Note 3.

Acquisitions

M Cubed Technologies, Inc.

On November 1, 2012, the Company acquired all of the outstanding shares of M Cubed Technologies, Inc. (“M Cubed”), a privately-held company based in Connecticut with manufacturing locations in Monroe and Newtown, Connecticut, and Newark, Delaware. The total consideration consisted of cash of $68.2 million, net of cash acquired of $5.7 million. M Cubed develops advanced ceramic materials and precision motion control products addressing the semiconductor, display, industrial and defense markets. M Cubed is a business unit of the Company’s Advanced Products Group 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 M Cubed during fiscal year 2013 ($000):


Assets
Accounts receivable, net	$	7,424
Inventories		4,696
Prepaid and other assets		518
Deferred income taxes		21,089
Property, plant & equipment		17,769
Intangible assets		23,400
Goodwill		11,774


Total assets acquired	$	86,670


Liabilities
Accounts payable	$	2,807
Deferred income taxes		14,834
Other accrued liabilities		864


Total liabilities assumed	$	18,505


Net assets acquired	$	68,165

The goodwill of M Cubed of $11.8 million is included in the Advanced Products Group segment and is attributed to the expected synergies and the assembled workforce of M Cubed. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $7.4 million with the gross contractual amount being $7.5 million. At the time of acquisition, the Company expected $0.1 million of accounts receivable to be uncollectible. The majority of the deferred tax assets of M Cubed are related to net operating loss carryforwards. The Company has considered any carryforward limitations and expirations and expects to fully utilize these carryforwards to offset future income taxes.

The amount of revenues of M Cubed included in the Company’s Condensed Consolidated Statement of Earnings for the three and nine months ended March 31, 2013 was $11.8 million and $19.1 million, respectively. The amount of earnings of M Cubed included in the Company’s Condensed Consolidated Statements of Earnings for the three and nine months ended March 31, 2013 was insignificant.

Thin Film Filter Business and Interleaver Product Line

On December 3, 2012, the Company purchased the thin film filter business and interleaver product line of Oclaro, Inc. (“Oclaro”) for $27.4 million in cash. The Oclaro businesses and product line designs and manufactures thin film filter optical chips and products for optical communications, life sciences and industrial applications and operates within the Company’s Photop Technologies, Inc. (“Photop”) business unit as part of the Company’s Near-Infrared Optics 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. The following table presents the preliminary allocation of the purchase price of the assets acquired at the date of acquisition, as the Company intends to finalize its accounting for this acquisition during fiscal year 2013 ($000):


Assets
Inventories	$	1,085
Prepaid and other assets		129
Property, plant & equipment		6,273
Intangible assets		8,980
Goodwill		10,980


Total assets acquired	$	27,447

The goodwill of $11.0 million is included in the Near-Infrared Optics segment and is attributed to the expected synergies and the assembled workforce of the business and is fully deductible for income tax purposes.

The amount of revenues of these businesses included in the Company’s Condensed Consolidated Statement of Earnings for the three and nine months ended March 31, 2013 was $4.8 million and $5.6 million, respectively. The amount of earnings of these businesses included in the Company’s Condensed Consolidated Statements of Earnings for both the three and nine months ended March 31, 2013 was insignificant.

LightWorks Optics, Inc.

On December 21, 2012, the Company purchased all of the outstanding shares of LightWorks Optics, Inc. (“LightWorks”), a privately-held company based in Tustin, California with manufacturing locations in both Tustin and Vista, California. LightWorks manufactures precision optical systems and components, including visible, infrared and laser-based systems and sub-assemblies addressing the defense, aerospace, industrial and life science markets. LightWorks is a business unit of the Company’s Military & Materials operating segment for financial reporting purposes. Under the terms of the merger agreement, the initial consideration consisted of cash paid at acquisition date of $30.8 million and other closing adjustments of $1.1 million, which were paid during the three months ended March 31, 2013. In addition, the agreement provided up to a maximum of $4.2 million of additional cash earnout opportunities based upon LightWorks achieving certain agreed upon financial targets for revenues and customer orders in calendar year 2013, which if earned, would be payable in March 2014. As of March 31, 2013, the Company has recorded the preliminary fair value of the earnout arrangement to be $3.4 million. See “Note 13. Fair Value of Financial Instruments” for further detail in regard to the earnout arrangement. The final purchase price was subject to customary closing adjustments, and was reduced by a $1.3 million working capital adjustment at March 31, 2013. The purchase price is summarized as follows:


Cash paid at acquisition date	$	30,800
Cash paid for other closing adjustments		1,050
Cash received due to working capital adjustment		(1,282	)
Fair value of cash earnout arrangement		3,400


Purchase price	$	33,968

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 the earnout arrangement. 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 LightWorks during fiscal year 2013 ($000):


Assets
Accounts receivable, net	$	1,738
Inventories		3,785
Prepaid and other assets		191
Property, plant & equipment		3,079
Intangible assets		16,600
Goodwill		18,486


Total assets acquired	$	43,879


Liabilities
Accounts payable	$	724
Other accrued liabilities		9,187


Total liabilities assumed	$	9,911


Net assets acquired	$	33,968

The goodwill of LightWorks of $18.5 million is included in the Military & Materials segment and is attributed to the expected synergies and the assembled workforce of LightWorks. All goodwill acquired is deductible for income tax purposes. The gross contractual amount and fair value of accounts receivable acquired was $1.7 million as the Company believes the entire amount to be fully collectible.

The amount of revenues of LightWorks included in the Company’s Condensed Consolidated Statement of Earnings for both the three and nine months ended March 31, 2013 was $5.6 million. The amount of earnings of LightWorks included in the Company’s Condensed Consolidated Statements of Earnings for both the three and nine months ended March 31, 2013 was insignificant.

In conjunction with the acquisitions of M Cubed, the Oclaro business and product line, and LightWorks, the Company expensed transaction costs of approximately $0.1 million and $1.3 million, respectively, during the three and nine months ended March 31, 2013, which are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings.

Pro Forma Information

The following unaudited pro forma consolidated results of operations for fiscal year 2013 have been prepared as if the acquisitions of M Cubed, the Oclaro business and product line, and LightWorks had occurred on July 1, 2011, the beginning of the Company’s fiscal year 2012, which is the fiscal year prior to acquisition ($000 except per share data).


	Three Months Ended March 31,				Nine Months Ended March 31,
	2013		2012		2013		2012
Net revenues	$	145,170	$	153,590	$	441,916	$	455,487
Net earnings attributable to II-VI Incorporated		15,869		15,652		45,997		46,821
Basic earnings per share		0.26		0.25		0.74		0.75
Diluted earnings per share		0.25		0.24		0.72		0.73

The pro forma results are not necessarily indicative of what actually would have occurred if the transactions had occurred on July 1, 2011, and 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.