What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-08-15 compared with 2022-08-16 · 310 added, 391 removed, 782 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Current assets:

Cash and cash equivalents $ 71,563 $ 65,654

Accounts receivable, net of allowance for credit losses of $ 2,074 and $ 1,720 at July 1, 2022 and July 2, 2021, respectively

144,494 128,807

Accounts receivable, net of allowance for credit losses of $1,335 and $2,074 at June 30, 2023 and July 1, 2022, respectively 124,729 144,494

Unbilled receivables and costs in excess of billings 382,558 303,356

7 unchanged sentences

Operating lease right-of-use assets, net 63,015 66,366

Deferred tax asset 27,099 —

Other non-current assets 8,537 6,188

5 unchanged sentences

Accrued compensation 30,419 44,813

Income tax payable 13,874 —

Deferred revenues and customer advances 56,562 15,487

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85,000,000 shares authorized;

55,679,747 and 55,241,120 shares issued and outstanding at July 1, 2022 and July 2, 2021, respectively

56,961,665 and 55,679,747 shares issued and outstanding at June 30, 2023 and July 1, 2022, respectively 570 557

Additional paid-in capital 1,196,847 1,145,323

Retained earnings 357,439 385,774

Accumulated other comprehensive income (loss) 5,531 ( 339 )

Accumulated other comprehensive income 11,829 5,531

Total shareholders’ equity 1,566,685 1,537,185

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MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(In thousands, except per share data)

For the Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Net revenues $ 973,882 $ 988,197 $ 923,996

8 unchanged sentences

Total operating expenses 338,413 363,346 304,187

Income from operations 31,610 81,001 91,062

(Loss) income from operations ( 21,685 ) 31,610 81,001

Interest income 1,053 143 179

1 unchanged sentence

Other expense, net ( 2,751 ) ( 7,552 ) ( 2,785 )

Income before income taxes 18,395 77,173 93,933

Income tax provision 7,120 15,129 8,221

Net income $ 11,275 $ 62,044 $ 85,712

Basic net earnings per share $ 0.20 $ 1.13 $ 1.57

Diluted net earnings per share $ 0.20 $ 1.12 $ 1.56

(Loss) income before income taxes ( 48,542 ) 18,395 77,173

Income tax (benefit) provision ( 20,207 ) 7,120 15,129

Net (loss) income $ ( 28,335 ) $ 11,275 $ 62,044

Basic net (loss) earnings per share $ ( 0.50 ) $ 0.20 $ 1.13

Diluted net (loss) earnings per share $ ( 0.50 ) $ 0.20 $ 1.12

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 56,554 55,901 55,474

Comprehensive income:

Net income $ 11,275 $ 62,044 $ 85,712

Foreign currency translation adjustments 1,131 ( 739 ) 174

Comprehensive (loss) income:

Net (loss) income $ ( 28,335 ) $ 11,275 $ 62,044

Change in fair value of derivative instruments, net of tax 5,856 — —

Foreign currency translation adjustments, net of tax 300 1,131 ( 739 )

Pension benefit plan, net of tax 142 4,739 3,285

Total other comprehensive income (loss), net of tax 5,870 2,546 ( 1,594 )

Total comprehensive income $ 17,145 $ 64,590 $ 84,118

Total other comprehensive income, net of tax 6,298 5,870 2,546

Total comprehensive (loss) income $ ( 22,037 ) $ 17,145 $ 64,590

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Fiscal Years Ended July 1, 2022, July 2, 2021 and July 3, 2020

For the Fiscal Years Ended June 30, 2023, July 1, 2022 and July 2, 2021

(In thousands)

2 unchanged sentences

Earnings Accumulated

Comprehensive(Loss) Income Total

Comprehensive

(Loss) Income Total

Shareholders’

Shares Amount

Balance at June 30, 2019 54,248 $ 542 $ 1,058,745 $ 226,743 $ ( 1,291 ) $ 1,284,739

Balance at July 3, 2020 54,702 $ 547 $ 1,074,667 $ 312,455 $ ( 2,885 ) $ 1,384,784

Issuance of common stock under employee stock incentive plans 439 4 10 — — 14

3 unchanged sentences

Net income — — — 62,044 — 62,044

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

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

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

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Issuance of common stock under employee stock purchase plan 145 2 5,490 — — 5,492

Issuance of common stock under defined contribution plan 400 4 18,366 — — 18,370

Retirement of common stock ( 1 ) — ( 63 ) — — ( 63 )

Stock-based compensation — — 27,738 — — 27,738

Net income — — — 11,275 — 11,275

Net loss — — — ( 28,335 ) — ( 28,335 )

Other comprehensive income — — — — 6,298 6,298

Balance at July 1, 2022 55,680 $ 557 $ 1,145,323 $ 385,774 $ 5,531 $ 1,537,185

Balance at June 30, 2023 56,962 $ 570 $ 1,196,847 $ 357,439 $ 11,829 $ 1,566,685

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

3 unchanged sentences

For the Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Cash flows from operating activities:

Net income $ 11,275 $ 62,044 $ 85,712

Net (loss) income $ ( 28,335 ) $ 11,275 $ 62,044

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

1 unchanged sentence

Stock-based compensation expense 27,753 38,293 28,290

Share-based matching contributions on defined contribution plan 15,665 — —

Benefit for deferred income taxes ( 59,647 ) ( 2,419 ) ( 1,125 )

Gain on investments — — ( 5,817 )

Other non-cash items ( 746 ) ( 497 ) 3,745

Cash settlement for termination of interest rate swap 5,995 — —

Changes in operating assets and liabilities, net of effects of businesses acquired:

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Purchases of property and equipment ( 38,796 ) ( 27,656 ) ( 45,599 )

Proceeds from sale of investment — — 4,310

Other investing activities 235 ( 3,200 ) 1,538

2 unchanged sentences

Proceeds from employee stock plans 5,492 5,371 6,295

Payments for retirement of common stock ( 8,206 ) ( 66 ) ( 16,249 )

Payments under credit facilities — — ( 200,000 )

Borrowings under credit facilities 140,000 251,500 200,000

Payments under credit facilities ( 80,000 ) — —

Payments for retirement of common stock ( 63 ) ( 8,206 ) ( 66 )

Payments of deferred financing and offering costs — ( 2,911 ) —

Net cash provided by (used in) financing activities 245,754 206,229 ( 10,932 )

Net cash provided by financing activities 65,429 245,754 206,229

Effect of exchange rate changes on cash and cash equivalents 295 ( 750 ) 412

Net decrease in cash and cash equivalents ( 48,185 ) ( 112,999 ) ( 31,094 )

Net increase (decrease) in cash and cash equivalents 5,909 ( 48,185 ) ( 112,999 )

Cash and cash equivalents at beginning of year 65,654 113,839 226,838

5 unchanged sentences

Non-cash investing activity:

Purchases of property and equipment incurred but not yet paid $ 6,475 $ 6,919 $ ( 1,928 )

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

4 unchanged sentences

Mercury Systems, Inc.

is a technology company that delivers commercial innovation to rapidly transform the global aerospace and defense industry.

is a technology company that delivers processing power for the most demanding aerospace and defense missions.

Headquartered in Andover, Massachusetts, the Company's end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments.

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The Company's innovative solutions are mission-ready, trusted and secure, software-defined and open and modular (the Company's differentiators), to meet customers’ most-pressing high-tech needs, including those specific to the defense community.

On February 28, 2022, the Company amended its existing revolving credit facility (the "Revolver") to increase and extend the borrowing capacity to a $ 1,100,000 , 5-year revolving credit line, with the maturity extended to February 28, 2027.

As of July 1, 2022, there was $ 451,500 of outstanding borrowings on the Revolver.

See Note M in the accompanying consolidated financial statements for further discussion of the Revolver.

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 its Revolver.

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 its Revolver.

On May 27, 2021, the Company acquired Pentek for a purchase price of $ 65,000 , prior to net working capital and net debt adjustments.

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

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

On December 30, 2020, the Company acquired Physical Optics Corporation ("POC") for a purchase price of $ 310,000 , prior to net working capital and net debt adjustments.

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

The Company funded the acquisition through a combination of cash on hand and its existing Revolver.

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

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

All intercompany transactions and balances have been eliminated.

All intercompany transactions and balances have been eliminated in consolidation.

B ASIS OF P RESENTATION

The Company's fiscal year is the 52-week or 53-week period ending on the Friday closest to the last day in June.

All references to fiscal 2022 are to the 52-week period from July 3, 2021 to July 1, 2022.

All references to fiscal 2023 are to the 52-week period from July 2, 2022 to June 30, 2023.

All references to fiscal 2022 are to the 52-week period from July 3, 2021 to July 1, 2022.

All references to fiscal 2021 are to the 52-week period from July 4, 2020 to July 2, 2021.

There have been no reclassifications of prior comparable periods due to this change.

U SE OF E STIMATES

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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.

The Company measures its lease obligations in accordance with 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 arrangements involving the lease of facilities, machinery and equipment.

Under ASC 842, Leases , (“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.

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.

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Operating leases are included in Operating lease right-of-use assets, net, 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.

The standard had no impact on the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income or Consolidated Statements of Cash Flows.

See Note J to the consolidated financial statements for more information regarding our obligations under leases.

R EVENUE R ECOGNITION

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.

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.

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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 as the performance obligation is satisfied.

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.

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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.

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.

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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.

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

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 44 %, 45 % and 58 % of revenues in the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021, 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 transfer of control (for goods) or completion (for services).

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

These over time 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, given:

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;

or (ii) the Company’s performance creates an asset with no alternative use to the Company and (iii) the Company has an enforceable right to payment for performance completed to date.

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.

1 unchanged sentence

The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material (“T&M”) contracts.

For contracts recognized over time, the Company typically leverages the input method, using a cost-to-cost measure of progress.

For over time 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.

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For over time contracts, the Company recognizes anticipated contract losses as soon as they become known and estimable.

Accounting for over time 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.

Accounting for contracts recognized over time 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 over time 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 over time contracts over time was 55 %, 42 % and 27 % of revenues in the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 45 %, 58 % and 73 % of revenues in the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, 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 recognized upon shipment (for goods) or completion (for services).

Total revenue recognized under over time contracts over time was 56 %, 55 % and 42 % of revenues in the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 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.

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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 over time contracts, the portion of the payments retained by the customer is not considered a significant financing component because payment is received as progress is made.

On over time 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 over time contracts have milestone payments, which align the payment schedule with the progress towards completion on the performance obligation.

On certain 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.

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).

1 unchanged sentence

The Company expenses sales commissions as incurred for contracts where the amortization period would have been one year or less.

The Company had $ 1,503 and $ 1,098 of deferred sales commissions for contracts where the amortization period is greater than one year as of July 1, 2022 and July 2, 2021, respectively.

Prior to fiscal 2021, the Company had not deferred sales commissions for contracts where the amortization period was greater than one year because such amounts were not deemed significant.

The Company had $ 1,328 and $ 1,503 of deferred sales commissions for contracts where the amortization period is greater than one year as of June 30, 2023 and July 1, 2022, respectively.

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.

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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.

Instead, while the Company has an enforceable right to payment as progress is made over performance obligations, billings to customers are generally predicated on (i) completion of defined milestones, (ii) monthly costs incurred or (iii) final delivery of goods or services.

Contract assets are presented as unbilled receivables and costs in excess of billings on the Company’s Consolidated Balance Sheets.

1 unchanged sentence

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.

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 as well as other non-current liabilities on the Company’s Consolidated Balance Sheets.

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 $ 303,356 and $ 162,921 as of July 1, 2022 and July 2, 2021, respectively.

The contract asset balance increased due to growth in revenue recognized under over time contracts as well as industry-wide award delays and supply chain constraints impacting the timing of billing events and cash conversion during the fiscal year ended July 1, 2022.

The contract liability balances were $ 15,966 and $ 35,201 as July 1, 2022 and July 2, 2021, respectively.

The decrease was due to recognition of revenue across multiple programs.

The contract asset balances were $ 382,558 and $ 303,356 as of June 30, 2023 and July 1, 2022, respectively.

The contract asset balance increased due to growth in revenue recognized under contracts, as well as the timing of program milestone billings during the fiscal year ended June 30, 2023.

The contract liability balances were $ 57,142 and $ 15,966 as of June 30, 2023 and July 1, 2022, respectively.

The contract liability increased due to a higher volume of advanced milestone billing events as well as timing of revenue conversion across multiple programs.

Revenue recognized during fiscal 2023 that was included in the contract liability balance at July 1, 2022 was $ 11,258 .

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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 1, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 542,146 .

As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 550,973 .

The Company expects to recognize approximately 62 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

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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.

The Company measures at fair value certain financial assets and liabilities, including cash equivalents, restricted cash, interest rate derivatives, 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.

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The Company places its cash and cash equivalents with financial institutions of high credit quality.

As of July 1, 2022 and July 2, 2021, the Company had $ 65,654 and $ 113,839 , respectively, of cash and cash equivalents on deposit or invested with its financial and lending institutions.

As of June 30, 2023 and July 1, 2022, the Company had $ 71,563 and $ 65,654 , 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 1, 2022, five customers accounted for 45 % of the Company's accounts receivable, unbilled receivables and costs in excess of billings.

As of June 30, 2023, five customers accounted for 48 % of the Company's accounts receivable, unbilled receivables and costs in excess of billings.

As of July 1, 2022, five customers accounted for 45 % of the Company’s accounts receivable, unbilled receivables and costs in excess of billings.

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The Company uses the management approach for segment disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of its reportable segments.

The Company manages its business on the basis of one reportable segment, as a leading technology company serving the aerospace and defense industry, positioned at the intersection of high-tech and defense.

The Company manages its business on the basis of one reportable segment, as a leading technology company serving the aerospace and defense industry.

G OODWILL AND I NTANGIBLE A SSETS

Goodwill is the amount by which the purchase price of a business acquisition exceeds the fair values of the net identifiable assets on the date of purchase (see Note G).

Goodwill is the amount by which the purchase price of a business acquisition exceeded the fair values of the net identifiable assets on the date of purchase (see Note G).

In accordance with the requirements of Intangibles-Goodwill and Other (“ASC 350”) Goodwill is not amortized.

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Beginning balance $ 1,857 $ 3,283 $ 3,835

Warranty assumed from APC — — 739

Accruals for warranties issued during the period 1,146 359 2,446

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Research and development costs are expensed as incurred.

Research and development costs are primarily made up of labor charges, including stock-based compensation and prototype material and development expenses.

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

S TOCK - BASED C OMPENSATION

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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 net earnings (loss) per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period.

Diluted net earnings (loss) 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 (loss) income is the control number for determining whether securities are dilutive or not.

Basic and diluted weighted average shares outstanding were as follows:

3 unchanged sentences

Diluted weighted-average shares outstanding 56,554 55,901 55,474

Equity instruments to purchase 39 , 42 and 8 shares of common stock were not included in the calculation of diluted net earnings per share for the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, 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 $ 1,131 , $( 739 ) and $ 174 of foreign currency translation adjustments for the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, respectively.

In addition, pension benefit plan adjustments totaled $ 4,739 , $ 3,285 and $( 1,768 ) for the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, respectively.

Equity instruments to purchase 1,852 , 39 and 42 shares of common stock were not included in the calculation of diluted net earnings per share for the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021, respectively, because the equity instruments were anti-dilutive.

A CCUMULATED O THER C OMPREHENSIVE ( L OSS) I NCOME

Accumulated other comprehensive (loss) income (“AOCI”) includes changes in fair value of derivative instruments, foreign currency translation adjustments and pension benefit plan adjustments.

The components of AOCI included the change in fair value of derivative instruments, net of tax adjustments are included and totaled $ 5,856 for the fiscal year ended June 30, 2023 and there were no change in fair value of derivative instruments, net of tax adjustments for the fiscal years ended July 1, 2022 and July 2, 2021, respectively.

Also included are $ 300 , $ 1,131 and $( 739 ) of foreign currency translation adjustments for the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021, respectively, and pension benefit plan adjustments totaled $ 142 , $ 4,739 and $ 3,285 for the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021, respectively.

A summary of the change in component of Accumulated other comprehensive (loss) income, net of tax is provided below:

Foreign currency translation adjustments, net of tax Pension benefit plan, net of tax Change in fair of derivative instruments, net of tax Accumulated Other Comprehensive (Loss) Income

Balance at July 3, 2020 $ 659 $ ( 3,544 ) $ — $ ( 2,885 )

Other comprehensive (loss) income, net of tax ( 739 ) 3,285 — 2,546

Balance at July 2, 2021 ( 80 ) ( 259 ) — ( 339 )

Other comprehensive income, net of tax 1,131 4,739 — 5,870

Balance at July 1, 2022 1,051 4,480 — 5,531

Other comprehensive income, net of tax 300 142 5,856 6,298

Balance at June 30, 2023 $ 1,351 $ 4,622 $ 5,856 $ 11,829

F OREIGN C URRENCY

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, Japan, Spain and Canada.

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, 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.

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Gains (losses) resulting from non-U.S.

currency transactions are included in Other (expense) income, net in the Consolidated Statements of Operations and Comprehensive Income.

currency transactions are included in Other income (expense), net in the Consolidated Statements of Operations and Comprehensive (Loss) Income and were immaterial for all periods presented.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

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

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.

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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 accordance with ASC 606.

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 ASC 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 Topic 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 may have on its consolidated financial statements and related disclosures.

The impact to the Company's consolidated financial statements and related disclosures of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in fiscal 2023 and beyond.

R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS

Effective July 2, 2022, the Company adopted 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 method investments and add guidance as to whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an amendment of the FASB Accounting Standards Codification.

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

Effective July 2, 2022, the Company adopted 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.

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

Effective December 1, 2022, the Company adopted ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU extend the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023.

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

A TLANTA M ICRO A CQUISITION

On November 29, 2021, the Company acquired Atlanta Micro for a purchase price of $ 90,000 , prior 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 revolver.

The Company funded the acquisition through the Revolver.

On March 28, 2022, the Company and former owners of Atlanta Micro agreed to post closing adjustments totaling $ 58 , 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 Atlanta Micro on a preliminary basis:

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

Consideration transferred

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Net purchase price $ 89,240

Estimated fair value of tangible assets acquired and liabilities assumed

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable 1,568

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Other current and non-current liabilities ( 11,174 )

Estimated fair value of net tangible assets acquired ( 2,063 )

Estimated fair value of identifiable intangible assets 34,980

Estimated goodwill 58,105

Estimated fair value of net assets acquired 91,022

Fair value of net tangible assets acquired ( 2,210 )

Fair value of identifiable intangible assets 34,980

Goodwill 58,252

Fair value of net assets acquired 91,022

Less cash acquired ( 1,782 )

Net purchase price $ 89,240

The amounts above represent the preliminary fair value estimates as of July 1, 2022 and are subject to subsequent adjustment as the Company obtains additional information during the measure ment period and finalizes its fair value estimates.

The preliminary identifiable intangible asset estimate includes customer relationships of $ 27,310 with a useful life of 20 years, completed technology of $ 7,260 with a useful life of 8 years and backlog of $ 410 with a useful life of 2 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 $ 58,105 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.

On November 29, 2022, the measurement period for Atlanta Micro expired.

The identifiable intangible assets include customer relationships of $ 27,310 with a useful life of 20 years, completed technology of $ 7,260 with a useful life of eight years and backlog of $ 410 with a useful life of two years .

The goodwill of $ 58,252 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 income before income taxes from Atlanta Micro included in the Company's consolidated results for the fiscal year ended July 1, 2022 were $ 8,625 and $ 1,328 , respectively.

A VALEX A CQUISITION

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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.

On March 17, 2022, the Company and former owners of Avalex agreed to post closing adjustments totaling $ 151 , 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 Avalex on a preliminary basis:

Consideration transferred

Cash paid at closing $ 157,367

Working capital and net debt adjustment ( 1,034 )

Less cash acquired ( 2,188 )

Net purchase price $ 154,145

Estimated fair value of tangible assets acquired and liabilities assumed

Accounts receivable 5,363

Inventory 7,141

Fixed assets 1,245

Other current and non-current assets 5,195

Accounts payable ( 1,700 )

Accrued expenses ( 1,376 )

Other current and non-current liabilities ( 4,788 )

Estimated fair value of net tangible assets acquired 13,268

Estimated fair value of identifiable intangible assets 61,360

Estimated goodwill 81,705

Estimated fair value of net assets acquired 156,333

Less cash acquired ( 2,188 )

Net purchase price $ 154,145

T he amounts above represent the preliminary fair value estimates as of July 1, 2022 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 $ 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 $ 81,705 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 July 1, 2022, the Company had $ 80,102 of goodwill deductible for tax purposes.

The revenues and loss before income taxes from Avalex included in the Company's consolidated results for the fiscal year ended July 1, 2022 were $ 22,993 and $ 496 , respectively.

P ENTEK A CQUISITION

On May 27, 2021, the Company acquired Pentek for a purchase price of $ 65,000 , prior to net working capital and net debt adjustments.

Based in Upper Saddle River, New Jersey, Pentek is a leading designer and manufacturer of ruggedized, high-performance, commercial off-the-shelf 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 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:

The Company funded the acquisition with the Revolver.

On March 17, 2022, the Company and former owner of Avalex agreed to post closing adjustments totaling $ 151 , 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 Avalex:

Consideration transferred

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Net purchase price $ 154,145

On May 27, 2022, the measurement period for Pentek expired.

The identifiable intangible assets include customer relationships of $ 15,560 with a useful life of 21 years, completed technology of $ 6,340 with a useful life of 7 years and backlog of $ 2,210 with a useful life of one year .

On November 5, 2022, the measurement period for Avalex expired.

The identifiable intangible assets include customer relationships of $ 41,880 with a useful life of nine years , completed technology of $ 14,430 with a useful life of seven years and backlog of $ 5,050 with a useful life of one year .

The goodwill of $ 81,772 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 included in the Microelectronics reporting unit.

The deal was split between asset and stock, with the asset portion of goodwill being deductible 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 1, 2022, the Company ha d $ 28,038 of goodwill deductible for tax purposes.

P HYSICAL O PTICS C ORPORATION A CQUISITION

On December 7, 2020, the Company signed a definitive agreement to acquire POC for a purchase price of $ 310,000 , prior to net working capital and net debt adjustments.

On December 30, 2020, the transaction closed and the Company acquired POC.

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

The Company funded the acquisition through a combination of cash on hand and the 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:

Consideration transferred

Cash paid at closing $ 251,229

Cash paid post closing 61,626

Working capital and net debt adjustment ( 2,096 )

Less cash acquired ( 2,855 )

Net purchase price $ 307,904

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable 31,255

Inventory 11,125

Fixed assets 23,236

Other current and non-current assets 18,173

Accounts payable ( 3,777 )

Accrued expenses ( 6,266 )

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

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

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.

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

The Company is amortizing the amount over 15 years for tax purposes.

As of June 30, 2023, the Compan y had $ 74,676 of goodwill deductible for tax purposes.

Fair Value of Financial Instruments

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.

Fair Value Measurements

June 30, 2023 Level 1 Level 2 Level 3

Interest rate swap $ 3,523 $ — $ 3,523 $ —

Total $ 3,523 $ — $ 3,523 $ —

The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, contract assets and liabilities and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

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 July 1, 2022, the Company had no financial instruments required to be measured at fair value.

On September 7, 2022, the Company entered into an interest rate Swap (the “initial Swap”) with JP Morgan Chase Bank, N.A.

(“JPMorgan”) for a notional amount of $ 300,000 in order to fix the interest rate associated with a portion of the total $ 511,500 existing borrowings on the Revolver.

The initial Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge.

The initial Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.

The initial Swap established a fixed interest rate on the first $ 300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.25 %.

On September 29, 2022, the Company terminated the initial Swap.

At the time of termination, the fair value of the initial Swap was an asset of $ 5,995 .

The Company received the cash settlement of $ 5,995 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows.

During the twelve months ended June 30, 2023, the Company amortized $ 1,017 of the gain, which is included within Accumulated other comprehensive (loss) income.

Following the termination of the initial Swap, the Company entered a new Swap agreement (“the Swap”) on September 29, 2022 with JPMorgan.

The Swap fixes $ 300,000 of the total $ 511,500 existing borrowings of outstanding borrowings under the Revolver at a rate of 3.79 %.

As of June 30, 2023, the fair value of the hedge was an asset of $ 3,523 and is included within Other non-current assets in the Company's Consolidated Balance Sheets.

Inventory was comprised of the following:

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Raw materials $ 229,984 $ 178,410

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(Years) As of

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Computer equipment and software 3-4 $ 125,297 $ 113,930

$ 113,930 $ 99,190

Furniture and fixtures 5 20,729 19,958

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352,835 317,078

317,078 285,855

accumulated depreciation ( 233,281 ) ( 189,887 )

$ 127,191 $ 128,524

The $ 1,333 decrease in property and equipment was primarily due to depreciation expense and was partially offset by current year additions.

Property and equipment, net $ 119,554 $ 127,191

The $ 7,637 decrease in property and equipment, net was primarily due to depreciation expense and was partially offset by current year additions.

During fiscal 2023 and 2022, the Company retired $ 1,056 and $ 805 , respectively, of computer equipment and software, furniture, and fixtures, leasehold improvements, and machinery and equipment that were no longer in use by the Company.

Depreciation expense related to property and equipment for the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020 was $ 33,150 , $ 25,912 and $ 18,770 , respectively.

During the first quarter of fiscal 2022, the Company announced a companywide effort, called 1MPACT, to lay the foundation for the next phase of the Company's value creation at scale.

The Company realigned its internal organizational structure in the first quarter of fiscal 2022 shifting to two divisions, Processing and Microelectronics.

The Mission division was merged under the Processing division.

There was no change to the Microelectronics division.

The internal reorganization and change in reporting units qualified as a triggering event and required goodwill to be tested for impairment.

As required by ASC 350, the Company tested goodwill for impairment immediately before and after the reorganization.

As a result of these analyses, it was determined that goodwill was not impaired before or after the reorganization.

Depreciation expense related to property and equipment for the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021 was $ 43,777 , $ 33,150 and $ 25,912 , respectively.

In accordance with FASB ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit.

A reporting unit is considered to be an operating segment or one level below an operating segment also known as a component.

Component level financial information is reviewed by management across two divisions:

Processing and Microelectronics.

Accordingly, these were determined to be the Company's new reporting units.

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 goodwill for the year ended July 1, 2022:

Balance at July 2, 2021 $ 804,906

Goodwill adjustment for the POC acquisition ( 6,994 )

Goodwill adjustment for the Pentek acquisition 158

Goodwill arising from the Avalex acquisition 81,705

Goodwill arising from the Atlanta Micro acquisition 58,105

Component level financial information is reviewed by management across two reporting units:

Mission Systems and Microelectronics.

Accordingly, these were determined to be the Company's reporting units which is consistent with the prior period.

The following table sets forth the changes in the carrying amount of goodw ill for the twelve months ended June 30, 2023 :

Balance at July 1, 2022 $ 937,880

Goodwill adjustment for the Avalex acquisition 66

Goodwill adjustment for the Atlanta Micro acquisition 147

Balance at June 30, 2023 $ 938,093

The Company performed its annual goodwill impairment test in the fourth quarter of fiscal 2023 with no impairment noted.

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Amount Weighted

June 30, 2023

Customer relationships $ 349,120 $ ( 130,756 ) $ 218,364 12.1 years

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Customer relationships $ 349,710 $ ( 99,219 ) $ 250,491 12.1 years

Licensing agreements and patents 6 — 6 —

Licensing agreements and patents 4,162 ( 592 ) 3,570 5.0 years

Completed technologies 161,023 ( 68,264 ) 92,759 8.5 years

Backlog 7,670 ( 5,880 ) 1,790 1.4 years

Other 3,236 ( 308 ) 2,928 5.0 years

$ 525,801 $ ( 174,263 ) $ 351,538

Estimated future amortization expense for intangible assets remaining at July 1, 2022 is as follows:

Estimated future amortization expense for intangible assets remaining at June 30, 2023 is as follows:

Fiscal Year Totals

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Net carrying amount $ 298,051

The following table summarizes the preliminary estimated fair value of acquired intangible assets arising as a result of the Avalex acquisition.

These assets are included in the Company's gross and net carrying amounts as of July 1, 2022.

Amount Accumulated

Amortization Net

Amount Weighted Average

Customer relationships $ 41,880 $ ( 3,224 ) $ 38,656 9.0 years

Completed technologies 14,430 ( 1,374 ) 13,056 7.0 years

Backlog 5,050 ( 3,366 ) 1,684 1.0 year

$ 61,360 $ ( 7,964 ) $ 53,396

The following table summarizes the preliminary estimated fair value of acquired intangible assets arising as a result of the Atlanta Micro acquisition.

These assets are included in the Company's gross and net carrying amounts as of July 1, 2022.

Amount Accumulated

Amortization Net

Amount Weighted Average

Customer relationships $ 27,310 $ ( 797 ) $ 26,513 20.0 years

Completed technologies 7,260 ( 528 ) 6,732 8.0 years

Backlog 410 ( 120 ) 290 2.0 years

$ 34,980 $ ( 1,445 ) $ 33,535

Restructuring

During fiscal 2023, the Company incurred $ 6,981 of restructuring and other charges.

Restructuring and other charges primarily related to $ 3,415 of severance costs, 1MPACT related costs consisting of $ 1,804 for facility optimization efforts, including $ 1,339 related to lease asset impairment, and $ 1,762 of third party consulting costs.

The Company incurs restructuring and other charges in connection with management's decision to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and product lines.

The Company's adjustments reflected in restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post acquisition integration activities.

Consistent with the Company's definition of restructuring and other charges, 1MPACT is an organizational redesign program initiated on the heels of a series of acquisitions since 2014 rather than a single, discrete acquisition.

Since its inception, the Company has selectively engaged with leading consultants to accelerate solution design & implementation for the highest value workstreams.

These costs are associated with this discrete transformation initiative and are non-routine and may not be indicative of ongoing results.

Restructuring and other charges primarily related to 1MPACT including $ 17,424 of third-party consulting costs, as well as $ 9,234 of severance costs associated with the elimination of approximately 135 positions across manufacturing, SG&A and R&D based on ongoing talent and workforce optimization efforts.

The Company's adjustments reflected in restructuring and other charges are typically related to organizational redesign programs or discrete post-acquisition integration activities initiated as part of discrete post acquisition integration activities.

During fiscal 2022, restructuring and other charges primarily related to 1MPACT including $ 17,424 of third party consulting costs, as well as $ 9,234 of severance costs associated with the elimination of approximately 135 positions across manufacturing, SG&A and R&D based on ongoing talent and workforce optimization efforts.

Fiscal 2022 also includes $ 787 of costs for facility optimization efforts associated with 1MPACT, including $ 544 related to lease asset impairment.

During fiscal 2021, the Company incurred $ 9,222 of restructuring and other charges.

Restructuring and other charges primarily related to $ 4,752 related to severance costs associated with the elimination of approximately 90 positions throughout the period, predominantly in manufacturing, SG&A and R&D.

These charges are related to changing market and business conditions as well as talent shifts and resource redundancy from the Company's internal reorganization that was completed during fiscal 2021.

The remaining $ 4,470 of restructuring and other charges related to third-party consulting costs related to 1MPACT.

During fiscal 2020, the Company incurred $ 1,805 of restructuring and other charges primarily related to severance costs associated with the elimination of 20 positions, predominantly in SG&A and R&D functions.

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 restructuring liability is classified as Accrued expenses in the Consolidated Balance Sheets.

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.

The remaining restructuring liability is classified as accrued expenses in the Consolidated Balance Sheets.

The following table presents the detail of charges included in the Company’s liability for restructuring and other charges:

Severance Facilities & Other Total

Severance & Related Facilities & Other Total

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

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Cash paid ( 6,608 ) ( 444 ) ( 7,052 )

Restructuring liability at July 1, 2022 $ 4,722 $ — $ 4,722

Reversals (*) — ( 21 ) ( 21 )

Restructuring liability at June 30, 2023 $ 1,529 $ — $ 1,529

The Company enters into lease arrangements to facilitate its operations, including manufacturing, storage, as well as engineering, sales, marketing and administration resources.

The Company measures its lease obligations in accordance with ASC 842, which requires lessees to record a ROU asset and lease liability for most lease arrangements.

The Company adopted ASC 842 as of July 1, 2019 using the optional transition method and, as a result, there have been no reclassifications of prior comparable periods due to this adoption.

Finance leases are not material to the Company's consolidated financial statements and therefore are excluded from the following disclosures.

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Supplemental operating lease balance sheet information is summarized as follows:

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Operating lease right-of-use assets, net $ 63,015 $ 66,366

Accrued expenses(1) $ 10,434 $ 11,246

$ 11,246 $ 10,020

Operating lease liabilities 66,797 69,888

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For the Fiscal Year Ended For the Fiscal Year Ended

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Cash paid for amounts included in the measurement of operating lease liabilities

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M ATURITIES OF L EASE C OMMITMENTS

Maturities of operating lease commitments as of July 1, 2022 were as follows:

Fiscal Year Totals

2023 $ 14,757

Thereafter 34,315

Total lease payments 97,504

imputed interest ( 16,370 )

Present value of operating lease liabilities $ 81,134

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 2021, maturities of operating lease commitments were as follows:

Maturities of operating lease commitments as of June 30, 2023 were as follows:

Fiscal Year Totals

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Present value of operating lease liabilities $ 77,231

During fiscal 2022, 2021 and 2020 the Company recognized operating lease expe nse of $ 14,332 , $ 11,714 and $ 10,029 respectively.

There were no material restrictions, covenants, sale and leaseback transactions, variable lease paymen ts or residual value guarantees imposed by the Company's leases at July 1, 2022.

The components of income before income taxes and income tax provision (benefit) were as follows:

During fiscal 2023, 2022 and 2021 the Company recognized operating lease expense of $ 13,763 , $ 14,332 , and $ 11,714 , 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 June 30, 2023.

The components of income before income taxes and income tax (benefit) provision were as follows:

2023 2022 2021

Income (loss) before income taxes:

(Loss) income before income taxes:

United States $ ( 42,864 ) $ 24,286 $ 85,101

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$ ( 48,542 ) $ 18,395 $ 77,173

Tax provision (benefit):

Tax (benefit) provision:

Current $ 33,898 $ 3,857 $ 12,157

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$ ( 20,207 ) $ 7,120 $ 15,129

$ 7,120 $ 15,129 $ 8,221

The following is the reconciliation between the statutory Federal income tax rate and the Company’s effective income tax rate:

2023 2022 2021

Tax provision at federal statutory rates 21.0 % 21.0 % 21.0 %

Tax provision (benefit) at federal statutory rates ( 21.0 ) % 21.0 % 21.0 %

State income tax, net of federal tax benefit ( 5.4 ) 8.1 6.7

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Provision to return ( 0.7 ) 10.3 ( 1.3 )

Excess tax provision (benefit) related to stock compensation 5.3 ( 3.7 ) ( 7.7 )

Excess tax (benefit) provision related to stock compensation 2.6 5.3 ( 3.7 )

Foreign income tax rate differential 0.2 2.3 0.9

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Reserves for unrecognized income tax benefits ( 6.9 ) 5.4 1.3

Tax rate changes — — ( 0.5 )

Valuation allowance 3.8 4.3 1.9

Foreign derived intangible income ( 1.4 ) ( 1.6 ) ( 0.4 )

Meals and entertainment 0.6 0.8 0.1

Other 0.7 0.2 —

( 41.6 ) % 38.7 % 19.6 %

The effective tax rate for fiscal 2023 differed from the Federal statutory rate primarily due to Federal and state research and development tax credits, releases to reserves for unrecognized income tax benefits and state taxes, partially offset by valuation allowances recorded and excess tax provisions related to stock compensation.

The effective tax rate for fiscal 2022 differed from the Federal statutory rate primarily due to additional tax provisions for non-deductible compensation, provision to return adjustments, state taxes and excess tax provisions related to stock compensation, partially offset by benefits related to research and development tax credits.

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During fiscal 2023, 2022 and 2021 the Company recognized a tax provision (benefit) of $ 1,244 , $ 977 and $( 2,831 ) related to stock compensation, respectively.

In fiscal 2022, the Company recorded a provision to return adjustment of $ 2,308 related to an immaterial correction of an error over transfer pricing allocations.

The Company concluded that the impact of the correction was neither quantitatively nor qualitatively material to its Consolidated Balance Sheets or Statement of Operations and Comprehensive Income for fiscal 2022, nor to the impacted prior periods.

The components of the Company’s net deferred tax liabilities were as follows:

July 1, 2022 July 2, 2021

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022.

We expect the impact of this legislation to be immaterial.

Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 ("TCJA") requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes.

The cash outflow from this provision was $ 26,400 in fiscal 2023.

The components of the Company’s net deferred tax assets (liabilities) were as follows:

June 30, 2023 July 1, 2022

Deferred tax assets:

4 unchanged sentences

Other accruals 2,705 1,503

Research and development expenditures 63,114 —

Deferred compensation 930 930

Acquired net operating loss carryforward

Federal and state net operating loss carryforward

Foreign net operating loss carryforward 3,166 1,859

9 unchanged sentences

Intangible assets ( 54,550 ) ( 59,628 )

Operating lease right-of-use assets ( 17,985 ) ( 17,987 )

Operating lease right-of-use assets, net ( 17,077 ) ( 17,985 )

Gain on interest rate swap ( 2,400 ) —

Other ( 221 ) ( 126 )

Total deferred tax liabilities ( 91,756 ) ( 99,320 )

Net deferred tax liabilities $ ( 32,398 ) $ ( 28,810 )

Deferred tax liabilities $ ( 32,398 ) $ ( 28,810 )

$ ( 32,398 ) $ ( 28,810 )

At July 1, 2022, the Company evaluated the need for a valuation allowance on deferred tax assets.

Net deferred tax assets (liabilities) $ 27,099 $ ( 32,398 )

At June 30, 2023, 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.

2 unchanged sentences

The Company also continues to conclude that certain state research and development tax credits carryforwards are not more likely than not to be realized, and as such, continues to maintain a valuation allowance on these carryforwards.

The Company continues to conclude that all other deferred tax assets are more likely than not to be realized.

continues to conclude that all other deferred tax assets are more likely than not to be realized.

Any future changes in the valuation allowance will impact the Company's income tax provision.

Fiscal 2023 includes the impact of the TCJA, which requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes.

The Company has state research and development tax credit carryforwards of $ 11,697 , which will expire starting in fiscal year 2024 through fiscal year 2038 .

The Company has acquired Federal net operating loss carryforwards of $ 188 , which have an unlimited carryforward period.

The Company has acquired state net operating loss carryforwards of $61,379, which will expire in fiscal year 2040.

Company has foreign net operating loss carryforwards of $12,723, which will expire starting in fiscal year 2028 through fiscal year 2042.

The Company has acquired state net operating loss carryforwards of $ 11,170 , which will expire starting in fiscal year 2040.

The Company has foreign net operating loss carryforwards of $ 21,551 , which will expire starting in fiscal year 2028 through fiscal year 2043.

The Company maintains a valuation allowance on the majority of the foreign net operating loss carryforward.

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Increases for tax positions taken during the current period 1,260 990

Increases for tax positions taken by an acquired company 615 2,348

Decreases for tax positions taken by an acquired company ( 2,679 ) 615

Decreases for tax positions taken related to a prior period ( 191 ) —

Decreases for tax positions taken during current period — —

Decreases for settlements of previously recognized positions ( 93 ) ( 92 )

1 unchanged sentence

Unrecognized tax benefits, end of period $ 5,165 $ 9,112

The Company is currently under audit by the Internal Revenue Service for fiscal years 2016 through 2018.

It is reasonably possible that within the next 12 months the Company’s unrecognized tax benefits, exclusive of interest, may decrease by up to $ 2,061 at the conclusion of the audit.

The $ 9,112 of unrecognized tax benefits as of July 1, 2022, if released, would reduce income tax provision.

The $ 5,165 of unrecognized tax benefits as of June 30, 2023, if released, would reduce the Company's income tax provision.

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 $ 488 and $ 315 as of July 1, 2022 and July 2, 2021, respectively, and the amount of interest and penalties recognized in fiscal 2022, 2021 and 2020 was $ 172 , $ 139 and $ 91 , respectively.

The total amount of gross interest and penalties accrued was $ 583 and $ 488 as of June 30, 2023 and July 1, 2022, respectively, and the amount of interest and penalties recognized in fiscal 2023 and 2022 was $ 96 and $ 172 , respectively.

The Company’s major tax jurisdiction is the U.S.

5 unchanged sentences

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.

We are subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of our business.

Although legal proceedings are inherently unpredictable, we believe that we have valid defenses with respect to those matters currently pending against us and intend to defend ourself vigorously.

The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on our cash flows, results of operations, or financial position.

On June 23 2021, Embedded Reps of America, LLC (“ERA”), a former sales representative, and James Mazzola, a principal of ERA, filed for binding arbitration related to the termination of ERA’s sales representative agreement raising multiple claims that aggregate to approximately $ 9,000 in direct damages, with treble damages requested on a number of those claims.

1 unchanged sentence

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 in July 2021 and the arbitration proceeding has been scheduled for September 2022.

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

The Company responded to the complaint in July 2021.

An arbitration proceeding was held during September 2022 with final motions in October 2022, and oral arguments in November 2022.

The arbitrator issued its final ruling in January 2023, awarding ERA $72 in damages and fees.

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

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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 April 2022, the Company

engaged in a meet and confer session with NTS pursuant to Massachusetts General Laws Chapter 21E, Section 4A to discuss the status of the environmental review performed by NTS and its licensed site professional.

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

In April 2022, the Company engaged in a meet and confer session with NTS pursuant to Massachusetts General Laws Chapter 21E, Section 4A to discuss the status of the environmental review performed by NTS and its licensed site professional.

In addition 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.

The Company has not been contacted by NTS or MassDEP since the dates discussed above.

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

On June 19, 2023, the Board of Directors received notice of our former CEO's resignation from the positions of President and Chief Executive Officer.

The Board accepted the resignation effective June 24, 2023.

In the notice, the former CEO claimed entitlement to certain benefits, including equity vesting, severance, and other benefits, under the change in control severance agreement (the "CIC Agreement") because the former CEO had resigned with good reason during a potential change in control period.

The Company disputes these claims and maintain that the former CEO resigned without good reason.

The parties must submit any dispute under the CIC Agreement to binding arbitration.

The Company intends to contest vigorously any claims under the CIC Agreement and believe that the Company has strong arguments that our former CEO's claims lack merit.

If the arbitrator rules in the Company's favor, the Company may still need to pay the former CEO's reasonable legal fees.

If instead the arbitrator rules for the former CEO, the Company could be liable for up to approximately $ 12,900 , based on the closing price of our common stock on June 26, 2023, plus legal fees and expenses, for accelerated equity vesting, severance, and other benefits under the CIC Agreement.

The Company categorically denies any wrongdoing or liability under the CIC Agreement, but the outcome of potential arbitration is inherently uncertain.

Accordingly, it is reasonably possible that the Company will incur a liability in this matter and estimate the potential range of exposure from $ 0 to $ 12,900 , plus costs and attorneys' fees.

I NDEMNIFICATION O BLIGATIONS

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P URCHASE C OMMITMENTS

As of July 1, 2022, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

As of June 30, 2023, 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 $ 127,134 .

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.

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.

2 unchanged sentences

On February 28, 2022, the Company amended the Revolver to increase and extend the borrowing capacity to a $ 1,100,000 , 5 -year revolving credit line, with the maturity extended to February 28, 2027.

As of July 1, 2022, the Company's outstanding balance of unamortized deferred financing costs was $ 4,386 , which is being amortized to Other (expense) income, net in the Consolidated Statements of Operations and Comprehensive Income on a straight line basis over the term of the Revolver.

As of June 30, 2023, the Company's outstanding balance of unamortized deferred financing costs was $ 3,446 , which is being amortized to Other (expense) income, net in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

The Revolver has a 5 -year maturity and will mature on February 28, 2027.

5 unchanged sentences

Covenants and Events of Default

The Revolver provides for customary negative covenants, including, among other things and subject to certain significant exceptions, restrictions on the incurrence of debt or guarantees, the creation of liens, the making of certain investments, loans and acquisitions, mergers and dissolutions, the sale of assets including capital stock of subsidiaries, the payment of dividends, the repayment or amending of junior debt, altering the business conducted, engaging in transactions with affiliates and entering

into agreements limiting subsidiary dividends and distributions.

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.

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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 the Company’s 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.

As of July 1, 2022, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 451,500 against the Revolver as compared to $ 200,000 for the fiscal year ended July 2, 2021, resulting in interest expense of $ 5,806 and $ 1,222 for fiscal years ended July 1, 2022 and July 2, 2021, respectively.

There were outstanding letters of credit of $ 963 as of July 1, 2022.

As of June 30, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 511,500 against the Revolver as compared to $ 451,500 for the fiscal year ended July 1, 2022, resulting in interest expense of $ 25,159 and $ 5,806 for fiscal years ended June 30, 2023 and July 1, 2022, respectively.

The current borrowing capacity as defined under the Revolver as of June 30, 2023 is approximately $ 865,000 , of which we had outstanding borrowings against of $ 511,500 .

There were outstanding letters of credit of $ 963 as of June 30, 2023.

Employee Benefit Plans

7 unchanged sentences

These prior service costs are amortized from AOCI to net periodic benefit costs over approximately nine years .

At July 1, 2022, the accumulated benefit obligation of the Plan equals the fair value of the Plan's assets.

The Plan's funded status at July 1, 2022 and July 2, 2021 was a net liability of $ 4,660 and $ 9,807 , respectively, which is recorded in Other non-current liabilities on the Consolidated Balance Sheets.

The Company recorded a net gain of $ 4,739 and $ 3,285 in AOCI during the fiscal years ended July 1, 2022 and July 2, 2021, respectively.

Total employer contributions to the Plan were $ 1,056 during the year ended July 1, 2022, and the Company's total expected employer contributions to the Plan during fiscal 2023 are $ 1,093 .

At June 30, 2023, the accumulated benefit obligation of the Plan equals the fair value of the Plan's assets.

The Plan's funded status at June 30, 2023 and July 1, 2022 was a net liability of $ 4,151 and $ 4,660 , respectively, which is recorded in other non-current liabilities on the Consolidated Balance Sheets.

The Company recorded a net gain of $ 142 and $ 4,739 in AOCI during the fiscal years ended June 30, 2023 and July 1, 2022, respectively.

Total employer contributions to the Plan were $ 1,158 during the year ended June 30, 2023, and the Company's total expected employer contributions to the Plan during fiscal 2024 are $ 1,122 .

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.

2 unchanged sentences

Total $ 15,631

The following table outlines the components of net periodic benefit cost of the Plan for the fiscal years ended July 1, 2022 and July 2, 2021:

The following table outlines the components of net periodic benefit cost of the Plan for the fiscal years ended June 30, 2023 and July 1, 2022:

Fiscal Years Ended

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Service cost $ 1,068 $ 1,405

5 unchanged sentences

Net periodic benefit cost $ 440 $ 1,031

The following table reflects the related actuarial assumptions used to determine net periodic benefit cost of the Plan for the fiscal years ended July 1, 2022 and July 2, 2021:

The following table reflects the related actuarial assumptions used to determine net periodic benefit cost of the Plan for the fiscal years ended June 30, 2023 and July 1, 2022:

Fiscal Years Ended

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Discount rate 1.95 % 1.70 %

6 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Projected benefit obligation, beginning $ 25,509 $ 28,614

2 unchanged sentences

Employee contributions 1,439 2,606

Actuarial (gain) loss ( 4,720 ) ( 1,345 )

Actuarial gain ( 516 ) ( 4,720 )

Benefits paid ( 246 ) ( 1,444 )

Plan amendment — ( 1,247 )

Settlements ( 4,770 ) —

Foreign exchange (loss) gain ( 1,035 ) 691

Foreign exchange gain (loss) 1,763 ( 1,035 )

Projected benefit obligation at end of year $ 24,710 $ 25,509

1 unchanged sentence

Fiscal Years Ended

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Fair value of Plan assets, beginning $ 20,849 $ 18,807

4 unchanged sentences

Settlements ( 4,770 ) —

Foreign exchange (loss) gain ( 690 ) 415

Foreign exchange gain (loss) 1,429 ( 690 )

Fair value of Plan assets at end of year $ 20,559 $ 20,849

The following table presents the Company's reconciliation of funded status for the period presented:

July 1, 2022 July 2, 2021

June 30, 2023 July 1, 2022

Projected benefit obligation at end of year $ 24,710 $ 25,509

1 unchanged sentence

Funded status $ ( 4,151 ) $ ( 4,660 )

The fair value of Plan assets were $ 20,849 at July 1, 2022.

The fair value of Plan assets were $ 20,559 at June 30, 2023.

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 1, 2022 or July 2, 2021.

The Plan was not subject to material fluctuations during the years ended June 30, 2023 or July 1, 2022.

The Plan’s assets are administered by an independent pension fund foundation (the “foundation”).

As of July 1, 2022, the foundation has invested the assets of the Plan in various investments vehicles, including cash, real estate, equity securities and bonds.

As of June 30, 2023, 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.

The Company maintains a qualified 401(k) plan (the “401(k) Plan”) for its U.S.

During fiscal years 2022, 2021 and 2020, the Company matched employee contributions up to 3 % of eligible compensation.

Effective in the first quarter of fiscal 2023, the Company increased the rate of its matching contributions from 3 % to 6 % of participants' eligible annual compensation and changed the form of these contributions from cash to Company stock.

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 $ 7,603 , $ 7,876 and $ 5,954 during the fiscal years ended July 1, 2022, July 2, 2021 and July 3, 2020, respectively.

The Company had $ 2,705 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at June 30, 2023.

Stock-based 401(k) matching compensation cost is measured based on the value of the matching amount and is recognized as expense as incurred.

Expense recognized by the Company for matching contributions related to the 401(k) plan was $ 15,665 , $ 7,603 , and $ 7,876 during the fiscal years ended June 30, 2023, July 1, 2022, and July 2, 2021, respectively.

Shareholders’ Equity

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The Company has an unlimited amount available under the shelf registration statement.

The Company intends to file a renewal of the S-3ASR in September 2023 upon the expiration of the three-year term of the current shelf registration statement.

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.

Each Right entitled 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 initially trade with, and are inseparable from, the shares of common stock.

On June 24, 2022, the Company amended the Rights Agreement, dated as of December 27, 2021, to increase the ownership threshold for a person to be an “Acquiring Person” (as defined in the Rights Agreement) from 7.5 % of common stock to 10 % of common stock ( 10 % of common stock to 20 % of common stock in the case of a passive institutional investor).

Following this amendment, the Rights Agreement will now expire no later than the 2022 Annual Meeting, 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 and June 24, 2022.

Additional details about the Rights Agreement are contained in the Current Reports on Form 8-K filed by the Company with the SEC on December 29, 2021 and June 24, 2022.

On October 26, 2022 the Stockholder Rights Plan and the Rights thereunder expired.

Stock-Based Compensation

2 unchanged sentences

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 6,782 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”) and 3,000 shares approved by the Company's shareholders on October 28, 2020.

The 2018 Plan

replaced 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 aggregate number of shares authorized for issuance under the 2018 Plan is 6,782 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”) and increases of 3,000 and 2,000 shares approved by the Company's shareholders on October 28, 2020 and October 26, 2022, respectively.

The 2018 Plan replaced the 2005 Plan.

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.

There were 192 shares available for future grant under the 2018 Plan at July 1, 2022.

There were 3,512 shares available for future grant under the 2018 Plan at June 30, 2023.

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.

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The performance targets generally include the achievement of internal performance targets in relation to a peer group of companies.

On February 7, 2022, the Company’s Board of Directors approved an equity retention plan at the recommendation of the Company’s Human Capital and Compensation Committee, after consultation with its independent compensation consultant.

Employees participating in the equity retention plan were granted their annual equity awards for fiscal 2023 on February 15, 2022, which is approximately six months earlier than the Company’s typical annual cycle for such grants.

The plan is intended to encourage leaders to remain focused on the mission and drive long-term performance, to retain the recipients in the current challenging industry environment and labor market, and to reinforce the alignment of the recipients’ interests with the Company’s shareholders.

On February 15, 2022, the Human Capital and Compensation Committee expanded the scope of the equity retention plan by approving a pool of restricted stock unit awards for non-executive employees.

These awards were intended to recognize the recipients’ substantial contributions, to retain and motivate the recipients in the current challenging industry environment and labor market and to reinforce the alignment of the recipients’ interests with the Company’s shareholders.

The vesting of such awards was conditioned on shareholder approval of sufficient additional shares for the 2018 Plan for the Company to deliver the shares to satisfy the awards, and with awards expiring on the seventh anniversary of the grant date if shareholder approval is not obtained prior to such date.

E MPLOYEE S TOCK P URCHASE P LAN

3 unchanged sentences

The number of shares issued under the ESPP during fiscal years 2023, 2022 and 2021 was 145 , 115 and 101 , respectively.

Shares available for future purchase under the ESPP totaled 313 at July 1, 2022.

Shares available for future purchase under the ESPP totaled 168 at June 30, 2023.

S TOCK A WARD A CTIVITY

The following table summarizes the status of the Company’s non-vested restricted stock awards since July 3, 2020:

Non-Vested Restricted Stock Awards

8 unchanged sentences

Forfeited ( 526 ) 55.66

Outstanding at July 1, 2022 2,305 $ 57.47

Outstanding at June 30, 2023 1,339 $ 54.45

The total fair value of restricted stock awards vested during fiscal years 2023, 2022 and 2021 was $ 25,587 , $ 25,533 and $ 34,342 , respectively.

Non-vested restricted stock awards are subject to the risk of forfeiture until the fulfillment of specified conditions.

As of July 1, 2022, there was $ 89,183 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 2.6 years from July 1, 2022.

As of July 2, 2021, there was $ 48,629 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 2, 2021.

As of June 30, 2023, there was $ 50,292 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 1.8 years from June 30, 2023.

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 $ 1,229 and $ 796 of capitalized stock-based compensation expense on the Consolidated Balance Sheets as of July 1, 2022 and July 2, 2021, respectively.

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.

The Company had $ 1,215 and $ 1,229 of capitalized stock-based compensation expense on the Consolidated Balance Sheets as of June 30, 2023 and July 1, 2022, 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:

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

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Cost of revenues $ 2,926 $ 2,161 $ 2,037

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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.

During the first quarter of fiscal 2022, the Company announced its 1MPACT value creation initiative to promote scale as the organization continues to grow.

The Company evaluated this internal reorganization under FASB ASC 280, Segment Reporting ("ASC 280") to determine whether this change has impacted the Company's single operating and reportable segment.

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Europe Asia Pacific Eliminations Total

YEAR ENDED JULY 1, 2022

YEAR ENDED JUNE 30, 2023

Net revenues to unaffiliated customers $ 927,003 $ 46,857 $ 22 $ — $ 973,882

13 unchanged sentences

(1) Identifiable long-lived assets exclude ROU assets, goodwill and intangible assets.

The following tables present revenue consistent with the Company's strategy of expanding its technological capabilities and program content both organically and through acquisitions.

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's proportion of revenue derived from the sale of components in different technological areas, and modules, sub-assemblies and integrated subsystems which combine technologies into more complex diverse products has shifted.

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, product grouping and/or platform is attained, the categorization of these products can vary over time.

3 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Domestic (1) $ 865,216 $ 861,125 $ 795,988

8 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Radar (1) $ 229,467 $ 251,126 $ 289,172

12 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Components (1) $ 197,180 $ 167,333 $ 176,234

14 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

June 30, 2023 July 1, 2022 July 2, 2021

Airborne (1) $ 506,264 $ 506,549 $ 416,877

9 unchanged sentences

Fiscal Years Ended

July 1, 2022 July 2, 2021 July 3, 2020

Raytheon Technologies 14 % 19 % 16 %

Navy 14 % 12 % — %

June 30, 2023 July 1, 2022 July 2, 2021

RTX Corporation 14 % 14 % 19 %

Lockheed Martin Corporation 13 % 10 % 15 %

Northrop Grumman 11 % * *

Navy * 14 % 12 %

38 % 38 % 46 %

* 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 years ended July 1, 2022, July 2, 2021 and July 3, 2020.

There were no programs comprising 10% or more of the Company's revenues for the years ended June 30, 2023, July 1, 2022 and July 2, 2021.

The Company utilizes interest rate derivatives to mitigate interest rate exposure with respect to its financing arrangements.

On September 7, 2022, the Company entered into an interest rate Swap (the “initial Swap”) with JP Morgan Chase Bank, N.A.

(“JPMorgan”) for a notional amount of $ 300,000 in order to fix the interest rate associated with a portion of the total $ 511,500 existing borrowings on the Revolver.

The initial Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge.

The initial Swap matured on February 28, 2027, coterminous with the maturity of the Revolver.

The initial Swap established a fixed interest rate on the first $ 300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.25 %.

On September 29, 2022, the Company terminated the initial Swap.

At the time of termination, the fair value of the initial Swap was an asset of $ 5,995 .

The Company received the cash settlement of $ 5,995 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows.

The Company is amortizing the gain over the term of the Revolver and during the twelve months ended June 30, 2023, the Company amortized $ 1,017 of the gain, which is included within Accumulated other comprehensive (loss) income.

Following the termination of the initial Swap, the Company entered a new Swap agreement (“the Swap”) on September 29, 2022 with JPMorgan.

The Swap fixes $ 300,000 of the total $ 511,500 existing borrowings of outstanding borrowings under the Revolver at a rate of 3.79 %.

The Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.

As of June 30, 2023, the fair value of the hedge was an asset of $ 3,523 and is included within Other non-current assets in the Company's Consolidated Balance Sheets.

The market risk associated with the Company’s derivative instrument is the result of interest rate movements that are expected to offset the market risk of the underlying arrangement.

The counterparty to the Swap is JPMorgan.

Based on the credit ratings of the Company’s counterparty as of June 30, 2023, nonperformance is not perceived to be a material risk.

Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency.

While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk.

The amounts potentially subject to credit risk (arising from the possible inability of the counterparty to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparty obligations under the contracts exceed the obligations of the Company to the counterparty.

As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.

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 and noted no items requiring adjustment of the financial statements or additional disclosures.

The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued.

The Company has initiated several immediate cost savings measures that simplify the Company’s organizational structure, facilitate clearer accountability, and align to the Company’s priorities, including:

(i) embedding the 1MPACT value creation initiatives and execution into the Company’s operations;

(ii) streamlining organizational structure and removing areas of redundancy between corporate and divisional organizations;

and (iii) reduce selling, general, and administrative headcount and rebalancing discretionary and third party spending to better align with the Company’s priority areas.

On July 20, 2023, the Company executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, the Company approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminates approximately 150 positions, resulting in expected restructuring charges of approximately $ 9,000 .

These charges are for employee separation costs and will be classified as restructuring and other charges within the Company’s Statement of Operations and Other Comprehensive Income for the fiscal quarter ending September 29, 2023.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data