Operating Segment, Geographic Information and Significant Customers

12 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Operating Segment, Significant Customers and Geographic Information

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. Prior to the third quarter of fiscal 2013, the Company's operating segments were the same as its reportable segments: Advanced Computing Solutions and Mercury Federal Systems. Following a series of acquisitions that expanded the Company's capabilities, the Company initiated a reorganization to group its product and service offerings in the manner which the Company's CODM manages and evaluates the business. Therefore, the Company utilized the management approach for determining reportable segments in accordance with the authoritative guidance. Beginning with the third quarter ended March 31, 2013, the Company redefined its operating and reportable segments. The following operating segments were determined based upon the nature of the products offered to customers, the market characteristics of each operating segment and the Company's management structure:

• Mercury Commercial Electronics (“MCE”): this operating segment delivers innovative, commercially developed, open sensor and Big Data processing systems for critical commercial, defense and intelligence applications. MCE delivers solutions that are secure and based upon open architectures and widely adopted industry standards. MCE delivers rapid time-to-value and world-class service and support to our commercial and defense prime contractor customers.

• Mercury Defense Systems (“MDS”): this operating segment delivers innovative, open sensor processing solutions to key defense prime contractors leveraging commercially available technologies and solutions from our MCE business. MDS leverages this technology to develop integrated sensor processing subsystems, often including classified application-specific software and intellectual property (“IP”) for the C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance), U.S. Department of Defense agencies, EW, and ECM markets.

• Mercury Intelligence Systems (“MIS”): this operating segment delivers technologically advanced hardware and software data processing solutions and predictive analytics capabilities to address the intelligence community and Department of Defense mission needs.

The Company's operating segments were evaluated in accordance with FASB ASC 280- “Segment Reporting” in order to determine which operating segments qualified as reportable segments. The Company considered qualitative factors, including the economic characteristics of each operating segment to determine if any of its three operating segments qualified for aggregation into fewer reportable segments.

The Company's evaluation of the economic characteristics of its operating segments included comparisons of revenues and applicable growth rates, gross margins, operating margins, future projections, and additional non-GAAP financial measurements which indicate that MDS and MIS have similar economic characteristics. The Company also evaluated the following qualitative factors in accordance with FASB ASC 280 paragraph 10-50-11: the nature of products and services, the corresponding production processes, the types of customers, distribution methods for products and services and the nature of the corresponding regulatory environment associated with its operating segments. The Company determined each of these factors are similar for both the MDS and MIS operating segments and supports the aggregation of MDS and MIS into one reportable segment, Mercury Defense and Intelligence Systems (“MDIS”).

The Company analyzed quantitative thresholds of each reportable segment including but not limited to reported revenues, including sales to external customers and intersegment sales or transfers, reported profits or losses, and total assets of each operating segment. The Company determined that both MCE and MDIS met the quantitative thresholds for reporting.

The Company reclassified the segment data for the prior periods presented below to conform to the current year's presentation.

The accounting policies of the reportable segments are the same as those described in “Note B: Summary of Significant Accounting Policies.” The profitability measure employed by the Company and its CODM as the basis for allocating resources to segments and assessing segment performance is adjusted EBITDA. The Company believes the adjusted EBITDA financial measure assists in providing an enhanced understanding of its underlying operational measures to manage its business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals.

Adjusted EBITDA is defined as net income (loss) before interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting and stock-based compensation costs. Additionally, asset information by reportable segment is not reported because the Company and its CODM utilize consolidated asset information when making business decisions. The following is a summary of the performance of the Company's operations by reportable segment:

	MCE		MDIS			Eliminations			Total
YEAR ENDED JUNE 30, 2013
Net revenues to unaffiliated customers	$	152,606	$	56,051		$	134		$	208,791
Intersegment revenues	13,744		12			(13,756		)	$	—
Net revenues	$	166,350	$	56,063		$	(13,622	)	$	208,791
Adjusted EBITDA	$	2,812	$	8,842		$	31		$	11,685
YEAR ENDED JUNE 30, 2012
Net revenues to unaffiliated customers	$	203,979	$	40,590		$	360		$	244,929
Intersegment revenues	12,476		3			(12,479		)	—
Net revenues	$	216,455	$	40,593		$	(12,119	)	$	244,929
Adjusted EBITDA	$	40,521	$	8,205		$	148		$	48,874
YEAR ENDED JUNE 30, 2011
Net revenues to unaffiliated customers	$	217,423	$	11,415		$	(128	)	$	228,710
Intersegment revenues	6,260		52			(6,312		)	—
Net revenues	$	223,683	$	11,467		$	(6,440	)	$	228,710
Adjusted EBITDA	$	42,104	$	(714	)	$	(507	)	$	40,883

The following table reconciles the Company's net (loss) income, the most directly comparable GAAP financial measure, to its adjusted EBITDA:

	Year Ended June 30,
(In thousands)	2013			2012			2011
Net (loss) income	$	(13,208	)	$	22,619		$	18,507
Interest expense, net	31			27			45
Tax (benefit) provision	(9,954		)	9,152			8,060
Depreciation	8,492			7,859			6,364
Amortization of intangible assets	8,717			3,799			1,984
Restructuring and other charges	7,056			2,821			—
Impairment of long-lived assets	—			—			150
Acquisition costs and other related expenses	318			1,219			412
Fair value adjustments from purchase accounting	2,293			(5,238		)	(219		)
Stock-based compensation expense	7,940			6,616			5,580
Adjusted EBITDA	$	11,685		$	48,874		$	40,883

The geographic distribution of the Company's revenues is summarized as follows:

	US		Europe		Asia Pacific		Eliminations			Total
YEAR ENDED JUNE 30, 2013
Net revenues to unaffiliated customers	$	197,087	$	4,632	$	7,072	$	—		$	208,791
Inter-geographic revenues	8,734		385		147		(9,266		)	—
Net revenues	$	205,821	$	5,017	$	7,219	$	(9,266	)	$	208,791
Identifiable long-lived assets	$	14,986	$	33	$	—	$	—		$	15,019
YEAR ENDED JUNE 30, 2012
Net revenues to unaffiliated customers	$	235,292	$	4,983	$	4,654	$	—		$	244,929
Inter-geographic revenues	5,511		747		175		(6,433		)	—
Net revenues	$	240,803	$	5,730	$	4,829	$	(6,433	)	$	244,929
Identifiable long-lived assets	$	15,895	$	32	$	2	$	—		$	15,929
YEAR ENDED JUNE 30, 2011
Net revenues to unaffiliated customers	$	219,435	$	3,665	$	5,610	$	—		$	228,710
Inter-geographic revenues	5,637		2,277		243		(8,157		)	—
Net revenues	$	225,072	$	5,942	$	5,853	$	(8,157	)	$	228,710
Identifiable long-lived assets	$	15,390	$	24	$	704	$	—		$	16,118

Foreign revenue is based on the country in which the Company's legal subsidiary is domiciled. 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:

	Year Ended June 30,
	2013		2012		2011
Lockheed Martin Corporation	17	%	15	%	13	%
Raytheon Company	10		22		17
Northrop Grumman Corporation	10		17		21
	37	%	54	%	51	%

Although the Company has several 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. For the fiscal year ended June 30, 2012, the Aegis program individually comprised 11% of the Company's revenues. For the fiscal years ended June 30, 2013 and 2011, no single program comprised 10% or more of the Company's revenues.