MERCURY SYSTEMS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MERCURY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) July 3, 2020 June 30, 2019 Assets Current assets: Cash and cash equivalents $ 226,838 $ 257,932 Accounts receivable, net of allowance for doubtful accounts of $1,451 and $1,228 at July 3, 2020 and June 30, 2019, respectively 120,438 118,832 Unbilled receivables and costs in excess of billings 90,289 57,387 Inventory 178,093 137,112 Prepaid income taxes 2,498 90 Prepaid expenses and other current assets 16,613 10,819 Total current assets 634,769 582,172 Property and equipment, net 87,737 60,001 Goodwill 614,076 562,146 Intangible assets, net 208,748 206,124 Operating lease right-of-use assets 60,613 — Other non-current assets 4,777 6,534 Total assets $ 1,610,720 $ 1,416,977 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 41,877 $ 39,030 Accrued expenses 23,794 18,897 Accrued compensation 41,270 28,814 Deferred revenues and customer advances 18,974 11,291 Total current liabilities 125,915 98,032 Deferred income taxes 13,889 17,814 Income taxes payable 4,117 1,273 Operating lease liabilities 66,981 — Other non-current liabilities 15,034 15,119 Total liabilities 225,936 132,238 Commitments and contingencies (Note L) 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; 54,702,322 and 54,247,532 shares issued and outstanding at July 3, 2020 and June 30, 2019, respectively 547 542 Additional paid-in capital 1,074,667 1,058,745 Retained earnings 312,455 226,743 Accumulated other comprehensive loss ( 2,885 ) ( 1,291 ) Total shareholders’ equity 1,384,784 1,284,739 Total liabilities and shareholders’ equity $ 1,610,720 $ 1,416,977 The accompanying notes are an integral part of the consolidated financial statements. 50 Table of Contents MERCURY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share data) For the Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Net revenues $ 796,610 $ 654,744 $ 493,184 Cost of revenues 439,766 368,588 267,326 Gross margin 356,844 286,156 225,858 Operating expenses: Selling, general and administrative 132,253 110,717 88,365 Research and development 98,485 68,925 58,807 Amortization of intangible assets 30,560 27,914 26,004 Restructuring and other charges 1,805 560 3,159 Acquisition costs and other related expenses 2,679 1,456 2,538 Total operating expenses 265,782 209,572 178,873 Income from operations 91,062 76,584 46,985 Interest income 2,151 932 32 Interest expense ( 1,006 ) ( 9,109 ) ( 2,850 ) Other income (expense), net 1,726 ( 8,880 ) ( 1,594 ) Income before income taxes 93,933 59,527 42,573 Tax provision 8,221 12,752 1,690 Net income $ 85,712 $ 46,775 $ 40,883 Basic net earnings per share $ 1.57 $ 0.98 $ 0.88 Diluted net earnings per share $ 1.56 $ 0.96 $ 0.86 Weighted-average shares outstanding: Basic 54,546 47,831 46,719 Diluted 55,115 48,500 47,471 Comprehensive income: Net income $ 85,712 $ 46,775 $ 40,883 Foreign currency translation adjustments 174 ( 232 ) ( 137 ) Pension benefit plan, net of tax ( 1,768 ) ( 2,350 ) 354 Total other comprehensive (loss) income, net of tax ( 1,594 ) ( 2,582 ) 217 Total comprehensive income $ 84,118 $ 44,193 $ 41,100 The accompanying notes are an integral part of the consolidated financial statements. 51 Table of Contents MERCURY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the Fiscal Years Ended July 3, 2020, June 30, 2019 and June 30, 2018 (In thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount Balance at June 30, 2017 46,303 $ 463 $ 584,795 $ 139,085 $ 1,074 $ 725,417 Issuance of common stock under employee stock incentive plans 868 8 655 — — 663 Issuance of common stock under employee stock purchase plan 82 1 2,781 — — 2,782 Retirement of common stock ( 329 ) ( 3 ) ( 15,505 ) — — ( 15,508 ) Stock-based compensation — — 17,437 — — 17,437 Net income — — — 40,883 — 40,883 Other Comprehensive Income — — — — 217 217 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 ) — — — 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 The accompanying notes are an integral part of the consolidated financial statements. 52 MERCURY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Cash flows from operating activities: Net income $ 85,712 $ 46,775 $ 40,883 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 49,330 46,392 42,277 Stock-based compensation expense 26,538 19,422 17,314 Benefit for deferred income taxes ( 3,019 ) ( 1,557 ) ( 5,464 ) Gain on investments ( 5,817 ) — — Termination of interest rate swap — 5,420 — Other non-cash items 3,509 3,779 2,103 Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable, unbilled receivables, and costs in excess of billings ( 31,079 ) ( 28,096 ) ( 22,751 ) Inventory ( 31,609 ) ( 17,101 ) ( 16,230 ) Prepaid income taxes ( 2,792 ) 3,843 ( 2,327 ) Prepaid expenses and other current assets ( 2,116 ) ( 1,075 ) ( 361 ) Other non-current assets ( 1,260 ) 101 296 Accounts payable, accrued expenses and accrued compensation 13,610 17,949 ( 5,267 ) Deferred revenues and customer advances 7,082 ( 1,531 ) 6,035 Income taxes payable ( 131 ) 3,152 ( 11,187 ) Other non-current liabilities 7,226 44 ( 2,000 ) Net cash provided by operating activities 115,184 97,517 43,321 Cash flows from investing activities: Acquisition of businesses, net of cash acquired ( 96,502 ) ( 127,083 ) ( 185,396 ) Purchases of property and equipment ( 43,294 ) ( 26,691 ) ( 15,106 ) Proceeds from sale of investment 4,310 — — Other investing activities — — ( 375 ) Net cash used in investing activities ( 135,486 ) ( 153,774 ) ( 200,877 ) Cash flows from financing activities: Proceeds from employee stock plans 5,317 3,661 3,445 Payments for retirement of common stock ( 16,249 ) ( 7,968 ) ( 15,508 ) Payments under credit facilities ( 200,000 ) ( 324,500 ) ( 15,000 ) Borrowings under credit facilities 200,000 129,500 210,000 Proceeds from equity offering, net — 454,343 — Termination of interest rate swap — ( 5,420 ) — Payments of deferred financing and offering costs — ( 1,851 ) — Net cash (used in) provided by financing activities ( 10,932 ) 247,765 182,937 Effect of exchange rate changes on cash and cash equivalents 140 ( 97 ) ( 497 ) Net (decrease) increase in cash and cash equivalents ( 31,094 ) 191,411 24,884 Cash and cash equivalents at beginning of year 257,932 66,521 41,637 Cash and cash equivalents at end of year $ 226,838 $ 257,932 $ 66,521 Cash paid during the period for: Interest $ 1,046 $ 10,368 $ 1,607 Income taxes $ 12,939 $ 7,351 $ 17,004 Supplemental disclosures—non-cash activities: Non-cash investing activity $ 2,623 $ — $ — Non-cash financing activity $ — $ 770 $ — The accompanying notes are an integral part of the consolidated financial statements. 53 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 technology company serving the aerospace and defense electronics industry, positioned at the intersection of high-tech and defense. Headquartered in Andover, Massachusetts, the Company delivers solutions 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 purpose-built to meet our customers’ most-pressing high-tech needs, including those specific to the defense community. As a leading manufacturer of essential components, modules and subsystems, the Company sells to defense prime contractors, the U.S. government and original equipment manufacturers (“OEM”) commercial aerospace companies. The Company has built a trusted, contemporary portfolio of proven product solutions purpose-built for aerospace and defense that it believes meets and exceeds the performance needs of its defense and commercial customers. Customers add their own applications and algorithms to our specialized, secure and innovative pre-integrated solutions. This allows them to complete their full system by integrating with their platform, the sensor technology and, in some cases, the processing from Mercury, with their platform. The Company's products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers. The Company's transformational business model accelerates the process of making new technology profoundly more accessible to its customers by bridging the gap between commercial technology and aerospace and defense applications. The Company's long-standing deep relationships with leading high-tech companies, coupled with the Company's high level of research and development (“R&D”) investments and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. The Company's capabilities, technology and R&D investment strategy combine to differentiate Mercury in its industry. The Company's technologies and capabilities include secure embedded processing modules and subsystems, mission computers, secure and rugged rack-mount servers, safety-critical avionics, radio frequency (“RF”) components, multi-function assemblies, subsystems and custom microelectronics. The Company maintains our technological edge by investing in critical capabilities and intellectual property (“IP” or “building blocks”) in processing and RF, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as artificial intelligence (“AI”). The Company's mission critical solutions are deployed by its customers for a variety of applications including command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”), electronic intelligence, avionics, electro-optical/infrared (“EO/IR”), electronic warfare, weapons and missile defense, hypersonics and radar. On September 23, 2019, the Company acquired American Panel Corporation (“APC”) on a cash-free, debt-free basis for a total purchase price of $ 100,000 , prior to net working capital and net debt adjustments. Based in Alpharetta, Georgia, APC is a leading innovator in large area display technology for the aerospace and defense market. APC's capabilities are deployed on a wide range of next-generation platforms. On May 20, 2019, the Company announced the commencement of an underwritten public offering of its common stock, par value $ 0.01 per share. On May 31, 2019 the Company closed the offering, including the full over-allotment allocation, selling an aggregate of 6,900 shares of common stock at a price to the public of $ 69.00 for total net proceeds of $ 454,343 . On April 18, 2019, the Company acquired The Athena Group, Inc. (“Athena”) and Syntonic Microwave LLC (“Syntonic”) on a cash-free, debt-free basis for a combined total purchase price of $ 46,000 , prior to net working capital and net debt adjustments. Athena was a privately-held company based in Gainesville, Florida and a leading provider of cryptographic and countermeasure IP vital to securing defense computing systems. Syntonic was a privately held company based in Campbell, California and a leading provider of advanced synthesizers, wideband phase coherent tuners and microwave converters optimized for signals intelligence and electronic intelligence applications demanding frequency coverage up to 40 GHz with 2 GHz instantaneous bandwidth. On January 29, 2019, the Company acquired GECO Avionics, LLC (“GECO”) on a cash-free, debt-free basis for a total purchase price of $ 36,500 . Based in Mesa, Arizona, GECO has over twenty years of experience designing and manufacturing affordable safety-critical avionics and mission computing solutions. 54 Table of Contents On July 31, 2018, the Company acquired Germane Systems, LC (“Germane”) on a cash-free, debt-free basis for a total purchase price of $ 45,000 , prior to net working capital and net debt adjustments. Based in Chantilly, Virginia, Germane is an industry leader in the design, development and manufacturing of rugged servers, computers and storage systems for command, control and intelligence (“C2I”) applications. For further details on the acquisitions, see Note C to the consolidated financial statements. B. Summary of Significant Accounting Policies P RINCIPLES OF C ONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. B ASIS OF P RESENTATION 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 2020 are to the 53-week period from July 1, 2019 to July 3, 2020. All references to fiscal 2019 and 2018 are to the 52-week periods from July 1, 2018 to June 30, 2019 and July 1, 2017 to June 30, 2018, respectively. There have been no reclassifications of prior comparable periods due to this change. U SE OF E STIMATES The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“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. B USINESS C OMBINATIONS The Company utilizes the acquisition method of accounting under ASC 805, Business Combinations, (“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 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 fixed assets and inventory; • estimated fair values of intangible assets; and • estimated income tax assets and liabilities assumed from the acquiree. 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. L EASES Effective July 1, 2019, the Company adopted ASC 842, Leases , (“ASC 842”), which requires lessees to recognize a right-of-use (“ROU”) asset and lease liability for most lease arrangements. The Company has 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 incremental borrowing rate (“IBR”) to discount the future minimum 55 Table of Contents 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 reasonably certain to extend the term of the lease. The Company has lease arrangements with both lease and 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 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 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 reasonably certain to exercise, it records a reduction to the lease liability and amortizes the incentive over the identified term of the 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 not a lessor in any material lease arrangements. There are no material restrictions, covenants, sale and leaseback transactions, variable lease payments or residual value guarantees in the 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 the adoption of this standard. R EVENUE R ECOGNITION 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, 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 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's contracts with customers generally do not include a right of return relative to delivered products. In certain cases, contracts are modified to account for changes in the contract specifications or 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. The Company is a leader in making trusted, secure mission-critical technologies profoundly more accessible to aerospace 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 56 Table of Contents 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 criteria for being distinct. The appropriate allocation of the transaction price and recognition of revenue is then determined for the bundled performance obligation. Once the Company identifies the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to be included in 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 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 a significant reversal in the amount of revenue recognized will not occur. There are no constraints on the variable consideration recorded. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the standalone selling price of each distinct good or service in the contract. Standalone selling prices of the 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 forecasts the expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service. The objective of 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 determination of the expected cost plus a margin approach involves the consideration of several factors based on the specific facts and circumstances of each 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, often based on the price list established and updated by management on a regular 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 transaction price on contracts at 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 frequent analysis or if the Company experiences significant variances in its selling prices. Revenue recognized at a point in time generally relates to contracts that include a combination of 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 transaction price, totaled 73 %, 77 % and 79 % of revenues in the fiscal years ended July 3, 2020, June 30, 2019 and 2018, 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 only able to consume the benefits provided by the Company upon completion of the product or service; (ii) customers do not control the product or service prior to completion; and (iii) the Company does not have 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, and revenue is generally recognized upon shipment (for goods) or completion (for services). The Company engages in long-term contracts for development, production and service activities and recognizes revenue for 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 no alternative use to the Company and the Company has an enforceable right to payment for 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. These contracts include both fixed-price and cost reimbursable contracts. The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material (“T&M”) contracts. For long-term contracts, the Company typically leverages the input method, using a cost-to-cost measure of progress. The Company believes that this method represents the 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, including the assessment of the nature and complexity of the work to be performed; the cost and availability of materials; the availability of subcontractor services and materials; and the availability and timing of funding from the customer. The Company bears the risk of changes in estimates to complete on a fixed-price contract which may cause profit levels to vary from period to period. For cost reimburseable contracts, the Company is reimbursed periodically for allowable 57 Table of Contents costs and 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 costs. For 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. Accounting for long-term contracts requires significant judgment relative to estimating total contract revenues and costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be 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. Total revenue recognized under long-term contracts over time was 27 %, 23 % and 21 % of revenues in the fiscal years ended July 3, 2020, June 30, 2019 and 2018, respectively. 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 over a period of 12 to 36 months. The Company accrues for anticipated warranty costs upon product shipment. 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 12 to 36 months that are treated as separate performance obligations. The transaction price allocated to extended warranties is recognized 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 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 OSTS TO O BTAIN AND F ULFILL A C ONTRACT The Company expenses sales commissions as incurred for contracts where the amortization period would have been one year or less. The Company has not deferred sales commissions for contracts where the amortization period is greater than one year because such amounts that would qualify for deferral are not 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. C ONTRACT B ALANCES 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 $ 90,289 and $ 57,387 as of July 3, 2020 and June 30, 2019, respectively. The contract asset balance increased due to growth in revenue recognized under long-term contracts over time during the fiscal year ended 58 Table of Contents July 3, 2020. The contract liability balances were $ 19,892 and $ 12,362 as July 3, 2020 and June 30, 2019, respectively. The contract liability increased due to a higher volume of contracts with milestone and progress payments. Revenue recognized during fiscal 2020 that was included in the contract liability balance at June 30, 2019 was $ 10,216 . R EMAINING P ERFORMANCE O BLIGATIONS 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 3, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 280,346 . The Company expects to recognize approximately 73 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter. C ASH AND C ASH E QUIVALENTS 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. F AIR V ALUE OF F INANCIAL I NSTRUMENTS The Company measures at fair value certain financial assets and liabilities, including cash equivalents, restricted cash and contingent consideration. 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 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. As of July 3, 2020 and June 30, 2019, the Company had $ 226,838 and $ 257,932 , 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. As of July 3, 2020, five customers accounted for 52 % of the Company's accounts receivable, unbilled receivables and costs in excess of billings. As of June 30, 2019, five customers accounted for 56 % of the Company’s accounts receivable, unbilled receivables and costs in excess of billings. The Company maintains an allowance for doubtful accounts 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. I NVENTORY Inventory is stated at the lower of cost (first-in, first-out) or 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. S EGMENT I NFORMATION 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 59 Table of Contents Company manages its business on the basis of one reportable segment, as a leader in making trusted, secure mission-critical technologies profoundly more accessible to aerospace and defense. G OODWILL AND I NTANGIBLE A SSETS Goodwill is the amount by which the cost 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 accordance with the requirements of ASC 350, Intangibles-Goodwill and Other (“ASC 350”). 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 12.5 years or over the period the economic benefits of the intangible asset are consumed. L ONG - LIVED A SSETS Long-lived assets primarily include property and equipment, intangible assets and ROU assets. The Company regularly evaluates its long-lived assets for events and circumstances that indicate a potential impairment in accordance with ASC 360, Property, Plant, and Equipment (“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). 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 ASC 350. During fiscal 2020, 2019 and 2018, the Company capitalized $ 905 , $ 749 and $ 733 of software development costs, respectively. I NCOME T AXES The Company accounts for income taxes under ASC 740, Income Taxes (“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. 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. P RODUCT W ARRANTY A CCRUAL 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 60 Table of Contents 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. The following table presents the changes in the Company's product warranty accrual. Fiscal 2020 Fiscal 2019 Fiscal 2018 Beginning balance $ 1,870 $ 1,336 $ 1,691 Warranty assumed from APC 739 — — Warranty assumed from Germane — 169 — Warranty assumed from Themis — — 117 Accruals for warranties issued during the period 2,839 2,274 1,318 Settlements made during the period ( 1,613 ) ( 1,909 ) ( 1,790 ) Ending balance $ 3,835 $ 1,870 $ 1,336 R ESEARCH AND D EVELOPMENT C OSTS 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. S TOCK - BASED C OMPENSATION 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 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. R ETIREMENT OF C OMMON S TOCK 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. N ET E ARNINGS P ER S HARE 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 is the control number for determining whether securities are dilutive or not. Basic and diluted weighted average shares outstanding were as follows: Fiscal Years 2020 2019 2018 Basic weighted-average shares outstanding 54,546 47,831 46,719 Effect of dilutive equity instruments 569 669 752 Diluted weighted-average shares outstanding 55,115 48,500 47,471 Equity instruments to purchase 8 , 32 and 329 shares of common stock were not included in the calculation of diluted net earnings per share for the fiscal years ended July 3, 2020, June 30, 2019 and 2018, respectively, because the equity instruments were anti-dilutive. A CCUMULATED O THER C OMPREHENSIVE I NCOME ( L OSS) Accumulated other comprehensive income (loss) (“AOCI”) includes foreign currency translation adjustments and pension benefit plan adjustments. The components of AOCI included $ 174 , $( 232 ) and $( 137 ) of foreign currency translation adjustments for the fiscal years ended July 3, 2020, June 30, 2019 and 2018, respectively. In addition, pension benefit plan adjustments totaled $( 1,768 ), $( 2,350 ) and $ 354 for the fiscal years ended July 3, 2020, June 30, 2019 and 2018 respectively. F OREIGN C URRENCY 61 Table of Contents Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, Japan, Spain and 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 income (expense), net in the Consolidated Statements of Operations and Comprehensive Income and were immaterial for all periods presented. R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) , an amendment of the FASB Accounting Standards Codification. Subsequent to the issuance of ASU 2016-13, there were various updates that amended and clarified the impact of ASU 2016-13. This ASU broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The amendments in this ASU will require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including trade receivables, based on expected losses rather than incurred losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The use of forecasted information incorporates more timely information in the estimate of expected credit losses. For public business entities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures. In January 2017, the FASB issued 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”) 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 adoption and permits early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this guidance to have a material impact to its consolidated financial statements. In March 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects for Accumulated Other Comprehensive Income , an amendment of the FASB Accounting Standards Codification. This ASU permits a company to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within AOCI to retained earnings. The amounts applicable for reclassification should include the effect of the change in the U.S. Federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Cuts and Jobs Act of 2017 related to the items remaining in AOCI. The effect of the change in the U.S. Federal corporate income tax rate on gross valuation allowances that were originally charged to income from continuing operations shall not be included. The Company has determined that there is no activity that falls within the scope of this ASU. In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715) Changes to the Disclosure Requirements for Defined Benefit Plans , an amendment of the FASB Accounting Standards Codification. The amendments in this ASU remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. For public business entities, the standard is effective for fiscal years ending after December 15, 2020. The ASU requires retrospective adoption and permits early adoption for all entities. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures. In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) , an amendment of the FASB Accounting Standards Codification. The ASU provides guidance to determine whether to 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 service contract and expensed as incurred. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The ASU permits two methods of adoption: prospectively to all implementation costs incurred after the date of adoption, or retrospectively to each prior reporting period presented. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an 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 62 Table of Contents method investments and adds guidance whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its consolidated financial statements and related disclosures. R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS Effective July 1, 2019, the Company adopted ASC 842, Leases , which requires lessees to recognize a ROU asset and lease liability for most lease arrangements. This ASU supersedes existing lease guidance, including ASC 840, Leases (Topic 840) . The standard mandates a modified retrospective transition method for all entities and early adoption is permitted. This ASU, among other things, allows companies to elect an optional transition method to apply the new lease standard through a cumulative-effect adjustment in the period of adoption. The Company adopted ASC 842 using the optional transition method and, as a result, did not recast prior period consolidated financial statements. All prior period amounts and disclosures remain presented under ASC 840. The Company elected the package of practical expedients which allows the Company to not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. The Company also elected the hindsight practical expedient, permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets. Adoption of the new standard resulted in additional lease assets and lease liabilities on the Consolidated Balance Sheets with no cumulative impact to retained earnings and did not have a material impact on our Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows. C. Acquisitions A MERICAN P ANEL C ORPORATION A CQUISITION On September 23, 2019, the Company acquired American Panel Corporation. Based in Alpharetta, Georgia, APC is a leading innovator in large area display technology for the aerospace and defense market. APC's capabilities are deployed on a 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 cash on hand. 63 Table of Contents The following table presents the net purchase price and the fair values of the assets and liabilities of APC on a preliminary basis: 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 Estimated fair value of tangible assets acquired and liabilities assumed Cash $ 826 Accounts receivable 3,726 Inventory 11,271 Fixed assets 690 Other current and non-current assets 3,494 Accounts payable ( 1,554 ) Accrued expenses ( 1,252 ) Other current and non-current liabilities ( 5,749 ) Estimated fair value of net tangible assets acquired 11,452 Estimated fair value of identifiable intangible assets 33,200 Estimated goodwill 52,676 Estimated fair value of net assets acquired 97,328 Less cash acquired ( 826 ) Net purchase price $ 96,502 The amounts above represent the preliminary fair value estimates as of July 3, 2020 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates. The preliminary identifiable intangible asset estimate includes customer relationships of $ 20,600 with a useful life of 11 years, completed technology of $ 10,400 with a useful life of 11 years and backlog of $ 2,200 with a useful life of two years . Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill. The goodwill of $ 52,676 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 goodwill from this acquisition is reported under the Sensor and Mission Processing (“SMP”) 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 is amortizing the amount over 15 years for tax purposes. As of July 3, 2020, the Company had $ 51,553 of goodwill deductible for tax purposes. The Company has not furnished pro forma information relating to APC because such information is not material to the Company's financial results. The revenues and income before income taxes from APC included in the Company's consolidated results for fiscal year ended July 3, 2020 were $ 27,383 and $ 3,309 , respectively. The APC results include expenses resulting from purchase accounting, which include amortization of intangible assets and inventory step-up. T HE A THENA G ROUP A CQUISITION On April 18, 2019, the Company acquired The Athena Group, Inc., a privately-held company based in Gainesville, Florida and a leading provider of cryptographic and countermeasure IP vital to securing defense computing systems. The Company acquired Athena for an all cash purchase price of $ 34,000 , prior to net working capital and net debt adjustments, which was funded through the revolving credit facility (“the Revolver”). 64 Table of Contents The following table presents the net purchase price and the fair values of the assets and liabilities of Athena: Amounts Consideration transferred Cash paid at closing $ 34,049 Working capital and net debt adjustment ( 446 ) Less cash acquired ( 49 ) Net purchase price $ 33,554 Fair value of tangible assets acquired and liabilities assumed Cash $ 49 Accounts receivable 726 Fixed assets 74 Other current and non-current assets 398 Accounts payable ( 48 ) Accrued expenses ( 520 ) Other current and non-current liabilities ( 600 ) Deferred tax liability ( 5,183 ) Fair value of net tangible liabilities acquired ( 5,104 ) Fair value of identifiable intangible assets 23,700 Goodwill 15,007 Fair value of net assets acquired 33,603 Less cash acquired ( 49 ) Net purchase price $ 33,554 On April 18, 2020, the measurement period for Athena expired. The identifiable intangible assets include completed technology of $ 23,700 with a useful life of 11 years. The goodwill of $ 15,007 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 goodwill from this acquisition is reported under the Mercury Defense Systems (“MDS”) reporting unit. S YNTONIC M ICROWAVE LLC A CQUISITION On April 18, 2019, the Company acquired Syntonic Microwave LLC, a privately held company based in Campbell, California and a leading provider of advanced synthesizers, wideband phase coherent tuners and microwave converters optimized for signals intelligence and electronic intelligence applications demanding frequency coverage up to 40 GHz with 2 GHz instantaneous bandwidth. The Company acquired Syntonic for an all cash purchase price of $ 12,000 , prior to net working capital and net debt adjustments, which was funded through the Revolver. 65 Table of Contents The following table presents the net purchase price and the fair values of the assets and liabilities of Syntonic: Amounts Consideration transferred Cash paid at closing $ 13,118 Less cash acquired ( 1,118 ) Net purchase price $ 12,000 Fair value of tangible assets acquired and liabilities assumed Cash $ 1,118 Accounts receivable 281 Inventory 482 Fixed assets 31 Other current and non-current assets 6 Accounts payable ( 71 ) Accrued expenses ( 61 ) Fair value of net tangible assets acquired 1,786 Fair value of identifiable intangible assets 7,100 Goodwill 4,232 Fair value of net assets acquired 13,118 Less cash acquired ( 1,118 ) Net purchase price $ 12,000 On April 18, 2020, the measurement period for Syntonic expired. The identifiable intangible assets include customer relationships of $ 4,200 with a useful life of 10 years, completed technology of $ 2,500 with a useful life of nine years and backlog of $ 400 with a useful life of one year . The goodwill of $ 4,232 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 goodwill from this acquisition is reported under the Advanced Microelectronic Solutions (“AMS”) reporting unit. Since Syntonic was a limited liability company, 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 is amortizing the amount over 15 years for tax purposes. As of July 3, 2020, the Company had $ 2,986 of goodwill deductible for tax purposes. G ECO A VIONICS A QUISITION On January 29, 2019, the Company announced that it had acquired GECO Avionics, LLC, a privately held company in Mesa, Arizona, with over twenty years of experience designing and manufacturing affordable safety-critical avionics and mission computing solutions. The Company acquired GECO for an all cash purchase price of $ 36,500 , which was funded through the Revolver. 66 Table of Contents The following table presents the net purchase price and the fair values of the assets and liabilities of GECO: Amounts Consideration transferred Cash paid at closing $ 36,500 Net purchase price $ 36,500 Estimated fair value of tangible assets acquired and liabilities assumed Accounts receivable $ 1,320 Inventory 1,454 Fixed assets 459 Accounts payable ( 217 ) Accrued expenses ( 239 ) Fair value of net tangible assets acquired 2,777 Fair value of identifiable intangible assets 12,700 Goodwill 21,023 Fair value of net assets acquired 36,500 Net purchase price $ 36,500 On January 29, 2020, the measurement period for GECO expired. The identifiable intangible assets include customer relationships of $ 6,900 with a useful life of 11 years, completed technology of $ 4,800 with a useful life of 10 years and backlog of $ 1,000 with a useful life of two years . The goodwill of $ 21,023 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 goodwill from this acquisition is reported under the SMP reporting unit. Since GECO was a limited liability company, 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 is amortizing the amount over 15 years for tax purposes. As of July 3, 2020, the Company had $ 19,766 of goodwill deductible for tax purposes. G ERMANE S YSTEMS A CQUISITION On July 31, 2018, the Company announced that it had entered into a membership interest purchase agreement (the "Purchase Agreement") and acquired Germane Systems, LC pursuant to the terms of the Purchase Agreement. Based in Chantilly, Virginia, Germane is an industry leader in the design, development and manufacturing of rugged servers, computers and storage systems for C2I applications. The Company acquired Germane for an all cash purchase price of $ 45,000 , prior to net working capital and net debt adjustments. The Company funded the acquisition with borrowings obtained under the Revolver. On December 12, 2018 the Company and former owners of Germane agreed to post-closing adjustments totaling $ 1,244 , which decreased the Company's net purchase price. 67 Table of Contents The following table presents the net purchase price and the fair values of the assets and liabilities of Germane: Amounts Consideration transferred Cash paid at closing $ 47,166 Working capital and net debt adjustment ( 1,244 ) Less cash acquired ( 193 ) Net purchase price $ 45,729 Fair value of tangible assets acquired and liabilities assumed Cash $ 193 Accounts receivable 4,277 Inventory 8,575 Fixed assets 867 Other current and non-current assets 596 Accounts payable ( 3,146 ) Accrued expenses ( 1,394 ) Other current and non-current liabilities ( 514 ) Fair value of net tangible assets acquired 9,454 Fair value of identifiable intangible assets 12,910 Goodwill 23,558 Fair value of net assets acquired 45,922 Less cash acquired ( 193 ) Net purchase price $ 45,729 On July 31, 2019, the measurement period for Germane expired. The identifiable intangible assets include customer relationships of $ 8,500 with a useful life of 11 years, completed technology of $ 4,200 with a useful life of eight years and backlog of $ 210 with a useful life of one year . The goodwill of $ 23,558 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 goodwill from this acquisition is reported under the MDS reporting unit. Since Germane was a limited liability company, 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 is amortizing the amount over 15 years for tax purposes. As of July 3, 2020, the Company had $ 20,555 of goodwill deductible for tax purposes. D. Fair Value of Financial Instruments The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at July 3, 2020: Fair Value Measurements July 3, 2020 Level 1 Level 2 Level 3 Assets: Certificates of deposit $ 10,006 $ — $ 10,006 $ — U.S. equity securities 2,007 2,007 — — Total $ 12,013 $ 2,007 $ 10,006 $ — 68 Table of Contents 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 gain on investments were included within Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income for the fiscal year ended July 3, 2020. The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at June 30, 2019: Fair Value Measurements June 30, 2019 Level 1 Level 2 Level 3 Assets: Certificates of deposit $ 31,522 $ — $ 31,522 $ — Total $ 31,522 $ — $ 31,522 $ — 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 Company terminated its interest rate swap during the fourth quarter of fiscal 2019 in conjunction with the net proceeds generated by the follow-on equity offering. As such, the Company had no interest rate swaps as of July 3, 2020 and June 30, 2019. E. Inventory Inventory was comprised of the following: As of July 3, 2020 June 30, 2019 Raw materials $ 111,225 $ 84,561 Work in process 49,647 38,525 Finished goods 17,221 14,026 Total $ 178,093 $ 137,112 The $ 40,981 increase in inventory was due to an increase in overall demand, especially for larger, more complex sub-assemblies and integrated sub-systems, a dvanced purchases intended to mitigate potential disruptions to the supply chain resulting from the COVID pandemic and the acquisition of APC. F. Property and Equipment Property and equipment consisted of the following: Estimated Useful Lives (Years) As of July 3, 2020 June 30, 2019 Computer equipment and software 3-4 $ 85,705 $ 78,195 Furniture and fixtures 5 5,993 5,330 Leasehold improvements lesser of estimated useful life or lease term 36,874 25,646 Machinery and equipment 5-10 90,970 63,792 219,542 172,963 Less: accumulated depreciation ( 131,805 ) ( 112,962 ) $ 87,737 $ 60,001 The $ 27,736 increase in property and equipment was primarily due to current year additions and property and equipment associated with improvements to the Company's facilities, including the expansion of its trusted custom microelectronics business and the acquisition of APC. These increases were partially offset by depreciation expense. During fiscal 2020 and 2019, the Company retired $ 64 and $ 3,980 , respectively, of computer equipment and software, furniture, and fixtures, leasehold improvements, and machinery and equipment that were no longer in use by the Company. 69 Table of Contents Depreciation expense related to property and equipment for the fiscal years ended July 3, 2020, June 30, 2019 and 2018 was $ 18,770 , $ 18,478 and $ 16,273 , respectively. G. Goodwill The following table sets forth the changes in the carrying amount of goodwill by reporting unit for the year ended July 3, 2020: Total Balance at June 30, 2019 $ 562,146 Goodwill adjustment for the Germane acquisition 447 Goodwill adjustment for the GECO acquisition ( 200 ) Goodwill adjustment for the Athena acquisition ( 993 ) Goodwill arising from the APC acquisition 52,676 Balance at July 3, 2020 $ 614,076 As defined by ASC 350, goodwill is tested for impairment on an interim basis at the occurrence of certain triggering events or at a minimum on an annual basis. In fiscal 2020, there were no triggering events, which required an interim goodwill impairment test. The Company performed its annual goodwill impairment test in the fourth quarter of fiscal 2020 with no impairment noted. H. Intangible Assets Intangible assets consisted of the following: Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life 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 June 30, 2019 Customer relationships $ 167,460 $ ( 38,308 ) $ 129,152 11.4 years Licensing agreements and patents 1,505 ( 1,022 ) 483 3.5 years Completed technologies 97,592 ( 22,246 ) 75,346 9.0 years Backlog 1,610 ( 467 ) 1,143 1.6 years $ 268,167 $ ( 62,043 ) $ 206,124 Estimated future amortization expense for intangible assets remaining at July 3, 2020 is as follows: Fiscal Year Totals 2021 $ 30,326 2022 29,114 2023 26,857 2024 23,614 2025 22,034 Thereafter 76,803 Total future amortization expense $ 208,748 70 Table of Contents The following table summarizes the preliminary estimated fair value of acquired intangible assets arising as a result of the APC acquisition. These assets are included in the Company's gross and net carrying amounts as of July 3, 2020. Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life Customer relationships $ 20,600 $ ( 1,405 ) $ 19,195 11.0 years Completed technologies 10,400 ( 709 ) 9,691 11.0 years Backlog 2,200 ( 825 ) 1,375 2.0 years $ 33,200 $ ( 2,939 ) $ 30,261 I. Restructuring Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. During fiscal 2020, the Company incurred $ 1,805 of net restructuring and other charges primarily related to severance costs associated with the elimination of 20 positions, predominantly in SG&A and R&D functions. During fiscal 2019, the Company incurred $ 560 of net restructuring and other charges primarily related to severance costs associated with the acquired Germane business. During fiscal 2018, the Company incurred $ 3,159 related to the elimination of 38 positions predominantly in R&D and operations functions as well as executive severance. All of the restructuring and other charges are classified as operating expenses in the Consolidated Statements of Operations and Comprehensive Income and any remaining severance obligations are expected to be paid within the next twelve months. The remaining restructuring liability is classified as accrued expenses in the Consolidated Balance Sheets. The following table presents the detail of expenses for the Company’s restructuring plans: Severance & Related Facilities & Other Total Restructuring liability at June 30, 2018 $ 1,801 $ — $ 1,801 Restructuring charges 549 80 629 Cash paid ( 2,333 ) ( 24 ) ( 2,357 ) Reversals (*) ( 13 ) ( 56 ) ( 69 ) Restructuring liability at June 30, 2019 4 — 4 Restructuring charges 1,730 75 1,805 Cash paid ( 1,137 ) ( 75 ) ( 1,212 ) Restructuring liability at July 3, 2020 $ 597 $ — $ 597 (*) Reversals result from the unused outplacement services and operating costs. J. Leases The Company enters into lease arrangements to facilitate its operations, including manufacturing, storage, as well as engineering, sales, marketing, and administration resources. As described in Note B to the consolidated financial statements, effective July 1, 2019, the Company adopted ASC 842 using the optional transition method and, as a result, did not recast prior period unaudited consolidated comparative financial statements. As such, all prior period amounts and disclosures are presented under ASC 840, Leases (Topic 840) . Finance leases are not material to the Company's consolidated financial statements and therefore are excluded from the following disclosures. 71 Table of Contents S UPPLEMENTAL B ALANCE S HEET I NFORMATION Supplemental operating lease balance sheet information is summarized as follows: As of July 3, 2020 Operating lease right-of-use assets $ 60,613 Accrued expenses (1) $ 6,950 Operating lease liabilities 66,981 Total operating lease liabilities $ 73,931 (1) The short term portion of the Operating lease liabilities is included within Accrued expenses on the Consolidated Balance Sheet. O THER S UPPLEMENTAL I NFORMATION Other supplemental operating lease information is summarized as follows: For the Fiscal Year Ended July 3, 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 6,929 Right-of-use assets obtained in exchange for new lease liabilities $ 19,942 Weighted average remaining lease term 9.3 years Weighted average discount rate 4.91 % M ATURITIES OF L EASE C OMMITMENTS Maturities of operating lease commitments as of July 3, 2020 were as follows: Fiscal Year Totals 2021 $ 9,572 2022 10,741 2023 10,272 2024 9,333 2025 9,356 Thereafter 44,763 Total lease payments 94,037 Less: imputed interest ( 20,106 ) Present value of operating lease liabilities $ 73,931 As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2019, future minimum lease payments for non-cancelable operating leases were as follows: Fiscal Year Totals 2020 $ 10,205 2021 8,949 2022 8,280 2023 7,414 2024 6,496 Thereafter 28,286 Total minimum lease payments $ 69,630 During fiscal 2020 and 2019, the Company recognized operating lease expense of $ 10,029 and $ 8,710 , respectively. There were no material restrictions, covenants, sale and leaseback transactions, variable lease payments or residual value guarantees imposed by the Company's leases at July 3, 2020. 72 Table of Contents K. Income Taxes The components of income before income taxes and income tax expense were as follows: Fiscal Years 2020 2019 2018 Income before income taxes: United States $ 93,388 $ 57,281 $ 43,368 Foreign 545 2,246 ( 795 ) $ 93,933 $ 59,527 $ 42,573 Tax provision (benefit): Federal: Current $ 8,442 $ 11,454 $ 4,470 Deferred ( 1,077 ) ( 3,008 ) ( 4,527 ) 7,365 8,446 ( 57 ) State: Current 3,407 5,194 2,370 Deferred ( 2,327 ) ( 1,421 ) ( 537 ) 1,080 3,773 1,833 Foreign: Current 475 546 186 Deferred ( 699 ) ( 13 ) ( 272 ) ( 224 ) 533 ( 86 ) $ 8,221 $ 12,752 $ 1,690 The following is the reconciliation between the statutory Federal income tax rate and the Company’s effective income tax rate: Fiscal Years 2020 2019 2018 Tax provision at federal statutory rates 21.0 % 21.0 % 28.0 % State income tax, net of federal tax benefit 6.1 5.9 5.6 Research and development tax credits ( 11.9 ) ( 4.5 ) ( 5.1 ) Provision to return ( 3.1 ) — — Excess tax benefits related to stock compensation ( 7.7 ) ( 4.5 ) ( 18.5 ) Domestic manufacturing deduction — — ( 2.0 ) Deemed repatriation of foreign earnings — — 1.9 Foreign income tax rate differential 0.1 0.1 0.3 Non-deductible compensation 2.6 2.0 1.7 Acquisition costs — 0.1 1.4 Reserves for unrecognized income tax benefits 3.0 0.3 0.3 Tax rate changes ( 0.5 ) — ( 2.3 ) Impacts related to acquired tax attributes — — ( 8.7 ) Other ( 0.8 ) 1.0 1.4 8.8 % 21.4 % 4.0 % On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act impacted the U.S. corporate tax rate that the Company will use going forward, which has been reduced to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower U.S. corporate tax rate was phased in, resulting in a U.S. corporate tax rate of approximately 28% for the Company's fiscal year ended June 30, 2018, and 21% for fiscal year ended June 30, 2019 and subsequent fiscal years. The Tax Act also includes provisions that increase the Company’s tax expense including, but not limited to, the elimination of the domestic manufacturing deduction and increased limitations on deductions for executive compensation. In 73 Table of Contents addition, the effective tax rate may be materially different than the statutory Federal tax rate due to state taxes, Federal research and development tax credits, excess tax benefits related to stock compensation, reserves for unrecognized income tax benefits, and other book to tax permanent differences. The effective tax rate for fiscal 2020 and 2019 differed from the Federal statutory rate primarily due to benefits related to research and development tax credits and excess tax benefits related to stock compensation, partially offset by additional tax expense related to state taxes and non-deductible compensation. During fiscal 2020 and 2019, the Company recognized a tax benefit of $ 7,259 and $ 2,672 related to excess tax benefits on stock compensation, respectively. The Company also recognized a tax benefit of $ 6,325 and a tax reserve of $ 2,240 , related to research and development tax credits claimed on prior year federal and state tax returns and other favorable provision to return adjustments of $ 2,917 . The components of the Company’s net deferred tax liabilities were as follows: As of July 3, 2020 June 30, 2019 Deferred tax assets: Inventory valuation and receivable allowances $ 12,066 $ 10,313 Accrued compensation 5,941 4,644 Stock compensation 5,062 4,595 Federal and state tax credit carryforwards 11,782 15,510 Other accruals 1,086 1,128 Deferred compensation 930 1,561 Acquired net operating loss carryforward 425 721 Operating lease liabilities 20,035 — Capital loss carryforwards — 2,354 Other 1,876 2,258 59,203 43,084 Valuation allowance ( 11,264 ) ( 16,666 ) Total deferred tax assets 47,939 26,418 Deferred tax liabilities: Prepaid expenses ( 1,111 ) ( 848 ) Property and equipment ( 10,668 ) ( 4,927 ) Intangible assets ( 33,007 ) ( 38,399 ) Operating lease right-of-use assets ( 16,426 ) — Other ( 616 ) ( 58 ) Total deferred tax liabilities ( 61,828 ) ( 44,232 ) Net deferred tax liabilities $ ( 13,889 ) $ ( 17,814 ) As reported: Deferred tax liabilities $ ( 13,889 ) $ ( 17,814 ) $ ( 13,889 ) $ ( 17,814 ) At July 3, 2020, the Company evaluated the need for a valuation allowance on deferred tax assets. In assessing whether the deferred tax assets are realizable, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the Company's past and recent operating performance and results, future taxable income including the reversal of existing deferred tax liabilities, and tax planning strategies. The Company continues to conclude that its deferred tax assets are more likely than not to be realized with the exception of certain state research and development tax credits, which management continues to believe that it is not more likely than not to be realized. The change in valuation allowance is primarily related to the expiration of capital loss carryforwards that had a full valuation allowance. Any future changes in the valuation allowance will impact income tax expense. The Company has state research and development tax credit carryforwards of $ 14,884 , which will expire starting in fiscal year 2021 through fiscal year 2034 . 74 Table of Contents The Company is subject to taxation in the U.S. (Federal and state) and various foreign jurisdictions that it operates in. The Company has established reserves to provide for additional income taxes that management believes will more likely than not be due in future years as these previously filed tax returns are audited. These reserves have been established based upon management’s assessment as to the potential exposures. All tax reserves are analyzed quarterly and adjustments are made as events occur and warrant modification. During the period ended July 3, 2020, the Company filed amended Federal and state tax returns primarily relating to the research and development tax credits. As part of the study, the Company adjusted the reserve previously recorded on the research and development tax credits claimed. The changes in the Company’s reserves for unrecognized income tax benefits are summarized as follows: Fiscal Years 2020 2019 Unrecognized tax benefits, beginning of period $ 1,273 $ 998 Increases for tax positions taken related to a prior period 2,146 — Increases for tax positions taken during the current period 854 275 Decreases for tax positions taken related to a prior period — — Decreases for tax positions taken during current period — — Decreases for settlements of previously recognized positions — — Decreases as a result of a lapse of the applicable statute of limitations ( 156 ) — Unrecognized tax benefits, end of period $ 4,117 $ 1,273 The $ 4,117 of unrecognized tax benefits as of July 3, 2020, if released, would reduce income tax expense. The Company increased its unrecognized income tax benefits primarily due to additional research and development tax credits claimed on prior year Federal and state returns. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. The total amount of gross interest and penalties accrued was $ 175 and $ 84 as of July 3, 2020 and June 30, 2019, respectively, and the amount of interest and penalties recognized in fiscal 2020, 2019 and 2018 was $ 91 , $ 101 and $ 42 , respectively. The Company’s major tax jurisdiction is the U.S. (Federal and state) and the open tax years are fiscal 2016 through 2020. L. Commitments and Contingencies L EGAL C LAIMS The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business. Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any matters currently pending against the Company and intends to defend itself vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company's cash flows, results of operations, or financial position. I NDEMNIFICATION O BLIGATIONS The Company's standard product sales and license agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company's products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments the Company could be required to make under these indemnification provisions is, in some instances, unlimited. P URCHASE C OMMITMENTS As of July 3, 2020, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations. The purchase commitments covered by these agreements are for less than one year and aggregate to $ 103,548 . O THER As part of the Company's strategy for growth, the Company continues to explore acquisitions or strategic alliances. The associated acquisition costs incurred in the form of professional fees and services may be material to the future periods in which they occur, regardless of whether the acquisition is ultimately completed. 75 Table of Contents The Company may elect from time to time to purchase and subsequently retire shares of common stock in order to settle an individual employees’ tax liability associated with vesting of a restricted stock award or exercise of stock options. These transactions would be treated as a use of cash in financing activities in the Company's Statements of Cash Flows. M. Debt Revolving Credit Facilities On September 28, 2018, the Company amended its Credit Agreement (the “Credit Agreement”) with a syndicate of commercial banks to increase and extend the borrowing capacity of the Revolver to a $750,000, 5-year revolving credit line, with the maturity extended to September 28, 2023 (the “Amended Credit Agreement”). The Company evaluated the Amended Credit Agreement under ASC 470, Debt , and determined that the amendment represented a modification of the Credit Agreement. Due to the increase in the borrowing capacity of the Revolver, new costs associated with the amendment and the previous balance of unamortized deferred financing costs totaling $ 4,369 , are being amortized to Other income (expense), net on a straight line basis over the new term of the Revolver. As of July 3, 2020, there were no outstanding borrowings against the Revolver. The Company incurred interest expense from the Revolver of $ 1,006 and $ 9,109 for the fiscal years ended July 3, 2020 and June 30, 2019, respectively. There were also outstanding letters of credit of $ 904 as of July 3, 2020. Maturity The Revolver has a five year maturity, which was extended to September 28, 2023. Interest Rates and Fees Borrowings under the Revolver bear interest, at the Company’s option, at floating rates tied to LIBOR or the prime rate plus an applicable percentage. The applicable percentage is set at LIBOR plus a markup pursuant to a pricing grid based on the Company's total net leverage ratio. As of July 3, 2020, the applicable percentage was set at LIBOR plus 1.125 % based on the Company's total net leverage ratio. In addition to interest on the aggregate outstanding principal amounts of any borrowings, the Company will also pay a quarterly commitment fee on the unutilized commitments under the Revolver. The applicable percentage is pursuant to a pricing grid based on the Company's total net leverage ratio. As of July 3, 2020, the stated interest rate for unutilized commitments was 0.20 % per annum. The Company will also pay customary letter of credit and agency fees. Covenants and Events of Default The Revolver provides for customary negative covenants. The Revolver also requires the Company to comply with certain financial covenants, including a quarterly minimum consolidated cash interest charge ratio test and a quarterly maximum consolidated total net leverage ratio test. The Revolver also provides for customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under the Revolver will be entitled to take various actions, including the termination of unutilized commitments, the acceleration of amounts outstanding under the Revolver and all actions permitted to be taken by a secured creditor. As of July 3, 2020, the Company was in compliance with all covenants and conditions under the Revolver. Guarantees and Security The Company's obligations under the Revolver are guaranteed by certain of its material domestic wholly-owned restricted subsidiaries (the “Guarantors”). The obligations of both the Company and the Guarantors are secured by a perfected security interest in substantially all of the assets of the Company and the Guarantors, in each case, now owned or later acquired, including a pledge of all of the capital stock of substantially all of its domestic wholly-owned restricted subsidiaries and 65 % of the capital stock of certain of its foreign restricted subsidiaries, subject in each case to the exclusion of certain assets and additional exceptions. N. Employee Benefit Plans Pension Plan The Company maintains a pension plan (the “Plan”) for its Swiss employees, which is administered by an independent pension fund. The Plan is mandated by Swiss law and meets the criteria for a defined benefit plan under ASC 715, Compensation—Retirement Benefits (“ASC 715”), since participants of the Plan are entitled to a defined rate of return on contributions made. The independent pension fund is a multi-employer plan with unrestricted joint liability for all participating companies for which the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan. 76 The Company recognizes a net asset or liability for the Plan equal to the difference between the projected benefit obligation of the Plan and the fair value of the Plan’s assets as required by ASC 715. 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 of the projected benefit obligation of the Plan. On January 1, 2019, the independent pension fund changed the conversion rate for accumulated retirement savings. The Company’s results contain the effects of this change in conversion rates by the independent pension fund as prior service costs. These prior service costs are amortized from AOCI to net periodic benefit costs over approximately 10 years. At July 3, 2020, the accumulated benefit obligation of the Plan equals the fair value of the Plan's assets. The Plan's funded status at July 3, 2020 and 2019 was a net liability of $ 11,877 and $ 9,186 , respectively, which is recorded in other non-current liabilities on the Consolidated Balance Sheets. The Company recorded a net loss of $ 1,768 and $ 2,350 in AOCI during the fiscal years ended July 3, 2020 and June 30, 2019, respectively. Total employer contributions to the Plan were $ 911 during the year ended July 3, 2020, and the Company's total expected employer contributions to the Plan during fiscal 2021 are $957. The following table reflects the total pension benefits expected to be paid from the Plan, which is funded from contributions by participants and the Company. Fiscal Year Total 2021 $ 900 2022 1,059 2023 1,401 2024 1,253 2025 1,040 Thereafter (next 5 years) 6,423 Total $ 12,076 The following table outlines the components of net periodic benefit cost of the Plan for the fiscal years ended July 3, 2020 and June 30, 2019: Fiscal Years Ended July 3, 2020 June 30, 2019 Service cost $ 1,375 $ 903 Interest cost 125 156 Expected return on assets ( 233 ) ( 183 ) Amortization of prior service cost ( 63 ) ( 61 ) Amortization net of loss 33 — Net periodic benefit cost $ 1,237 $ 815 The following table reflects the related actuarial assumptions used to determine net periodic benefit cost of the Plan for the fiscal years ended July 3, 2020 and June 30, 2019: Fiscal Years Ended July 3, 2020 June 30, 2019 Discount rate 0.30 % 0.50 % Expected rate of return on Plan assets 1.50 % 1.50 % Expected inflation 1.20 % 1.20 % Rate of compensation increases 1.50 % 1.50 % The calculation of the projected benefit obligation (“PBO”) utilized BVG 2015 Generational data for assumptions related to the mortality rates, disability rates, turnover rates, and early retirement ages. 77 The PBO represents the present value of Plan benefits earned through the end of the year, with an allowance for future salary and pension increases as well as turnover rates. The following table presents the change in projected benefit obligation for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 Projected benefit obligation, beginning $ 24,274 $ 18,127 Service cost 1,375 903 Interest cost 125 156 Employee contributions 1,916 3,577 Actuarial loss 2,387 2,859 Benefits paid ( 906 ) ( 1,607 ) Foreign exchange loss 784 259 Projected benefit obligation at end of year $ 29,955 $ 24,274 The following table presents the change in Plan assets for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 Fair value of Plan assets, beginning $ 15,088 $ 12,029 Actual return on Plan assets 582 167 Company contributions 911 741 Employee contributions 1,916 3,577 Benefits paid ( 906 ) ( 1,607 ) Foreign exchange gain 487 181 Fair value of Plan assets at end of year $ 18,078 $ 15,088 The following table presents the Company's reconciliation of funded status for the period presented: As of July 3, 2020 June 30, 2019 Projected benefit obligation at end of year $ 29,955 $ 24,274 Fair value of plan assets at end of year 18,078 15,088 Funded status $ ( 11,877 ) $ ( 9,186 ) The fair value of Plan assets were $ 18,078 at July 3, 2020. The Plan is denominated in a foreign currency, the Swiss Franc, which can have an impact on the fair value of Plan assets. The Plan was not subject to material fluctuations during the years ended July 3, 2020 or June 30, 2019. The Plan’s assets are administered by an independent pension fund foundation (the “foundation”). As of July 3, 2020, the foundation has invested the assets of the Plan in various investments vehicles, including cash, real estate, equity securities, and bonds. The investments are measured at fair value using a mix of Level 1, Level 2 and Level 3 inputs. 401(k) Plan The Company maintains a qualified 401(k) plan (the “401(k) Plan”) for its U.S. employees. During fiscal years 2020, 2019 and 2018, the Company matched employee contributions up to 3 % of eligible compensation. The Company may also make optional contributions to the plan for any plan year at its discretion. Expense recognized by the Company for matching contributions related to the 401(k) plan was $ 5,954 , $ 4,525 and $ 3,684 during the fiscal years ended July 3, 2020, June 30, 2019, and 2018, respectively. 78 Table of Contents O. Shareholders’ Equity P REFERRED S TOCK The Company is authorized to issue 1,000 shares of preferred stock with a par value of $ 0.01 per share. S HELF R EGISTRATION S TATEMENT On August 28, 2017, the Company filed a shelf registration statement on Form S-3ASR with the SEC. The shelf registration statement, which was effective upon filing with the SEC, registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. The Company has an unlimited amount available under the shelf registration statement. Additionally, as part of the shelf registration statement, the Company has entered into an equity distribution agreement, which allows the Company to sell an aggregate of up to $ 200,000 of its common stock from time to time through its agents. F OLLOW-ON E QUITY O FFERING On May 20, 2019 the Company announced the commencement of an underwritten public offering of 5,000 shares of its common stock, par value $ 0.01 , with an over-allotment allocation of an additional 750 shares. On May 23, 2019, the Company announced it upsized the initial 5,000 share public offering to 6,000 shares, with an over-allotment allocation of 900 shares. On May 31, 2019 the Company closed the offering, including the full over-allotment allocation, selling an aggregate of 6,900 shares of common stock at a price to the public of $ 69.00 for total net proceeds of $ 454,343 . P. Stock-Based Compensation S TOCK I NCENTIVE P LANS The Board of Directors approved the Company’s 2018 Stock Incentive Plan (the “2018 Plan”) on July 23, 2018. The 2018 Plan became effective upon the approval of shareholders at the Company’s annual meeting held on October 24, 2018. The aggregate number of shares authorized for issuance under the 2018 Plan is 2,862 shares, with an additional 710 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) at the time of shareholder approval of the 2018 Plan. The 2018 Plan replaced the 2005 Plan. On November 6, 2019, an additional 184 shares from the 2005 Plan were rolled into the 2018 Plan as a result of forfeiture, cancellation, or termination (other than by exercise) of previously-made grants under the 2005 Plan. The shares authorized for issuance under the 2018 Plan will continue to be increased by any future cancellations, forfeitures or terminations (other than by exercise) of awards under the 2005 Plan. The foregoing does not affect any outstanding awards under the 2005 Plan, which remain in full force and effect in accordance with their terms. The 2018 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees. All stock options are granted with an exercise price of not less than 100% of the fair value of the Company’s common stock at the date of grant and the options generally have a term of seven years. There were 2,632 shares available for future grant under the 2018 Plan at July 3, 2020. As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan. Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets. Based on the performance targets, some of these awards require graded vesting which results in more rapid expense recognition compared to traditional time-based vesting over the same vesting period. The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly based on its determination of the likelihood for reaching targets. The performance targets generally include the achievement of internal performance targets in relation to a peer group of companies. E MPLOYEE S TOCK P URCHASE P LAN The number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 1,800 shares. Under the ESPP, rights are granted to purchase shares of common stock at 85 % of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10 % of an employee’s compensation as defined in the ESPP. The number of shares issued under the ESPP during fiscal years 2020, 2019, and 2018 was 89 , 102 and 82 , respectively. Shares available for future purchase under the ESPP totaled 29 at July 3, 2020. 79 Table of Contents S TOCK O PTION AND A WARD A CTIVITY The following table summarizes activity of the Company’s stock option plans since June 30, 2018: Options Outstanding Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value as of 7/3/2020 Outstanding at June 30, 2018 4 $ 5.52 3.13 Granted — — Exercised — — Cancelled — — Outstanding at June 30, 2019 4 $ 5.52 2.13 Granted — $ — Exercised ( 1 ) $ 5.52 Cancelled — $ — Outstanding at July 3, 2020 3 $ 5.52 1.12 $ 208 Vested and expected to vest at July 3, 2020 3 $ 5.52 1.12 $ 208 Exercisable at July 3, 2020 3 $ 5.52 1.12 $ 208 The intrinsic value of the options exercised during fiscal years 2020, and 2018 was $ 67 and $ 1,780 , respectively. There were no options exercised during fiscal 2019. Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions. As of July 3, 2020, June 30, 2019 and 2018, there was no unrecognized compensation cost related to non-vested options granted under the Company’s stock plans. There were no stock options granted during fiscal years 2020, 2019 or 2018. The following table summarizes the status of the Company’s non-vested restricted stock awards since June 30, 2018: Non-Vested Restricted Stock Awards Number of Shares Weighted Average Grant Date Fair Value Outstanding at June 30, 2018 1,135 $ 27.26 Granted 468 52.50 Vested ( 478 ) 51.50 Forfeited ( 79 ) 36.97 Outstanding at June 30, 2019 1,046 $ 39.62 Granted 522 80.87 Vested ( 562 ) 31.40 Forfeited ( 49 ) 54.96 Outstanding at July 3, 2020 957 $ 61.59 The total fair value of restricted stock awards vested during fiscal years 2020, 2019, and 2018 was $ 46,089 , $ 24,596 and $ 38,344 , respectively. Non-vested restricted stock awards are subject to the risk of forfeiture until the fulfillment of specified conditions. As of July 3, 2020, there was $ 44,690 of total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock plans that is expected to be recognized over a weighted-average period of 2.4 years from July 3, 2020. As of June 30, 2019, there was $ 32,886 of total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock plans that is expected to be recognized over a weighted-average period of 2.5 years from June 30, 2019. 80 Table of Contents S TOCK - BASED C OMPENSATION E XPENSE The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive Income in accordance with ASC 718. The Company had $ 562 and $ 241 of capitalized stock-based compensation expense on the Consolidated Balance Sheets as of July 3, 2020 and June 30, 2019, respectively. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period. The following table presents share-based compensation expenses from continuing operations included in the Company’s Consolidated Statements of Operations and Comprehensive Income: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Cost of revenues $ 989 $ 820 $ 502 Selling, general and administrative 21,688 16,188 14,828 Research and development 3,861 2,414 1,984 Stock-based compensation expense before tax 26,538 19,422 17,314 Income taxes ( 6,900 ) ( 5,263 ) ( 5,713 ) Stock-based compensation expense, net of income taxes $ 19,638 $ 14,159 $ 11,601 Q. Operating Segment, Geographic Information and Significant Customers Operating segments are defined as components of an enterprise evaluated regularly by the Company's chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company is comprised of one operating and reportable segment. The Company utilized the management approach for determining its operating segment in accordance with ASC 280, Segment Reporting . The geographic distribution of the Company’s revenues as determined by order origination based on the country in which the Company's legal subsidiary is domiciled is summarized as follows: U.S. Europe Asia Pacific Eliminations Total YEAR ENDED JULY 3, 2020 Net revenues to unaffiliated customers $ 744,270 $ 50,092 $ 2,248 $ — $ 796,610 Inter-geographic revenues 4,938 3,067 — ( 8,005 ) — Net revenues $ 749,208 $ 53,159 $ 2,248 $ ( 8,005 ) $ 796,610 Identifiable long-lived assets (1) $ 82,588 $ 5,144 $ 5 $ — $ 87,737 YEAR ENDED JUNE 30, 2019 Net revenues to unaffiliated customers $ 599,422 $ 49,332 $ 5,990 $ — $ 654,744 Inter-geographic revenues 10,570 1,343 — ( 11,913 ) — Net revenues $ 609,992 $ 50,675 $ 5,990 $ ( 11,913 ) $ 654,744 Identifiable long-lived assets (1) $ 54,952 $ 5,037 $ 12 $ — $ 60,001 YEAR ENDED JUNE 30, 2018 Net revenues to unaffiliated customers $ 450,218 $ 35,000 $ 7,966 $ — $ 493,184 Inter-geographic revenues 10,650 925 — ( 11,575 ) — Net revenues $ 460,868 $ 35,925 $ 7,966 $ ( 11,575 ) $ 493,184 Identifiable long-lived assets (1) $ 47,997 $ 2,974 $ 9 $ — $ 50,980 (1) Identifiable long-lived assets exclude ROU assets, goodwill, and intangible assets. 81 Table of Contents In recent years, the Company completed a series of acquisitions that changed its technological capabilities, applications and end markets. As these acquisitions and changes occurred, the Company increased the proportion of its revenue derived from the sale of components in different technological areas, and also increased the amount of revenue associated with combining technologies into more complex and diverse products including modules, sub-assemblies and integrated subsystems. The following tables present revenue consistent with the Company's strategy of expanding its technological capabilities and program content. As additional information related to the Company’s products by end user, application and/or product grouping is attained, the categorization of these products can vary over time. When this occurs, the Company reclassifies revenue by end user, application and/or product grouping for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each revenue category. The following table presents the Company's net revenue by end market for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Domestic (1) $ 704,722 $ 580,935 $ 410,050 International/Foreign Military Sales (2) 91,888 73,809 83,134 Total Net Revenue $ 796,610 $ 654,744 $ 493,184 (1) Domestic revenues consist of sales where the end user is within the U.S., as well as sales to prime defense contractor customers where the ultimate end user location is not defined. (2) International/Foreign Military Sales consist of sales to U.S. prime defense contractor customers where the end user is outside the U.S., foreign military sales through the U.S. government, and direct sales to non-U.S. based customers intended for end use outside of the U.S. The following table presents the Company's net revenue by end application for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Radar (1) $ 233,967 $ 164,046 $ 159,737 Electronic Warfare (2) 161,782 128,841 114,801 Other Sensor and Effector (3) 105,175 90,245 48,088 Total Sensor and Effector 500,924 383,132 322,626 C4I (4) 207,000 183,172 87,414 Other (5) 88,686 88,440 83,144 Total Net Revenues $ 796,610 $ 654,744 $ 493,184 (1) Radar includes end-use applications where radio frequency signals are utilized to detect, track, and identify objects. (2) Electronic Warfare includes end-use applications comprising the offensive and defensive use of the electromagnetic spectrum. (3) Other Sensor and Effector products include all Sensor and Effector end markets other than Radar and Electronic Warfare. (4) C4I includes rugged secure rackmount servers that are designed to drive the most powerful military processing applications. (5) Other products include all component and other sales where the end use is not specified. 82 Table of Contents The following table presents the Company's net revenue by product grouping for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Components (1) $ 225,292 $ 184,870 $ 142,982 Modules and Sub-assemblies (2) 203,432 180,873 194,377 Integrated Subsystems (3) 367,886 289,001 155,825 Total Net Revenues $ 796,610 $ 654,744 $ 493,184 (1) Components include technology elements typically performing a single, discrete technological function, which when physically combined with other components may be used to create a module or sub-assembly. Examples include but are not limited to power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, MMICs (monolithic microwave integrated circuits), and memory and storage devices. (2) Modules and Sub-assemblies include combinations of multiple functional technology elements and/or components that work together to perform multiple functions but are typically resident on or within a single board or housing. Modules and sub-assemblies may in turn be combined to form an integrated subsystem. Examples of modules and sub-assemblies include but are not limited to embedded processing modules, embedded processing boards, switch fabric boards, high speed input/output boards, digital receiver boards, graphics and video processing and Ethernet and IO (input-output) boards, multi-chip modules, integrated radio frequency and microwave multi-function assemblies, tuners, and transceivers. (3) Integrated Subsystems include multiple modules and/or sub-assemblies 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 sold as part of the same program for use in or with integrated subsystems sold by the Company. The following table presents the Company's net revenue by platform for the periods presented: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Airborne (1) $ 402,670 $ 306,412 $ 242,611 Land (2) 102,956 83,034 41,841 Naval (3) 157,225 136,966 110,620 Other (4) 133,759 128,332 98,112 Total Net Revenues $ 796,610 $ 654,744 $ 493,184 (1) Airborne platform includes products that relate to personnel, equipment, or pieces of equipment designed for airborne applications (2) Land platform includes products that relate to fixed or mobile equipment, or pieces of equipment for personnel, weapon systems, vehicles and support elements operating on land (3) Naval platform includes products that relate to personnel, equipment, or pieces of equipment designed for naval operations (4) All platforms other than Airborne, Land or Naval. Customers comprising 10% or more of the Company’s revenues for the periods shown below are as follows: Fiscal Years Ended July 3, 2020 June 30, 2019 June 30, 2018 Raytheon Technologies 16 % 20 % 19 % Lockheed Martin Corporation 16 % 17 % 19 % 32 % 37 % 38 % While the Company typically has customers from which it derives 10% or more of its revenue, the sales to each of these customers are spread across multiple programs and platforms. There were no programs comprising 10% or more of the Company's revenues for the years ended July 3, 2020, June 30, 2019 and 2018. R. Subsequent Events The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued. 83 Table of Contents S UPPLEMENTARY I NFORMATION (U NAUDITED ) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of the Company’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto. 2020 (In thousands, except per share data) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER Net revenues $ 177,304 $ 193,913 $ 208,016 $ 217,377 Gross margin $ 78,400 $ 88,506 $ 93,325 $ 96,613 Income from operations $ 17,476 $ 20,825 $ 26,342 $ 26,419 Income before income taxes $ 17,229 $ 20,786 $ 28,928 $ 26,990 Income tax (benefit) provision $ ( 2,018 ) $ 5,110 $ 5,363 $ ( 234 ) Net income $ 19,247 $ 15,676 $ 23,565 $ 27,224 Net income per share: Basic net income per share $ 0.35 $ 0.29 $ 0.43 $ 0.50 Diluted net income per share $ 0.35 $ 0.29 $ 0.43 $ 0.49 2019 (In thousands, except per share data) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER Net revenues $ 144,056 $ 159,089 $ 174,636 $ 176,963 Gross margin $ 61,583 $ 70,887 $ 73,847 $ 79,839 Income from operations $ 13,810 $ 19,861 $ 22,062 $ 20,851 Income before income taxes $ 10,608 $ 16,866 $ 19,466 $ 12,587 Income tax provision (benefit) $ 3,129 $ 4,483 $ 5,357 $ ( 217 ) Net income $ 7,479 $ 12,383 $ 14,109 $ 12,804 Net income per share: Basic net income per share $ 0.16 $ 0.26 $ 0.30 $ 0.26 Diluted net income per share $ 0.16 $ 0.26 $ 0.29 $ 0.25 Due to the effects of rounding, the sum of the four quarters does not equal the annual total. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.