C. Acquisitions

KOR AND PDI ACQUISITION

On December 22, 2011, the Company and King Merger Inc., a newly formed, wholly-owned subsidiary of the Company (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KOR Electronics (“KOR”), and Shareholder Representative Services LLC, as the securityholders’ representative. On December 30, 2011, the transaction closed with the Merger Sub being merged with and into KOR with KOR continuing as the surviving company and wholly-owned subsidiary of the Company (the “Merger”). By operation of the Merger, the Company acquired both KOR and its wholly-owned subsidiary, Paragon Dynamics, Inc. (“PDI”). Based in Cypress, California, KOR designs and develops digital radio frequency memory (“DRFM”) units for a variety of modern EW applications, as well as radar environment simulation and test systems for defense applications. Based in Aurora, Colorado, PDI provides sophisticated analytic exploitation services and customized multi-intelligence data fusion solutions for the U.S. intelligence community. For segment reporting, KOR is included in the Advanced Computing Solutions (“ACS”) business segment and PDI is included in the MFS business segment.

The Company acquired KOR and PDI for a purchase price of $70,000 paid in cash. The Company funded the purchase price with cash on hand. The Company acquired KOR and PDI free of bank debt. The purchase price was subject to post-closing adjustment based on a determination of KOR’s closing net working capital.

In accordance with the Merger Agreement, $10,650 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 December 30, 2013.

Following the acquisition, the Company’s KOR and PDI subsidiaries became guarantors under the Company’s Loan Agreement and granted a security interest in its assets in favor of the Lender (see Note K).

The following table presents the net purchase price and its preliminary allocation for the acquisition of KOR:


	Amounts
Consideration transferred
Cash paid at closing	$	71,019
Working capital adjustment		1,044
Less cash, cash equivalents and restricted cash acquired		(1,019	)

Net purchase price	$	71,044

Estimated fair value of tangible assets acquired and liabilities assumed
Cash, cash equivalents and restricted cash	$	1,019
Accounts receivable and cost in excess of billings		10,367
Other current and non-current assets		4,063
Current liabilities		(3,978	)
Deferred income taxes		(4,601	)

Estimated fair value of net tangible assets acquired		6,870
Estimated fair value of identifiable intangible assets		12,130
Estimated fair value of goodwill		53,063

Estimated fair value of assets acquired	$	72,063
Less cash, cash equivalents and restricted cash acquired		(1,019	)

Net purchase price	$	71,044

The amounts above represent the preliminary fair value estimates as of June 30, 2012 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill or income, as applicable. As of June 30, 2012, there have been no material adjustments to the initial fair value estimates.

The goodwill of $53,063 arising from the KOR acquisition largely reflects the potential synergies and expansion of the Company’s service offerings across product segments and markets complementary to the Company’s existing products and markets. The KOR acquisition provides the Company with additional know-how and expertise related to radio frequency simulation and jamming technology and expansion into technical services for the U.S. intelligence community.

The revenue and operating income of KOR and PDI included in the Company’s consolidated statements of operations for the year ended June 30, 2012 was $19,779 and $2,586, respectively.

Pro Forma Financial Information

The following tables summarize the supplemental statements of operations information on an unaudited pro forma basis as if the KOR acquisition had occurred on July 1, 2010:


	June 30,
	2012		2011
Pro forma net revenues	$	265,478	$	265,365
Pro forma net income	$	23,149	$	21,982
Basic pro forma net earnings per share	$	0.79	$	0.87
Diluted pro forma net earnings per share	$	0.77	$	0.84

The 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.

On February 16, 2011, the Company completed a follow-on public stock offering of 5,578 shares of the Company’s common stock. As a result, an additional 5,578 and 2,129 weighted average shares outstanding were included in the calculation of basic and diluted net earnings per shares for the years ended June 30, 2012 and 2011 presented above, respectively.

LNX ACQUISITION

On January 12, 2011, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with LNX, the holders of the equity interests of LNX, and Lamberto Raffaelli, as the sellers’ representative (collectively, the “Sellers”). Pursuant to the Stock Purchase Agreement, the Company completed its purchase of all of the outstanding equity interests in LNX, and LNX became a wholly-owned subsidiary of the Company. Based in Salem, NH, LNX designs and builds next generation radio frequency receivers for signal intelligence, communication intelligence as well as electronic attack applications. LNX is included in the ACS business segment.

The Company acquired LNX for a purchase price of $31,000 paid in cash, plus an earn-out of up to $5,000 payable in cash, based upon achievement of financial targets during calendar years 2011 and 2012. The purchase price was subject to post-closing adjustment based on a determination of LNX’s closing net working capital. The Company funded the purchase price with cash on hand. The Company acquired LNX free of bank debt. Immediately prior to the consummation of the acquisition, LNX divested its non-defense global procurement business. The Company determined the fair value of the earn-out contingent consideration as part of the LNX acquisition based on the probability of LNX attaining the specified financial targets and assigned a fair value of $4,828 to the liability. In accordance with the Stock Purchase Agreement, $6,200 of the purchase price was placed into escrow to support the post-closing working capital adjustment and the sellers’ indemnification obligations, of which $1,523 was released to the Sellers and $27 was released to the Company in March 2011, upon the final calculation of net working capital. The remaining escrow is available for indemnification claims through August 31, 2012.

As of June 30, 2012, the Company determined that it is probable that the earn-out related to the LNX acquisition would not be achieved. During the fourth quarter of fiscal 2012, the Company did not receive a purchase order for long lead-time materials. Therefore, the Company no longer expected to meet the specified revenue targets for the LNX earn-out due to the long-lead time necessary to generate these revenues and has determined it does not expect to pay the earn-out. As a result, the Company adjusted the fair value of the earn-out contingent consideration and recorded $4,938 as a change in fair value of the liability in June 2012. The adjustment is separately classified in the consolidated statements of operations as an offset to operating expenses.