Operating Segment, Geographic Information and Significant Customers

12 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Operating Segment, Geographic Information and Significant Customers

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 utilizes the management approach for determining reportable segments in accordance with the authoritative guidance. 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 affordable, innovative, commercially developed, specialized processing subsystems for critical commercial, defense and intelligence applications. MCE delivers secure solutions that are based upon open architectures and widely adopted industry standards. MCE delivers rapid time-to-value and service and support to prime defense contractors and commercial customers. MCE provides solutions to prime contractor customers on a variety of programs. MCE also provides technology building blocks to Mercury Defense Systems on key classified and unclassified programs. MCE has a legacy of embedded multi-computing and embedded sensor processing expertise. More recently, MCE has added substantial capabilities around radio frequency ("RF") and microwave technologies as well as emerging new manufacturing capabilities to bring design, production and test capabilities of its RF and microwave solutions to market on a more scalable basis.

• Mercury Defense Systems (“MDS”): this operating segment provides significant capabilities relating to pre-integrated, open, affordable electronic warfare ("EW"), electronic attack ("EA") and electronic counter measure ("ECM") subsystems, and signals intelligence ("SIGINT") and electro-optical/infrared (EO/IR) technologies. MDS deploys these solutions on behalf of defense prime contractors and the Department of Defense ("DoD"), leveraging commercially available technologies and solutions (or “building blocks”) from the MCE business and other commercial suppliers. 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), EW, and ECM markets. MDS brings significant domain expertise to customers, drawing on over 25 years of experience in EW, SIGINT, and radar environment test and simulation.

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 determined that both MCE and MDS met the quantitative thresholds for reporting.

Prior year results have been restated for the reclassification of the MIS operating segment as discontinued operations. MIS was previously aggregated with MDS into one reportable segment based on similar economic and qualitative factors in accordance with FASB ASC 280 (see Note C).

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 income from continuing operations before interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring and other charges, 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		MDS		Eliminations			Total
YEAR ENDED JUNE 30, 2014
Net revenues to unaffiliated customers	$	175,766	$	34,217	$	(1,254	)	$	208,729
Intersegment revenues	9,032		—		(9,032		)	$	—
Net revenues	$	184,798	$	34,217	$	(10,286	)	$	208,729
Adjusted EBITDA	$	18,495	$	5,727	$	(700	)	$	23,522
YEAR ENDED JUNE 30, 2013
Net revenues to unaffiliated customers	$	152,606	$	41,491	$	134		$	194,231
Intersegment revenues	13,744		—		(13,744		)	—
Net revenues	$	166,350	$	41,491	$	(13,610	)	$	194,231
Adjusted EBITDA	$	2,812	$	7,097	$	31		$	9,940
YEAR ENDED JUNE 30, 2012
Net revenues to unaffiliated customers	$	203,979	$	32,731	$	360		$	237,070
Intersegment revenues	12,476		—		(12,476		)	—
Net revenues	$	216,455	$	32,731	$	(12,116	)	$	237,070
Adjusted EBITDA	$	40,521	$	7,325	$	148		$	47,994

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

	Year Ended June 30,
(In thousands)	2014			2013			2012
(Loss) income from continuing operations	$	(4,072	)	$	(13,782	)	$	22,323
Interest expense, net	40			31			27
Tax (benefit) provision	(1,841		)	(10,501		)	8,991
Depreciation	7,625			8,445			7,837
Amortization of intangible assets	7,328			8,222			3,551
Restructuring and other charges	5,443			7,060			2,712
Acquisition costs and other related expenses	—			318			1,219
Fair value adjustments from purchase accounting	—			2,293			(5,238		)
Stock-based compensation expense	8,999			7,854			6,572
Adjusted EBITDA	$	23,522		$	9,940		$	47,994

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

	US		Europe		Asia Pacific		Eliminations			Total
YEAR ENDED JUNE 30, 2014
Net revenues to unaffiliated customers	$	202,845	$	2,806	$	3,078	$	—		$	208,729
Inter-geographic revenues	3,479		1,550		140		(5,169		)	—
Net revenues	$	206,324	$	4,356	$	3,218	$	(5,169	)	$	208,729
Identifiable long-lived assets	$	14,090	$	48	$	6	$	—		$	14,144
YEAR ENDED JUNE 30, 2013
Net revenues to unaffiliated customers	$	182,527	$	4,632	$	7,072	$	—		$	194,231
Inter-geographic revenues	8,734		385		147		(9,266		)	—
Net revenues	$	191,261	$	5,017	$	7,219	$	(9,266	)	$	194,231
Identifiable long-lived assets	$	14,429	$	33	$	—	$	—		$	14,462
YEAR ENDED JUNE 30, 2012
Net revenues to unaffiliated customers	$	227,433	$	4,983	$	4,654	$	—		$	237,070
Inter-geographic revenues	5,511		747		175		(6,433		)	—
Net revenues	$	232,944	$	5,730	$	4,829	$	(6,433	)	$	237,070
Identifiable long-lived assets	$	15,699	$	32	$	2	$	—		$	15,733

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,
	2014		2013		2012
Lockheed Martin Corporation	18	%	17	%	15	%
Raytheon Company	13		10		23
Northrop Grumman Corporation	12		11		18
	43	%	38	%	56	%

Although the Company has three 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 years ended June 30, 2014, 2013 and 2012, the Aegis program individually comprised 15%, 10% and 12% of the Company's revenues, respectively.