Mercury Computer Systems Reports Fourth Quarter and Fiscal Year 2008 Results

The Company provides non-GAAP operating income (losses), non-GAAP net income (losses) from continuing operations, and non-GAAP basic and diluted earnings (losses) from continuing operations per share as supplemental measures to GAAP regarding the Company's operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. The adjustments to these non- GAAP financial measures, 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 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 SFAS No. 123R, and allows comparisons of the Company's operating results to those of other companies, both public, private or foreign, that either are not required to adopt SFAS No. 123R, or 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.

In-process research and development. The Company incurs in-process research and development expenses when technological feasibility for acquired technology has not been established at the acquisition date and no future alternative use for such technology exists. These costs do not relate to the Company's ongoing operations and generally cannot be changed or influenced by management at the time of or 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.

Impairment of goodwill and long-lived assets. The Company incurs impairment charges of goodwill and long-lived assets (example, acquired intangible assets in business combinations, such as a non-compete agreement) 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.

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.

Sale of long-lived assets. The Company recorded a significant gain in the fourth quarter of fiscal 2008 in connection with management's decisions to sell off select assets of the Avionics and Unmanned Systems Group (AUSG) reporting unit. 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 gain allows comparisons of operating results that are consistent across past, present and future periods.

Inventory writedown. The Company incurred a significant inventory writedown in the third quarter of fiscal 2008, resulting from the closure of one of our businesses. 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 writedown allows comparisons of operating results that are consistent across past, present and future periods.

Tax valuation allowance. The Company records a tax valuation allowance as an expense item when it is "more likely than not" per FAS 109 criteria that the Company will not reap the benefits of the deferred tax assets (future deductible amounts derived from temporary differences between book and taxable income). Management believes these allowances are not indicative of ongoing operating results, and that exclusion of this expense item allows comparisons of operating results that are consistent across past, present and future periods.

Adjustments for related tax impact. Finally, for purposes of calculating non-GAAP net income (losses) from continuing operations and non-GAAP basic and diluted earnings (losses) from continuing operations per share, management adjusts the (benefit) provision for income taxes to tax effect the non-GAAP adjustments described above as they have a significant impact on the Company's income tax (benefit) provision.

Management excludes the above-described items and their related tax impact 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 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.

These non-GAAP financial measures have not been prepared in accordance with GAAP, and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. These non-GAAP financial measures 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 non-GAAP financial adjustments described above, and investors should not infer from the Company's presentation of these non-GAAP financial measures 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, except per share data)
                                  Three months ended         Year ended
                                        June 30,               June 30,
                                    2008       2007        2008      2007
    Loss from operations         $(20,982)  $(11,345)   $(37,909) $(42,774)
      Stock-based compensation        950      2,566      10,362    10,586
      Amortization of acquired
       intangible assets            1,816      1,797       7,289     7,223
      In-process research and
       development                         -                    -                      -          3,060
            Impairment  of  goodwill              17,983                    -            17,983                  -

            Impairment  of  non-compete
              agreement                                                -                    -                      -                79
            Restructuring                                  3,715            4,463              5,194          5,482
            Sale  of  long-lived  assets        (3,151)                  -            (3,151)                -
            Inventory  writedown                              -                    -                  792                  -
        Non-GAAP  income  (loss)
          from  operations                                  $331        $(2,519)              $560    $(16,344)

                                                                                  Three  months  ended              Year  ended
                                                                  June  30,                              June  30,
                                                                          2008              2007                2008            2007
        Net  loss  from  continuing
          operations                                    $(19,529)    $(20,312)      $(35,399)  $(40,120)
            Stock-based  compensation                950            2,566            10,362        10,586
            Amortization  of  acquired
              intangible  assets                        1,816            1,797              7,289          7,223
            In-process  research  and
              development                                            -                    -                      -          3,060
            Impairment  of  goodwill              17,983                    -            17,983                  -
            Impairment  of  non-compete
              agreement                                                -                    -                      -                79
            Restructuring                                  3,715            4,463              5,194          5,482
            Sale  of  long-lived  assets        (3,151)                  -            (3,151)                -
            Inventory  writedown                              -                    -                  792                  -
            Tax  valuation  allowance
              and  tax  impact  of  excluding
              the  above  items                          (1,600)        10,620                  257          5,900
        Non-GAAP  net  income  (loss)
          from  continuing  operations            $184          $(866)            $3,327      $(7,790)

        Non-GAAP  net  income  (loss)
          from  continuing  operations
          per  share:
            Basic                                                  $0.01          $(0.04)            $0.15        $(0.37)
            Diluted                                              $0.01          $(0.04)            $0.15        $(0.37)

        Non-GAAP  weighted  average
          shares  outstanding:
            Basic                                                21,785          21,331            21,639        21,221
            Diluted  (1)                                    22,161          21,331            22,001        21,221

        (1)  When  calculating  diluted  earnings  per  share,  convertible  debt  must  be
        assumed  to  have  converted  if  the  effect  on  EPS  would  be  dilutive.
        Assuming  a  30%  tax  rate,  dilution  occurs  when  net  income  is  $3.0  million
        per  quarter.    Accordingly,  for  non-GAAP  net  income  (loss)  from  continuing
        operations  per  share  for  the  three  months  and  twelve  months  ended  June  30,
        2008  and  June  30,  2007,  diluted  shares  exclude  the  conversion  of  the
        convertible  debt  as  the  effect  would  be  anti-dilutive.



        MERCURY  COMPUTER  SYSTEMS,  INC.
        RECONCILIATION  OF  FORWARD-LOOKING  GUIDANCE  RANGE
        Quarter  ending  September,  2008
                                                                                                                RANGE
                                                                                  Income  (Loss)  Per      Income  (Loss)  Per
                                                                                    Share  -  Diluted          Share  -  Diluted
        GAAP  expectation                                                                    $-                                $-
        Adjustment  to  exclude  stock-based  compensation        0.07                            0.07
        Adjustment  to  exclude  amortization  of
          acquired  intangible  assets                                              0.06                            0.06
        Adjustment  to  exclude  restructuring                              0.01                            0.01
        Adjustment  for  tax  impact                                                (0.21)                        (0.17)
        Non-GAAP  expectation                                                        $(0.07)                      $(0.03)

 


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