Acquisitions

CES CREATIVE ELECTRONIC SYSTEMS AQUISITION

On November 4, 2016, the Company and the shareholders of CES Creative Electronic Systems S.A. ("CES") entered into a Stock Purchase Agreement, pursuant to which, Mercury acquired CES for a total purchase price of $39,123, subject to net working capital and net debt adjustments. The acquisition and associated transaction expenses were funded with cash on hand. Based in Geneva, Switzerland, CES is a leading provider of embedded solutions for military and aerospace mission-critical computing applications. CES specializes in the design, development and manufacture of safety-certifiable product and subsystems solutions including: primary flight control units, flight test computers, mission computers, command and control processors, graphics and video processing and avionics-certified Ethernet and IO. CES has decades of experience designing subsystems deployed in applications certified up to the highest levels of design assurance. CES products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft, as well as the several types of unmanned platforms.

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



	Amounts
Consideration transferred
Cash paid at closing	$	39,123
Working capital adjustment	(330		)
Net purchase price	$	38,793

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	2,698
Inventory	7,262
Fixed assets	1,468
Current and non-current deferred tax assets	312
Other current and non-current assets	1,087
Current liabilities	(3,141		)
Non-current liabilities	(8,031		)
Non-current deferred tax liabilities	(1,169		)
Estimated fair value of net tangible assets acquired	486
Estimated fair value of identifiable intangible assets	15,134
Estimated goodwill	23,173
Estimated fair value of net assets acquired	38,793
Net purchase price	$	38,793

The amounts above represent the preliminary fair value estimates as of March 31, 2017 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period. The preliminary identifiable intangible asset estimates include customer relationships of $9,472 with a useful life of 9 years and developed technology of $5,662 with a useful life of 7 years. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $23,173 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. CES provides the Company with capabilities in mission computing, safety-critical avionics and platform management that are in demand from its customers. These new capabilities will also substantially expand Mercury’s addressable market into commercial aerospace, defense platform management, C4I and mission computing markets that are aligned to Mercury’s existing market focus. 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 MCE reporting unit.

The revenues and income before income taxes from CES included in the Company's consolidated results for the three months ended March 31, 2017 were $6,367 and $668, respectively. The revenues and income before income taxes from CES included in the Company's consolidated results for the nine months ended March 31, 2017 were $10,323 and $923, respectively.

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 I) and cash on hand, which included net proceeds of approximately $92,788 raised from an underwritten common stock public offering. In February 2017, the Company received a $1,838 cash payment from Microsemi relating to a working capital adjustment pursuant to the terms of the Stock Purchase Agreement. The payout has been reflected as an adjustment to the net purchase price, resulting in a net decrease to goodwill in an equal amount.

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
Working capital adjustment	(1,838		)
Net purchase price	$	298,569

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	17,157
Inventory	25,477
Fixed assets	13,996
Other current and non-current assets	524
Current liabilities	(4,692		)
Non-current deferred tax liabilities	(25,449		)
Estimated fair value of net tangible assets acquired	27,013
Estimated fair value of identifiable intangible assets	102,800
Estimated goodwill	168,756
Estimated fair value of net assets acquired	298,569
Net purchase price	$	298,569

The amounts above represent the preliminary fair value estimates as of March 31, 2017 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, which ends on May 1, 2017, will result in an adjustment to goodwill.

The goodwill of $168,756 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 ("RF") 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 March 31, 2017, the Company had $27,166 of goodwill related to the Carve-Out Business deductible for tax purposes.

The revenues and income before income taxes from the Carve-Out Business included in the Company's consolidated results for the three months ended March 31, 2017 were $25,870 and $(284), respectively. The revenues and income before income taxes from the Carve-Out Business included in the Company's consolidated results for the nine months ended March 31, 2017 were $76,108 and $(4,197), respectively.

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, 2015:



	Three Months ended March 31,		Nine Months ended March 31,
	2016		2016
Pro forma net revenues	$	90,023	$	258,519
Pro forma net income	$	4,081	$	11,161
Basic pro forma net earnings per share	$	0.11	$	0.29
Diluted pro forma net earnings per share	$	0.10	$	0.29

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.