Business Acquisitions

Advance Tooling Concepts

On April 7, 2014, the Company acquired the member interests of ATC (referred to herein as the "ATC Acquisition") for approximately $24.3 million, of which $2.4 million consists of 233,788 newly issued shares of the Company that are held in escrow for a period of 12 months to satisfy certain working capital adjustments and/or indemnification obligations. If, after the 12 month escrow period expires, the Company has met these fiscal obligations, the seller will be paid the balance of the purchase price in cash, with the stock released from escrow and placed into treasury. As a result, the Company has determined the common stock issued is mandatory redeemable and have therefore recorded $2.4 million as a current liability in the accompanying balance sheet as of June 30, 2014. Under the terms of the ATC escrow arrangement, the number of shares the Company issued and placed in escrow had a value of 125% of the amount that would be paid in cash.

ATC is a plastic injection molding company offering complete plastic injection molding capabilities, as well as in-house molding and tooling expertise, to customers. This acquisition strengthens the Company's ability to offer customers a suite of advanced manufacturing products and services. The total purchase price for the acquisition of ATC was as follows (in thousands):



	Amount
Cash paid	$	20,670
Payoff of ATC indebtedness	1,230
Common stock placed escrow	2,400
Aggregate purchase price	$	24,300

The Company recognized the assets and liabilities of ATC based on their acquisition date fair values. The fair value of ATC's property and equipment was estimated using a "cost approach" and a "market approach." The cost approach uses reproduction or replacement cost, adjusted for estimated depreciation, to value the assets. The market approach uses prices and other relevant information generated by market transactions involving similar assets. Identified intangible assets were measured at fair value primarily using "income approaches," which required a forecast of expected future cash flows, either for the use of a relief-from royalty method or a multi-period excess earnings method.

The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. ARC expects to complete its final determinations no later than April 6, 2015. The final determinations may be significantly different than those reflected in its Consolidated Financial Statements as of June 30, 2014. The aggregate purchase price exceeds the aggregate estimated fair value of the acquired assets and assumed liabilities by $3.4 million, which amount has been recognized as goodwill. Goodwill associated with this acquisition is deductible for income tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of ATC at the acquisition date (in thousands).



	Amount
Cash and cash equivalents	$	1,694
Accounts receivable	1,248
Inventory	469
Other current assets	13
Property and equipment	3,976
Intangible assets	15,788
Goodwill	3,435
Current liabilities	(2,323		)
Fair value of net assets acquired	$	24,300

The results of ATC's operations have been included in the Company's Consolidated Results of Operations beginning as of the acquisition date of April 6, 2014. ATC is included in the 3DMT business segment. During the period April 7, 2014 to June 30, 2014, the Company recognized an incremental $2.6 million of revenue and a $547 thousand of net loss from continuing operations attributable to ATC's operations since the date of the acquisition.

Kecy

On June 25, 2014, the Company acquired substantially all of the assets of Kecy Corporation and 411 Munson Holding (referred to herein as the "Kecy Acquisition") for approximately $26.8 million, of which $24.2 million was paid in cash and $2.6 million consists of 172,450 newly issued shares of the Company stock that are held in escrow for a period of 18 months to satisfy certain working capital adjustments and/or indemnification obligations. To the extent the escrow has not been drawn upon, the escrow shares will be replaced by cash and paid to the seller, with the stock released from escrow and placed into treasury. As a result, the Company has determined the common stock issued is mandatory redeemable and have therefore recorded $2.6 million as a long-term liability in the accompanying balance sheet as of June 30, 2014. Kecy is a precision metal stamping company and offers value-added secondary design and production processing. The acquisition allows ARC to provide its customers metal stamping applications in order to offer a more holistic solution and increase the speed-to-market.

The Company recognized the assets and liabilities of Kecy based on their acquisition date fair values. The fair value of Kecy's tangible assets was estimated using both a "cost approach" and a "market approach" depending on the property. A cost approach is based on estimating the cost of constructing the building, less depreciation, plus land. A market approach uses prices and other relevant information generated by market transactions involving comparable assets. Identified intangible assets were measured at fair value primarily using "income approaches," which required a forecast of expected future cash flows for the use of a relief-from royalty and excess earnings methods.

The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. ARC expects to complete its final determinations no later than June 24, 2015. The final determinations may be significantly different than those reflected in its Consolidated Financial Statements as of June 30, 2014. The aggregate purchase price exceeds the aggregate estimated fair value of the acquired assets and assumed liabilities by $1.4 million, which amount has been recognized as goodwill. Goodwill associated with this acquisition is deductible for income tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of Kecy at the acquisition date (in thousands).



	Amount
Accounts receivable	$	3,370
Inventories	2,257
Prepaid and other current assets	49
Property and equipment	9,255
Goodwill	1,425
Intangible assets	11,396
Accounts payable	(188		)
Accrued expenses	(730		)
Fair value of net assets acquired	$	26,834

The results of Kecy's operations have been included in the Company's Consolidated Results of Operations beginning as of the acquisition date of June 25, 2014. Kecy is included in the Precision Components Group business segment. During the period June 25, 2014 to June 30, 2014, the Company recognized an incremental $299 thousand of revenue and a $62 thousand net loss from continuing operations.

Quadrant Metals Technology and Advanced Forming Technology

On August 8, 2012, ARC completed the acquisition of QMT and AFT (referred to herein as the “QMT Acquisition” and the “AFT Acquisition”). The QMT Acquisition was accounted for as a reverse acquisition under generally accepted accounting principles, whereby QMT was deemed to be the accounting acquirer in the acquisition. The financial statements for periods prior to August 8, 2012, reflect only the operations of QMT. The acquisition resulted in operational synergies, including shared product and customer applications, expanded research and development capabilities as wells as providing scale advantages creating substantial barriers to entry for other companies and providing ARC with long-term strategic positioning as a market leader in the MIM industry.

The Company’s Common Stock was issued in exchange for 100% of the issued and outstanding membership interest of Quadrant Metals Technologies, LLC (equal to 10,074,250 shares of ARC’s Common Stock after giving effect to the 1:1.95 reverse stock split on August 8, 2012 and the 1.5:1 stock dividend paid on May 1, 2014). The shares of Common Stock issued to QMT pursuant to the merger are presented as having been outstanding since July 1, 2011. The accompanying financial statements present the previously issued shares of ARC Common Stock as having been issued pursuant to the merger on August 8, 2012. All transactions between divisions and/or wholly owned subsidiaries of the Company or the Predecessor have been eliminated in the financial statements.

Effective August 8, 2012, the Company acquired all shares of AFT and the net assets of AFT for approximately, $40.6 million. The acquisition was completed through the payment of cash totaling $7.1 million less post-closing adjustments of ($100) thousand, bank facility funds of $18.1 million, and a convertible note net of interest discount with Precision Castparts Corp. of $15.5 million. For the QMT Acquisition, effective August 8, 2012, the Company sold 143,762 shares of ARC Common Stock, after giving effect to the 1:1.95 reverse stock split and the 1.5:1 stock dividend, to Carret P.T., LP in consideration for cash investment in ARC of $449 thousand. The purchase price for the reverse acquisition of $10.2 million was derived from the ARC Common Stock equal to 3,963,532 shares, after giving effect to the 1:1.95 reverse stock split and the 1.5:1 stock dividend, at the August 8, 2012 stock price. With regard to the assets acquired for the reverse merger of ARC by QMT (the "Reverse Merger"), ARC’s historical accumulated deficit for periods prior to August 8, 2012, in the amount of $10.2 million was eliminated against additional paid in capital.

The total adjusted purchase price of AFT was allocated to the tangible and intangible assets acquired based upon their respective estimated fair values at the acquisition date with the excess purchase price allocated to goodwill for AFT in the amount of $4.7 million. The goodwill arising from the AFT Acquisition consists of synergies and economies of scale expected from the QMT and AFT Acquisitions. The goodwill recognized is expected to be deductible for income tax purposes. For AFT, third party consultants were retained to perform valuation techniques to establish valuation for property and equipment, and identifiable intangible assets. For ARC, the fair value of the identifiable assets acquired and liabilities assumed of $10.6 million exceeded the fair value of the purchase price of the business of $10.2 million. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate. Accordingly, the ARC reverse acquisition has been accounted for as a bargain purchase and, as a result, the Company recognized a gain of $381 thousand associated with the reverse acquisition. The gain is reported on the line item “Gain on bargain purchase” in the 2013 Consolidated Statement of Operations.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of QMT at the acquisition date (in thousands).



	Amount
Cash and cash equivalents	$	10,590
Accounts receivable	1,096
Inventories	737
Prepaid and other current assets	40
Property and equipment	236
Intangible assets	109
Other assets	6
Negative goodwill resulting from the acquisition accounted for as a bargain purchase	(381		)
Accounts payable	(2,030		)
Accrued expenses	(169		)
Current portion of capital lease	(9		)
Fair value of net assets acquired	$	10,225

To record the assets and liabilities purchased in the acquisition of AFT (in thousands):



	Amount
Cash and cash equivalents	$	735
Accounts receivable	6,236
Inventories	6,521
Prepaid and other current assets	264
Property and equipment	21,590
Other intangible assets	4,983
Goodwill	4,663
Accounts payable	(3,007		)
Accrued expenses	(1,375		)
Fair value of net assets acquired	$	40,610

In the third quarter of fiscal year 2013, the Company revised its allocation to other identifiable intangibles based on the results from a third party valuation report. Additionally in the fourth quarter of fiscal year 2013 the Company revised its estimate of the fair value of the liabilities assumed based on additional analysis. If these adjustments were made at the acquisition date, amortization expense of intangibles and interest would have increased by $145 thousand, $230 thousand, and $104 thousand in the first three quarters, respectively. Adjustments were made in the third and fourth quarters to record the appropriate amount of amortization for the year.

Proforma Financial Information (Unaudited)

The historical operating results of ARC, AFT, ATC, and Kecy have not been included in the Company's historical consolidated operating results prior to their acquisition dates. The following unaudited proforma information presents the combined results of continuing operations for the years ended June 30, 2014, and June 30, 2013, as if the acquisitions had been completed on July 1, 2012. The unaudited proforma results do not reflect any material adjustments, operating efficiencies or potential cost savings that may result from the consolidation of operations but do reflect certain adjustments expected to have a continuing impact on the combined results (in thousands, except per share data).



	Year Ended June 30, 2014		Year Ended June 30, 2013
Revenue	$	119,853	$	109,515
Income from continuing operations	3,137		2,831
Loss from discontinued operations	—		(274		)
Net income	$	3,137	$	2,557

Income per common share for continuing operations	$	0.22	$	0.21
Loss per common share for discontinued operations	—		(0.02		)
Basic and diluted net income per common share	$	0.22	$	0.19

Other Acquisition

During the fiscal year ended June 30, 2014, the Company acquired Thixoforming, a provider of magnesium injection molding products to add further capacity to the Company's position in the injection molding industry. This acquisition was not significant to the Company's consolidated results of operations and financial position. The provisional fair value for this acquisition is subject to change as certain information as of the date of the acquisition is evaluated during the measurement period, not to exceed one year subsequent to the acquisition date. Proforma results have not been presented as they would not be materially different from the Company's actual results.