SYSTEMS

Mercury Computer Systems, Inc. reported results for its fourth quarter and fiscal year ended June 30, 2004. The Company posted its 54th consecutive quarter of profitable performance. Fourth quarter revenues were $59.1 million, an increase of 33% over the prior year's fourth quarter. * Fourth quarter operating income was $13.6 million, representing 23.0% of revenues. * Fourth quarter net income was $9.6 million, or 16.2% of revenues. Diluted earnings per share were $0.44 for the fourth quarter. * Cash flows from operating activities generated $5.4 million in the fourth quarter and $25.9 million for the fiscal year. * Cash balance at the end of the year was $238.3 million. For the 2004 fiscal year, revenues were $185.6 million, up 3% over the 2003 fiscal year. Full-year operating income was $31.6 million, or 17% of revenues, an increase of $5.8 million over 2003. Net income was $22.9 million or 12.3% of revenues, versus $22.7 million and 12.6% in the prior year. Fiscal 2004 diluted earnings per share were $1.05, versus $1.03 for fiscal 2003. "We are thrilled to report the strongest revenue year in our history," said Jay Bertelli, president and chief executive officer of Mercury Computer Systems. "For fiscal 2004, we delivered solid operating results while enhancing our product offering and growth potential with the acquisition of TGS, a software company that provides 3D imaging technology for use in life sciences, geosciences, and simulation applications. Additionally, with the acquisition of Advanced Radio Corporation, we gained radio frequency (RF) expertise with products that address military and commercial communications applications. We exited the year well positioned to deliver on our growth strategy." Backlog The Company's total backlog position at the end of the quarter was $91.2 million, up from $57.3 million at the beginning of the fiscal year, marking the fourth consecutive quarter of backlog growth. Of the current total backlog, $80.9 million represents shipments scheduled over the next 12 months. The book-to-bill ratio was greater than 1.0 for the fourth quarter and for the full fiscal year. Defense Electronics Revenues for the quarter from defense electronics were $42.8 million, representing 72% of total revenues. For the fiscal year, defense electronics revenues were $126.0 million, representing 68% of the Company's total revenues, compared to $124.1 million, or 69% of revenues for the same period of fiscal 2003. For the year, defense electronics revenues were particularly strong in signals intelligence applications. Imaging and Visualization Solutions Revenues for the quarter from imaging and visualization solutions were $8.9 million, representing 15% of total revenues. For the fiscal year, imaging and visualization solutions revenues were $32.9 million, representing 18% of the Company's total revenues, compared to $35.7 million, or 20% of total revenues for fiscal 2003. For the year, imaging and visualization solutions revenues were particularly strong in digital X-ray. OEM Solutions Revenues for the quarter from OEM solutions were $7.4 million, representing 13% of the Company's total revenues. For the full year, the OEM solutions revenue grew to $26.7 million, or 14% of the total Company revenue, compared to $20.4 million, or 11% of revenues for the same period of fiscal 2003. This 31% year-over-year growth was driven by design wins moving into production, and the strength of the semiconductor market. 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. At its meeting on July 28, the board of directors of Mercury authorized an increase to the Company's current share repurchase program, bringing the total currently authorized for repurchase to approximately $25 million. The board extended the plan through December 31, 2005. 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. Repurchased shares will become authorized but unissued shares and will be used for general corporate purposes. Business Outlook This section presents our current expectations and estimates, given current visibility on our business outlook. It is possible that actual performance will differ materially from the ranges and estimates given -- either on the upside or on the downside. Investors should consider all of the risks, including those listed in the Safe Harbor Statement below, with respect to these estimates, and make themselves aware of the risk factors that may impact the Company's actual performance. For fiscal 2005, the Company is projecting revenue in the range of $225- $230 million, representing approximately 21%-24% growth. Gross margin is projected to be in the range of 66%-67%. At these levels, operating income is projected to approximate 17%, and earnings per share are projected to be in the range of $1.20-$1.25. Earnings-per-share guidance assumes a full-year tax rate of 30%. Subject to unusual transactions, average shares outstanding are projected to remain relatively constant. "We are very pleased to project this level of revenue growth. As a result of the confidence we have in our ability to execute our growth agenda, we are raising the operating profit range for our timeless business model to 16%-18% of total revenues, from 15%-17%," continued Mr. Bertelli. For the first quarter of fiscal year 2005, revenues are expected to be in the range of $51-$54 million. First quarter operating profits are projected in the range of 12%-13%. The Company projects a range of $0.18-$0.22 for earnings per share for the first quarter ending September 30, 2004. Recent Highlights -- July -- Mercury announced that its RACE++(R) Series multicomputer was selected by Lockheed Martin for the Joint Common Missile (JCM) Program. The system will be integrated into the guidance electronics unit of the JCM system, which is the next-generation air-to-ground missile to be carried on U.S. Armed Forces rotary- and fixed-wing platforms. -- July -- Mercury elected George W. Chamillard to its board. Mr. Chamillard is chairman of Teradyne, Inc. a leading supplier of automatic test equipment and interconnection systems. With the addition of Mr. Chamillard, Mercury Computer Systems' board now has eight members, seven of whom are independent. -- June -- Mercury announced an order from Northrop Grumman for Phase II of the Multi-Platform Radar Technology Insertion Program (MP-RTIP). The RapidIO-based PowerStream(R) 7000 system will deliver high-density TeraFLOPS multicomputing for the development of long-lead items for Phase II. Mercury PowerStream MP-510 systems were used in Phase I of MP-RTIP. -- June -- Mercury introduced its XR9 family of Linux(R)-based scalable, modular servers based on dual IBM PowerPC(R) 970FX microprocessors. The cost-effective, high-performance rack-mountable server solutions are optimized for a range of high-performance applications including medical imaging, engineering and scientific simulation, and high- performance data visualization. -- June -- Mercury announced the acquisition of Advanced Radio Corporation (ARC), the Reston, Virginia-based developer of radio frequency (RF) products for signals intelligence (SIGINT) applications and commercial opportunities such as wireless infrastructure testing. The acquisition will enable Mercury customers to purchase integrated, best of breed, commercial off-the-shelf (COTS) solutions that will save time and development costs, as well as provide superior sensitivity for enhanced communications capabilities. -- May -- Mercury announced the acquisition of TGS Group, a leading supplier of 3D image processing and visualization software to diverse end markets including life sciences (medical imaging and biotechnology), geosciences (earth sciences including oil and gas exploration), and simulation (commercial and defense). The integration of Mercury and TGS technology will help customers to meet their critical time-to-market challenges by shortening product development cycles. -- April -- Mercury announced the private sale pursuant to Rule 144A of $125 million aggregate principal amount, which included the $25 million over-allotment option, of convertible senior notes due in 2024. The Company intends to use the net proceeds for general corporate purposes, including working capital, capital expenditures, research and development, and potential acquisitions or other strategic investments.