Mercury Computer Systems Reports Strong Fourth Quarter Ending Fiscal 2002 On High Note.

Business/Technology Editors

CHELMSFORD, Mass.--(BUSINESS WIRE)--Aug. 5, 2002

Mercury Computer Systems, Inc. (NASDAQ: MRCY) today reported results for the fourth quarter and fiscal year ended June 30, 2002.

Posting its 46th consecutive quarter of profitable Company performance in the fourth quarter:

-- Revenues were $150.1 million.

-- Operating income was $14.6 million, or 10% of revenues.

-- Net income was $15.8 million, or 11% of revenues.

-- EPS (diluted) was $0.69.

For the full year fiscal 2002:

-- Revenues were $150.1 million.

-- Operating income was $14.6 million, or 10% of revenues.

-- Net income was $15.8 million, or 11% of revenues.

-- EPS (diluted) was $0.69.

"Fiscal 2002 was a challenging year for the Company, particularly from a predictability standpoint, but it was pleasing and encouraging for the future to end the year on a high note," said Jay Bertelli, president and CEO of Mercury Computer Systems. "Visibility within our defense electronics business continued to improve with another good bookings quarter. And, while revenue was down within our medical diagnostic imaging and OEM solutions businesses, this was anticipated. We have confidence in the long-term health of both of these important parts of the business going forward. We continue to make progress with design wins in both our medical imaging and OEM solutions businesses, as well as new development program wins in defense, building momentum as we begin the new fiscal year."

Defense Electronics

Fourth quarter defense revenues were $34.1 million, representing 79% of the Company's total revenues for the quarter, up 93% over the previous quarter, and up 8% over the year-ago quarter. FY2002 defense revenues were $98.2 million, accounting for 65% of the Company's total revenues for the year, down 18% over FY2001. Included in the defense revenues for the quarter and fiscal year, consistent with our earlier guidance, are approximately $3 million generated from the Company's recently acquired I/O Center of Excellence (IOCE was previously Myriad Logic). The fourth quarter continued the trend from the third quarter of improved bookings from the worldwide defense business.

Notable bookings within defense electronics during the quarter included an order for the System Development and Demonstration (SDD) phase of the F-35 Joint Strike Fighter (JSF) program valued at approximately $5 million, and an order for systems to be used in the research and development phase of the UHF Electronically Scanned Array (UESA) radar valued at approximately $1.5 million.

Medical Diagnostic Imaging

Fourth quarter medical imaging revenues were $6.6 million, accounting for 15% of the Company's fourth-quarter revenues, down, as expected, 54% from the previous quarter and down 52% over the year-ago quarter. For FY2002, medical imaging revenues were $41.4 million, representing 28% of the Company's total revenues for the year, down slightly as anticipated, 5% from FY2001. The decline in medical imaging revenues was due primarily to anticipated reduction in shipments for current CT OEM customers as they begin introductions of next-generation CT systems into which we are not designed. In addition, we experienced some reduction in revenues resulting from customers migrating to our new, higher-performance products allowing them to process algorithms with smaller configurations, thus resulting in reduced average revenue per system shipped in some modalities. During the year, the Company did secure three new design wins in medical imaging, expanding its penetration in MRI, securing a design win for a next-generation PET system, and capturing a design win for a new digital angiography system. These new design wins would be expected to transition through a typical development cycle and should begin moving into production in the 12- to-18 month timeframe.

OEM Solutions

Fourth quarter OEM solutions revenues were $2.2 million, accounting for 5% of the Company's revenues for the quarter, down 25% from the previous quarter, and down 31% over the year-ago quarter. For FY2002, OEM solutions revenues were $10.5 million, representing 7% of the Company's total revenues for the year, down 37% from FY2001 due primarily to the continuing slump in the semiconductor capital equipment manufacturers market. The Company secured one new design win within the semiconductor imaging market during the fourth quarter, bringing the cumulative design wins to 13 across multiple OEM customers spanning start-ups to first-tier OEMs. The Company experienced a strong bookings quarter in this business, as semiconductor OEMs continue to move their developments toward production. In addition, included in the significant orders for the quarter were orders from InVision Technologies valued at approximately $1.3 million for Mercury systems embedded within InVision's high-end, CTX 9000 DSi Explosives Detection Systems to be installed in airport baggage scanning systems.

Wireless Communications

The Company remains bullish on the long-term potential of this market because fundamentally, spectrum is a finite resource and ultimately new technology will be required to maximize the revenue-generating capacity of this valuable resource. We believe Mercury's unique products and competencies provide a compelling business case for embedding our technologies in future infrastructure designs. However, as everyone realizes, the downturn in the telecom industry has resulted in significant reductions in infrastructure investments. Therefore, while the team will continue to pursue business within the commercial wireless base station market, the Company has begun to refocus some of its wireless communications resources into adjacent telecom application areas where investments continue to be made and there is a greater potential for revenue in the nearer-term. Also, within the defense communications area, there are significant opportunities in Signals Intelligence (SIGINT) and Communications Intelligence (COMINT) applications, and in Software Defined Radio (SDR), for Mercury's products and competencies. There is increased focus in these application areas since 9/11, and Mercury plans to capture a significant share of the opportunities anticipated over the coming years.

Backlog Summary

The Company started FY2002 with a 12-month backlog of approximately $39.4 million. With order rates improving over the last three quarters, particularly within the defense electronics business, the Company ended the year with a record 12-month backlog of $60.9 million. The defense-related backlog is spread over a longer period of time than has been traditional. This is due primarily to the receipt of orders for major deployed programs that have multiple shipments scheduled over several quarters, rather than the historical pattern of scheduling large block system shipments covering the requirements for an entire deployment program. This should act to smooth some of the lumpiness and improve the overall visibility with defense-related revenues in the coming quarters.

Business Outlook

The following estimates are our best understanding, given current visibility on business outlook. It is possible that actual performance will be outside the ranges and estimates given--either on the upside or on the downside. Investors should consider all of the risks identified, 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.

Jack Alexander, Mercury senior vice president and CFO, said, "As you all know, we continue to be in a broad economic and geo-political environment with a great deal of risk that limits predictability of operating results. As a result, we have developed a conservative base plan for revenue for FY2003 and structured investments and expenses in order to achieve a solid financial return, while continuing to invest in critical programs for the future. We will, of course, revise our planning and guidance as we progress through FY2003 should business conditions and/or forward visibility change."

The Company currently expects that annual corporate revenue growth in FY2003 will be in the range of 13% to 17% resulting in fiscal year revenues in the range of $170 million to $175 million. The IOCE is expected to contribute approximately 7% of the year-over-year increase in revenues. At these revenue levels, our annual operating income should be in the range of 12% to 14% of revenues, and our annual earnings per share should be in the $0.90 to $1.00 range, representing an increase of 30% to 45% over FY2002.

In the first quarter of FY2003, revenues are expected to be in the range of $37 million to $40 million, representing a 6% to 15% year-over-year growth. At these revenue levels, our quarterly operating income should approximate 10% of revenues, and our quarterly earnings per share should be in the range of $0.16 to $0.20, representing flat-to-modest growth over first quarter FY2002.

"Looking ahead to FY2003," said Mr. Bertelli, "we anticipate modest growth in our defense business of between 10% and 15% excluding the contribution from the IOCE, and between 20% and 25% growth including the IOCE anticipated performance, and a decline of 15% to 20% in medical revenues due to the same factors that impacted the fourth quarter of FY2002. In addition, we anticipate significant growth, perhaps doubling, in our semiconductor imaging business as several of our design wins move from development into pre-production and then production phases. The timing of movement from development to pre-production and production of the semiconductor imaging systems and the magnitude of the associated revenue growth, however, is highly dependent upon the recovery of the semiconductor capital equipment market and very difficult to predict. Within the OEM solutions area, we are not anticipating significant revenues from the digital entertainment market and as a result will be focusing our resources on the semiconductor equipment market.

"All current indications suggest we will continue to see increased worldwide military investment in enhanced Intelligence, Surveillance, and Reconnaissance (ISR) capability that should benefit Mercury's business in the coming quarters and years. To provide increased focus and responsiveness to customers, we have recently restructured our worldwide defense team. With the goal of increasing our market share in all target segments of the defense electronics market, we have transformed the organization from a single, horizontal sales force selling all products for all applications to all defense customers, into a group of vertical, market/application segment focused teams. Each market segment team is responsible for understanding and responding to its specific target customer requirements and profitably growing the business from the assigned segment. The initial segments include radar, SIGINT/electronic warfare, sonar, and smart weapons/image exploitation. As stated earlier in this report, while we will continue activities in the telecom market, we will refocus some of our investments in favor of the promising defense application areas in SIGINT and SDR where the same skill sets and technologies are applicable.

"Contained within our FY2003 operating plan are those investments in both product development and market development that are anticipated to significantly expand the Company's served market potential. The Company's sustainable competitive advantage will continue to be rooted in superior product innovation. While components of our systems will be based on standards and be available from third parties (e.g., Linux, and chips with RapidIO interconnect), the architecture of our multicomputer system and our unrelenting focus on delivering the optimal performance solution for each customer's unique requirements, will continue to provide Mercury Computer Systems with a strong competitive advantage.

"While we are optimistic that the worst is behind us, it remains a cautious optimism due to the continued uncertainty throughout the market. Therefore, we have taken a conservative view as we start the new fiscal year, controlling our expenses and investments accordingly and we'll adjust the plan as the year develops," said Mr. Bertelli. "However, we will continue to invest in our future by making the investments that will maintain our market leadership. We continue to make what we believe are the right strategic product development and market development investment decisions to keep the Company in a favorable position to capitalize on the growing demand for high-performance multicomputer solutions for demanding applications."

Forward-Looking Safe Harbor Statement

This press release contains certain forward-looking statements including those dealing with overall business outlook and segment growth. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Factors that could cause or contribute to such risks and uncertainties include, but are not limited to, general economic and business conditions, competition, changes in technology and methods of marketing, and various other factors beyond the Company's control. These risks and uncertainties include such factors as are described in the Company's recently filed reports with the Securities and Exchange Commission in the USA. The Company wishes to caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Conference Call Information

Mercury will conduct a conference call on Monday, August 5, 2002, beginning at 5:00 P.M. ET to discuss the results for the quarter. The Company's President and CEO Mr. Jay Bertelli, and Mr. Jack Alexander, Mercury's CFO, will review the Company's performance, and will answer questions from analysts and investors. To participate in the conference call, dial [phone] in the USA and Canada, and for international, dial [phone]. Please call five to ten minutes prior to the scheduled start time. The conference code number is 168472. Or, if you prefer, you can listen to the conference call live over the World Wide Web by accessing our web site at www.mc.com/investor and clicking on the link to our webcast of the conference call.

A replay of the call will be available on Mercury Computer Systems' web site, www.mc.com/investor, beginning Tuesday, August 6, and continuing through 5:00 P.M. ET Monday, August 26, 2002. A replay of the call by telephone will also be available from approximately 8:00 P.M. ET on Monday, August 5, 2002, through 12:00 P.M. midnight ET, on Monday August 12, 2002. To access the replay, please dial [phone] in the USA and Canada, or for international dial [phone]. The access code is 168472.

About Mercury Computer Systems, Inc.

Mercury Computer Systems, Inc. (NASDAQ: MRCY) is the leading producer of high-performance embedded, real-time digital signal and image processing computer systems. Mercury's products play a critical role in a wide range of applications, transforming sensor data to information for analysis and interpretation. In military reconnaissance and surveillance platforms the Company's systems process real-time radar, sonar, and signals intelligence data. Mercury is developing commercial wireless communications solutions in areas such as WCDMA multi-user detection and smart antennas. Mercury's systems are also used in state-of-the-art medical diagnostic imaging devices including MRI, CT, PET, and digital X-ray, and in semiconductor imaging applications including photomask generation and wafer inspection.

Based in Chelmsford, Massachusetts, Mercury serves customers in North America, Europe and Asia through its direct sales force and a network of subsidiaries and distributors.

Visit Mercury on the Web: www.mc.com

                    Mercury Computer Systems, Inc.
                 Consolidated Statements of Operations
                 (In thousands except per share data)
                              (unaudited)

                            Three months ended    Twelve months ended
                                  June 30,             June 30,
                               2002      2001       2002        2001

Net revenue                  $42,955   $48,745   $150,115    $180,492
Cost of revenue               15,307    17,228     52,244      59,815

 Gross profit                 27,648    31,517     97,871     120,677

Operating expenses:
 Selling, general and
  administrative              12,912    13,127     48,939      50,636
 Research and development      9,285     7,740     34,354      30,484

 Total operating expenses     22,197    20,867     83,293      81,120

Income from operations         5,451    10,650     14,578      39,557

Interest income                  588     1,050      3,752       3,977
Interest expense                (242)     (259)      (987)     (1,065)
Gain on sale of division and
 joint venture                 1,600     1,600      6,478       6,400
Equity loss in joint venture    --        (243)    (1,752)     (3,310)
Other income (expenses), net      90        35        (86)       (435)

Income before income taxes     7,487    12,833     21,983      45,124

Provision for income taxes     2,096     4,107      6,155      14,440

 Net Income                  $ 5,391   $ 8,726   $ 15,828    $ 30,684

Diluted earnings per common
 share and common share
 equivalent                  $  0.24   $  0.37   $   0.69    $   1.33

Weighted average diluted
 common and common share
 equivalents                  22,099    23,369     22,918      23,104




                    Mercury Computer Systems, Inc.
                      Consolidated Balance Sheets
                   (In thousands, except share data)
                              (unaudited)

                                                   June 30,   June 30,
                                                     2002       2001
ASSETS
Current assets:
 Cash and cash equivalents                        $ 17,513    $ 13,307
 Marketable securities                              37,997      54,135
 Trade accounts receivable, net of
  allowances of $792 and $600 at
  June 30, 2002 and June 30, 2001,                  31,797      34,928
  respectively
 Inventory                                          14,540      12,840
 Deferred income taxes, net                          5,621       3,206
 Prepaid income taxes                                3,120        --
 Prepaid expenses and other current assets           3,950       5,341

  Total current assets                             114,538     123,757

Marketable securities                               15,870      28,166
Property and equipment, net                         27,961      28,793
Goodwill and intangible assets, net                  7,413        --
Deferred income taxes, net                             435       2,207
Other assets                                           894         661

 Total assets                                     $167,111    $183,584

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                 $  4,673    $  6,638
 Accrued expenses                                    5,291       4,263
 Accrued compensation                                6,277       7,427
 Capital lease - short term                             92         292
 Note payable - short term                             667         621
 Billings in excess of revenues and customer
  advances                                           1,487       1,060
 Taxes payable                                        --         2,065

  Total current liabilities                         18,487      22,366

Deferred compensation - long term                      562         337
Capital lease - long term                             --           108
Note payable - long term                            12,337      12,985

Stockholders' equity:
 Common stock, $.01 par value: 65,000,000
  shares authorized; 22,268,427 and 21,811,738
  shares issued and outstanding at June 30, 2002
  and June 30, 2001, respectively                      222         218
 Additional paid-in capital                         49,863      42,575
 Treasury stock, at cost, 1,143,800 shares
  at June 30, 2002                                 (34,993)       --
 Retained earnings                                 120,353     104,525
 Accumulated other comprehensive income                280         470

  Total stockholders' equity                       135,725     147,788

  Total liabilities and stockholders' equity      $167,111    $183,584