•Integrated ~~Subsystems.~~Subsystems. Integrated subsystems include multiple modules and/or subassemblies combined with a backplane or similar functional element and software to enable a solution. These are typically but not always integrated within a chassis and with cooling, power and other elements to address various requirements and are also often combined with additional technologies for interaction with other parts of a complete system or platform. Integrated subsystems also include spare and replacement modules and ~~sub- assemblies~~subassemblies sold as part of the same program for use in or with integrated subsystems sold by us.

By providing pre-integrated subsystems to our customers, we enable them to rapidly and cost-effectively port and adapt their applications to changing threats. This approach also saves our customers valuable time and expense, as their initial costs to integrate modules and components typically far exceed the costs of the individual product procurement. This benefit continues over time because we are continually investing R&D into our products. This allows us to provide our customers the latest technologies in our pre-integrated subsystems faster than they can typically do it themselves. We believe this is a better business and technology model to operate within, as it continues to provide value and benefits to us and our customers over time.

To address the current challenges facing the ~~war fighter,~~warfighter, our government and defense prime contractors, we have developed a new product architecture that supports a more dynamic, iterative, spiral development process by leveraging open architecture standards and leading-edge commercial technologies and products. ~~Configured and productized as integrated subsystems, customers can rapidly and cost-effectively port and adapt their applications to changing threats.~~

Our open architecture is carried throughout our entire ~~Ensemble®~~embedded computing product line from the very small form-factor subsystems to the high-end, where ultimate processing power and reliability is of paramount importance to the mission. Our commercially-developed ~~hardware and software~~ product capabilities cover the entire ~~ISR~~intelligence, surveillance and reconnaissance (“ISR”) spectrum from acquisition and digitization of the signal, to processing of the signal, through the exploitation and dissemination of the information. We work continuously to improve our hardware technology with an eye toward optimization of SWaP ~~demands,~~demands.

Mercury partners with global tech leaders to align technology roadmaps and deliver cutting-edge computing in scalable, field-deployable form factors that are fully configurable to each unique workload. We use the latest Intel® server-class processing products, Xilinx Field Programmable Gate Arrays (“FPGA”), as ~~outlined above.~~well as NVIDIA GPU products in our embedded high-performance processing technologies. While this multi-computing and embedded processing technology is one of our core skills, the SWaP constraints that are encountered in connection with the high-performance embedded processing applications create unique challenges. For example, to deal with the heat build-up involved in small subsystems, we introduced a key technology called Air Flow-By™ that enables previously unattainable levels of processing power within a small footprint by effectively removing heat so the server-class processors can perform at maximum designed power limits. In rugged environments where air is limited, such as high-altitude operations, our Liquid-Flow-By™ technology has been successfully customer tested allowing maximum server-class processor performance. These innovative cooling techniques allow full performance server-class processing in rugged environments enabling new and advanced modes of operation that enhance the multi-intelligence, situational awareness and electronic warfare capabilities in military platforms.

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Embedded systems security has become a requirement for new and emerging military programs, and our security solutions are a critical differentiator from our traditional competition. Our security solutions, combined with our next-generation secure ~~Intel server-class product line, together with increasingly frequent mandates from the government to secure electronic systems for~~

domestic and foreign military sales, position us well to capitalize on DoD program protection security requirements. In the defense market, examples of our hardware intellectual property include scalable anti-tamper and information assurance products such as EnforcIT, WhiteboxCRYPTO, and CodeSEAL. In the commercial market, examples of our hardware intellectual property products include our CANGuard product, which provides advanced security for the electronic communications and control architectures on a wide variety of automotive vehicles.

~~Recent Acquisitions~~

~~Since 2011 we have successfully acquired and integrated eight businesses. The five acquisitions completed since July 1, 2015 are described below.~~

~~Acquisition of Lewis Innovative Technologies, Inc.~~

In December 2015, we acquired LIT. Embedded systems security has become a requirement for new and emerging military programs, and LIT’s security solutions significantly extend our capabilities and leadership in secure embedded computing, a critical differentiator from our traditional competition. LIT’s solutions, combined with our next-generation secure IntelIntel® server-class product line, together with increasingly frequent mandates from the government to secure electronic systems for domestic and foreign military sales, position us well to capitalize on DoD program protection security requirements. Finally, our built-in security framework creates higher product differentiation, and drives greater program velocity, while lowering risk.

~~Acquisition~~Open Standards Support

Mercury has a long history of driving modular open systems architectures and has remained committed to creating, advancing, and adopting open standards for all our products, from our smallest components and connectors to our largest, high-performance, integrated multi-computer systems. With thirty-five years of technology leadership within the high-performance embedded computing industry, we have pioneered or contributed to the development of many of the ~~Microsemi Carve-Out Business~~

~~On May 2, 2016, we acquired~~defense industry’s current and emerging open standards, including standards such as RACEway, RapidIO, VXS, VPX, REDI and notably OpenVPX. These open standards allow system integrators to benefit from the ~~custom microelectronics, RF and microwave solutions, and embedded security operations from Microsemi Corporation, resulting~~interoperability of modules produced by multiple vendors. We also continue to be influential in the ~~entities comprising~~industry-standards organizations associated with our market segments. As a member of the ~~Carve-Out Business becoming 100% owned direct or indirect subsidiaries~~VMEbus International Trade Association (“VITA”), the Sensor Open Systems Architecture (“SOSA”) initiative, the Future Airborne Capability Environment (“FACE”) consortium, and the Vehicular Integration for C4ISR/EW Interoperability (“VICTORY”) consortium, among other standards bodies, Mercury is helping to guide the aerospace and defense industry toward greater openness and vendor interoperability, consistent with the DoD’s focus on using modular open systems architectures (“MOSA”) in major programs.

Our software is based on open standards and includes heterogeneous processor support with extensive highly-optimized math libraries, multi-computing switch fabric support, net-centric and system management enabling services, extended operating system services, board support packages and development tools. This software platform delivers on the performance required for highly tuned real-time operation with the flexibility of ~~Mercury (the “Carve-Out Acquisition”). Net sales~~open standards that are an essential ingredient of technology insertion and software life-cycle support.

As the U.S. government mandates more outsourcing and open standards, a major shift is occurring within the defense prime contractor community towards procurement of integrated subsystems that enable quick application level porting through standards-based methodologies. We believe that our core expertise in this area is well aligned to capitalize on this trend. By leveraging our open architecture and high-performance modular product set, we provide defense prime contractors with rapid deployment and quick reaction capabilities through our professional services and systems integration offerings. This results in less risk for the ~~Carve-Out Business were $99.4 million~~defense prime contractors, shortened development cycles, quicker solution deployment and ~~$87.2 million for its fiscal years ended September 27, 2015~~reduced life-cycle costs.

Commitment to Deliver Uncompromised

For Mercury, this means ensuring our products and ~~September 28, 2014, respectively,~~solutions have not been and ~~net income (loss) was $6.4 million~~cannot be tampered with, and ~~($3.1) million for its fiscal years ended September 27, 2015~~that what we deliver to our customers is not compromised at any point during the development lifecycle, from procurement to manufacturing. Our holistic approach to deliver uncompromised includes:

•vigorously mitigating potential insider threats;

•proactively protecting our IT infrastructure with strong cybersecurity defenses;

•effectively managing and ~~September 28, 2014, respectively.~~assessing our suppliers’ controls; and

~~The Carve-Out Business is~~•judiciously controlling design information through the entire development process.

We are investing in digital transformation, insider trust, cybersecurity, supply chain management and trusted microelectronics, all integral to our commitment to being a leader in the design, development, and production of sophisticated electronic subsystems and components for use in high technology products for aerospace and defense markets. The Carve-Out Business’ defense electronicsdelivering uncompromised solutions include high-density rugged memory modules, secure solid-state drives, secure GPS receiver modules, high-power RF amplifiers, millimeter-wave modules and subsystems, and specialized software and firmware for embedded security applications. The Carve-Out Business’ customers, which include many significant defense prime contractors, outsource many of their electronic design and manufacturing requirements to the Carve-Out Business as a result of its specialized capabilities in packaging electronics for SWaP constrained environments, its focus on security and the unique requirements of defense applications, and its expertise in RF and microwave technologies. The Carve-Out Business’ products and technologies are used in a variety of defense applications, including missiles and precision-guided munitions, fighter and surveillance aircraft, airport security portals, and advanced electronic systems for radar and EW.

~~Acquisition of Creative Electronic Systems~~

In November 2016, we acquired CES. 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 several types of unmanned platforms.

~~The addition of CES adds important and complementary capabilities in mission computing, safety-critical avionics and platform management that are in demand from~~ our customers. These new capabilities will also substantially expand our addressable market into commercial aerospace, defense platform management, C4I and mission computing markets that are aligned to our existing market focus. CES also expands our international presence and gives us better access to non-U.S. markets. Like Mercury, CES has exceptional technology, solid engineering talent and strong leadership, so

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Recent Acquisitions

Since 2011 we ~~believe there is an excellent fit strategically, culturally and operationally between~~have successfully acquired 16 businesses, successfully completing integration of the ~~CES business and Mercury.~~

~~Acquisition of Delta Microwave, LLC~~

~~In April 2017, we~~earlier acquired Delta. Based in Oxnard, California, Delta is a leading designer and manufacturer of high-value RF, microwave and millimeter wave sub-assemblies and components for the military, aerospace, and space markets.

The acquisition of Delta is an excellent fit for our market and content expansion strategy. Delta’s strengths in high-power, high-frequency active and passive microwave components and subassemblies - particularly in GaN solid-state power amplifiers - are driving strong backlog and growth. These new capabilities add scale and breadth to our existing RF, microwave and millimeter wave portfolio, expand our addressable market into satellite communications, datalinks and space launch - markets that are well-

~~aligned with our existing market focus - and deepen our penetration into our core radar, EW, and precision-guided munitions markets.~~

Additionally, Delta has a strong position on a number of franchise U.S. and international defense programs such as F-35, Paveway, MALD, and Rivet Joint that complement our presence. Delta has strong relationships with space OEMs, supplying future manned spaceflight missions as well as military and commercial satellite programs, representing a new growth area for Mercury.

~~Acquisition of Richland Technologies L.L.C.~~

In July 2017, we acquired Richland Technologies L.L.C. (“RTL”). Based in Duluth, Georgia, RTL specializes in safety-critical and high integrity systems, software, and hardware development as well as safety-certification services for mission-critical applications. In addition, RTL is a leader in safety-certifiable embedded graphics software for commercial and military aerospace applications. The acquisition complements our acquisition of CES in November 2016 by providing additional capabilities in safety-critical markets as well as the opportunity to leverage RTL's U.S. presence and expertise. Together, the RTL and CES acquisitions position us uniquely as a leading provider of secure and safety-critical processing subsystems for aerospace and defense customers.

~~We gained a European footprint in safety-critical avionics~~businesses with the ~~acquisition~~integration of ~~CES.~~the more recent acquisitions progressing well. The combination of RTL with CES strengthens our U.S. presence in the safety-critical avionics market, adding significant systems engineering, safety-critical software and hardware development and certification expertise to our existing mission computing portfolio. These new capabilities enhance our market penetration in commercial aerospace, defense platform management, C4I and mission computing - markets that13 acquisitions completed since July 1, 2015 are ~~very closely aligned with our existing market focus.~~shown below.


Name of Acquired Entities						Date of Acquisition
Lewis Innovative Technologies, Inc.						December 16, 2015
Microsemi Carve-Out Business						May 2, 2016
CES Creative Electronic Systems S.A.						November 3, 2016
Delta Microwave, LLC						April 3, 2017
Richland Technologies L.L.C.						July 3, 2017
Themis Computer						February 1, 2018
Germane Systems, LC						July 31, 2018
GECO Avionics, LLC						January 29, 2019
The Athena Group, Inc.						April 18, 2019
Syntonic Microwave LLC						April 18, 2019
American Panel Corporation						September 23, 2019
Physical Optics Corporation						December 30, 2020
Pentek						May 27, 2021

Our Market Opportunity

Our market opportunity is defined by the growing demand for domestically designed and manufactured secure sensor and ~~safety critical~~safety-critical mission processing capabilities for critical aerospace, defense and intelligence applications. ~~Historically, our~~Our primary market ~~has been~~positioning is centered on ~~bringing~~making commercially available technologies profoundly more accessible to the aerospace and defense sector, specifically C4I systems, sensor processing and EWelectronic warfare systems; and commercial markets, which include commercial aerospace communications and other commercial computing applications. We believe we are well-positioned in growing sustainable market segments of the aerospace and defense sector that rely on advanced technologies to improve warfighter capability and provide enhanced force protection capabilities. The acquisitions of the Carve-Out Business, Delta, Syntonic and ~~Delta~~Pentek further improved our ability to compete successfully in these market segments by allowing us to offer an even more comprehensive set of closely related capabilities. ~~Further, the~~The CES, RTL, GECO, APC, and ~~RTL~~POC acquisitions provided us new capabilities that substantially ~~expand~~expanded our addressable market into ~~commercial aerospace,~~ defense platform management, ~~and~~ mission computing and commercial aerospace markets that are aligned to our existing market focus. The additions of Themis and Germane provided us with new capabilities and positioned us with a significant footprint within the C2I rugged server business. Our organic investments as well as the acquisitions of LIT, the Carve-Out Business, and Athena added to our portfolio of embedded security products that can be leveraged across our business. Finally, our CES addition, due to its location in Geneva, is helping to open more opportunities in international markets.

We believe there are a number of evolving trends that are reshaping our target markets and accordingly provide us with attractive growth opportunities. These trends include:

•The aerospace and defense electronics market is expected to grow in ~~2017~~2021 and beyond. According to Renaissance Strategic Advisors (“RSA”), as of August 2021, the global aerospace and defense electronics market is estimated to be ~~$97~~$129 billion in ~~2017,~~2021, growing to ~~$108~~$148 billion by ~~2021.~~2025. Within this global market, RSA estimates that the U.S. defense electronics market will be approximately ~~$43~~$72 billion in ~~2017,~~2021, growing to ~~$47~~$78 billion in ~~2021.~~2025. The aerospace and defense electronics marketplace consists of two primary subsegments: (i) C4I and (ii) sensor and effector mission systems. C4I encompasses platform and mission management, which include avionics and vetronics, C2I, which includes command and control and intelligence, and dedicated communications processing. Sensor and effector mission systems are primarily different types of sensor modalities such as electronic warfare, radar, EO/IR, and acoustics as well as weapons systems such as missiles and munitions. Within the global Tier 2 C4I market in which we participate, RSA estimates the market for 2021 to be $6.7 billion for platform and mission management, $8.3 billion for C2I, and $8.9 billion for dedicated communications. RSA estimates the compound annual growth rate (“CAGR”) from 2021-2025 for these markets to be 6.6% for platform and mission management, 3.8% for C2I, and 3.3% for dedicated communications. Within the global Tier 2 sensor and effector mission systems market in which we participate, RSA estimates the market for 2021 to be $5.7 billion for electronic warfare, $5.8 billion for radar, $2.0 billion for EO/IR, $1.2 billion for acoustics, and $3.4 billion for weapons systems. RSA estimates the 2021-2025

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CAGR for these markets to be 3.1% for electronic warfare, 2.9% for radar, 4.0% for EO/IR, 4.4% for acoustics, and 3.3% for weapons systems. Within the context of the overall U.S. defense budget and spending for defense electronics specifically, we believe the ~~ISR, EW,~~C4ISR, electronic warfare, guided missiles and precision munitions, and ballistic missile defense market segments have a high priority for future DoD spending. We continue to build on our strengths in the design and development of performance optimized electronic subsystems for these markets, and often team with multiple defense prime contractors as they bid for projects, thereby increasing our chance of a successful outcome.

We expect to continue our above industry-average growth.

•The rapidly expanding demand for tactical ISR is leading to significant growth in sensor data being generated, leading to even greater demand for the capability of our products to securely store and process data onboard platforms. An increase in the prevalence and resolution of ISR sensors is generating significant growth in the associated data that needs to be stored and turned into information for the warfighter in a timely manner. In addition, several factors are driving the defense and intelligence industries to demand greater capability to collect, store, and process data onboard the aircraft, UAVs, ships and other vehicles, which we refer to collectively as platforms. These factors include the limited communications bandwidth of existing platforms, the need for platforms that can operate more autonomously and possibly in denied communications environments, the need for platforms with increased persistence to enable them to remain in or fly above the battlefield for extended periods, and the need for greater onboard processing capabilities.

In addition, the advent of sophisticated AI algorithms is beginning to revolutionize the ability of sensor processing systems to intelligently and efficiently process and act upon these large data sets. Standard computing architectures and computing platforms currently do not offer the level of performance needed to optimize existing AI algorithms, creating an additional opportunity for advanced processing capabilities onboard the platform.

•Rogue nations’ missile programs and threats from peer nations are causing greater investment in advanced new radar, EWelectronic warfare and ballistic missile defense capabilities. There are a number of new and emerging threats, such as peer nations developing stealth technologies, including stealth aircraft, new anti-ship ballistic missiles ~~that potentially threaten the U.S. naval fleet,~~ and a variety of other advanced missile capabilities. Additionally, U.S. armed forces require enhanced signals intelligence and jamming capabilities. In response to these emerging threats, we have participated in key DoD

programs, including Aegis, Patriot, SEWIP, ~~a large ground-based radar,~~LTAMDS, F-22 Raptor, F-35 Joint Strike Fighter and upgrade programs for the F-15, F-16, V-22 and ~~F-16.~~F/A-18.

•The long-term DoD budget pressure is pushing more dollars toward upgrades of the electronic subsystems on existing platforms, which may increase demand for our products. The DoD is moving from major new weapons systems developments to upgrades of the electronic subsystems on existing platforms. These upgrades are expected to include more sensors, signal processing, ISR algorithms, multi-intelligence fusion and exploitation, computing and communications. We believe that upgrades to provide new urgent war fighting capability, driven by combatant commanders, are occurring more rapidly than traditional defense prime contractors can easily react to. We believe these trends will cause defense prime contractors to increasingly seek out our high-performance, cost-effective open architecture products.

•Defense procurement reform is causing the defense prime contractors to outsource more work to commercial companies and we believe that prime contractor outsourcing is our largest secular growth opportunity. RSA estimates that in ~~2017~~2021 the U.S. defense ~~tier~~Tier 2 embedded computing and RF market addressable by suppliers such as Mercury is approximately ~~$13~~$24 billion. RSA estimates that the U.S. defense prime contractors currently outsource only a small percentage of their work. On a global basis the ~~tier~~Tier 2 embedded computing and RF market in ~~2017~~2021 is estimated by RSA to be ~~over $30~~$42 billion. The U.S. government is intensely focused on making systems more affordable and shortening their development time. In addition, the U.S. government is challenging defense prime contractors to leverage commercial technology wherever possible. This trend, along with a scarcity of technical and engineering talent in the market, is causing defense prime contractors to outsource to companies like Mercury, which we believe is our largest secular growth opportunity. As a ~~company that provides~~merchant supplier of commercial ~~items~~technologies to the defense industry, we believe our products and subsystem solutions are often more affordable than solutions with the same functionality developed by a defense prime contractor. ~~Several~~In addition, we believe our size, scale, and stability in addition to the investments we have made in our domestic manufacturing capabilities and infrastructure, make us a more reliable and attractive outsourcing partner for our customers relative to smaller sub-scale providers. These factors are providing incentives for defense prime contractors to outsource more work to subcontractors with significant expertise and cost-effective technology capabilities and solutions, and we have transformed our business model over the last several years to address these long-term outsourcing trends and other needs.

•DoD security and program protection requirements are creating new opportunities for domestic sourcing and our advanced secure processing capabilities. The U.S. government is focused on ensuring that the U.S. military protects its defense electronic systems and the information held within them from nefarious activities such as tampering, reverse engineering and other forms of advanced attacks, including cyber. The requirement to add security comes at a time when the commercial technology world continues to offshore more of the design, development, manufacturing

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and support of such capabilities, making it more difficult to protect against embedded vulnerabilities, tampering, reverse engineering and other undesired activities. The DoD has a mandate to ensure both the provenance and integrity of the technology and its associated supply chain. These factors have created a unique opportunity for us to expand beyond sensor processing into the provision of technologies ranging from advanced secure processing subsystems to miniaturized custom microelectronics devices and capabilities for other ~~on-board~~on board critical computing applications designed, developed, manufactured and supported in the U.S.A. In addition, advanced systems sold to foreign military buyers also require protection so that the technologies, techniques and data associated with them do not become more widely available, which further enhances our market opportunity.

•Mercury is well-positioned to help address the need for DoD to access the latest commercial silicon, combined with the desire to ensure a trusted domestic supply of silicon technologies. In June 2020, DoD elevated microelectronics to its number one technology priority. This decision was based primarily on the proliferation and advances in commercial silicon but also the realization that DoD needs to be able to access these technologies in a trusted, secure and domestic manner. We believe Mercury is the leading provider of commercially-developed silicon purpose-built for the specific requirements of aerospace & defense. This capability began with our 2016 acquisition of the Carve-Out Business, which included capabilities in trusted and secure microelectronics. Since the acquisition, we have made additional investments in security and advanced packaging, most notably our announced $15 million capital investment in fiscal year 2020 to expand our trusted custom microelectronics business in Phoenix, Arizona, to bring cutting-edge commercial silicon to the DoD. This initiative is specifically intended to bridge DoD technologies from monolithic ASIC designs, which are purpose-built for DoD but are deployed on legacy silicon designs, to heterogeneous “chiplet” architectures, which leverage best-of-breed silicon from commercial providers and packages the silicon for defense-specific applications, including the ability to embed security into the device itself.

Our Competitive Strengths

We believe the following competitive strengths will allow us to take advantage of the evolving trends in our industry and successfully pursue our business strategy:

•Subsystem Solutions Provider for the C4ISR and EWElectronic Warfare Markets. Through our commercially developed, specialized processing subsystem solutions, we address the challenges associated with the collection and processing of massive, continuous streams of data and dramatically shorten the time that it takes to give information to U.S. armed forces at the tactical edge. Our solutions are specifically designed for flexibility and interoperability, allowing our products to be easily integrated into larger system-level solutions. Our ability to integrate subsystem-level capabilities allows us to provide solutions that most effectively address the mission-critical challenges within the C4ISR market, including multi-intelligence data fusion and ~~intelligence~~AI processing onboard the platform. We leverage our deep expertise in embedded multicomputing, embedded sensor processing, with the addition of our RF microwave and millimeter subsystems and components, along with strategic investments in research and development to provide solutions across the sensor processing chain.

Our deep domain knowledge within our company rounds out our capabilities and services to our prime contractor and DoD customers. The acquisitions of the Carve-Out Business and Delta have added both depth and breadth to our capabilities and offerings, and also open new market opportunities such as missiles, precision guided munitions and homeland security. Further, the CES and RTL acquisitions provided us new capabilities that substantially expand our addressable market into commercial aerospace, defense platform management and mission computing markets that are aligned to our existing market focus.

•Diverse Mix of Stable, Growth Programs Aligned with DoD Funding Priorities. Our products and solutions have been deployed on more than 300 different programs and over 25 different defense prime contractors. We serve high priority markets for the DoD and foreign militaries, such as UAVs, ballistic missile defense, guided missiles and precision munitions, airborne reconnaissance, ~~EW,~~electronic warfare, and have secured positions on mission-critical programs including Aegis, Predator and Reaper UAVs, F-35 Joint Strike Fighter, LTAMDS, Patriot missile, SEWIP and Paveway. In addition, we consistently

leverage our technology and capabilities across multiple programs, providing significant operating leverage and cost savings. Our recent acquisitions allow us to participate in a broader array of programs, many with ~~customers that are already~~ key strategic customers of ours.

•We are a leading ~~commercial provider of secure processing subsystems designed~~technology company serving the aerospace and ~~made in the U.S.A~~.defense industry. We have a portfolio of ~~OSA~~Open Standards Architecture (“OSA”) technology building blocks across the entire sensor processing chain. We offer embedded secure processing capabilities with advanced packaging and cooling technologies that ruggedize commercial technologies while allowing them to stay cool for reliable operation. These capabilities allow us to help our customers meet the demanding SWaP requirements of today’s defense platforms. Our pre-integrated subsystems improve affordability by substantially reducing customer system integration costs and time-to-market for our solutions. System integration costs are one of the more substantial costs our customers bear in developing and deploying technologies in defense programs and platforms. Our pre-integrated solutions approach allows for more rapid and affordable modernization of existing platforms and faster deployment of new platforms.

Our strengths in this area include our position as an early and leading advocate for OSA in defense, offering ~~Intel~~Intel® server class processing form factors across 3/6U OpenVPX, ATCA and rack-mount architectures, and high density, secure solutions across multiple hardware architectures to seamlessly scale to meet our customers’ SWaP requirements. In addition, we have a 30-year legacy of system management and system integration expertise that allows us to reduce technical risk, while

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improving affordability and interoperability. Our system integration expertise is a cornerstone in helping us support our customers in deploying pre-integrated, OSA subsystems.

As more commercial technology companies move the design, development, manufacturing and support of their technologies offshore, the DoD is looking to domestic technology providers to develop a sustainable, U.S.-based trusted supply chain. Over several years we have been building out our capacity for domestic manufacturing through our Advanced Microelectronics Centers (“AMCs”). These facilities provide significant scale and capacity for our defense prime customers, who have been increasingly willing to outsource to partners with the scale needed to meet large program production requirements. In addition, our Phoenix, Arizona AMC is a Defense Microelectronics Activity (“DMEA”)-certified, trusted manufacturing facility, which represents a significant competitive advantage. Our Phoenix AMC also includes a surface mount technology manufacturing capability which we refer to as our U.S. Manufacturing Operations (“USMO”).

•We provide advanced, integrated security features for our products and subsystems, addressing an increasingly prevalent requirement for DoD program security. We offer secure processing expertise that is built-in to our pre-integrated ~~subsystems, not bolted on.~~subsystems. By doing this we are able to provide secure building blocks that allow our customers to also incorporate their own security capabilities. This assists our customers in ensuring program protection as they deploy critical platforms and programs, all in support of DoD missions. The acquisition of the Carve-Out ~~Acquisition~~Business brought us new security technologies and also allowed us to provide enhanced security capabilities in areas such as memory and storage devices. ~~The~~Our acquisitions of the Carve-Out ~~Acquisition~~Business, LIT and Athena also ~~provided us with a DMEA (“Defense Micro-Electronics Association”) certified trusted manufacturing facility for microelectronics in~~added to our ~~Phoenix, Arizona facility.~~

portfolio of sophisticated firmware and software specifically designed to secure microelectronic devices that can be leveraged across our product portfolio.

•We are pioneering a next generation business model. The DoD and the defense industrial base is currently undergoing a major transformation. Domestic political and budget uncertainty, geopolitical instability and evolving global threats have become constants. The defense budget ~~while stabilized in the short term,~~ remains under pressure and R&D and technology spending are often in budgetary competition with the increasing costs of military personnel requirements, health care costs and other important elements within the DoD and the ~~federal~~Federal budget generally. Finally, defense acquisition reform calls for the continued drive for innovation and competition within the defense industrial base, while also driving down acquisition costs. Our approach is built around a few key pillars:

•We continue to leverage our expertise in building pre-integrated subsystems in support of critical defense programs, driving out procurement costs by lowering integration expenses of our customers.

•We have been a pioneer in driving OSA for both embedded computing and RF.

•The DoD has asked defense industry participants to invest their own resources into R&D. This approach is a pillar of our business model.

•Security and program protection are now critical considerations for both program modernizations as well as for new program deployment. We are now in our ~~third~~fourth generation of building secure embedded processing solutions.

We have a next generation business model built to meet the emerging needs of the DoD.

•Value-Added Subsystem Solution Provider for Defense Prime Contractors. Because of the DoD’s continuing shift toward a firm fixed price contract procurement model, an increasingly uncertain budgetary and procurement environment, and increased budget pressures from both the U.S. and allied governments, defense prime contractors are accelerating their move toward outsourcing opportunities to help mitigate the increased program and financial risk. Our differentiated secure sensor and safety-critical processing solutions offer meaningful capabilities upgrades for our customers and enable the rapid, cost-effective deployment of systems to the end customer. We believe our open architecture subsystems offer differentiated sensor processing and data analytics capabilities that cannot be easily replicated. Our solutions minimize program risk, maximize application portability, and accelerate customers’ time to market, all within a fixed-pricing contracting environment.

•Delivery of Platform-Ready Solutions for Classified Programs. We believe our integration work through our Cypress, California facility provides us with critical insights as we implement and incorporate key classified government intellectual property, including critical intelligence and signal processing algorithms, into advanced systems. This integration work provides us the opportunity to combine directly and integrate our technology building blocks along with our intellectual

property into our existing embedded processing products and solutions, enabling us to deliver more affordable, platform-ready integrated ISR subsystems that leverage our OSA and address key government technology and procurement concerns. Our operations in this environment also help us identify emerging needs and opportunities to influence our future product development, so that critical future needs can be met in a timely manner with commercially-developed products and solutions.

~~Advanced Microelectronics Centers~~.

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•We have invested in advanced, domestic design and manufacturing capabilities. Over the past several years we have prioritized investments to build our internal capabilities and capacity for defense electronics design and manufacturing in the U.S. These investments include the consolidation of a number of sub-scale microelectronics manufacturing facilities into our modern AMCs as well as the establishment of our USMO in Phoenix, Arizona. In addition to the consolidation of facilities into scalable engineering and manufacturing centers of excellence, we have made the necessary investments to outfit these facilities with modern, scalable and redundant tools and equipment to promote quality, efficiency, throughput and redundancy. In addition we invested in our information technology (“IT”) infrastructure and business systems to meet Defense Federal Acquisition Regulation Supplement (“DFARS”) requirements for cybersecurity. These investments taken together are intended to demonstrate our commitment to meeting DoD expectations for a trusted and secure defense industrial base. Our ~~Advanced Microelectronics Centers (“AMCs”)~~AMCs in Hudson, New Hampshire, ~~and~~ West Caldwell, New Jersey, Oxnard, California, Huntsville, Alabama and Phoenix, Arizona are strategically located near key customers and are purpose-built for the design, build and test of RF components and subsystems in support of a variety of key customer programs. With our fiscal 2014 move into our new AMC in Hudson, New Hampshire, including the installation of integrated business systems into both our AMCs, we have a platform for scalable, continued growth in our RF product lines. Our scalable microelectronics manufacturing operations at our AMCs enable rapid, cost-effective deployment of RF solutions to our customers. The acquisitions of the Carve-Out Business and Delta have provided us with west coast RF manufacturing locations providing similar advanced capabilities and better proximity to certain key customer locations.

•Proven Management Team. ~~Over the past several years, our~~Our senior management team has ~~refocused the Company on its economic core,~~ developed a long-term compelling strategy for the aerospace and defense ~~markets~~markets. Our senior management team has a history of identifying and ~~restored profitability to~~evaluating successful business acquisition opportunities, performing in-depth due diligence, negotiating with owners and management, structuring, financing and closing transactions and then integrating the ~~business.~~acquired business resulting in the creation of synergies and enhanced overall returns. Having completed these critical steps ~~to rebuild the Company and~~ with a senior management team with significant experience in growing, scaling and ~~scaling~~acquiring businesses, ~~both through operating execution and acquisitions,~~ we believe that we have demonstrated our operational capabilities and we are well-positioned to continue growing and scaling our business.

•Leading M&A Origination and Execution Capability. We have a strong track-record of identifying and executing strategic acquisitions. Since July 1, 2015 we have acquired 13 businesses, which are strategically aligned with Mercury, successfully completing integration of the earlier acquired businesses with the integration of the more recent acquisitions progressing well. We have established an internal team that brings decades of experience across more than 100 transactions. We have developed internal processes to identify and source strategic acquisitions on a proprietary basis and negotiated directly with owners on a number of acquisitions. In addition, we have developed relationships with a number of investment banks and other sell-side advisors, as well as a reputation as a preferred acquirer, which allow us access to targeted or widely-marketed M&A processes. Our internal capabilities include financial, legal and other transaction diligence, deal valuation and deal negotiations. Where appropriate, we leverage third party advisors to supplement our internal diligence. We have a proven ability to execute numerous transactions simultaneously effectively and efficiently.

•Proven M&A Integration Capability. We have developed the internal processes and capability to integrate acquired businesses to deliver value through revenue and cost synergies. We leverage our common cultures and values as well as common processes, business systems, tools, channels and manufacturing infrastructure to accelerate growth and improve profitability in our acquired businesses.

Competition

We operate in a highly competitive marketplace characterized by rapidly changing technology, frequent product performance improvements, increasing speed of deployment to align with warfighters’ needs and evolving industry standards and requirements coming from our customers or the DoD. Competition typically occurs at the design stage of a prospective customer’s product, where the customer evaluates alternative technologies and design approaches. We work with defense prime contractors as well as directly with the DoD. We help drive subsystem development and deployment in both classified and unclassified environments.

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The principal competitive factors in our market are price/performance value proposition, available new products at the time of design win engagement, services and systems integration capability, effective marketing and sales efforts and reputation in the market. Our competitive strengths include rapid, innovative engineering in both hardware and software products, subsystem design expertise, advanced packaging capability to deliver the most optimized SWaP solution possible, our ability to respond rapidly to varied customer requirements and a track record of successfully supporting many high profile programs in the defense market. There are ~~a limited number of~~ competitors ~~across~~in the different market segments and application types in which we ~~compete.~~participate. Some of these competitors are larger and have greater resources than us. Some of these competitors compete against us at purely a component or board-level, others at a subsystem level. We also compete with in-house design teams at our customers. The DoD as well as the defense prime contractors are pushing for more outsourcing of subsystem designs to mitigate risk and to enable concurrent design of the platform which ultimately leads to faster time to deployment. We have aligned our strategy to capitalize on that trend and are leveraging our long standing subsystem expertise to provide this value to our customers.

Research and Product Development

Our ~~research and development~~R&D efforts are focused on developing new products and ~~systems~~subsystems as well as enhancing existing hardware and software products in mission, signal and image processing. Our ~~research and development~~R&D goal is to fully exploit and maintain our technological lead in the high-performance, real-time sensor processing industry and in mission computing, platform management and other safety-critical applications. Expenditures for research and development amounted to ~~$54.1~~$113.5 million, ~~$36.4~~$98.5 million and ~~$36.5~~$68.9 million in fiscal ~~2017, 2016,~~years 2021, 2020 and ~~2015,~~2019, respectively. As of ~~June 30, 2017,~~July 2, 2021, we had ~~352~~791 employees, including hardware and software architects and design engineers, primarily engaged in engineering and research and product development

activities. These individuals, in conjunction with our sales team, also devote a portion of their time to assisting customers in utilizing our products, developing new uses for these products and anticipating customer requirements for new products.

Manufacturing

The majority of our sales are produced in ~~International Organization for Standardization, or ISO, 9001:2000~~AS9100 quality ~~system certified~~system-certified facilities. The current scope of delivered hardware products includes commercial and industrial class printed circuit board assemblies (modules), complex chassis subsystems, rugged display system and servers and RF &and microwave components and subsystems.

Our Phoenix, Arizona ~~facility~~AMC manufactures our custom microelectronics products in ~~ISO, 9001:2008 and~~an AS9100 quality ~~system certified facilities. This~~system-certified facility. Our Phoenix, Arizona facility also contains our USMO, which is ~~a DMEA certified~~an IPC1791 and DMEA-certified trusted manufacturing facility and is primarily focused on advanced secure system-on-chip design, assembly, packaging and test. Our Oxnard, ~~and Camarillo,~~ California ~~facilities manufacture~~facility manufactures radio frequency and microwave products in ~~ISO 9001:2008 and~~an AS9100 quality ~~system certified facilities.~~system-certified facility. Our Cypress, California, West Lafayette, Indiana, ~~and~~ Huntsville, Alabama and Mesa, Arizona facilities are AS9100 quality ~~systems certified~~systems-certified facilities as well. Our Fremont, California and Alpharetta, Georgia facilities are ISO 9001:2015 quality systems-certified. Our Chantilly, Virginia facility is an IPC1791 and AS9100 quality systems-certified facility. Our Andover, Massachusetts and Hudson, New Hampshire facilities design and assemble our processing products and are AS9100 ~~and ISO 9001:2008~~ quality ~~systems certified~~systems-certified facilities. Our Andover, Massachusetts facility is also a ~~DMEA certified~~DMEA-certified trusted design facility and is primarily focused on advanced security features for the processing product line. Our Hudson, New Hampshire facility is also IPC1791 certified. Our Geneva, Switzerland facility, the headquarters of Mercury's European operations, provides electronic design and manufacturing, maintenance and support services and is AS9001 and EASA Part 145 quality systems-certified. Our Silchester, England facility provides engineering, development and integration services and is AS9100 quality systems-certified.

We rely on both vertical integration and subcontracting to contract manufacturers to meet our manufacturing needs. Our USMO ~~has~~and Geneva facilities have the manufacturing capabilities to complete the assembly and testing for certain of our embedded multi-computing products. We subcontract as needed a portion of the assembly and testing for our other embedded multi-computing products to contract manufacturers in the U.S. to build to our specifications. Our printed circuit board assemblies and chassis subsystems' manufacturing operations also consist of materials planning and procurement, final assembly and test and logistics (inventory and traffic management). Our vertically integrated subsystem product solutions rely on strong relationships with strategic suppliers to ensure on-time delivery and high quality products. We manage supplier performance and capability through quality audits and stringent source, incoming and/or first article inspection processes. We have a comprehensive quality and process control plan for each of our products, which include an effective supply chain management program and the use of automated inspection and test equipment to assure the quality and reliability of our products. We perform most post sales service obligations (both warranty and other lifecycle support) in-house through a dedicated service and repair operation. We periodically review our contract manufacturing capabilities to ensure we are optimized for the right mix of quality, affordability, performance and on-time delivery.

Our ~~USMO~~AMC in Phoenix, Arizona is built around scalable, repeatable, secure, affordable, and predictable manufacturing. The ~~facility~~high mix, low volume and high complexity/density nature of our products require speed and seamless interaction with all internal functions (as opposed to with an external contract manufacturer) which is a ~~DMEA certified secure trusted site, certified to AS9100 quality standards and it utilizes Lean Six Sigma methodologies throughout manufacturing.~~key value proposition of the USMO. The USMO is also designed for efficient ~~manufacture, enabling our~~showcasing to customers who at any point wish to access the best proven technology and

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high performing, secure electronics and processing ~~solutions.~~manufacturing solutions within a broader product company such as Mercury. Proximity and interaction with our internal engineering organization is a significant benefit. This allows for the most repeatable product performance, while optimizing affordability and production responsiveness. The Phoenix AMC also provides manufacturing and assembly for SWaP-optimized multi-chip modules and system-in-package devices. We combine surface-mount, flip chip, die attach, wire bond and rugged 3D packaging on the same devices to provide a swap-optimized solution for our customers.

~~We built out a new microelectronics facility in~~The Hudson, New Hampshire, ~~that opened during fiscal 2014. This facility consolidated the former microelectronics operations in Salem, New Hampshire and Hudson, New Hampshire as well as the former facilities in Ewing,~~West Caldwell, New Jersey, and ~~Monroe, Connecticut. This facility is~~Oxnard, California facilities are specifically aimed at providing scalable manufacturing within our critical ~~RF and microwave~~ businesses. We leverage best practices in design, development, manufacturing and materials handling at ~~this facility. The facility is one of our Advanced Microelectronics Centers, which includes our RF/microwave~~these production and subsystems ~~group in West Caldwell, New Jersey. The Advanced Microelectronics Centers~~integration facilities. These facilities include the design, build and test of both RF and microwave components and subsystems in support of a variety of key customer programs. Our Alpharetta, Georgia facility offers active matrix liquid crystal display systems which enhances the highly sophisticated man/machine interface. Our recent acquisition of POC in Torrance, CA is an AS9100 facility that offers Avionics Safety-Certifiable subsystems.

Although we generally use standard parts and components for our products, certain components, including custom designed ASICs, static random access memory, FPGAs, microprocessors and other third-party chassis peripherals (single board computers, power supplies, blowers, etc.), are currently available only from a single source or from limited sources. ~~With~~Prior to the ~~exception of certain components that have gone “end of life”,~~global COVID-19 pandemic, we ~~strive~~launched efforts to ~~maintain minimal supply commitments from~~increase our ~~vendors and generally purchase components on a purchase order basis as opposed to entering into~~spend under long-term procurement ~~agreements with vendors.~~agreements. This has proven very beneficial during the severe supply constraints we have faced, which have driven significant price increases across the industry. We have generally been able to obtain adequate supplies of components in a timely manner from current vendors or, when necessary to meet production needs, from alternate vendors. We believe that, in most cases, alternate vendors can be identified if current vendors are unable to fulfill needs.

We also design, develop and manufacture DRFM units for a variety of modern EWelectronic warfare applications, as well as radar environment simulation and test systems for defense and intelligence applications. We develop high performance ~~SIGINT~~signals intelligence payloads and EO/IR technologies for small UAV platforms as well as powerful onboard UAV processor systems for real-time ~~Wide Area Motion Imagery.~~wide area motion imagery.

Intellectual Property and Proprietary Rights

As of ~~June 30, 2017,~~July 2, 2021, we held 6790 patents of varying duration issued in the United States. We file U.S. patent applications and, where appropriate, foreign patent applications. We also file continuations to cover both new and improved designs and products. At present, we have several U.S. and foreign patent applications in process.

We also rely on a combination of trade secret, copyright and trademark laws, as well as contractual agreements, to safeguard our proprietary rights in technology and products. In seeking to limit access to sensitive information to the greatest practical extent, we routinely enter into confidentiality and assignment of invention agreements with each of our employees and consultants and nondisclosure agreements with our key customers and vendors.

Mercury Systems, Innovation that Matters, Armor, ASSURE-Stor, EchoCore, Echotek, Ensemble, MultiCore Plus, NanoATR, NanoPAK, NanoSWITCH, PowerBlock, PowerStream, RACE, RACE Series, Race++ Series, Themis, TRRUST-Stor, and TRRUST-Purge are registered trademarks; and Air Flow-By, BuiltSAFE, BuiltSECURE, CANGuard, CodeSEAL, EnforcIT-S, EnsembleSeries, EnterpriseSeries, Liquid Flow-By, OpenRFM, POET, SecureBootFPGA, SpectrumSeries, and WhiteboxCRYPTO are trademarks of Mercury Systems, Inc. OpenVPX is a trademark of the VMEbus International Trade Association. All other trademarks and registered trademarks are the property of their respective holders, and are hereby acknowledged.

Backlog

As of ~~June 30, 2017,~~July 2, 2021, we had a backlog of orders aggregating approximately ~~$357.0~~$909.6 million, of which ~~$290.8~~$530.0 million is expected to be delivered within the next twelve months. As of ~~June 30, 2016,~~July 3, 2020, backlog was approximately ~~$287.7~~$831.1 million. We include in our backlog customer orders for products and services for which we have accepted signed purchase orders, as long as that order is scheduled to ship or invoice in whole, or in part, within the next 24 months. Orders included in backlog may be canceled or rescheduled by customers, although the customer may incur cancellation penalties depending on the timing of the cancellation. A variety of conditions, both specific to the individual customer and generally affecting the customer’s industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. We cannot assure the timely replacement of canceled, delayed or reduced orders. ~~Significant or numerous cancellations, reductions or delays in orders by a customer or group~~

Table of customers could materially and adversely affect our results of operations or our ability to predict future revenues. Backlog should not be relied upon as indicative of our revenues for any future period.Contents

Employees

At ~~June 30, 2017,~~July 2, 2021, we employed a total of ~~1,159~~2,384 people excluding contractors, including ~~352~~791 in research and development, 93135 in sales and marketing, ~~552~~891 in manufacturing and customer support and ~~162~~567 in general and administrative functions. We have 80141 employees located in Europe, six located in Canada, and one located in Japan, and ~~1,078~~2,236 located in the United States. We do not have any employees represented by a labor organization, and we believe that our relations with our employees are good. We also use contractors on an as-needed basis.

Human Capital

At Mercury, our people are at the center of everything we do in driving Innovation That Matters® for our customers. We recognize that Mercury will succeed only if our employees are engaged, given an opportunity to develop and provided with a safe workplace that values diverse perspectives. Our Board of Directors provides oversight of our people practices, including regularly reviewing workforce metrics, including the metrics described below. Additional data related to these metrics can be found on our website at www.mrcy.com under the Company – Environmental, Social and Governance tab (our “Website”).

•Employee Overview: As of July 2, 2021, we had 2,384 employees around the globe. Our primary operations are in the U.S. with 2,175 employees and we operate offices in 11 states. Mercury also has operations in Europe, Asia and Canada. No employees are covered by any collective bargaining or similar agreements.

•Culture and Employee Engagement: We believe our workplace culture drives engagement that turns ideas into action, delivering trusted and secure solutions at the speed of innovation. Our investment in our employees extends to our workplaces. Over the last fiscal year, Mercury’s Phoenix, Arizona, facility, our largest manufacturing facility, was recognized as ~~needed basis.~~Medium Manufacturer of the Year by the Arizona Manufacturers Council for its accomplishments in championing innovation, excellence, sustainability and leadership in the manufacturing sector. We also encourage employees to give back to our communities. During the pandemic, Mercury and its employees contributed over $100,000 to a fund used to thank healthcare workers in our communities with gift cards. The Boston Globe also ranked Mercury for 2020 one of the Top Places to Work in Massachusetts, where we are headquartered with over 300 employees as of July 2, 2021.

Mercury regularly seeks employee input through engagement surveys, the results of which drive meaningful and timely action, as appropriate, from our leadership team. Participation in our most recent employee engagement survey in April 2021 remained strong at 85%.

•Training and Development: Life-long learning is encouraged at Mercury through our offering of LinkedIn Learning, tuition reimbursement and other employee development opportunities. We are deeply invested in building the next generation of engineers and scientists, with our internship and co-op programs, as well as through our new partnership with Udacity which fosters upskilling in the areas of AI, machine learning and data science. Mercury also has formal leadership development programs for high-potential employees: Leadership Edge (director and above); Mercury Managers Matter (for manger-level employees); and Managing at Mercury (supervisors, team leaders and new managers).

•Pay and Benefits: The Company seeks competitiveness and fairness in total compensation with reference to peer comparisons and internal equity. Mercury also offers a variety of well-being programs to support our employees and their families with healthy living. These programs include paid time off, paid parental leave, health insurance coverage, company contributions to retirement savings and employee assistance and work-life programs. In addition, Mercury offers employees less traditional benefits to support employee well-being such as access to fitness and meditation apps, as well as an online platform through which employees participate in health living challenges and earn financial rewards.

•Health and Safety: On our Website, we disclose quality and safety information, including OSHA injury data. Over the last fiscal year, Mercury expended $9.9 million for COVID testing, sick pay and other efforts to keep our employees and their families, as well as our facilities, safe during the global pandemic. Mercury also established a $1 million relief fund, which was fully utilized, for employees to access during the pandemic for family needs (e.g., acquiring personal protective equipment) and hardships. Our CEO was also recognized by Glassdoor as the top rated CEO in the U.S. for his leadership during the pandemic.

•Diversity, Equity & Inclusion: Our Website discloses detailed workplace data surrounding our gender diversity, racial/ethnic diversity and turnover data. As of July 2, 2021, women and racially/ethnically diverse employees represented 30% and 42%, respectively, of Mercury’s workforce. Development of a diverse talent pipeline is a

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business imperative at Mercury and critical to our ability to drive innovation and improve long-term results. We have established relationships with job networks and educational institutions to proactively attract a diverse pool of talent. Our employees are afforded opportunities to cultivate diversity, equity and inclusion both within Mercury and our industry. For example, Mercury sponsors, and our leaders participate in, the annual Simmons Women’s Leadership Conference which has the goal of preparing the next generation of female leaders and furthering equality in the workplace. Mercury has also conducted gender pay equity assessments and made adjustments to women’s pay levels, as appropriate, as a result of such assessments.

Customers

~~Our revenues are concentrated in three defense prime contractors including~~ Lockheed Martin Corporation and Raytheon ~~Company and Northrop Grumman Corporation for the years ended June 30, 2017, 2016 and 2015. These three defense prime contractors~~Technologies comprised an aggregate of ~~44%~~34%, ~~51%~~32% and ~~61%~~37% of our revenues in each of the fiscal years ~~ended June 30, 2017, 2016~~2021, 2020 and ~~2015,~~2019, respectively. The United States Navy comprised 12% of our revenues in fiscal year 2021. While sales to each of these customers ~~typically compose~~comprise 10% or more of our annual revenue, the sales to these customers are spread across multiple programs and platforms. For the fiscal years ended 2021, 2020 and 2019, we had no single program that represented 10% or more of our revenues.

Corporate Headquarters and Incorporation

~~We recently relocated our Corporate~~Our corporate headquarters ~~into a more modern facility~~is located in Andover, ~~MA, investing in communications, media and collaborative capabilities, engineering labs and security infrastructure.~~

Massachusetts. Mercury Systems, Inc. was incorporated in Massachusetts in 1981.

Financial Information about Geographic Scope

Information about revenue we receive within and outside the U.S. can be found in Note Q - Operating Segment, Geographic Information and Significant Customers - to the accompanying Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

WEBSITE

We maintain a website at www.mrcy.com. We make available on our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, including exhibits and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Our code of business conduct and ethics is also available on our website. We intend to disclose any future amendments to, or waivers from, our code of business conduct and ethics within four business days of the waiver or amendment through a website posting or by filing a current report on Form 8-K with the SEC. Information contained on our website does not constitute part of this report. Our reports filed with, or furnished to, the SEC are also available on the SEC’s website at www.sec.gov.

~~OTHER INFORMATION~~Investors and others should note that we announce material financial information using our website (www.mrcy.com), SEC filings, press releases, public conference calls, webcasts, and social media, including Twitter (twitter.com/mrcy and twitter.com/mrcy_CEO) and LinkedIn (www.linkedin.com/company/mercury-systems). Therefore, we encourage investors and others interested in Mercury to review the information we post on the social media and other communication channels listed on our website.

~~EchoCore, Echotek, Ensemble, PowerStream, RACE++,~~

ITEM 1A. RISK FACTORS:

Risks Related to Business Operations and MultiCore Plus and ASSURE-Stor are registered trademarks, and Mercury Systems, Innovation that Matters, Air Flow-By, Liquid Flow-By, POET, CANGuard, WhiteboxCRYPTO, CodeSEAL, EnforcIT-S, and SecureBootFPGA are trademarks of Mercury Systems, Inc. OpenVPX is a trademark of the VMEbus International Trade Association. All other trademarks and registered trademarks are the property of their respective holders, and are hereby acknowledged.Our Industry


~~ITEM 1A.~~	~~RISK FACTORS:~~

We depend heavily on defense electronics programs that incorporate our products and services, which may be only partially funded and are subject to potential termination and reductions and delays in government spending.

Sales of our products and ~~related~~ services, primarily as ~~an indirect~~a subcontractor or team member with defense prime contractors, and in some cases directly, to the U.S. government and its agencies, as well as foreign governments and agencies, accounted for approximately ~~96%,~~ 98%~~, and 94%~~ of our total net revenues in fiscal ~~2017, 2016,~~2021 and ~~2015, respectively.~~95% in each of fiscal 2020 and 2019. Our products and services are incorporated into many different domestic and international defense programs. Over the lifetime of a defense program, the award of many different individual contracts and subcontracts may impact our products’ requirements. The funding of U.S. government programs is subject to Congressional appropriations. Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for many years. Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations and prime contracts receive such funding. The reduction or delay in funding or termination of a government program in which we are involved ~~would~~could result in a loss of or delay in receiving anticipated future revenues attributable to that program and contracts or orders received. The U.S. government could reduce or terminate a prime contract under which we are a subcontractor or team member irrespective of the quality of our products or services. The termination of a program or the reduction in or failure to commit additional funds to a program in which we are involved could

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negatively impact our revenues and have a material adverse effect on our financial condition and results of operations. The U.S. defense budget frequently operates under a continuing budget resolution, which increases revenue uncertainty and volatility. ~~During~~For fiscal ~~2014,~~2022 and beyond, the ~~Presidential election,~~potential for gridlock in Congress, a continuing budget resolution, ~~and~~budget sequestration, a U.S. government shutdown, or the ~~implementation~~crowding out of defense funding due to historically high budget ~~sequestration impacted our revenues and increased uncertainty~~deficits or changes in ~~our business and financial planning. For fiscal 2018 and beyond, the potential for further gridlock in Congress, another continuing~~national spending priorities toward non-defense budget ~~resolution, or the defense industry operating under sequestration~~items could adversely impact our revenues and increase uncertainty in our business and financial planning. In addition, delays in the funding for new or existing programs, or in defense appropriation generally could negatively impact our revenues and have a material adverse effect on our financial condition and results of operations for the period in which such revenues were originally anticipated. Further, oil price volatility and the decline in oil prices may negatively impact foreign military sales funding program size due to oil's impact on foreign budgets.

Economic conditions could adversely affect our business, results of operations, and financial condition.

The world’s financial markets have, at times, experienced turmoil characterized by reductions in available credit, volatility in security prices, rating downgrades of investments, and reduced valuations of securities. These events have materially and adversely impacted the availability of financing to a wide variety of businesses, including small businesses, and the resulting uncertainty has led to reductions in capital investments, overall spending levels, future product plans, and sales projections across many industries and markets. These trendswhich could have a material adverse ~~impact~~impacts on ~~our business. These trends could also impact~~ our financial condition ~~and~~or our ability to achieve targeted results of operations due to:

•reduced and delayed demand for our products;

•increased risk of order cancellations or delays;

•downward pressure on the prices of our products;

•greater difficulty in collecting accounts receivable; and

•risks to our liquidity, including the possibility that we might not have access to our cash and short-term investments or to our line of credit when needed.

Further, the funding of the defense programs that incorporate our products and services is subject to the overall U.S. government budget and appropriation decisions and processes, which are driven by numerous factors beyond our control, including geo-political, macroeconomic, public health, and political conditions. Increased federal budget deficits could result in reduced Congressional appropriations, such as defense budget sequestration, for the defense programs that use our defense electronics products and services. Reduced baseline defense budgets could reduce the number of funded programs in which we participate. In addition, Congress could fund U.S. government operations through a continuing budget resolution without approving a formal budget for the government fiscal year, thereby potentially reducing or delaying the demand for our products. We are unable to predict the likely duration and severity of adverse economic conditions in the United States and other countries, but the longer the duration or the greater the severity, the greater the risks we face in operating our business.

~~We face other risks and uncertainties associated with defense-related contracts, which may have a material adverse effect on our business.~~

Whether our contracts are directly with the U.S. government, a foreign government, or one of their respective agencies, or indirectly as a subcontractor or team member, our contracts and subcontracts are subject to special risks. For example:

Changes in government administration and national and international priorities, including developments in the geo-political environment, could have a significant impact on national or international defense spending priorities and the efficient handling of routine contractual matters. These changes could have a negative impact on our business in the future.

Our contracts with the U.S. and foreign governments and their defense prime contractors and subcontractors are subject to termination either upon default by us or at the convenience of the government or contractor if, among other reasons, the program itself has been terminated. Termination for convenience provisions generally entitle us to recover costs incurred, settlement expenses and profit on work completed prior to termination, but there can be no assurance in this regard.

Because we contract to supply goods and services to the U.S. and foreign governments and their prime and subcontractors, we compete for contracts in a competitive bidding process and, in the event we are awarded a contract, we are subject to protests by disappointed bidders of contract awards that can result in the reopening of the bidding process and changes in governmental policies or regulations and other political factors. In addition, we may be subject to multiple rebid requirements over the life of a defense program in order to continue to participate on such program, which can result in the loss of the program or significantly reduce our revenue or margin from the program. The government’s requirements for more frequent technology refreshes on defense programs may lead to increased costs and lower long term revenues.

Consolidation among defense industry contractors has resulted in a few large contractors with increased bargaining power relative to us. The increased bargaining power of these contractors may adversely affect our ability to compete for contracts and, as a result, may adversely affect our business or results of operations in the future.

Our customers include U.S. government contractors who must comply with and are affected by laws and regulations relating to the formation, administration, and performance of U.S. government contracts. In addition, when we contract with the U.S. government, we must comply with these laws and regulations, including the organizational conflict-of-interest regulations. A violation of these laws and regulations could result in the imposition of fines and penalties to us or our customers or the termination of our or their contracts with the U.S. government. As a result, there could be a delay in our receipt of orders from our customers, a termination of such orders, or a termination of contracts between us and the U.S. government.

We sell many products to U.S. and international defense contractors and also directly to the U.S. government as a commercial supplier such that cost data is not supplied. To the extent that there are interpretations or changes in the Federal Acquisition Regulations regarding the qualifications necessary to be a commercial item supplier, there could be a material adverse effect on our business and operating results. For example, there have been legislative proposals to narrow the definition of a “commercial item” (as defined in the Federal Acquisition Regulations) that could limit our ability to contract as a commercial item supplier. In addition, growth in our defense sales relative to our commercial sales could adversely impact our status as a commercial supplier, which could adversely affect our business and operating results. Changes in our mix of business, in federal regulations, or in the interpretation of federal regulations, may subject us to audit by the Defense Contract Audit Agency ("DCAA") for certain of our products or services. Operating under a cost-accounting business model rather than our historical commercial item business model could adversely impact our revenues and profitability.

We qualify as a “small business” for government contracts purposes under the definition of that term in an applicable NAICS code because we have fewer than 1,250 employees. As we grow and potentially have a rolling 12-month average of over 1,250 employees in the future, we would no longer qualify as a small business. Loss of our small business status could negatively impact us, including our customers purchases from us would not qualify as purchases from a small business, customers may flow down additional Federal Acquisition Regulation, or FAR, clauses in their contracts with us that are less favorable than our existing contract terms and conditions. We expect to lose our status as a small business during fiscal 2018.

We are subject to the Defense Federal Acquisition Regulations Supplement, referred to as DFARS, in connection with our defense work for the U.S. government and defense prime contractors. Amendments to the DFARS, such as the amendment to the DFARS specialty metals clause requiring that the specialty metals in specified items be smelted or produced in the U.S. or other qualifying countries, may increase our costs for certain materials or result in supply-chain difficulties or production delays due to the limited availability of compliant materials. Compliance with the conflict minerals regulations enacted pursuant to the Dodd Frank legislation may pose similar risks and increase our costs. The new DFARS cyber-security requirements may increase our costs or delay the award of contracts if we are unable to certify that we satisfy such cyber-security requirements by the implementation deadline for the security protocols, which is currently scheduled during our fiscal 2018.

The U.S. government or a defense prime contractor customer could require us to relinquish data rights to a product in connection with performing work on a defense contract, which could lead to a loss of valuable technology and intellectual property in order to participate in a government program.

We are subject to various U.S. federal export-control statutes and regulations which affect our business with, among others, international defense customers. In certain cases the export of our products and technical data to foreign persons, and the provision of technical services to foreign persons related to such products and technical data, may require licenses from the U.S. Department of Commerce or the U.S. Department of State. The time required to obtain these licenses, and the restrictions that may be contained in these licenses, may put us at a competitive disadvantage with respect to competing with international suppliers who are not subject to U.S. federal export control statutes and regulations. In addition, violations of these statutes and regulations can result in civil and, under certain circumstances, criminal liability as well as administrative penalties which could have a material adverse effect on our business and operating results.

We anticipate that sales to our U.S. prime defense contractor customers as part of foreign military sales (“FMS”) programs will be an increasing part of our business going forward. These FMS sales combine several different types of risks and uncertainties highlighted above, including risks related to government contracts, risks related to defense contracts, timing and budgeting of foreign governments, and approval from the U.S. and foreign governments related to the programs, all of which may be impacted by macroeconomic and geopolitical factors outside of our control. For example, the decline in oil prices may negatively impact foreign defense budgets.

Certain of our employees with appropriate security clearances may require access to classified information in connection with the performance of a U.S. government contract. We must comply with security requirements pursuant to the National Industrial Security Program Operating Manual, or NISPOM, and other U.S. government security protocols when accessing sensitive information. Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S. government contract, or potentially debarment as a government contractor.

We may need to invest additional capital to build out higher level security infrastructure at certain of our facilities to capture new design wins on defense programs with higher level security requirements. Failure to invest in such infrastructure may limit our ability to obtain new design wins on defense programs. In addition, we may need to invest in additional secure laboratory space to efficiently integrate subsystem level solutions and maintain quality assurance on current and future programs.

The loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations.

We are dependent on a small number of customers for a large portion of our revenues. A significant decrease in the sales to or loss of any of our major customers would have a material adverse effect on our business and results of operations. In fiscal ~~2017,~~2021, Raytheon Technologies accounted for 19% of our total net revenues, Lockheed Martin Corporation accounted for ~~20%~~15% of our total net revenues, and the US Navy accounted for 12% of our total net revenues. In fiscal 2020, both Lockheed Martin Corporation and Raytheon ~~Company~~Technologies accounted for 16% of our total net revenues. In fiscal ~~2016, Lockheed Martin Corporation~~2019, Raytheon Technologies accounted for ~~23% of our total net revenues and Raytheon Company accounted for~~ 20% ~~of our total net revenues. In fiscal 2015, Raytheon Company accounted for 37%~~ of our total net revenues and Lockheed Martin Corporation accounted for ~~20%~~17% of our total net revenues. Customers in the defense market generally purchase our products in connection with government programs that have a limited duration, leading to fluctuating sales to any particular customer in this market from year to year. In addition, our revenues are largely dependent upon the ability of customers to develop and sell products that incorporate our products. No assurance can be given that our customers will not experience financial, technical or other difficulties that could adversely affect their operations and, in turn, our results of operations. Additionally, on a limited number of programs the customer has co-manufacturing rights which could lead to a shift of production on such a program away from us which in turn could lead to lower revenues.

We are dependent on sales for radar applications for a large portion of our revenues. Sales related to radar applications accounted for 37%, 52%, and 61% of our total net revenues for fiscal 2017, 2016, and 2015, respectively. While our radar sales relate to multiple different platforms and defense programs, our revenues are largely dependent upon our customers incorporating our products into radar applications. For the fiscal year ended June 30, 2017, no single program individually comprised ten percent or more of our revenues. For the fiscal year ended June 30, 2016, the Surface Electronic Warfare Improvement Program ("SEWIP") program individually comprised 12% of our revenues. For the fiscal years ended June 30, 2016 and 2015, the Aegis program individually comprised 10% and 12% of our revenues, respectively. For the fiscal year ended June 30, 2015, Patriot and F-35 accounted for 18% and 16% of our revenue, respectively. Loss of a significant radar program could adversely affect our results of operations.

Going forward, we believe the SEWIP, ~~AEGIS,~~Filthy Buzzard, F-35 ~~F-16~~ and ~~the Patriot missile defense~~LTAMDS programs as well as a classified radar program could be a large portion of our future revenues in the coming years, and the loss or cancellation of these programs could adversely affect our future results. In addition, as we shift our business mix toward more services-led engagements with legacy product revenues becoming a lesser amount of our total revenues, we could experience downward pressure on margins and reduced profitability. Further, new programs may yield lower margins than legacy programs, which could result in an overall reduction in gross margins.

If we are unable to respond adequately to our competition or to changing technology, we may lose existing customers and fail to win future business opportunities. The emergence of commodity-type products as acceptable substitutes for certain of our products may cause customers to delay purchases or seek alternative solutions.

The markets for our products are highly competitive and are characterized by rapidly changing technology, frequent product performance improvements, and evolving industry standards. Competitors may be able to offer more attractive pricing, or develop products ~~that could offer~~with performance features that are superior to our products, or offer higher quality or superior on time delivery, resulting in reduced demand for our products. We may be unable to keep pace with competitors’ marketing and the lack of visibility in the marketplace may negatively impact design wins, bookings, and revenues. Customers may also decide to reduce costs and accept the least costly technically acceptable alternative to our products or services. In addition, customers may decide to insource products that they have ~~traditionally~~ outsourced to us. Due to the rapidly changing nature of technology, we may not become aware in advance of the emergence of new competitors into our markets. The emergence of new competitors into markets targeted by us could result in the loss of existing customers and may have a negative impact on our ability to win future business opportunities. In addition to adapting to rapidly changing technology, we must also develop a reputation as a best-of-breed technology provider. Competitors may be perceived in the market as being more brand-based providers of open-source architectures versus Mercury. Perceptions of Mercury as a high-cost provider ~~or as having stale technology~~ could cause us to lose existing customers or fail to win new business. Further, our lack of strong engagements with important government-funded laboratories (e.g. DARPA, MIT Lincoln Labs, MITRE) may inhibit our ability to become subsystem solution design partners with our defense prime customers.

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Our products are often designed for operating under physical constraints such as limited space, weight, and electrical power. Furthermore, these products are often designed to be “rugged,” that is, to withstand enhanced environmental stress such as extended temperature range, shock, vibration, and exposure to sand or salt spray. Historically these requirements have often precluded the use of less expensive, readily available commodity-type systems typically found in more benign non-military settings. With continued microprocessor evolution, low-end systems could become adequate to meet the requirements of an increased number of the lesser-demanding applications within our target markets. ~~Workstation or blade center computer~~Commercial server manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for defense electronics ~~systems, which~~systems. Factors that may increase the acceptability of commodity-type products in some defense platforms that we serve include improvements in the physical properties and durability of such alternative products, combined with the relaxation of physical and ruggedness requirements by the military due to either a reevaluation of those requirements or the installation of products in a more highly environmentally isolated setting. These developments could negatively impact our revenues and have a material adverse effect on our business. In addition, our customers provide products to markets that are subject to technological cycles. Any change in the demand for our products due to technological cycles in our customers’ end markets could result in a decrease in our revenues.business and operating results.

Competition from existing or new companies could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities, and the loss of market share.

We compete in highly competitive industries, and our customers generally extend the competitive pressures they face throughout their respective supply chains. Additionally, our markets are facing increasing industry consolidation, resulting in larger competitors who have more market share ~~to put~~putting more downward pressure on prices and ~~offer~~offering a more robust portfolio of products and services. We are subject to competition based upon product design, performance, pricing, quality, on time delivery, and support services. Our product performance, engineering expertise, and product quality have been important factors in our growth. While we try to maintain competitive pricing on those products that are directly comparable to products manufactured by others, in many instances our products will conform to more exacting specifications and carry a higher price than analogous products. Many of our customers and potential customers have the capacity to design and internally manufacture products that are similar to our products. We face competition from research and product development groups and the manufacturing operations of current and potential customers, who continually evaluate the benefits of internal research, product development, and manufacturing versus outsourcing. Our defense prime contractor customers could decide to pursue ~~secure processing~~one or more of our product development areas as ~~one of their~~a core ~~competencies~~competency and insource that technology development and production rather than purchase that capability from us as a supplier. This competition could result in fewer customer orders and a loss of market share.

~~Our sales~~We may be unable to obtain critical components from suppliers, which could disrupt or delay our ability to deliver products to our customers.

Several components used in our products are currently obtained from sole-source suppliers. We are dependent on key vendors such as Xilinx, Inc., Intel Corporation and Microsemi for Field Programmable Gate Arrays (“FPGA”), on NXP Semiconductor for Application-Specific Integrated Circuits (“ASICs”), Intel Corporation and NXP Semiconductor for processors, Micron Technology, Inc. for specific memory products and in general any sole-source microelectronics suppliers. Generally, suppliers may terminate their contracts with us without cause upon 30 days’ notice and may cease offering their products upon 180 days’ notice. If any of our sole-source suppliers limits or reduces the ~~defense market~~sale of these components, we may be unable to fulfill customer orders in a timely manner or at all. If these or other component suppliers, some of which are small companies, experienced financial difficulties or other problems that prevented them from supplying us with the necessary components on a timely basis, we could experience a loss of revenues due to our inability to fulfill orders. These sole-source and other suppliers are each subject to quality and performance issues, materials shortages, excess demand, reduction in capacity and other factors that may disrupt the flow of goods to us or to our customers, which would adversely affect our business and customer relationships. There can be ~~adversely affected by~~no assurance that these suppliers will continue to meet our requirements. If supply arrangements are interrupted, we may not be able to find another supplier on a timely or satisfactory basis. We may incur significant set-up costs and delays in manufacturing should it become necessary to replace any key vendors due to work stoppages, shipping delays, financial difficulties, natural or manmade disasters or other factors. In addition, our industry, along with many others, is facing a significant shortage of semiconductors. We are experiencing various levels of semiconductor impact. A shortage of semiconductors or other key components can cause a significant disruption to our production schedule.

We may not be able to effectively manage our relationships with contract manufacturers.

We may not be able to effectively manage our relationship with contract manufacturers, and the ~~emergence of commodity-type products as acceptable substitutes~~contract manufacturers may not meet future requirements for timely delivery. We rely on contract manufacturers to build hardware sub-assemblies for certain of our products ~~and by uncertainty created by emerging changes~~ in ~~standards that~~accordance with our specifications. During the normal course of business, we may ~~cause customers~~provide demand forecasts to ~~delay purchases~~contract manufacturers several months prior to scheduled delivery of our products to customers. If we overestimate requirements, the contract manufacturers may assess cancellation penalties or ~~seek alternative solutions.~~

~~Our products for the defense market are designed for operating under physical constraints such as limited space, weight, and electrical power. Furthermore, these products are often designed to~~we may be “rugged,” that is, to withstand enhanced environmental stress such as extended temperature range, shock, vibration, and exposure to sand or salt spray. Historically these requirements have often precluded the use of less expensive, readily available commodity-type systems typically found in more benign non-military settings. Factors thatleft with excess inventory, which may increase the acceptability of commodity-type products in some defense platforms that we serve include improvements in the physical properties and durability of such alternative products, combined with the relaxation of physical and ruggedness requirements by the military due to either a reevaluation of those requirements or the installation of products in a more highly environmentally isolated setting. These developments could negatively impact our earnings. If we underestimate requirements, the contract manufacturers may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipment to customers and revenue recognition. Contract manufacturers also build products for other companies, and they may not have sufficient quantities of inventory available or sufficient internal resources to fill our orders on a timely basis or at all.

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In addition, there have been a number of major acquisitions within the contract manufacturing industry in recent years. Future acquisitions could potentially have an adverse effect on our working relationships with contract manufacturers. Moreover, we currently rely primarily on two contract manufacturers, Benchmark Electronics, Inc. and Omega Electronics Manufacturing Services. The failure of these contract manufacturers to fill our orders on a timely basis or in accordance with our customers’ specifications could result in a loss of revenues and damage to our reputation.

We are exposed to risks associated with international operations and markets.

We market and sell products in international markets, have sales offices and subsidiaries in the United Kingdom, Japan, and France and we have manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain and Canada. Revenues from international operations accounted for 5%, 7%, and 8%, of our total net revenues in fiscal 2021, 2020, and 2019, respectively. We also ship directly from our U.S. operations to international customers. There are inherent risks in transacting business internationally, including:

•changes in applicable laws and regulatory requirements;

•export and import restrictions, including export controls relating to technology and sanctioned parties;

•tariffs and other trade barriers;

•less favorable intellectual property laws;

•difficulties in staffing and managing foreign operations;

•longer payment cycles;

•problems in collecting accounts receivable;

•adverse economic conditions in foreign markets;

•political instability;

•fluctuations in currency exchange rates, which may lead to lower operating margins, or may cause us to raise prices which could result in reduced revenues;

•expatriation controls; and

•potential adverse tax consequences.

There can be no assurance that one or more of these factors will not have a material adverse effect on our future international activities and, consequently, on our business and results of operations.

We have a pension plan (the “Plan”) for Swiss employees, mandated by Swiss law. Since participants of the Plan are entitled to a defined rate of interest on contributions made, the Plan meets the criteria for a defined benefit plan under U.S. GAAP. The Plan, an independent pension fund, is part of a multi-employer plan with unrestricted joint liability for all participating companies and the economic interest in the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan. U.S. GAAP requires an employer to recognize the funded status of the defined benefit plan on the balance sheet, which we have presented in other long-term liabilities on our Consolidated Balance Sheets at July 2, 2021. The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions in the Plan and we may have to record an increased liability as a result of fluctuations in the value of the Plan’s assets. As of July 2, 2021, we had a liability of $9.8 million in Other non-current liabilities representing the net under-funded status of the Plan.

In addition, we must comply with the Foreign Corrupt Practices Act, or the FCPA, and the anti-corruption laws of the countries in which we operate. Those laws generally prohibit the giving of anything of value to win business. The FCPA also generally requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company and prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. Under these anti-corruption laws, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. If we or our intermediaries fail to comply with the requirements of international applicable anti-corruption laws, governmental authorities in the United States or the countries in which we operate could seek to impose civil and criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and ~~operating results.~~cash flows.

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If we are unable to respond to technological developments and changing customer needs on a timely and cost-effective basis, our results of operations may be adversely affected.

Our future success will depend in part on our ability to enhance current products and to develop new products on a timely and cost-effective basis to respond to technological developments and changing customer needs. Defense customers demand frequent technological improvements as a means of gaining military advantage. Military planners have historically funded significantly more design projects than actual deployments of new equipment, and those systems that are deployed tend to contain the components of the subcontractors selected to participate in the design process. In order to participate in the design of new defense electronics systems, we must demonstrate the ability to deliver superior technological performance on a timely and cost-effective basis. There can be no assurance that we will secure an adequate number of design wins in the future, that the equipment in which our products are intended to function will eventually be deployed in the field, or that our products will be included in such equipment if it eventually is deployed.

The design-in process is typically lengthy and expensive, and there can be no assurance that we will be able to continue to meet the product specifications of customers in a timely and adequate manner. In addition, any failure to anticipate or respond adequately to changes in technology, customer preferences, and future order demands, or any significant delay in product developments, product introductions, or order volume, could negatively impact our financial condition and results of operations, including the risk of inventory obsolescence. Because of the complexity of our products, we have experienced delays from time to time in completing products on a timely basis.

Our need for continued or increased investment in R&D may increase expenses and reduce our profitability.

Our business is characterized by the need for continued investment in R&D. If we fail to ~~respond~~invest sufficiently in R&D, our products could become less attractive to ~~commercial industry cycles~~potential customers and our business and financial condition could be materially and adversely affected. As a result of the need to maintain or increase spending levels in ~~terms~~this area and the difficulty in reducing costs associated with R&D, our operating results could be materially harmed if our R&D efforts fail to result in new products or if revenues fall below expectations. As a result of our ~~cost structure, manufacturing capacity and/or personnel need, our business could be seriously harmed.~~

~~The timing, length, and severity~~commitment to invest in R&D, spending levels of ~~the up-and-down cycles~~R&D expenses as a percentage of revenues may fluctuate in the ~~commercial~~future. In addition, defense prime contractors could increase their requirement for subcontractors, like us, to increase their share in the R&D costs for new programs and ~~defense industries~~design wins.

Our results of operations are ~~difficult~~subject to ~~predict. This cyclical nature~~fluctuation from period to period and may not be an accurate indication of future performance.

While our revenues are generated through the ~~industries~~sale of products and services across more than 300 programs with no single program contributing more than 10% of our annual revenues, we have experienced fluctuations in operating results due to shifts in timing or quantities across certain of our larger programs. Customers specify delivery date requirements that coincide with their need for our products and services on the programs in which we ~~operate affects~~participate. Because these customers may use our ~~ability to~~products and services in connection with a variety of defense programs or other projects with different sizes and durations, a customer’s orders for one quarter generally do not indicate a trend for future orders by that customer or on that program. As such, we cannot always accurately plan our manufacturing, inventory, and working capital requirements. As a result, if orders and shipments differ from what we predict, ~~future revenue,~~we may incur additional expenses and ~~in some cases, future expense levels. During down cycles~~build excess inventory, which may require additional reserves and allowances and reduce our working capital and operational flexibility. Any significant change in our ~~industry,~~customers’ purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter. Results of operations in any period should not be considered indicative of the ~~financial~~ results to be expected for any future period.

High quarterly book-ship ratios pressure our inventory and cash flow management, necessitating increased inventory balances to ensure quarterly revenue attainment. Increased inventory balances tie up additional capital, limiting our operational flexibility. Some of our customers may ~~be negatively impacted,~~have become conditioned to wait until the end of a quarter to place orders in the expectation of receiving a discount. Customers conditioned to seek quarter-end discounts increase risk and uncertainty in our financial forecasting and decrease our margins and profitability.

which could result not only in a decrease in orders but also a weakening of their financial condition that could impair our ability to recognize revenue or to collect on outstanding receivables. When cyclical fluctuations result in lower than expected revenue levels, operatingOur quarterly results may be ~~adversely affected~~subject to fluctuations resulting from other factors, including:

•delays in completion of internal product development projects;

•delays in shipping hardware and ~~cost reduction measures may be necessary~~software;

•delays in acceptance testing by customers;

•a change in the mix of products sold;

•changes in customer or program order ~~for us~~patterns;

•production delays due to ~~remain competitive~~quality problems;

•inability to scale quick reaction capability products due to low product volume;

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•shortages and ~~financially sound.~~costs of components;

•delays due to the implementation of new tariffs or other trade barriers;

•the timing of product line transitions;

•declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology; and

•changes in estimates of completion on fixed price engagements.

In addition, from time to time, we have entered into contracts, referred to as development contracts, to engineer a specific solution based on modifications to standard products. Gross margins from development contract revenues are typically lower than gross margins from standard product revenues. We ~~must be in a position to adjust our cost and expense structure to reflect prevailing market conditions and~~intend to continue to ~~motivate~~enter into development contracts and anticipate that the gross margins associated with development contract revenues will continue to be lower than gross margins from standard product sales.

Another factor contributing to fluctuations in our quarterly results is the fixed nature of expenditures on personnel, facilities, and marketing programs. Expense levels for these programs are based, in significant part, on expectations of future revenues. If actual quarterly revenues are below management’s expectations, our results of operations could be adversely affected.

Further, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and changes in estimates in subsequent periods could cause our results of operations to fluctuate.

We rely on the significant experience and specialized expertise of our senior management, engineering, and operational staff and must retain and attract qualified and highly skilled personnel to grow our ~~key employees.~~business successfully.

Our performance is substantially dependent on the continued services and performance of our senior management and our highly qualified team of engineers and operational staff, many of whom have numerous years of experience, specialized expertise in our industry, and security clearances required for certain defense projects. If we ~~fail to respond, then our business could be seriously harmed. In addition, during periods of rapid growth,~~are not successful in hiring and retaining such employees, we ~~must~~may not be able to ~~increase~~extend or maintain our engineering and ~~manufacturing capacity~~operational expertise, and our future product development efforts could be adversely affected. Competition for hiring these employees is intense, especially individuals with specialized skills and security clearances required for our business, and we may be unable to hire and retain enough staff to implement our growth strategy. Like our defense prime contractor customers, we face the potential for knowledge drain due to the impending retirement of the older members of our engineering and operations workforce in the coming years.

If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

If we experience a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our facilities, and the proper functioning of our network, telecommunication, and other business systems and operations. As we grow our operations, the potential for natural or man-made disasters, political, economic, or infrastructure instabilities, or other country- or region-specific business continuity risks increases.

Risks Related to ~~meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. Each of these factors could adversely impact our operating results~~Our Growth Strategy, Our 1MPACT Value Creation Plan, and ~~financial condition.~~M&A

Implementation of our growth strategy and 1MPACT value creation plan may not be successful, which could affect our ability to increase ~~revenues.~~revenues and profits.

Our growth strategy includes developing new products, adding new customers and programs within our existing markets, and entering new markets both domestically and internationally, developing our manufacturing capabilities, as well as identifying and integrating acquisitions and achieving revenue and cost synergies and economies of scale. Our ability to compete in new markets will depend upon a number of factors including, among others:

•our ability to create demand for products in new markets;

~~our ability to manage growth effectively;~~

•our ability to respond to changes in our customers’ businesses by updating existing products and introducing, in a timely fashion, new products which meet the needs of our customers;

•our ability to ~~develop a reputation as a best-of-breed technology provider;~~increase our market visibility and penetration with prime defense contractors, government agencies, and government funded laboratories;

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•the quality of our new products;

•our ability to respond rapidly to technological ~~change;~~changes;

•our ability to increase our in-house manufacturing capacity and utilization as well as our ability to deliver on schedule and on budget; and

•our ability to successfully integrate ~~any~~ acquisitions ~~that we make~~ and achieve revenue and cost synergies and economies of scale.

The failure to do any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may face competition in these new markets from various companies that may have substantially greater research and development resources, marketing and financial resources, manufacturing capability, and/or customer support organizations.

~~Growing~~Our 1MPACT value creation plan is designed to enable us to achieve our ~~business, in particular by providing services~~full growth and ~~products such as sophisticated subsystems for major defense programs could strain~~value creation potential, both organically and through M&A, to position us to scale beyond our ~~operational capacity~~cumulative acquisitions over recent years. 1MPACT includes streamlining procurement and ~~working capital demands if not properly anticipated~~our supply chain, increasing the efficiency and ~~managed. Pursuing such growth could result in our operational~~effectiveness of R&D and ~~infrastructure resources being spread too thin, which could negatively impact our~~manufacturing operations, and further scaling through common processes and systems. Our ability to ~~deliver quality product on schedule~~enhance value through 1MPACT is subject to risks including: anticipated benefits not being realized or not at the levels anticipated; that implementation will be materially delayed or will be more difficult than expected; challenges of hiring and ~~on budget. Providing quality services for subsystem level products~~retaining key employees to drive the value creation plan; and initiatives being more expensive to complete than anticipated, including as a result of unexpected factors or events. In addition, there is a key driver of our growth strategy and the failure to properly scale our capabilities to support our customers at a subsystem level could result in lost opportunities and revenues. Failure to implement consistent management systems across our entire platform, to increase the level of automation to scale ourrisk that 1MPACT will divert management’s attention from ongoing organic business operations and ~~to establish a uniform program management process for lifecycle management could negatively impact our ability to generate efficiencies to achieve cost reduction objectives.~~M&A opportunities.

~~Future acquisitions~~Acquisitions may adversely affect our financial condition.

As part of our strategy for growth, we expect to continue to explore acquisitions or strategic alliances, which ultimately may not be completed or be beneficial to us.

While we expect our acquisitions to result in synergies and other financial and operational benefits, we may be unable to realize these synergies or other benefits in the timeframe that we expect or at all. The integration process may be complex, costly, and time consuming. Acquisitions may pose risks to our ~~operations,~~business, including:

•problems and increased costs in connection with the integration of the personnel, operations, technologies, or products of the acquired businesses;

•layering of integration activity due to multiple overlapping acquisitions;

•unanticipated ~~costs;~~issues, expenses, charges, or liabilities related to the acquisitions;

•failure to implement our business plan for the combined business or to achieve anticipated increases in revenues and profitability;

•diversion of management’s attention from our ~~core~~organic business;

•adverse effects on business relationships with suppliers and customers, ~~and those of~~including the ~~acquired company;~~failure to retain key customers;

•acquired assets becoming impaired as a result of technical advancements or worse-than-expected performance by the acquired company;

•failure to rationalize supply chain, manufacturing capacity, locations, logistics, and operating models to achieve anticipated economies of scale, or disruptions to supply chain, manufacturing, ~~and~~or product design operations during the combination of facilities;

•failure to rationalize business, information, and communication systems and to expand the IT infrastructure and security protocols throughout the enterprise;

•volatility associated with accounting for earn-outs in a given transaction;

•entering markets in which we have no, or limited, prior experience;

•environmental liabilities at current or previous sites of the acquired business;

•poor compliance programs pre-acquisition at acquired companies, which may lead to liabilities for violations, or impact the business acquired when placed under our compliance programs;

•unanticipated changes in applicable laws or regulations;

•potential loss of key employees;

•the impact of any assume legal proceedings; and

~~adversely affect~~•adverse effects on our internal control over financial reporting before the acquiree's complete integration into ~~the Company’s~~our control environment.

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In addition, in connection with any acquisitions or investments we could:

•issue stock that would dilute our existing shareholders’ ownership percentages;

•incur debt and assume liabilities;

•obtain financing on unfavorable terms, or not be able to obtain financing on any terms at all;

•incur amortization expenses related to acquired intangible assets or incur large and immediate write-offs;

•incur large expenditures related to office closures of the acquired companies, including costs relating to the termination of employees and facility and leasehold improvement charges resulting from our having to vacate the acquired companies’ premises; and

•reduce the cash that would otherwise be available to fund operations or for other purposes.

The failure to successfully integrate any acquisitions in an efficient or timely manner may negatively impact our financial condition and operating results, or we may not be able to fully realize anticipated savings. In addition, our competitors could try to emulate our acquisition strategy, leading to greater competition for scarce acquisition targets and could lead to larger competitors if they succeed in emulating our strategy.

~~We may not realize the expected benefits, including synergies, of the acquisitions of the Carve-Out Business, CES, Delta and RTL because of integration difficulties and other challenges.~~

While we expect the Carve-Out Business, CES, Delta, and RTL acquisitions to result in synergies and other financial and operational benefits, we may be unable to realize these synergies or other benefits in the timeframe that we expect or at all. The success of the acquisitions will depend, in part, on our ability to realize the anticipated benefits from integrating such businesses with our existing business. The integration process may be complex, costly and time consuming.

~~The difficulties of integrating the operations of the Carve-Out Business, CES, Delta, and RTL include, among others:~~

~~failure to implement our business plan for the combined business;~~

~~unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;~~

~~unanticipated changes in applicable laws and regulations;~~

~~failure to retain key employees;~~

~~failure to retain key customers;~~

~~operating risks inherent in the Carve-Out Business, CES, Delta, and RTL and our business;~~

~~the impact of any assumed legal proceedings;~~

~~the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002; and~~

~~unanticipated issues, expenses costs, charges and liabilities related to the Acquisition.~~

We may not be able to maintain the levels of revenue, earnings, or operating efficiency that ~~each of Mercury~~we and ~~the Carve-Out Business, CES, Delta, and RTL~~our prior acquisitions had achieved or might achieve separately. In addition, we may not accomplish the integration of these businesses smoothly, successfully or within the anticipated costs or timeframe. Further, we will incur implementation costs relative to these anticipated cost synergies, and our expectations with respect to integration or synergies as a result of these acquisitions may not materialize. Accordingly, youYou should not place undue reliance on ~~our~~any anticipated synergies.

~~The market price of~~ In addition, our ~~common stock may decline as a result of~~competitors could try to emulate our ~~M&A activity.~~

~~The market price of~~acquisition strategy, leading to greater competition for acquisition targets which could lead to larger competitors if they succeed in emulating our common stock may decline as a result of our merger and acquisition activity if, among other things, we are unable to achieve the expected growth in earnings, or if the operational cost savings estimates in connection with the integration of the Carve-out Business, CES, Delta, and RTL are not realized. The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial results is not consistent with the expectations of financial or industry analysts.

strategy,

We may incur substantial indebtedness.

~~In June 2017,~~On September 28, 2018, we amended our existing revolving credit facility ~~("Revolving Credit Facility"~~(“the Revolver”)~~, increasing~~ to increase and ~~extending~~extend the ~~facility into~~borrowing capacity to a ~~$400.0~~$750.0 million, 5-year revolving credit line, ~~expiring in June 2022. In connection~~ with the ~~amendment,~~maturity extended to September 28, 2023. As of July 2, 2021, we ~~repaid~~had $200.0 million of outstanding borrowings on the ~~remaining principal~~Revolver. The Revolver accrues interest, at our option, at floating rates tied to LIBOR or the prime rate plus an applicable percentage. The applicable percentage is set at LIBOR plus 1.25% and is established pursuant to a pricing grid based on our ~~term loan using cash on hand. The Revolving Credit Facility remained undrawn at June 30, 2017, other than for outstanding letters~~total net leverage ratio. We may be exposed to the impact of ~~credit.~~

interest rate changes primarily through our borrowing activities. Subject to the limits contained in ~~our Revolving Credit Facility,~~the Revolver, we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our debt could intensify. Specifically, our debt could have important consequences to our investors, including the following:

•making it more difficult for us to satisfy our obligations under our debt instruments, including, without limitation, the ~~Revolving Credit Facility;~~Revolver; and if we fail to comply with these requirements, an event of default could result;

•limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements;

•requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes;

•increasing our vulnerability to general adverse economic and industry conditions;

•exposing us to the risk of increased interest rates as certain of our borrowings may have variable interest rates, which could increase the cost of servicing our financial instruments and could materially reduce our profitability and cash flows;

•limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

•placing us at a disadvantage compared to other, less leveraged competitors; and

•increasing our cost of borrowing.

In addition, ~~our Revolving Credit Facility~~the Revolver contains restrictive covenants that may limit our ability to engage in activities that are in our long term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt. And, if we were unable to repay the amounts due and payable, the lenders under ~~our Revolving Credit Facility~~the Revolver could proceed against the collateral granted to them to secure that indebtedness.

~~In addition, increases~~Increases in interest rates ~~will~~would increase the cost of servicing our financial instruments with exposure to interest rate risk and could materially reduce our profitability and cash flows. ~~In December 2015,~~Assuming that we had $100.0 million of floating rate debt outstanding, our annual interest expense would change by approximately $1.0 million for each 100 basis point increase in interest rates. We may also incur costs related to interest rate hedges, including the ~~U.S. Federal Reserve announced that it would gradually raise short-term interest rates over the next three years, which it has begun.~~termination of any such hedges,

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We have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects.

At ~~June 30, 2017,~~July 2, 2021, the carrying values of goodwill and identifiable intangible assets on our balance sheet were ~~$380.8~~$804.9 million and ~~$129.0~~$307.6 million, respectively. We evaluate indefinite lived intangible assets and goodwill for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Indefinite lived intangible assets are impaired and goodwill impairment is indicated when their book value exceeds fair value. We also review finite-lived intangible assets and long-lived assets when indications of potential impairment exist, such as a significant reduction in undiscounted cash flows associated with the assets. Should the fair value of our long-lived assets decline because of reduced operating performance, market declines, or other indicators of impairment, a charge to operations for impairment may be necessary. The value of goodwill and intangible assets from the allocation of purchase price from our ~~recent~~ acquisitions will be derived from our business operating plans and is susceptible to an adverse change in demand, input costs or general changes in our business or industry and could require an impairment charge in the future.

Risks Related to Legal, Regulatory and Compliance Matters

We face risks and uncertainties associated with defense-related contracts

•Our contracts with the U.S. and foreign governments and their defense prime contractors and subcontractors are subject to termination either upon default by us or at the convenience of the government or contractor if, among other reasons, the program itself has been terminated. Termination for convenience provisions generally only entitle us to recover costs incurred, settlement expenses, and profit on work completed prior to termination.

•Because we contract to supply goods and services to the U.S. and foreign governments and their prime and subcontractors, we compete for contracts in a competitive bidding process. We may not be awarded the contract if the pricing or product offering is not competitive, either at our level or the prime or subcontractor level. In the event we are awarded a contract, we are subject to protests by losing bidders of contract awards that can result in the reopening of the bidding process and changes in governmental policies or regulations and other political factors. We may be ~~unable~~subject to ~~obtain critical components~~multiple rebid requirements over the life of a defense program in order to continue to participate in such program, which can result in the loss of the program or significantly reduce our revenue or margin. Requirements for more frequent technology refreshes on defense programs may lead to increased costs and lower long-term revenues.

•Consolidation among defense industry contractors has resulted in a few large contractors with increased bargaining power relative to us.

•Our customers include U.S. government contractors who must comply with and are affected by laws and regulations relating to the formation, administration, and performance of U.S. government contracts. When we contract with the U.S. government, we must comply with these laws and regulations. A violation of these laws and regulations could result in the imposition of fines and penalties to us or our customers or the termination of our or their contracts with the U.S. government. As a result, there could be a delay in our receipt of orders from ~~suppliers, which~~our customers, a termination of such orders, or a termination of contracts between us and the U.S. government.

•We sell certain products and services to U.S. and international defense contractors or directly to the U.S. government on a commercial item basis, eliminating the requirement to disclose and certify cost data. To the extent that there are interpretations or changes in the Federal Acquisition Regulations (“FAR”) regarding the qualifications necessary to sell commercial items, there could ~~disrupt~~be a material impact on our business and operating results. For example, there have been legislative proposals to narrow the definition of a “commercial item” (as defined in the FAR) or ~~delay~~to require cost and pricing data on commercial items that could limit or adversely impact our ability to ~~deliver~~contract under commercial item terms. Changes could be accelerated due to changes in our mix of business, in Federal regulations, or in the interpretation of Federal regulations, which may subject us to increased oversight by the Defense Contract Audit Agency (“DCAA”) for certain of our products or services. Such changes could also trigger contract coverage under the Cost Accounting Standards (“CAS”), further impacting our commercial operating model and requiring compliance with a defined set of business systems criteria. Failure to comply with applicable CAS requirements could adversely impact our ability to win future CAS-type contracts.

•We are subject to the Department of Defense Cybersecurity Maturity Model Certification (“CMMC”) in connection with our defense work for the U.S. government and defense prime contractors. Amendments to the CMMC may increase our costs or delay the award of contracts if we are unable to certify that we satisfy such cybersecurity requirements at our Company level and into our supply chain.

•The U.S. government or a defense prime contractor customer could require us to relinquish data rights to a product in connection with performing work on a defense contract, which could lead to a loss of valuable technology and intellectual property in order to participate in a government program.

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•The U.S. government or a defense prime contractor customer could require us to enter into cost reimbursable contracts that could offset our cost efficiency initiatives.

•We anticipate that sales to our U.S. prime defense contractor customers as part of foreign military sales (“FMS”) programs will be an increasing part of our business going forward. These FMS sales combine several different types of risks and uncertainties highlighted above, including risks related to government contracts, risks related to defense contracts, timing and budgeting of foreign governments, and approval from the U.S. and foreign governments related to the programs, all of which may be impacted by macroeconomic and geopolitical factors outside of our control.

•We must comply with security requirements pursuant to the National Industrial Security Program Operating Manual, or NISPOM, and other U.S. government security protocols when accessing sensitive information. Most of our facilities maintain a facility security clearance and many of our employees maintain a personal security clearance to access sensitive information necessary to the performance of our work on certain U.S. government contracts and subcontracts. Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S. government contract or subcontract, or potentially debarment as a government contractor.

•We may need to invest additional capital to build out higher level security infrastructure at certain of our facilities to capture new design wins on defense programs with higher level security requirements. In addition, we may need to invest in additional secure laboratory space to integrate efficiently subsystem level solutions and maintain quality assurance on current and future programs.

If we are unable to continue to obtain U.S. government authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business, we could be prohibited from shipping our products to certain countries, which would harm our ~~customers.~~ability to generate revenue.

~~Several components used in~~We must comply with U.S. laws regulating the export of our products and technology. In addition, we are ~~currently obtained~~required to obtain a license from sole-source suppliers. We are dependent on key vendors like LSI Logic Corporation, Xilinx, Inc., and IBM Corporation for custom-designed application-specific integrated circuits (“ASICs”) and field programmable gate arrays (“FPGAs”), Freescale Semiconductor, Inc. and IBM Corporation for PowerPC microprocessors, Intel Corporation forthe U.S. government to export certain of our ~~next generation processors, IBM Corporation for a specific SRAM, Curtiss Wright Corporation and Motorola, Inc. for chassis and chassis components, Micron Technology, Inc. for specific memory~~ products and ~~Benchmark Electronics, Inc. for board assembly, test~~technical data as well as to provide technical services to foreign persons related to such products and ~~integration. Generally, suppliers may terminate their contracts with us without cause upon 30 days’ notice and may cease offering their products upon 180 days’ notice. If any~~technical data. We cannot be sure of our ~~sole-source suppliers limits~~ability to obtain any licenses required to export our products or ~~reduces~~to receive authorization from the ~~sale~~U.S. government for international sales or domestic sales to foreign persons including transfers of ~~these components,~~technical data or the provision of technical services. Likewise, our international operations are subject to the export laws of the countries in which they conduct business. Moreover, the export regimes and the governing policies applicable to our business are subject to change. If we ~~may be unable to fulfill customer orders~~cannot obtain required government approvals under applicable regulations in a timely manner or at ~~all. In addition, if these or other component suppliers, some of which are small companies, experienced financial difficulties or other problems~~

~~that prevented them from supplying us with the necessary components,~~all, we could ~~experience a loss of revenues due to~~be delayed or prevented from selling our ~~inability to fulfill orders. These sole-source and other suppliers are each subject to quality and performance issues, materials shortages, excess demand, reduction~~products in ~~capacity and other factors that may disrupt the flow of goods to us or to our customers,~~certain jurisdictions, which ~~would~~could adversely affect our business and ~~customer relationships. We~~financial results. For example, If the US government continues to expand the scope of regulations intended to address civil-military fusion in China, certain commercial technologies which have ~~no guaranteed supply arrangements with~~historically been exportable to Hong Kong and China may be prohibited.

Our income tax provision and other tax liabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our ~~suppliers~~position. Increases in tax rates could impact our financial performance.

From time to time, we are audited by various Federal, state, local, and ~~there can be no assurance that these suppliers will continue~~foreign authorities regarding income tax matters. Significant judgment is required to ~~meet~~determine our ~~requirements. If supply arrangements are interrupted,~~provision for income taxes and our liabilities for other taxes. Although we ~~may not be able~~believe our approach to ~~find another supplier on a timely or satisfactory basis. We may incur significant set-up costs~~determining the appropriate tax treatment is supportable and ~~delays in manufacturing should it become necessary to replace any key vendors due to work stoppages, shipping delays, financial difficulties, natural or manmade disasters or other factors.~~

~~We may not be able to effectively manage our relationships with contract manufacturers.~~

We may not be able to effectively manage our relationship with contract manufacturers, and the contract manufacturers may not meet future requirements for timely delivery. We rely on contract manufacturers to build hardware sub-assemblies for our products in accordance with ~~our specifications. During~~relevant authoritative guidance it is possible that the normal course of business, we may provide demand forecasts to contract manufacturers up to five months prior to scheduled delivery of our products to customers. If we overestimate requirements, the contract manufacturers may assess cancellation penalties or we may be left with excess inventory,final tax authority will take a tax position that is materially different than that which may negatively impact our earnings. If we underestimate requirements, the contract manufacturers may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipment to customers and revenue recognition. Contract manufacturers also build products for other companies, and they may not have sufficient quantities of inventory available or sufficient internal resources to fill our orders on a timely basis or at all.

In addition, there have been a number of major acquisitions within the contract manufacturing industry in recent periods. While there has been no significant impact on our contract manufacturers to date, future acquisitions could potentially have an adverse effect on our working relationships with contract manufacturers. Moreover, we currently rely primarily on one contract manufacturer, Benchmark Electronics, Inc. The failure of this contract manufacturer to fill our orders on a timely basis or in accordance with our customers’ specifications could result in a loss of revenues and damage to our reputation. We may not be able to replace this contract manufacturer in a timely manner or without significantly increasing our costs if such contract manufacturer were to experience financial difficulties or other problems that prevented it from fulfilling our order requirements.

With the expansion of our microelectronics and RF and microwave product lines in recent years, primarily related to the acquisitions of Delta in fiscal 2017 and the Carve-Out Business in fiscal 2016, as well as our earlier acquisitions of Micronetics, Inc., KOR Electronics, and LNX Corporation, the mix and volume of products that we manufacture in-house has increased. With the building of our Advanced Microelectronics Center in Hudson, New Hampshire during fiscal 2014, we are becoming more vertically integratedis reflected in our microwave and RF product lines. This vertical integration could lead to higher capital intensity, labor utilization rate volatility which could affect our profitability, and higher fixed costs. Also, the changes to business processes and IT systems required to combine two locations into a single site like our Advanced Microelectronics Center may interrupt our operations for a period of time resulting in higher costs, lower revenues and missed opportunities for design wins. In addition, Benchmark Electronics, Inc. notified us in 2016 that they would no longer contract manufacture certain of our digital processing products at their Huntsville, Alabama facility due to internal integration planning at Benchmark. As a result, we began to internally manufacture the impacted Huntsville, Alabama digital processing product line at our Phoenix, Arizona facility. With our build out of a surface mount technology manufacturing capability in our Phoenix, Arizona facility, which we refer to as our USMO, we are developing a second source for our digital processing product manufacturing needs to complement our contract manufacturing relationship with Benchmark Electronics. With a source of internal manufacturing to meet an increasing portion of our digital processing product manufacturing needs, we will need to effectively manage our relationship with our contract manufacturers to manage our order volumes, scale production to meet volume requirements, and maintain necessary inventory levels.

~~We are exposed to risks associated with international operations and markets.~~

We market and sell products in international markets, and have established sales offices and subsidiaries in United Kingdom and Japan and, as part of the acquisition of CES in November 2016, we now have manufacturing and engineering facilities in Switzerland. Revenues from international operations accounted for 7%, 4%, and 2% of our total net revenues in fiscal 2017, 2016, and 2015, respectively. We also ship directly from our U.S. operations to international customers. There are inherent risks in transacting business internationally, including:

~~changes in applicable laws and regulatory requirements;~~

~~export and import restrictions;~~

~~export controls relating to technology;~~

~~tariffs and other trade barriers;~~

~~less favorable intellectual property laws;~~

~~difficulties in staffing and managing foreign operations;~~

~~longer payment cycles;~~

~~problems in collecting accounts receivable;~~

~~adverse economic conditions in foreign markets;~~

~~political instability;~~

~~fluctuations in currency exchange rates;~~

~~expatriation controls; and~~

~~potential adverse~~income tax ~~consequences.~~

~~There can be no assurance that one or more of these factors will not have a material adverse effect on our future international activities and, consequently, on our business and results of operations.~~

With the acquisition of CES in fiscal 2017, we acquired a pension plan (the "Plan") for Swiss employees, mandated by Swiss law. Since participants of the Plan are entitled to a defined rate of interest on contributions made, the Plan meets the criteria for a defined benefit plan under U.S. GAAP. The Plan, an independent pension fund, is part of a multi-employer plan with unrestricted joint liability for all participating companies and the economic interest in the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan. U.S. GAAP requires an employer to recognize the funded status of the defined benefit plan on the balance sheet, which we have presented in other long-term liabilities on our consolidated balance sheet at June 30, 2017. The funded status may vary from year to year due to changes in the fair value of Plan’s assets and variations on the underlying assumptions in the Plan and we may have to record an increased liability as a result of fluctuations in the value of the Plan’s assets. As of June 30, 2017, we had a liability of $6.6 million in other non-current liabilities representing the net under-funded status of the Plan.

In addition, we must comply with the Foreign Corrupt Practices Act, or the FCPA. The FCPA generally requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company and prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. If we or our intermediaries fail to comply with the requirements of the FCPA, governmental authorities in the United States could seek to impose civil and criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.

~~We may be exposed to unfavorable currency exchange rate fluctuations, which may lead to lower operating margins, or may cause us to raise prices which could result in reduced revenues.~~

~~Currency exchange rate fluctuations~~provision. Such differences could have an adverse effect on our ~~net revenues~~income tax provision or benefit, in the reporting period in which such determination is made and, results of operations. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net revenues from such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations,consequently, on our results of operations, could be adversely affected. In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold, and the currency they receive in paymentfinancial position, and/or cash flows for such ~~sales could be less valuable at the time of receipt as a result of exchange rate fluctuations. We do not currently hedge our foreign currency exchange rate exposure.~~

~~If we are unable to respond to technological developments and changing customer needs on a timely and cost-effective basis, our results of operations~~period. Further, future increases in tax rates may be adversely ~~affected.~~

Our future success will depend in part on our ability to enhance current products and to develop new products on a timely and cost-effective basis in order to respond to technological developments and changing customer needs. Defense customers, in particular, demand frequent technological improvements as a means of gaining military advantage. Military planners have historically funded significantly more design projects than actual deployments of new equipment, and those systems that are deployed tend to contain the components of the subcontractors selected to participate in the design process. In order to participate in the design of new defense electronics systems, we must demonstrate the ability to deliver superior technological performance on a timely and cost-effective basis. There can be no assurance that we will secure an adequate number of defense design wins in the future, that the equipment in which our products are intended to function will eventually be deployed in the field, or that our products will be included in such equipment if it eventually is deployed.

Customers in our commercial markets also seek technological improvements through product enhancements and new generations of products. OEMs historically have selected certain suppliers whose products have been included in the OEMs’ machines for a significant portion of the products’ life cycles. We may not be selected to participate in the future design of any commercial equipment, or if selected, we may not generate any revenues for such design work.

~~adequately to changes in technology, customer preferences and future order demands, or any significant delay in product developments, product introductions or order volume, could negatively impact~~affect our financial ~~condition and results~~results.

Table of operations, including the risk of inventory obsolescence. Because of the complexity of our products, we have experienced delays from time to time in completing products on a timely basis. If we are unable to design, develop or introduce competitive new products on a timely basis, our future operating results may be adversely affected.Contents

Our products are complex, and undetected defects may increase our costs, harm our reputation with customers or lead to costly litigation.

Our products are extremely complex and must operate successfully with complex products of our customers and their other vendors. Our products may contain undetected errors when first introduced or as we introduce product upgrades. The pressures we face to be the first to market new products or functionality and the ~~lapsed~~elapsed time before our products are integrated into our customer's systems increases the possibility that we will offer products in which we or our customers later discover problems. We have experienced new product and product upgrade errors in the past and expect similar problems in the future. These problems may cause us to incur significant warranty costs and costs to support our service contracts and divert the attention of personnel from our product development efforts. Also, hostile third parties or nation states may try to install malicious code or devices into our products or software. Undetected errors may adversely affect our product’s ease of use and may create customer satisfaction issues. If we are unable to repair these problems in a timely manner, we may experience a loss of or delay in revenue and significant damage to our reputation and business prospects. Many of our customers rely upon our products for mission-critical applications. Because of this reliance, errors, defects, or other performance problems in our products could result in significant financial and other damage to our customers. Our customers could attempt to recover those losses by pursuing products liability claims against us which, even if unsuccessful, would likely be time-consuming and costly to defend and could adversely affect our reputation.

Risks Related to Information Technology and Intellectual Property

We may need to invest in new information technology systems and infrastructure to scale our operations.

We may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior and future acquisitions as well as organic growth. Our information technology and business systems and infrastructure could create product development or production work stoppages, unnecessarily increase our inventory, negatively impact product delivery times and quality, and increase our compliance costs. In addition, an inability to maximize the utility and benefit of our current information technology and business tools could impact our ability to meet cost reduction and planned efficiency and operational improvement goals.

If we suffer ransomware breaches, data breaches, or phishing diversions involving the designs, schematics, or source code for our products or other sensitive information, our business and financial results could be adversely affected.

Our business is subject to heightened risks of cyber intrusion as nation-state hackers seek access to technology used in U.S. defense programs and criminal enterprise hackers, which may or may not be affiliated with foreign governments, use ransomware attacks to disable critical infrastructure and extort companies for ransom payments. We are also targeted by spear phishing attacks in which an email directed at a specific individual or department is disguised to appear to be from a trusted source to obtain sensitive information. Like all DoD contractors that process, store, or transmit controlled unclassified information, we must meet minimum security standards or risk losing our DoD contracts. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products or to the shutdown of business systems. If we experience a data security breach from an external source or from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results. Other potential costs could include damage to our reputation, loss of brand value, incident response costs, loss of stock market value, regulatory inquiries, litigation, and management distraction. A security breach that involves classified information could subject us to civil or criminal penalties, loss of a government contract, loss of access to classified information, or debarment as a government contractor. Similarly, a breach that involves loss of customer-provided data could subject us to loss of a customer, loss of a contract, litigation costs and legal damages, and reputational harm.

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We may be unsuccessful in protecting our intellectual property rights which could result in the loss of a competitive advantage.

Our ability to compete effectively against other companies in our industry depends, in part, on our ability to protect our current and future proprietary technology under patent, copyright, trademark, trade secret, and unfair competition laws. We cannot assure you that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to our technology or design around our proprietary rights. In addition, we may incur substantial costs in attempting to protect our proprietary rights.

Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products, develop similar technology independently, or otherwise obtain and use information from our supply chain that we regard as proprietary and we may be unable to successfully identify or prosecute unauthorized uses of our technology. ~~Furthermore,~~Further, with respect to our issued patents and patent applications, we cannot assure you that any patents from any pending patent applications (or from any future patent applications) will be issued, that the scope of any patent protection will exclude competitors or provide competitive advantages to us, that any of our patents will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents (and patent applications) and other proprietary rights held by us.

If we become subject to intellectual property infringement claims, we could incur significant expenses and could be prevented from selling specific products.

We may become subject to claims that we infringe the intellectual property rights of ~~others in the future.~~others. We cannot assure you that, if made, these claims will not be successful. Any claim of infringement could cause us to incur substantial costs defending against the claim even if the claim is invalid and could distract management from other business. Any judgment against us could require substantial payment in damages and could also include an injunction or other court order that could prevent us from offering certain products.

Risks Related to the COVID-19 Pandemic

We face various risks related to health pandemics such as COVID-19.

We face adverse effects related to the COVID-19 pandemic, including disruptions in our supply chain, limitations on our operations, and increased costs for health and safety measures. We expect the COVID-19 pandemic to adversely affect our operations and financial position if significant portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures, or other restrictions. To-date, our operations and production activities in the U.S. and globally have remained operational during the COVID-19 pandemic. Our ~~need for continued or increased investment in research~~facilities are considered essential activities and ~~development~~have been exempt from closure directives. However, our manufacturing sites are subject to various local and national directives curtailing operations, requiring work from home and social distancing which otherwise could impact the efficiency of our operations. Such directives could change at any time. We continue to monitor the situation, assessing possible implications on our operations, supply chain, liquidity, and cash flow, and will continue taking actions to mitigate adverse consequences.

Risks Related to Our Common Stock

The trading price of our common stock may ~~increase expenses and reduce our profitability.~~

~~Our industry is characterized by the need for continued investment in research and development. If we fail~~continue to ~~invest sufficiently in research and development, our products could become less attractive to potential customers and~~be volatile, which may adversely affect our business, and ~~financial condition could~~investors in our common stock may experience substantial losses.

Our stock price, like that of other technology and aerospace and defense companies, can be ~~materially~~volatile. The stock market in general and ~~adversely affected. As a result of the need~~technology companies in particular may continue to maintain or increase spending levels in this area and the difficulty in reducing costs associated with research and development, our operating results could be materially harmed if our research and development efforts fail to result in new products or if revenues fall below expectations. In addition, as a result of our commitment to invest in research and development, spending levels of research and development expenses as a percentage of revenues may fluctuateexperience volatility. The stock prices for companies in the ~~future.~~

~~Our results~~aerospace and defense industry may continue to remain volatile given uncertainty and timing of ~~operations are subject to fluctuation from period to period and~~funding for defense programs. This volatility may or may not be ~~an accurate indication of future~~related to our operating performance.

~~We have experienced fluctuations in~~ Our operating results, ~~in large part due~~from time to time, may be below the ~~sale~~expectations of ~~products~~public market analysts and services in relatively large dollar amounts to a relatively small number of customers. Customers specify delivery date requirements that coincide with their need for our products and services. Because these customers may use our products and services in connection with a variety of defense programs or other projects with different sizes and durations, a customer’s orders for one quarter generally do not indicate a trend for future orders by that customer. As such, we have not been able in the past to consistently predict when our customers will place orders and request shipments so that we cannot always accurately plan our manufacturing, inventory, and working capital requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expenses and build excess inventory,investors, which ~~may require additional reserves and allowances and reduce our working capital and operational flexibility. Any significant change in our customers’ purchasing patterns~~ could have a material adverse effect on the market price of our ~~operating results~~common stock. Market rumors or the dissemination of false or misleading information may impact our stock price. When the market price of a stock has been volatile, holders of that stock will sometimes file securities class action litigation against the company that issued the stock. If any shareholders were to file a lawsuit, we could incur substantial costs defending the lawsuit. Also, the lawsuit could divert the time and ~~reported~~attention of management.

The market price of our common stock may decline because of our M&A activity.

The market price of our common stock may decline as a result of our merger and acquisition activity if, among other things, we are unable to achieve the expected growth in revenue and earnings, ~~per share for a particular quarter. Thus, results~~or if the operational cost savings estimates in connection with the integration of ~~operations in any period should~~acquired businesses are not ~~be considered indicative~~realized. The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry

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analysts or if the effect of the acquisitions on our financial results ~~to be expected for~~is not consistent with the expectations of financial or industry analysts.

We have never paid cash dividends on our common stock and we do not anticipate paying any ~~future period.~~dividends in the foreseeable future.

~~High quarterly book-ship ratios may pressure inventory and~~We have not declared or paid cash ~~flow management, necessitating increased inventory balances to ensure quarterly revenue attainment. Increased inventory balances tie up additional capital, limiting our operational flexibility. Some~~dividends on any of our ~~customers may have become conditioned~~classes of capital stock to ~~wait until the end of a quarter to place orders in the expectation of receiving a discount. Customers conditioned to seek quarter-end discounts increase risk~~date and ~~uncertainty in our financial forecasting and decrease our margins and profitability.~~

~~Our quarterly results may be subject to fluctuations resulting from a number of other factors, including:~~

~~delays in completion of internal product development projects;~~

~~delays in shipping hardware and software;~~

~~delays in acceptance testing by customers;~~

~~a change in the mix of products sold to our served markets;~~

~~changes in customer order patterns;~~

~~production delays due to quality problems with outsourced components;~~

~~inability to scale quick reaction capability products due to low product volume;~~

~~shortages and costs of components;~~

~~the timing of product line transitions;~~

~~declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology;~~

~~inability to realize the expected benefits from acquisitions and restructurings, or delays in realizing such benefits;~~

~~potential asset impairment, including goodwill and intangibles, or restructuring charges; and~~

~~changes in estimates of completion on fixed price service engagements.~~

~~In addition, from time to time,~~ we have entered into contracts, referred to as development contracts, to engineer a specific solution based on modifications to standard products. Gross margins from development contract revenues are typically lower than gross margins from standard product revenues. Wecurrently intend to ~~continue~~retain our future earnings, if any, to ~~enter into~~fund the development ~~contracts~~ and ~~anticipate that the gross margins associated with development contract revenues will continue to be lower than gross margins from standard product sales.~~

~~Another factor contributing to fluctuations in our quarterly results is the fixed nature~~growth of expenditures on personnel, facilities and marketing programs. Expense levels for these programs are based, in significant part, on expectations of future revenues. If actual quarterly revenues are below management’s expectations, our results of operations will likely be adversely affected.

~~Changes in regulations could materially adversely affect us.~~

Our business, results of operations, or financial condition could be materially adversely affected if laws, regulations, or standards relating to us or our products are newly implemented or changed. In addition, our compliance with existing regulations may have a material adverse impact on us. Under applicable federal securities laws, we are required to evaluate and determine the effectiveness of our internal control structure and procedures for financial reporting. Should we or our independent registered public accounting firm determine that we have material weaknesses in our internal controls, our results of operations or financial condition may be materially adversely affected or our stock price may decline.

We rely on the significant experience and specialized expertise of our senior management and engineering staff and must retain and attract qualified engineers and other highly skilled personnel in order to grow our business successfully.

Our performance is substantially dependent on the continued services and performance of our senior management and our highly qualified team of engineers, many of whom have numerous years of experience, specialized expertise in our business and ~~security clearances required~~ for ~~certain defense projects. If we are not successful in hiring~~future mergers and ~~retaining highly qualified engineers, we~~acquisitions. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future.

We may need additional capital and may not be able to ~~extend~~raise funds on acceptable terms, if at all. In addition, any funding through the sale of additional common stock or ~~maintain~~other equity securities could result in additional dilution to our ~~engineering expertise,~~stockholders and any funding through indebtedness could restrict our future product development efforts could be adversely affected. Competition for hiring these employees is intense, especially with regard to engineers with specialized skills and security clearances required for our business, and we may be unable to hire and retain enough engineers to implement our growth strategy. Like our defense prime contractor customers, we face the potential for knowledge drain due to the impending retirement of the older members of our engineering workforce in the coming years.operations.

We may ~~be unable~~require additional cash resources to ~~deliver subsystem level products and related services on time and on budget with~~finance our ~~limited engineering resources. Without sufficient resources in hardware, software, and mechanical engineering and quality assurance~~continued growth or other future developments, including any investments or acquisitions we may decide to pursue. The amount and timing of such additional financing needs will vary principally depending on the timing of new product and service launches, investments, and/or acquisitions, and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a larger credit facility. The sale of additional equity securities or securities convertible into our common shares could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be ~~unable~~available in amounts or on terms acceptable to adequately scale our business and deliver the subsystem solutions that our customers expect. We must also develop new engineering talent in our engineering base to contain high engineering costs to alleviate pressures on our margins and price points.

Increased workloads and responsibilities due to cost containment measures in recent years has led to a leaner employee base, increasing our risk of employee and organizational fatigue. Resulting lower morale and organizational disruption could lead to execution issues, missed commitments, and general employee attrition.

~~Our future success also depends on our ability to timely identify, attract, hire, train, retain and motivate highly skilled managerial and operational personnel as we continue our pace of growth.~~us, if at all. If we fail to attract, integrate and retain the necessary personnel, our ability to maintain and grow our business could suffer significantly. Further, stock price volatility and improvements in the economy could impact our ability to attract and retain key personnel.

Ifraise additional funds, we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

If we experience a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. As we attempt to grow our operations, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases.

If we are unable to continue to obtain U.S. federal government authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business, we could be prohibited from shipping our products to certain countries, which would harm our ability to generate revenue.

We must comply with U.S. laws regulating the export of our products and technology. In addition, we are required to obtain a license from the U.S. federal government to export certain of our products and technical data as well as to provide technical services to foreign persons related to such products and technical data. We cannot be sure of our ability to obtain any licenses required to export our products or to receive authorization from the U.S. federal government for international sales or domestic sales to foreign persons including transfers of technical data or the provision of technical services. Likewise, our international operations are subject to the export laws of the countries in which they conduct business. Moreover, the export regimes and the governing policies applicable to our business are subject to change. We cannot assure you of the extent that such export authorizations will be available to us, if at all, in the future. If we cannot obtain required government approvals under applicable regulations in a timely manner or at all, we could be delayed or prevented from selling our products in certain jurisdictions, which could adversely affect our business and financial results.

~~If we are unable to obtain or maintain appropriate government security clearances for our facilities or personnel, we may be precluded from bidding on certain opportunities.~~

We must comply with security requirements pursuant to the National Industrial Security Program Operating Manual, or NISPOM, and other U.S. government security protocols when accessing sensitive information. Several of our facilities maintain

a facility security clearance and many of our employees maintain a personal security clearance in order to access sensitive information necessary to the performance of our work on certain government contracts and subcontracts. Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S. government contract or subcontract, or potentially debarment as a government contractor.

~~If we suffer any data breaches involving the designs, schematics, or source code for our products or other sensitive information, our business and financial results could be adversely affected.~~

We securely store our designs, schematics, and source code for our products as they are created. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products. If we are subject to data security breaches from external sources or from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results. Other potential costs could include loss of brand value, incident response costs, loss of stock market value, regulatory inquiries, litigation, and management distraction. In addition, a security breach that involved classified information could subject us to civil or criminal penalties, loss of a government contract, loss of access to classified information, or debarment as a government contractor. Similarly, a breach that involved loss of customer-provided data could subject us to loss of a customer, loss of a contract, litigation costs and legal damages, and reputational harm.

The highly-publicized cyber-attack on Sony Pictures Entertainment demonstrates the vulnerability of companies to cyber-attacks and the severe impact these attacks can have. In addition to the potential costs discussed above, the Sony cyber-attack illustrates that such attacks can also damage physical infrastructure (e.g. corrupted servers) and destroy all copies of company intellectual property on a company's network.

We may need to ~~invest in new information technology systems and infrastructure~~sell debt or additional equity securities or to ~~scale~~reduce our ~~operations.~~growth to a level that can be supported by our cash flow.

We may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior and future business acquisitions. Our older information technology systems and infrastructure could create product development or production work stoppages, negatively impact product delivery times and quality, and increase our compliance costs. Failure to invest in newer information technology systems and infrastructure may lead to operational inefficiencies and increased compliance costs and risks. In addition, an inability to maximize the utility and benefit of our current information technology tools could impact our ability to meet cost reduction and planned efficiency and operational improvement goals.

Our income tax provision and other tax liabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our position. Increases in tax rates could impact our financial performance.

From time to time, we are audited by various federal, state and local authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and other taxes. Although we believe our approach to determining the appropriate tax treatment is supportable and in accordance with relevant authoritative guidance it is possible that the final tax authority will take a tax position that is materially different than that which is reflected in our income tax provision. Such differences could have an adverse effect on our income tax provision or benefit, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period. Further, future increases in tax rates may adversely affect our financial results.

Provisions in our organizational documents and Massachusetts law and other actions we have taken could make it more difficult for a third party to acquire us.

Provisions of our ~~charter~~articles of organization and by-laws could have the effect of discouraging a third party from making a proposal to acquire ~~our company~~us and could prevent certain changes in control, even if some shareholders might consider the proposal to be in their best interest. These provisions include a classified board of directors, advance notice to our board of directors of shareholder proposals and director nominations, and limitations on the ability of shareholders to remove directors and to call shareholder meetings. In addition, we may issue shares of any class or series of preferred stock in the future without shareholder approval upon such terms as our board of directors may determine. The rights of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any such class or series of preferred stock that may be issued.

We also are subject to the Massachusetts General Laws which, subject to certain exceptions, prohibit a Massachusetts corporation from engaging in a broad range of business combinations with any “interested shareholder” for a period of three years following the date that such shareholder becomes an interested shareholder. ~~These provisions could discourage~~The Massachusetts Business Corporation Act permits directors to look beyond the interests of shareholders and consider other constituencies in discharging their duties. In determining what the director of a ~~third party from pursuing an acquisition of our company at a price considered attractive by many shareholders.~~

~~Our profits may decrease and/or we may incur significant unanticipated costs if we do not accurately estimate the costs of fixed-price engagements.~~

~~A significant number of our system integration projects are based on fixed-price contracts, rather than contracts in which payment~~Massachusetts corporation reasonably believes to ~~us is determined on a time and materials or other basis. Our failure to estimate accurately the resources and schedule~~

required for a project, or our failure to complete our contractual obligations in a manner consistent with the project plan upon which our fixed-price contract was based, could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations. We are consistently entering into contracts for large projects that magnify this risk. We have been required to commit unanticipated additional resources to complete projectsbe in the ~~past, which has occasionally resulted in losses on those contracts. We will likely experience similar situations in the future. In addition, we may fix the price for some projects at an early stage~~best interests of the ~~project engagement, which could result in~~corporation, a ~~fixed price~~director may consider the interests of the corporation's employees, suppliers, creditors, and customers, the economy of the state, the region, and the nation, community and societal considerations, and the long-term and short-term interests of the corporation and its shareholders, including the possibility that ~~is too low. Therefore, any changes from our original estimates could adversely affect our business, financial condition and results of operations.~~

~~The trading price of our common stock may continue to be volatile, which may adversely affect our business, and investors in our common stock may experience substantial losses.~~

Our stock price, like that of other technology companies, has been volatile. The stock market in general and technology companies in particular may continue to experience volatility. The stock prices for companies in the defense technology industry may continue to remain volatile given the uncertainty and timing of funding for defense programs. This volatility may or may not be related to our operating performance. Our operating results, from time to time,these interests may be below the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock. Our low stock trading volume and small cap status could hamper existing and new shareholders from gaining a meaningful position in our stock. In addition,best served by the continued threat of terrorism in the United States and abroad and the resulting military action and heightened security measures undertaken in response to threats may cause continued volatility in securities markets. When the market price of a stock has been volatile, holders of that stock will sometimes issue securities class action litigation against the company that issued the stock. If any shareholders were to issue a lawsuit, we could incur substantial costs defending the lawsuit. Also, the lawsuit could divert the time and attention of management.

We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our common stock will likely depend on whether the price of our common stock increases.

We have not declared or paid cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Consequently, in the foreseeable future, you will likely only experience a gain from your investment in our common stock if the price of our common stock increases. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased your shares, and you may not realize a return on your investment in our common stock.

~~If our internal controls over financial reporting are not considered effective, our business and stock price could be adversely affected.~~

~~Section 404~~independence of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form 10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, management’s assessment of our internal controls over financial reporting.corporation.

Our management, including our chief executive officer and chief financial officer, does not expect that our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become ineffective because of changes in conditions or deterioration in the degree of compliance with policies or procedures. In addition, as part of our growth strategy, we may continue to explore acquisitions or strategic alliances that could adversely affect internal control over financial reporting during the integration period until the acquired business has been fully incorporated into our internal control environment. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. We cannot assure you that we or our independent registered public accounting firm will not identify a material weakness in our internal controls in the future. A material weakness in our internal controls over financial reporting would require management and our independent registered public accounting firm to consider our internal controls as ineffective. If our internal controls over financial reporting are not considered effective, we may experience a loss of public confidence, which could have an adverse effect on our business and on the market price of our common stock.

~~If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.~~

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We may need additional capital and may not be able to raise funds on acceptable terms, if at all. In addition, any funding through the sale of additional common stock or other equity securities could result in additional dilution to our stockholders and any funding through indebtedness could restrict our operations.

We may require additional cash resources to finance our continued growth or other future developments, including any investments or acquisitions we may decide to pursue. The amount and timing of such additional financing needs will vary principally depending on the timing of new product and service launches, investments and/or acquisitions, and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a larger credit facility. The sale of additional equity securities or securities convertible into our ordinary shares could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations.

~~Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:~~

~~investors’ perception of, and demand for, securities of defense technology companies;~~

~~conditions of the United States and other capital markets in which we may seek to raise funds;~~

~~our future results of operations, financial condition and cash flows; and~~

~~prevailing interest rates.~~

We cannot assure that financing will be available in amounts or on terms acceptable to us, if at all. If we fail to raise additional funds, we may need to sell debt or additional equity securities or to reduce our growth to a level that can be supported by our cash flow. Without additional capital, we may not be able to:

~~further develop or enhance our customer base;~~

~~acquire necessary technologies, products or businesses;~~

~~expand operations in the United States and elsewhere;~~

~~hire, train and retain employees;~~

~~market our software solutions, services and products; or~~

~~respond to competitive pressures or unanticipated capital requirements.~~


~~ITEM 1B.~~	~~UNRESOLVED STAFF COMMENTS~~

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

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~~ITEM 2.~~	~~PROPERTIES~~

ITEM 2.PROPERTIES

The following table sets forth our significant properties as of ~~June 30, 2017~~:

July 2, 2021:

Location

Size in
Sq. Feet

Commitment

Andover, MA

145,262

Leased, expiring 2032

Phoenix, AZ

125,756

Leased, expiring 2031

Hudson, NH

121,553

Leased, expiring 2030

Torrance, CA

85,125

Leased, expiring 2029

Oxnard, CA

72,673

Leased, expiring 2025

Fremont, CA

53,713

Leased, expiring 2023

Torrance, CA

49,250

Leased, expiring 2025

Cypress, CA

42,770

Leased, expiring 2028

Upper Saddle River, NJ

36,223

Leased, expiring 2029

Torrance, CA

36,220

Leased, expiring 2025

Alpharetta, GA

35,005

Leased, expiring 2028

Mesa, AZ

34,320

Leased, expiring 2022

Chantilly, VA

32,789

Leased, expiring 2025

Geneva, CH

27,287

Leased, expiring 2027

~~Location~~

~~Size in~~
~~Sq. Feet~~

~~Commitment~~

~~Phoenix, AZ~~

~~116,858~~

~~Leased, expiring 2020~~

~~Andover, MA~~

~~114,198~~

~~Leased, expiring 2029~~

~~Hudson, NH~~

~~100,111~~

~~Leased, expiring 2024~~

~~Cypress, CA~~

~~42,770~~

~~Leased, expiring 2021~~

~~Oxnard, CA~~

~~35,650~~

~~Leased, expiring 2019~~

~~Huntsville, AL~~

~~25,950~~

~~Leased, expiring 2018~~

~~Camarillo, CA~~

~~25,195~~

~~Leased, expiring 2020~~

~~The company~~We actively ~~manages its~~manage our facilities and isare in pursuit of lease extensions or alternative locations for facilities with expiration dates in ~~2017, 2018 or 2019.~~2021 and 2022. In addition, we lease a number of smaller offices around the world primarily for sales. ~~For financial information regarding obligations under our leases, see~~See Note KB and Note J to the consolidated financial ~~statements.~~

statements for more information regarding our obligations under leases.


~~ITEM 3.~~	~~LEGAL PROCEEDINGS~~

ITEM 3.LEGAL PROCEEDINGS

We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. Although legal proceedings are inherently unpredictable, we believe that we have valid defenses with respect to those matters currently pending against us and intend to defend our self vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on our cash flows, results of operations, or financial position.

On June 23, 2021, Embedded Reps of America, LLC (“ERA”), a former sales representative, and James Mazzola, a principal of ERA, filed for binding arbitration related to the termination of ERA’s sales representative agreement raising multiple claims that aggregate to approximately $9 million in direct damages, with treble damages requested on a number of those claims. ERA was a sales representative of Themis when Themis was acquired by Mercury. The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA product shipment occurring prior to termination. We responded to the complaint on July 28, 2021. We believe the claims in the complaint are without merit and we intend to defend ourselves vigorously.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.


~~ITEM 4.1.~~	~~EXECUTIVE OFFICERS OF THE REGISTRANT~~

ITEM 4.1.INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Our executive officers are appointed to office by the Board of Directors at the first board meeting following the Annual Meeting of Shareholders or at other board meetings as appropriate, and hold office until the first board meeting following the next Annual Meeting of Shareholders and until a successor is chosen, subject to prior death, resignation or removal. Mr. Perry was appointed as an executive officer as of August 3, 2021. Mr. Thibaud, our Executive Vice President, Chief Operating Officer (COO), is retiring as COO effective as of August 26, 2021. Information regarding our executive officers as of the date of filing of this Annual Report on Form 10-K is presented below.

Mark Aslett, age ~~49,~~53, joined Mercury in 2007 and has served as the President and Chief Executive Officer ~~since then,~~ and ~~served~~ as a member of the Board since 2007. Prior to joining Mercury, he was Chief Operating Officer and Chief Executive Officer of Enterasys Networks from 2003 to 2006, and held various positions with Marconi plc and its affiliated companies, including Executive Vice President of Marketing, Vice President of Portfolio Management, and President of Marconi ~~Communications-North~~Communications- North America, from 1998 to 2002. Mr. Aslett has also held positions at GEC Plessey Telecommunications, as well as other telecommunications-related technology firms.

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Christopher C. Cambria, age ~~59,~~63, joined Mercury in 2016 as Senior Vice President, General Counsel, and Secretary and was appointed Executive Vice President, General Counsel, and Secretary in 2017. Prior to joining Mercury, he was Vice President, General Counsel, and Secretary of Aerojet Rocketdyne Holdings, Inc. from 2012 to 2016 and Vice President, General Counsel from 2011 to 2012. He was with L-3 Communications Holdings, Inc. from 1997 through 2009 serving as Senior Vice President and Senior Counsel, Mergers and Acquisitions from 2006 to 2009, Senior Vice President, Secretary and General Counsel from 2001 to 2006, and Vice President, General Counsel and Secretary from 1997 to 2001. Prior to L-3, Mr. Cambria was an Associate with Fried, Frank, Harris, Shriver & Jacobson and Cravath, Swaine & Moore.

~~Gerald M. Haines II~~Brian E. Perry, age 54, joined Mercury in ~~2010~~2008 and has served as our Executive Vice President, President, Processing division since August 2021. He served as Senior Vice President of ~~Corporate Development and General Counsel and~~our Processing division starting in ~~2014 was appointed Executive Vice President, CFO and Treasurer.~~July 2020. Prior to ~~Mercury, from 2008 to 2010~~that, he served as Executive Vice President at Verenium Corporation, a publicly traded company engaged in the development and commercialization of biofuels and specialty enzymes, where he oversaw various corporate development, corporate finance, and joint venturing activities. Previously, Mr. Haines served as Executive Vicewas President of ~~Strategic Affairs of Enterasys Networks, Inc., a publicly traded network communications company, Senior Vice President of Cabletron~~our Mercury Defense Systems ~~Inc., the predecessor of Enterasys Networks,~~business unit starting in 2014 and Vice President and General Manager of ~~Applied Extrusion Technologies, a large manufacturer of plastic films~~our Services and ~~packaging. He began his career at J.P. Morgan. Mr. Haines holds a bachelor's degree in Business Administration, magna cum laude,~~Systems Integration group from ~~Boston University, and a law degree from Cornell Law School.~~

~~Charles A. Speicher, age 58, joined Mercury in 2010 as Vice President, Controller, and Chief Accounting Officer.~~2011 to 2014. Prior to joining Mercury, Mr. ~~Speicher held~~Perry was the General Manager for Suntron Corporation’s Northeast Express and served in various ~~positions at Virtusa Corporation, a publicly-traded global IT services company, including~~roles with Lockheed Martin and General Electric Aircraft Engines.

Michael D. Ruppert, age 47, joined Mercury in 2014 as Senior Vice President, ~~of Global Accounting Operations~~Strategy and Corporate ~~Controller from 2001 to 2009.~~Development and in 2017 was named Executive Vice President, Strategy and Corporate Development. In 2018, Mr. ~~Speicher~~Ruppert was ~~Corporate Controller at Cerulean Technologies Inc., a software product company, from 1996 to 2001.~~appointed the Company’s Executive Vice President, Chief Financial Officer and Treasurer. Prior to ~~Cerulean,~~joining Mercury, from 2013 to 2014, Mr. ~~Speicher~~Ruppert was Co-Founder and Managing Partner of RS Partners, LLC, a boutique advisory firm focused on the aerospace & defense industries. Prior to that, he was a Managing Director at UBS Investment Bank where he led the defense investment banking practice from 2011 to 2013. Mr. Ruppert also held positions ~~with Wyman-Gordon Company, Wang Laboratories Inc.~~in the investment banking divisions at Lazard Freres & Co from 2008 to 2011 and ~~Arthur Andersen & Company, LLP. Mr. Speicher is a CPA licensed in Massachusetts.~~at Lehman Brothers from 2000 to 2008.

Didier M.C. Thibaud, age ~~56,~~60, joined Mercury in 1995, and has served as our Executive Vice President, Chief Operating Officer since ~~January~~ 2016. ~~Prior to that he was~~He served as the President of our Mercury Commercial Electronics business unit ~~since 2012. Prior~~from 2012 to ~~that, he was~~2016 and the President of our Advanced Computing Solutions business unit ~~since 2007.~~from 2007 to 2012. Prior to that, he was Senior Vice President, Defense & Commercial Businesses from 2005 to ~~June~~ 2007 and Vice President and General Manager, Imaging and Visualization Solutions Group, from 2000 to 2005 and served in various capacities in sales and marketing from 1995 to 2000.

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~~ITEM 8.~~	~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MERCURY SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

June 30,
2017 2016
Assets
Current assets:
Cash and cash equivalents $ 41,637
$ 81,691
Accounts receivable, net of allowance for doubtful accounts of $83 and $92 at June 30, 2017 and 2016, respectively 76,341
73,427
Unbilled receivables and costs in excess of billings 37,332
22,467
Inventory 81,071
58,284
Prepaid income taxes 1,434
3,401
Prepaid expenses and other current assets 8,381
6,122
Total current assets 246,196
245,392
Restricted cash —
264
Property and equipment, net 51,643
28,337
Goodwill 380,846
344,027
Intangible assets, net 129,037
116,673
Other non-current assets 8,023
1,803
Total assets $ 815,745
$ 736,496
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 27,485
$ 26,723
Accrued expenses 20,594
10,273
Accrued compensation 18,406
13,283
Deferred revenues and customer advances 6,360
7,365
Current portion of long-term debt —
10,000
Total current liabilities 72,845
67,644
Deferred income taxes 4,856
11,842
Income taxes payable 855
700
Long-term debt —
182,275
Other non-current liabilities 11,772
991
Total liabilities 90,328
263,452
Commitments and contingencies (Note K)

Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding —
—
Common stock, $0.01 par value; 85,000,000 shares authorized; 46,303,075 and 38,675,340 shares issued and outstanding at June 30, 2017 and 2016, respectively 463
387
Additional paid-in capital 584,795
357,500
Retained earnings 139,085
114,210
Accumulated other comprehensive income 1,074
947
Total shareholders’ equity 725,417
473,044
Total liabilities and shareholders’ equity $ 815,745
$ 736,496

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~MERCURY SYSTEMS, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME~~

~~(In thousands, except per share data)~~

For the Years Ended June 30,
2017 2016 2015
Net revenues $ 408,588
$ 270,154
$ 234,847
Cost of revenues 217,045
142,535
120,647
Gross margin 191,543
127,619
114,200
Operating expenses:
Selling, general and administrative 76,491
52,952
49,010
Research and development 54,086
36,388
36,535
Amortization of intangible assets 19,680
8,842
7,008
Restructuring and other charges 1,952
1,240
3,175
Impairment of long-lived assets —
231
—
Acquisition costs and other related expenses 1,931
3,993
117
Total operating expenses 154,140
103,646
95,845
Income from operations 37,403
23,973
18,355
Interest income 462
131
21
Interest expense (7,568 ) (1,172 ) (34 )
Other income, net 771
2,354
453
Income from continuing operations before income taxes 31,068
25,286
18,795
Tax provision 6,193
5,544
4,366
Income from continuing operations 24,875
19,742
14,429
Loss from discontinued operations, net of income taxes —
—
(4,060 )
Net income $ 24,875
$ 19,742
$ 10,369

Basic net earnings (loss) per share:
Income from continuing operations $ 0.59
$ 0.58
$ 0.45
Loss from discontinued operations, net of income taxes —
—
(0.13 )
Net income $ 0.59
$ 0.58
$ 0.32

Diluted net earnings (loss) per share:
Income from continuing operations $ 0.58
$ 0.56
$ 0.44
Loss from discontinued operations, net of income taxes —
—
(0.13 )
Net income $ 0.58
$ 0.56
$ 0.31

Weighted-average shares outstanding:
Basic 41,986
34,241
32,114
Diluted 43,018
35,097
32,939

Comprehensive income:
Net income $ 24,875
$ 19,742
$ 10,369
Foreign currency translation adjustments (93 ) 171
(235 )
Pension benefit plan, net of tax 220
—
—
Total other comprehensive income, net of tax 127
171
(235 )
Total comprehensive income $ 25,002
$ 19,913
$ 10,134

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~MERCURY SYSTEMS, INC.~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~For the Years Ended June 30,~~ ~~2017~~, ~~2016~~ ~~and~~ ~~2015~~

~~(In thousands)~~

Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity
Shares Amount
Balance at June 30, 2014 31,284
$ 312
$ 241,725
$ 84,099
$ 1,011
$ 327,147
Issuance of common stock under employee stock incentive plans 1,275
13
3,697
—
—
3,710
Issuance of common stock under employee stock purchase plan 79
1
837
—
—
838
Retirement of common stock (67 ) —
(944 ) —
—
(944 )
Stock-based compensation —
—
8,728
—
—
8,728
Tax shortfall from employee stock plan awards —
—
525
—
—
525
Net income —
—
—
10,369
—
10,369
Foreign currency translation adjustments —
—
—
—
(235 ) (235 )
Balance at June 30, 2015 32,571
326
254,568
94,468
776
350,138
Issuance of common stock under employee stock incentive plans 1,267
12
6,867
—
—
6,879
Issuance of common stock under employee stock purchase plan 88
1
1,217
—
—
1,218
Retirement of common stock (426 ) (4 ) (7,951 ) —
—
(7,955 )
Follow-on public stock offering 5,175
52
92,726
—
—
92,778
Stock-based compensation —
—
9,666
—
—
9,666
Net income —
—
—
19,742
—
19,742
Share-based business combination consideration —
—
407
—
—
407
Foreign currency translation adjustments —
—
—
—
171
171
Balance at June 30, 2016 38,675
387
357,500
114,210
947
473,044
Issuance of common stock under employee stock incentive plans 976
9
2,747
—
—
2,756
Issuance of common stock under employee stock purchase plan 96
1
2,213
—
—
2,214
Retirement of common stock (344 ) (3 ) (8,763 ) —
—
(8,766 )
Follow-on public stock offering 6,900
69
215,656
—
—
215,725
Stock-based compensation —
—
15,442
—
—
15,442
Net income —
—
—
24,875
—
24,875
Foreign currency translation adjustments —
—
—
—
(93 ) (93 )
Pension benefit plan, net of tax —
—
—
—
220
220
Balance at June 30, 2017 46,303
$ 463
$ 584,795
$ 139,085
$ 1,074
$ 725,417



	July 2, 2021		July 3, 2020
Assets
Current assets:
Cash and cash equivalents	$	113,839	$	226,838
Accounts receivable, net of allowance for credit losses of $1,720 and $1,451 at July 2, 2021 and July 3, 2020, respectively	128,807		120,438
Unbilled receivables and costs in excess of billings	162,921		90,289
Inventory	221,640		178,093

Prepaid income taxes	782		2,498
Prepaid expenses and other current assets	15,111		16,613

Total current assets	643,100		634,769

Property and equipment, net	128,524		87,737
Goodwill	804,906		614,076
Intangible assets, net	307,559		208,748
Operating lease right-of-use assets	66,373		60,613
Other non-current assets	4,675		4,777

Total assets	$	1,955,137	$	1,610,720
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	47,951	$	41,877
Accrued expenses	24,652		23,794
Accrued compensation	40,043		41,270
Deferred revenues and customer advances	38,177		18,974


Total current liabilities	150,823		125,915

Deferred income taxes	28,810		13,889
Income taxes payable	7,467		4,117
Long-term debt	200,000		0
Operating lease liabilities	71,508		66,981
Other non-current liabilities	12,383		15,034

Total liabilities	470,991		225,936
Commitments and contingencies (Note L)	0		0
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding	0		0
Common stock, $0.01 par value; 85,000,000 shares authorized; 55,241,120 and 54,702,322 shares issued and outstanding at July 2, 2021 and July 3, 2020, respectively	552		547
Additional paid-in capital	1,109,434		1,074,667
Retained earnings	374,499		312,455
Accumulated other comprehensive loss	(339)		(2,885)
Total shareholders’ equity	1,484,146		1,384,784
Total liabilities and shareholders’ equity	$	1,955,137	$	1,610,720

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS AND COMPREHENSIVE INCOME

(In ~~thousands)~~thousands, except per share data)


	For the Fiscal Years Ended
	July 2, 2021		July 3, 2020		June 30, 2019
Net revenues	$	923,996	$	796,610	$	654,744
Cost of revenues	538,808		439,766		368,588
Gross margin	385,188		356,844		286,156
Operating expenses:
Selling, general and administrative	134,337		132,253		110,717
Research and development	113,481		98,485		68,925
Amortization of intangible assets	41,171		30,560		27,914
Restructuring and other charges	9,222		1,805		560

Acquisition costs and other related expenses	5,976		2,679		1,456

Total operating expenses	304,187		265,782		209,572
Income from operations	81,001		91,062		76,584
Interest income	179		2,151		932
Interest expense	(1,222)		(1,006)		(9,109)
Other (expense) income, net	(2,785)		1,726		(8,880)
Income before income taxes	77,173		93,933		59,527
Income tax provision	15,129		8,221		12,752


Net income	$	62,044	$	85,712	$	46,775

Basic net earnings per share	$	1.13	$	1.57	$	0.98




Diluted net earnings per share	$	1.12	$	1.56	$	0.96




Weighted-average shares outstanding:
Basic	55,070		54,546		47,831
Diluted	55,474		55,115		48,500

Comprehensive income:
Net income	$	62,044	$	85,712	$	46,775
Foreign currency translation adjustments	(739)		174		(232)
Pension benefit plan, net of tax	3,285		(1,768)		(2,350)




Total other comprehensive income (loss), net of tax	2,546		(1,594)		(2,582)
Total comprehensive income	$	64,590	$	84,118	$	44,193

For the Years Ended June 30,
2017 2016 2015
Cash flows from operating activities:
Net income $ 24,875
$ 19,742
$ 10,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 32,269
15,742
13,840
Stock-based compensation expense 15,341
9,574
8,728
Deferred income taxes (7,841 ) (3,061 ) (1,038 )
Impairment of goodwill and long-lived assets —
231
2,283
Excess tax benefit from stock-based compensation —
—
(943 )
Loss on sale of discontinued operations —
—
892
Non-cash interest expense 1,810
301
—
Other non-cash items (626 ) (722 ) (495 )
Changes in operating assets and liabilities, net of effects of businesses acquired:
Accounts receivable, unbilled receivables, and costs in excess of billings (14,054 ) (25,396 ) 5,935
Inventory (9,318 ) (865 ) (345 )
Prepaid income taxes 1,978
346
(2,265 )
Prepaid expenses and other current assets (1,270 ) 2,964
(4,964 )
Other non-current assets 372
(778 ) 565
Accounts payable and accrued expenses 3,520
18,871
(475 )
Deferred revenues and customer advances (1,621 ) (194 ) 1,138
Income taxes payable 9,622
253
(938 )
Other non-current liabilities 4,089
(68 ) (80 )
Net cash provided by operating activities 59,146
36,940
32,207
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (77,757 ) (309,756 ) —
Purchases of property and equipment (32,844 ) (7,885 ) (5,984 )
Proceeds from sale of discontinued operations —
—
885
Other investing activities (486 ) (567 ) (499 )
Net cash used in investing activities (111,087 ) (318,208 ) (5,598 )
Cash flows from financing activities:
Proceeds from equity offering, net 215,725
92,778
—
Proceeds from employee stock plans 4,970
8,097
4,548
Payment for retirement of common stock (8,766 ) (7,955 ) (944 )
Excess tax benefit from stock-based compensation —
—
943
Proceeds from issuance of term debt, net —
194,900
—
Payments of debt issuance costs (591 ) (2,926 ) —
Payments of term debt (200,000 ) —
—
Payments of capital lease obligations —
—
(642 )
Net cash provided by financing activities 11,338
284,894
3,905
Effect of exchange rate changes on cash and cash equivalents 549
479
(215 )
Net (decrease) increase in cash and cash equivalents (40,054 ) 4,105
30,299
Cash and cash equivalents at beginning of year 81,691
77,586
47,287
Cash and cash equivalents at end of year $ 41,637
$ 81,691
$ 77,586
Cash paid during the period for:
Interest $ 5,758
$ 1,041
$ 34
Income taxes $ 2,834
$ 7,975
$ 7,875
Supplemental disclosures—non-cash activities:
Share-based business combination consideration $ —
$ 407
$ —

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Fiscal Years Ended July 2, 2021, July 3, 2020 and June 30, 2019

(In thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares	Amount
























Balance at June 30, 2018	46,924	$	469	$	590,163	$	179,968	$	1,291	$	771,891
Issuance of common stock under employee stock incentive plans	478	5		(5)		—		—		0
Issuance of common stock under employee stock purchase plan	102	1		3,660		—		—		3,661
Retirement of common stock	(156)	(2)		(7,966)		—		—		(7,968)
Follow-on public stock offering	6,900	69		453,504		—		—		453,573
Stock-based compensation	—	—		19,389		—		—		19,389

Net income	—	—		—		46,775		—		46,775

Other comprehensive loss	—	—		—		—		(2,582)		(2,582)

Balance at June 30, 2019	54,248	542		1,058,745		226,743		(1,291)		1,284,739
Issuance of common stock under employee stock incentive plans	562	6		(1)		—		—		5
Issuance of common stock under employee stock purchase plan	89	1		5,311		—		—		5,312
Retirement of common stock	(197)	(2)		(16,247)		—		—		(16,249)

Stock-based compensation	—	—		26,859		—		—		26,859

Net income	—	—		—		85,712		—		85,712


Other comprehensive loss	—	—		—		—		(1,594)		(1,594)

Balance at July 3, 2020	54,702	547		1,074,667		312,455		(2,885)		1,384,784
Issuance of common stock under employee stock incentive plans	439	4		10		—		—		14
Issuance of common stock under employee stock purchase plan	101	1		6,280		—		—		6,281
Retirement of common stock	(1)	0		(66)		—		—		(66)

Stock-based compensation	—	—		28,543		—		—		28,543

Net income	—	—		—		62,044		—		62,044


Other comprehensive income	—	—		—		—		2,546		2,546

Balance at July 2, 2021	55,241	$	552	$	1,109,434	$	374,499	$	(339)	$	1,484,146

The accompanying notes are an integral part of the consolidated financial statements.

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	For the Fiscal Years Ended
	July 2, 2021		July 3, 2020		June 30, 2019
Cash flows from operating activities:
Net income	$	62,044	$	85,712	$	46,775
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	67,083		49,330		46,392
Stock-based compensation expense	28,290		26,538		19,422
Benefit for deferred income taxes	(1,125)		(3,019)		(1,557)


Gain on investments	0		(5,817)		0



Termination of interest rate swap	0		0		5,420
Other non-cash items	3,745		3,509		3,779
Changes in operating assets and liabilities, net of effects of businesses acquired:
Accounts receivable, unbilled receivables, and costs in excess of billings	(51,981)		(31,079)		(28,096)
Inventory	(27,441)		(31,609)		(17,101)
Prepaid income taxes	1,703		(2,792)		3,843
Prepaid expenses and other current assets	1,718		(2,116)		(1,075)
Other non-current assets	5,459		(1,260)		101
Accounts payable, accrued expenses and accrued compensation	(6,315)		13,610		17,949
Deferred revenues and customer advances	13,731		7,082		(1,531)
Income taxes payable	4,080		(131)		3,152
Other non-current liabilities	(3,744)		7,226		44
Net cash provided by operating activities	97,247		115,184		97,517
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(372,826)		(96,502)		(127,083)

Purchases of property and equipment	(45,599)		(43,294)		(26,691)
Proceeds from sale of investment	1,538		4,310		0




Net cash used in investing activities	(416,887)		(135,486)		(153,774)
Cash flows from financing activities:
Proceeds from employee stock plans	6,295		5,317		3,661
Payments for retirement of common stock	(66)		(16,249)		(7,968)

Payments under credit facilities	0		(200,000)		(324,500)
Borrowings under credit facilities	200,000		200,000		129,500
Proceeds from equity offering, net	0		0		454,343
Termination of interest rate swap	0		0		(5,420)


Payments of deferred financing and offering costs	0		0		(1,851)




Net cash provided by (used in) financing activities	206,229		(10,932)		247,765
Effect of exchange rate changes on cash and cash equivalents	412		140		(97)
Net (decrease) increase in cash and cash equivalents	(112,999)		(31,094)		191,411
Cash and cash equivalents at beginning of year	226,838		257,932		66,521
Cash and cash equivalents at end of year	$	113,839	$	226,838	$	257,932
Cash paid during the period for:
Interest	$	1,088	$	1,046	$	10,368
Income taxes	$	8,983	$	12,939	$	7,351
Supplemental disclosures—non-cash activities:
Non-cash investing activity	$	(1,928)	$	2,623	$	0
Non-cash financing activity	$	0	$	0	$	770

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MERCURY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

A.Description of Business

Mercury Systems, Inc. (the “Company” or “Mercury”) is a leading ~~commercial provider~~technology company serving the aerospace and defense industry, positioned at the intersection of ~~secure sensor~~high-tech and ~~safety critical mission processing subsystems. Optimized for customer and mission success, its solutions power a wide variety of critical defense and intelligence programs.~~defense. Headquartered in Andover, Massachusetts, ~~it is pioneering a next-generation defense electronics business model specifically designed to meet~~ the ~~industry's current and emerging technology and business needs. The~~ Company delivers ~~affordable innovative solutions, rapid time-to-value and service and support to its defense prime contractor customers. The Company's~~ products and solutions ~~have been deployed~~that power a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. The Company envisions, creates and delivers innovative technology solutions that are open, purpose-built and uncompromised to meet our customers’ most-pressing high-tech needs, including those specific to the defense community.

On May 27, 2021, we acquired Pentek for a purchase price of $65.0 million, subject to net working capital and net debt adjustments. Based in Upper Saddle River, New Jersey, Pentek is a leading designer and manufacturer of ruggedized, high-performance, commercial off-the-shelf ("COTS") software-defined radio and data acquisition boards, recording systems and subsystems for high-end commercial and defense applications. The acquisition and associated transaction expenses were funded through a combination of cash on hand and Mercury's existing revolving credit facility (the "Revolver").

On December 30, 2020, we acquired Physical Optics Corporation ("POC") for a purchase price of $310.0 million, subject to net working capital and net debt adjustments. Based in Torrance, California, POC more than 300 programs with over 25 different defense prime contractors. Key programs include Aegis, Patriot, Surface Electronic Warfare Improvement Program ("SEWIP"), Gorgon Stare, Predator, F-16, F-35, E2D Hawkeye, Reaperdoubles our global avionics business and ~~Paveway. The Company's organizational structure allows it to deliver capabilities that combine technology building blocks and deep domain expertise~~expands its collective footprint in the ~~aerospace defense sector.~~platform and mission management market. We funded the acquisition through a combination of cash on hand and our existing Revolver.

On ~~April 3, 2017,~~September 23, 2019, the Company acquired ~~Delta Microwave, LLC~~American Panel Corporation (“~~Delta”~~APC”) on a cash-free, debt-free basis for a total purchase price of ~~$40,500, subject~~$100,000, prior to net working capital and net debt adjustments. Based in ~~Oxnard, California, Delta~~Alpharetta, Georgia, APC is a leading ~~designer and manufacturer of high-value radio frequency ("RF"), microwave and millimeter wave sub-assemblies and components~~innovator in large area display technology for the ~~military,~~ aerospace and ~~space markets.See~~defense market. APC's capabilities are deployed on a wide range of next-generation platforms.

For further details on the acquisitions, see Note C to ~~consolidated financial statements.~~

~~On November 3, 2016,~~ the Company acquired CES Creative Electronic Systems, S.A. (“CES”) for a total purchase price of approximately $39,123, subject to net working capital and net debt adjustments. 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 input-output ("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 several types of unmanned platforms. See Note C to consolidated financial statements.

On May 2, 2016, the Company acquired the custom microelectronics, RF and microwave solutions, and embedded security operations of Microsemi Corporation (the “Carve-Out Business”), resulting in the entities comprising the Carve-Out Business becoming 100% owned direct or indirect subsidiaries of Mercury (the “Carve-Out Acquisition”). Under the terms of the Purchase Agreement, the Company paid $300,000 in cash on a cash-free, debt-free basis, subject to working capital and other post-closing adjustments.

B.Summary of Significant Accounting Policies

PRINCIPLESOF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

BASIS OF PRESENTATION

Effective July 1, 2019, the Company's fiscal year has changed to the 52-week or 53-week period ending on the Friday closest to the last day in June. All references to fiscal 2021 are to the 52-week period from July 4, 2020 to July 2, 2021. All references to fiscal 2020 are to the 53-week period from July 1, 2019 to July 3, 2020. All references to fiscal 2019 are to the 52-week period from and July 1, 2018 to June 30, 2019. There have been no reclassifications of prior comparable periods due to this change.

USEOF ESTIMATES

The preparation of financial statements in conformity with Generally Accepted Accounting Principles ~~("GAAP"~~(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

R~~ECLASSIFICATION~~BUSINESS COMBINATIONS

The Company included costs related to the sustainment of its product portfolio as research and development expense, which was previously included as costs of revenues on the Consolidated Statements of Operations and Comprehensive Income. For comparative purposes, for the fiscal years ended June 30, 2016 and 2015, the Company has reclassified $2,845 and $3,981, respectively, from costs of revenues to research and development expense.

B~~USINESS~~ C~~OMBINATIONS~~

The Company utilizes the acquisition method of accounting under ~~FASB~~ ASC 805, Business Combinations, (“~~FASB~~ ASC 805”), for all transactions and events in which it obtains control over one or more other businesses, to recognize the fair value of all assets and liabilities acquired, even if less than one hundred percent ownership is acquired, and in establishing the acquisition date fair value as of the measurement date for all assets and liabilities assumed. The Company also utilizes ~~FASB~~ ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations. Other estimates include:

•estimated step-ups for ~~the~~ fixed assets and inventory;

•estimated fair values of intangible assets; and

•estimated income tax assets and liabilities assumed from the acquiree.

Table of Contents

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the purchase price allocation period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined.

R~~EVENUE~~ R~~ECOGNITION~~LEASES

The Company ~~relies upon FASB~~measures its lease obligations in accordance with ASC ~~605,~~ ~~Revenue Recognition,~~842, Leases, (“ASC 842”), which requires lessees to ~~account~~recognize a right-of-use (“ROU”) asset and lease liability for most lease arrangements. Effective July 1, 2019, the Company adopted ASC 842 using the optional transition method and, as a result, there have been no reclassifications of prior comparable periods due to this adoption.

The Company has arrangements involving the lease of facilities, machinery and equipment. Under ASC 842, at inception of the arrangement, the Company determines whether the contract is or contains a lease and whether the lease should be classified as an operating or a financing lease. This determination, among other considerations, involves an assessment of whether the Company can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset.

The Company recognizes ROU assets and lease liabilities as of the lease commencement date based on the net present value of the future minimum lease payments over the lease term. ASC 842 requires lessees to use the rate implicit in the lease unless it is not readily determinable and then it may use its ~~revenue transactions. Revenue~~incremental borrowing rate (“IBR”) to discount the future minimum lease payments. Most of the Company's lease arrangements do not provide an implicit rate; therefore, the Company uses its IBR to discount the future minimum lease payments. The Company determines its IBR with its credit rating and current economic information available as of the commencement date, as well as the identified lease term. During the assessment of the lease term, the Company considers its renewal options and extensions within the arrangements and the Company includes these options when it is ~~recognized upon shipment provided that title~~reasonably certain to extend the term of the lease.

The Company has lease arrangements with both lease and ~~risk~~non-lease components. Consideration is allocated to lease and non-lease components based on estimated standalone prices. The Company has elected to exclude non-lease components from the calculation of ~~loss have passed~~its ROU assets and lease liabilities. In the Company's adoption of ASC 842, leases with an initial term of 12 months or less will not result in recognition of a ROU asset and a lease liability and will be expensed as incurred over the lease term. Leases of this nature were immaterial to the ~~customer, there~~Company’s consolidated financial statements.

The Company has lease arrangements that contain incentives for tenant improvements as well as fixed rent escalation clauses. For contracts with tenant improvement incentives that are determined to be a leasehold improvement that will be owned by the lessee and the Company is ~~persuasive evidence of an arrangement,~~reasonably certain to exercise, it records a reduction to the ~~sales price is fixed or determinable, collection~~lease liability and amortizes the incentive over the identified term of the ~~related receivable~~lease as a reduction to rent expense. The Company records rental expense on a straight-line basis over the identified lease term on contracts with rent escalation clauses.

Finance leases are not material to the Company's consolidated financial statements and the Company is ~~reasonably assured,~~not a lessor in any material lease arrangements. There are no material restrictions, covenants, sale and ~~customer acceptance criteria, if any, have been successfully demonstrated. Out-of-pocket expenses that are reimbursable by~~leaseback transactions, variable lease payments or residual value guarantees in the ~~customer~~Company's lease arrangements. Operating leases are included in Operating lease right-of-use assets, Accrued expenses, and Operating lease liabilities in the Company's Consolidated Balance Sheets. The standard had no impact on the Company's Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows. See Note J to the consolidated financial statements for more information regarding our obligations under leases.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the five step model set forth by ASC 606, Revenue from Contracts with Customers, (“ASC 606”), which involves identification of the contract(s), identification of performance obligations in the contract, determination of the transaction price, allocation of the transaction price to the previously identified performance obligations, and revenue recognition as the performance obligations are satisfied.

During step one of the five step model, the Company considers whether contracts should be combined or segmented, and based on this assessment, the Company combines closely related contracts when all the applicable criteria are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single contract, which should be combined to reflect an overall profit rate. Similarly, the Company may separate an arrangement, which may consist of a single contract or group of contracts, with varying rates of profitability,

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only if the applicable criteria are met. Judgment also is involved in determining whether a single contract or group of contracts may be segmented based on how the arrangement and the related performance criteria were negotiated. The conclusion to combine a group of contracts or segment a contract could change the amount of revenue and ~~cost of revenue.~~gross profit recorded in a given period.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. Certain contracts with customers require the Company to perform tests of its products prior to shipment to ensure their performance complies with the Company’s published product specifications and, on occasion, with additional customer-requested specifications. In these cases, the Company conducts such tests and, if they are completed successfully, includes a written confirmation with each order shipped. As a result, at the time of each product shipment, the Company believes that no further customer testing requirements exist and that there is no uncertainty of acceptance by its customer.

The ~~Company uses FASB Accounting Standards Update (“ASU”) No. 2009-13 (“FASB ASU 2009-13”),~~ ~~Multiple-Deliverable Revenue Arrangements~~. FASB ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if VSOE is not available; and (3) best estimated selling price (“BESP”), if neither VSOE nor TPE is available. Additionally, FASB ASU 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements.

~~The Company enters into multiple-deliverable arrangements that may include a combination of hardware components, related integration or other services. These arrangements~~Company's contracts with customers generally do not include ~~any performance-, cancellation-, termination-~~a right of return relative to delivered products. In certain cases, contracts are modified to account for changes in the contract specifications or ~~refund-type provisions.~~requirements. In most instances, contract modifications are accounted for as part of the existing contract. Certain contracts with customers have options for the customer to acquire additional goods or services. In most cases the pricing of these options are reflective of the standalone selling price of the good or service. These options do not provide the customer with a material right and are accounted for only when the customer exercises the option to purchase the additional goods or services. If the option on the customer contract was not indicative of the standalone selling price of the good or service, the material right would be accounted for as a separate performance obligation.

~~In accordance~~The Company is a leading technology company serving the aerospace and defense industry, positioned at the intersection of high-tech and defense. Revenues are derived from the sales of products that are grouped into one of the following three categories: (i) components; (ii) modules and sub-assemblies; and (iii) integrated subsystems. The Company also generates revenues from the performance of services, including systems engineering support, consulting, maintenance and other support, testing and installation. Each promised good or service within a contract is accounted for separately under the guidance of ASC 606 if they are distinct. Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single performance obligation with other goods or services that together meet the ~~provisions~~criteria for being distinct. The appropriate allocation of ~~FASB ASU 2009-13,~~the transaction price and recognition of revenue is then determined for the bundled performance obligation.

Once the Company ~~allocates arrangement~~identifies the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to ~~each deliverable~~be included in ~~an arrangement~~the transaction price, if any. Variable consideration typically arises due to volume discounts, or other provisions that can either decrease or increase the transaction price. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the method the Company expects to better predict the amount of consideration to which it will be entitled. The determination of the estimates for variable consideration require judgment, and are based on ~~its relative selling price. The Company generally expects~~past history with similar contracts and anticipated performance. Further, variable consideration is only included in the determination of the transaction price if it is probable that ita significant reversal in the amount of revenue recognized will not ~~be able~~occur. There are no constraints on the variable consideration recorded.

For contracts with multiple performance obligations, the transaction price is allocated to ~~establish VSOE~~each performance obligation using the standalone selling price of each distinct good or ~~TPE due to limited single element transactions and~~service in the ~~nature~~contract. Standalone selling prices of the ~~markets in~~Company’s goods and services are generally not directly observable. Accordingly, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company ~~competes,~~forecasts the expected costs of satisfying a performance obligation and ~~as such, the Company typically determines its relative selling price using BESP.~~

~~The Company uses BESP in its allocation of arrangement consideration.~~then adds an appropriate margin for that distinct good or service. The objective of ~~BESP~~the expected cost plus a margin approach is to determine the price at which the Company would transact if the product or service were sold by the Company on a standalone basis.

The ~~Company’s~~Company's determination of ~~BESP~~the expected cost plus a margin approach involves the consideration of several factors based on the specific facts and circumstances of each ~~arrangement.~~contract. Specifically, the Company considers the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, the Company’s ongoing pricing strategy and policies, ~~(as evident from~~often based on the price list established and updated by management on a regular ~~basis),~~basis, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold.

The Company analyzes the standalone selling prices used in its allocation of ~~arrangement consideration~~transaction price on contracts at ~~a minimum on an annual basis. Selling~~least annually. Standalone selling prices will be analyzed on a more frequent basis if a significant change in the Company’s business necessitates a more ~~timely~~frequent analysis or if the Company experiences significant variances in its selling prices.

~~Each deliverable within the Company’s multiple-deliverable revenue arrangements is accounted for as~~Revenue recognized at a ~~separate unit~~point in time generally relates to contracts that include a combination of ~~accounting under the guidance of FASB ASU 2009-13 if both~~components, modules and sub-assemblies, integrated subsystems and related system integration or other services. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the ~~following criteria~~transaction price, totaled 58%, 73% and 77% of

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revenues in the fiscal years ended July 2, 2021, July 3, 2020 and June 30, 2019, respectively. Revenue is recognized at a point in time for these products and services (versus over time recognition) due to the following: (i) customers are ~~met:~~only able to consume the ~~delivered item~~benefits provided by the Company upon completion of the product or ~~items~~service; (ii) customers do not control the product or service prior to completion; and (iii) the Company does not have ~~value~~an enforceable right to payment at all times for performance completed to date. Accordingly, there is little judgment in determining when control of the good or service transfers to the customer, ~~on a standalone basis;~~ and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. The Company’s revenue arrangements generally do not include a general right of return relative to delivered products. The Company considers a deliverable to have standalone value if the item is sold separately by the Company or another vendor or if the item could be resold by the customer.

Deliverables not meeting the criteria for being a separate unit of accounting are combined with a deliverable that does meet that criterion. The appropriate allocation of arrangement consideration and recognition of revenue is ~~then determined for the combined unit of accounting.~~generally recognized upon shipment (for goods) or completion (for services).

The Company ~~also~~ engages in long-term contracts for development, production and ~~services~~service activities ~~which it accounts~~and recognizes revenue for ~~consistent~~performance obligations over time. These long-term contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated subsystems and related services. Revenue is recognized over time, due to the fact that: (i) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; and (ii) the Company’s performance creates an asset with ~~FASB ASC 605-35,~~ ~~Accounting~~no alternative use to the Company and the Company has an enforceable right to payment for ~~Performance of Construction-Type and Certain Production-Type Contracts, and other relevant revenue recognition accounting literature.~~performance completed to date. The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. ~~Generally for~~These contracts include both fixed-price and cost reimbursable contracts. The Company’s cost reimbursable contracts ~~other than service-type~~typically include cost-plus fixed fee and time and material (“T&M”) contracts.

For long-term contracts, ~~revenue is recognized primarily under~~ the ~~percentage~~Company typically leverages the input method, using a cost-to-cost measure of ~~completion~~progress. The Company believes that this method ~~or, for certain short-term contracts, by~~represents the ~~completed contract method. Revenue from service-type fixed-price contracts is recognized ratably over~~most faithful depiction of the Company’s performance because it directly measures value transferred to the customer. Contract estimates and estimates of any variable consideration are based on various assumptions to project the outcome of future events that may span several years. These assumptions include: the amount of time to complete the contract, ~~period or by other appropriate input or output methods~~including the assessment of the nature and complexity of the work to ~~measure service provided,~~be performed; the cost and ~~contract costs are expensed as incurred.~~availability of materials; the availability of subcontractor services and materials; and the availability and timing of funding from the customer. The Company ~~establishes billing terms at~~bears the ~~time project deliverables and milestones are agreed. Revenues recognized~~risk of changes in ~~excess of the amounts invoiced~~estimates to ~~clients are classified as unbilled receivables. The Company expects to bill substantially all of the unbilled receivables during fiscal 2018. The risk to the Company~~complete on a fixed-price contract ~~is that if estimates to complete the contract change from one period to the next,~~which may cause profit levels ~~will~~to vary from period to period. For ~~time~~cost reimburseable contracts, the Company is reimbursed periodically for allowable costs and ~~materials~~is paid a portion of the fee based on contract progress. In the limited instances where the Company enters into T&M contracts, revenue recognized reflects the number of direct labor hours expended in the performance of a contract multiplied by the contract billing rate, as well as reimbursement of other direct billable ~~direct~~ costs. For ~~all types of~~T&M contracts, the Company recognizes revenue in the amount for which the Company has a right to invoice the customer based on the control transferred to the customer. For over time contracts, the Company recognizes anticipated contract losses as soon as they become known and estimable.

~~The Company also considers whether~~Accounting for long-term contracts should be combined or segmented in accordance with the applicable criteria under GAAP. The Company combines closely related contracts when all the applicable criteria under GAAP are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single project, which should be combined to reflect an overall profit rate. Similarly, the Company may separate a project, which may consist of a single contract or group of contracts, with varying rates of profitability, only if the applicable criteria under GAAP are met. Judgment also is involved in determining whether a single contract or group of contracts may be segmented based on how the arrangement was negotiated and the performance criteria. The decision to combine a group of contracts or segment a contract could change the amount of revenue and gross profit recorded in a given period.

~~The use of contract accounting~~ requires significant judgment relative to estimating total contract revenues and costs, ~~including~~in particular, assumptions relative to the ~~length~~amount of time to complete the contract, including the assessment of the nature and complexity of the work to be ~~performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials.~~performed. The Company’s estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.

~~Contract costs also may include estimated contract recoveries for matters such as contract changes~~Total revenue recognized under long-term contracts over time was 42%, 27% and ~~claims for unanticipated contract costs. The Company records revenue associated with these matters only when~~23% of revenues in the ~~amount of recovery can be estimated reliably~~fiscal years ended July 2, 2021, July 3, 2020 and ~~realization is probable. Assumed recoveries for claims included in contracts in process were not material at~~ June 30, ~~2017 or 2016.~~2019, respectively.

The Company defines service revenues as revenue from activities that are not associated with the design, development, production, or delivery of tangible assets, software or specific capabilities sold. Examples of the Company's service revenues include: analyst services and systems engineering support, consulting, maintenance and other support, testing and installation. The Company combines its product and service revenues into a single class as service revenues are less than 10 percent of total revenues.

~~The Company~~generally does not provide its customers with rights of product return other than those related to assurance warranty provisions that permit repair or replacement of defective ~~goods.~~goods over a period of 12 to 36 months. The Company accrues for anticipated warranty costs upon product shipment. ~~Revenues~~The Company does not consider activities related to such assurance warranties, if any, to be a separate performance obligation. The Company does offer separately priced extended warranties which generally range from ~~product royalties~~12 to 36 months that are treated as separate performance obligations. The transaction price allocated to extended warranties is recognized ~~upon invoice~~over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract.

On long-term contracts, the portion of the payments retained by the ~~Company. Additionally,~~customer is not considered a significant financing component because most contracts have a duration of less than one year and payment is received as progress is made. Many of the Company's long-term contracts have milestone payments, which align the payment schedule with the progress towards completion on the performance obligation. On some contracts, the Company may be entitled to receive an advance payment, which is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all of their obligations under the contract.

All revenues are reported net of government assessed taxes (e.g., sales taxes or value-added taxes).

C~~ASHAND~~ C~~ASH~~ E~~QUIVALENTS~~

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COSTSTO OBTAIN AND FULFILLA CONTRACT

The Company expenses sales commissions as incurred for contracts where the amortization period would have been one year or less. The Company had $1,098 of deferred sales commissions for contracts where the amortization period is greater than one year as of July 2, 2021. Prior to fiscal 2021, the Company had not deferred sales commissions for contracts where the amortization period was greater than one year because such amounts were not deemed significant.

The Company has elected to treat shipping and handling activities performed after the customer has obtained control of the related goods as a fulfillment cost. Such costs are accrued for in conjunction with the recording of revenue for the goods and are classified as cost of revenues.

CONTRACT BALANCES

Contract balances result from the timing of revenue recognized, billings and cash collections, and the generation of contract assets and liabilities. Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Contract assets are presented as unbilled receivables and costs in excess of billings on the Company’s Consolidated Balance Sheets. Contract liabilities consist of deferred product revenue, billings in excess of revenues, deferred service revenue, and customer advances. Deferred product revenue represents amounts that have been invoiced to customers, but are not yet recognizable as revenue because the Company has not satisfied its performance obligations under the contract. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Deferred service revenue primarily represents amounts invoiced to customers for annual maintenance contracts or extended warranty contracts, which are recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract. Customer advances represent deposits received from customers on an order. Contract liabilities are included in deferred revenue and the long-term portion of deferred revenue is included within other non-current liabilities on the Company’s Consolidated Balance Sheets. Contract balances are reported in a net position on a contract-by-contract basis.

The contract asset balances were $162,921 and $90,289 as of July 2, 2021 and July 3, 2020, respectively. The contract asset balance increased due to growth in revenue recognized under long-term contracts over time during the fiscal year ended July 2, 2021. The contract liability balances were $35,201 and $19,892 as July 2, 2021 and July 3, 2020, respectively. The contract liability increased due to a higher volume of contracts with milestone and progress payments.

Revenue recognized during fiscal 2021 that was included in the contract liability balance at July 3, 2020 was $16,846.

REMAINING PERFORMANCE OBLIGATIONS

The Company includes in its computation of remaining performance obligations customer orders for which it has accepted signed sales orders. The definition of remaining performance obligations excludes those contracts that provide the customer with the right to cancel or terminate the order with no substantial penalty, even if the Company’s historical experience indicates the likelihood of cancellation or termination is remote. As of July 2, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $337,886. The Company expects to recognize approximately 65% of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

CASHAND CASH EQUIVALENTS

Cash equivalents, consisting of highly liquid money market funds and U.S. government and U.S. government agency issues with original maturities of 90 days or less at the date of purchase, are carried at fair market value which approximates cost.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures at fair value certain financial assets and liabilities, including cash equivalents, restricted cash and contingent consideration. ~~FASB~~ ASC 820, Fair Value Measurement and Disclosures, specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1—Quoted prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

C~~ONCENTRATION~~OF C~~REDIT~~ R~~ISK~~

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CONCENTRATIONOF CREDIT RISK

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with financial institutions of high credit quality. At ~~June 30, 2017~~As of July 2, 2021 and ~~2016~~,July 3, 2020, the Company had ~~$41,637~~$113,839 and ~~$81,691~~,$226,838, respectively, of cash and cash equivalents on deposit or invested with its financial and lending institutions.

The Company provides credit to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. At ~~June 30, 2017, five~~As of July 2, 2021, 5 customers accounted for ~~53%~~60% of the Company's accounts receivable, unbilled receivables and costs in excess of billings. At ~~June 30, 2016~~, ~~five~~As of July 3, 2020, 5 customers accounted for ~~50%~~52% of the Company’s accounts receivable, unbilled receivables and costs in excess of billings.

The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be fully collected. The allowance is based on the assessment of the following factors: customer creditworthiness; historical payment experience; age of outstanding receivables; and any applicable collateral.

INVENTORY

Inventory is stated at the lower of cost (first-in, first-out) or ~~market~~net realizable value, and consists of materials, labor and overhead. On a quarterly basis, the Company evaluates inventory for net realizable value. Once an item is written down, the value becomes the new inventory cost basis. The Company reduces the value of inventory for excess and obsolete inventory, consisting of on-hand and non-cancelable on-order inventory in excess of estimated usage. The excess and obsolete inventory evaluation is based upon assumptions about future demand, product mix and possible alternative uses.

SEGMENT INFORMATION

The Company uses the management approach for segment disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of its reportable segments. The Company manages its business on the basis of ~~one~~1 reportable segment, as a ~~commercial provider~~leading technology company serving the aerospace and defense industry, positioned at the intersection of ~~secure sensor~~high-tech and ~~safety critical mission processing subsystems for critical defense and intelligence applications.~~defense.

GOODWILLAND INTANGIBLE ASSETS

Goodwill is the amount by which the ~~cost~~purchase price of ~~the net assets obtained in~~ a business acquisition exceeded the fair values of the net identifiable assets on the date of purchase (see Note G). ~~Goodwill is not amortized in~~In accordance with the requirements of ~~FASB ASC 350,~~ Intangibles-Goodwill and Other (“~~FASB~~ ASC 350”). Goodwill is not amortized. Goodwill is assessed for impairment at least annually, on a reporting unit basis, or when events and circumstances occur indicating that the recorded goodwill may be impaired. If the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess.

Intangible assets result from the Company’s various business acquisitions (see Note H) and certain licensed technologies, and consist of identifiable intangible assets, including completed technology, licensing agreements, patents, customer relationships, trademarks, backlog and non-compete agreements. Intangible assets are reported at cost, net of accumulated amortization and are either amortized on a straight-line basis over their estimated useful lives of up to ~~twelve~~12.5 years or over the period the economic benefits of the intangible asset are consumed.

LONG-LIVED ASSETS

L~~ONG~~-~~LIVED~~ A~~SSETS~~

Long-lived assets primarily include property and equipment, intangible assets and ~~acquired intangible~~ROU assets. The Company regularly evaluates its long-lived assets for events and circumstances that indicate a potential impairment in accordance with ~~FASB~~ ASC 360, Property, Plant, and Equipment (“~~FASB~~ ASC 360”). The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows of the asset as compared to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.

Property and equipment are the long-lived, physical assets of the Company acquired for use in the Company’s normal business operations and are not intended for resale by the Company. These assets are recorded at cost. Renewals and betterments that increase the useful lives of the assets are capitalized. Repair and maintenance expenditures that increase the efficiency of the assets are expensed as incurred. Equipment under capital lease is recorded at the present value of the minimum lease payments required during the lease period. Depreciation is based on the estimated useful lives of the assets using the straight-line method (see Note F).

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As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Expenditures for major software purchases and software developed for internal use are capitalized and depreciated using the straight-line method over the estimated useful lives of the related assets, which are generally three years. For software developed for internal use, all external direct costs for material and services and certain payroll and related fringe benefit costs are capitalized in accordance with ~~FASB~~ ASC 350. During fiscal ~~2017, 2016~~2021, 2020 and ~~2015,~~2019, the Company capitalized ~~$508,~~ $0$1,640, $905 and $0$749 of software development ~~costs.~~costs, respectively.

D~~EFERRED~~ R~~EVENUESAND~~ C~~USTOMER~~ A~~DVANCES~~INCOME TAXES

Deferred revenues consist of deferred product revenue, billings in excess of revenues, and deferred service revenue. Deferred product revenue represents amounts that have been invoiced to customers, but are not yet recognizable as revenue because one or more of the conditions for revenue recognition have not been met. Billings in excess of revenues represents milestone billing arrangements on percentage of completion projects where the billings of the contract exceed recognized revenues. Deferred service revenue primarily represents amounts invoiced to customers for annual maintenance contracts or extended warranty concessions, which are recognized ratably over the term of the arrangements. Customer advances represent deposits received from customers on an order.

I~~NCOME~~ T~~AXES~~

The Company accounts for income taxes under ~~FASB~~ ASC 740, Income Taxes (“~~FASB~~ ASC 740”). The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

~~FASB~~ ASC 740 requires a two-step approach to recognizing and measuring uncertain tax positions. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

PRODUCT WARRANTY ACCRUAL

The Company’s product sales generally include a 12 to 36 month standard hardware warranty. At time of product shipment, the Company accrues for the estimated cost to repair or replace potentially defective products. Estimated warranty costs are based upon prior actual warranty costs for substantially similar transactions and any specifically identified warranty requirements. Product warranty accrual is included as part of accrued expenses in the accompanying ~~consolidated balance sheets.~~Consolidated Balance Sheets. The following table presents the changes in the Company's product warranty accrual.


	Fiscal 2021		Fiscal 2020		Fiscal 2019
Beginning balance	$	3,835	$	1,870	$	1,336

Warranty assumed from APC	0		739		0
Warranty assumed from Germane	0		0		169




Accruals for warranties issued during the period	2,446		2,839		2,274


Settlements made during the period	(2,998)		(1,613)		(1,909)
Ending balance	$	3,283	$	3,835	$	1,870

Fiscal
2017 Fiscal
2016 Fiscal
2015
Beginning balance at July 1, $ 1,523
$ 1,974
$ 2,078
Warranty assumed from CES 176
—
—
Warranty assumed from Delta 30
—
—
Warranty assumed from Carve-Out Business —
114
—
Accruals for warranties issued during the period 1,328
1,976
1,465
Settlements made during the period (1,366 ) (2,541 ) (1,569 )
Ending balance at June 30, $ 1,691
$ 1,523
$ 1,974

RESEARCHAND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. Research and development costs are primarily made up of labor charges and prototype material and development expenses.

STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited. Stock-based compensation expense for the Company’s performance-based restricted stock awards ~~are~~is amortized over the requisite service period using graded vesting. The Company’s other restricted stock awards recognize expense over the requisite service period on a straight-line basis. ~~The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options.~~

RETIREMENT OF COMMON STOCK

Stock that is repurchased or received in connection with ~~the exercise of stock options or in order to cover tax payment obligations triggered by exercise of stock options or~~ the vesting of restricted stock is retired immediately upon the Company’s repurchase. The Company accounts for this under the cost method and upon retirement the excess amount over par value is charged against additional paid-in capital.

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NET EARNINGS PER SHARE

Basic net earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net earnings per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options and the vesting of restricted stock, reduced by the number of shares which are assumed to be purchased by the Company under the treasury stock method. For all periods presented, net income ~~from continuing operations~~ is the control number for determining whether securities are dilutive or not.

Basic and diluted weighted average shares outstanding were as follows:


	Fiscal 2021	Fiscal 2020	Fiscal 2019
Basic weighted-average shares outstanding	55,070	54,546	47,831
Effect of dilutive equity instruments	404	569	669
Diluted weighted-average shares outstanding	55,474	55,115	48,500

Years Ended June 30,
2017 2016 2015
Basic weighted-average shares outstanding 41,986
34,241
32,114
Effect of dilutive equity instruments 1,032
856
825
Diluted weighted-average shares outstanding 43,018
35,097
32,939

Equity instruments to purchase ~~16,~~ 742, 8 and ~~453~~32 shares of common stock were not included in the calculation of diluted net earnings per share for the fiscal years ended July 2, 2021, July 3, 2020 and June 30, ~~2017~~, ~~2016~~ ~~and~~ ~~2015~~,2019, respectively, because the equity instruments were anti-dilutive.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) (“AOCI”) includes foreign currency translation adjustments and pension benefit plan adjustments. The components of ~~accumulated other comprehensive income~~AOCI included ~~$(93)~~$(739), $174 and ~~$171~~$(232) of ~~accumulated~~ foreign currency translation adjustments for the fiscal years ended July 2, 2021, July 3, 2020 and June 30, ~~2017~~ ~~and~~ ~~2016~~.2019, respectively. In addition, pension benefit plan adjustments totaled ~~$220~~$3,285, $(1,768) and $(2,350) for the ~~year~~fiscal years ended July 2, 2021, July 3, 2020 and June 30, ~~2017. There were~~ no ~~material accumulated net unrealized gains on investments at June 30,~~ ~~2017~~ ~~and~~ ~~2016~~.2019, respectively.

FOREIGN CURRENCY

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, Japan, Spain and ~~Japan.~~Canada. The accounts of foreign subsidiaries are translated using exchange rates in effect at period-end for assets and liabilities and at

average exchange rates during the period for results of operations. The related translation adjustments are reported in accumulated other comprehensive income in shareholders’ equity. Gains (losses) resulting from non-U.S. currency transactions are included in ~~other~~Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income and were immaterial for all periods presented.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In ~~May 2014,~~December 2019, the FASB issued ASU No. ~~2014-09,~~ ~~Revenue from Contracts with Customers, which requires~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an ~~entity~~amendment of the FASB Accounting Standards Codification. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions for intraperiod tax allocations and deferred tax liabilities for equity method investments and add guidance as to ~~recognize the amount~~whether a step-up in tax basis of ~~revenue~~goodwill relates to ~~which it expects to be entitled for the transfer of promised goods~~a business combination or ~~services to customers. The~~a separate transaction. This ASU ~~will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard~~ is effective for ~~the~~fiscal years beginning after December 15, 2020, with early adoption permitted. The Company ~~on July 1, 2018, and it~~ does not ~~plan~~expect this guidance to ~~early adopt this ASU. The standard permits the use of either the retrospective or cumulative effect transition method. The Company currently intends~~have a material impact to use the retrospective transition method upon adoption of the standard. During fiscal 2017, the Company has made significant investments in its data reporting infrastructure in order to support the reporting requirements of the standard. Throughout fiscal 2018, the Company will continue enhancing its infrastructure to capture each of the specific disclosure requirements detailed in the standard. The Company is continuing to evaluate the future impact that the adoption of the standard will have on its consolidated financial ~~statements. However,~~statements or related disclosures.

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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective April 3, 2021, the Company ~~does anticipate that~~adopted ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715): Changes to the ~~additional disclosure requirements will represent a significant change from current practices.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~Disclosure Requirements for Defined Benefit Plans, an amendment of the FASB Accounting Standards Codification. ~~This~~The amendments in this ASU ~~requires lessees to recognize a right-of-use asset~~remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and ~~lease liability for most lease arrangements. The new~~add disclosure requirements identified as relevant. For public business entities, the standard is effective for ~~the Company on July 1, 2019.~~fiscal years ending after December 15, 2020. The ~~standard mandates a modified~~ASU requires retrospective ~~transition method~~adoption and permits early adoption for all ~~entities and early~~entities. This adoption ~~is permitted. The Company is evaluating~~did not have a material impact on the ~~effect that ASU 2016-02 will have on its~~Company's consolidated financial statements ~~and~~or related disclosures.

~~In August 2016,~~Effective July 4, 2020, the ~~FASB issued~~Company adopted ASU No. ~~2016-15,~~ ~~Classification~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of ~~Certain Cash Receipts~~Credit Losses on Financial Instruments, which broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. This ASU requires an entity to record an allowance for credit losses for certain financial instruments and ~~Cash Payments, an amendment~~financial assets, including trade receivables, based on expected losses rather than incurred losses. The Company will rely on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the ~~FASB Accounting Standards Codification. This ASU~~reported amount and will ~~reduce diversity~~exercise judgment in ~~practice for classifying cash payments~~determining the relevant information and ~~receipts~~estimation methods that are appropriate in the statement of cash flows for a number of common transactions. It will also clarify when identifiable cash flows should be separated versus classified based on their predominant source or use. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected asmeasurement of the ~~beginning of~~credit losses. This adoption did not have a material impact to the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is evaluating the effect that ASU 2016-15 will have on itsCompany's consolidated financial statements ~~and~~or related disclosures.

~~In October 2016,~~Effective July 4, 2020 the ~~FASB issued ASU No. 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory,~~ an amendment of the FASB Accounting Standards Codification. This ASU requires the seller and buyer to recognize at the transaction date the current and deferred income tax consequences of intercompany asset transfers (except transfers of inventory). Under current GAAP, the seller and buyer defer the consolidated tax consequences of an intercompany asset transfer from the period of the transfer to a future period when the asset is transferred out of the consolidated group, or otherwise affects consolidated earnings. This standard will cause volatility in companies’ effective tax rates, particularly for those that transfer intangible assets to foreign subsidiaries. For public entities, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017. An entity may early adopt the standard but only at the beginning of an annual period for which it has not issued or made available for issuance financial statements (interim or annual). The Company ~~is evaluating the effect that ASU 2016-16 will have on its consolidated financial statements and related disclosures.~~

~~In January 2017, the FASB issued~~adopted ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, an amendment of the FASB Accounting Standards Codification.~~. This ASU eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit, (“the Step 2 ~~test”)~~test, from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. ~~For public business entities, the new standard is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The ASU requires prospective~~This adoption ~~and permits early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does~~did not ~~expect this guidance to~~ have a material impact ~~to its consolidated financial statements.~~

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, an amendment of the FASB Accounting Standards Codification. This ASU requires employers that sponsor defined benefit pension and/or other post-retirement benefit plans to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Employers are required to present the other components of net benefit costs in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component of net periodic pension cost will be eligible for asset capitalization. For public

entities, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within that annual period. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. This ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.The Company is evaluating the effect that ASU 2017-07 will have on its consolidated financial statements and related disclosures.

~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

~~Effective July 1, 2016, the Company adopted FASB ASU No. 2015-01,~~ ~~Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,~~ ~~an amendment of the FASB Accounting Standards Codification.~~This ASU eliminates the separate presentation of extraordinary items, net of tax and the related earnings per share, but does not affect the requirement to disclose material items that are unusual in nature or infrequently occurring. The ASU aligns GAAP more closely with International Financial Reporting Standards. The Company will continue to evaluate whether items are unusual in nature or infrequent in their occurrence for disclosure purposes and when estimating the annual effective tax rate for interim reporting purposes. Such adoption did not have any impact to the Company's consolidated financial ~~statements.~~statements or related disclosures.

Effective ~~June 30, 2017,~~July 4, 2020 the Company adopted ~~FASB~~ ASU No. ~~2014-15,~~ ~~Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,~~ 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), an amendment of the FASB Accounting Standards Codification. The ASU ~~has added additional disclosure requirements~~provides guidance to ~~the codification. It requires management~~determine whether to ~~assess, at each interim and annual reporting period, whether substantial doubt exists about an entity’s ability to continue~~capitalize implementation costs of a cloud computing arrangement that is a service contract or expense as incurred. Costs of arrangements that do not include a software license should be accounted for as a ~~going concern. Substantial doubt exists if it is probable (the “probable” threshold under GAAP has generally been interpreted to be between 75~~service contract and ~~80 percent) that the entity will be unable to meet its obligations~~expensed as they become due within one year after the date the financial statements are issued or available to be issued (assessment date). There was not a going concern uncertainty in the current year or in the foreseeable future, and therefore this guidanceincurred. This adoption did not have ana material impact to the Company's consolidated financial ~~statements.~~statements or related disclosures.

Effective ~~July 1, 2017,~~October 3, 2020, the Company adopted ~~FASB issued ASU~~SEC Final Rule Release No. ~~2015-11,~~ ~~Simplifying~~33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, which includes amendments to the ~~Measurement~~SEC's rules and forms related to the disclosure of ~~Inventory, an amendment~~financial information regarding acquired or disposed businesses. The amendments are intended to improve the financial information about acquired or disposed businesses provided to investors, facilitate more timely access to capital and reduce the complexity and costs of ~~the FASB Accounting Standards Codification. This ASU~~preparing disclosures. Among other changes, the ~~measurement principle~~amendments impact SEC rules relating to: the definition of “significant” subsidiaries; requirements to provide financial statements for ~~inventory from~~“significant” acquisitions; and the ~~lower~~formulation and usage of ~~cost or market to lower~~pro forma financial information. The final rule is applicable for fiscal years beginning after December 31, 2020, with early adoption permitted as long as all amendments are adopted in their entirety. The Company early adopted this final rule in conjunction with its acquisition of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. SuchPhysical Optics Corporation ("POC") on December 30, 2020. This adoption did not have ~~any~~a material impact toon the Company's consolidated financial ~~statements.~~statements or related disclosures.


C.	~~Acquisitions~~

D~~ELTA~~ A~~CQUISITION~~

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C.Acquisitions

PENTEK ACQUISITION

On ~~April 3, 2017, the Company entered into a membership interest purchase agreement with Delta, pursuant to which,~~ May 27, 2021, the Company acquired ~~Delta on a cash-free, debt-free basis~~Pentek for a ~~total~~ purchase price of ~~$40,500,~~$65,000, subject to net working capital and net debt adjustments. ~~Delta~~Based in Upper Saddle River, New Jersey, Pentek is a leading designer and manufacturer of ~~high-value RF, microwave~~ruggedized, high-performance, commercial off-the-shelf software-defined radio and ~~millimeter wave sub-assemblies~~data acquisition boards, recording systems and ~~components~~subsystems for ~~the military, aerospace~~high-end commercial and ~~space markets.~~defense applications. The acquisition and associated transaction ~~related~~ expenses were funded ~~with~~through a combination of cash on ~~hand.~~

hand and Mercury's existing revolving credit facility (the "Revolver").

The following table presents the net purchase price and the ~~preliminary~~ fair values of the assets and liabilities of ~~Delta:~~Pentek on a preliminary basis:

Amounts
Consideration transferred
Cash paid at closing $ 40,500
Net purchase price $ 40,500

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings $ 957
Inventory 4,452
Fixed assets 1,918
Other current and non-current assets 67
Current liabilities (1,854 )
Estimated fair value of net tangible assets acquired 5,540
Estimated fair value of identifiable intangible assets 17,000
Estimated goodwill 17,960
Estimated fair value of net assets acquired 40,500
Net purchase price $ 40,500


Consideration transferred
Cash paid at closing	$	65,668
Less cash acquired	(746)
Net purchase price	$	64,922

Estimated fair value of tangible assets acquired and liabilities assumed
Cash	746
Accounts receivable	1,303
Inventory	6,522
Fixed assets	152
Other current and non-current assets	2,864
Accounts payable	(1,016)
Accrued expenses	(520)
Other current and non-current liabilities	(3,718)
Estimated fair value of net tangible assets acquired	6,333
Estimated fair value of identifiable intangible assets	24,110
Estimated goodwill	35,225
Estimated fair value of net assets acquired	65,668
Less cash acquired	(746)
Net purchase price	$	64,922

The amounts above represent the preliminary fair value estimates as of ~~June 30, 2017~~July 2, 2021 and are subject to subsequent adjustment as the Company obtains additional information during the measurement ~~period.~~period and finalizes its fair value estimates. The preliminary identifiable intangible asset ~~estimates include~~estimate includes customer relationships of ~~$8,000~~$15,560 with a useful life of 921 years, ~~developed~~completed technology of ~~$5,900~~$6,340 with a useful life of 7seven years and backlog of ~~$3,100~~$2,210 with a useful life of ~~2 years.~~one year. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of ~~$17,960~~$35,225 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 Delta acquisition expands scale and breadth of the Company’s RF, microwave and millimeter wave capabilities, provides highly complementary program portfolio in missiles and munitions, deepens market penetration in core radar, electronic warfare ("EW"), and precision-guided munitions markets, and opens new growth opportunities in space launch, GPS, satellite communications and datalinks. The goodwill from this acquisition ~~was initially reported under~~is included in the ~~MCE~~Microelectronics reporting unit.

The ~~Company~~deal was split between asset and stock, with the ~~shareholders~~asset portion of ~~Delta have agreed to treat the acquisition of Delta as an asset purchase~~goodwill being deductible for tax ~~purposes by filing the required election forms under IRC Section 338(h)(10).~~purposes. The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes. As of ~~June 30, 2017,~~July 2, 2021, the Company ~~had $18,029~~had $30,101 of goodwill deductible for tax purposes.

~~The revenues and income before income taxes from Delta included in the Company's consolidated results for the fiscal year ended June 30, 2017 were $5,435 and $805, respectively.~~ The Company has not furnished pro forma ~~financial~~ information relating to ~~Delta~~Pentek because such information is not material to the Company's financial results.

CES A~~CQUISITION~~The revenues and income before income taxes from Pentek included in the Company's consolidated results for fiscal year ended July 2, 2021 were $3,207 and $803, respectively.

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PHYSICAL OPTICS CORPORATION ACQUISITION

On ~~November 4, 2016,~~ December 7, 2020, the Company ~~and the shareholders of CES entered into~~signed a ~~Stock Purchase Agreement, pursuant~~definitive agreement to ~~which, Mercury acquired CES~~acquire POC for a ~~total~~ purchase price of ~~$39,123, subject~~$310,000, prior to net working capital and net debt adjustments. On December 30, 2020, the transaction closed and the Company acquired POC. Based in Torrance, California, POC more than doubles the Company's global avionics business and expands its collective footprint in the platform and mission management market. The Company funded the acquisition ~~and associated transaction expenses were funded with~~through a combination of cash on ~~hand. Based in Geneva, Switzerland, CES is a provider~~hand and the Revolver. On May 28, 2021 the Company and representative of ~~embedded solutions for military and aerospace mission-critical computing applications. CES specializes in~~ the ~~design, development and manufacture~~former owners 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 products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft, as well asPOC agreed to post closing-adjustments totaling $2,641, which increased the ~~several types of unmanned platforms.~~

Company’s net purchase price.

The following table presents the net purchase price and the ~~preliminary~~ fair values of the assets and liabilities of ~~CES:~~POC on a preliminary basis:

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 8,950
Fixed assets 1,480
Other current and non-current assets 748
Current liabilities (3,154 )
Non-current liabilities (6,140 )
Deferred tax liabilities (857 )
Estimated fair value of net tangible assets acquired 3,725
Estimated fair value of identifiable intangible assets 14,722
Estimated goodwill 20,346
Estimated fair value of net assets acquired 38,793
Net purchase price $ 38,793


Consideration transferred
Cash paid at closing	$	251,229
Cash paid post closing	61,626
Working capital and net debt adjustment	(2,096)
Less cash acquired	(2,855)
Net purchase price	$	307,904

Estimated fair value of tangible assets acquired and liabilities assumed
Cash	$	2,855
Accounts receivable	27,708
Inventory	11,125
Fixed assets	23,236
Other current and non-current assets	16,453
Accounts payable	(3,777)
Accrued expenses	(5,551)
Other current and non-current liabilities	(32,549)
Estimated fair value of net tangible assets acquired	39,500
Estimated fair value of identifiable intangible assets	116,000
Estimated goodwill	155,259
Estimated fair value of net assets acquired	310,759
Less cash acquired	(2,855)
Net purchase price	$	307,904

The amounts above represent the preliminary fair value estimates as of ~~June 30, 2017~~July 2, 2021 and are subject to subsequent adjustment as the Company obtains additional information during the measurement ~~period.~~period and finalizes its fair value estimates, including the ongoing assessment of collectability of receivable balances. The preliminary identifiable intangible asset ~~estimates include~~estimate includes customer relationships of ~~$9,060~~$83,000 with a useful life of 11 years, completed technology of $25,000 with a useful life of 9 years and ~~developed technology~~backlog of ~~$5,662~~$8,000 with a useful life of ~~7 years.~~one year. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of ~~$20,346~~$155,259 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~~markets 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, command, control, communications, computers, and intelligence ("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.~~not deductible for tax purposes. The goodwill from this acquisition ~~was initially reported under the MCE reporting unit.~~

~~The revenues and income before income taxes from CES~~is included in the ~~Company's consolidated results for the fiscal year ended June 30, 2017 were $17,008 and $1,196, respectively.~~Mission reporting unit. The Company has not furnished pro forma ~~financial~~ information relating to ~~CES~~POC because such information is not material to the Company's financial results.

The revenues and (loss) before income taxes from POC included in the Company's consolidated results for fiscal year ended July 2, 2021 were $76,370 and $(2,768), respectively.

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AMERICAN PANELC~~ARVE-~~OUT B~~USINESS~~ ORPORATION ACQUISITION

On ~~March~~September 23, 2016, the Company and Microsemi entered into a Stock Purchase Agreement, pursuant to which, Microsemi agreed to sell all the membership interests in 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 and2019, the Company acquired American Panel Corporation. Based in Alpharetta, Georgia, APC is a leading innovator in large area display technology for 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 basedaerospace and defense market. APC's capabilities are deployed on a ~~conversion ratio provided in the Stock Purchase Agreement. Mercury~~wide range of next-generation platforms. The Company acquired APC for an all cash purchase price of $100,000, prior to net working capital and net debt adjustments. The Company funded the acquisition with ~~a combination of a new $200,000 bank term loan facility (see Note L) and~~ cash on ~~hand, which included net proceeds of approximately $92,788 raised from an underwritten common stock public offering (see Note N).~~

hand.

The following table presents the net purchase price and the fair values of the assets and liabilities of ~~the Carve-Out Business:~~APC:


Consideration transferred
Cash paid at closing	$	100,826
Working capital and net debt adjustment	(5,952)
Liabilities assumed	2,454
Less cash acquired	(826)
Net purchase price	$	96,502

Fair value of tangible assets acquired and liabilities assumed
Cash	$	826
Accounts receivable	3,726
Inventory	11,233
Fixed assets	690
Other current and non-current assets	3,494
Accounts payable	(1,554)
Accrued expenses	(1,457)
Other current and non-current liabilities	(5,852)
Fair value of net tangible assets acquired	11,106
Fair value of identifiable intangible assets	33,200
Goodwill	53,022
Fair value of net assets acquired	97,328
Less cash acquired	(826)
Net purchase price	$	96,502

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

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 )
Fair value of net tangible assets acquired 27,013
Fair value of identifiable intangible assets 102,800
Goodwill 168,756
Fair value of assets acquired 298,569
Net purchase price $ 298,569

On ~~May 2, 2017,~~September 23, 2020, the measurement period for ~~the Carve-Out Business~~APC expired. The identifiable intangible assets include customer relationships of ~~$70,900,~~$20,600 with a useful life of 11 years, completed technology of ~~$29,700~~$10,400 with a useful life of 11 years and backlog of ~~$2,200.~~ $2,200 with a useful life of two years.

The goodwill of ~~$168,756~~$53,022 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 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~~included in the ~~AMS~~Mission reporting unit. Since APC was a qualified subchapter S subsidiary, the acquisition is treated as an asset purchase for tax purposes. The Company has estimated the tax value of the intangible assets from this transaction and ~~MDS reporting units.~~is amortizing the amount over 15 years for tax purposes. As of ~~June 30, 2016,~~July 2, 2021, the Company ~~had $26,494~~had $48,258 of goodwill deductible for tax purposes.

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D.	~~Fair Value of Financial Instruments~~

D.Fair Value of Financial Instruments

During the fiscal year ended July 2, 2021, the Company received gross proceeds and recorded a loss on a cost-method investment of $1,538 and $426, respectively. The loss on sale of investment is included within Other expense (income), net in the Consolidated Statements of Operations and Comprehensive Income for the fiscal year ended July 2, 2021. The fair value of the investment was based on a quoted price of identical instruments in an active market and was recorded at cost within Other non-current assets in the Consolidated Balance Sheet prior to its sale. As of July 2, 2021, the Company had no financial instruments required to be measured at fair value.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at ~~June 30, 2017~~:July 3, 2020:


	Fair Value Measurements
	July 3, 2020		Level 1		Level 2		Level 3
Assets:


Certificates of deposit	$	10,006	$	0	$	10,006	$	0
U.S. equity securities	2,007		2,007		0		0

Total	$	12,013	$	2,007	$	10,006	$	0

Fair Value Measurements
June 30, 2017 Level 1 Level 2 Level 3
Assets:
Certificates of deposit $ 1,043
$ —
$ 1,043
$ —
Total $ 1,043
$ —
$ 1,043
$ —
During the fiscal year ended July 3, 2020, the Company received gross proceeds and recorded a gain on a cost-method investment of $4,310 and $3,810, respectively. The Company's cost-method investment did not have a readily determinable fair value and was recorded at cost within Other non-current assets in the Consolidated Balance Sheet prior to its sale.

The Company also recorded a gain on the change in fair value of a cost-method investment of $2,007. The change in fair value of these U.S. equity securities was the result of an observable price change during the fourth quarter of fiscal 2020. Its fair value is based on a quoted price of identical instruments in an active market and is included within Prepaid expenses and other current assets on the Consolidated Balance Sheet as of July 3, 2020.

The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The fair value of the Company’s certificates of deposit are determined through quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable. The cost-method investment, which is presented within other non-current assets in the accompanying consolidated balance sheets, does not have a readily determinable fair value, as such the Company recorded the investment at cost and will continue to evaluate the asset for impairment on a quarterly basis.

~~The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at June 30, 2016:~~

Fair Value Measurements
June 30, 2016 Level 1 Level 2 Level 3
Assets:
Certificates of deposit $ 30,075
$ —
$ 30,075
$ —
Total $ 30,075
$ —
$ 30,075
$ —

The Company determined the ~~face~~carrying value of ~~its~~ long-term debt approximated fair value ~~at June 30, 2016~~ due to ~~the recent issuance and stability of~~variable interest rates ~~during that period.~~charged on the borrowings, which reprice frequently.

E.Inventory

Inventory was comprised of the following:


	As of
	July 2, 2021		July 3, 2020
Raw materials	$	141,774	$	111,225
Work in process	58,087		49,647
Finished goods	21,779		17,221
Total	$	221,640	$	178,093

June 30,
2017 2016
Raw materials $ 48,645
$ 31,205
Work in process 22,567
15,967
Finished goods 9,859
11,112
Total $ 81,071
$ 58,284

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~~The $22,787 increase in inventory was primarily due to the inclusion of inventory from CES~~F.Property and ~~Delta. There are~~ no ~~amounts in inventory relating to contracts having production cycles longer than one year.~~Equipment


F.	~~Property and Equipment~~

Property and equipment consisted of the following:


	Estimated Useful Lives (Years)	June 30,							Estimated Useful Lives (Years)	As of
		2017			2016					July 2, 2021		July 3, 2020
Computer equipment and software	3-4	$	64,374		$	62,409		Computer equipment and software	3-4	$	99,190	$	85,705
Furniture and fixtures	5	4,810			8,547			Furniture and fixtures	5	17,997		5,993
Leasehold improvements	lesser of estimated useful life or lease term	19,092			8,515			Leasehold improvements	lesser of estimated useful life or lease term	63,322		36,874
Machinery and equipment	5-10	42,193			29,078			Machinery and equipment	5-10	105,346		90,970
		130,469			108,549
										285,855		219,542
Less: accumulated depreciation		(78,826		)	(80,212		)	Less: accumulated depreciation		(157,331)		(131,805)
		$	51,643		$	28,337				$	128,524	$	87,737

The ~~$23,306~~$40,787 increase in property and equipment was primarily due to ~~the build-out of~~current year additions including property and equipment associated with improvements to the Company's ~~new corporate headquarters, integration activities associated with~~facilities, especially as related to the ~~Carve-Out Business,~~expansion of its trusted custom microelectronics business and the acquisition of ~~CES~~POC. These increases were partially offset by depreciation expense. During fiscal 2021 and ~~Delta. In fiscal 2017 and 2016,~~2020, the Company retired ~~$14,310~~$996 and ~~$32,~~$64, respectively, of computer equipment and software, furniture, and fixtures, leasehold improvements, and machinery and equipment that were no longer in use by the Company.

Depreciation expense related to property and equipment for the fiscal years ended July 2, 2021, July 3, 2020 and June 30, ~~2017, 2016~~2019 was $25,912, $18,770 and ~~2015 was $12,589, $6,900 and $6,332,~~$18,478, respectively.

~~On April 20, 2007,~~

G.Goodwill

During the Company entered into a sales agreement and a lease agreement in connection with a sale-leaseback of the Company’s former headquarters in Chelmsford, Massachusetts. Pursuant to the agreements, the Company sold all land, land improvements, buildings and building improvements related to the facilities and leased back those assets. The term of the lease was ten years and included two five year options to renew, which the Company did not exercise. Under the provisions of sale-leaseback accounting, the transaction was considered a normal leaseback; thus the realized gain of $11,569 was deferred and was amortized to other income on a straight-line basis over the initial lease term.

~~The unamortized deferred gain of $929 at June 30, 2016 was included in accrued expenses and in the accompanying consolidated balance sheets and has been fully amortized as of June 30, 2017.~~

G.~~Goodwill~~

Throughout fiscal 2017, the Company undertook a series of integration activities related to the Carve-Out Business. These integration activities included system conversions, the build-out of our U.S. Manufacturing Organization in Phoenix, insourcing of embedded sensor products manufacturing previously outsourced, retirement of legacy internal controls related to the Carve-Out Business, and integration of the acquired sites into the legacy control environment. Significant work was done through the fourthfirst quarter of fiscal ~~2017 to complete these integration activities. The conclusion of these integration efforts resulted in a reorganization of~~2021, the ~~Company's~~Company reorganized its internal reporting unit structure ~~from MCE, MDS~~to align with the Company's market and the Carve-Out Business to: Sensor and Mission Processing (“SMP”), Advanced Microelectronic Solutions (“AMS”) and Mercury Defense Systems (“MDS”). This change had no effect on the Company’s operating segment,brand strategy as well as promote scale as the ~~Chief Operating Decision Maker (“CODM”)~~organization continues to ~~evaluate and manage the Company on the basis of one reportable segment.~~grow.

The following table summarizes the changes in goodwill at the Company's three reporting units for the year ended June 30, 2016, prior to the reorganization of the Company's reporting unit structure in fiscal 2017:

MCE MDS Carve-Out Business Total
Balance at June 30, 2015 $ 134,378
$ 33,768
$ —
$ 168,146
Goodwill arising from the LIT acquisition —
5,638
—
5,638
Goodwill arising from the Carve-Out Business Acquisition —
—
170,243
170,243
Balance at June 30, 2016 $ 134,378
$ 39,406
$ 170,243
$ 344,027

The following table summarizes the changes in goodwill at the Company's three reporting units from June 30, 2016 through May 31, 2017, immediately before the reorganization of the Company's reporting unit structure:

MCE MDS Carve-Out Business Total
Balance at June 30, 2016 $ 134,378
$ 39,406
$ 170,243
$ 344,027
Goodwill adjustment for the Carve-Out Business acquisition —
—
(1,487 ) (1,487 )
Goodwill arising from the CES acquisition 20,346
—
—
20,346
Goodwill arising from the Delta acquisition 17,960
—
—
17,960
Balance at May 31, 2017 $ 172,684
$ 39,406
$ 168,756
$ 380,846

In accordance with FASB ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit. A reporting unit is considered to be an operating segment or one level below an operating segment also known as a component.

~~The Company reviewed its analysis of its internally reorganized business in order to determine its reporting units in accordance with ASC 350.~~ Component level financial information is ~~now~~ reviewed by management ~~at SMP, AMS~~across three divisions: Processing, Microelectronics and ~~MDS.~~Mission. Accordingly, these were determined to be the ~~Company’s~~Company's new reporting units.

In fiscal 2017, after its reorganization, the Company reassigned goodwill to the businesses in the affected reporting units based on their relative fair values in accordance with ASC 350. There were no changes in the total carrying amount of goodwill for the one month ended June 30, 2017 after reallocation. The carrying amounts of goodwill by reporting unit at June 30, 2017 are $116,003, $217,956, and $46,887 for SMP, AMS and MDS, respectively.

The internal reorganization and change in reporting units qualified as a triggering event and required goodwill to be tested for impairment. As required by ASC 350, the Company ~~analyzed~~tested goodwill for impairment immediately ~~prior to~~before and ~~immediately subsequent to~~after the reorganization. As a result of these analyses, it was determined that goodwill was not impaired ~~either prior to~~before or ~~subsequent~~after the reorganization.

In the first quarter ended October 2, 2020, the Company assigned goodwill to the ~~reorganization.~~new reporting units based on the relative fair value of reporting units.

The following table sets forth the changes in the carrying amount of goodwill for the year ended July 2, 2021:


H.	~~Intangible Assets~~	Total
Balance at July 3, 2020		$	614,076
Goodwill adjustment for the APC acquisition		346
Goodwill arising from the POC acquisition		155,259
Goodwill arising from the Pentek acquisition		35,225
Balance at July 2, 2021		$	804,906

The Company performed its annual goodwill impairment test in the fourth quarter of fiscal 2021 with no impairment noted.

Table of Contents

H.Intangible Assets

Intangible assets consisted of the following:


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
July 2, 2021
Customer relationships	$	280,520	$	(69,474)	$	211,046	12.0 years
Licensing agreements and patents	6		0		6		—
Completed technologies	139,332		(49,126)		90,206		9.3 years
Backlog	12,410		(6,109)		6,301		1.2 years
	$	432,268	$	(124,709)	$	307,559
July 3, 2020
Customer relationships	$	181,960	$	(48,450)	$	133,510	11.4 years
Licensing agreements and patents	1,505		(1,404)		101		3.5 years
Completed technologies	107,992		(34,522)		73,470		9.2 years
Backlog	3,200		(1,533)		1,667		2.0 years
	$	294,657	$	(85,909)	$	208,748

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Weighted
Average
Useful
Life
June 30, 2017
Customer relationships $ 117,630
$ (31,533 ) $ 86,097
10.0 years
Licensing agreements and patents 1,131
(277 ) 854
3.7 years
Completed technologies 44,503
(6,079 ) 38,424
7.9 years
Backlog 5,430
(1,768 ) 3,662
2.0 years
$ 168,694
$ (39,657 ) $ 129,037

June 30, 2016
Customer relationships $ 105,370
$ (23,824 ) $ 81,546
9.9 years
Licensing agreements and patents 756
(38 ) 718
4.0 years
Completed technologies 35,840
(3,545 ) 32,295
7.6 years
Backlog 2,330
(216 ) 2,114
2.0 years
$ 144,296
$ (27,623 ) $ 116,673

Estimated future amortization expense for intangible assets remaining at ~~June 30, 2017~~July 2, 2021 is as follows:

Year Ending
June 30,
2018 $ 21,722
2019 17,542
2020 14,767
2021 14,165
2022 14,165
Thereafter 46,676
Total future amortization expense $ 129,037


Fiscal Year	Totals
2022	$	49,695
2023	41,413
2024	36,891
2025	32,466
2026	27,806
Thereafter	119,288
Total future amortization expense	$	307,559

The following table summarizes the preliminary estimated fair value of acquired intangible assets arising as a result of the ~~Delta~~POC acquisition. These assets are included in the Company's gross and net carrying amounts as of ~~June 30, 2017.~~July 2, 2021.


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
Customer relationships	$	8,000	$	(225	)	$	7,775	9.1 years	Customer relationships	$	83,000	$	(4,404)	$	78,596	11.5 years
Completed technologies	5,900		(148		)	5,752		10.0 years	Completed technologies	25,000		(1,985)		23,015		9.0 years
Backlog	3,100		(388		)	2,712		2.0 years	Backlog	8,000		(4,000)		4,000		1.0 year
	$	17,000	$	(761	)	$	16,239			$	116,000	$	(10,389)	$	105,611



~~MASSACHUSETTS~~Massachusetts		04-2741391
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

50 ~~MINUTEMAN ROAD~~ ~~ANDOVER, MA~~ Minuteman Road		01810
Andover	MA
(Address of principal executive offices)		(Zip Code)



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, Par Value ~~$.01~~$0.01 Per Share	~~NASDAQ~~MRCY	Nasdaq Global Select Market


					PAGE NUMBER
			PART I		3
Item 1.			Business		3
Item 1A.			Risk Factors		16
Item 1B.			Unresolved Staff Comments		28
Item 2.			Properties		29
Item 3.			Legal Proceedings		29
Item 4.			Mine Safety Disclosures		29
Item 4.1.			Information About Our Executive Officers		29

				~~PAGE~~PART II		~~NUMBER~~31
Item 5.			~~PART I~~		3
~~Item 1.~~	~~Business~~	3
~~Item 1A.~~	~~Risk Factors~~	12
~~Item 1B.~~	~~Unresolved Staff Comments~~	27
~~Item 2.~~	~~Properties~~	27
~~Item 3.~~	~~Legal Proceedings~~	28
~~Item 4.~~	~~Mine Safety Disclosures~~	28
~~Item 4.1.~~	~~Executive Officers of the Registrant~~	28

	~~PART II~~	29
~~Item 5.~~	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2931
Item 6.			Selected Financial Data		3031
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		3032
Item 7A.			Quantitative and Qualitative Disclosures about Market Risk		45
Item 8.			Financial Statements and Supplementary Data		4850
Item 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		7983
Item 9A.			Controls and Procedures		7983
Item 9B.			Other Information		8084

			PART III		8184
Item 10.			Directors, Executive Officers and Corporate Governance		8184
Item 11.			Executive Compensation		8184
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		8184
Item 13.			Certain Relationships and Related Transactions, and Director Independence		8184
Item 14.			Principal Accounting Fees and Services		8184

			PART IV		8185
Item 15.			Exhibits and Financial Statement Schedules		8185
			Signatures		8387
			Exhibit Index		8488


						High		Low
2021 Fourth quarter					2021 Fourth quarter	$	79.28	$	57.69
Third quarter					Third quarter	$	85.49	$	61.26
Second quarter					Second quarter	$	88.06	$	67.10
First quarter					First quarter	$	79.89	$	66.65
2020 Fourth quarter					2020 Fourth quarter	$	92.80	$	68.26
Third quarter					Third quarter	$	86.47	$	57.10
Second quarter					Second quarter	$	81.17	$	68.41
First quarter					First quarter	$	88.75	$	68.31

	High		Low
2017 Fourth quarter	$	43.15	$	36.09
Third quarter	$	40.86	$	29.31
Second quarter	$	32.75	$	22.31
First quarter	$	26.37	$	21.52
2016 Fourth quarter	$	24.87	$	18.98
Third quarter	$	20.85	$	15.67
Second quarter	$	19.99	$	15.52
First quarter	$	16.44	$	13.56



Period of Net Share Settlement	Total Number of Shares Net Settled (1)	Average Price Per Share
July 1, 2016 - September 30, 2016	260	$	23.48
October 1, 2016 - December 31, 2016	53	$	27.34
January 1, 2017 - March 31, 2017	4	$	36.01
April 1, 2017 - June 30, 2017	27	$	39.43
Total	344



ý☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR ~~THE FISCAL YEAR ENDED JUNE 30, 2017~~



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .


~~ITEM 5.~~	~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~



	For the Years Ended June 30,
	2017		2016		2015		2014			2013
Statement of Operations Data:
Net revenues	$	408,588	$	270,154	$	234,847	$	208,729		$	194,231
Income (loss) from operations	$	37,403	$	23,973	$	18,355	$	(7,405	)	$	(24,810	)
Income (loss) from continuing operations	$	24,875	$	19,742	$	14,429	$	(4,072	)	$	(13,782	)
Adjusted EBITDA(1)	$	93,921	$	57,274	$	44,414	$	23,522		$	9,940
Net earnings (loss) per share from continuing operations:
Basic	$	0.59	$	0.58	$	0.45	$	(0.13	)	$	(0.46	)
Diluted	$	0.58	$	0.56	$	0.44	$	(0.13	)	$	(0.46	)



	As of June 30,
	2017		2016		2015		2014		2013
Balance Sheet Data:
Working capital	$	173,351	$	177,748	$	142,472	$	127,375	$	115,483
Total assets	$	815,745	$	736,496	$	386,880	$	373,712	$	374,431
Long-term obligations	$	17,483	$	195,808	$	3,457	$	13,635	$	15,112
Total shareholders’ equity	$	725,417	$	473,044	$	350,138	$	327,147	$	328,501


~~ITEM 7.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~


(In thousands)	Fiscal 2021		As a % of Total Net Revenue		Fiscal 2020		As a % of Total Net Revenue
Net revenues	$	923,996	100.0	%	$	796,610	100.0	%
Cost of revenues	538,808		58.3		439,766		55.2
Gross margin	385,188		41.7		356,844		44.8
Operating expenses:
Selling, general and administrative	134,337		14.5		132,253		16.6
Research and development	113,481		12.3		98,485		12.4
Amortization of intangible assets	41,171		4.5		30,560		3.8
Restructuring and other charges	9,222		1.0		1,805		0.2

Acquisition costs and other related expenses	5,976		0.6		2,679		0.4

Total operating expenses	304,187		32.9		265,782		33.4
Income from operations	81,001		8.8		91,062		11.4
Interest income	179		—		2,151		0.3
Interest expense	(1,222)		(0.1)		(1,006)		(0.1)
Other (expense) income, net	(2,785)		(0.3)		1,726		0.2
Income before income taxes	77,173		8.4		93,933		11.8
Income tax provision	15,129		1.7		8,221		1.0


Net income	$	62,044	6.7	%	$	85,712	10.8	%



(In thousands)	Fiscal 2017			As a % of Total Net Revenue		Fiscal 2016			As a % of Total Net Revenue
Net revenues	$	408,588		100.0	%	$	270,154		100.0	%
Cost of revenues	217,045			53.1		142,535			52.8
Gross margin	191,543			46.9		127,619			47.2
Operating expenses:
Selling, general and administrative	76,491			18.7		52,952			19.6
Research and development	54,086			13.2		36,388			13.4
Amortization of intangible assets	19,680			4.8		8,842			3.2
Restructuring and other charges	1,952			0.5		1,240			0.5
Impairment of long-lived assets	—			—		231			0.1
Acquisition costs and other related expenses	1,931			0.5		3,993			1.5
Total operating expenses	154,140			37.7		103,646			38.3
Income from operations	37,403			9.2		23,973			8.9
Interest income	462			0.1		131			—
Interest expense	(7,568		)	(1.9	)	(1,172		)	(0.4	)
Other income, net	771			0.2		2,354			0.9
Income from continuing operations before income taxes	31,068			7.6		25,286			9.4
Tax provision	6,193			1.5		5,544			2.1
Net income	$	24,875		6.1	%	$	19,742		7.3	%



(In thousands)	Fiscal 2017		As a % of Total Net Revenue		Fiscal 2016		As a % of Total Net Revenue		$ Change		% Change
Organic revenue	$	277,699	68	%	$	253,516	94	%	$	24,183	10	%
Acquired revenue	130,889		32	%	16,638		6	%	114,251		687	%
Total revenues	$	408,588	100	%	$	270,154	100	%	$	138,434	51	%



(In thousands) As of and for the fiscal year ended	June 30, 2017			June 30, 2016			June 30, 2015
Net cash provided by operating activities	$	59,146		$	36,940		$	32,207
Net cash used in investing activities	$	(111,087	)	$	(318,208	)	$	(5,598	)
Net cash provided by financing activities	$	11,338		$	284,894		$	3,905
Net (decrease) increase in cash and cash equivalents	$	(40,054	)	$	4,105		$	30,299
Cash and cash equivalents at end of year	$	41,637		$	81,691		$	77,586


(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating leases	$	100,030	$	13,626	$	25,134	$	21,253	$	40,017
Purchase obligations	147,591		147,591		—		—		—

	$	247,621	$	161,217	$	25,134	$	21,253	$	40,017



	Year Ended June 30,
(In thousands)	2017		2016			2015
Income from continuing operations	$	24,875	$	19,742		$	14,429
Interest expense, net	7,106		1,041			13
Tax provision	6,193		5,544			4,366
Depreciation	12,589		6,900			6,332
Amortization of intangible assets	19,680		8,842			7,008
Restructuring and other charges (1)	1,952		1,240			3,175
Impairment of long-lived assets	—		231			—
Acquisition and financing costs	2,389		4,701			451
Fair value adjustments from purchase accounting (2)	3,679		1,384			—
Litigation and settlement expense (income), net	117		(1,925		)	—
Stock-based compensation expense	15,341		9,574			8,640
Adjusted EBITDA	$	93,921	$	57,274		$	44,414



	Year Ended June 30,
(In thousands, except per share data)	2017					2016					2015
Income from continuing operations and diluted earnings per share	$	24,875		$	0.58	$	19,742		$	0.56	$	14,429		$	0.44
Amortization of intangible assets	19,680					8,842					7,008
Restructuring and other charges (1)	1,952					1,240					3,175
Impairment of long-lived assets	—					231					—
Acquisition and financing costs	2,389					4,701					451
Fair value adjustments from purchase accounting (2)	3,679					1,384					—
Litigation and settlement expense (income), net	117					(1,925		)			—
Stock-based compensation expense	15,341					9,574					8,640
Impact to income taxes (3)	(18,602		)			(9,975		)			(6,733		)
Adjusted income from continuing operations and adjusted earnings per share	$	49,431		$	1.15	$	33,814		$	0.96	$	26,970		$	0.82

Diluted weighted-average shares outstanding				43,018					35,097					32,939


~~ITEM 7A.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~



	Fiscal 2017			Fiscal 2016			Fiscal 2015
Beginning balance at July 1,	$	1,523		$	1,974		$	2,078
Warranty assumed from CES	176			—			—
Warranty assumed from Delta	30			—			—
Warranty assumed from Carve-Out Business	—			114			—
Accruals for warranties issued during the period	1,328			1,976			1,465
Settlements made during the period	(1,366		)	(2,541		)	(1,569		)
Ending balance at June 30,	$	1,691		$	1,523		$	1,974



	Years Ended June 30,
	2017	2016	2015
Basic weighted-average shares outstanding	41,986	34,241	32,114
Effect of dilutive equity instruments	1,032	856	825
Diluted weighted-average shares outstanding	43,018	35,097	32,939



	Amounts
Consideration transferred
Cash paid at closing	$	40,500
Net purchase price	$	40,500

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	957
Inventory	4,452
Fixed assets	1,918
Other current and non-current assets	67
Current liabilities	(1,854		)
Estimated fair value of net tangible assets acquired	5,540
Estimated fair value of identifiable intangible assets	17,000
Estimated goodwill	17,960
Estimated fair value of net assets acquired	40,500
Net purchase price	$	40,500



	MCE		MDS		Carve-Out Business		Total
Balance at June 30, 2015	$	134,378	$	33,768	$	—	$	168,146
Goodwill arising from the LIT acquisition	—		5,638		—		5,638
Goodwill arising from the Carve-Out Business Acquisition	—		—		170,243		170,243
Balance at June 30, 2016	$	134,378	$	39,406	$	170,243	$	344,027



	Year Ending June 30,
2018	$	21,722
2019	17,542
2020	14,767
2021	14,165
2022	14,165
Thereafter	46,676
Total future amortization expense	$	129,037


	Severance & Related		Facilities & Other		Total





Restructuring liability at June 30, 2019	$	4	$	0	$	4
Restructuring charges	1,730		75		1,805

Cash paid	(1,137)		(75)		(1,212)


Restructuring liability at July 3, 2020	597		0		597
Restructuring charges	4,752		—		4,752
Cash paid	(4,343)		—		(4,343)


Restructuring liability at July 2, 2021	$	1,006	$	0	$	1,006


	For the Fiscal Year Ended			For the Fiscal Year Ended
	July 2, 2021			July 3, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,923		$	6,929
Right-of-use assets obtained in exchange for new lease liabilities	$	15,076		$	19,942
Weighted average remaining lease term	8.2 years			9.3 years
Weighted average discount rate	4.66		%	4.91		%


	Fiscal Years
	2021		2020		2019
Income (loss) before income taxes:
United States	$	85,101	$	93,388	$	57,281
Foreign	(7,928)		545		2,246
	$	77,173	$	93,933	$	59,527
Tax provision (benefit):
Federal:
Current	$	12,157	$	8,442	$	11,454
Deferred	(995)		(1,077)		(3,008)
	11,162		7,365		8,446
State:
Current	6,271		3,407		5,194
Deferred	(2,689)		(2,327)		(1,421)
	3,582		1,080		3,773
Foreign:
Current	435		475		546
Deferred	(50)		(699)		(13)
	385		(224)		533
	$	15,129	$	8,221	$	12,752



	Year Ending June 30,
2018	$	6,139
2019	5,595
2020	5,208
2021	4,291
2022	3,387
Thereafter	18,897
Total minimum lease payments	$	43,517



	Year Ended June 30,
2018	$	526
2019	678
2020	800
2021	497
2022	622
Thereafter (next 5 years)	3,928
Total	$	7,051


					Fiscal Years Ended
	Year Ended June 30, 2017				July 2, 2021		July 3, 2020
Service cost	$	557		Service cost	$	1,708	$	1,375
Interest cost	73			Interest cost	92		125
Expected return on assets	(105		)	Expected return on assets	(277)		(233)
Amortization of prior service cost	20			Amortization of prior service cost	(64)		(63)
Amortization net of loss				Amortization net of loss	185		33
Settlement loss recognized				Settlement loss recognized	318		0
Net periodic benefit cost	$	545		Net periodic benefit cost	$	1,962	$	1,237



	~~Year Ended~~ ~~June 30, 2017~~
~~Discount rate~~	~~0.70~~	%
~~Expected rate of return on Plan assets~~	~~1.50~~	%
~~Expected inflation~~	~~1.00~~	%
~~Rate of compensation increases~~	~~1.00~~	%


					Fiscal Years Ended
	Year Ending June 30, 2017				July 2, 2021		July 3, 2020
Projected benefit obligation at November 4, 2016	$	17,086
Projected benefit obligation, beginning				Projected benefit obligation, beginning	$	29,955	$	24,274
Service cost	557			Service cost	1,708		1,375
Interest cost	73			Interest cost	92		125

Employee contributions	581			Employee contributions	2,145		1,916
Actuarial gain	(598		)
Actuarial (gain) loss				Actuarial (gain) loss	(1,345)		2,387
Benefits paid	(563		)	Benefits paid	(256)		(906)
Plan amendment	390			Plan amendment	(1,247)		0
Settlements				Settlements	(3,129)		0
Foreign exchange loss				Foreign exchange loss	691		784
Projected benefit obligation at end of year	$	17,526		Projected benefit obligation at end of year	$	28,614	$	29,955


									Options Outstanding
	Options Outstanding								Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of 7/2/2021
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of 6/30/2017
Outstanding at June 30, 2015	830		$	13.43	1.66

Outstanding at June 30, 2019								Outstanding at June 30, 2019	4	$	5.52	2.13	0
Granted	—		—					Granted	—	—
Exercised	(524	)	13.12					Exercised	(1)	5.52
Cancelled	(48	)	17.25					Cancelled	—	—
Outstanding at June 30, 2016	258		$	13.34	1.06
Outstanding at July 3, 2020								Outstanding at July 3, 2020	3	$	5.52	1.12	0
Granted	—		—					Granted	—	—
Exercised	(207	)	13.29					Exercised	(3)	5.52
Cancelled	—		—					Cancelled	—	—
Outstanding at June 30, 2017	51		$	13.53	0.60	$	1,442
Vested and expected to vest at June 30, 2017	51		$	13.53	0.60	$	1,442
Exercisable at June 30, 2017	51		$	13.53	0.60	$	1,442
Outstanding at July 2, 2021								Outstanding at July 2, 2021	0	$	0	—	$	0
Vested and expected to vest at July 2, 2021								Vested and expected to vest at July 2, 2021	0	$	0	—	$	0
Exercisable at July 2, 2021								Exercisable at July 2, 2021	0	$	0	—	$	0


						Non-Vested Restricted Stock Awards
	Non-Vested Restricted Stock Awards					Number of Shares	Weighted Average Grant Date Fair Value
	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at June 30, 2015	1,866		$	10.72

Outstanding at June 30, 2019					Outstanding at June 30, 2019	1,046	$	39.62
Granted	667		16.26		Granted	522	80.87
Vested	(743	)	10.93		Vested	(562)	31.40
Forfeited	(124	)	11.70		Forfeited	(49)	54.96
Outstanding at June 30, 2016	1,666		$	13.09
Outstanding at July 3, 2020					Outstanding at July 3, 2020	957	$	61.59
Granted	718		24.72		Granted	570	76.03
Vested	(769	)	11.94		Vested	(436)	53.08
Forfeited	(51	)	15.02		Forfeited	(78)	69.54
Outstanding at June 30, 2017	1,564		$	18.93
Outstanding at July 2, 2021					Outstanding at July 2, 2021	1,013	$	70.77



	US		Europe		Asia Pacific		Eliminations			Total
YEAR ENDED JUNE 30, 2017
Net revenues to unaffiliated customers	$	380,538	$	22,242	$	5,808	$	—		$	408,588
Inter-geographic revenues	7,637		44		—		(7,681		)	—
Net revenues	$	388,175	$	22,286	$	5,808	$	(7,681	)	$	408,588
Identifiable long-lived assets (1)	$	50,340	$	1,288	$	15	$	—		$	51,643
YEAR ENDED JUNE 30, 2016
Net revenues to unaffiliated customers	$	259,781	$	5,464	$	4,909	$	—		$	270,154
Inter-geographic revenues	7,911		447		—		(8,358		)	—
Net revenues	$	267,692	$	5,911	$	4,909	$	(8,358	)	$	270,154
Identifiable long-lived assets (1)	$	28,187	$	127	$	23	$	—		$	28,337
YEAR ENDED JUNE 30, 2015
Net revenues to unaffiliated customers	$	229,849	$	2,076	$	2,922	$	—		$	234,847
Inter-geographic revenues	2,806		475		—		(3,281		)	—
Net revenues	$	232,655	$	2,551	$	2,922	$	(3,281	)	$	234,847
Identifiable long-lived assets (1)	$	13,127	$	68	$	31	$	—		$	13,226