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Mercury Computer Systems Reports Operating Results (10-Q)

May 06, 2010 | About:
10qk

10qk

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Mercury Computer Systems (MRCY) filed Quarterly Report for the period ended 2010-03-31.

Mercury Computer Systems has a market cap of $294.3 million; its shares were traded at around $12.49 with a P/E ratio of 21.2 and P/S ratio of 1.6. MRCY is in the portfolios of George Soros of Soros Fund Management LLC, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Selling, general and administrative expenses decreased $1.3 million, or 3.4%, to $37.4 million during the nine months ended March 31, 2010 as compared to $38.7 million during the same period in fiscal 2009. The decrease was primarily due to a $0.7 million decrease in employee compensation expense, including stock-based compensation expense, driven by awards with historically high valuations becoming fully vested and being offset by new awards with lower valuations and an increase in our estimated forfeiture rate. Additionally, there was a $0.4 million decrease in consultant fees, a $0.4 million decrease in audit expense and a $0.5 million decrease in external legal expense, offset by a $0.2 million increase in recruiting expense.

Research and development expenses decreased $2.3 million, or 6.9%, to $30.7 million during the nine months ended March 31, 2010 as compared to $33.0 million during the same period in fiscal 2009. The decrease was primarily the result of a $4.1 million increase in the time spent by our engineers on billable projects and a $0.3 million decrease in depreciation expense due to assets becoming fully depreciated. This decrease was partially offset by a $1.1 million increase in employee compensation expense, driven by a 14 person increase in headcount, and a $0.9 million increase in outside development expenses related to new product development initiatives. Research and development continues to be a focus of our business with approximately 22.5% of our revenues dedicated to research and development activities during the nine months ended March 31, 2010 and approximately 23.5% of our revenues dedicated to such activities during the same period in fiscal 2009. It is our priority to continue to improve the leverage of our research and development investments in order to realize a more near-term return.

Amortization of acquired intangible assets decreased $0.1 million to $0.4 million for the three months ended March 31, 2010 as compared to $0.5 million during the same period in fiscal 2009. Amortization of acquired intangible assets decreased $0.7 million to $1.3 million for the nine months ended March 31, 2010 as compared to $2.0 million during the same period in fiscal 2009. The decreases in both periods were primarily attributable to assets becoming fully amortized.

We recorded a tax benefit of $2.2 million during the three months ended March 31, 2010 as compared to a $0.1 million expense during the same period in fiscal 2009. Our effective tax rate for the three months ended March 31, 2010 differed from the U.S. statutory tax rate of 35% primarily due to tax benefits resulting from a change in the effective tax rate that resulted in a $0.5 million benefit. In addition, during the third quarter we had several favorable discrete items which included a $0.9 million benefit from our 2009 tax return filing concerning our ability to utilize certain net operating losses, a $0.4 million decrease of our valuation allowance for uncertain tax positions, $0.3 million due to the favorable settlement of issues regarding our 2006 through 2008 tax return filings and $0.1 million for other items.

We recorded a tax benefit of $1.0 million during the nine months ended March 31, 2010 as compared to a $0.1 million expense during the same period in fiscal 2009. Our effective tax rate for the nine months ended March 31, 2010 differed from the U.S. statutory tax rate of 35% primarily due to tax benefits resulting from a change in the effective tax rate that reduced tax expense to $0.7 million. In addition, during the third quarter we had several favorable discrete items which included a $0.9 million benefit from our 2009 tax return filing concerning our ability to utilize certain net operating losses, a $0.4 million decrease of our valuation allowance for uncertain tax positions, $0.3 million due to the favorable settlement of issues regarding our 2006 through 2008 tax return filings and $0.1 million for other items.

Operating profit for ACS increased $0.3 million during the nine months ended March 31, 2010 to $11.1 million as compared to $10.8 million for the same period in fiscal 2009. This improvement was largely attributable to a $3.6 million decrease in provisions for obsolete inventory, a $2.9 million reduction in manufacturing costs due to improved efficiencies, a $1.5 million decrease in warranty expense and a $0.6 million decrease in scrap expenditures, as compared to the same period in fiscal 2009 and a reduction in operating expenses, primarily driven by a decrease in associate headcount as a result of fiscal 2009 restructuring and cost savings efforts. This increase was offset by a decrease in revenue in the commercial and electronic warfare markets.

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