What changed in this filing

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Item 1A. Risk Factors

2020-08-18 compared with 2019-08-15 · 109 added, 91 removed, 439 unchanged (31% of the section changed)

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Sales of our products and related services, primarily as an indirect 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 95%, 96%, and 96% of our total net revenues in fiscal 2019, 2018, and 2017, respectively.

government and its agencies, as well as foreign governments and agencies, accounted for approximately 95% of our total net revenues in fiscal 2020 and 2019, and 96% of our total net revenues in fiscal 2018, respectively.

Our products and services are incorporated into many different domestic and international defense programs.

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During fiscal 2014, gridlock in Congress, a continuing budget resolution, and the implementation of defense budget sequestration impacted our revenues and increased uncertainty in our business and financial planning.

For fiscal 2020 and beyond, the potential for further gridlock in Congress, another continuing budget resolution, or the defense industry operating under sequestration could adversely impact our revenues and increase uncertainty in our business and financial planning.

For fiscal 2021 and beyond, the potential for further gridlock in Congress, the November 2020 Presidential election, another continuing budget resolution, the defense industry operating under sequestration, or the crowding out of defense funding due to historically high budget deficits 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.

We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

We face various risks related to health epidemics, pandemics, and similar outbreaks, including the outbreak of coronavirus disease 2019 and any future variants of the disease (“COVID”).

The continued spread of COVID has resulted in a global health crisis that is adversely affecting the economies and financial markets of many countries, resulting in a severe economic downturn that may negatively affect demand for our products.

In response to COVID, we implemented a work-from-home program for all of our employees who could perform their duties from home, limited domestic and international travel and required self-quarantines following travel, limited customer and supplier visits to our sites, implemented social distancing measures, temperature and COVID testing within our facilities, and created a $1 million employee relief fund as well as a COVID sick leave policy providing up to 120 hours of paid leave.

The extent to which COVID could further impact our business, results of operations and financial condition is highly uncertain.

Despite our efforts to manage the adverse impacts of this pandemic, its ultimate impact may depend on various factors beyond our knowledge or control, including the duration and severity of the outbreak and actions taken to contain its spread and mitigate its public health effects.

Examples of the actual and potential adverse impacts of COVID on our business include, but are not limited to:

• significant portions of our workforce being unable to work effectively, including because of illness, quarantines, government actions, temporary facility closures or other restrictions on our operations such as the loss of our essential business designation in the event of tighter restrictions on operations of companies in the defense industrial base;

• disruptions in our supply chain;

• the inability to perform fully on our contracts because of workforce or supply chain constraints;

• cost increases that may not be recoverable or adequately covered by our insurance, resulting in lower profitability;

• delays or limits on the ability of our customers to perform on their contracts, including in making timely payments to us;

• increased volume and effectiveness of cyber-attacks and phishing attempts designed to exploit the pandemic and the large numbers of employees working remotely;

• disruption and volatility in capital markets, increasing the cost of capital and adversely impacting our access to capital;

• slowdowns in M&A market activity, limiting our ability to execute on our M&A growth strategy;

• increased deficit spending in governmental recovery efforts leading to the crowding out of defense spending in future governmental budgets;

• additional costs to protect the health and safety of our employees, including, among others, costs to monitor and test for COVID, to reformat facilities to provide for increased social distancing, to enhance employees' ability to work from home, additional medical costs;

• litigation related to any of the foregoing.

The uncertainties associated with the global outbreak of COVID, the foregoing impacts and other unforeseen impacts not referenced herein, as well as the ultimate impact of the COVID pandemic, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

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

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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, and political conditions.

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 products and services.

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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.

Termination for convenience provisions generally entitles 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.

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In addition, 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.

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.

In addition, we may be subject to 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 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.

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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.

We sell many products and services to U.S.

• We sell certain products and services to U.S.

and international defense contractors or directly to the U.S.

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For example, there have been legislative proposals to narrow the definition of a “commercial item” (as defined in the FAR) or to require cost and pricing data on commercial items that could limit or adversely impact our ability to contract under commercial item terms.

Changes could be accelerated 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 the commercial operating model and requiring compliance with a defined set of business systems criteria.

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.

Growth in the value of certain of our contracts has increased our compliance burden, requiring us to implement new business systems to comply with such requirements.

Failure to comply with applicable CAS requirements could adversely impact our ability to win future CAS-type contracts.

We are subject to the DFARS, in connection with our defense work for the U.S.

• We are subject to the Defense Federal Acquisition Regulation Supplement (“DFARS”), in connection with our defense work for the U.S.

government and defense prime contractors.

Amendments to the DFARS, such as the DFARS cybersecurity requirements, 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.

• 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.

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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government contract, or potentially debarment as a government contractor.

Further, the Defense Counterintelligence and Security Agency ("DCSA") is transitioning its review of a contractor's security program to focus on the protection of critical unclassified information and assets.

Further, the Defense Counterintelligence and Security Agency (“DCSA”) has transitioned its review of a contractor's security program to focus on the protection of critical

unclassified information and assets.

Failure to meet DCSA's new, broader requirements could adversely impact the ability to win new business as a government contractor.

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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 2019, Raytheon accounted for 20% of our total net revenues and Lockheed Martin Corporation accounted for 17% of our total net revenues.

In fiscal 2018, both Raytheon and Lockheed Martin Corporation accounted for 19% of our total net revenues.

In fiscal 2017, Raytheon accounted for 16% of our total net revenues and Lockheed Martin Corporation accounted for 20% of our total net revenues.

In fiscal 2020, both Lockheed Martin Corporation and Raytheon Technologies accounted for 16 % of our total net revenues.

In fiscal 2019, Raytheon Technologies accounted for 20% of our total net revenues and Lockheed Martin Corporation accounted for 17% of our total net revenues.

In fiscal 2018, both Raytheon Technologies and Lockheed Martin Corporation accounted for 19% 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.

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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.

Going forward, we believe the SEWIP, Filthy Buzzard, F-35 and 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.

Going forward, we believe the SEWIP, Filthy Buzzard, F-35, LTAMDS and 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.

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.

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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.

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.

Perceptions of Mercury as a high-cost provider 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.

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 manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for defense electronics systems, which could 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.

Workstation or blade center computer manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for defense electronics 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 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 more downward pressure on prices and offer a more robust portfolio of products and services.

Additionally, our markets are facing increasing industry consolidation, resulting in larger competitors who have more market share putting more downward pressure on prices and offering a more robust portfolio of products and services.

We are subject to competition based upon product design, performance, pricing, quality, and services.

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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 as one of their core competencies and insource that technology development and production rather than purchase that capability from us as a supplier.

Our defense prime contractor customers could decide to pursue one or more of our product development areas as a core 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 in the defense market could be adversely affected by the emergence of commodity-type products as acceptable substitutes for certain of our products and by uncertainty created by emerging changes in standards that may cause customers to delay purchases or seek alternative solutions.

Our products for the defense market are often designed for operating under physical constraints such as limited space, weight, and electrical power.

Historically these requirements have often precluded the use of less expensive, readily available commodity-type systems typically found in more benign non-military settings.

These developments could negatively impact our revenues and have a material adverse effect on our business and operating results.

If we fail to respond to commercial industry cycles in terms of our cost structure, manufacturing capacity, and/or personnel need, our business could be seriously harmed.

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• our ability to increase our in-house manufacturing capacity and utilization;

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

• our ability to successfully identify and 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.

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Pursuing such growth could result in our operational and infrastructure resources being spread too thin, which could negatively impact our ability to deliver quality product on schedule and on budget.

Providing innovative subsystem level products 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 our 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.

Providing innovative subsystem level products 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 enterprise resource planning and management systems across our entire platform, to increase the level of automation to scale our 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.

Future acquisitions may adversely affect our financial condition.

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• potential loss of key employees;

adversely affect our internal control over financial reporting before the acquiree's complete integration into our control environment.

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

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

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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 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 our recent acquisitions of Germane Systems, GECO Avionics, The Athena Group, and Syntonic Microwave, and our pending acquisition of American Panel Corporation, because of integration difficulties and other challenges.

While we expect these 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.

In addition, our competitors could try to emulate our acquisition strategy, leading to greater competition for acquisition targets which could lead to larger competitors if they succeed in emulating our strategy.

We may not realize the expected benefits, including synergies, of our recent acquisitions because of integration difficulties and other challenges.

While we expect our recent 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.

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• unanticipated issues, expenses, charges, and liabilities related to the acquisitions.

We may not be able to maintain the levels of revenue, earnings, or operating efficiency that we and our recent acquisitions had achieved or might achieve separately.

We may not be able to maintain the levels of revenue, earnings, or operating efficiency that we and 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.

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On September 28, 2018, we amended our existing revolving credit facility (“the Revolver”) to increase and extend the borrowing capacity to a $750.0 million, 5-year revolving credit line, with the maturity extended to September 28, 2023.

At June 30, 2019, we had no outstanding borrowings on the Revolver.

As of July 3, 2020, we had no outstanding borrowings on the Revolver.

The Revolver accrues interest, at our option, at floating rates tied to LIBOR or the prime rate plus an applicable percentage.

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In addition, increases in interest rates would increase the cost of servicing our financial instruments with exposure to interest rate risk and could materially reduce our profitability and cash flows.

While we had no borrowings on our Revolver at June 30, 2019, 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.

While we had no borrowings on our Revolver at July 3, 2020, 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 termination of any such hedges.

At March 31, 2019, we had $276.5 million of borrowings under the Revolver, including $175.0 million that was fixed using an interest rate hedge.

During the fourth quarter of fiscal 2019, in conjunction with the net proceeds generated by the follow-on equity offering, we repaid all of our outstanding borrowings on the Revolver, including the $175.0 million with a fixed interest rate, with the termination of the interest rate hedge resulting in $5.4 million in settlement costs.

As of July 3, 2020, we did not have any interest rate hedge instruments in effect.

During the fourth quarter of fiscal 2019, in conjunction with the net proceeds generated by a follow-on equity offering, we repaid all of our then outstanding borrowings on the Revolver, including $175.0 million with a fixed interest rate hedge, with the termination of the interest rate hedge resulting in $5.4 million in settlement costs.

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, 2019, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $562.1 million and $206.1 million, respectively.

At July 3, 2020, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $614.1 million and $208.7 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.

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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.

In addition, there have been a number of major acquisitions within the contract manufacturing industry in recent years.

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.

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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 may not be able to replace these 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 product lines in recent years, primarily related to the acquisitions of Athena, Syntonic, GECO and Germane in fiscal 2019, as well as our earlier acquisitions of Themis, RTL, Delta, CES, the Carve-Out Business, LIT, 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 and the expansion of our Phoenix, Arizona facility, we are becoming more vertically integrated in our product lines.

This vertical integration could lead to higher capital intensity, labor utilization rate volatility which could affect our profitability, and higher fixed costs.

We may not be able to replace these contract manufacturers 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 product lines in recent years, primarily related to the acquisition of APC in fiscal 2020, Athena, Syntonic, GECO and Germane in fiscal 2019, as well as our earlier acquisitions of Themis, RTL, Delta, CES, the Carve-Out Business, LIT, 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 and the expansion of our Phoenix, Arizona facility, we have become more vertically integrated in our product lines.

This vertical integration has led to higher capital intensity and 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 in Oxnard, California may interrupt our operations for a period of time resulting in higher costs, lower revenues and missed opportunities for design wins.

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With our build out of the 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.

With a source of internal manufacturing to meet an increasing portion of our digital processing product manufacturing needs, we will need to manage effectively 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, have established sales offices and subsidiaries in the United Kingdom and Japan and, as part of the acquisitions of CES, RTL, and Themis, we now have manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain, Canada, and France.

We market and sell products in international markets, have sales offices and subsidiaries in the United Kingdom and Japan and we have manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain, Canada, and France.

Revenues from international operations accounted for 7%, 8%, and 9%, of our total net revenues in fiscal 2020, 2019, and 2018, respectively.

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• export and import restrictions;

export controls relating to technology;

• export controls relating to technology and sanctioned parties;

• tariffs and other trade barriers;

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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.

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.

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.

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, 2019.

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, 2019, we had a liability of $9.2 million in other non-current liabilities representing the net under-funded status of the Plan.

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 3, 2020.

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 3, 2020, we had a liability of $11.9 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.

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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.

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.

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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 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.

The pressures we face to be the first to market new products or functionality and the 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.

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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.

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.

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 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.

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, 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.

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.

We cannot assure that, if made, these claims will not be successful.

We may become subject to claims that we infringe the intellectual property rights of 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.

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Any significant change in our customers’ purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter.

Thus, results of operations in any period should not be considered indicative of the results to be expected for any future period.

High quarterly book-ship ratios may pressure inventory and cash flow management, necessitating increased inventory balances to ensure quarterly revenue attainment.

Results of operations in any period should not be considered indicative of the results to be expected for any future period.

High quarterly book-ship ratios may 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.

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Actual results could differ from those estimates, and changes in estimates in subsequent periods could cause our results of operations to fluctuate.

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, engineering, and operational staff and must retain and attract qualified and highly skilled personnel in order to grow our business successfully.

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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 office facilities, and the proper functioning of our computer, telecommunication, and other related systems and operations.

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 computer, telecommunication, and other business 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.

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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.

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.

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.

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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 in order to access sensitive information necessary to the performance of our work on certain government contracts and subcontracts.

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.

As a leading commercial provider to critical defense programs, our business may be subject to heightened risks of cyber intrusion as nation-state hackers seek access to technology used in U.S.

If we suffer data breaches or phishing attacks 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.

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 DFARS minimum security standards or risk losing our DoD contracts.

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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.

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.

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.

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.

The highly-publicized cyberattack on Sony Pictures Entertainment demonstrates the vulnerability of companies to cyberattacks and the severe impact these attacks can have.

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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 business acquisitions.

We may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior and future acquisitions.

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.

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From time to time, we are audited by various Federal, state, local, and foreign authorities regarding income tax matters.

Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local, foreign, and other taxes.

Significant judgment is required to determine our provision for income taxes and our liabilities for 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.

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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 and by-laws could have the effect of discouraging a third party from making a proposal to acquire our company and could prevent certain changes in control, even if some shareholders might consider the proposal to be in their best interest.

Provisions of our articles of organization and by-laws could have the effect of discouraging a third party from making a proposal to acquire 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.

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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 a third party from pursuing an acquisition of our company at a price considered attractive by many shareholders.

These provisions could discourage a third party from pursuing an acquisition of us at a price considered attractive by many shareholders.

The Massachusetts Business Corporation Act permits directors to look beyond the interests of shareholders and consider other constituencies in discharging their duties.

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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 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.

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 attention of management.

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

We have never paid cash dividends on our common 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.

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As a result, capital appreciation, if any, of our common stock will be the 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.

Further, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends.

Consequently, in the foreseeable future, gains will likely only be experienced from investments in our common stock if the price of our common stock increases.

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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

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.

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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.

In addition, as part of our growth strategy, we expect to 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.

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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 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.

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• prevailing interest rates.

We cannot assure that financing will be available in amounts or on terms acceptable to us, if at all.

We cannot assure you 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.

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• hire, train, and retain employees;

market our software solutions, services, and products;

• market our products and subsystems integration services;

• respond to competitive pressures or unanticipated capital requirements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors