Acquisitions

CARVE-OUT BUSINESS AQUISITION

On March 23, 2016, the Company and Microsemi Corporation (“Microsemi”) entered into a Stock Purchase Agreement, pursuant to which, Microsemi agreed to sell all the membership interests in its custom microelectronics, RF and microwave solutions and embedded security operations (the "Carve-Out Business”) to the Company for $300,000 in cash on a cash-free, debt-free basis, subject to a working capital adjustment. On May 2, 2016, the transaction closed and the Company acquired the Carve-Out Business. Pursuant to the terms of the Stock Purchase Agreement, all outstanding Carve-Out Business employee stock awards that were unvested at the closing were replaced by Mercury. The replacement stock awards granted were determined based on a conversion ratio provided in the Stock Purchase Agreement. Mercury funded the acquisition with a combination of a new $200,000 bank term loan facility (see Note L) and cash on hand, which included net proceeds of approximately $92,788 raised from an underwritten common stock public offering (see Note M).

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of the Carve-Out Business:



	Amounts
Consideration transferred
Cash paid at closing	$	300,000
Value allocated to replacement awards	407
Net purchase price	$	300,407

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	17,082
Inventory	25,477
Fixed assets	14,021
Other current and non-current assets	524
Current liabilities	(4,263		)
Non-current deferred tax liabilities	(25,477		)
Estimated fair value of net tangible assets acquired	27,364
Estimated fair value of identifiable intangible assets	102,800
Estimated goodwill	170,243
Estimated fair value of assets acquired	$	300,407
Net purchase price	$	300,407

The amounts above represent the preliminary fair value estimates as of June 30, 2016 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates. The preliminary identifiable intangible asset estimates include customer relationships of $70,900, completed technology of $29,700 and backlog of $2,200. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $170,243 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The Carve-Out Business provides the Company with additional capability and expertise related to embedded security custom microelectronics, and microwave and radio frequency technology. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. The goodwill from this acquisition is reported under the Carve-Out Business reporting unit. As of June 30, 2016, the Company had $29,684 of goodwill deductible for tax purposes.

The revenues and net income from the Carve-Out Business included in the Company's consolidated results for the fiscal year ended June 30, 2016 were $16,638 and $1,345, respectively. The Carve-Out Business acquisition costs and other related expenses were $2,012 during the year ended June 30, 2016.

Pro Forma Financial Information

The following tables summarize the supplemental statements of operations information on an unaudited pro forma basis as if the Carve-Out Business acquisition had occurred on July 1, 2014:



	Year Ended June 30,
	2016		2015
Pro forma net revenues	$	344,601	$	333,362
Pro forma net income	$	18,125	$	5,697
Basic pro forma net earnings per share	$	0.47	$	0.15
Diluted pro forma net earnings per share	$	0.46	$	0.15

The unaudited pro forma results presented above are for illustrative purposes only for the applicable periods and do not purport to be indicative of the actual results which would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations which may occur in the future.

LEWIS INNOVATIVE TECHNOLOGIES ACQUISITION

On December 16, 2015, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) with Lewis Innovative Technologies, Inc. (“LIT”) and the holders of the equity interests of LIT. Pursuant to the Share Purchase Agreement, the Company completed its purchase of all of the equity interests in LIT, and LIT became a wholly-owned subsidiary of the Company. Based in Decatur, Alabama, LIT provides advanced security technology and development services necessary for protecting systems critical to national security while meeting strict Department of Defense (“DoD”) program protection requirements.

The Company acquired LIT for a cash purchase price of $9,756. The Company funded the purchase with cash on hand. The purchase price was subject to a post-closing adjustment based on a determination of LIT's closing net working capital. In accordance with the Share Purchase Agreement, $1,000 of the purchase price was placed into escrow to support the post-closing working capital adjustment and the sellers' indemnification obligations. The escrow is available for indemnification claims through June 16, 2017. The Company acquired LIT free of debt.

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of LIT:



	Amounts
Consideration transferred
Cash paid at closing	$	10,290
Working capital adjustment	(244		)
Less cash and cash equivalents acquired	(290		)
Net purchase price	$	9,756

Estimated fair value of tangible assets acquired and liabilities assumed
Cash and cash equivalents	$	290
Accounts receivable and cost in excess of billings	290
Other current and non-current assets	132
Current liabilities	(264		)
Estimated fair value of net tangible assets acquired	448
Estimated fair value of identifiable intangible assets	3,960
Estimated goodwill	5,638
Estimated fair value of assets acquired	10,046
Less cash and cash equivalents acquired	(290		)
Net purchase price	$	9,756

The amounts above represent the preliminary fair value estimates as of June 30, 2016 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates. The preliminary identifiable intangible asset estimates include completed technology of $3,240, customer relationships of $590 and backlog of $130. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $5,638 arising from the LIT acquisition largely reflects the potential synergies and expansion of the Company's service offerings across product lines and markets complementary to the Company’s existing products and markets. The LIT acquisition provides the Company with additional capabilities and expertise related to secure embedded processing applications. The acquisition is directly aligned with the Company's strategy of assembling critical and differentiated capabilities across the entire sensor processing chain. The goodwill from the LIT acquisition is included in the Company's Mercury Defense Systems ("MDS") reporting unit.

The Company and the shareholders of LIT have agreed to treat the acquisition of LIT as an asset purchase for tax purposes by filing the required election forms under IRC Section 338(h)(10). The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes. As of June 30, 2016, the Company had $5,638 of goodwill deductible for tax purposes.

Pursuant to the completion of the LIT acquisition, the Company incurred $231 of impairment expense related to a pre-existing relationship between the Company and LIT. LIT acquisition costs and other related expenses were immaterial during the year ended June 30, 2016. Additionally, the Company has not furnished pro forma financial information relating to LIT because such information is not material to the Company's financial results.