What changed in this filing

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Item 1. Financial Statements

2022-02-08 compared with 2021-11-09 · 258 added, 115 removed, 469 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

October 1, 2021 July 2, 2021

December 31, 2021 July 2, 2021

Current assets:

Cash and cash equivalents $ 105,169 $ 113,839

Accounts receivable, net of allowance for credit losses of $ 1,728 and $ 1,720 at October 1, 2021 and July 2, 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 1,833 and $ 1,720 at December 31, 2021 and July 2, 2021, respectively

126,325 128,807

23 unchanged sentences

Total liabilities 743,653 470,991

Commitments and contingencies (Note M)

Commitments and contingencies (Note N)

Shareholders’ equity:

4 unchanged sentences

85,000,000 shares authorized;

55,500,817 and 55,241,120 shares issued and outstanding at October 1, 2021 and July 2, 2021, respectively

55,583,012 and 55,241,120 shares issued and outstanding at December 31, 2021 and July 2, 2021, respectively

Additional paid-in capital 1,122,113 1,109,434

6 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

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

First Quarters Ended

October 1, 2021 October 2, 2020

(In thousands, except per share data)

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Net revenues $ 220,380 $ 210,676 $ 445,393 $ 416,297

24 unchanged sentences

Pension benefit plan, net of tax 48 31 96 62

Total other comprehensive income (loss), net of tax 292 ( 70 )

Total other comprehensive (loss) income, net of tax ( 221 ) ( 627 ) 71 ( 697 )

Total comprehensive (loss) income $ ( 2,860 ) $ 12,059 $ ( 9,708 ) $ 27,787

3 unchanged sentences

(In thousands)

For the First Quarter Ended October 1, 2021

For the Second Quarter Ended December 31, 2021

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance at October 1, 2021 55,501 $ 555 $ 1,111,613 $ 367,359 $ ( 47 ) $ 1,479,480

Issuance of common stock under employee stock incentive plans 31 — — — — —

Issuance of common stock under employee stock purchase plan 54 1 2,515 — — 2,516

Purchase and retirement of common stock ( 3 ) — ( 183 ) — — ( 183 )

Stock-based compensation — — 8,168 — — 8,168

Net loss — — — ( 2,639 ) — ( 2,639 )

Other comprehensive loss — — — — ( 221 ) ( 221 )

Balance at December 31, 2021 55,583 $ 556 $ 1,122,113 $ 364,720 $ ( 268 ) $ 1,487,121

For the Second Quarter Ended January 1, 2021

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance at October 2, 2020 55,045 $ 550 $ 1,082,044 $ 328,253 $ ( 2,955 ) $ 1,407,892

Issuance of common stock under employee stock incentive plans 38 1 1 — — 2

Issuance of common stock under employee stock purchase plan 46 — 3,184 — — 3,184

Stock-based compensation — — 7,494 — — 7,494

Net income — — — 12,686 — 12,686

Other comprehensive loss — — — — ( 627 ) ( 627 )

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

For the Six Months Ended December 31, 2021

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

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

Issuance of common stock under employee stock incentive plans 429 4 ( 4 ) — — —

Issuance of common stock under employee stock purchase plan 54 1 2,515 — — 2,516

Purchase and retirement of common stock ( 141 ) ( 1 ) ( 7,498 ) — — ( 7,499 )

2 unchanged sentences

Other comprehensive income — — — — 71 71

Balance at October 1, 2021 55,501 $ 555 $ 1,111,613 $ 367,359 $ ( 47 ) $ 1,479,480

For the First Quarter Ended October 2, 2020

Balance at December 31, 2021 55,583 $ 556 $ 1,122,113 $ 364,720 $ ( 268 ) $ 1,487,121

For the Six Months Ended January 1, 2021

Common Stock Additional

6 unchanged sentences

Issuance of common stock under employee stock incentive plans 382 4 — — — 4

Issuance of common stock under employee stock purchase plan 46 — 3,184 — — 3,184

Purchase and retirement of common stock ( 1 ) — ( 66 ) — — ( 66 )

2 unchanged sentences

Other comprehensive loss — — — — ( 697 ) ( 697 )

Balance at October 2, 2020 55,045 $ 550 $ 1,082,044 $ 328,253 $ ( 2,955 ) $ 1,407,892

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

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

2 unchanged sentences

(In thousands)

First Quarters Ended

October 1, 2021 October 2, 2020

Six Months Ended

December 31, 2021 January 1, 2021

Cash flows from operating activities:

Net (loss) income $ ( 9,779 ) $ 28,484

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization expense 45,556 26,281

12 unchanged sentences

Other non-current liabilities ( 3,486 ) ( 95 )

Net cash (used in) provided by operating activities ( 2,006 ) 22,929

Net cash provided by operating activities 4,818 46,868

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired ( 243,255 ) ( 243,637 )

Purchases of property and equipment ( 13,404 ) ( 24,753 )

Other investing activities ( 3,231 ) —

Proceeds from sale of investment — 1,538

Net cash used in investing activities ( 259,890 ) ( 266,852 )

1 unchanged sentence

Proceeds from employee stock plans 2,516 3,188

Borrowings under credit facilities 251,500 160,000

Purchase and retirement of common stock ( 7,499 ) ( 66 )

Net cash used in financing activities ( 7,316 ) ( 64 )

Net cash provided by financing activities 246,517 163,122

Effect of exchange rate changes on cash and cash equivalents ( 115 ) 763

Net (decrease) increase in cash and cash equivalents ( 18,035 ) 12,284

Net decrease in cash and cash equivalents ( 8,670 ) ( 56,099 )

Cash and cash equivalents at beginning of period 113,839 226,838

22 unchanged sentences

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended July 2, 2021 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 17, 2021.

The results for the first quarter ended October 1, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The results for the second quarter and six months ended December 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation .

All references to the first quarter of fiscal 2022 are to the quarter ended October 1, 2021.

There were 13 weeks during the first quarters ended October 1, 2021 and October 2, 2020, respectively.

All references to the second quarter of fiscal 2022 are to the quarter ended December 31, 2021.

There were 13 weeks during the second quarters ended December 31, 2021 and January 1, 2021, respectively.

There were 26 weeks during the six months ended December 31, 2021 and January 1, 2021, respectively.

U SE OF E STIMATES

21 unchanged sentences

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 47 % and 64 % of revenues for the first quarters ended October 1, 2021 and October 2, 2020, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 52 % and 49 % of revenues for the second quarter and six months ended December 31, 2021, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 61 % and 62 % of revenues for the second quarter and six months ended January 1, 2021, respectively.

The Company also engages in long-term contracts for development, production and service activities and recognizes revenue for performance obligations over time.

2 unchanged sentences

The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material contracts.

Total revenue recognized under long-term contracts over time was 53 % and 36 % of total revenues for the first quarters ended October 1, 2021 and October 2, 2020, respectively.

Total revenue recognized under long-term contracts over time was 48 % and 51 % of total revenues for the second quarter and six months ended December 31, 2021, respectively.

Total revenue recognized under long-term contracts over time was 39 % and 38 % of total revenues for the second quarter and six months ended January 1, 2021, 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.

4 unchanged sentences

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

Refer to Note L for disaggregation of revenue for the period.

Refer to Note M for disaggregation of revenue for the period.

A CCOUNTS R ECEIVABLE

17 unchanged sentences

Contract balances are reported in a net position on a contract-by-contract basis.

The contract asset balances were $ 194,367 and $ 162,921 as of October 1, 2021 and July 2, 2021, respectively.

The contract asset balance increased due to growth in revenue recognized over time and timing of billable events under long-term contracts during the first quarter ended October 1, 2021.

The contract liability balances were $ 29,438 and $ 35,201 as of October 1, 2021 and July 2, 2021, respectively.

The decrease was due to lower billings in excess of revenues.

Revenue recognized for the first quarter ended October 1, 2021 that was included in the contract liability balance a t July 2, 2021 was $ 13,137 .

Revenue recognized for the first quarter ended October 2, 2020 that was included in the contract liability balance at July 3, 2020 was $ 9,030 .

The contract asset balances were $ 193,803 and $ 162,921 as of December 31, 2021 and July 2, 2021, respectively.

The contract asset balance increased due to growth in revenue recognized over time and timing of milestone billings under long-term contracts during the six months ended December 31, 2021.

The contract liability balances were $ 34,410 and $ 35,201 as of December 31, 2021 and July 2, 2021, respectively.

The decrease was due to timing of milestone billings across multiple programs.

Revenue recognized for the second quarter and six months ended December 31, 2021 that was included in the contract liability balance a t July 2, 2021 was $ 5,151 and $ 18,288 , respectively.

Revenue recognized for the second quarter and six months ended January 1, 2021 that was included in the contract liability balance at July 3, 2020 was $ 4,336 and $ 13,366 , respectively.

R EMAINING P ERFORMANCE O BLIGATIONS

1 unchanged sentence

The definition of remaining performance obligations excludes contracts with original expected durations of less than one year, as well as 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 October 1, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 373,904 .

As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 441,675 .

The Company expects to recognize approximately 59 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

1 unchanged sentence

Weighted-average shares were calculated as follows:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Basic weighted-average shares outstanding 55,520 55,070 55,448 54,976

1 unchanged sentence

Diluted weighted-average shares outstanding 55,520 55,434 55,448 55,385

Equity instruments to purchase 474 and 203 shares of common stock were not included in the calculation of diluted net earnings per share for the first quarters ended October 1, 2021 and October 2, 2020, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 408 and 434 shares of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended December 31, 2021, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 114 and 2 shares of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended January 1, 2021, respectively, because the equity instruments were anti-dilutive.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

5 unchanged sentences

The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

The Company does not expect this adoption to have a material impact to the Company's consolidated financial statements or related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU simplify the accounting for convertible debt securities.

The ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted, including adoption in an interim period.

The Company does not expect this adoption to have a material impact to the Company's consolidated financial statements or related disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , an amendment of the FASB Accounting Standards

Codification.

The amendments in this ASU address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , an amendment of the FASB Accounting Standards Codification.

Under current U.S.

GAAP, an acquirer generally recognizes assets and liabilities assumed in a business combination, including contract assets and liabilities arising from revenue contracts with customers, at fair value on the acquisition date.

2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under Topic 606.

2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC 606 .

This ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period.

The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

The Company is currently evaluating the effect that this standard may have on its consolidated financial statements and related disclosures.

R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS

4 unchanged sentences

This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

A TLANTA M ICRO A C QUISITION

On November 29, 2021, the Company acquired Atlanta Micro, Inc.

("Atlanta Micro") for a purchase price of $ 90,000 , subject to net working capital and net debt adjustments.

Based in Norcross, Georgia, Atlanta Micro is a leading designer and manufacturer of high-performance RF modules and components, including advanced monolithic microwave integrated circuits (MMICs) which are critical for high-speed data acquisition applications including electronic warfare, radar and weapons.

The Company funded the acquisition through the Company's existing revolving credit facility (the "Revolver").

The following table presents the net purchase price and the fair values of the assets and liabilities of Atlanta Micro on a preliminary basis:

Consideration transferred

Cash paid at closing $ 91,438

Working capital and net debt adjustment ( 474 )

Less cash acquired ( 1,782 )

Net purchase price $ 89,182

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable 1,568

Inventory 4,044

Fixed assets 547

Other current and non-current assets 2,043

Accounts payable ( 529 )

Accrued expenses ( 661 )

Other current and non-current liabilities ( 9,733 )

Fair value of net tangible assets acquired ( 939 )

Fair value of identifiable intangible assets 30,263

Goodwill 61,640

Fair value of net assets acquired 90,964

Less cash acquired ( 1,782 )

Net purchase price $ 89,182

The amounts above represent the preliminary fair value estimates as of December 31, 2021 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 $ 18,450 with a useful life of 11 years, completed technology of $ 9,450 with a useful life of 10 years and backlog of $ 2,363 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 estimated goodwill of $ 61,640 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 and is not deductible for tax purposes.

The goodwill from this acquisition is reported in the Microelectronics reporting unit.

The revenues and loss before income taxes from Atlanta Micro included in the Company's consolidated results for the second quarter ended December 31, 2021 were $ 1,617 and $( 220 ), respectively.

A VALEX A CQUISITION

On September 27, 2021, the Company signed a definitive agreement to acquire Avalex Technologies (“Avalex”) for a purchase price of $ 155,000 , subject to net working capital and net debt adjustments.

On November 5, 2021, the transaction closed and the Company acquired Avalex.

Based in Gulf Breeze, Florida, Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders, and warning systems.

The Company funded the acquisition with the Company's Revolver.

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

Consideration transferred

Cash paid at closing $ 157,367

Working capital and net debt adjustment ( 1,185 )

Less cash acquired ( 2,188 )

Net purchase price $ 153,994

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable and unbilled receivables 5,317

Inventory 6,055

Fixed assets 1,245

Other current and non-current assets 5,195

Accounts payable ( 1,700 )

Accrued expenses ( 1,147 )

Other current and non-current liabilities ( 4,787 )

Fair value of net tangible assets acquired 12,366

Fair value of identifiable intangible assets 61,360

Goodwill 82,456

Fair value of net assets acquired 156,182

Less cash acquired ( 2,188 )

Net purchase price $ 153,994

The preliminary identifiable intangible asset estimate includes customer relationships of $ 41,880 with a useful life of 9 years, completed technology of $ 14,430 with a useful life of 7 years and backlog of $ 5,050 with a useful life of one year .

Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The estimated goodwill of $ 82,456 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 in the Processing reporting unit.

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 December 31, 2021, the Company ha d $ 82,700 of goodwill deductible for tax purposes.

The revenues and loss before income taxes from Avalex included in the Company's consolidated results for the second quarter ended December 31, 2021 were $ 4,427 and $( 1,097 ), respectively.

P ENTEK A CQUISITION

On May 27, 2021, the Company acquired Pentek Technologies, LLC and Pentek Systems, Inc.

On May 27, 2021, the C ompany acquired Pentek Technologies, LLC and Pentek Systems, Inc.

(collectively, "Pentek").

1 unchanged sentence

Based in Upper Saddle River, New Jersey, Pentek is a leading designer and manufacturer of ruggedized, high-performance, commercial off-the-shelf software-defined radio and data acquisition boards, recording systems and subsystems for high-end commercial and defense applications.

The acquisition and associated transaction expenses were funded through a combination of cash on hand and Mercury's existing revolving credit facility (the "Revolver").

The acquisition and associated transaction expenses were funded through a combination of cash on hand and the Company's Revolver.

On October 13, 2021, the Company and former owners of Pentek agreed to post closing adjustments totaling $ 79 , which increased the Company's net purchase price.

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

1 unchanged sentence

Cash paid at closing $ 65,668

Working capital and net debt adjustment 79

Less cash acquired ( 746 )

14 unchanged sentences

Net purchase price $ 65,001

The amounts above represent the preliminary fair value estimates as of October 1, 2021 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 $ 15,560 with a useful life of 21 years, completed technology of $ 6,340 with a useful life of seven years and backlog of $ 2,210 with a useful life of one year .

4 unchanged sentences

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 October 1, 2021, the Company ha d $ 29,703 of goodwill deductible for tax purposes.

As of December 31, 2021, the Company ha d $ 29,216 of goodwill deductible for tax purposes.

P HYSICAL O PTICS C ORPORATION A CQUISITION

2 unchanged sentences

Based in Torrance, California, POC expands the Company's global avionics business and its collective footprint in the platform and mission management market.

The Company funded the acquisition through a combination of cash on hand and the Company's existing revolving credit facility (the "Revolver").

The Company funded the acquisition through a combination of cash on hand and the Company's Revolver.

On May 28, 2021, the Company and representative of the former owners of POC agreed to post closing-adjustments totaling $ 2,641 , which increased the Company’s net purchase price.

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

The following table presents the net purchase price and the fair values of the assets and liabilities of POC:

Consideration transferred

4 unchanged sentences

Net purchase price $ 307,904

Estimated fair value of tangible assets acquired and liabilities assumed

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable and unbilled receivables 31,255

5 unchanged sentences

Other current and non-current liabilities ( 30,107 )

Estimated fair value of net tangible assets acquired 39,343

Estimated fair value of identifiable intangible assets 116,000

Estimated goodwill 155,416

Estimated fair value of net assets acquired 310,759

Fair value of net tangible assets acquired 46,494

Fair value of identifiable intangible assets 116,000

Goodwill 148,265

Fair value of net assets acquired 310,759

Less cash acquired ( 2,855 )

Net purchase price $ 307,904

T he preliminary identifia ble intangible asset estimate includes customer relationships of $ 83,000 with a useful life of 11 years, completed technology of $ 25,000 with a useful life of 9 years and backlog of $ 8,000 with a useful life of one year .

Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The estimated goodwill of $ 155,416 largely reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to the Co mpany’s existing products and markets and is not deductible for tax purposes.

On December 30, 2021, the measurement period for POC expired.

The identifiable intangible assets include customer relationships of $ 83,000 with a useful life of 11 years, completed technology of $ 25,000 with a useful life of 9 years and backlog of $ 8,000 with a useful life of one year .

The goodwill of $ 148,265 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 and is not deductible for tax purposes.

The goodwill from this acquisition is reported in the Processing reporting unit.

A VALEX A CQUISITION

On September 27, 2021, the Company announced that it had signed a definitive agreement to acquire Avalex Technologies Corporation (“Avalex”).

Based in Gulf Breeze, Florida.

Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders, and warning systems.

Pursuant to the terms of the agreement, the Company will acquire Avalex for an all-cash purchase price of $ 155,000 , subject to net working capital and net debt adjustments.

On November 5, 2021, the transaction closed and the Company acquired Avalex.

See Note N "Subsequent Events" to the consolidated financial statements for further discussion.

Fair Value of Financial Instruments

1 unchanged sentence

The Company determined the carrying value of long-term debt approximated fair value due to variable interest rates charged on the borrowings, which reprice frequently.

As of October 1, 2021, the Company had no financial instruments required to be measured at fair value.

As of December 31, 2021 , the Company had no material fin ancial instruments required to be measured at fair value.

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value, and consists of materials, labor and overhead.

4 unchanged sentences

Inventory was comprised of the following:

October 1, 2021 July 2, 2021

December 31, 2021 July 2, 2021

Raw materials $ 159,780 $ 141,774

16 unchanged sentences

In the first quarter ended October 1, 2021, the Company assigned goodwill to the new reporting units based on the relative fair value of transferred operations.

The following table sets forth the changes in the carrying amount of goodw ill for the first quarter ended October 1, 2021 :

The following table sets forth the changes in the carrying amount of goodw ill for the six months ended December 31, 2021 :

Balance at July 2, 2021 $ 804,906

1 unchanged sentence

Goodwill adjustment for the Pentek acquisition 338

Balance at October 1, 2021 $ 805,315

Goodwill arising from the Avalex acquisition 82,456

Goodwill arising from the Atlanta Micro acquisition 61,640

Balance at December 31, 2021 $ 942,346

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.

Restructuring

During the first quarter ended October 1, 2021, the Company incurred $ 12,274 of restructuring and other charges.

Restructuring and other charges of $ 7,338 related to severance costs associated with the elimination of 100 employees in manufacturing, SG&A and R&D based on changes in the business environment and to align with the internal organizational changes completed under 1MPACT.

The remaining $ 4,936 of restructuring and other charges related to third-party consulting costs associated with 1MPACT.

During the six months ended December 31, 2021, the Company incurred $ 16,076 of restructuring and other charges.

Restructuring and other charges of $ 8,667 related to third-party consulting costs associated with 1MPACT.

The remaining $ 7,409 related to severance costs associated with the elimination of approximately 100 employees in manufacturing, SG&A and R&D based on changes in the business environment and to align with the internal organizational changes completed under 1MPACT.

All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive (Loss) Income and any remaining severance obligations are expected to be paid within the next twelve months.

2 unchanged sentences

Balance at July 2, 2021 $ 1,006

Restructuring and other charges 7,338

Restructuring charges 7,409

Cash paid ( 2,710 )

Balance at October 1, 2021 $ 6,335

The Company recorded an income tax (benefit) provision of $( 441 ) and $ 2,198 on a (loss) income before income taxes of $( 7,581 ) and $ 17,996 for the first quarters ended October 1, 2021 and October 2, 2020, respectively.

During the first quarters ended October 1, 2021 and October 2, 2020, the Company recognized a discrete tax provision of $ 715 related to stock-based compensation shortfalls and a discrete tax benefit of $ 2,480 related to excess benefits on stock-based compensation.

The effective tax rate for the first quarters ended October 1, 2021 and October 2, 2020 differed from the Federal statutory rate primarily due to Federal and State research and development credits, non-deductible compensation, stock-based compensation, and state taxes.

In addition, during the first quarter ended October 1, 2021, the Company had certain unbenefited deferred tax assets.

During the first quarter ended October 1, 2021, there were no material changes to the Company's unrecognized tax positions.

Balance at December 31, 2021 $ 5,705

The Company recorded an income tax (benefit) provision of $( 155 ) and $ 4,433 on a (loss) income before income taxes of $( 2,794 ) and $ 17,119 for the second quarters ended December 31, 2021 and January 1, 2021, respectively.

The Company recorded an income tax (benefit) provision of $( 596 ) and $ 6,631 on (loss) income before income taxes of $( 10,375 ) and $ 35,115 for the six months ended December 31, 2021 and January 1, 2021, respectively.

During the second quarters ended December 31, 2021 and January 1, 2021, the Company recognized a discrete tax provision (benefit) of $ 163 and $( 130 ) related to stock-based compensation shortfalls and windfalls, respectively.

During the six months ended December 31, 2021 and January 1, 2021, the Company recognized a discrete tax provision (benefit) of $ 878 and $( 2,610 ) related to stock-based compensation shortfalls and windfalls, respectively.

The effective tax rate for the second quarters and six months ended December 31, 2021 and January 1, 2021 differed from the Federal statutory rate primarily due to Federal and State research and development credits, non-deductible compensation, stock-based compensation, and state taxes.

In addition, during the second quarter ended December 31, 2021, the Company had certain unbenefited deferred tax assets.

During the second quarter ended December 31, 2021, the Company recorded an unrecognized tax benefit of $ 693 related to acquired research and development carryforward credits.

Within the calculation of the Company's annual effective tax rate, the Company has used assumptions and estimates that may change as a result of future guidance and interpretation from the Internal Revenue Service (“IRS”).

1 unchanged sentence

On September 28, 2018, the Company amended the Revolver to increase and extend the borrowing capacity to a $ 750,000 , 5-year revolving credit line, with the maturity extended to September 28, 2023.

As of October 1, 2021, the Company's outstanding balance of unamortized deferred financing costs was $ 2,689 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive (Loss) Income on a straight line basis over the term of the Revolver.

As of October 1, 2021, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 200,000 against the Revolver, resulting in interest expense of $ 595 for the first quarter ended October 1, 2021.

There were outstanding letters of credit of $ 963 as of October 1, 2021.

As of December 31, 2021, the Company's outstanding balance of unamortized deferred financing costs was $ 2,353 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive (Loss) Income on a straight line basis over the term of the Revolver.

As of December 31, 2021, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 451,500 against the Revolver, resulting in interest expense of $ 1,094 and $ 1,689 for the second quarter and six months ended December 31, 2021, respectively.

There were outstanding letters of credit of $ 963 as of December 31, 2021.

Employee Benefit Plan

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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.

The Plan's funded status at October 1, 2021 was a net liability of $ 9,691 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 48 and $ 31 in AOCL during the first quarters ended October 1, 2021 and October 2, 2020, respectively.

The Company recognized net periodic benefit costs of $ 269 and $ 413 associated with the Plan for the first quarters ended October 1, 2021 and October 2, 2020, respectively.

The Plan's funded status at December 31, 2021 was a net liability of $ 9,833 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 48 and $ 96 in AOCL during the second quarter and six months ended December 31, 2021.

The Company recorded a net gain of $ 31 and $ 62 in AOCL during the second quarter and six months ended January 1, 2021.

The Company recognized net periodic benefit costs of $ 269 and $ 538 associated with the Plan for the second quarter and six months ended December 31, 2021.

The Company recognized net periodic benefit costs of $ 420 and $ 833 associated with the Plan for the second quarter and six months ended January 1, 2021, respectively.

The Company's total expected employer contributions to the Plan during fiscal 2022 are $ 1,165 .

Shareholders' Equity

S TOCKHOLDER R IGHTS P LAN

On December 27, 2021, the Company's Board of Directors authorized and declared a dividend of one preferred share purchase right (a “Right”), payable on January 10, 2022, for each outstanding share of common stock par value $ 0.01 per share to the stockholders of record on that date.

Each Right entitles the registered holder to purchase from the Company a unit of Series A Junior Preferred Stock, par value $ 0.01 per share, of the Company at a designated price per unit, subject to adjustment.

The Rights will initially trade with, and will be inseparable from, the shares of common stock.

The Rights will generally become exercisable if any person or group, other than certain exempt persons, acquires beneficial ownership of 7.5 % (or 10 % in the case of certain passive investors) or more of common stock outstanding (an “Acquiring Person”).

If a person or group becomes an Acquiring Person, then each Right, other than those held by the Acquiring Person, will entitle its holder to purchase units of Series A Junior Preferred Stock (or, in certain circumstances, cash, assets or other securities of the Company) having a market value equal to twice the then-current market price per unit of Preferred Stock.

In certain other circumstances including consolidation or merger with the Company, each Right, other than those held by the Acquiring Person, will entitle its holder to receive common stock of the person acquiring the Company or its ultimate parent entity, as applicable, having a value equal to two times then-current market price per share of common stock.

Each Unit of Preferred Stock, if issued:

• will entitle holders to certain dividend and liquidation payments;

• will not be redeemable;

• will entitle holders to one vote, voting together with shares of common stock;

• will entitle holders, if shares of common stock are exchanged via merger, consolidation, or a similar transaction, to a per share payment equal to the payment made on one share of Company Common Stock;

• will be protected by customary anti-dilution provisions with respect to dividends, liquidation and voting rights, and in the event of mergers and consolidations.

The Rights Agreement will continue in effect until December 26, 2022, or unless earlier redeemed or terminated by the Company's Board of Directors, as provided in the Rights Agreement.

The Board of Directors shall have the right to adjust, among other things, the exercise price, as well as the number of Units of Preferred Stock issuable, and the number of outstanding Rights to prevent dilution that may occur from a share dividend, a share split, or a reclassification of the Preferred Stock.

The Rights have no voting or dividend privileges, and, unless and until they become exercisable, have no dilutive effect on the earnings of the Company.

Additional details about the Rights Agreement are contained in the Current Report on Form 8-K filed by the Company with the SEC on December 29, 2021.

Stock-Based Compensation

S TOCK I NCENTIVE P LANS

At October 1, 2021, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 6,782 shares, including 710 shares rolle d 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”) and 3,000 shares approved by the Company's shareholders on October 28, 2020.

At December 31, 2021, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 6,782 shares, including 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”) and 3,000 shares approved by the Company's shareholders on October 28, 2020.

The 2018 Plan replaced the 2005 Plan.

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Stock options must be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years .

There were 3,529 shares available for future grant under the 2018 Plan at October 1, 2021 .

As part of the Com pany'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.

There were 3,380 shares available for future grant under the 2018 Plan at December 31, 2021.

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.

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E MPLOYEE S TOCK P URCHASE P LAN

At October 1, 2021, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), i s 2,300 shares, including 500 shares approved by the Company's shareholders on October 28, 2020.

At December 31, 2021, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 2,300 shares, including 500 shares approved by the Company's shareholders on October 28, 2020.

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.

There were no shares issued under the ESPP during the first quarters ended October 1, 2021 and October 2, 2020, respectively.

Shares available for future purchase under the ESPP totaled 428 at October 1, 2021.

There were 54 and 46 shares issued under the ESPP during the six months ended December 31, 2021 and January 1, 2021, respectively.

Shares available for future purchase under the ESPP totaled 374 at December 31, 2021.

S TOCK A WARD A CTIVITY

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Forfeited ( 157 ) 68.62

Outstanding at October 1, 2021 1,197 $ 63.28

Outstanding at December 31, 2021 1,255 $ 64.31

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 (Loss) Income in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

The Company had $ 767 and $ 796 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended October 1, 2021 and July 2, 2021, respectively.

The Company had $ 1,087 and $ 796 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended December 31, 2021 and July 2, 2021, 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, net of estimated forfeitures.

The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Cost of revenues $ 322 $ 369 $ 881 $ 664

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Europe Asia Pacific Eliminations Total

FIRST QUARTER ENDED OCTOBER 1, 2021

SECOND QUARTER ENDED DECEMBER 31, 2021

Net revenues to unaffiliated customers $ 209,495 $ 10,808 $ 77 $ — $ 220,380

1 unchanged sentence

Net revenues $ 211,083 $ 11,407 $ 77 $ ( 2,187 ) $ 220,380

FIRST QUARTER ENDED OCTOBER 2, 2020

SECOND QUARTER ENDED JANUARY 1, 2021

Net revenues to unaffiliated customers $ 197,773 $ 12,812 $ 91 $ — $ 210,676

1 unchanged sentence

Net revenues $ 198,409 $ 13,376 $ 91 $ ( 1,200 ) $ 210,676

SIX MONTHS ENDED DECEMBER 31, 2021

Net revenues to unaffiliated customers $ 423,236 $ 21,995 $ 162 $ — $ 445,393

Inter-geographic revenues 3,147 1,328 — ( 4,475 ) —

Net revenues $ 426,383 $ 23,323 $ 162 $ ( 4,475 ) $ 445,393

SIX MONTHS ENDED JANUARY 1, 2021

Net revenues to unaffiliated customers $ 393,620 $ 22,475 $ 202 $ — $ 416,297

Inter-geographic revenues 876 908 — ( 1,784 ) —

Net revenues $ 394,496 $ 23,383 $ 202 $ ( 1,784 ) $ 416,297

The Company offers a broad family of products designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications.

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The following table presents the Company's net revenue by end user for the periods presented:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

$ 186,592 $ 181,095 $ 375,840 $ 359,838

8 unchanged sentences

The following table presents the Company's net revenue by end application for the periods presented:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

$ 51,172 $ 84,760 $ 110,076 $ 157,169

13 unchanged sentences

The following table presents the Company's net revenue by product grouping for the periods presented:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Components (1)

14 unchanged sentences

The following table presents the Company's net revenue by platform for the periods presented:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

$ 110,990 $ 91,662 $ 227,554 $ 178,911

9 unchanged sentences

Europe Asia Pacific Eliminations Total

October 1, 2021 $ 123,581 $ 5,108 $ 5 $ — $ 128,694

December 31, 2021 $ 122,708 $ 4,672 $ 5 $ — $ 127,385

July 2, 2021 $ 123,009 $ 5,509 $ 6 $ — $ 128,524

1 unchanged sentence

Customers comprising 10% or more of the Company’s revenues for the periods shown are as follows:

First Quarters Ended

October 1, 2021 October 2, 2020

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Raytheon Technologies 15 % 25 % 15 % 24 %

Navy 14 % * 15 % *

Northrop Grumman Corporation 10 % * * *

Lockheed Martin Corporation

* 12 % 10 % 15 %

39 % 37 % 40 % 39 %

* Indicates that the amount is less than 10% of the Company's revenue for the respective period.

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 first quarters ended October 1, 2021 and October 2, 2020.

There were no programs comprising 10% or more of the Company's revenues for the second quarter and six months ended December 31, 2021 and January 1, 2021.

Commitments and Contingencies

5 unchanged sentences

ERA was a sales representative of Themis when Themis was acquired by Mercury.

The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA product shipment occurring prior to termination.

The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA with product shipment occurring prior to termination.

The Company responded to the complaint on July 28, 2021.

The Company believes the claims in the complaint are without merit and intends to defend itself vigorously.

On December 7, 2021, counsel for National Technical Systems, Inc.

(“NTS”) sent the Company an environmental demand letter pursuant to Massachusetts General Laws Chapter 21E, Section 4A, and CERCLA 42 U.S.C.

Section 9601, related to a site that NTS formerly owned at 533 Main Street, Acton, Massachusetts.

NTS received a Notice of Responsibility from the Massachusetts Department of Environmental Protection (“MassDEP”) alleging trichloroethene, freon and 1,4-dioxane contamination in the groundwater emanating from NTS’s former site.

NTS alleges in its demand letter that the operations of a predecessor company to Mercury that was acquired in the Company’s acquisition of the Microsemi carve-out business that once owned and operated a facility at 531 Main Street, Acton, Massachusetts contributed to the groundwater contamination.

NTS is seeking payment by the Company of NTS’s costs for any required environmental remediation.

In November 2021, the Company responded to a request for information from MassDEP regarding the detection of PFAS (per- and polyfluoroakyl substances) in the Acton, Massachusetts Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, Massachusetts at a level above the standard that MassDEP published for PFAS in October 2020.

It is too early to determine what responsibility, if any, the Company may have for these matters.

I NDEMNIFICATION O BLIGATIONS

3 unchanged sentences

P URCHASE C OMMITMENTS

As of October 1, 2021, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

As of December 31, 2021, 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 $ 183,942 .

4 unchanged sentences

Subsequent Events

A VALEX ACQUISITION

On September 27, 2021, the Company announced that it has signed a definitive agreement to acquire Avalex.

On November 5, 2021, the Company closed its acquisition of Avalex for an all-cash purchase of $ 155,000 subject to net working capital and net debt adjustments.

Based in Gulf Breeze, Florida.

Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders, and warning systems.

Upon completion of the acquisition, Avalex will become part of the Company's Processing division.

The Company has not completed its preliminary purchase price allocation for Avalex as not all information required for the analysis was available.

On February 7, 2022, the Board of Directors approved an equity retention plan for Mercury’s executive leadership team and over 100 additional leaders.

Employees participating in the equity retention plan will be granted equity awards on February 15, 2022.

Consistent with the Company’s prior practice for granting equity awards, the number of shares to be granted on February 15, 2022 will be determined by dividing the target value for grantees by the average closing price of Mercury’s common stock during the 30 calendar days prior to February 15, 2022.

However, if the average closing price is lower than $55.00 per share, then a minimum of $ 55.00 per share will be used to calculate the number of shares to be granted.

Additional details about the equity retention plan are contained in the Current Report on Form 8-K filed by the Company with the SEC on February 8, 2022.

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

What changed 10-Q

Item 1. Financial Statements