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Zygo Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 11, 2009 08:06PM

Zygo Corp. (ZIGO) filed Quarterly Report for the period ended 2009-03-31. Zygo Corporation is a world leader in metrology process control and yield enhancement solutions for high precision manufacturing industries. The company's products are based on its core competencies in high precision measurement including interferometry confocal scanning optical microscopy application specific vision metrology atomic force microscopy systems integration automated piece parts handling and precision optical components. Zygo Corp. has a market cap of $84.3 million; its shares were traded at around $5 with and P/S ratio of 0.5.

Highlight of Business Operations:

Orders for the three months ended in March 31, 2009 were $15.6 million, as compared with $39.1 million for the comparable prior year period. Orders for our company’s Metrology Solutions segment accounted for 44% of the orders received, with the Optical Systems segment accounting for 56% of orders. The $25.8 million decline in orders from the same period of the prior year occurred primarily in the Metrology Solutions segment, which experienced reduced orders for instruments of $9.9 million, display solutions of $8.3 million, lithography products of $7.7 million, and vision systems of $1.0 million, slightly offset by an increase in orders of $1.1 million in the semiconductor solutions business. Within the Optics segment, orders increased by $2.3 million, primarily due to an increase in orders of laser fusion optics of $2.7 million and contract manufacturing of $1.0 million, partially offset by a decline in orders in precision optics of $1.4 million. We also experienced a decrease of 48% in sales for the three months ended March 31, 2009 as compared with the prior year period, primarily as a result of the global economic downturn.

Overall, net sales for the three months ended March 31, 2009 decreased 48% as compared with the prior year period, reflecting decreases in the Metrology Solutions segment sales of 43% and in Optical Systems segment sales of 57%. The decrease in Metrology Solutions segment net sales was primarily due to volume decreases in lithography of $6.5 million, instruments of $1.6 million, display solutions of $1.6 million, and semiconductor solutions of $0.6 million. These volume decreases, in large measure, are due to a reduction in orders that appears to be tied directly to the general global economic downturn, most notably in the semiconductor industry. A decrease in orders from Canon accounted for the majority of the decrease in lithography sales. The decrease in the Optical Systems segment sales occurred across all operations but was the most pronounced in contract manufacturing and laser fusion, which had decreases of $4.6 million and $2.3 million, respectively. The decrease in contract manufacturing sales is primarily related to reductions in shipments for certain medical device equipment and a reduction in engineering projects.

Net sales for the nine months ended March 31, 2009 decreased 17% as compared with the prior year period, reflecting a decrease in the Metrology Solutions segment sales of 10% and a decrease in Optical Systems segment sales of 30%. The Metrology Solutions segment net sales decrease was primarily due to decreased volume in lithography of $7.5 million and in instruments of $4.3 million, partially offset by sales increases in display solutions of $2.9 million and vision systems of $2.0 million. Vision systems was acquired in February of 2008 resulting in only one month of vision systems sales being included in the third quarter of fiscal 2008.The decrease in the Optical Systems segment net sales was due primarily to decreases in contract manufacturing of $6.8 million and volume decreases of $4.4 million in the laser fusion and precision optics areas. The decrease in contract manufacturing sales was primarily due to a reduction in engineering projects and the volume loss on product manufacturing.

SG&A expenses increased in the three months ended March 31, 2009 by $6.7 million from the comparable prior year period, primarily due to the accrual of a $5.4 million merger termination fee and of $0.7 million in other related merger costs, $1.2 million in incremental vision systems expenses which only had one month of expenses in the third quarter of fiscal 2008, and $0.9 in intangible assets write-offs related to vision systems. SG&A expenses increased in the nine months ended March 31, 2009 by $13.3 million from the comparable prior year period, primarily due to the accrual of a $5.4 million merger termination fee and of $2.9 million in other merger related costs, the inclusion of $2.2 million of incremental vision systems expenses, $1.4 million in reserves for potential royalty claims, and $0.9 million in intangible asset write-offs related to vision systems. The write-off of customer related intangible assets is due to the downturn in orders to such an extent that the inherent value of the intangible asset is no longer realizable.

RD&E for the three and nine months ended March 31, 2009 increased 13% and 6%, respectively, as compared with the prior year periods. The increase in the RD&E expense for the three months ended March 31, 2009, as compared with the prior year period was primarily due to the write-down of technology-related intangible assets of $1.3 million and the inclusion of vision systems for the entire quarter of $0.4 million, partially offset by reductions in RD&E in other product lines totaling $0.9 million. The inclusion of incremental vision systems expenses increased our RD&E costs by $3.2 million, including an intangible write-down of $1.3 million, for the nine months ended March 31, 2009. This increase was partially offset by a reduction in RD&E spending in our lithography group. The reduction in lithography RD&E is related to the slowdown in capital spending in the semiconductor market. RD&E spending in the three and nine months ended March 31, 2009 was concentrated on our semiconductor initiative and core instruments products. The write-off of technology related intangible assets is due to the downturn in orders to such an extent that the inherent value of the intangible asset is no longer realizable.

Other income (expense) for the three months ended March 31, 2009 decreased by $0.2 million as compared with the prior year period primarily due to a decrease in investment income. Investment income has declined due to the maturities of our investment portfolio. Other income for the nine months ended March 31, 2009 decreased by $1.2 million from the comparable prior year period, primarily due to decreased investment income of $1.2 million, and mark to market write-downs of $0.5 million on our investment in an auction rate security and a mutual fund related to our deferred compensation program, partially offset by the benefit from a guaranteed dividend payment of $0.3 million related to our German joint venture partner and $0.2 million related to the settlement of a vendor account.

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