.8% |
|
|
0-7.9% |
|
|
0-10.8% |
|
Restricted Stock
Our share-based compensation expense also includes the effects of the issuance of restricted stock units. The compensation expense related to restricted stock awards is determined based on the market price of our stock at the date of grant applied to the total number of shares that are anticipated to fully vest, which is then amortized over the expected term. During the three months ended March 31, 2011 and 2010, an aggregate of 73,500 and 40,000 shares, respectively, of restricted stock units were issued at a weighted average grant price of $12.01 and $10.57, respectively. During the nine months ended March 31, 2011 and 2010, an aggregate of 362,500 and 309,000 shares, respectively, of restricted stock units were issued at a weighted average grant price of $10.75 and $6.06, respectively. Generally, the restrictions on the restricted stock units granted to employees prior to January 1, 2011 lapse at a rate of 50% after three years and the remaining 50% after the fourth year. Restrictions on restricted stock units granted to employees after January 1, 2011 lapse at a rate of 25% each year.
15
Note 10: Receivables
The following table sets forth the components of accounts receivable at March 31, 2011 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
June 30, 2010 |
|
||
|
|
|
|
|
|
||
Trade |
|
$ |
31,876 |
|
$ |
21,314 |
|
Other |
|
|
274 |
|
|
609 |
|
|
|
|
|
|
|
|
|
|
|
|
32,150 |
|
|
21,923 |
|
Allowance for doubtful accounts |
|
|
(1,331 |
) |
|
(1,975 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
30,819 |
|
$ |
19,948 |
|
|
|
|
|
|
|
|
|
Note 11: Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. The following table sets forth the components of inventories at March 31, 2011 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
||
|
|
|
|
|
|
||
Raw materials and manufactured parts |
|
$ |
14,117 |
|
$ |
12,682 |
|
Work in process |
|
|
9,618 |
|
|
9,322 |
|
Finished goods |
|
|
3,972 |
|
|
3,216 |
|
|
|
|
|
|
|
|
|
|
|
$ |
27,707 |
|
$ |
25,220 |
|
|
|
|
|
|
|
|
|
Note 12: 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. The following table sets forth the components of property, plant, and equipment at March 31, 2011 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June
30, |
|
Estimated
Useful Life |
|
|||
|
|
|
|
|
|
|
|
|||
Land and improvements |
|
$ |
2,936 |
|
$ |
615 |
|
|
|
|
Building and improvements |
|
|
21,263 |
|
|
17,390 |
|
15-40 |
|
|
Machinery, equipment, and office furniture |
|
|
61,032 |
|
|
56,136 |
|
3-8 |
|
|
Leasehold improvements |
|
|
1,032 |
|
|
1,002 |
|
1-5 |
|
|
Construction in progress |
|
|
114 |
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,377 |
|
|
75,475 |
|
|
|
|
Accumulated depreciation |
|
|
(54,744 |
) |
|
(52,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,633 |
|
$ |
23,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1,342 and $1,283 for the three months ended March 31, 2011 and 2010, respectively. Depreciation expense was $3,951 and $4,040 for the nine months ended March 31, 2011 and 2010, respectively.
16
Note 13: Warranty
A limited warranty is provided on our products for periods ranging from 3 to 24 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 managements estimates, adjustments to the expense will be required.
As part of a strategic business partnership with Nanometrics entered into in June 2009, all related semiconductor systems that were purchased by Nanometrics are being warranted by us through June 2011. Nanometrics will provide warranty service and charge us for incurred expenses. As of March 31, 2011 and 2010, $9 and $77, respectively, of our warranty liability relates to these semiconductor systems.
The following table sets forth a reconciliation of the accrued warranty liability, included in other accrued liabilities in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
||||
|
|
|
|
||||
|
|
2011 |
|
2010 |
|
||
|
|
|
|
|
|
||
Beginning balance |
|
$ |
1,360 |
|
$ |
1,614 |
|
Reductions for payments made |
|
|
(788 |
) |
|
(688 |
) |
Changes in accruals related to pre-existing warranties |
|
|
362 |
|
|
(352 |
) |
Changes in accruals related to warranties made in the current period |
|
|
350 |
|
|
988 |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,284 |
|
$ |
1,562 |
|
|
|
|
|
|
|
|
|
Note 14: Intangible Assets
Intangible assets include patents and trademarks, customer relationships and technology, and a covenant not-to-compete. The cost of patents and trademarks, and customer relationships and technology is amortized on a straight-line basis over estimated useful lives ranging from 3-17 years. We entered into a non-compete agreement with a former officer and director of the Company effective February 28, 2009. The agreement calls for payments over a four year period of declining amounts totaling $878, which includes $27 of imputed interest. As of March 31, 2011, current liabilities include $106 and long-term liabilities include $51 related to the payments under this agreement. We are amortizing the value of the non-compete over four years on a declining balance method.
The following table sets forth the components of intangible assets, at cost, as of March 31, 2011 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
||
|
|
|
|
|
|
||
Patents and trademarks |
|
$ |
6,294 |
|
$ |
5,882 |
|
Covenant not-to-compete |
|
|
851 |
|
|
851 |
|
Customer relationships and technology |
|
|
2,163 |
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
9,308 |
|
|
8,273 |
|
Accumulated amortization |
|
|
(3,644 |
) |
|
(2,886 |
) |
|
|
|
|
|
|
|
|
Total |
|
$ |
5,664 |
|
$ |
5,387 |
|
|
|
|
|
|
|
|
|
Intangible amortization expense was $275 and $213 for the three months ended March 31, 2011 and 2010, respectively, and was $768 and $563 for the nine months ended March 31, 2011 and 2010, respectively. This amortization expense related to certain intangible assets is included in cost of goods sold in the condensed consolidated statements of operations.
17
Based on the carrying amount of the intangible assets as of March 31, 2011, the estimated future amortization expense is as follows:
|
|
|
|
|
|
|
|
|
Estimated Future Amortization |
|
|||
|
|
|
|
|||
Three months ending June 30, 2011 |
|
|
$ |
259 |
|
|
Fiscal year ending June 30, 2012 |
|
|
|
902 |
|
|
Fiscal year ending June 30, 2013 |
|
|
|
783 |
|
|
Fiscal year ending June 30, 2014 |
|
|
|
564 |
|
|
Fiscal year ending June 30, 2015 |
|
|
|
535 |
|
|
Thereafter |
|
|
|
2,621 |
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
5,664 |
|
|
|
|
|
|
|
|
|
Note 15: Segment and Major Customer Information
Zygos Metrology Solutions Division (segment) consists of OEM and in-line products primarily for the semiconductor and industrial markets. The Optical Systems Division (segment) consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace industries. The following table sets forth segment net revenues, gross profit, and gross margins for the three and nine months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Metrology Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
22,506 |
|
$ |
15,178 |
|
$ |
66,923 |
|
$ |
48,312 |
|
Gross profit |
|
$ |
12,338 |
|
$ |
7,919 |
|
$ |
37,129 |
|
$ |
24,256 |
|
Gross margin |
|
|
55 |
% |
|
52 |
% |
|
55 |
% |
|
50 |
% |
Optical Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
17,729 |
|
$ |
10,261 |
|
$ |
40,517 |
|
$ |
24,533 |
|
Gross profit |
|
$ |
6,526 |
|
$ |
3,558 |
|
$ |
12,832 |
|
$ |
5,348 |
|
Gross margin |
|
|
37 |
% |
|
35 |
% |
|
32 |
% |
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
40,235 |
|
$ |
25,439 |
|
$ |
107,440 |
|
$ |
72,845 |
|
Gross profit |
|
$ |
18,864 |
|
$ |
11,477 |
|
$ |
49,961 |
|
$ |
29,604 |
|
Gross margin |
|
|
47 |
% |
|
45 |
% |
|
47 |
% |
|
41 |
% |
Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not evaluated by our chief operating decision-maker. Substantially all of our operating expenses, assets, and depreciation and amortization are U.S. based.
The following table sets forth revenues by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
21,497 |
|
$ |
13,997 |
|
$ |
57,977 |
|
$ |
40,213 |
|
Europe |
|
|
4,973 |
|
|
3,773 |
|
|
13,349 |
|
|
9,870 |
|
Japan |
|
|
9,472 |
|
|
5,442 |
|
|
23,265 |
|
|
12,692 |
|
Pacific Rim |
|
|
4,293 |
|
|
2,227 |
|
|
12,849 |
|
|
10,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,235 |
|
$ |
25,439 |
|
$ |
107,440 |
|
$ |
72,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from two customers accounted for 27% of the revenues for the three months ended March 31, 2011. Revenues from one of these customers also accounted for 12% of the revenues for the three months ended March 31, 2010. Revenues from these customers were included in both of our segments. See Note 16.
18
Note 16: Transactions with Stockholder
Revenues from Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $6,434 and $3,067 (16% and 12% of net revenues, respectively) for the three months ended March 31, 2011 and 2010, respectively. For the nine months ended March 31, 2011 and 2010, sales to Canon amounted to $13,387 and $6,087 (12% and 8% of net revenues, respectively). Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At March 31, 2011 and June 30, 2010, there were, in the aggregate, $3,505 and $667, respectively, of trade accounts receivable from Canon.
Note 17: Derivatives and Hedging Activities
We enter into foreign currency forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are not designated as cash flow, fair value, or net investment hedges under authoritative guidance on accounting for derivative instruments and hedging activities. These contracts are marked-to-market with changes in fair value recorded in the condensed consolidated statement of operations in miscellaneous income. These contracts are entered into for periods consistent with the expected currency transaction exposures, generally three to six months. Any gains and losses on the fair value of these contracts are expected to substantially offset corresponding losses and gains on the underlying transactions.
As of March 31, 2011, we had ten currency contracts outstanding involving our Japanese and German operations with notional amounts aggregating $4,760. These foreign currency hedges are not considered designated hedging instruments. For the three months ended March 31, 2011 and 2010, we recognized net unrealized gains of $56 and $31, respectively, from foreign currency forward contracts. For the nine months ended March 31, 2011 and 2010, we recognized net unrealized gains of $30 and $43, respectively, from foreign currency forward contracts. These unrealized gains and losses are substantially offset by foreign exchange losses and gains on intercompany balances recorded by our subsidiary and are recorded in miscellaneous income on our condensed consolidated statements of operations.
The following table summarizes the fair value of derivative instruments as of March 31, 2011 and 2010:
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
Balance Sheet Location |
|||
|
|
|
|||
|
|
|
|
|
|
March 31, 2011 |
Number of foreign exchange contracts: |
10 |
|
Other accrued liabilities |
$40 |
|
|
|
|
|
|
March 31, 2010 |
Number of foreign exchange contracts: |
6 |
|
Prepaid Expenses |
$29 |
19
Note 18: Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, |
|
Nine Months ended March 31, |
|
||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Amount |
|
Tax |
|
Amount |
|
Tax |
|
Amount |
|
Tax |
|
Amount |
|
Tax |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
(720 |
) |
|
13 |
% |
$ |
(131 |
) |
|
6 |
% |
$ |
(1,474 |
) |
|
9 |
% |
$ |
(505 |
) |
|
8 |
% |
Income tax expense for the three and nine months ended March 31, 2011 included income taxes in state and foreign jurisdictions. The nine months ended March 31, 2011 included $725 of tax benefit from the adjustment of valuation allowances on our deferred assets associated with the gain on acquisition. We continue to maintain a full valuation allowance on our net deferred tax assets as of March 31, 2011. We recorded no increase in net deferred tax benefit for the domestic operating loss incurred in the period. In future periods, the valuation allowance could be reduced based upon sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized. Income tax expense for the three and nine months ended March 31, 2010 included income taxes in state and foreign jurisdictions.
In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits or liabilities accordingly. For the three and nine months ended March 31, 2011, we did not recognize additional liability or realize any benefit for changes in our tax positions. We had no uncertain tax benefits or liabilities as of March 31, 2011 and June 30, 2010. We are not aware of any tax positions that would create a material adjustment to the unrecognized tax benefits during the next twelve months.
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions and generally remains open to income tax examinations by relevant tax authorities for tax years beginning with fiscal 2007. The Company also files in foreign jurisdictions and generally remains open to income tax examinations for tax years beginning with fiscal 2005.
Note 19: Commitments and Contingencies
From time to time we are subject to certain legal proceedings and claims that arise in the normal course of our business. At March 31, 2011, we had a reserve of $1,400 for a potential royalty claim, which was settled and paid in the subsequent period.
We are aware of certain levels of environmental contamination on one of our properties which is below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. The future effect of environmental matters, including potential liabilities, is often difficult to estimate. Presently, we are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may potentially be responsible. We will record a reserve for the exposure related to the environmental contamination when and if it is both probable that a liability has been incurred and the amount of any liability can be reasonably estimated, whether a claim has been asserted or unasserted.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
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. We conduct the majority of our manufacturing in our 153,500 square foot facility in Middlefield, Connecticut, 55,300 square foot facility in Richmond, California, and our 39,780 square foot facility in Tucson, Arizona.
We have assessed the impact on our business resulting from the recent earthquake, tsunami and nuclear disaster in Japan and do not anticipate that these events will have a material impact on the Companys consolidated financial statements or continuing operations. Our activities in Japan resumed full operation shortly after the events. Indications at this time are that shipments both into Japan and from our Japanese operation will not be seriously affected. In addition, to date, our supply chain has been unaffected by the events in Japan.
Bookings of $41.7 million for the third quarter of fiscal 2011 increased 53% over the prior year quarter. Bookings decreased 10% from the second quarter of fiscal 2011, which included more than $7.1 million in bookings received in connection with the Richmond, California acquisition. Bookings for the Metrology Solutions Division accounted for 58% of the bookings received and the Optical Systems Division contributed the remaining 42%. Backlog rose to $60.5 million at March 31, 2011. During the third quarter of fiscal 2011, the Optical Systems Division was awarded a $3.0 million continuation order for meter class laser fusion amplifiers from Commissariat à lénergie atomique (CEA). The order is part of a seven year contract that started in 2007 in support of the Laser Mégajoule Program in France, to which Zygo is a critical supplier of products and technology.
During the second quarter of fiscal 2011, we completed a transaction with ASML US, Inc. (ASML) to purchase substantially all the assets of ASMLs Richmond, California operation, including a 55,300 square-foot manufacturing facility. The assets were acquired for $7.1 million in cash and future consideration, net present valued at $5.3 million, based on the level of shipments to ASML over the next three years beginning January 1, 2011. In addition, we hired key management and employees working at the former ASML Richmond facility and formed our Extreme Precision Optics Group (EPOG), which is included in our Optical Systems segment. With this acquisition, we have considerably expanded our optical manufacturing capabilities. Combined with our existing leadership position in metrology, large flat optics production and electro-optical design and manufacturing, EPOG is expected to provide highly synergistic capabilities that can immediately address new applications in semiconductor, defense, and the life-sciences markets.
The fair value of the Richmond assets acquired was greater than the purchase price, resulting in a gain on acquisition of $2.0 million which was recorded in other income. In addition, a deferred tax liability of $0.7 million was recorded in the opening balance sheet, which had the effect of reducing the gain on acquisition to $1.3 million. The fair value of the assets was determined based on managements review of the value of the assets at the time of their acquisition. Management is still evaluating certain pieces of the equipment, and the value assigned to that equipment may change from the preliminary valuation included in the financial statements. Any change in the valuation of the assets would increase or decrease the amount of the gain recorded in the statements of operations.
21
CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed 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 condensed consolidated financial statements. On an ongoing basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, marketable securities, warranty obligations, income taxes, long-lived assets, share-based payments and accruals for health insurance. 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. As discussed in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2010, management considers the Companys policies on revenue recognition and allowance for doubtful accounts; inventory valuation; other than temporary impairment of marketable securities; share-based compensation; warranty costs; accounting for income taxes; valuation of long-lived assets; and accruals for health insurance to be critical accounting policies due to the estimates, assumptions, and application of judgment involved in each.
In October 2009, the FASB issued authoritative guidance on revenue recognition that became effective for us on July 1, 2010. Under the guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product are no longer within the scope of the software revenue recognition guidance, and software-enabled products are now subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under that guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The guidance includes disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The adoption of this guidance did not have a material impact on our financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities which became effective for us on July 1, 2010. This guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of power over such entities, and additional disclosures for variable interests. The adoption of this guidance did not have a material impact on our financial statements.
22
RESULTS OF OPERATIONS
Net Revenues by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
Fiscal 2010 |
|
||||||||
|
|
|
|
|
|
|
||||||||
(Dollars in millions) |
|
|
Amount |
|
Net |
|
Amount |
|
Net |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Quarter ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrology Solutions |
|
$ |
22.5 |
|
|
56 |
% |
$ |
15.2 |
|
|
60 |
% |
|
Optical Systems |
|
|
17.7 |
|
|
44 |
% |
|
10.2 |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40.2 |
|
|
100 |
% |
$ |
25.4 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrology Solutions |
|
$ |
66.9 |
|
|
62 |
% |
$ |
48.3 |
|
|
66 |
% |
|
Optical Systems |
|
|
40.5 |
|
|
38 |
% |
|
24.5 |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
107.4 |
|
|
100 |
% |
$ |
72.8 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall, net revenues for the three months ended March 31, 2011 increased 58% compared with the prior year period, reflecting increases in Metrology Solutions segment revenues of 48% and in Optical Systems segment revenues of 74%. The increase in Metrology Solutions segment net revenues was primarily due to volume increases in lithography stage metrology of $4.0 million and instruments of $2.5 million. The increase in the Optical Systems segment revenues was primarily due to the addition $6.3 million of revenue from EPOG.
Net revenues for the nine months ended March 31, 2011 increased 48% compared with the prior year period, reflecting increases in Metrology Solutions segment revenues of 39% and in Optical Systems segment revenues of 65%. The increase in Metrology Solutions segment net revenues was primarily due to volume increases in lithography stage metrology of $11.1 million, instruments of $8.1 million, and OEM heads of $2.5 million, partially offset by revenue decreases of $3.1 million in the display and semiconductor product lines which were sold in fiscal 2010. The increase in the Optical Systems segment revenues was primarily due to additional revenues of $8.8 million from EPOG and an increase in contract manufacturing of $4.5 million. The increase in contract manufacturing was primarily related to volume increases in the helmet mounted display and multiple objective lenses that constitute gene sequencers, partially offset by decreases in the dental and eye surgery product lines during the second and third quarters.
Revenues from major customers accounted for 27% of the revenues for the three months ended March 31, 2011. Revenues from one of these major customers also accounted for 12% of the revenues for the three months ended March 31, 2010. Revenues from these customers were included in both of our segments.
Revenues in U.S. dollars for the three months ended March 31, 2011 and 2010 were approximately 80% and 71% of total net revenues, respectively. The remaining 20% and 29%, respectively, were in Euro, Yen, or Yuan. Revenues in U.S. dollars for the nine months ended March 31, 2011 and 2010 were approximately 75% and 71% of total net revenues, respectively, and the remaining 25% and 29%, respectively, were in Euro, Yen, or Yuan. Revenues based in foreign currency 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, or in the general economic conditions in our export markets, could materially impact the revenues of our products in these markets and our condensed consolidated financial position and results of operations.
23
Gross Margin by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
Fiscal 2010 |
|
||||||||
|
|
|
|
|
|
|
||||||||
(Dollars in millions) |
|
|
Amount |
|
Gross |
|
Amount |
|
Gross |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Quarter ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrology Solutions |
|
$ |
12.4 |
|
|
55 |
% |
$ |
7.9 |
|
|
52 |
% |
|
Optical Systems |
|
|
6.5 |
|
|
37 |
% |
|
3.6 |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18.9 |
|
|
47 |
% |
$ |
11.5 |
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrology Solutions |
|
$ |
37.1 |
|
|
55 |
% |
$ |
24.3 |
|
|
50 |
% |
|
Optical Systems |
|
|
12.9 |
|
|
32 |
% |
|
5.3 |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50.0 |
|
|
47 |
% |
$ |
29.6 |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin for the three months ended March 31, 2011 was 47%, which represents an increase of two percentage points from the comparable prior year period. Within the Metrology Solutions segment, the increase in gross margin for the three months ended March 31, 2011 compared with the prior year period was primarily due to increased volume as compared with the prior year on a similar overhead cost base. Within the Optical Systems segment, the increase in gross margin for the three months ended March 31, 2011 compared with the prior year period was primarily due to overall increased volume which led to improved absorption of factory costs combined with a favorable change in product mix towards higher margin products.
Gross margin for the nine months ended March 31, 2011 was 47%, which represents an increase of six percentage points from the comparable prior year period. Within the Metrology Solutions segment, the increase in gross margin for the nine months ended March 31, 2011 compared with the prior year period was primarily due to an improved absorption of factory costs as a result of increased volume. Within the Optical Systems segment, the increase in gross margin for the nine months ended March 31, 2011 compared with the prior year period was primarily due to overall increased volume which led to improved absorption of factory costs, a favorable change in product mix towards higher margin products and the resolution of production issues related to certain optics that resulted in increased manufacturing costs in the prior year.
Selling, General, and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
Fiscal 2010 |
|
||||||||
|
|
|
|
|
|
|
||||||||
(Dollars in millions) |
|
|
Amount |
|
% of Revenues |
|
Amount |
|
% of Revenues |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|||||
Quarter ended March 31 |
|
$ |
9.4 |
|
|
23 |
% |
$ |
8.0 |
|
|
31 |
% |
|
Nine months ended March 31 |
|
$ |
24.9 |
|
|
23 |
% |
$ |
23.1 |
|
|
32 |
% |
SG&A expenses increased in the three months ended March 31, 2011 by $1.4 million from the comparable prior year period. Excluding prior year charges related to the Companys evaluation of an unsolicited offer to purchase the outstanding stock of the Company, Zemetrics acquisition costs, and the search costs for a new chief executive officer, the increase would be $2.6 million. The increase is primarily due to an increase in employee compensation expenses, which included restoration of the temporary pay-cuts and performance based programs.
SG&A expenses increased in the nine months ended March 31, 2011 by $1.8 million from the comparable prior year period. Excluding prior year charges related to the Companys evaluation of an unsolicited offer to purchase the outstanding stock of the Company, Zemetrics acquisition costs, the retirement of our former chief executive officer, the search costs for a new chief executive officer, and severance charges, the increase would be $4.4 million. The increase is primarily due to employee compensation expenses, which included restoration of the temporary pay-cuts and performance-based programs. The decrease in SG&A as a percentage of revenue in all periods is due to managements efforts to control expenses over a significant increase in the revenue base.
24
Research, Development, and Engineering Expenses (RD&E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
Fiscal 2010 |
|
|||||||||
|
|
|
|
|
|
|
||||||||
(Dollars in millions) |
|
Amount |
|
% of Revenues |
|
Amount |
|
% of Revenues |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31 |
|
$ |
3.7 |
|
|
9 |
% |
$ |
3.5 |
|
|
14 |
% |
|
Nine months ended March 31 |
|
$ |
10.9 |
|
|
10 |
% |
$ |
11.1 |
|
|
15 |
% |
RD&E for the three months ended March 31, 2011 increased by $0.2 million compared with the prior year period. The increase in RD&E occurred primarily in the Optical Systems segment related to the addition of EPOG. RD&E for the nine months ended March 31, 2011 decreased by $0.2 million as compared with the prior year period. The decrease in RD&E for the nine months ended March 31, 2011 was primarily related to reduced expenses related to the display systems business partially offset by increases due to the addition of EPOG and increased R&D costs related to the additional capacity from our acquisition of Zemetrics.
Impairment of Goodwill
|
|
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Fiscal 2011 |
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Fiscal 2010 |
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(Dollars in millions) |
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Amount |
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% of Revenues |
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Amount |
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% of Revenues |
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Quarter ended March 31 |
|
$ |
|
|
|
0 |
% |
$ |
2.0 |
|
|
8 |
% |
|
Nine months ended March 31 |
|
$ |
|
|
|
0 |
% |
$ |
2.0 |
|
|
3 |
% |
The Company recorded an impairment charge related to Zemetrics of $2.0 million during the three months ended on March 31, 2010 relating to acquired goodwill subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In addition, the fair value of common stock issued as consideration on the closing date was $10.80 per share, which was in excess of the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based on the market price per share during the 40-day period prior to closing). In consideration of these factors, management determined that the carrying value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010.
Other Income (Expense)
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Fiscal 2011 |
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Fiscal 2010 |
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(Dollars in millions) |
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Amount |
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% of |
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Amount |
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% of |
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Quarter ended March 31 |
|
$ |
(0.2 |
) |
|
0 |
% |
$ |
(0.1 |
) |
|
0 |
% |
|
Nine months ended March 31 |
|
$ |
1.4 |
|
|
1 |
% |
$ |
0.1 |
|
|
0 |
% |
Other income (expense) for the nine months ended March 31, 2011 increased by $1.3 million over the prior year balance, primarily due to the purchase gain on the acquisition of substantially all the assets of ASMLs Richmond, California facility.
25
Income Tax Expense
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Fiscal 2011 |
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Fiscal 2010 |
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(Dollars in millions) |
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Amount |
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Tax Rate |
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Amount |
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Tax Rate |
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|||||
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|||||
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|
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|
|
|
|
Quarter ended March 31 |
|
$ |
(0.7 |
) |
|
13 |
% |
$ |
(0.1 |
) |
|
6 |
% |
|
Nine months ended March 31 |
|
$ |
(1.5 |
) |
|
9 |
% |
$ |
(0.5 |
) |
|
8 |
% |
Income tax expense for the three and nine months ended March 31, 2011 included income taxes in state and foreign jurisdictions. There was no United States federal income tax expense due to valuation allowances established in prior periods on deferred tax assets, including net operating loss carry-forwards in the United States. Income tax expense for the nine months ended March 31, 2011 includes a tax benefit of $0.7 million relating to the gain on acquisition of substantially all the assets of ASMLs Richmond, California facility recorded in the second quarter.
There was income tax expense for the three and nine months ended March 31, 2010 despite a loss from continuing operations. The income tax expense was related to income taxes in state and foreign jurisdictions. There was no tax benefit related to net operating loss carryforwards due to the valuation allowance established on the deferred tax assets.
We continue to maintain a valuation allowance on all of our net deferred tax assets at March 31, 2011. In future periods, the valuation allowance could be reduced based upon sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.
Earnings (Loss) from Discontinued Operations, net of tax
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Fiscal 2011 |
|
Fiscal 2010 |
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|
|||||||||
(Dollars in millions) |
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Amount |
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% of |
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Amount |
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% of |
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|||||
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|||||
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|
|
|
|
|
|
|
|
|
Quarter ended March 31 |
|
$ |
|
|
|
0 |
% |
$ |
(0.2 |
) |
|
1 |
% |
|
Nine Months ended March 31 |
|
$ |
0.1 |
|
|
0 |
% |
$ |
(2.7 |
) |
|
4 |
% |
The loss from discontinued operations for the three and nine months ended March 31, 2010 of $0.2 and $2.7 million, respectively, was due to severance and other closure costs, primarily related to the closure of our Singapore IC packaging operations of our Vision Systems product line.
TRANSACTIONS WITH STOCKHOLDER
Revenues from Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $6.4 million and $3.1 million (16% and 12% of net revenues, respectively) for the three months ended March 31, 2011 and 2010, respectively. Revenues from Canon Inc. amounted to $13.4 million and $6.1 million (12% and 8% of net revenues, respectively) for the nine months ended March 31, 2011 and 2010, respectively. Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At March 31, 2011 and June 30, 2010, there were, in the aggregate, $3.5 million and $0.7 million, respectively, of trade accounts receivable from Canon.
26
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer credit requirements, investments in businesses, and the availability of bank lines of credit.
At March 31, 2011, cash and marketable securities were $53.3 million, an increase of $5.8 million from $47.5 million at June 30, 2010. Our marketable securities consist of $1.0 million in a United States Treasury Bill as loan collateral to cover our outstanding standby letters of credit. These letters of credit are used primarily overseas to cover certain warranty periods or to cover future product shipments. As of March 31, 2011, $0.4 million of standby letters of credit were outstanding. These letters of credit are expected to expire at varying dates through January 2012. The cash equivalents balance in our money market account, which is invested primarily in U.S. government securities, was $19.9 million as of March 31, 2011. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.
Cash flows provided by operating activities from continuing operations for the nine months ended March 31, 2011 of $12.8 million was primarily due to an increase in net earnings, excluding non-cash items, partially offset by an increase in accounts receivable. Accounts receivable increased $9.9 million from June 30, 2010 and $2.2 million from December 31, 2010 due to timing of increased shipments in the quarter and the increase in international shipments to customers in countries with traditionally longer payment terms. DSO (Days Sales Outstanding) on accounts receivable increased to 64 days at March 31, 2011 from 55 days at June 30, 2010 but was lower than DSO of 66 days at December 31, 2010.
Cash flows used for investing activities for the nine months ended March 31, 2011 increased by $10.3 million compared with the prior year period. This increase was primarily related to the purchase of substantially all of ASMLs Richmond, California facility assets for $7.1 million and a decrease in proceeds from the sale and maturity of marketable securities.
Cash flows provided by financing activities in the nine months ended March 31, 2011 remained essentially flat compared with the prior year period. For the nine months ended March 31, 2011, there were dividend payments of $0.8 million to noncontrolling interests partially offset by an increase in proceeds from stock option exercise.
We currently have no lines of credit. In the future, if the need for debt or credit lines arises there is no assurance that we would be able to secure such financing. We believe we have sufficient operating flexibility and cash reserves to maintain adequate amounts of liquidity and to meet our future liquidity requirements for at least the next twelve months.
27
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our quantitative and qualitative market risk disclosures during the three months ended March 31, 2011. Our exposure to market risk is presented in Item 7a., Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended June 30, 2010, filed with the Securities and Exchange Commission (the 2010 Annual Report).
Item 4. Controls and Procedures
The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. In designing, implementing, 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.
On May 14, 2010, we reported that we had identified a material weakness in our internal controls over financial reporting, which is an integrated component of our disclosure controls and procedures, related to inadequate controls regarding our accounting for unusual or complex transactions. In light of this material weakness, we concluded that our disclosure controls and procedures were not effective as of such date and subsequently concluded that our internal control over financial reporting was not effective at June 30, 2010.
We developed and implemented additional controls and new procedures in our financial reporting process in the fourth quarter of fiscal 2010 and first six months of fiscal 2011, including adding control processes to aid in identifying transactions that might include unusual or complex accounting issues as well as a process to enhance our analysis of accounting for unusual or complex transactions as they arise in accordance with accounting principles generally accepted in the United States of America. During the third quarter of fiscal 2011 we were able to complete our implementation of activities of controls and procedures that were designed to remediate the material weakness. These activities have been incorporated into our internal control structure and were in place as of March 31, 2011 and will be sustained going forward such that the control deficiency that led to the material weakness has been remediated as of March 31, 2011 and therefore the material weakness no longer exists as of March 31, 2011.
The controls and remedial actions that were implemented include the following:
|
|
|
|
|
Utilization of external accounting resources to review our accounting for unusual or complex transactions. |
|
|
Implementation of clear procedures and sustainable processes for researching, reviewing assumptions used in estimates and calculations, reviewing the work, assumptions, and calculations used by outside service providers. |
|
|
Implementation of controls to review potential impact of an unusual item on existing assets or liabilities. |
|
|
Implementation of controls to review proper presentation and disclosure in the financial statements as it relates to unusual or complex transactions. |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation, as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), including controls and procedures implemented to address the material weakness described above. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, that the material weakness no longer exists and our disclosure controls and procedures were effective in recording, processing, summarizing and reporting within the time periods specified in the Securities and Exchange Commissions rules and forms information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred in our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
28
PART II - Other Information
Item 1A. Risk Factors
In addition to the information set forth below and elsewhere in this report, the reader should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2010 Annual Report, which could materially affect our business, financial condition, or future results. The risks described in our 2010 Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
We could suffer significant business interruptions.
Our customers,
suppliers, and operations may be vulnerable to interruption by natural
disasters such as earthquakes, tsunamis, typhoons, or floods, or other
disasters such as fires, explosions, acts of terrorism or war, disease or
failures of our management information or other systems. If a business
interruption occurs, our business could be materially and adversely affected.
On March 11, 2011, an earthquake occurred near the northeastern coast of Japan
creating a tsunami that caused extensive damage. While we do not anticipate
that these events will have a material impact on the Companys consolidated
financial statements or continuing operations we cannot predict the long-term
consequences of the disasters on our operations.
Acquisitions may entail certain operational and financial
risks.
Our growth strategy
includes expanding our offering of products and services, and we may seek
acquisitions or make internal investments to strategically expand our business.
We regularly review potential acquisitions of businesses, technologies, or
products complementary to our business and periodically engage in discussions
regarding such possible acquisitions. Acquisitions involve numerous risks,
including some or all of the following: substantial cash expenditures and
capital investments; potentially dilutive issuance of equity securities;
incurrence of debt and contingent liabilities; amortization of certain
intangible assets; difficulties in assimilating the operations and products of
the acquired companies; diverting our managements attention away from other
business concerns; risks of entering markets in which we have limited or no
direct experience; the inability to manage the growth expected for various
acquisitions; potential loss of key employees of the acquired companies in the
process of integrating personnel with disparate business backgrounds; and
combining different corporate cultures.
We cannot provide assurance that any acquisition, including the acquisition of substantially all the assets of ASMLs Richmond, California, facility will result in long-term benefits to us or that our management will be able to effectively manage the acquired businesses. We may also incorrectly judge the value or worth of an acquired company or business or of a line of business to which we devote internal resources and funding. We have in the past disposed or divested of several companies or lines of business that previously were acquired by us or in which we internally invested, at a significant net loss.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases during the quarter ended March 31, 2011 of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934.
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Period |
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Total number of |
|
Average price |
|
Total number of |
|
Approximate dollar |
|
||||
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|
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|
|
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|
|
|
|
||||
|
|
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|
|
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|
|
|
|
|
|
January 1, 2011 - January 31, 2011 |
|
|
|
|
|
n/a |
|
|
|
|
$ |
5.0 |
|
February 1, 2011 - February 28, 2011 |
|
|
|
|
|
n/a |
|
|
|
|
$ |
5.0 |
|
March 1, 2011 - March 31, 2011 |
|
|
|
|
|
n/a |
|
|
|
|
$ |
5.0 |
|
|
|
|
|
(1) |
In August 2007, our Board of Directors authorized the repurchase of up to $25.0 million of our outstanding common stock. During the three months ended March 31, 2011, there were no repurchases of common stock in the open market. The share repurchases have been effected pursuant to plans in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. This rule allows public companies to adopt written, pre-arranged stock trading plans when they do not have material, non-public information in their possession. The adoption of this stock trading plan allows us to repurchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. |
29
Item 6. Exhibits
|
|
|
(a) |
Exhibits: |
|
|
|
|
|
31.1 |
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
31.2 |
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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/ Chris L. Koliopoulos |
|
|
|
|
|
Chris L. Koliopoulos |
|
|
Chairman, President, and Chief Executive Officer |
|
|
|
|
|
/s/ John P. Jordan |
|
|
|
|
|
John P. Jordan |
|
|
Vice President and Chief Financial Officer |
|
Date: May 10, 2011
30
EXHIBIT INDEX
|
|
31.1 |
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |