Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
(a) E FFECTIVENESS OF D ISCLOSURE C ONTROLS AND P ROCEDURES
We conducted an evaluation as of July 2, 2021 under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), and concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange Act”) were effective as of July 2, 2021 and designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
(b) I NHERENT L IMITATIONS ON E FFECTIVENESS OF C ONTROLS
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of
83
Table of Contents
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(c) M ANAGEMENT ’ S A NNUAL R EPORT ON I NTERNAL C ONTROL O VER F INANCIAL R EPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of the Chief Executive Officer and Chief Financial Officer, management conducted an assessment of the effectiveness of our internal control over financial reporting as of July 2, 2021 based on the framework in Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that our internal control over financial reporting was effective as of July 2, 2021. The effectiveness of our internal control over financial reporting as of July 2, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report.
The audited consolidated financial statements of the Company include the results of the acquired POC business on and after December 30, 2020, and the acquired Pentek business on and after May 27, 2021, as described in Note C to the Consolidated Financial Statements. Upon consideration of the scope of fiscal 2021, the POC and Pentek acquisitions, and the time constraints under which our management’s assessment would have to be made, management determined that it would not conduct an assessment of POC's and Pentek's internal controls over financial reporting environment as allowable under Section 404 of the Sarbanes-Oxley Act of 2002. Accordingly, these operations have been excluded from the management’s assessment of internal controls for fiscal year 2021. However, management is in the process of integrating these entities into the overall internal control over financial reporting environment for fiscal year 2022. The Company’s consolidated financial statements reflect revenues and total assets from the acquired businesses of approximately 9 percent and 22 percent (of which 16 percent represented goodwill and intangible assets included within the scope of the Company’s assessment), respectively, as of and for the year ended July 2, 2021.
(d) C HANGES IN I NTERNAL C ONTROL O VER F INANCIAL R EPORTING
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of fiscal 2021 identified in connection with our Chief Executive Officer’s and Chief Financial Officer’s evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management is in the process of integrating the POC and Pentek business into our overall internal control over financial reporting environment.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to our Proxy Statement for our 2021 Annual Meeting of Shareholders (the “Shareholders Meeting”), except that information required by this item concerning our executive officers appears in Part I, Item 4.1. of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for the Shareholders Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to our Proxy Statement for the Shareholders Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to our Proxy Statement for the Shareholders Meeting.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
84
Table of Contents
The information required by this item is incorporated herein by reference to our Proxy Statement for the Shareholders Meeting.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
The financial statements, schedule, and exhibits listed below are included in or incorporated by reference as part of this report:
1. Financial statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of July 2, 2021 and July 3, 2020
Consolidated Statements of Operations and Comprehensive Income for the fiscal years ended July 2, 2021, July 3, 2020, and June 30, 2019
Consolidated Statements of Shareholders’ Equity for the fiscal years ended July 2, 2021, July 3, 2020, and June 30, 2019
Consolidated Statements of Cash Flows for the years ended July 2, 2021, July 3, 2020, and June 30, 2019
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
II. Valuation and Qualifying Accounts
85
Table of Contents
MERCURY SYSTEMS, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JULY 2, 2021, JULY 3, 2020, and JUNE 30, 2019
(In thousands)
Allowance for Credit Losses
BALANCE
AT
BEGINNING
OF PERIOD ADDITIONS REVERSALS WRITE-
OFFS BALANCE
AT END OF
PERIOD
2021 $ 1,451 $ 514 $ 199 $ 46 $ 1,720
2020 $ 1,228 $ 705 $ 8 $ 474 $ 1,451
2019 $ 359 $ 1,223 $ 264 $ 90 $ 1,228
Deferred Tax Asset Valuation Allowance
BALANCE
AT
BEGINNING
OF PERIOD CHARGED
TO COSTS &
EXPENSES CHARGED
TO OTHER
ACCOUNTS DEDUCTIONS BALANCE
AT END OF
PERIOD
2021 $ 11,264 $ 2,035 $ 1,958 $ — $ 15,257
2020 $ 16,666 $ (842) $ — $ 4,560 $ 11,264
2019 $ 16,992 $ (326) $ — $ — $ 16,666
3. Exhibits:
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index on page 88, which is incorporated herein by reference.
86
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Andover, Massachusetts, on August 17, 2021.
MERCURY SYSTEMS, INC.
By /s/ MICHAEL D. RUPPERT
Michael D. Ruppert
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND TREASURER
[PRINCIPAL FINANCIAL OFFICER]
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title(s) Date
/s/ MARK ASLETT President, Chief Executive Officer and Director (principal executive officer) August 17, 2021
Mark Aslett
/S/ MICHAEL D. RUPPERT Executive Vice President, Chief Financial Officer, and Treasurer (principal financial officer) August 17, 2021
Michael D. Ruppert
/S/ MICHELLE M. MCCARTHY Vice President, Chief Accounting Officer (principal accounting officer) August 17, 2021
Michelle M. McCarthy
/S/ VINCENT VITTO Chairman of the Board of Directors August 17, 2021
Vincent Vitto
/S/ JAMES K. BASS Director August 17, 2021
James K. Bass
/S/ ORLANDO P. CARVALHO Director August 17, 2021
Orlando P. Carvalho
/S/ MICHAEL A. DANIELS Director August 17, 2021
Michael A. Daniels
/S/ LISA S. DISBROW Director August 17, 2021
Lisa S. Disbrow
/S/ MARY LOUISE KRAKAUER Director August 17, 2021
Mary Louise Krakauer
/S/ BARRY R. NEARHOS Director August 17, 2021
Barry R. Nearhos
/S/ WILLIAM K. O’BRIEN Director August 17, 2021
William K. O’Brien
87
Table of Contents
EXHIBIT INDEX
ITEM NO. DESCRIPTION OF EXHIBIT
3.1.1
Articles of Organization (incorporated herein by reference to Exhibit 3.1.1 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2009)
3.1.2
Articles of Amendment (incorporated herein by reference to Exhibit 3.1.2 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2010)
3.1.3
Articles of Amendment (incorporated herein by reference to Exhibit 1 of the Company’s registration statement on Form 8-A filed on December 15, 2005)
3.1.4
Articles of Amendment (incorporated herein by reference to Exhibit 3.1 of the Company's current report on Form 8-K filed on November 13, 2012)
3.1.5
Articles of Amendment (incorporated herein by reference to Exhibit 3.1 of the Company's current report on Form 8-K filed on June 30, 2015)
3.2
Bylaws, amended and restated, effective as of July 28, 2020 (incorporated herein by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed on July 31, 2020
4.1
Form of Stock Certificate (incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1/A filed on January 7, 1998)
4.2
Description of Registrant's Securities (incorporated herein by reference to Exhibit 4.2 of the Company’s annual report on Form 10-K for the fiscal year ended July 3, 2020)
10.1*
1997 Employee Stock Purchase Plan, as amended and restated (incorporated herein by reference to Appendix B to the Company’s definitive proxy statement filed on September 3, 2020)
10.2*
Form of Indemnification Agreement between the Company and each of its current directors (incorporated herein by reference to Exhibit 10.4 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2009)
10.3*
2005 Stock Incentive Plan, as amended and restated (incorporated herein by reference to Appendix A to the Company’s definitive proxy statement filed on September 20, 2016)
10.4.1*
Form of Restricted Stock Award Agreement under the 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8.2 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011)
10.4.2*
Form of Deferred Stock Award Agreement under the 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8.3 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011)
10.4.3*
Form of Amended and Restated Performance-Based Restricted Stock Award Agreement under the 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2014)
10.5*†
2018 Stock Incentive Plan, as amended and restated
10.6.1*
Form of Stock Option Agreement under the 2018 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019)
10.6.2*
Form of Restricted Stock Award Agreement under the 2018 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019)
10.6.3*
Form of Deferred Stock Award Agreement under the 2018 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019)
10.6.4*
Form of Performance-Based Stock Option Agreement under the 2018 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.4 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019)
88
Table of Contents
ITEM NO. DESCRIPTION OF EXHIBIT
10.6.5*
Form of Performance-Based Restricted Stock Award Agreement under the 2018 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.5 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019)
10.7.1*
Form of Change in Control Severance Agreement between the Company and Mark Aslett (incorporated herein by reference to Exhibit 10.9.1 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011)
10.7.2*
Form of Change in Control Severance Agreement between the Company and Non-CEO Executives (incorporated herein by reference to Exhibit 10.9.2 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2011)
10.8†
Compensation Policy for Non-Employee Directors
10.9.1*
Employment Agreement, dated as of November 19, 2007, by and between the Company and Mark Aslett (incorporated herein by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed on November 20, 2007)
10.9.2*
First Amendment to Employment Agreement, dated as of December 20, 2008, by and between the Company and Mark Aslett (incorporated herein by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended December 31, 2008)
10.9.3*
Second Amendment to Employment Agreement, dated as of September 30, 2009, by and between the Company and Mark Aslett (incorporated herein by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2009)
10.9.4*
Third Amendment to Employment Agreement, dated as of August 13, 2019, by and between the Company and Mark Aslett (incorporated herein by reference to Exhibit 10.9.4 of the Company's annual report on Form 10-K for the fiscal year ended July 30, 2019)
10.10*
Agreement, dated July 12, 2016, by and between the Company and Christopher C. Cambria (incorporated herein by reference to Exhibit 10.9 of the Company's annual report on Form 10-K for the fiscal year ended June 30, 2018)
10.11.1
Credit Agreement, dated May 2, 2016, among the Company, the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the Company's current report on Form 8-K filed on May 2, 2016)
10.11.2
Amendment No. 1 to Credit Agreement, dated June 27, 2017, among the Company, the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the Company's current report on Form 8-K filed on June 27, 2017)
10.11.3
Amendment No. 3 to Credit Agreement, dated September 28, 2018, among the Company, the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed on October 1, 2018)
10.12*
Letter Agreement, dated August 7, 2014, as amended to date, between Michael D. Ruppert and the Company (incorporated herein by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed on February 6, 2018)
10.13*
Form of Severance Benefits Agreement between the Company and Non-CEO Executives (incorporated herein by reference to Exhibit 10.14 of the Company's annual report on Form 10-K for the fiscal year ended June 30, 2019)
21.1†
Subsidiaries of the Company
23.1†
Consent of KPMG LLP
31.1†
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2†
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†
Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
89
Table of Contents
ITEM NO. DESCRIPTION OF EXHIBIT
101† Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Operations, (iii) Consolidated Statement of Shareholders’ Equity, (iv) Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements
101.INS
eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of the Company participates.
† Filed with this Form 10-K.
+ Furnished herewith. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
90