Acquisitions

9 Months Ended

Mar. 31, 2012

Business Combination Disclosure [Text Block]

Note 3: Acquisitions

Richmond, California

On November 12, 2010, we completed a transaction with ASML US, Inc. (“ASML”) to purchase substantially all the assets of their Richmond, California operations (“Richmond asset acquisition”), including a 55,300 square-foot manufacturing facility. This acquisition expanded our optical manufacturing capabilities. The assets were acquired for $12,475, of which $7,142 was in cash, and the balance was future consideration, with a net present value of $5,333 using a discount factor of 14%, based on the level of shipments to ASML over the subsequent three years beginning January 1, 2011. On the acquisition date, the future consideration was recorded as a liability, with $1,127 recorded as a current liability and $4,206 recorded as a long-term liability. The future consideration represented a supply agreement that was entered into with ASML that provided for a volume discount. In addition, we hired key management and employees working at the Richmond facility. These activities resulted in a newly formed operation known as the Extreme Precision Optics group (“EPO”) which is included in our Optical Systems segment. On June 30, 2011, we recorded a final valuation adjustment that increased both property, plant and equipment and gain on acquisition by $7.

This transaction met the conditions of a business combination as defined by Accounting Standards Codification (“ASC”) 805 and, as such, is accounted for under ASC 805 using the purchase method of accounting. ASC 805 defines the three elements of a business as Input, Process and Output. As a result of the acquisition of substantially all the Richmond facility assets, Zygo acquired the machinery and equipment utilized in the processes to manufacture product, the building that houses the entire operation and intellectual property needed in the process to manufacture the product. The ASML employees hired by Zygo in connection with the acquisition brought with them the skills, experience and know-how necessary to provide the operational processes that, when applied to the acquired assets, represent processes being applied to inputs to create outputs. Having met all three elements of a business as defined in ASC 805, we determined that the Richmond asset acquisition should be accounted for as a business acquisition.

The results of EPO are included in our consolidated statements of operations from the acquisition date. Zygo performed a preliminary fair value exercise to allocate the purchase price to the acquired assets and liabilities at November 12, 2010. The fair value exercise was completed at June 30, 2011. The following table summarizes the consideration paid for the business and the final fair values of the assets acquired at the date of acquisition:

	Final Fair Value as of June 30, 2011
Consideration:
Cash		$	7,142
Future consideration			5,333
Purchase Price		$	12,475
Assets Acquired:
Inventories		$	2,399
Property, plant and equipment			11,474
Technology and customer relationships			623
Total assets			14,496
Less gain on acquisition			2,021
Purchase Price		$	12,475

In addition to recording the fair values of the assets acquired and the future consideration liability, we also recorded a gain on acquisition of $2,014 in the three months ended December 31, 2010 and an additional $7 in the three months ended June 30, 2011 in the consolidated statement of operations within gain on acquisition in accordance with ASC 805 using the purchase method of accounting. The gain on acquisition was primarily due to the difference between market value of the acquired real estate and its book value and the desire of ASML to sell the assets. In addition, a deferred tax liability of $725 was recorded in the opening balance sheet, which had the effect of reducing the gain on acquisition to $1,296 by June 30, 2011. We maintain a full valuation allowance on our net deferred tax assets. Therefore, we recorded a tax benefit to reduce the valuation allowance to the net deferred tax asset balance. Prior to recording the gain, we reassessed whether we had correctly identified all of the assets acquired and all of the liabilities assumed. Additionally, we also reviewed the procedures used to measure the amounts of the identifiable assets acquired, liabilities assumed and consideration transferred.

The purchased inventory was comprised of raw materials and work in process. The fair value for work in process was $1,833 and was determined by considering the sales price of finished units to represent fair value. The fair value for the building and land was $6,080 and was determined by using the sales comparison approach to value the land and a combination of the sales and cost approach for the building and improvements. The fair value of the equipment was determined by the market approach to be $5,394. Fair value of customer relationships was determined to be $23 by using the multi-period excess earnings method. The fair value of technology was $600 and was determined using the relief from royalty method.

During the three months ended March 31, 2011, the EPO operations contributed revenue and net earnings of $6,279 and $2,096, respectively. During the nine months ended March 31, 2011, the EPO operations contributed revenue and net earnings of $8,775 and $2,617, respectively. Acquisition related expenses of $406 was recognized in administration expense for the nine months ended March 31, 2011, respectively.

Proforma financial information of revenues and net earnings for the operation is impractical to provide. Prior to the acquisition, the Richmond operations were accounted for as a cost center within ASML. Therefore, revenues were not recorded at the Richmond level within ASML and separate financial statements for the Richmond operations were not prepared. While ASML provided financial information sufficient for Zygo to conclude that the acquisition was not significant under Regulation S-X rule 3-05, ASML did not provide and Zygo does not have access to financial information for the appropriate periods to present pro forma financial information.

The following disclosure presents certain information regarding the Company’s acquired intangible assets as of March 31, 2011. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of five years for both customer relationships and technology, in both instances with no estimated residual values. We test our intangible assets for impairment annually.

	Customer Relationships			Technology			Total
Balance at November 12, 2010	$	23		$	600		$	623
Amortization expense		(2	)		(45	)		(47	)
Balance at March 31, 2011	$	21		$	555		$	576