SYSTEMS

Mercury Computer Systems, Inc., reported results for its fourth quarter and fiscal year ended June 30, 2005. Fourth quarter revenues were $71.5 million, an increase of 21% over the prior year's fourth quarter. For the 2005 fiscal year, revenues were $250.2 million, up 35% over the 2004 fiscal year. Full-year operating income was $42.5 million, or 17% of revenues, an increase of $10.9 million over 2004. Net income was $30.2 million or 12.1% of revenues, versus $22.9 million or 12.3% in the prior year. Fiscal 2005 diluted earnings per share were $1.25, versus $1.03 for fiscal 2004. "We are thrilled to report the strongest revenue year in Mercury's history," said Jay Bertelli, president and chief executive officer of Mercury Computer Systems, Inc. "We achieved strong organic growth in our high-end markets, including signals intelligence and medical imaging. Additionally, we augmented our 3D imaging and visualization solution portfolio with products and services gained through our acquisition of the TGS Group in May 2004, and increased our growth potential in this market with the recent acquisition of SoHard AG, a leader in web-based picture archiving and communications systems for hospital enterprises. "This past month, we agreed to acquire Echotek Corporation, a long-time hardware alliance partner, to fill a product gap and enhance our defense business opportunities in signals intelligence as well as commercial wireless communications," Mr. Bertelli continued. "We expect to close on Echotek in the third quarter of this calendar year." Backlog The Company's total backlog position at the end of the year was $91.8 million, compared to $91.2 million at the beginning of the fiscal year. Of the current total backlog, $85.7 million represents shipments scheduled over the next 12 months. The book-to-bill ratio was 1.0 for the fiscal year. Defense Electronics Revenues for the quarter from Defense Electronics were $47.5 million, representing 66% of total revenues. For the fiscal year, Defense Electronics revenues were $148.2 million, representing 59% of the Company's total revenues, compared to $126.0 million, or 68% of revenues for fiscal 2004. For the fiscal year, the increase in Defense Electronics revenues was primarily in signals intelligence applications. Imaging and Visualization Solutions Revenues for the quarter from Imaging and Visualization Solutions were $12.2 million, representing 17% of total revenues. For the fiscal year, Imaging and Visualization Solutions revenues were $49.2 million, representing 20% of the Company's total revenues, compared to $32.9 million, or 18% of total revenues for fiscal 2004. For the fiscal year, Imaging and Visualization Solutions revenues were particularly strong in magnetic resonance imaging (MRI). OEM Solutions Revenues for the quarter from OEM Solutions were $10.2 million, representing 14% of the Company's total revenues. For the full fiscal year, OEM Solutions revenues grew to $48.4 million, or 19% of the Company's total revenues, compared to $26.7 million, or 14% of revenues for fiscal 2004. This 81% year-over-year growth was driven by semiconductor design wins moving into production. As a result, we experienced increased shipments of our systems to semiconductor capital equipment OEMs for integration into their semiconductor inspection and mask-generation systems. Momentum Computer business unit Revenues for the quarter from Momentum Computer, which reported on its second full operating quarter under Mercury, were $1.6 million, representing 2% of the Company's total revenues. For the full fiscal year, Momentum Computer contributed $4.4 million of revenues since being acquired in December 2004. Stock Repurchase Program At its meeting on July 25, the board of directors of Mercury authorized a share repurchase program for up to $20 million of the Company's currently outstanding common stock. The plan is intended to offset the potential dilutive impact of the issuance of shares in connection with the Company's employee stock option and purchase plans. Repurchases of the Company's common stock may be made from time to time at management's discretion on the open market at prevailing market prices or in privately negotiated transactions. Business Outlook Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures References by the Company to non-GAAP operating income and non-GAAP earnings per share refer to costs and expenses or earnings per share excluding equity-based compensation cost. GAAP requires that this cost be included in costs and expenses and accordingly used to determine operating income and earnings per share. The Company's management uses non-GAAP operating income, and associated non-GAAP net income (which is the basis for non-GAAP earnings per share) to make operational and investment decisions, and the Company believes that they are among several useful measures for an enhanced understanding of its operating results. Excluding the equity compensation cost from GAAP operating income will enable investors to perform a meaningful comparison of the Company's operating results to prior periods. In these prior periods, the Company's GAAP financial results were not required to include expenses associated with stock option compensation, and now these expenses will be included within operating expenses in the GAAP presentation. The Company also believes that providing non-GAAP earnings per share affords investors a view of earnings that may be more easily compared to peer companies. The Company believes these non-GAAP measures will aid investors' overall understanding of its financial results by providing a higher degree of transparency for certain expenses, particularly those related to equity-based compensation costs, as well as providing a level of disclosure that will help investors understand how the Company plans and measures its own business. However, non-GAAP net income should be construed neither as an alternative to GAAP net income or earnings per share as an indicator of its operating performance, nor as a substitute for cash flow from operations as a measure of liquidity, because the items excluded from the non-GAAP measures often have a material impact on the Company's results of operations. Therefore, management does, and investors should, use non-GAAP measures in conjunction with the Company's reported GAAP results. For fiscal 2006, the Company is projecting revenue to be in the range of $295 to $305 million, representing approximately 20% growth at the midpoint of the range, including the impact of acquisitions and closure of the pending Echotek acquisition announced earlier in the month. As a June year-end company, the Company's fiscal year 2006 GAAP projected results include the impact of FAS 123, Share-Based Payment. Accordingly, including the expense related to equity-based compensation, the Company projects full-year GAAP operating income to approximate 12% of revenues. Excluding the impact of equity-based compensation costs, fiscal 2006 operating income is projected to approximate 16% of revenues. The Company projects 2006 fiscal year GAAP earnings per share to be in the range of $0.97 to $1.02. Excluding the impact of equity-based compensation costs, fiscal year 2006 earnings per share are projected to be in the range of $1.35 to $1.40. For the first quarter of fiscal year 2006, revenues are expected to be in the range of $60 to $63 million. First quarter GAAP operating income is projected to approximate 6% of revenues, including the expense related to equity-based compensation. Excluding the expense related to equity-based compensation, first quarter fiscal 2006 operating income is projected to approximate 10% of revenues. The Company projects first quarter fiscal 2006 GAAP earnings per share to be in the range of $0.11 to $0.13. Excluding the impact of equity-based compensation costs, first quarter fiscal year 2006 earnings per share are projected to be in the range of $0.18 to $0.20. Recent Highlights * July -- Mercury announced it has signed an agreement to purchase Echotek Corporation. Based in Huntsville, Alabama, Echotek produces a portfolio of board-level products for analog-to-digital conversion (A/D), digital- to-analog conversion (D/A), high-performance input/output (I/O), and specialized digital signal processing known as digital receivers. This functionality is present in "sensor-based" computing systems for defense applications such as radar and signals intelligence. These technologies are also key components in commercial systems for medical scanners, large-scale physics experiments, and electronic test instrumentation. * July -- Mercury acquired SoHard AG, a global market leader in the development of advanced software solutions for medical imaging systems, hardware and firmware for commercial embedded systems, and software intelligence applications via professional services. Based in Fuerth, Germany, SoHard AG is expected to accelerate growth and expand Mercury's solution portfolio for 3D medical imaging applications. * June -- Mercury announced that it will partner with IBM to integrate the Cell microprocessor technology in future products for data-intensive applications such as radar, sonar, MRI, CT, and digital X-ray. The optimized products are expected to provide a new level of sophistication and dramatically improved performance for the graphic- and compute- intensive requirements of existing and new customer applications. * June -- Mercury announced the ExamineRT(TM) Server/Thin Client solution for 3D imaging in PACS, or picture archiving and communications systems. The ExamineRT Server/Thin Client provides a centralized, scalable, clustered server architecture that fits within existing PACS frameworks to seamlessly unite installed legacy systems across multiple platforms. In addition to enabling a dramatic increase in 3D workflow speed, the ExamineRT Server/Thin Client also reduces development costs as well as time to market for PACS OEMs. * May -- Mercury announced its continued involvement with the Lockheed Martin Aegis Program, with participation in the successful February 2005 firing mission of the Aegis Ballistic Missile Defense (BMD) system, and the initial delivery of its next-generation PowerStream® 7000 RapidIO®-based multicomputer for next-phase development. For the firing mission, Mercury supplied the 6U RACE++® Series VME integrated signal processing system embedded in the Aegis BMD signal processor (BSP), which augmented the SPY-1D radar onboard an Aegis destroyer to enable real-time detection, tracking, analysis, and discrimination of several targets. The initial Lockheed Martin order for the PowerStream 7000 is central to the development of signal processing applications that are planned for deployment on Navy warships. * May -- Mercury announced its strengthened commitment to ruggedized COTS (commercial off-the-shelf) computing, with the introduction of two new conduction-cooled products: the third-generation 800 MHz 7447A 6U VME Multicomputer, which is the most powerful COTS multiprocessing system available today for deployment in extreme environments; and the RACE++ Series MYRIAD-4130, a hybrid host and carrier module. Mercury also announced the expansion of ruggedization services through two new partnerships with Tracewell Systems and Parker Hannifin, and its commitment to the VITA cooling standards for next-generation products. * April -- Mercury's Momentum Computer business unit announced the industry's first dual Pentium-based 6U single board computer (SBC) for the PICMG 2.16 specification. The CCR-200 doubles the compute density in a single slot of a PICMG 2.16 packet switch backplane. The PICMG 2.16 employs an Ethernet-based packet switch architecture on the CompactPCI platform. The combination provides a reliable, robust computing environment for high availability and next-generation network applications in embedded computing.