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Article by DailyStocks_admin    (03-07-13 11:50 PM)

Description

Zygo Corporatio. 10% Owner ONE LLC MAK CAPITAL bought 3650 shares on 2-27-2013 at $ 14.6

BUSINESS OVERVIEW

Zygo Corporation (“Zygo,’’ “we,’’ “us,’’ “our,’’ or “Company’’) designs, develops, and manufactures ultra-high precision measurement solutions and top-tier optical sub-systems and components for original equipment manufacturers (“OEM”) and end-user applications. We operate within two divisions. Our Metrology Solutions Division (also referred to herein as the “Metrology Solutions segment”) manufactures products to improve quality, increase productivity to improve our customers’ manufacturing yields, and decrease the overall cost of product development and manufacturing for high-technology companies. Our Optical Systems Division (also referred to herein as the “Optical Systems segment”) provides leading-edge product development and manufacturing services that leverage a variety of core technologies across semiconductor, defense, laser fusion research, life-sciences, and other industrial markets. The Metrology Solutions segment has manufacturing locations in Middlefield, Connecticut; Montreal, Canada; and Shanghai, China. The Optical Systems segment has manufacturing locations in Middlefield, Connecticut; Tucson, Arizona; Costa Mesa, California; and Richmond, California.

We focus on markets around the world that are engaged in research and manufacture of high volume precision components used to support high technology applications in industries such as consumer electronics, automotive engineering, LED lighting, life-sciences, military and defense. We have expanded our geographic reach in recent years, particularly in the Pacific Rim, by continued investment in our joint venture in China and other selected acquisitions.

In May 2012, we purchased a 110,020 square-foot facility in Tucson, Arizona, which will function as the manufacturing site for our Tucson operation when we complete the transition to the new site.

During the second quarter of fiscal 2011, we completed a transaction with ASML US, Inc. (“ASML”) where we purchased substantially all the assets of ASML’s Richmond, California operation, including a 55,300 square-foot manufacturing facility. In addition, we hired key management and employees working at the former ASML Richmond facility and formed our Extreme Precision Optics group (“EPO”), which is included in our Optical Systems segment. With this acquisition, we have considerably expanded and improved our optical manufacturing capabilities. EPO’s highly symbiotic capabilities that address new applications in semiconductor, defense and the life-sciences strengthens our existing leadership position in metrology, large flat optics production and electro-optical design and manufacturing.

In January 2010, Dr. Chris L. Koliopoulos was appointed President and Chief Executive Officer and subsequently became Chairman of the Board of Directors of Zygo. On January 22, 2010, we completed the acquisition of Zemetrics, Inc. (“Zemetrics”), a small interferometric metrology company in which Dr. Koliopoulos was a major shareholder. The acquisition of Zemetrics further strengthened offerings in our core markets. The Zemetrics operation is included in the Metrology Solutions segment. During the third quarter of fiscal 2011, we announced the appointment of John P. Jordan to the position of Vice President, Chief Financial Officer and Treasurer.

Zygo was incorporated in 1970 under the laws of the State of Delaware. The address of our principal executive office is Laurel Brook Road, Middlefield, Connecticut, 06455-1291. Our telephone number at this address is (860) 347-8506. Our website address is www.zygo.com. The information on our website is not part of this Annual Report on Form 10-K.

Business Segments & Products

The products and services in our two reportable segments are based on our core technologies, process knowledge and extensive experience in optical design, mechanical engineering, software and algorithms and optical fabrication. Most products are proprietary or incorporate proprietary technology in their design.


Metrology Solutions Segment

Our Metrology Solutions segment includes 3-dimensional surface metrology products, precision positioning systems and custom-engineered solutions. We offer a comprehensive line of metrology products and solutions to address requirements of precision manufacturing industries and advanced research. Our systems are commonly used to measure surface characteristics and critical parameters, including topography and roughness, shape, dimension, thickness, optical characteristics and defects.

Zygo metrology products provide precise measurements for quality control, process feedback and machine control. There are many applications in a variety of markets where precision and consistency are critical to the process or the enablement of advanced research and process development, including the automotive, consumer electronics, medical, aerospace, military, materials research, optics, flat panel displays and semiconductor industries. The inherent precision, reliability and speed of Zygo’s metrology measurement technologies help to reduce cost of ownership, which is a significant factor for many users. Demand for our products is driven by advancement of next generation devices and technology, complex processing methods and tighter manufacturing tolerances across many industries.

The Metrology Solutions segment markets products under the Zygo and Zemetrics brand names. Each brand is targeted to a different customer segment, with the Zygo brand providing a high-end, feature-rich product offering and the Zemetrics brand addressing mid-level, industrial market needs. Products under the Zygo brand include New View™ and VeriFire™ family of products. Products under the Zemetrics brand include the ZeGage™ and ZeScope™ family of products. Both Zygo and Zemetrics products are often developed using common research and development and engineering resources. Both brands provide customers a progressive choice of products addressing their full range of metrology needs.


Zygo is considered to be a world leader in optical interferometry with a portfolio of approximately 450 patents issued worldwide, many of which are related to the broad field of interferometry. While there are numerous practical applications for our instruments in a wide variety of industries, the inherent precision involved in using the wavelength of light as our “ruler” has historically required our instruments to be placed in well-controlled environments. Much of our recent development efforts have focused on technology enhancements that allow our systems to move from the stable laboratory to the production floor. This provides our customers with real-time process feedback to reduce scrap/defects and improve productivity and yields.


For example, the newest member of the VeriFire™ laser interferometer family, the QPZ, was developed to bring high precision large aperture metrology to the production floor. By combining high speed acquisition with patented technology, the QPZ eliminates the effects of typical shop floor vibration and enables high precision metrology next to process equipment.

We also introduced the ZeGage -2D-3D optical profiler family that is designed to provide non-contact nanometer-level surface height measurements without requiring additional vibration isolation. The ZeGage provides unique capabilities designed for the industrial market segment using a combination of scanning white light interferometry and patent pending scanning methods to provide performance that is competitively positioned against contact stylus instruments traditionally used in the industrial machine tool market. The instrument also utilizes ZeMaps™ software, and features a range of 2D and 3D surface parameters including form, step height and ISO/EN 25178 compliant surface roughness parameter standardization. The recently released motorized XY staging greatly expands the ZeGage profiler’s functionality by offering the ability to stitch adjacent images for evaluation over large areas/scan lengths. This product family is being marketed primarily to the industrial factory market, expanding the price range and customer base for the Zygo NewView™ line of products.

ZeGage ™ Optical Profiler




The recently introduced ZeGage optical profiler addresses applications with the need to measure and visualize a wide variety of materials, including rubber, paper, metal, plastic and ceramics, further addressing the needs of the automotive market. We believe the ZeGage profiler price point will have broader appeal to first-time buyers of optical metrology.

Consumer Electronics

Consumer electronics, including tablets, smart phones, digital cameras, DVD and CD players, and optical computer drives, have significant optical content. Consumer electronics optics, which provide imaging and data storage, are manufactured in quantities in the hundreds of thousands to millions of components per year. These complex miniature optical systems require precise optical testing - from development to in-line process control, which our measurement-based process control and yield enhancement systems are designed to perform.


VeriFire™ Asphere System

The VeriFire asphere system provides high resolution 3-Dimensional surface metrology for aspheric-shaped surfaces using patented non-contact interferometric techniques for production and process control. Aspheres are important in consumer electronics products, cameras, military/defense optics, and commercial optics and represent a growing segment in the optics markets due to improved optical performance in these devices in comparison to traditional spherical lenses.

The development of new optical systems for any application requires flexible and easy to use test equipment. The Zygo VeriFire systems are the latest products in our established product family that has improved optical testing and continues to evolve to meet changing requirements. Consumer electronics production applications for larger optics, greater than a 25 millimeter diameter, and research and development for any size application rely on these products for critical developmental data and process-control feedback in production. These products are widely used for their configuration flexibility in hardware set ups and Zygo’s MetrologyPro™ data analysis software.

Mini™ Compact Production Interferometer

The growing demands of high volume, small optic manufacturing, require the need for production-floor measurement to be more timely and precise, eliminating the visual observation of surface quality. The Mini interferometer provides robust, quantitative optical surface metrology in a compact, industrial package designed for production floor use.

Defense/Aerospace

GPI™ and VeriFire™ Systems

Developing state-of-the-art optical designs and manufacturing technology for the defense/aerospace market also requires leading-edge metrology systems for manufacturing process control and development. Our VeriFire optical interferometers test the optical components as well as the systems for design compliance. Our VeriFire Asphere rapidly measures asphere-shaped optics in a production environment without the need for specialized tooling. Our VeriFire QPZ system continues our move to the production floor, providing laboratory-level results in a production environment. Using patented methods, the VeriFire QPZ system removes the degrading effects of vibration from the measurement without the need for additional expensive isolation hardware. This system is primarily used in qualification of optical elements during the production of military and commercial optics. We are also active in designing and manufacturing custom test systems for defense/aerospace applications, especially interferometers that operate at infrared wavelengths, which are unique to this market.

Semiconductor Products

The transistor and associated integrated circuit have transformed the way people work, live and play, creating several multi-billion dollar industries that thrive through innovation, technology, and ultra-large scale integration of micro/nano circuitry. These industries provide components used in everyday appliances, including the more modern mobile phones and wireless internet devices. State-of-the-art microprocessors may contain in excess of a billion transistors comprised of components that have physical dimensions as small as 22 nanometers.

Our most recent product introduction is the Mini ™ Compact Production Interferometer. Developed specifically to meet the growing demands of high volume, small optic manufacturing, the Mini interferometer provides robust, quantitative optical surface metrology in a compact, industrial package. Traditionally, high volume optical manufacturing relied on qualitative, visual interpretation of surface quality. By combining patented and proprietary acquisition technology with a user-friendly touchscreen user interface, the Mini interferometer eliminates the subjectivity of visual inspection and brings true process control capability to the production floor.

Markets

Automotive Industry

The automotive industry is striving to improve fuel economy and decrease environmental pollution to meet customer demand and adhere to government regulation. Improving both requires more efficient engines, and our measurement-based process control and yield-enhancement systems are used in the development and high-precision manufacture of some of those engine components.

NewView™ Series 3D Optical Profilers

Our high precision metrology equipment is well suited for some engine components, which are ground or lapped to tolerances of one-hundred billionths of a meter. Our patented Fourier Domain Analysis data acquisition system for the NewView optical profiler meets these high-precision measurement requirements.

Precision Positioning Systems

The layers of circuit patterns must overlay each other to nanometer precision during the wafer lithography process. Photolithography systems, mask and reticle writers and yield improvement metrology tools rely on displacement-measuring interferometers to provide precise feedback to control the position of the silicon wafer. Our Metrology Solutions segment’s ZMI™ 7700 series precision positioning feedback systems are designed primarily for photolithography systems. They are also used in a broad range of semiconductor metrology and back-end process tools.


Printed Circuit Board Substrates


Printed circuit substrates interface integrated circuit flip chip packages to printed circuit boards. These substrates make the circuit connection via arrays of miniature solder bumps and balls, and Zygo manufactures several tools to measure these bump and ball arrays for process control and yield improvement. Several products serve this market, including the Nano ™ CSP2000 and Nano 2 ™ series, providing high-throughput, fully-automated 100% 2D/3D inspection of C4 bumps for chip scale packaging (CSPs) strips to support high-volume manufacturing and process yields.



Technology Development Projects

Photolithography scanners image the electronic circuit pattern through a precision projection lens. The optical performance of the lenses required for next-generation photolithography scanners often exceeds the capabilities of commercially available measurement systems. Our expertise in optical interferometer technology and the practical skills needed to apply this technology, position us well to deliver custom solutions to leading photolithography equipment suppliers.


Optical Systems Segment

Zygo’s Optical Systems segment designs, develops and manufactures high precision optical components and electro-optical systems used in the semiconductor, defense, life-sciences and research markets. Our optical components and systems are manufactured to high levels of precision and are intended to meet the demands of both internal and external customers. The primary value we bring to the market place is the ability to meet exacting specifications from our customers in a high volume production environment. Examples of our products include aspheric lenses, mirrors, objective assemblies, machined glass structures and windows used in applications ranging from semiconductor lithography to ophthalmic surgical devices to aerial reconnaissance. We provide products used across a broad spectral range including extreme ultra-violet (“EUV”), visible and mid-infrared that are fabricated from materials such as fused silica, sapphire, silicon, calcium fluoride and precision optical glasses. Representative programs and products include volume manufacturing of meter class laser fusion optics for the National Ignition Facility, development and manufacturing of Advanced Helmet Mounted Displays for military flight simulation and precision optics used in EUV semiconductor lithography equipment.

Markets


Defense/Aerospace

Defense and aerospace companies use optical technology in a broad range of applications that are often deemed mission critical and, therefore, have become a major component of military spending. Examples include tactical information gathering through the use of fixed wing, rotary and space-based aerial reconnaissance, fire-control systems used for targeting or threat detection and navigation systems necessary for all-weather combat readiness. We manufacture a variety of defense-related products, including lenses, windows, freeform optics and lens assemblies. These products have been integrated on several prominent platforms, including the Joint Strike fighter, Predator and Global Hawk drones, F/A-18C Distributed Mission Training system and the F16 Internal FLIR Targeting System. In addition to traditional defense applications, we are a leading manufacturer of meter class optical components used in high energy laser fusion development for the United States Department of Energy nuclear stockpile governance and a similar program for the French Atomic Energy Commission. We have become a major provider within this application space that consists of two of the largest optical programs ever created. We have also delivered electro-optical systems used in high resolution surveillance and protection of civilian targets, such as nuclear power reactors, airports and shipping ports.



Life-sciences

The life-sciences market continues to present a significant opportunity. Increased demand for high precision medical devices continues to be driven by an aging population and consumers’ desire to improve their quality of life. We address this demand with specialized design and assembly services tailored to producing high-precision research, diagnostic and surgical devices. Key application areas include ophthalmic, dental, diagnostics and DNA analysis. Product manufacturing strengths include high performance objectives used in laser delivery and fluorescent imaging systems, integration of full systems utilizing light sources, optics and detectors, and stand alone medical devices built to customer specification. Examples of customer products include laser eye correction, dental 3D imaging and genomic analysis instruments. In addition, the group offers a variety of process control advantages considered critical to medical device customers. These include our ISO 13485:2003 and FDA registration as a medical-device manufacturer.


Semiconductor and Electronics


Semiconductor lithography demands, in many cases, the ultimate in optical manufacturing technology, a critical driver for meeting the industry demands of Moore’s law. With over 20 years of experience in extreme ultraviolet lithography and proceeding nodes, we routinely participate in the advancement and deployment of new lithographic platforms. As a supplier to the world’s leading semiconductor lithography companies and consortiums, we provide custom components and assemblies used in high precision stages, illumination optics and objectives. Our products are typically used in the manufacture of semiconductor chips for deployment in all types of computer-driven equipment. In the second quarter of fiscal 2012, Zygo was awarded a major contract to develop EUV lithography optics for the fifth-generation micro-exposure tool (“MET-5”) at the State University of New York at Albany’s College of Nanoscale Science & Engineering’s (“CNSE”) Albany NanoTech Complex.



The MET-5 program is managed by the SEMATECH consortium, whose members and partners include leading semiconductor manufacturing companies worldwide, that performs research and development to advance chip manufacturing. The program is intended to extend semiconductor lithography resolution capability to less than 16 nanometers. Later in fiscal 2012, we were awarded another large contract from an EUV development customer.


Our key manufacturing strengths include high precision machining used in the production of reticle and wafer stages, advanced polishing methods such as ion beam figuring of off-axis mirrors, and metrology necessary to meet specifications down to one nanometer in accuracy. In addition to semiconductor lithography, we also support customers involved in semiconductor metrology and electronics through the production of high precision objective assemblies and laser sub systems. These systems are often developed in collaboration with our customers who rely heavily on our optical engineering capabilities to achieve both performance and cost objectives.


CEO BACKGROUND

ELECTION OF BOARD OF DIRECTORS

Seven directors (constituting the entire Board of Directors) are to be elected at the Annual Meeting. The enclosed Proxy, unless otherwise specified, will be voted to elect the seven nominees named below as directors. All nominees have been recommended by our Corporate Governance / Nominating Committee and nominated by our Board of Directors. All directors elected will hold office until the next Annual Meeting of Stockholders or, if earlier, until their death or resignation from service. The affirmative vote of a plurality of the shares of Common Stock voting in person or by proxy is required for the election of the directors. Shares of Common Stock held by stockholders present in person at the Annual Meeting that are not voted for a nominee or shares held by stockholders represented at the Annual Meeting by proxy from which authority to vote for a nominee has been properly withheld (including broker non-votes) will not affect the election of the nominees receiving the plurality of votes.

All nominees have consented to serve as directors. If a nominee should not be available for election as contemplated, the shares represented by the Proxy will be voted for the person, if any, who is designated by the Board of Directors to replace the nominee. The Board of Directors has no reason to believe that any of the nominees will be unable to serve, if elected. All of the nominees currently serve on the Board of Directors.


Stephen D. Fantone, Ph.D. is the founder of Optikos Corporation (an optical engineering firm specializing in optical instrumentation, test equipment, industrial and medical systems, and consumer products) and has been its Chief Executive Officer and President since 1982. He is also a director of Rofin-Sinar Technologies, Inc. (a publicly traded company that develops and manufactures lasers and laser-based technologies for industrial material processing applications) and serves on its audit, compensation, and nominating committees. Dr. Fantone served as Chairman of Benthos, Inc. from 1997 until 2006 when it was sold to Teledyne Technologies, Inc. Dr. Fantone has received S.B. degrees from Massachusetts Institute of Technology in Electrical Engineering and Management and a Ph.D. from the Institute of Optics at the University of Rochester. He has also served as Treasurer of the Optical Society of America (a leading scientific society in the optical field) since 1996. Dr. Fantone is 59 and has been a Zygo Director since 2009.

Director Qualifications:

Dr. Fantone brings to our Board of Directors his significant experience in technology and research and development, broad knowledge of the optical industry and his management experience as the Chief Executive Officer of an optical instrumentation company. Our Board of Directors benefits from Dr. Fantone’s experience serving on the board of directors, and as a member of the audit, compensation and nominating committee of another public company.

Samuel H. Fuller, Ph.D. is the Chief Technology Officer and Vice President of Research and Development of Analog Devices, Inc. (ADI) (a manufacturer of precision high-performance integrated circuits) and has served in this capacity for more than ten years. Prior to joining ADI in 1998, Dr. Fuller was Vice President of Research and chief scientist at Digital Equipment Corporation. He holds a B.S. degree in Electrical Engineering from the University of Michigan and a M.S. and Ph.D. from Stanford University, and has been an Associate Professor of Computer Science and Electrical Engineering at Carnegie Mellon University. Dr. Fuller serves on the board of the Corporation for National Research Initiatives (CNRI), which works on advances in information infrastructures. He is an IEEE Fellow, AAAS Fellow, and a member of the National Academy of Engineering. Dr. Fuller is 66 and has been a Zygo Director since 2003.


Director Qualifications:



Dr. Fuller brings to our Board of Directors his significant experience in technology and research and development, a broad knowledge of our markets, and his management experience in high technology global corporations.



Chris L. Koliopoulos, Ph.D. serves as the Chairman, President and Chief Executive Officer of Zygo Corporation. Prior to joining Zygo, Dr. Koliopoulos was a private investor, director, and advisor to Zemetrics, Inc. (a private company that manufactured optical instruments and lenses) from 2007 to 2010. He also served as President and Chief Executive Officer of ADE Corporation, a publicly traded company that manufactured production metrology and inspection systems for the semiconductor, magnetic data storage, and optics industries, from 2002 to 2006. Prior to serving as its President and Chief Executive Officer, Dr. Koliopoulos served as Vice President of ADE from 1998 to 2002 and co-founded ADE Phase Shift, Inc. (formerly Phase Shift Technology, Inc.), a wholly-owned subsidiary of ADE, in 1987. He served as President of ADE Phase Shift, Inc. from 1998 to 2002. Dr. Koliopoulos holds a B.S. degree from the Institute of Optics at the University of Rochester and a M.S. and Ph.D. from the Optical Sciences Center at the University of Arizona. Dr. Koliopoulos is 59 and has been a Zygo Director since January 2010.



Director Qualifications:


Dr. Koliopoulos brings to our Board of Directors detailed knowledge and insights regarding the strategic and operational opportunities and challenges, economic and industry trends, and competitive and financial positioning of our business. Dr. Koliopoulos has a deep understanding of Zygo’s core markets gained through more than 20 years of executive leadership experience in the industry.


Seymour E. Liebman has served as the Executive Vice President, Chief Administrative Officer, and General Counsel of Canon U.S.A., Inc. (the U.S. subsidiary of Canon Inc., a manufacturer and seller of network digital multifunction devices, copying machines, printers, cameras and lithography equipment) for more than ten years. He has been an Executive Officer of Canon Inc. since April 2009. Mr. Liebman is 63 and has been a Zygo Director since 1993.

Director Qualifications:

Mr. Liebman brings to our Board of Directors his significant management and finance experience as an executive officer of a large multinational corporation. Our Board of Directors also benefits from Mr. Liebman’s experience having served on the board of directors of another public company.

Robert B. Taylor has served as the Senior Vice President for Finance and Administration of the Colonial Williamsburg Foundation since 2001. Prior to joining the Colonial Williamsburg Foundation, Mr. Taylor served as Vice President and Treasurer of Wesleyan University from 1985 to 2001. Mr. Taylor also serves on the Board of Directors of Medidata Solutions, Inc. (a global provider of hosted clinical development solutions) and serves as its chair of the audit committee and its nominating and governance committee. Mr. Taylor holds a B.A., magna cum laude, from St. Lawrence University. Mr. Taylor is 65 and has been a Zygo Director since 1988.


Director Qualifications:

Mr. Taylor brings to our Board of Directors his significant experience in accounting and finance which qualifies him as our “financial expert” and operational, investment and governance experience from his involvement as a senior executive of several entities, including as Chief Financial Officer of complex enterprises. Our Board of Directors also benefits from Mr. Taylor’s experience serving on the board of directors and as chair of the nominating and governance committee and audit committee of another public company in the technology and health care fields.

Carol P. Wallace has served as the Chairman, President, and Chief Executive Officer of Cooper-Atkins Corporation (a worldwide supplier and manufacturer of temperature acquisition instruments) for over 15 years. She is also a director of CT Water Service, Inc. (a domestic, publicly traded water utility in New England) and Sandstone Group, LLC (a privately owned equipment manufacturer in Milwaukee, WI). Ms. Wallace is 57 and has been a Zygo Director since 2005.


Director Qualifications:

Ms. Wallace brings to our Board of Directors significant operational and financial experience as a senior executive of a manufacturing company. Our Board of Directors also benefits from Ms. Wallace’s experience serving on the board of directors of another public company.

Gary K. Willis has been a private investor since 2001. Previously, Mr. Willis served as a director of Zygo from 1992 to 2000, as Zygo’s Chairman of the Board of Directors from 1998 to 2000, as Zygo’s President in 1992 and Chief Executive Officer from 1993 through 1999. He is currently a director of Plug Power Inc. (a publicly traded company that designs, develops and manufactures proprietary fuel cells) and serves on its audit and compensation committees. He is also a director of Rofin-Sinar Technologies, Inc. (a publicly traded company that develops and manufactures lasers and laser-based technologies for industrial material processing applications) where he serves on its audit, compensation, and nominating committees. He also served as a director of Vion Pharmaceuticals Inc. (a publicly traded cancer drug research company that ceased operations in 2010) until 2010. Mr. Willis is 67 and has been a Zygo Director since 2009.

Director Qualifications:

Mr. Willis brings to our Board of Directors significant operational and financial experience and industry knowledge as the former President of Zygo. Our Board of Directors also benefits from Mr. Willis’s experience serving on the board of directors and committees of two other public companies in the technology field.

Recommendation of the Board of Directors

Our Board of Directors unanimously recommends that stockholders vote FOR the election of each of the named nominees. Each proxy received will be voted FOR the election of all the nominees named above unless otherwise specified in the proxy.

MANAGEMENT DISCUSSION FROM LATEST 10K

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures at the date of our consolidated financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, marketable securities, share-based compensation, warranty obligations, self-insured healthcare claims, income taxes, discontinued operations, contract revenue, economic hedges and long-lived assets. Management bases its estimates and judgments on historical experience and current market conditions and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition and allowance for doubtful accounts, discontinued operations, inventory valuation, valuation of marketable securities, share-based compensation, warranty costs, self-insured health insurance costs, accounting for income taxes, contract revenue and valuation of long-lived assets to be critical policies due to the estimates and judgments involved in each.
Revenue Recognition and Allowance for Doubtful Accounts
We recognize revenue based on guidance provided in SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and in accordance with authoritative guidance issued by the Financial Accounting Standard Board (“FASB”) pertaining to revenue arrangements with multiple deliverables. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectability is reasonably assured. We recognize revenue on our standard products when title passes to the customer upon shipment. While our standard products generally require installation, the installation is considered a perfunctory performance obligation. Standard products do not have customer acceptance criteria. Generally, software is a component of our standard product and, as such, is not separately recognized as revenue. We have standard rights of return for defective products that we account for as a warranty provision under authoritative guidance of accounting for contingencies. We do not have any price protection agreements or other post shipment obligations. For custom equipment where customer acceptance is part of the sales agreement, revenue is recognized when the customer has accepted the product. In cases where custom equipment does not have customer acceptance as part of the sales agreement, we recognize revenue upon shipment as long as the system meets the specifications as agreed upon with the customer. Certain transactions have multiple deliverables, with the deliverables clearly defined. To the extent that the secondary deliverables are other than perfunctory, we recognize the revenue on each deliverable, if separable, or on the completion of all deliverables, if not separable, all in a manner consistent with SAB No. 104 and related authoritative guidance. Standalone software products are recognized as revenue when they are shipped.

Certain customer transactions include payment terms whereby we receive a partial payment of the total order amount prior to the related revenue being recognized in our financial statements. These advance payments are included in progress payments, deferred revenue and billings in excess of costs and estimated earnings in the consolidated balance sheet. These progress payments relate to orders for custom equipment that require a lengthy build cycle and, in some cases, acceptance by the customer. We may negotiate payment terms with these customers on these particular orders and secure certain payments prior to or on shipment of the equipment. These payments remain in progress payments or deferred revenue until our applicable revenue recognition criteria have been met.

Certain contracts we enter into continue over an extended period of time. We review those contracts for possible revenue recognition as a long-term contract. If long-term contract accounting is appropriate, we then evaluate whether revenues should be recognized using the percentage-of-completion method. Under the percentage-of-completion method, we develop estimates as a basis for contract revenue and costs in progress as work on the contract continues. Estimates are reviewed and revised as additional information becomes available. During fiscal 2012, changes in estimates under the percentage of completeness method were not material. Revenue recognized in excess of billings is included in revenue recognized in excess of billings on uncompleted contracts in the consolidated balance sheet. Billings in excess of costs and earnings would be included in billings in excess of costs and estimated earnings on uncompleted contracts in the consolidated balance sheet. The percentage-of-completion method is used in circumstances in which all the following conditions exist:

•

The contract includes enforceable rights regarding goods or services to be provided to the customer, the consideration to be exchanged, and the manner and terms of settlement

•

Both the Company and the customer are expected to satisfy all contractual obligations and

•

Reasonably reliable estimates of total revenue, total cost and the progress toward completion can be made.

We maintain an allowance for doubtful accounts based on a continuous review of customer accounts, payment patterns and specific collection issues. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit from the customer before a shipment is made. If the financial condition of one or more of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



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 20, “Discontinued Operations”, of our audited financial statements included in this Annual Report on Form 10-K, we have discontinued the Singapore IC packaging operations of our vision systems product line, which was included in our Metrology Solutions segment, in September 2009.



Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. Our policy is to assess the valuation of all inventories, including raw materials, work-in-process and finished goods. Obsolete inventory or inventory in excess of management’s estimated future usage, over a reasonable period of time, is written down to its estimated market value, if less than its cost. Contracts with fixed prices are evaluated to determine if estimated total costs will exceed revenues. A loss provision is recorded when the judgment is made that actual costs incurred plus estimated costs remaining to be incurred based on management’s estimates will exceed total revenues from the contract. Inherent in the estimates of market value are management’s estimates related to current economic trends, future demand for our products and technological obsolescence. Management estimates future product sales and service requirements and evaluates technological changes and other possible uses to determine if inventory is excess or obsolete. If actual market conditions are different than those projected by management, additional inventory adjustments affecting earnings may be required.



Other Than Temporary Impairment of Marketable Securities

Marketable securities have been primarily classified as held-to-maturity, which requires them to be carried at amortized cost. We also have certain securities that are classified as trading. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Management evaluates the need to record adjustments for impairment of marketable securities on a quarterly basis. Marketable securities with unrealized depreciation in fair value for twelve or more consecutive months and other securities with unrealized losses are reviewed to determine whether the decline in fair value is other than temporary. Investment ratings, company-specific events, general economic conditions and other reasons are evaluated in determining if the decline in fair value is other than temporary. If it is judged that a decline in fair value is other than temporary, the marketable security is valued at the current fair value and an impairment charge is reflected in earnings.



Share-Based Compensation

We calculate share-based compensation expense in accordance with authoritative guidance pertaining to share-based payments using the Black-Scholes option-pricing model to calculate the fair value of share-based awards. The key assumptions for this valuation method include the expected term of an option grant, stock price volatility, risk-free interest rate and dividend yield. The determination of these assumptions is based on history and future expectations and is subject to a high level of judgment. To the extent any of the assumptions were to change from year to year, the fair value of new option grants may vary significantly.



Warranty Costs

We provide for the estimated cost of product warranties at the time revenue is recognized. We consider historical warranty costs actually incurred together with specifically identified circumstances to establish the warranty liability. The warranty liability is reviewed on a quarterly basis. Should actual costs differ from management’s estimates, revisions to the estimated warranty liability may be required. A fifteen percent change in warranty liability would have an immaterial impact on our financial condition and results of operations.

Accounting for Income Taxes

Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis and operating loss and tax credit carryforwards. We must assess the likelihood that any deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Management considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In fiscal 2009, management determined that it was more likely than not that we would not be able to realize our deferred tax assets in the future, and an adjustment to record a full valuation allowance was charged to income tax expense. In fiscal 2012, the Company reversed a substantial amount of the valuation allowance based on the cumulative earnings for the last three years and future projected income. Our effective tax rate may vary from period to period based on changes in pre-tax income between jurisdictions that have higher or lower tax rates, changes to federal, state, or foreign tax laws and deductibility of certain costs and expenses by jurisdiction.



Economic Hedges

We hedge certain intercompany transactions by entering into 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 nor do we designate such hedges for hedge accounting purposes. These contracts are entered into for periods consistent with the currency transaction exposures, generally three to nine months. Any gains and losses on the fair value of these contracts are expected to be largely offset by gains and losses on the underlying transactions.



Valuation of Long-Lived Assets

In accordance with authoritative guidance issued by the FASB pertaining to accounting for the impairment or disposal of long-lived assets, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors we consider important, which could trigger the impairment review, include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating loss or cash flow decline combined with a history of operating loss or cash flow uses or a projection that demonstrates continuing losses and a current expectation that it is more likely than not that a long-lived asset will be disposed of at a loss before the end of its estimated useful life.



If one or more of such facts or circumstances exist, we evaluate the carrying value of long-lived assets to determine if an impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and compare that value to the carrying value of the assets. If the carrying value of the assets is greater than the estimated future cash flows, the assets are written down to the estimated fair value. We determine the estimated fair value of the assets based on a current market value of the assets. If a current market value is not readily available, a projected discounted cash flow method is applied using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time.



Health Insurance

We are self-insured for the majority of our group health insurance. We rely on claims experience in determining an adequate liability for claims incurred, but not reported. To the extent actual claims exceed estimates, we may be required to record additional expense. We also carry catastrophic insurance to manage our health insurance liability which provides for specific dollar caps on our liability for both single claims and total annual claims. A six percent change in actual claims would have an immaterial impact on our financial condition and results of operations.



Recent Accounting Guidance Not Yet Adopted

In June 2011, the FASB issued new guidance on the presentation of comprehensive income that will require presentation of components of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net earnings or other comprehensive income under current US GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. It is applicable to our fiscal periods beginning and subsequent to July 1, 2012. This guidance will not have a material effect on our consolidated financial statements.



Adoption of New Accounting Pronouncements

In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related to fair value measurements to improve consistency with international reporting standards. This guidance is effective prospectively for public entities for interim and annual reporting periods beginning after December 15, 2011, with early adoption by public entities prohibited, and is applicable to our fiscal periods beginning and subsequent to January 1, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements became 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. On July 1, 2011, we adopted the requirements for disclosures concerning the presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The adoption of these amended standards did not have a material impact on our consolidated financial statements.

In December 2010, the FASB also issued guidance to clarify the reporting of pro forma financial information related to business combinations of public entities and to expand certain supplemental pro forma disclosures. This guidance is effective prospectively for business combinations that occur on or after the beginning of a fiscal year beginning on or after December 15, 2010, with early adoption permitted. It was applicable to our fiscal year beginning July 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial statements.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

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, research, defense, life sciences and industrial markets. We conduct the majority of our manufacturing in a 153,500 square foot facility in Middlefield, Connecticut, a 55,300 square foot facility in Richmond, California, and a 22,560 square foot facility in Tucson, Arizona. In May 2012, we purchased a 110,020 square-foot facility in Tucson, Arizona, which will function as the manufacturing site for our Tucson operation when we complete our transition to the new site.

Bookings for the second quarter of fiscal 2013 were $42.8 million, a decrease of 13% compared with bookings of $48.8 million in the second quarter of fiscal 2012 and an increase of 15% compared with bookings of $37.3 million in the first quarter of fiscal 2013. Bookings for the Metrology Solutions segment were 62% of the total; Optical Systems segment bookings were 38%. Backlog was $73.2 million at December 31, 2012, compared with $69.7 million at December 31, 2011, and $65.1 million at September 30, 2012. Currently, 63% of the backlog is Optical System bookings which generally carry a lower gross margin than Metrology Solutions. If the mix of revenues changes to a greater proportion of Optics revenues, it is likely to adversely affect reported gross margin. The impact on gross margin will also depend on future bookings, particularly Metrology bookings with shorter shipping cycles.

Our effective tax rate increased as a result of the reversal of the valuation allowance on deferred tax assets in the fourth quarter of fiscal 2012. Previous years’ results benefitted from the offset effect of reversing valuation allowance against tax provision, essentially eliminating U.S. Federal income tax expense. Since the valuation allowance against deferred tax assets was eliminated at the end of fiscal 2012 due to improved operating performance and improved business outlook, current year results reflect tax expense at the full effective tax rate, modified by adjustment of prior period deferred tax asset balances as a component of the fiscal 2013 year tax provision.

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, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012, management considers the Company’s 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.

Net revenues for the three months ended December 31, 2012 decreased $5.4 million, or 14%, compared with the prior year period, reflecting decreases in the Metrology Solutions segment revenues of 16% and in the Optical Systems segment of 9%. The decrease in the Metrology Solutions segment was primarily due to volume decreases of $3.0 million in instruments product lines related to microscopes and, to a lesser degree, large aperture systems and $0.8 million in certain product revenues attributable to soft demand in the semiconductor sector. The decrease in the Optical Systems segment was primarily due to volume decreases in optical components of $1.6 million and contract manufacturing of $0.3 million, partially offset by an increase in the extreme precision optics group of $0.5 million.

Net revenues for the six months ended December 31, 2012 decreased $9.2 million, or 11%, compared with the prior year period, reflecting decreases in the Metrology Solutions segment revenues of 15% and in the Optical Systems segment of 4%. The decrease in the Metrology Solutions segment of $8.0 million was primarily due to volume decreases in semiconductor related products of $5.6 million and instruments products of $3.1 million. The semiconductor market is still slow and has affected orders across several product lines. The Optical Systems segment declined $1.2 million year over year with increases in extreme precision optics of $3.7 million partially offsetting the declines in contract manufacturing and laser fusion optics.

Revenues from two customers accounted for 14% and 11% of net revenues for the three months ended December 31, 2011. No customer accounted for over 10% of revenues for the three months ended December 31, 2012. Revenues from one customer accounted for 10% of net revenues for the six months ended December 31, 2012. Revenues from two customers accounted for 12% and 11% of net revenues for the six months ended December 31, 2011. Revenues from these customers were included in both reporting segments.

Revenues denominated in U.S. dollars for the three months ended December 31, 2012 and 2011 were 76% and 79%, respectively, and 78% and 82% for the six months ended December 31, 2012 and 2011, respectively. The balance of revenue was denominated in Euro, Yen and Yuan. Revenues denominated 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 in these markets and our consolidated financial position and results of operations.

Gross margin for the three months ended December 31, 2012 was 44%, a decrease of five percentage points from the comparable prior year period. Within the Metrology Solutions segment, the decrease in gross margin for the three months ended December 31, 2012 compared with the prior year period was primarily due to a combination of overall lower volumes resulting in a decrease in labor and overhead absorption, lower margins on certain custom orders within the instruments product line and lower volumes in the semiconductor sector of products with traditionally more favorable gross margins. The gross margin of the Optical Systems segment for the three months ended December 31, 2012 decreased by four percentage points compared with the prior year period, primarily due to lower volumes, resulting in a decrease in labor and overhead absorption which increased other cost of sales and, to a lesser extent, lower than expected margins on certain custom orders.

Gross margin for the six months ended December 31, 2012 was 44%, a decrease of five percentage points from the comparable prior year period. Within the Metrology Solutions segment, the decrease in gross margin for the six months ended December 31, 2012 compared with the prior year period was primarily due to lower margins on certain custom orders within the instruments product line and the negative effect of lower volumes on labor and overhead absorption. The gross margin of the Optical Systems segment for the six months ended December 31, 2012 decreased by six percentage points compared with the prior year period, primarily due to a decrease in labor and overhead absorption.


SG&A increased in the three months ended December 31, 2012 by $0.5 million from the comparable prior year period. The increase was primarily due to increased selling expense. For the six months ended December 31, 2012, SG&A decreased primarily due to lower employee incentive compensation partially offset by an increase in expenses related to increased headcount.

Research, Development and Engineering Expenses (“RD&E”)

RD&E for the three months ended December 31, 2012 increased by $0.4 million compared with the prior year period primarily due to the increases in spending in our lithography stage metrology product line. RD&E expense for the six months ended December 31, 2012 increased by $1.0 million compared with the prior year period, primarily due to the increases in spending in our lithography stage metrology and extreme precision optics product lines.

Other Income (Expense)

Other expense for the three and six months ended December 31, 2012 consisted primarily of imputed interest on a future contingent liability and foreign currency translation adjustments. Other income for the three months ended December 31, 2011 included a gain recorded due to a reduction in the anticipated future consideration expected to be paid by us related to a past acquisition.

Income Tax Expense Income tax expense for the three months ended December 31, 2012 included income taxes in United States federal, state and foreign jurisdictions partially offset by a tax benefit of $0.5 million to correct an error in recording deferred tax asset balances as of June 30, 2012 relating to fixed assets recorded in an acquisition and foreign tax credits. Income tax expense for the three months ended December 31, 2011 included income taxes for state and foreign jurisdictions only. Income tax expense for the six months ended December 31, 2012 included a tax benefit of $0.9 million to correct an error in recording deferred tax asset balances as of June 30, 2012 related to fixed assets recorded in an acquisition and foreign tax credits. In the prior year for both the three and six month periods ended December 31, 2011, the valuation allowance recorded on substantially all net deferred tax assets, including those in the United States, effectively eliminated U.S. federal tax expense. The valuation allowance against deferred tax assets was eliminated at the end of fiscal 2012

TRANSACTIONS WITH SHAREHOLDER

Revenues from Canon Inc., a shareholder, 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 $2.9 million and $4.3 million (8% and 11% of net revenues, respectively) for the three months ended December 31, 2012 and 2011, respectively. For the six months ended December 31, 2012 and 2011, revenues from Canon amounted to $5.7 million and $9.1 million (8% and 11% of net revenues, respectively). Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At December 31, 2012 and June 30, 2012, there were, in the aggregate, $1.2 million and $1.6 million, respectively, of trade accounts receivable from Canon.


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 our cash reserves and 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 December 31, 2012, cash and cash equivalents were $77.3 million, a decrease of $6.8 million from $84.1 million at June 30, 2012. Cash in a money market account is invested primarily in U.S. government securities. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.

Cash provided by operating activities from continuing operations decreased period over period by $22.9 million to $1.5 million, due primarily to a decrease in net income of $9.1 million and a decrease in cash flows from fiscal 2012 to fiscal 2013 attributable to increases in inventories, unbilled costs on long-term contracts and prepaid taxes. The decrease in cash flows related to inventories is due to an increase in certain inventory lines for production in process on longer-term projects.

Cash used for investing activities increased $5.0 million to $6.7 million, due primarily to the buyout of the noncontrolling interest of ZygoLOT for $3.2 million (€2.5 million), and an increase in additions to property, plant and equipment of $1.8 million.

Cash used for financing activities increased $2.4 million to $1.9 million, due primarily to dividend payments to noncontrolling interests of $1.0 million and increases in the repurchase of restricted stock of $0.8 million.

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 cash flows from operations and cash reserves to maintain adequate amounts of liquidity and to meet our future liquidity requirements for at least the next twelve months.

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.

CONF CALL

John P. Jordan - Chief Financial Officer, Vice President and Treasurer

Good afternoon. I'm John Jordan, Vice President, Chief Financial Officer and Treasurer of Zygo Corporation. Thank you for joining us for the Zygo Corporation's Second Quarter Fiscal 2013 Earnings Conference Call. On the call with us today is Dr. Chris Koliopoulos, President and Chief Executive Officer of Zygo Corporation.

The press release containing Zygo Corporation’s second quarter results was published today at 4 p.m. It is also available on our website at www.zygo.com.

I will turn the call over to Dr. Koliopoulos to discuss the results of the quarter, but before doing so, I'd like to remind you that today's call may contain forward-looking statements, which may include statements about our financial position, business strategy, plans, anticipated growth rates, market acceptance, objectives of management for future operations and other statements that are not historic facts.

Forward-looking statements can be identified by the use of words such as anticipate, believe, estimate, expect, intend, plans, strategy, project, should and other words of similar meaning in connection with the discussion of future operating or financial performance. These forward-looking statements represent our predictions and expectations as to future events, which we believe are reasonable, and are based on reasonable assumptions. However, numerous risks and uncertainties can cause actual results to differ materially from those expressed or implied in the forward-looking statements. Information about some of these risks and uncertainties can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our report on Form 10-K for the fiscal year ended June 30, 2012, filed September 13, 2012. We assume no obligation to revise or update any forward-looking statements.

Now I would like to turn the call over to our President and Chief Executive Officer, Dr. Chris Koliopoulos. Chris?

Chris L. Koliopoulos - Chairman, Chief Executive Officer and President

Thank you, John. Good afternoon, everyone, and thank you for joining our second quarter 2013 earnings conference call. We are here to report our second quarter and first 6 months of fiscal year 2013 results and discuss our business activities and some of our highlights of the quarter during the call today.

Although quote activity has been reasonably robust and bookings improved considerably during the second quarter, the lower bookings from the previous 2 quarters combined with a seasonally short quarter caused shipments and revenue in the quarter to be lower than we had targeted. As a result, second quarter revenue of $34.6 million was 14% lower than revenues for the second quarter of fiscal 2012 and the first quarter of fiscal 2013.

The Optical Systems division revenue decreased 9% and Metrology Solutions division revenue was 16% less than the prior year quarter, primarily due to a few shipments from our special projects group, a result of a shorter quarter and customer timing.

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