Operating Segment, Geographic Information and Significant Customers

6 Months Ended

Dec. 31, 2012

Operating Segment, Geographic Information and Significant Customers

K. Operating Segment, Geographic Information and Significant Customers

Operating segments are defined as components of an enterprise evaluated regularly by the Company’s senior management in deciding how to allocate resources and assess performance. The Company is presently organized in two operating segments. These reportable 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:

• Advanced Computing Solutions: this operating segment is focused on specialized, high-performance embedded, real-time digital signal and image processing solutions that encompass signal acquisition, including microwave front-end, digitalization, digital signal processing, exploitation processing, high capacity digital storage and communications, targeted to key market segments, including defense, communications and other commercial applications. With the addition of KOR, the ACS segment also designs and develops Digital Radio Frequency Memory (DRFM) units for a variety of modern EW applications, as well as radar environment simulation and test systems for defense applications.

• Mercury Federal Systems: this operating segment is focused on services and support work with the Department of Defense and federal intelligence and homeland security agencies, including designing, engineering, and deploying new ISR capabilities to address present and emerging threats to U.S. forces. With the addition of PDI, the MFS segment also provides sophisticated analysis and exploitation, multi-sensor data fusion and enrichment, and data processing services for the U.S. intelligence community.

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 chief operating decision maker (“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 earnings from continuing operations 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. Prior year’s amounts have been presented to reflect the current profitability measures for comparative purposes. 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:

	ACS		MFS			Eliminations			Total
THREE MONTHS ENDED DECEMBER 31, 2012
Net revenues to unaffiliated customers	$	43,453	$	7,862		$	(1,511	)	$	49,804
Intersegment revenues		3,239		4			(3,243	)		—
Net revenues	$	46,692	$	7,866		$	(4,754	)	$	49,804
Adjusted EBITDA	$	2,376	$	(727	)	$	(650	)	$	999
THREE MONTHS ENDED DECEMBER 31, 2011
Net revenues to unaffiliated customers	$	64,062	$	5,191		$	(1,294	)	$	67,959
Intersegment revenues		1,996		—			(1,996	)		—
Net revenues	$	66,058	$	5,191		$	(3,290	)	$	67,959
Adjusted EBITDA	$	18,097	$	1,065		$	(325	)	$	18,837
SIX MONTHS ENDED DECEMBER 31, 2012
Net revenues to unaffiliated customers	$	81,261	$	17,778		$	193		$	99,232
Intersegment revenues		8,147		12			(8,159	)		—
Net revenues	$	89,408	$	17,790		$	(7,966	)	$	99,232
Adjusted EBITDA	$	1,942	$	726		$	(27	)	$	2,641
SIX MONTHS ENDED DECEMBER 31, 2011
Net revenues to unaffiliated customers	$	109,458	$	9,363		$	(1,740	)	$	117,081
Intersegment revenues		3,929		—			(3,929	)		—
Net revenues	$	113,387	$	9,363		$	(5,669	)	$	117,081
Adjusted EBITDA	$	26,251	$	1,573		$	(259	)	$	27,565

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

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2012			2011			2012			2011
Net (loss) income	$	(4,784	)	$	9,045		$	(11,984	)	$	11,698
Interest expense, net		13			6			19			9
Tax (benefit) provision		(2,192	)		4,828			(5,843	)		6,142
Depreciation		2,191			1,905			4,402			3,760
Amortization of intangible assets		2,230			692			4,018			1,508
Restructuring and other charges		217			—			5,201			—
Acquisition costs and other related expenses		42			593			272			618
Fair value adjustments from purchase accounting		1,272			(44	)		2,197			(22	)
Stock-based compensation expense		2,010			1,812			4,359			3,852
Adjusted EBITDA	$	999		$	18,837		$	2,641		$	27,565

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

	US		Europe		Asia Pacific		Eliminations			Total
THREE MONTHS ENDED DECEMBER 31, 2012
Net revenues to unaffiliated customers	$	45,953	$	1,084	$	2,767	$	—		$	49,804
Inter-geographic revenues		2,749		138		19		(2,906	)		—
Net revenues	$	48,702	$	1,222	$	2,786	$	(2,906	)	$	49,804
THREE MONTHS ENDED DECEMBER 31, 2011
Net revenues to unaffiliated customers	$	66,458	$	349	$	1,152	$	—		$	67,959
Inter-geographic revenues		762		178		11		(951	)		—
Net revenues	$	67,220	$	527	$	1,163	$	(951	)	$	67,959
SIX MONTHS ENDED DECEMBER 31, 2012
Net revenues to unaffiliated customers	$	93,588	$	1,428	$	4,216	$	—		$	99,232
Inter-geographic revenues		3,927		187		45		(4,159	)		—
Net revenues	$	97,515	$	1,615	$	4,261	$	(4,159	)	$	99,232
SIX MONTHS ENDED DECEMBER 31, 2011
Net revenues to unaffiliated customers	$	113,335	$	1,141	$	2,605	$	—		$	117,081
Inter-geographic revenues		2,944		435		31		(3,410	)		—
Net revenues	$	116,279	$	1,576	$	2,636	$	(3,410	)	$	117,081

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

The geographic distribution of the Company’s long-lived assets is summarized as follows:

	U.S.		Europe		Asia Pacific		Eliminations		Total
December 31, 2012	$	18,229	$	32	$	—	$	—	$	18,261
June 30, 2012	$	15,895	$	32	$	2	$	—	$	15,929

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:

	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Northrop Grumman Corporation		13	%		27	%		12	%		23	%
Raytheon Company		12			30			*			27
Lockheed Martin Corporation		*			17			*			14
		25	%		74	%		12	%		64	%

* 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 revenue for the periods shown below are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Joint Strike Fighter		*	%		21	%		*	%		19	%
Classified Airborne Radar Program		*			19	%		*			11	%
Aegis		*			13	%		*			11	%
		0	%		53	%		0	%		41	%

* Indicates that the amount is less than 10% of the Company’s revenues for the respective periods.