NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share data)
(Unaudited)
|
|
A.
|
Description of Business
|
Mercury Systems, Inc. (the “Company” or “Mercury”) is a leading commercial provider of secure sensor and safety-critical processing subsystems. Optimized for customer and mission success, its solutions power a wide variety of critical defense and intelligence programs. Headquartered in Andover, Massachusetts, it is pioneering a next-generation defense electronics business model specifically designed to meet the industry's current and emerging technology and business needs. The Company delivers affordable innovative solutions, rapid time-to-value and service and support primarily to defense prime contractor customers. The Company's products and solutions have been deployed in more than
300
programs with over
25
different defense prime contractors. Key programs include Aegis, Patriot, Surface Electronic Warfare Improvement Program (“SEWIP”), Gorgon Stare, Predator, F-35, Reaper, F-16 SABR, E2D Hawkeye, Paveway, Filthy Buzzard, PGK, ProVision, P1, AIDEWS, CDS, and Win-T. The Company's organizational structure allows it to deliver capabilities that combine technology building blocks and deep domain expertise in the aerospace and defense sector.
|
|
B.
|
Summary of Significant Accounting Policies
|
B
ASIS
OF
P
RESENTATION
The accompanying consolidated financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America for interim financial information and with the instructions to the Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted pursuant to those rules and regulations; however, in the opinion of management the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature, necessary for fair presentation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended June 30, 2018 which are contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on August 16, 2018. The results for the three and six months ended
December 31, 2018
are not necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
U
SE
OF
E
STIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
B
USINESS
C
OMBINATIONS
The Company utilizes the acquisition method of accounting under ASC 805,
Business Combinations
, (“ASC 805”), for all transactions and events which it obtains control over one or more other businesses, to recognize the fair value of all assets and liabilities acquired, even if less than one hundred percent ownership is acquired, and in establishing the acquisition date fair value as the measurement date for all assets and liabilities assumed. The Company also utilizes ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations.
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. The accounts of foreign subsidiaries are translated using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for results of operations. The related translation adjustments are reported in accumulated other comprehensive income in shareholders’ equity. Gains (losses) resulting from non-U.S. currency transactions are included in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income and were immaterial for all periods presented.
R
EVENUE
R
ECOGNITION
The Company recognizes revenue in accordance with ASC 606,
Revenue from Contracts with Customers
, (“ASC 606”), which was adopted on July 1, 2018, using the retrospective method. Revenue is recognized in accordance with the five step model set forth by 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. The adoption of ASC 606 did not have a material impact to the amount or timing of revenue recognition related to the Company's legacy accounting methods for contracts including ship and bill, multiple-deliverable, and contract accounting. Such adoption did not have a material impact, individually or in the aggregate, to any amounts in the Company's Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Shareholders’ Equity or Consolidated Statements of Cash Flows. Refer to Note L for disaggregation of revenue for the period.
During step one of the five step model, the Company considers whether contracts should be combined or segmented, and based on this assessment, the Company combines closely related contracts when all the applicable criteria are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single contract, which should be combined to reflect an overall profit rate. Similarly, the Company may separate an arrangement, which may consist of a single contract or group of contracts, with varying rates of profitability, only if the applicable criteria are met. Judgment also is involved in determining whether a single contract or group of contracts may be segmented based on how the arrangement and the related performance criteria were negotiated. The decision to combine a group of contracts or segment a contract could change the amount of revenue and gross profit recorded in a given period.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. Certain contracts with customers require the Company to perform tests of its products prior to shipment to ensure their performance complies with the Company’s published product specifications and, on occasion, with additional customer-requested specifications. In these cases, the Company conducts such tests and, if they are completed successfully, includes a written confirmation with each order shipped. As a result, at the time of each product shipment, the Company believes that no further customer testing requirements exist and that there is no uncertainty of acceptance by its customer. The Company's contracts with customers generally do not include a right of return relative to delivered products. In certain cases, contracts are modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are accounted for as part of the existing contract.
The Company is a leading provider of secure sensor and safety-critical processing subsystems. Revenues are derived from the sales of products that are grouped into one of the following three categories: (i) components; (ii) modules and sub-assemblies; and (iii) integrated subsystems. The Company also generates revenues from the performance of services, including analyst services and systems engineering support, consulting, maintenance and other support, testing and installation. Each promised good or service within a contract is accounted for separately under the guidance of ASC 606 if they are distinct, i.e., if a good or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single performance obligation with other goods or services that together meet the criteria for being distinct. The appropriate allocation of the transaction price and recognition of revenue is then determined for the bundled performance obligation.
Once the Company identifies the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. Variable consideration typically arises due to volume discounts, or other provisions that can either decrease or increase the transaction price. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the method the Company expects to better predict the amount of consideration to which it will be entitled. The determination of the estimates for variable consideration require judgment, and are based on past history with similar contracts and anticipated performance. Further, variable consideration is only included in the determination of the transaction price if it is probable that a significant reversal in the amount of revenue recognized will not occur. There are no constraints on the variable consideration recorded.
For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the standalone selling price of each distinct good or service in the contract. Standalone selling prices of the Company’s goods and services are generally not directly observable. Accordingly, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts the expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service. The objective of the expected cost plus a margin approach is to determine the price at which the Company would transact if the product or service were sold by the Company on a standalone basis. The Company's determination of the expected cost plus a margin approach involves the consideration of several factors
based on the specific facts and circumstances of each contract. Specifically, the Company considers the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, the Company’s ongoing pricing strategy and policies, often based on the price list established and updated by management on a regular basis, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold.
The Company analyzes the standalone selling prices used in its allocation of transaction price on contracts at least annually. Standalone selling prices will be analyzed on a more frequent basis if a significant change in the Company’s business necessitates a more frequent analysis or if the Company experiences significant variances in its selling prices.
Revenue recognized at a point in time generally relates to contracts that include a combination of components, modules and sub-assemblies, integrated subsystems and related system integration or other services. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled
76%
and
78%
of revenues for the three and six months ended December 31, 2018, respectively. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled
76%
and
79%
of revenues for the three and six months ended December 31, 2017, respectively. Revenue is recognized at a point in time for these products and services (versus over time recognition) due to the following: (i) customers are only able to consume the benefits provided by the Company upon completion of the product or service; (ii) customers do not control the product or service prior to completion; and (iii) the Company does not have an enforceable right to payment at all times for performance completed to date. Accordingly, there is little judgment in determining when control of the good or service transfers to the customer, and revenue is generally recognized upon shipment (for goods) or completion (for services).
The Company engages in long-term contracts for development, production and services activities and recognizes revenue for performance obligations over time. These long-term contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated subsystems and related services. Revenue is recognized over time, due to the fact that: (i) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; and (ii) the Company’s performance creates an asset with no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. These contracts include both fixed-price and cost reimbursable contracts. The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material ("T&M") contracts.
For long-term contracts, the Company typically leverages the input method, using a cost-to-cost measure of progress. The Company believes that this method represents the most faithful depiction of the Company’s performance because it directly measures value transferred to the customer. Contract estimates and estimates of any variable consideration are based on various assumptions to project the outcome of future events that may span several years. These assumptions include: labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer. The Company bears the risk of changes in estimates to complete on a fixed-price contract which may cause profit levels to vary from period to period. For cost reimburseable contracts, the Company is reimbursed periodically for allowable costs and is paid a portion of the fee based on contract progress. In the limited instances where the Company enters into T&M contracts, revenue recognized reflects the number of direct labor hours expended in the performance of a contract multiplied by the contract billing rate, as well as reimbursement of other direct billable costs. For T&M contracts, the Company elected to use a practical expedient permitted by ASC 606 whereby revenue is recognized in the amount for which the Company has a right to invoice the customer based on the control transferred to the customer. For all types of contracts, the Company recognizes anticipated contract losses as soon as they become known and estimable.
Accounting for long-term contracts requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices as well as availability for subcontractor services and materials. The Company’s estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.
Total revenue recognized under long-term contracts over time was
24%
and
22%
of total revenues for the three and six months ended December 31, 2018, respectively. Total revenue recognized under long-term contracts over time was
24%
and
21%
of total revenues for the three and six months ended December 31, 2017, 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 12-36 months. The Company accrues for anticipated warranty costs upon product shipment. The Company does not consider activities related to such assurance warranties, if any, to be a separate performance obligation. The Company does offer separately priced extended warranties which
generally range from 12 to 36 months that are treated as separate performance obligations. The transaction price allocated to extended warranties is recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract.
On long-term contracts, the portion of the payments retained by the customer is not considered a significant financing component because most contracts have a duration of less than one year and payment is received as progress is made. 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).
A
CCOUNTS
R
ECEIVABLE
Accounts receivable, net, represents amounts that have been billed and are currently due from customers. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. 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 as necessary. The allowance is based upon an assessment of the customers' credit worthiness, history with the customer, and the age of the receivable balance. The Company typically invoices a customer upon shipment of the product (or completion of a service) for contracts where revenue is recognized at a point in time. For contracts where revenue is recognized over time, the invoicing events are typically based on specified performance obligation deliverables or milestone events, or quantifiable measures of performance.
C
OSTS
TO
O
BTAIN AND
F
ULFILL
A
C
ONTRACT
The Company has elected to use a practical expedient available under ASC 606 whereby sales commissions are expensed as incurred for contracts where the amortization period would have been one year or less. The Company has not deferred sales commissions for contracts where the amortization period is greater than one year because such amounts that would qualify for deferral are not significant.
The Company has elected to treat shipping and handling activities performed after the customer has obtained control of the related goods as a fulfillment cost. Such costs are accrued for in conjunction with the recording of revenue for the goods and are classified as cost of revenues.
C
ONTRACT
B
ALANCES
Contract balances result from the timing of revenue recognized, billings and cash collections, and the generation of contract assets and liabilities. Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Contract assets are presented as unbilled receivables and costs in excess of billings on the Company’s Consolidated Balance Sheets. Contract liabilities consist of deferred product revenue, billings in excess of revenues, deferred service revenue, and customer advances. Deferred product revenue represents amounts that have been invoiced to customers, but are not yet recognizable as revenue because the Company has not satisfied its performance obligations under the contract. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Deferred service revenue primarily represents amounts invoiced to customers for annual maintenance contracts or extended warranty contracts, which are recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract. Customer advances represent deposits received from customers on an order. Contract liabilities are included in deferred revenue and the long-term portion of deferred revenue is included within other non-current liabilities on the Company’s Consolidated Balance Sheets. Contract balances are reported in a net position on a contract-by-contract basis.
The contract asset balances were
$45,194
and
$39,774
as of December 31, 2018 and June 30, 2018, respectively. These balances remained consistent period over period. The contract liability balances were
$23,304
and
$13,425
as of December 31, 2018 and June 30, 2018, respectively. The increase was driven primarily by a significant milestone billing on a classified missile program.
Revenue recognized for the three and six month period ended December 31, 2018 that was included in the contract liability balance at the beginning of the year was
$1,617
and
$8,983
, respectively.
R
EMAINING
P
ERFORMANCE
O
BLIGATIONS
The Company has elected to use a practical expedient available under ASC 606 whereby contracts with original expected durations of one year or less are excluded from the remaining performance obligations, while these contracts are included within backlog. The Company includes in its computation of remaining performance obligations customer orders for which it has accepted signed sales orders. The definition of remaining performance obligations excludes those contracts that provide the customer with the right to cancel or terminate the order with no substantial penalty, even if the Company’s historical experience indicates the likelihood of cancellation or termination is remote. As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was
$160,189
. The Company expects to recognize approximately
69%
of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.
W
EIGHTED
-A
VERAGE
S
HARES
Weighted-average shares were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic weighted-average shares outstanding
|
47,189
|
|
|
46,752
|
|
|
47,118
|
|
|
46,701
|
|
Effect of dilutive equity instruments
|
516
|
|
|
695
|
|
|
578
|
|
|
837
|
|
Diluted weighted-average shares outstanding
|
47,705
|
|
|
47,447
|
|
|
47,696
|
|
|
47,538
|
|
Equity instruments to purchase
31
and
481
shares of common stock were not included in the calculation of diluted net earnings per share for the three and six months ended
December 31, 2018
, respectively, because the equity instruments were anti-dilutive. Equity instruments to purchase
23
and
162
shares of common stock were not included in the calculation of diluted net earnings per share for the three and six months ended December 31, 2017, respectively, because the equity instruments were anti-dilutive.
C.
Acquisitions
G
ERMANE
S
YSTEMS
A
QUISITION
On July 31, 2018, the Company announced that it had entered into a membership interest purchase agreement (the "Purchase Agreement") and acquired Germane Systems, LC (“Germane”) pursuant to the terms of the Purchase Agreement.
Based in Chantilly, Virginia, Germane is an industry leader in the design, development and manufacturing of rugged servers, computers and storage systems for command, control and information (“C2I”) applications. The Company acquired Germane for an all cash purchase price of
$45,000
, subject to net working capital and net debt adjustments. The Company funded the acquisition with borrowings obtained under its existing revolving credit facility. On December 12, 2018 the Company and former owners of Germane agreed to post-closing adjustments totaling
$1,244
, which decreased the Company's net purchase price.
The following table presents the net purchase price and the fair values of the assets and liabilities of Germane on a preliminary basis:
|
|
|
|
|
|
Amounts
|
Consideration transferred
|
|
|
Cash paid at closing
|
$
|
46,973
|
|
Working capital and net debt adjustment
|
(1,244
|
)
|
Less cash acquired
|
(193
|
)
|
Net purchase price
|
$
|
45,536
|
|
|
|
|
Estimated fair value of tangible assets acquired and liabilities assumed
|
|
|
Cash
|
$
|
193
|
|
Accounts receivable
|
4,277
|
|
Inventory
|
8,575
|
|
Fixed assets
|
867
|
|
Other current and non-current assets
|
596
|
|
Accounts payable
|
(3,146
|
)
|
Accrued expenses
|
(1,229
|
)
|
Other current and non-current liabilities
|
(232
|
)
|
Estimated fair value of net tangible assets acquired
|
9,901
|
|
Estimated fair value of identifiable intangible assets
|
12,910
|
|
Estimated goodwill
|
22,918
|
|
Estimated fair value of net assets acquired
|
45,729
|
|
Less cash acquired
|
(193
|
)
|
Net purchase price
|
$
|
45,536
|
|
The amounts above represent the preliminary fair value estimates as of
December 31, 2018
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 estimates include customer relationships of
$8,500
with a useful life of
11
years, developed technology of
$4,200
with a useful life of
eight
years and backlog of
$210
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 goodwill of
$22,918
largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The goodwill from this acquisition is reported under the Mercury Defense Systems (“MDS”) reporting unit. Since Germane was a limited liability company, the acquisition is treated as an asset purchase for tax purposes. The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over
15
years for tax purposes. As of
December 31, 2018
, the Company had
$22,525
of goodwill deductible for tax purposes. The Company has not furnished pro forma information relating to Germane because such information is not material to the Company's financial results.
The revenues and income before income taxes from Germane included in the Company's consolidated results for the three months ended
December 31, 2018
were
$13,055
and
$1,306
, respectively. The revenues and income before income taxes from Germane included in the Company's consolidated results for the six months ended
December 31, 2018
were
$22,049
and
$906
, respectively. The Germane results include expenses resulting from purchase accounting which include amortization of intangibles and inventory step-up.
T
HEMIS
C
OMPUTER
A
QUISITION
On December 21, 2017, the Company and Thunderbird Merger Sub, Inc., a newly formed, wholly-owned subsidiary of the Company (the “Merger Sub”), entered into a Merger Agreement (the “Merger Agreement”) with Ceres Systems (“Ceres”), the holding company that owned Themis Computer (“Themis”, and together with Ceres, collectively the “Acquired Company”). On February 1, 2018, the Company closed the transaction and the Merger Sub merged with and into Ceres with Ceres continuing as the surviving company and a wholly-owned subsidiary of Mercury (the “Merger”). By operation of the Merger, the Company acquired both Ceres and its wholly-owned subsidiary, Themis.
Based in Fremont, California, Themis is a leading designer, manufacturer and integrator of commercial, SWaP-optimized rugged servers, computers and storage systems for U.S. and international markets. Under the terms of the Merger Agreement, the merger consideration (including payments with respect to outstanding stock options) consisted of an all cash purchase price of approximately
$180,000
. The merger consideration is subject to post-closing adjustments based on a determination of closing net working capital, transaction expenses and net debt (all as defined in the Merger Agreement). The Company funded the acquisition with borrowings obtained under its existing revolving credit facility. On July 13, 2018, the Company and former owners of Ceres agreed to post-closing adjustments totaling
$700
, which decreased the Company's net purchase price.
The following table presents the net purchase price and the fair values of the assets and liabilities of the Acquired Company on a preliminary basis:
|
|
|
|
|
|
Amounts
|
Consideration transferred
|
|
Cash paid at closing
|
$
|
187,089
|
|
Working capital and net debt adjustment
|
(1,274
|
)
|
Less cash acquired
|
(6,810
|
)
|
Net purchase price
|
$
|
179,005
|
|
|
|
Estimated fair value of tangible assets acquired and liabilities assumed
|
|
Cash
|
$
|
6,810
|
|
Accounts receivable
|
7,713
|
|
Inventory
|
7,333
|
|
Fixed assets
|
479
|
|
Other current and non-current assets
|
2,896
|
|
Accounts payable
|
(3,287
|
)
|
Accrued expenses
|
(4,672
|
)
|
Other current and non-current liabilities
|
(1,210
|
)
|
Deferred tax liability
|
(14,115
|
)
|
Estimated fair value of net tangible assets acquired
|
1,947
|
|
Estimated fair value of identifiable intangible assets
|
71,720
|
|
Estimated goodwill
|
112,148
|
|
Estimated fair value of net assets acquired
|
185,815
|
|
Less cash acquired
|
(6,810
|
)
|
Net purchase price
|
$
|
179,005
|
|
The amounts above represent the preliminary fair value estimates as of
December 31, 2018
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 estimates include customer relationships of
$52,600
with a useful life of
12.5
years, developed technology of
$17,150
with a useful life of
9.5
years and backlog of
$1,970
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 goodwill of
$112,148
largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The goodwill from this acquisition is reported under the MDS reporting unit and is not tax deductible.
D.
Fair Value of Financial Instruments
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
31,153
|
|
|
$
|
—
|
|
|
$
|
31,153
|
|
|
$
|
—
|
|
Total
|
|
$
|
31,153
|
|
|
$
|
—
|
|
|
$
|
31,153
|
|
|
$
|
—
|
|
The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The fair value of the Company’s certificates of deposit are determined through quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable.
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value, and consists of materials, labor and overhead. On a quarterly basis, the Company uses consistent methodologies to evaluate inventory for net realizable value. Once an item is written down, the value becomes the new inventory cost basis. The Company reduces the value of inventory for excess and obsolete inventory, consisting of on-hand inventory in excess of estimated usage. The excess and obsolete inventory evaluation is based upon assumptions about future demand, historical usage, product mix and possible alternative uses. Inventory was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
June 30, 2018
|
Raw materials
|
|
$
|
79,771
|
|
|
$
|
61,748
|
|
Work in process
|
|
34,240
|
|
|
30,841
|
|
Finished goods
|
|
12,391
|
|
|
15,996
|
|
Total
|
|
$
|
126,402
|
|
|
$
|
108,585
|
|
There are
no
amounts in inventory relating to contracts having production cycles longer than
one
year.
The following table sets forth the changes in the carrying amount of goodwill by reporting unit for the six months ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMP
|
|
AMS
|
|
MDS
|
|
Total
|
Balance at June 30, 2018
|
|
$
|
119,560
|
|
|
$
|
218,147
|
|
|
$
|
159,735
|
|
|
$
|
497,442
|
|
Goodwill adjustment for the Themis acquisition
|
|
—
|
|
|
—
|
|
|
(700
|
)
|
|
(700
|
)
|
Goodwill arising from the Germane acquisition
|
|
—
|
|
|
—
|
|
|
22,918
|
|
|
22,918
|
|
Balance at December 31, 2018
|
|
$
|
119,560
|
|
|
$
|
218,147
|
|
|
$
|
181,953
|
|
|
$
|
519,660
|
|
In the six months ended
December 31, 2018
, there were no triggering events, as defined by ASC 350,
Intangibles - Goodwill and Other
, which required an interim goodwill impairment test. The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.
The following table presents the detail of activity for the Company’s restructuring plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance &
Related
|
|
Facilities
& Other
|
|
Total
|
Restructuring liability at June 30, 2018
|
|
$
|
1,801
|
|
|
$
|
—
|
|
|
$
|
1,801
|
|
Restructuring and other charges
|
|
525
|
|
|
18
|
|
|
543
|
|
Cash paid
|
|
(2,068
|
)
|
|
(2
|
)
|
|
(2,070
|
)
|
Reversals(*)
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
Restructuring liability at December 31, 2018
|
|
$
|
258
|
|
|
$
|
—
|
|
|
$
|
258
|
|
(*) Reversals result from the unused outplacement services and operating costs.
During the six months ended
December 31, 2018
, the Company incurred net restructuring and other charges of
$527
. The increase was primarily driven by severance costs associated with the recently acquired Germane business. Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities.
All of the restructuring and other charges are classified as operating expenses in the Consolidated Statements of Operations 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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act has impacted the U.S. statutory Federal tax rate that the Company will use going forward, which has been reduced to
21%
from
35%
. The Tax Act also introduced a modified territorial tax system and a minimum tax on certain foreign earnings for tax years beginning after December 31, 2017.
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740,
Income Taxes,
(“ASC 740”). The Company has completed its analysis within fiscal 2019 consistent with the guidance provided in SAB 118, and any adjustments during this measurement period have been included in the Consolidated Statements of Operations and Comprehensive Income as an adjustment to income tax provision.
The Company recorded an income tax provision of
$4,483
and
$1,335
on income from operations before income taxes of
$16,866
and
$10,468
for the three months ended
December 31, 2018
and
2017
, respectively. The Company recorded an income tax provision of
$7,612
and an income tax benefit of
$7,046
on income from operations before income taxes of
$27,474
and
$20,040
for the six months ended December 31, 2018 and 2017, respectively.
During the three months ended December 31, 2018 and 2017, the Company recognized a discrete tax benefit and expense of
$67
and
$294
, respectively, related to excess tax benefits on stock-based compensation. The discrete tax expense for the three months ended December 31, 2017 included the enactment of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The effective tax rate for the three months ended December 31, 2018 and 2017 differed from the Federal statutory rate primarily due to Federal research and development credits, excess tax benefits related to stock compensation, a modified territorial tax system and a minimum tax on certain foreign earnings, and state taxes.
During the six months ended December 31, 2018 and 2017, the Company recognized a discrete tax benefit of
$1,716
and
$7,579
, respectively, related to excess tax benefits on stock-based compensation. The effective tax rate for the six months ended December 31, 2018 and 2017 differed from the Federal statutory rate primarily due to Federal research and development credits, excess tax benefits related to stock compensation, a modified territorial tax system and a minimum tax on certain foreign earnings, and state taxes.
On August 21, 2018, the Internal Revenue Service ("IRS") provided initial guidance on amendments made to the limitation on executive compensation by the Tax Act. During the three months ended September 30, 2018, the Company recorded an adjustment to its unrecognized tax positions of
$1,711
as a result of this guidance. During the three months ended December 31, 2018, there were no changes made to the Company’s unrecognized tax positions.
R
EVOLVING
C
REDIT
F
ACILITY
On September 28, 2018, the Company amended its revolving credit facility to increase and extend the borrowing capacity to
$750,000
,
5
-year revolving credit line, with the maturity extended to September 28, 2023 (“the Revolver”). As of
December 31, 2018
, the Company's outstanding balance of unamortized deferred financing costs was
$6,385
, which is being amortized to other income (expense), net on a straight line basis over the new term of the Revolver. The Company drew
$45,000
from the Revolver to facilitate the acquisition of Germane.
As of December 31, 2018, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of
$240,000
against the Revolver, resulting in interest expense of
$2,196
and
$4,455
for the three and six months ended
December 31, 2018
, respectively. There were outstanding letters of credit of
$2,351
as of
December 31, 2018
.
P
ENSION
P
LAN
The Company maintains a defined benefit pension plan (the "Plan") for its Swiss employees, which is administered by an independent pension fund. The Plan is mandated by Swiss law and meets the criteria for a defined benefit plan under ASC 715,
Compensation—Retirement Benefits
(“ASC 715”), because participants of the Plan are entitled to a defined rate of return on contributions made. The independent pension fund is a multi-employer plan with unrestricted joint liability for all participating companies for which the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan.
The Company recognizes a net asset or liability for the Plan equal to the difference between the projected benefit obligation of the Plan and the fair value of the Plan’s assets as required by ASC 715. The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions of the projected benefit obligation of the Plan. The Plan's funded status at December 31, 2018 was a net liability of
$6,336
, which is recorded in other non-current liabilities on the Consolidated Balance Sheet. The Company recorded a net loss of
$15
and
$30
in accumulated other comprehensive income during the three and six months ended
December 31, 2018
, respectively. The Company recorded a net gain of
$10
and
$40
in accumulated other comprehensive income during the three and six months ended December 31, 2017, respectively. The Company recognized net periodic benefit costs of
$200
and
$402
associated with the Plan for the three and six months ended December 31, 2018, respectively. The Company recognized net periodic benefit costs of
$201
and
$407
associated with the Plan for the three and six months ended December 31, 2017, respectively. The Company's total expected employer contributions to the Plan during fiscal 2019 are
$642
.
|
|
K.
|
Stock-Based Compensation
|
S
TOCK
I
NCENTIVE
P
LANS
The Board of Directors approved the Company’s 2018 Stock Incentive Plan (the “2018 Plan”) on July 23, 2018. The 2018 Plan became effective upon the approval of shareholders at the Company’s annual meeting held on October 24, 2018. The aggregate number of shares authorized for issuance under the 2018 Plan is
2,862
shares, with an additional
710
shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) at the time of shareholder approval of the 2018 Plan. The 2018 Plan replaced the 2005 Plan. The shares authorized for issuance under the 2018 Plan will be increased by any future cancellations, forfeitures or terminations (other than by exercise) of awards under the 2005 Plan. The foregoing does not affect any outstanding awards under the 2005 Plan, which remain in full force and effect in accordance with their terms. The 2018 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees. All stock options are granted with an exercise price of not less than
100%
of the fair value of the Company’s common stock at the date of grant and the options generally have a term of
seven
years. There were
3,563
shares available for future grant under the 2018 Plan at
December 31, 2018
.
As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan. Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets. Based on the performance targets, some of these awards require graded vesting which results in more rapid expense recognition compared to traditional time-based vesting over the same vesting period. The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly based on its determination of the likelihood for reaching
targets. The performance targets include: (i) the achievement of internal performance targets only, and (ii) the achievement of internal performance targets in relation to a peer group of companies.
E
MPLOYEE
S
TOCK
P
URCHASE
P
LAN
The aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is
1,800
shares. Under the ESPP, rights are granted to purchase shares of common stock at
85%
of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed
10%
of an employee’s compensation as defined in the ESPP. There were
51
and
39
shares issued under the ESPP during the six months ended
December 31, 2018
and
2017
, respectively. Shares available for future purchase under the ESPP totaled
169
at
December 31, 2018
.
S
TOCK
O
PTION
AND
A
WARD
A
CTIVITY
The following table summarizes activity of the Company’s stock option plans since
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
Outstanding at June 30, 2018
|
|
4
|
|
|
$
|
5.52
|
|
|
3.13
|
Granted
|
|
—
|
|
|
—
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
Canceled
|
|
—
|
|
|
—
|
|
|
|
Outstanding at December 31, 2018
|
|
4
|
|
|
$
|
5.52
|
|
|
2.63
|
The following table summarizes the status of the Company’s non-vested restricted stock awards since
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Non-vested Restricted Stock Awards
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Outstanding at June 30, 2018
|
|
1,135
|
|
|
$
|
27.26
|
|
Granted
|
|
386
|
|
|
49.15
|
|
Vested
|
|
(414
|
)
|
|
49.17
|
|
Forfeited
|
|
(49
|
)
|
|
33.32
|
|
Outstanding at December 31, 2018
|
|
1,058
|
|
|
$
|
38.95
|
|
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,
Compensation - Stock Compensation
("ASC 718"). The Company had
$266
and
$317
of capitalized stock-based compensation expense on the Consolidated Balance Sheets as of
December 31, 2018
and June 30, 2018, respectively. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period, net of estimated forfeitures. The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cost of revenues
|
$
|
159
|
|
|
$
|
47
|
|
|
$
|
411
|
|
|
$
|
195
|
|
Selling, general and administrative
|
4,542
|
|
|
4,270
|
|
|
8,426
|
|
|
8,246
|
|
Research and development
|
583
|
|
|
510
|
|
|
1,126
|
|
|
1,007
|
|
Stock-based compensation expense before tax
|
5,284
|
|
|
4,827
|
|
|
9,963
|
|
|
9,448
|
|
Income taxes
|
(1,427
|
)
|
|
(1,593
|
)
|
|
(2,690
|
)
|
|
(3,118
|
)
|
Stock-based compensation expense, net of income taxes
|
$
|
3,857
|
|
|
$
|
3,234
|
|
|
$
|
7,273
|
|
|
$
|
6,330
|
|
|
|
L.
|
Operating Segment, Geographic Information and Significant Customers
|
Operating segments are defined as components of an enterprise evaluated regularly by the Company's chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company is comprised of
one
operating and reportable segment. The Company utilized the management approach for determining its operating segment in accordance with ASC 280,
Segment Reporting
.
The geographic distribution of the Company’s revenues as determined by order origination based on the country in which the Company's legal subsidiary is domiciled is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Europe
|
|
Asia Pacific
|
|
Eliminations
|
|
Total
|
THREE MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Net revenues to unaffiliated customers
|
|
$
|
145,669
|
|
|
$
|
13,200
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
159,089
|
|
Inter-geographic revenues
|
|
803
|
|
|
345
|
|
|
—
|
|
|
(1,148
|
)
|
|
—
|
|
Net revenues
|
|
$
|
146,472
|
|
|
$
|
13,545
|
|
|
$
|
220
|
|
|
$
|
(1,148
|
)
|
|
$
|
159,089
|
|
THREE MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Net revenues to unaffiliated customers
|
|
$
|
105,687
|
|
|
$
|
9,417
|
|
|
$
|
2,808
|
|
|
$
|
—
|
|
|
$
|
117,912
|
|
Inter-geographic revenues
|
|
3,169
|
|
|
43
|
|
|
—
|
|
|
(3,212
|
)
|
|
—
|
|
Net revenues
|
|
$
|
108,856
|
|
|
$
|
9,460
|
|
|
$
|
2,808
|
|
|
$
|
(3,212
|
)
|
|
$
|
117,912
|
|
SIX MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Net revenues to unaffiliated customers
|
|
$
|
277,018
|
|
|
$
|
24,638
|
|
|
$
|
1,489
|
|
|
$
|
—
|
|
|
$
|
303,145
|
|
Inter-geographic revenues
|
|
2,450
|
|
|
703
|
|
|
—
|
|
|
(3,153
|
)
|
|
—
|
|
Net revenues
|
|
$
|
279,468
|
|
|
$
|
25,341
|
|
|
$
|
1,489
|
|
|
$
|
(3,153
|
)
|
|
$
|
303,145
|
|
SIX MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Net revenues to unaffiliated customers
|
|
$
|
203,402
|
|
|
$
|
16,895
|
|
|
$
|
3,684
|
|
|
$
|
—
|
|
|
$
|
223,981
|
|
Inter-geographic revenues
|
|
4,916
|
|
|
65
|
|
|
—
|
|
|
(4,981
|
)
|
|
—
|
|
Net revenues
|
|
$
|
208,318
|
|
|
$
|
16,960
|
|
|
$
|
3,684
|
|
|
$
|
(4,981
|
)
|
|
$
|
223,981
|
|
Effective July 1, 2018, the Company adopted the requirements of ASC 606 using the retrospective method. As previously mentioned, such adoption did not have a material impact to the Company's consolidated financial statements. The following tables present disaggregated revenue consistent with the Company's strategy of expanding its technological capabilities and program content. As additional information related to the Company’s products by end user, application and/or product grouping is attained, the categorization of these products can vary over time. When this occurs, the Company reclassifies revenue by end user, application and/or product grouping for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each revenue category.
The following table below presents the Company's net revenue by end user for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Domestic (1)
|
|
$
|
142,906
|
|
|
$
|
89,969
|
|
|
$
|
273,485
|
|
|
$
|
179,647
|
|
International/Foreign Military Sales (2)
|
|
16,183
|
|
|
27,943
|
|
|
29,660
|
|
|
44,334
|
|
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
(1) Domestic revenues consist of sales where the end user is within the U.S., as well as sales to prime defense contractor customers where the ultimate end user location is not defined.
(2) International/Foreign Military Sales consist of sales to U.S. prime defense contractor customers where the end user is known to be outside the U.S., foreign military sales through the U.S. government, and direct sales to non-U.S. based customers intended for end use outside of the U.S.
The following table below presents the Company's net revenue by end application for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Radar (1)
|
|
$
|
42,008
|
|
|
$
|
44,678
|
|
|
$
|
82,987
|
|
|
$
|
81,218
|
|
Electronic Warfare (2)
|
|
25,697
|
|
|
29,411
|
|
|
49,751
|
|
|
57,419
|
|
Other Sensor & Effector (3)
|
|
21,455
|
|
|
10,992
|
|
|
35,113
|
|
|
20,741
|
|
Total Sensor & Effector
|
|
89,160
|
|
|
85,081
|
|
|
167,851
|
|
|
159,378
|
|
C4I (4)
|
|
47,276
|
|
|
13,562
|
|
|
91,500
|
|
|
26,388
|
|
Other (5)
|
|
22,653
|
|
|
19,269
|
|
|
43,794
|
|
|
38,215
|
|
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
(1) Radar includes end-use applications where radio frequency signals are utilized to detect, track, and identify objects.
(2) Electronic Warfare includes end-use applications comprising the offensive and defensive use of the electromagnetic spectrum.
(3) Other Sensor & Effector products include all Sensor & Effector end markets other than Radar and Electronic Warfare.
(4) C4I includes rugged secure rackmount servers that are designed to drive the most powerful military processing applications.
(5) Other products include all component and other sales where the end use is not specified.
The following table below presents the Company's net revenue by product grouping for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Components (1)
|
|
$
|
40,914
|
|
|
$
|
39,908
|
|
|
$
|
81,314
|
|
|
$
|
72,720
|
|
Modules and Sub-assemblies (2)
|
|
42,397
|
|
|
41,728
|
|
|
93,989
|
|
|
89,460
|
|
Integrated Subsystems (3)
|
|
75,778
|
|
|
36,276
|
|
|
127,842
|
|
|
61,801
|
|
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
(1) Components include technology elements typically performing a single, discrete technological function, which when physically combined with other components may be used to create a module or sub-assembly. Examples include but are not limited to power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, MMICs (monolithic microwave integrated circuits), and memory and storage devices.
(2) Modules and Sub-assemblies include combinations of multiple functional technology elements and/or components that work together to perform multiple functions but are typically resident on or within a single board or housing. Modules and sub-assemblies may in turn be combined to form an integrated subsystem. Examples of modules and sub-assemblies include but are not limited to embedded processing modules, embedded processing boards, switch fabric boards, high speed input/output boards, digital receiver boards, graphics and video processing and Ethernet and IO (input-output) boards, multi-chip modules, integrated radio frequency and microwave multi-function assemblies, tuners, and transceivers.
(3) Integrated Subsystems include multiple modules and/or sub-assemblies combined with a backplane or similar functional element and software to enable a solution. These are typically but not always integrated within a chassis and with cooling, power and other elements to address various requirements and are also often combined with additional technologies for interaction with other parts of a complete system or platform. Integrated subsystems also include spare and replacement modules and sub-assemblies sold as part of the same program for use in or with integrated subsystems sold by the Company.
The geographic distribution of the Company’s long-lived assets is summarized as follows:
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U.S.
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Europe
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Asia Pacific
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Eliminations
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Total
|
December 31, 2018
|
|
$
|
48,872
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|
|
$
|
4,241
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
53,130
|
|
June 30, 2018
|
|
$
|
47,997
|
|
|
$
|
2,974
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
50,980
|
|
Identifiable long-lived assets exclude goodwill and intangible assets.
Customers comprising 10% or more of the Company’s revenues for the periods shown below are as follows:
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Three Months Ended December 31,
|
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Six Months Ended December 31,
|
|
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2018
|
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2017
|
|
2018
|
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2017
|
Raytheon Company
|
|
25
|
%
|
|
17
|
%
|
|
22
|
%
|
|
19
|
%
|
Lockheed Martin Corporation
|
|
13
|
%
|
|
20
|
%
|
|
11
|
%
|
|
19
|
%
|
Northrop Grumman Corporation
|
|
*
|
|
|
12
|
%
|
|
*
|
|
|
11
|
%
|
|
|
38
|
%
|
|
49
|
%
|
|
33
|
%
|
|
49
|
%
|
|
|
*
|
Indicates that the amount is less than 10% of the Company’s revenues 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. Programs comprising 10% or more of the Company’s revenues for the periods shown below are as follows:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
F-35
|
|
11
|
%
|
|
*
|
|
|
11
|
%
|
|
*
|
|
|
|
11
|
%
|
|
—
|
%
|
|
11
|
%
|
|
—
|
%
|
|
|
*
|
Indicates that the amount is less than 10% of the Company’s revenues for the respective period.
|
|
|
M.
|
Commitments and Contingencies
|
L
EGAL
C
LAIMS
The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of its business. Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any matters currently pending against the Company and intends to defend itself vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company’s cash flows, results of operations, or financial position.
I
NDEMNIFICATION
O
BLIGATIONS
The Company’s standard product sales and license agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments the Company could be required to make under these indemnification provisions is, in some instances, unlimited.
P
URCHASE
C
OMMITMENTS
As of
December 31, 2018
, 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
$68,695
.
O
THER
As part of the Company's strategy for growth, the Company continues to explore acquisitions or strategic alliances. The associated acquisition costs incurred in the form of professional fees and services may be material to the future periods in which they occur, regardless of whether the acquisition is ultimately completed.
The Company may elect from time to time to purchase and subsequently retire shares of common stock in order to settle employees’ tax liabilities associated with vesting of a restricted stock award or exercise of stock options. These transactions would be treated as a use of cash in financing activities in the Company's statement of cash flows.
The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued.
On January 11, 2019, the Company entered into an interest rate swap (the “Swap”) with Bank of America, N.A. for a notional amount of
$175,000
. The Swap matures on September 28, 2023, coterminous with the maturity of the Revolver. The Swap effectively converts
$175,000
of the Company's Revolver obligation from a variable interest rate to a fixed rate of
2.54%
.
On January 29, 2019, the Company acquired GECO Avionics, LLC ("GECO"). Based in Mesa, Arizona, GECO has over twenty years of experience designing and manufacturing affordable safety-critical avionics and mission computing solutions. GECO’s DO-254 certified hardware solutions include mission processors, airborne displays, video processing and aviation networking. GECO also specializes in DO-178 avionics software design up to DAL-A, the highest level of design assurance for flight management, aircraft condition monitoring, display and electronic flight instrumentation applications. GECO’s technologies are deployed on numerous military platforms such as the AH-64 Apache attack helicopter and the KC-46A Pegasus widebody multirole tanker, among others. The Company acquired GECO for an all cash purchase price of
$36,500
, subject to net working capital and net debt adjustments. The acquisition was funded through the Revolver.