Zygo Corporation (Zygo) has reported net sales of $33.5 million for the second quarter of fiscal year 2009, compared with the net sales of $40.4 million in the year-ago quarter. It has also reported a net loss of $4 million, or $0.24 loss per share, for the second quarter of fiscal year 2009, compared with the net earnings of $1.2 million, or $0.07 per share, in the year-ago quarter.

Second quarter fiscal 2009 loss includes an aggregate of $0.15 per share of merger related costs, reserves for the possible royalty claims, and allocation adjustments related to the company’s acquisition of Solvision’s assets in fiscal 2008. Second quarter fiscal 2008 net earnings included a $0.05 per diluted share reduction associated to the reserve for a promissory note in connection with the Solvision acquisition.

For the first six months fiscal 2009, the company recorded net sales of $71.8 million and a net loss of $3.5 million, or a loss of $0.21 per diluted share, as compared with net sales of $72.1 million and net earnings of $0.2 million, or $0.01 per diluted share, for the first six months of fiscal 2008. The results for six months ended December 31, 2008 and 2007 were negatively impacted by $0.18 and $0.06 per share, respectively.

The sales for second quarter fiscal 2009 were driven primarily by instrument product line of our Metrology Solutions Division, 73% of total revenues. Earnings were unfavorably affected by the overall reduction in sales, lower gross margins and the items listed above as compared with the second quarter of last year.

The orders for second quarter of fiscal 2009 were $22.3 million as compared with orders of $42.9 million in the second quarter of fiscal 2008. Orders for the Metrology Solutions Division accounted for 77% of the orders received, with the Optical Systems Division contributing the remaining 23%. Metrology Solutions Division orders of $17.2 million were negatively impacted by the continued decline in the semiconductor and display markets.

Bruce Robinson, Zygo’s chairman and chief executive officer commented, There is no indication that a worldwide economic recovery will occur in 2009. To that end we are taking additional actions, across the board, to restructure our business and reduce costs.

These actions include:

The pay reductions starting in January 2009 of between 10-15% for executive officers and 3-8% for certain other personnel;

Unpaid furloughs during first quarter 2009;

The reductions in work force of 7%.

Robinson added, Annualized, these actions are expected to save us approximately $9.0 million, and further accelerated cost reductions will be taken as conditions warrant. We are focusing on liquidity and maintaining a strong balance sheet through the control of inventory, capital expenditures, and other expenses. We will continue to strategically invest in our core business in order to maintain market share and be in a position to expand revenue when our customers’ capital spending strengthens.

On October 16, 2008, the company announced that it had entered into an agreement and plan of merger and reorganization with Electro Scientific Industries, Inc. (ESI), under which the company’s stockholders would receive 1.0233 shares of ESI stock for each share of Zygo stock held. Based on the closing price of ESI stock on the date the merger agreement was executed, this represented a value of $10.30 per share of Zygo stock.

As a result of changes in conditions since the merger agreement was executed, the Zygo board undertook a reevaluation of the merger transaction with ESI. In its reevaluation, the Zygo board, among other things, reviewed certain revised current and projected longer term financial, operational and customer-related information concerning ESI, as well as the assumptions underlying various forecasted results. Based on this reevaluation, the Zygo board submitted a proposal to ESI to modify the terms of the merger agreement to increase the existing merger consideration by $4.00 per share of Zygo stock, payable in cash, and to increase from 3 to 4 the number of ESI Board seats held by Zygo designees after the closing of the merger. On January 20, 2009, ESI informed Zygo that ESI was not prepared to adjust the existing merger consideration and reiterated its belief that the existing merger consideration continued to be appropriate. Later that day, the Zygo board announced the withdrawal of its recommendation in favor of the proposed merger.

Bruce Robinson said, The Zygo Board, acting in a manner consistent with its fiduciary duties, determined that the terms of the merger agreement, as currently constructed, are no longer in the best interest of the Zygo stockholders. We are continuing to evaluate the options under the merger agreement and applicable law resulting from the changed circumstances and the Zygo Board’s view of the disproportionate impact of these changes on the current and expected longer term performance and operations of ESI and Zygo. It is Zygo’s belief that our diversified portfolio of products with applications across multiple industries will help to sustain our business during this worldwide recession.