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Acquisitions
12 Months Ended
Dec. 31, 2011
Acquisitions [Abstract]  
Acquisitions
Acquisitions

Acquisition of Nanda Technologies GmbH in 2011
On November 21, 2011, the Company acquired 100% of the outstanding shares of Nanda Technologies GmbH (“Nanda”), a privately-held company with headquarters near Munich, Germany. The total purchase price consisted of approximately $25.2 million in cash, subject to certain post-closing adjustments associated with Nanda's working capital as of the acquisition date. As a result of the acquisition, Nanometrics obtained a new technology and product line which enables the capture of full-wafer surface inspection images at high-volume production speeds. The technology is expected to enable the Company to address a significant market opportunity incremental to the metrology segments currently served by the Company's optical process control products. The transaction meets the conditions of a business combination under ASC 805 and is accounted for under this guidance.
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
Amount
 
Cash and equivalents
 
$
1,239

 
Account receivables
 
724

 
Inventories
 
1,440

 
Property, plant and equipment – machinery and equipment
 
616

 
Other assets
 
227

 
Developed technology (included in intangibles)
 
9,200

 
Customer relationships (included in intangibles)
 
1,040

 
In-process research and development (included in intangibles)
 
330

 
Liabilities
 
(1,603
)
 
RTM contingent liabilities
 
(586
)
 
Total identifiable net assets
 
12,627

 
Goodwill
 
12,524

 
Total Purchase Consideration
 
$
25,151


Inventories were measured at fair value as of the date of the acquisition. In estimating the fair value of finished goods and work-in-process inventory, the Company made assumptions about the selling price and selling costs associated with inventory.
With the acquisition, the Company recorded intangible assets of $9.2 million of developed technology, $1.0 million of customer relationships, and $0.3 million of in-process research and development. The developed technology represents Nanda's full wafer, high volume inspection technology and was valued by discounting the estimated future net cash flows of this technology to their net present value utilizing the income approach. The value of the developed technology will be amortized over its estimated useful life of five years. The value of the customer relationship asset was determined based on management's estimates of the costs that would have been incurred to replicate Nanda's existing customer relationships. Based on industry experience, management estimates the useful life of the customer relationship asset to be three years, and the value of this asset will be amortized over this period. The in-process research and development asset was valued by discounting the estimated future net cash flows of the asset to their net present value utilizing the income approach. The value associated with the in-process research and development will be carried on the balance sheet until the efforts are completed. At that time, management will estimate the asset's useful life and amortize the value accordingly.
The purchase price for this transaction exceeded the fair value allocated to tangible and identifiable intangible assets. The excess purchase price over the fair value of identifiable assets and liabilities of approximately $12.5 million was recorded as goodwill. The Company establishes reporting units based on its reporting structure. The acquisition of Nanda did not trigger any significant changes to the existing reporting structure of the Company. Therefore, the Company continues to operate as a single reporting unit.
The Company expects to benefit from the goodwill through utilization of Nanda's technology in existing Nanometrics products, estimated future sales of existing Nanometrics products to Nanda's established customer base, incremental sales of Nanda's products through Nanometrics worldwide sales and service channels, and efficiencies expected to be achieved from the manufacturing of Nanda's products using Nanometrics operational facilities and processes.
The following table summarizes the identifiable intangible assets acquired as part of the acquisition:
 
Fair Value as of acquisition date,
November 21, 2011
 
Accumulated
amortization 
as of
December 31, 2011
 
Net carrying
amount as of
December 31, 2011
Developed technology
$
9,200

 
$
(208
)
 
$
8,992

Customer relationships
1,040

 
(39
)
 
1,001

In-process research and development
330

 

 
330

Total identifiable intangible assets acquired
$
10,570

 
$
(247
)
 
$
10,323


Prior to the acquisition, the Company had a pre-existing relationship with Nanda. In December 2010, the Company acquired certain patents from Real Time Metrology Inc. ("RTM") under an asset purchase agreement. As part of the asset purchase, the Company assumed an existing license agreement between Nanda and RTM. Under the license agreement, Nanda is obligated to pay Nanometrics an annual royalty based on the number of tools sold with a minimum royalty payment. Under the asset purchase agreement with RTM, Nanometrics is required to remit to RTM 100% of the royalty payments received from Nanda for the first three years subsequent to the acquisition of the patents, and 50% of the royalty payments received subsequently until March 2018. In 2011, the amount of minimum royalty payments received by Nanometrics and remitted to RTM was immaterial.
As a result of the acquisition of Nanda in November 2011, a contingent liability of $0.6 million has been recognized for the estimated royalty payments due to the existing license agreement between Nanda and RTM that Nanometrics assumed. The fair value of the contingent liability was estimated based on the projected system sales and the related estimated royalty obligations. As of December 31, 2011, there has been no significant change to the amount recognized for the liability as of the date of the acquisition.
The unaudited pro forma financial information in the table below summarizes the combined results of operations for Nanometrics and Nanda as though the acquisition of Nanda occurred as of the beginning of fiscal 2010. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the acquisition including additional amortization charges of $2.4 million and $2.6 million in fiscal 2011 and 2010 respectively relating to acquired intangible assets. Additional adjustments were made to account for additional stock-based compensation charges for restricted stock units awarded of $0.8 million and $1.9 million in fiscal 2011 and 2010 respectively, and there were no related tax effects in fiscal 2011 and fiscal 2010 of the pro forma adjustment. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved had Nanda been combined with the Company as of the beginning of fiscal 2010.
The unaudited pro forma financial information combines the historical results of Nanometrics for fiscal year 2011 and 2010, the historical results of Nanda for the twelve months ended December 31, 2011 and December 31, 2010, respectively, and the effects of the pro forma adjustments described above.
 
 
Fiscal Years Ended
(In thousands, except per share amounts)
 
December 31,
2011
(unaudited)
 
January 1,
2011
(unaudited)
Total revenues
 
$
232,418

 
$
188,685

Net income
 
$
24,939

 
$
45,544

Net income per share:
 
 
 
 
Basic
 
$
1.10

 
$
2.08

Diluted
 
$
1.06

 
$
1.98

There were no business acquisitions made by the Company during fiscal year 2010.
Asset Purchase from Zygo Corporation in 2009
On June 17, 2009 (“acquisition date”), Nanometrics announced that it had purchased inventory and certain other assets of Zygo Corporation (“Zygo”) and that the two companies had entered into a supply agreement. The supply agreement is an exclusive Original Equipment Manufacturer (“OEM”) arrangement in which Zygo will provide interferometer sensors to Nanometrics for incorporation into the UnifireTM line of products as well as the Nanometrics family of automated metrology systems. The arrangement is structured as an asset transfer and exclusive OEM supply agreement aimed at wafer-based markets. Nanometrics will assume all inventory and customer sales and support responsibilities and Zygo will provide measurement sensors for integration by Nanometrics. By completing this acquisition, Nanometrics anticipates expanding its served markets to include the high end of dimensional control metrology for the rapidly-growing back-end-of-line packaging market, while also enhancing our product offerings to front-end-of-line metrology customers. In addition to the applications currently addressed by Nanometrics and Zygo products, the business partnership allows for the joint development of additional technology solutions targeted at the semiconductor and related industries. This transaction met the conditions of a business combination as defined in ASC 805, and as such is accounted for under ASC 805. The results from the Unifire line of business were included in the Company’s condensed consolidated statements of operations from the acquisition date.
The following table summarizes the fair value of consideration recorded and the fair value of acquired assets (in thousands):
 
 
Amounts
Assets acquired:
 
Tangible assets:
 
Inventories – raw materials
$
2,014

Property, plant and equipment – machinery and equipment
1,378

Total tangible assets acquired
3,392

Intangible assets:
 
Developed technology
1,362

Customer relationships
338

Total intangible assets acquired
1,700

Total assets acquired
$
5,092

The fair value of the purchase consideration at the time of the acquisition was $5.1 million, which consisted of deferred payments to Zygo for inventory and fixed assets, as well as future royalty and sustaining engineering support fees. The future royalty and sustaining engineering support fees are considered contingent consideration. On the acquisition date, the consideration was recorded as a liability on the Company’s consolidated balance sheet at January 2, 2010, with $3.1 million being recorded as a current liability and $2.0 million being recorded as a long term liability.

The Company was required to make payments to Zygo after each sale of the Company’s product which incorporates inventory acquired from Zygo. If the Company did not sell sufficient products that incorporate the acquired inventory from Zygo, within one year from the acquisition date, the Company was required to remit the remaining unpaid portion relating to inventory and fixed assets at that time. The purchase agreement also stipulated that if the Company received greater than $5.0 million in a financing transaction, 20% of the financing proceeds, not to exceed $2.0 million, must be paid to Zygo for any unpaid portion of the amounts related to inventory and fixed assets. In December 2009, the Company completed a common stock offering with net proceeds of $23.3 million, therefore, $2.0 million became immediately due and payable to Zygo. The $2.0 million payment was made to Zygo on January 7, 2010. In March 2010, the Company sold products that incorporate the acquired inventory from Zygo, at levels sufficient to trigger the Company’s payment obligations under the purchase agreement, and therefore, the remaining unpaid portion relating to inventory and fixed assets of $1.4 million became due and was paid by the Company to Zygo on April 15, 2010.
In addition, the Company agreed to pay Zygo a royalty based on net revenues of approved products and the expected sustaining engineering payments based on volumes of heads purchased from Zygo starting in 2010 and over a 10 year period. As of December 31, 2011, our payments to Zygo Corporation over the next nine years may be up to $3.8 million depending on the numbers of tools sold. The Company made royalty and sustaining engineering payments of $0.4 million and $0.2 million to Zygo in each fiscal year of 2011 and 2010, respectively. The fair value of the future royalty and sustaining engineering support fees was determined using a relief from royalty method based on the following: (a) the amount of the acquired assets that the business will generate, and (b) a discount rate of 20 percent, which was utilized to adjust the royalty and sustaining engineering payments to their present value, based on the consideration of both a weighted average cost of capital calculation and venture capital rates.
The fair value of inventory acquired from Zygo, which consisted of raw materials, was $2.0 million. Recent purchases by the Company of raw material were considered a reasonable proxy for fair value. The fair value of demonstration equipment was $1.4 million as determined by considering the purchase date and recent usage of the products. Fair value of developed technology of $1.4 million and customer relationships of $0.3 million were determined by a similar methodology to the methodology used above for calculating contingent consideration, with the following assumptions of (a) royalty rate of 3 percent, and (b) discount rate of 30 percent, and will be amortized over a period of 10 years on a straight-line basis and over a two years on an accelerated basis, respectively. Amortization expense of $0.2 million, $0.3 million and $0.2 million was recorded for the acquired intangible assets from the Zygo transaction in fiscal years 2011, 2010 and 2009, respectively.
The acquired Zygo business contributed no revenues and a net loss of $1.8 million to the consolidated results of operations for the period from June 17, 2009 to January 2, 2010. The following unaudited pro forma summary presents consolidated information of Nanometrics as if the business combination had occurred at the beginning of fiscal year 2008 (in thousands):
 
 
Pro Forma Year Ended
(In thousands, except per share amounts)
January 2,
2010
(unaudited)
 
December 27,
2008
(unaudited)
Net revenues
$
78,864

 
$
105,118

Net loss
(20,095
)
 
(91,797
)
Net loss per share:
 
 
 
Basic
$
(1.08
)
 
$
(4.95
)
Diluted
$
(1.08
)
 
$
(4.95
)