Note 3.

Acquisitions

EpiWorks, Inc.

In February 2016, the Company acquired all the outstanding shares of EpiWorks, Inc. (“EpiWorks”) a privately held company based in Illinois. Under the terms of the merger agreement, the consideration consisted of initial cash paid at the acquisition date of $43.0 million, net of cash acquired and a working capital adjustment of $0.2 million. In addition, the agreement provides up to a maximum of $6.0 million of additional cash earnout opportunities based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable $2.0 million for the achievement of each specific target over the next three years. EpiWorks develops and manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices and high-speed communication systems. EpiWorks is a business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes. Due to the timing of the acquisition, the Company is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets, earnout opportunities, as well as deferred income taxes.

The following table presents the allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):

Net cash paid at acquisition	$	42,981
Cash paid for working capital adjustment		163
Fair value of cash earnout arrangement		6,000
Purchase price	$	49,144

The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition, as the Company intends to finalize its accounting for the acquisition of EpiWorks within one year from the date of acquisition ($000):

Assets
Accounts receivable	$	2,121
Inventories		2,435
Prepaid and other assets		68
Property, plant & equipment		9,184
Intangible assets		19,911
Goodwill		24,133
Total assets acquired	$	57,852

Liabilities
Accounts payable	$	605
Other accrued liabilities		859
Deferred tax liabilities		7,244
Total liabilities assumed		8,708
Net assets acquired	$	49,144

The goodwill of $24.1 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of EpiWorks. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $2.1 million with the gross contractual amount being $2.1 million. At the time of acquisition, the Company expected to collect all of the accounts receivable.

The amount of revenues and net loss of EpiWorks included in the Company’s Consolidated Statement of Earnings were $1.0 million and $1.2 million, respectively, for the three and nine months ended March 31, 2016.

ANADIGICS, Inc.

In March 2016, the Company acquired all the outstanding shares of ANADIGICS, Inc. (Nasdaq:ANAD) (“ANADIGICS”) a publicly traded company based in New Jersey. Under the terms of the merger agreement, the consideration consisted of cash paid at the acquisition date of $75.5 million, net of cash acquired of $2.7 million. ANADIGICS has a 6-inch gallium arsenide wafer fabrication capability allowing for the production of high performance lasers and integrated circuits in high volume. In addition, ANADIGICS designs and manufactures innovative radio frequency (RF) solutions for CATV infrastructure, small-cell, WIFI and cellular markets. ANADIGICS is a business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes. Due to the timing of the acquisition, the Company is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets as well as deferred income taxes.

The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition as the Company intends to finalize its accounting for the acquisition of ANADIGICS within one year from the date of acquisition ($000):

Assets
Accounts receivable	$	3,973
Inventories		8,322
Prepaid and other assets		2,347
Property, plant & equipment		41,500
Intangible assets		23,537
Goodwill		21,060
Total assets acquired	$	100,739

Liabilities
Accounts payable	$	3,586
Other accrued liabilities		10,726
Deferred tax liabilities		10,915
Total liabilities assumed		25,227
Net assets acquired	$	75,512

The goodwill of $21.1 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of ANADIGICS. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $4.0 million with the gross contractual amount being $4.0 million. At the time of acquisition, the Company expected to collect all of the accounts receivable.

The amount of revenues and net loss of ANADIGICS included in the Company’s Consolidated Statement of Earnings were $3.2 million and $2.9 million, respectively, for the three and nine months ended March 31, 2016.

Deferred Income Taxes

In connection with above acquisitions, the Company recorded a valuation allowance of $29.0 million against the U.S. net deferred income tax assets as part of the preliminary purchase price allocation. The Company’s policy is to allocate the available sources of future taxable income first to the Company’s existing deferred tax assets before considering acquired deferred tax assets.

Pro Forma Information

The following unaudited pro forma consolidated results of operations for the three and nine months ended March 31, 2016 and 2015 have been prepared as if the acquisitions of EpiWorks and ANADIGICS had occurred on July 1, 2014, the beginning of the Company’s fiscal year 2015, which is the fiscal year prior to the acquisitions. As a result, certain transaction related expenses of $2.8 million and $3.1 million, respectively, (net of tax) recorded in Selling, general and administrative in the Company’s Condensed Consolidated Statement of Earnings for the three and nine months ended March 31, 2016 were only included in the earliest period presented below ($000 except per share data).

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2016		2015		2016		2015
Net revenues	$	213,711	$	204,764	$	624,879	$	614,927
Net earnings (loss)	$	6,740	$	7,349	$	26,126	$	21,609
Basic earnings per share	$	0.11	$	0.12	$	0.43	$	0.35
Diluted earnings per share	$	0.11	$	0.12	$	0.42	$	0.35

The pro forma results are not necessarily indicative of what actually would have occurred if the transactions had occurred as described above. The pro forma results are not intended to be a projection of future results and do not reflect any cost savings that might be achieved from the combined operations.