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Mercury Computer Systems Announces Correction to Previously Announced Second Quarter Fiscal 2010 Results
Feb 09, 2010 (03:02 PM EST)


CHELMSFORD, Mass., Feb. 9 /PRNewswire-FirstCall/ -- Mercury Computer Systems, Inc. (NASDAQ: MRCY) today announced the correction of an error that was discovered in the process of finalizing the Company's Quarterly Report on Form 10-Q for the second quarter of fiscal 2010.  The correction related to the cost of revenues and inventory balances reported in the press release issued on January 26, 2010, announcing the Company's results for the quarter ended December 31, 2009.  Cost of revenues for the three and six months ended December 31, 2009 was $19.3 million and $39.4 million, respectively, rather than $18.8 million and $38.9 million as previously announced.  This correction resulted from the incomplete release of inventory into costs of revenue.  While it had no impact on revenue, the correction had the net effect of reducing the previously announced gross profit, income from operations, income tax expense, income from continuing operations, net income, basic and diluted earnings per share and adjusted EBITDA for the three and six months ended December 31, 2009.  

The following table shows the impact of the correction to the information presented in the Unaudited Consolidated Statements of Operations.  Dollars are presented in thousands, except per share amounts.

    
    
                         As Previously Announced           Corrected
    
                      Three months     Six months   Three months  Six months
                         ended            ended         ended        ended
                      December 31,     December 31,  December 31, December 31,
                         2009             2009          2009         2009
                      ---------       ---------       ---------     ---------
    Net revenues        $45,158         $92,589         $45,158       $92,589
    Cost of revenues    $18,762         $38,891         $19,293       $39,422
    Gross profit        $26,396         $53,698         $25,865       $53,167
    Income from
     operations          $2,445          $7,500          $1,914        $6,969
    Income tax
     expense               $412          $1,318            $330        $1,236
    Income from
     continuing
     operations          $2,364          $6,789          $1,915        $6,340
    Net income           $2,520          $6,878          $2,071        $6,429
    Basic income
     from continuing
     operations per
     share                $0.10           $0.30           $0.08         $0.28
    Diluted income
     from continuing
     operations per 
     share                $0.10           $0.30           $0.08         $0.28
    Adjusted EBITDA      $6,051         $13,810          $5,520       $13,279

This correction also had an impact on the information presented in the Unaudited Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Cash Flows, and Unaudited Supplemental Information - Reconciliation of GAAP to Non-GAAP Measures.  Corrected unaudited financial information is attached hereto.

Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides adjusted EBITDA, a non-GAAP financial measure adjusted to exclude certain non-cash and other specified charges, which the Company believes is useful to help investors better understand its past financial performance and prospects for the future. However, the presentation of adjusted EBITDA is not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management believes the adjusted EBITDA financial measure assists in providing a more complete understanding of the Company's underlying operational results and trends, and management uses this measure along with the corresponding GAAP financial measure to manage the Company's business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals. A reconciliation of GAAP to non-GAAP financial results discussed in this press release is contained in the attached exhibits.

Mercury Computer Systems, Inc. - Where Challenges Drive Innovation

Mercury Computer Systems (www.mc.com, NASDAQ: MRCY) provides embedded computing systems and software that combine image, signal, and sensor processing with information management for data-intensive applications. With deep expertise in optimizing algorithms and software and in leveraging industry-standard technologies, we work closely with customers to architect comprehensive, purpose-built solutions that capture, process, and present data for defense electronics, semiconductor equipment manufacturing, commercial computing, homeland security, and other computationally challenging markets. Our dedication to performance excellence and collaborative innovation continues a 25-year history in enabling customers to gain the competitive advantage they need to stay at the forefront of the markets they serve.

Mercury is based in Chelmsford, Massachusetts, and serves customers worldwide through a broad network of direct sales offices, subsidiaries, and distributors.

Forward-Looking Safe Harbor Statement  

This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to fiscal 2010 business performance and beyond and the Company's plans for growth and improvement in profitability and cash flow. You can identify these statements by the use of the words "may," "will," "should," "plans," "expects," "anticipates," "continue," "estimate," "project," "intend," and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, general economic and business conditions, including unforeseen weakness in the Company's markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, continued funding of defense programs, the timing of such funding, changes in the U.S. Government's interpretation of federal procurement rules and regulations, market acceptance of the Company's products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and divestitures or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, timing and costs associated with disposing of businesses, and difficulties in retaining key customers. These risks and uncertainties also include such additional risk factors as are discussed in the Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2009. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

Contact:

Robert Hult, CFO, Mercury Computer Systems, Inc.

978-967-1990


Challenges Drive Innovation, Converged Sensor Network, CSN, and Ensemble are trademarks; and Echotek, MultiCore Plus, PowerBlock, PowerStream, and RACE++ are registered trademarks of Mercury Computer Systems, Inc. Other product and company names mentioned may be trademarks and/or registered trademarks of their respective holders.

    
    
    MERCURY COMPUTER SYSTEMS, INC.                                       
    CONSOLIDATED BALANCE SHEETS                                          
    (in thousands)                                  December 31, June 30,
                                                        2009       2009
                                                     (unaudited)        
                                                     -----------  -------
                                                                         
    Assets                                                               
    Current assets:                                                      
       Cash and cash equivalents                         $52,197  $46,950
       Marketable securities                              44,444   44,977
       Accounts receivable, net                           31,239   28,595
       Inventory                                          16,884   16,805
       Option to sell auction rate securities at par       4,741    5,030
       Prepaid expenses and other current assets           3,184    3,748
                                                           -----    -----
              Total current assets                       152,689  146,105
                                                                         
    Property and equipment, net                            8,283    7,960
    Goodwill                                              57,653   57,653
    Acquired intangible assets, net                        2,043    2,911
    Other non-current assets                               6,058    4,743
                                                           -----    -----
              Total assets                              $226,726 $219,372
                                                        ======== ========
                                                                         
    Liabilities and Shareholders’ Equity                                 
    Current liabilities:                                                 
       Accounts payable                                   $5,290   $3,770
       Accrued expenses                                    6,498    7,449
       Accrued compensation                                9,065    9,372
       Borrowings under line of credit and current                       
        capital lease obligations                         32,716   33,408
       Income taxes payable                                2,959    2,316
       Deferred revenues and customer advances             7,314    7,840
       Current liabilities of discontinued                               
        operations                                           121    1,234
                                                             ---    -----
              Total current liabilities                   63,963   65,389
                                                                         
    Deferred gain on sale-leaseback                        7,292    7,870
    Other non-current liabilities                          1,595    1,076
                                                           -----    -----
              Total liabilities                           72,850   74,335
                                                                         
    Shareholders’ equity:                                                
       Common stock                                          226      224
       Additional paid-in capital                        107,321  104,843
       Retained earnings                                  45,742   39,313
       Accumulated other comprehensive income                587      657
                                                             ---      ---
              Total shareholders’ equity                 153,876  145,037
                                                         -------  -------
                                                                         
              Total liabilities and shareholders’                        
               equity                                   $226,726 $219,372
                                                        ======== ========
    
    
    MERCURY COMPUTER SYSTEMS, INC.                                        
    UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS                       
    (in thousands, except per share data)                                 
                                                                          
                                      Three months              Six months 
                                         ended                    ended    
                                      December 31,             December 31,
                                      ------------             ------------ 
                                     2009      2008          2009      2008 
                                     ----      ----          ----      ---- 
    Net revenues                  $45,158   $45,094       $92,589   $89,934 
    Cost of revenues (1)           19,293    19,690        39,422    39,603 
                                   ------    ------        ------    ------ 
       Gross profit                25,865    25,404        53,167    50,331 
                                                                            
    Operating expenses:                                                     
       Selling, general and                                                 
        administrative (1)         13,485    13,929        24,829    26,014 
       Research and                                                         
        development (1)             9,901    11,632        20,097    21,883 
       Impairment of long-                                                  
        lived assets                  150         -           150         - 
       Amortization of                                                      
        acquired intangible                                                 
        assets                        434       447           868     1,457 
       Restructuring                  (19)      235           254       474 
                                      ---       ---           ---       --- 
          Total operating                                                   
           expenses                23,951    26,243        46,198    49,828 
                                                                            
                                    -----      ----         -----       --- 
    Income (loss) from                                                      
     operations                     1,914      (839)        6,969       503 
                                                                            
    Interest income                   163       686           242     1,681 
    Interest expense                 (113)     (945)         (170)   (1,783)
    Other income                                                            
     (expense), net                   281      (119)          535      (265)
                                      ---      ----           ---      ---- 
                                                                            
    Income (loss) from                                                      
     continuing operations                                                  
     before income taxes            2,245    (1,217)        7,576       136 
                                                                            
    Income tax expense                330         -         1,236         - 
                                      ---       ---         -----       --- 
                                                                            
    Income (loss) from                                                      
     continuing operations          1,915    (1,217)        6,340       136 
    (Loss) income from                                                      
     discontinued operations, 
     net of tax                       (15)  (15,863)           15   (18,992)
    Gain on disposal of                                                     
     discontinued operations, 
     net of tax                       171        16            74       488 
                                      ---        --            --       --- 
    Net income (loss)              $2,071  $(17,064)       $6,429  $(18,368)
                                   ======  ========        ======  ======== 
                                                                            
    Basic earnings (loss) per share:                                        
       Income (loss) from                                                   
        continuing operations       $0.08    $(0.05)        $0.28     $0.01 
       (Loss) income from                                                   
        discontinued operations         -     (0.72)            -     (0.86)
       Gain on disposal of                                                  
        discontinued operations      0.01         -          0.01      0.02 
                                     ----       ---          ----      ---- 
       Net income (loss) per                                                
        share                       $0.09    $(0.77)        $0.29    $(0.83)
                                    =====    ======         =====    ====== 
                                                                            
    Diluted earnings (loss) per share:                                      
       Income (loss) from                                                   
        Continuing operations       $0.08    $(0.05)        $0.28     $0.01 
       (Loss) income from                                                   
        discontinued operations         -     (0.72)            -     (0.85)
       Gain on disposal of                                                  
        discontinued operations      0.01         -             -      0.02 
                                     ----       ---           ---      ---- 
       Net income (loss) per                                                
        share                       $0.09    $(0.77)        $0.28    $(0.82)
                                    =====    ======         =====    ====== 
                                                                            
    Weighted average shares outstanding:                                    
       Basic                       22,500    22,121        22,450    22,065 
                                   ======    ======        ======    ====== 
       Diluted                     22,870    22,121        22,806    22,318 
                                   ======    ======        ======    ====== 
                                                                            
                                                                            
    (1) Includes stock-based compensation expense, which was allocated as   
     follows:                                                               
       Cost of revenues               $73      $141          $110      $209 
       Selling, general and                                                 
        administrative             $1,318    $1,785        $1,718    $2,515 
       Research and                                                         
        development                  $145      $413          $197      $725 
    
    
    MERCURY COMPUTER SYSTEMS, INC.                                            
    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                 
    (in thousands)                                                            
                                           Three months        Six months     
                                               ended              ended       
                                            December 31,       December 31,   
                                            ------------       ------------   
                                            2009      2008     2009      2008 
                                            ----      ----     ----      ---- 
    Cash flows from operating activities:                                     
       Net income (loss)                  $2,071  $(17,064)  $6,429  $(18,368)
       Depreciation and amortization       1,658     2,393    3,346     5,419 
       Impairment of goodwill and                                             
        long-lived assets                    150    14,555      150    14,555 
       Other non-cash items, net             462     2,573   (1,164)    3,061 
       Changes in operating                                                   
        assets and liabilities               826       277     (987)      703 
                                             ---       ---     ----       --- 
                                                                              
          Net cash provided by                                                
           operating activities            5,167     2,734    7,774     5,370 
                                           -----     -----    -----     ----- 
                                                                              
    Cash flows from investing activities:                                     
       Sales (purchases) of                                                   
        marketable securities, net           448   (57,737)     850   (57,628)
       Purchases of property and                                              
        equipment, net                    (1,983)   (1,108)  (2,800)   (2,219)
       Proceeds from liquidation of                                          
        insurance policies                     -       831        -       831 
       Payments on sale of discontinued 
        operations, net                     (923)        -     (707)        - 
       Payments for acquired                                                  
        intangible assets                    (67)        -     (125)        - 
                                             ---       ---     ----       --- 
                                                                              
          Net cash used in                                                    
           investing activities           (2,525)  (58,014)  (2,782)  (59,016)
                                          ------   -------   ------   ------- 
                                                                              
    Cash flows from financing activities:                                     
       Proceeds from employee stock 
        option and purchase plans            750       247      823       413 
       Repurchases of common stock          (142)      (58)    (367)     (297)
       (Payments) borrowings under                                            
        line of credit                      (514)   31,410     (773)   31,410 
       Payments under capital leases          (8)      (93)     (45)     (135)
       Gross tax windfall from                                                
        stock-based compensation             278        92      614       450 
                                             ---        --      ---       --- 
                                                                              
          Net cash provided by                                                
           financing activities              364    31,598      252    31,841 
                                             ---    ------      ---    ------ 
                                                                              
    Effect of exchange rate                                                   
     changes on cash and cash                                                 
     equivalents                             (59)      714        3       718 
                                             ---       ---      ---       --- 
                                                                              
    Net increase (decrease) in                                                
     cash and cash equivalents             2,947   (22,968)   5,247   (21,087)
                                                                              
    Cash and cash equivalents at                                              
     beginning of period                  49,250    60,926   46,950    59,045 
                                          ------    ------   ------    ------ 
                                                                              
    Cash and cash equivalents                                                 
     at end of period                    $52,197   $37,958  $52,197   $37,958 
                                         =======   =======  =======   ======= 

UNAUDITED SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP MEASURES

Beginning with the first quarter of fiscal 2010, Mercury changed its non-GAAP measure for reporting financial performance to adjusted EBITDA.  This financial measure excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP.  The adjustments to this non-GAAP financial measure, and the basis for such adjustments, are outlined below:

Stock-based compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of revenues, selling, general and administrative expense and research and development expense.  Although stock-based compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company’s shares, risk-free interest rates and the expected term and forfeiture rates of the awards.  In accordance with FASB ASC 718, previously SFAS No. 123R, stock-based compensation expense is calculated as of the grant date of each stock-based award, and generally cannot be changed or influenced by management after the grant date.  Management believes that exclusion of these expenses allows comparisons of operating results that are consistent with periods prior to the Company’s adoption of FASB ASC 718, and allows comparisons of the Company’s operating results to those of other companies, both public, private or foreign, that disclose non-GAAP financial measures that exclude stock-based compensation.

Amortization of acquired intangible assets.  The Company incurs amortization of intangibles related to various acquisitions it has made in recent years.  These intangible assets are valued at the time of acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition.  Management believes that exclusion of these expenses allows comparisons of operating results that are consistent over time for both our newly-acquired and long-held businesses.

Depreciation.  The Company incurs depreciation expense related to capital assets purchased to support the ongoing operations of the business.  These assets are recorded at cost and are depreciated using the straight-line method over the useful life of the asset.  Purchases of such assets may vary significantly from period to period and without any correlation to underlying operating performance.  Management believes that exclusion of depreciation expense allows comparisons of operating results that are consistent across past, present and future periods.

Restructuring.  The Company incurs restructuring charges in connection with management’s decisions to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and product lines.  Management believes this item is outside the normal operations of the Company’s business and is not indicative of ongoing operating results, and that exclusion of this expense allows comparisons of operating results that are consistent across past, present and future periods.

Impairment of long-lived assets.  The Company incurs impairment charges of long-lived assets based on events that may or may not be within the control of management.  Management believes these items are outside the normal operations of the Company's business and are not indicative of ongoing operating results, and that exclusion of these expenses allows comparisons of operating results that are consistent across past, present and future periods.  

Income Taxes.  The Company’s GAAP tax expense can fluctuate materially from period to period due to tax adjustments that have no relation to underlying operating performance.  Management feels that exclusion of tax expense allows comparisons of operating results that are consistent across past, present and future periods.

Interest Income and Expense.  The Company receives interest income on investments and incurs interest expense on loans, capital leases and other financed arrangements.  These charges may vary from period to period due to changes in interest rates driven by general market conditions or other circumstances outside of the normal course of Mercury’s operations.  Management believes that exclusion of these items allows comparisons of operating results that are consistent across past, present and future periods.

Mercury uses adjusted EBITDA as a principal indicator of the operating performance of its business.  Management excludes the above-described items from its internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to the Company’s board of directors, determining the portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in the Company’s operations, and allocating resources to various initiatives and operational requirements.  The Company believes that adjusted EBITDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance.  The Company believes that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making.  The Company believes that trends in its adjusted EBITDA are valuable indicators of its operating performance.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP.  This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.  The Company expects to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from the Company’s presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.

The following tables reconcile the non-GAAP financial measures to their most directly comparable GAAP financial measures.

    
    
    (in thousands)                                                         
                                                                           
                                             Three months     Six months   
                                                 ended           ended     
                                             December 31,    December 31,  
                                             ------------    ------------  
                                             2009     2008     2009    2008
                                             ----     ----     ----    ----
    Income (loss) from continuing                                          
     operations                            $1,915  $(1,217)  $6,340    $136
       Income tax expense                     330        -    1,236       -
       Interest (income) expense, net         (50)     259      (72)    102
       Depreciation                         1,224    1,440    2,478   2,940
       Amortization of acquired intangible                                 
        assets                                434      447      868   1,457
       Impairment of long-lived assets        150        -      150       -
       Restructuring                          (19)     235      254     474
       Stock-based compensation expense     1,536    2,339    2,025   3,449
                                            -----    -----    -----   -----
    Adjusted EBITDA                        $5,520   $3,503  $13,279  $8,558
                                           ======   ======  =======  ======

SOURCE Mercury Computer Systems, Inc.