1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 2000 Commission File Number 0-23599
MERCURY COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741391
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
199 RIVERNECK ROAD 01824
CHELMSFORD, MA (Zip Code)
(Address of principal executive offices)
978-256-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO _____
Number of shares outstanding of the issuer's classes of common stock as of
January 31, 2001:
Class Number of Shares Outstanding
-------------------------------------- ----------------------------
Common Stock, par value $.01 per share 21,654,748
Total number of pages 15
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MERCURY COMPUTER SYSTEMS, INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and June 30, 2000 3
Consolidated Statements of Operations for the Three Months Ended
December 31, 2000 and 1999 and for the Six Months Ended
December 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 2. Use of Proceeds from Registered Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports Filed on Form 8-K 13
SIGNATURE 14
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2000 June 30,
(Unaudited) 2000
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 15,646 $ 5,850
Marketable securities 37,414 36,784
Trade accounts receivable, net of allowances of $276 and
$308 at December 31, 2000 and June 30, 2000, respectively 28,425 25,046
Inventory 16,432 15,975
Deferred income taxes, net 1,909 1,909
Income tax receivable 1,492 722
Prepaid expenses and other current assets 5,012 3,496
--------- ---------
Total current assets 106,330 89,782
Marketable securities 25,579 25,705
Property and equipment, net 28,490 27,574
Deferred income taxes, net 787 787
Other assets 358 369
--------- ---------
Total assets $ 161,544 $ 144,217
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,742 $ 9,231
Accrued expenses 4,873 2,486
Accrued compensation 6,745 6,143
Capital lease - short term 491 580
Notes payable - short term 577 577
Billings in excess of revenues and customer advances 3,701 2,788
--------- ---------
Total current liabilities 22,129 21,805
Commitments and contingencies -- --
Deferred compensation - long term 222 --
Capital lease - long term 228 447
Notes payable - long term 13,320 13,605
Stockholders' equity:
Common stock, $.01 par value: 40,000,000 shares authorized;
21,593,518 and 21,395,137 shares issued and outstanding
at December 31, 2000 and June 30, 2000, respectively 216 214
Additional paid-in capital 37,598 34,446
Retained earnings 87,858 73,841
Accumulated other comprehensive income (27) (141)
--------- ---------
Total stockholders' equity 125,645 108,360
--------- ---------
Total liabilities and stockholders' equity $ 161,544 $ 144,217
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per share data)
Three months ended Six months ended
December 31, December 31,
2000 1999 2000 1999
-------- -------- -------- --------
Net revenue $ 43,325 $ 35,405 $ 84,794 $ 73,268
Cost of revenue 14,189 9,333 27,313 19,370
-------- -------- -------- --------
Gross profit 29,136 26,072 57,481 53,898
Operating expenses:
Selling, general and administrative 12,779 10,144 24,902 19,249
Research and development 7,954 6,851 14,697 12,388
-------- -------- -------- --------
Total operating expenses 20,733 16,995 39,599 31,637
-------- -------- -------- --------
Income from operations 8,403 9,077 17,882 22,261
Interest income 1,004 574 1,932 896
Interest expense (268) (106) (543) (124)
Equity loss in joint venture (476) (926) (1,711) (1,441)
Gain on sale of division, net 1,600 -- 3,200 --
Other income (expenses), net (104) 93 (147) 77
-------- -------- -------- --------
Income before income taxes 10,159 8,712 20,613 21,669
Provision for income taxes 3,251 2,876 6,596 7,541
-------- -------- -------- --------
Net Income $ 6,908 $ 5,836 $ 14,017 $ 14,128
======== ======== ======== ========
Net income per share
Basic $ 0.32 $ 0.28 $ 0.65 $ 0.68
======== ======== ======== ========
Diluted $ 0.30 $ 0.26 $ 0.61 $ 0.63
======== ======== ======== ========
Weighted average shares outstanding:
Basic 21,484 20,871 21,445 20,779
======== ======== ======== ========
Diluted 23,006 22,660 22,876 22,370
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements
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MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Six Months Ended
December 31,
2000 1999
-------- --------
Cash flows provided from operating activities:
Net income $ 14,017 $ 14,128
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 2,977 2,388
Amortization of capitalized software development costs -- 156
Gain on sale of division, net (3,200) --
Provision for inventory write-downs 2,087 1,303
Equity loss in joint venture 1,733 1,441
Tax benefit from disqualified dispositions 1,137 --
Other non-cash (28) --
Changes in assets and liabilities:
Trade accounts receivable (3,419) 4,488
Inventory (2,577) (99)
Prepaid expenses and other current assets (1,344) 376
Other assets (991) (117)
Accounts payable (3,488) (1,914)
Accrued expenses and compensation 2,099 (489)
Deferred compensation 222 --
Billings in excess of revenues and customer advances 930 (1,100)
Income taxes receivable (763) --
Income taxes payable -- 734
-------- --------
Net cash provided by operating activities 9,392 21,295
-------- --------
Cash flows from investing activities:
Purchase of marketable securities (50,301) (71,616)
Sale of marketable securities 50,093 38,944
Purchases of property and equipment (3,875) (1,701)
Proceeds from sale of division net of selling costs 3,200 --
Investment in joint venture (60) (2,500)
-------- --------
Net cash used in investing activities (943) (36,873)
-------- --------
Cash flows from financing activities:
Proceeds from employee stock purchase plan and
the exercise of stock options 2,017 2,071
Proceeds from issuance of notes -- 14,500
Payments of debt (308) (45)
Principal payments under capital lease obligations (285) (229)
-------- --------
Net cash (used in) provided by financing activities 1,424 16,297
-------- --------
Net increase in cash and cash equivalents 9,873 719
Effect of exchange rate change on cash and cash equivalents (77) 128
Cash and cash equivalents at beginning of period 5,850 3,676
-------- --------
Cash and cash equivalents at end of period $ 15,646 $ 4,523
======== ========
Cash paid during the period for:
Interest $ 543 $ 124
Income taxes 7,839 6,532
The accompanying notes are an integral part of the consolidated financial
statements.
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MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
A. BASIS OF PRESENTATION
These consolidated financial statements should be read in conjunction with the
Company's financial statements and footnotes included in the Company's Form
10-K, filed with the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited financial statements include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the consolidated financial position, results of operations and cash flows
of Mercury Computer Systems, Inc.
B. INVENTORY
December 31, June 30,
2000 2000
------------ --------
Raw materials $ 6,807 $ 4,252
Work in process 4,796 7,415
Finished goods 4,829 4,308
------- -------
Total $16,432 $15,975
======= =======
C. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
per common share:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
------- ------- ------- -------
Net income $ 6,908 $ 5,836 $14,017 $14,128
======= ======= ======= =======
Shares used in computation:
Weighted average common shares outstanding used
in computation of basic net income per share 21,484 20,871 21,445 20,779
Dilutive effect of stock options 1,522 1,789 1,431 1,591
------- ------- ------- -------
Shares used in computation of diluted net
income per share 23,006 22,660 22,876 22,370
======= ======= ======= =======
Basic net income per share $ 0.32 $ 0.28 $ 0.65 $ 0.68
======= ======= ======= =======
Dilutive net income per share $ 0.30 $ 0.26 $ 0.61 $ 0.63
======= ======= ======= =======
Options to purchase 158,250 and 0 shares of common stock outstanding during the
three months ended December 31, 2000 and 1999, respectively, were not included
in the calculation of diluted net income per common share because the option
price was greater than the average market price of the common shares during the
period. Options to purchase 274,915 and 25,587 shares of common stock
outstanding during the six months ended December 31, 2000 and 1999,
respectively, were not included in the calculation of diluted net income per
common share because the option price was greater than the average market price
of the common shares during the period.
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D. NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998. SFAS No. 137 defers the effective date of SFAS No. 133 to the
first quarter of fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in either current earnings or accumulated other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and the type of hedge transaction. The adoption of SFAS No. 133 did not have a
material impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes the staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's fourth quarter of
fiscal year 2001. The effects of applying this guidance will be reported as a
cumulative effect adjustment resulting from a change in accounting principle.
The Company has not completed its evaluation of SAB 101 and therefore is unable
to determine its impact.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on the Company's financial
position or results of operations.
E. COMPREHENSIVE INCOME
Mercury's total comprehensive income was as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 6,908 $ 5,836 $ 14,017 $ 14,128
Other comprehensive income, net of tax:
Foreign currency translation adjustments (158) 2 (124) 90
Unrealized gain or (loss) on securities 148 (48) 203 (60)
-------- -------- -------- --------
Other comprehensive income (10) (46) 79 30
-------- -------- -------- --------
Total comprehensive income $ 6,898 $ 5,790 $ 14,096 $ 14,158
======== ======== ======== ========
F. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
During the three month period ended December 31, 2000, the Company had six
principal operating segments: North American defense, international defense,
medical imaging, commercial businesses, wireless communications, and research
and development. These operating segments were determined based upon the nature
of the products offered to customers, the market characteristics of each
operating segment, and the Company's management structure. The Company has five
reportable segments: North American defense segment, medical imaging segment,
commercial segment, other defense and commercial segment, and research and
development segment. The other commercial segment is comprised of international
defense, wireless communications, and other commercial businesses unrelated to
the defense or medical businesses. A new commercial operating segment was
established during the first quarter of fiscal 2000. Previously, most commercial
businesses were included with the North American and international operating
segments. Historical information was not restated to reflect this business
reorganization because it is impractical to obtain the necessary information.
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The accounting policies of the business segments are the same as those described
in "Note B: Summary of Significant Accounting Policies" in the Company's Annual
Report on Form 10-K for the year ended June 30, 2000. The following table
provides operating segment information for the three-month and six month periods
ended December 31, 2000 and 1999:
North Other Defense
American Medical and Research and
Defense Imaging Commercial Commercial Development
Segment Segment Segment Segment Segment Corporate Consolidated
-------- ------- ---------- ------------- ------------ --------- ------------
THREE MONTHS ENDED DECEMBER 31, 2000
Sales to unaffiliated customers $24,276 $10,439 $ 4,661 $ 3,949 -- -- $43,325
Income (loss) before taxes(1) 16,245 3,546 2,694 1,360 (7,955) (5,730) 10,159
Depreciation/amort. expense 196 13 3 75 434 811 1,532
THREE MONTHS ENDED DECEMBER 31, 1999:
Sales to unaffiliated customers $23,819 $ 6,875 -- $ 4,711 -- -- $35,405
Income (loss) before taxes(1) 16,637 2,807 -- 476 (6,417) (4,791) 8,712
Depreciation/amort. expense 34 11 -- 63 301 878 1,287
SIX MONTHS ENDED DECEMBER 31, 2000:
Sales to unaffiliated customers $52,005 $19,317 $ 7,996 $ 5,476 -- -- $84,794
Income (loss) before taxes(1) 34,641 6,259 4,360 1,334 (14,698) (11,282) 20,613
Depreciation/amort. expense 384 21 4 142 813 1,613 2,977
SIX MONTHS ENDED DECEMBER 31, 1999:
Sales to unaffiliated customers $54,072 $11,836 -- $ 7,360 -- -- $73,268
Income (loss) before taxes(1) 38,576 4,825 -- 326 (11,642) (10,416) 21,669
Depreciation/amort. expense 68 22 -- 118 573 1,763 2,544
(1) Interest income, interest expense and foreign exchange gain/(loss) are
reported in Corporate and not allocated to the principal operating
segments. Only expenses directly related to an operating segment were
charged to the appropriate operating segment. All other expenses for
marketing and administrative support activities that could not be
specifically identified with a principal operating segment were allocated
to Corporate.
G. EQUITY LOSS IN JOINT VENTURE
In September, 1999, the Company formed AgileVision as a joint venture with
Sarnoff Corporation, the developer of color television and a pioneer in the
creation of digital television ("DTV"). AgileVision provides broadcasters and
cable providers equipment to optimize their DTV investment and develop new
broadband media commerce revenue streams, including master control systems that
permit broadcasters to perform multiple functions on a single platform that
previously would have required the engineering and integration of numerous
discrete products and systems. As of December 31, 2000, the Company has
contributed $4,560,000 to Agilevision. During the three month periods ended
December 31, 2000 and 1999, the Company recognized $476,000 and $926,000,
respectively, in expenses related to the operations of Agilevision. During the
six month periods ended December 31, 2000 and 1999, the Company recognized $1.7
million and $1.4 million, respectively, in expenses related to the operations of
Agilevision.
Summarized Income Statements for AgileVision during the periods ended December
31, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
Expenses $ 476 $ 926 $1,711 $1,441
------ ------ ------ ------
Loss from continuing operations 476 926 1,711 1,441
------ ------ ------ ------
Net loss $ 476 $ 926 $1,711 $1,441
====== ====== ====== ======
Summarized Statements of Financial Position of AgileVision:
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December 31, June 30,
2000 2000
-----------------------------
Current assets $ 359 $ 1,009
Non-current assets 34 12
------- -------
Total assets 393 1,021
======= =======
Current liabilities 2,023 2,744
Non-current liabilities 2,000 --
-------
Shareholders' equity (3,630) (1,723)
------- -------
Total liabilities and equity $ 393 $ 1,021
======= =======
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" which involve risks and uncertainties.
The words "may," "will," "expect," "anticipate," "continue", "estimate",
"project," "intend" and similar expressions are intended to identify
forward-looking statements regarding events, conditions and financial trends
that may affect the Company's future plans of operations, business strategy,
results of operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which there can be no firm assurances given. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made. As it is not possible to predict every new factor that may
emerge, forward-looking statements should not be relied upon as a prediction of
actual future financial condition or results. Important factors that may cause
the Company's actual results to differ from forward-looking statements are
referenced in the Company's Form 10-K filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
REVENUES
The Company's total revenues increased 22% from $35.4 million during the three
months ended December 31, 1999 to $43.3 million during the three months ended
December 31, 2000. Revenue increased 16% from $73.3 million during the six
months ended December 31, 1999 to $84.8 million during the six months ended
December 31, 2000.
Defense electronics revenues increased 12% from $25.2 million or 72% of total
revenues during the three months ended December 31, 1999 to $28.2 million or 65%
of total revenues during the three months ended December 31, 2000. Defense
electronics revenues increased 3% from $55.8 million or 76% of total revenues
during the six months ended December 31, 1999 to $57.3 million or 67% of total
revenues during the six months ended December 31, 2000. The increase in revenues
was due primarily to continued strong demand for defense electronics products.
Medical imaging revenues increased 51% from $6.9 million or 19% of total
revenues during the three months ended December 31, 1999 to $10.4 million or 24%
of total revenues during the three months ended December 31, 2000. Medical
imaging revenues for the six months ended December 31, 2000 increased 64% to
$19.3 million or 23% of total revenues from $11.8 million or 16% or total
revenues for the six months ended December 31, 1999. The increase in medical
imaging revenues is primarily due to strong growth in both magnetic resonance
imaging (MRI) and computed tomography (CT) systems, along with initial
production shipments for the Company's first digital cardiology design win.
Other revenues increased 42% from $3.3 million or 9% of total revenues during
the three months ended December 31, 1999 to $4.7 million or 11% of total
revenues during the three months ended December 31, 2000. Other revenues for the
six months ended December 31, 2000 increased 43% to $8.1 million or 10% of total
revenues from $5.7 million or 8% of total revenues for the six months ended
December 31, 1999. The increase in other revenues was due primarily to the
shipments of imaging systems into the semiconductor industry, along with
continued sales growth to commercial customers.
COST OF REVENUES
Cost of revenues increased 52% from $9.3 million during the three months ended
December 31,1999 to $14.2 million during the three months ended December 31,
2000. As a percent of total revenues, cost of revenues increased from 26% during
the three month period ended December 31, 1999 to 33% for the three months ended
December 31, 2000. For the six months ended December 31, 2000, cost of revenues
increased by 41% to $27.3 million from $19.4 million during the six months ended
December 31, 1999. As a percent of revenues, cost of revenues increased from 26%
during the six months ended December 31, 1999 to 32% during the six months ended
December 31, 2000. This increase in cost as a percentage of total revenue was
primarily due to an increase in certain processing and component costs, to a
shift in product mix and costs associated with re-establishing certain
discontinued standard parts.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expenses increased 26% from $10.1 million
during the three months ended December 31, 1999 to $12.8 million during the
three months ended December 31, 2000. Selling, general and administrative
expenses increased 29% from $19.2 million during the six months ended December
31, 1999 to $24.9 million during the six months ended December 31, 2000. The
increase was primarily due to expenses associated with the ongoing cost of
implementing a new financial, manufacturing, and administrative computer
system. Additionally, commissions associated with higher sales volume and the
ongoing development of the Company's sales and management infrastructure to
support the Company's growth contributed to the increased expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 16% from $6.9 million during the
three months ended December 31, 1999 to $8.0 million during the three months
ended December 31, 2000. Research and development expenses increased by 19% from
$12.4 million during the six months ended December 31, 1999 to $14.7 million
during the six months ended December 31, 2000. The increase in research and
development expenses was due primarily to the hiring of additional software and
hardware engineers to develop and enhance the features and functionality of the
Company's products and the introduction of new products in response to
demand for next generation products. Even with the increase in research and
development expenses as compared with a year ago, expenses are running lower
than management's expectations due to the delay in certain prototyping
activities. Management anticipates that in the near term, research and
development expenses will increase as certain projects enter into the
prototyping phase.
INCOME FROM OPERATIONS
Income from operations decreased 7% from $9.1 million during the three months
ended December 31, 1999 to $8.4 million during the three months ended December
31, 2000. Income from operations decreased to $17.9 million during the six
months ended December 31, 2000 from $22.3 million during the six months ended
December 31, 1999. This decrease is associated with lower gross margins coupled
with increased operating expenses.
Included in income from operations during the six months ended December 31, 1999
were $1.6 million in hardware and software revenues and approximately $2.0
million in direct expenses related to the shared storage business (the "SSBU").
The direct expenses include expenses from marketing and engineering activities,
primarily related to compensation, trade shows, prototype development and direct
costs related to the sale of the product, including certain hardware costs. The
SSBU was sold during January, 2000 and therefore, the company did not record any
operating income from this business unit during the three and six months ended
December 31, 2000.
EQUITY LOSS IN JOINT VENTURE
In September, 1999, the Company formed AgileVision as a joint venture with
Sarnoff Corporation, the developer of color television and a pioneer in the
creation of digital television ("DTV"). AgileVision will provide broadcasters
and cable providers equipment to optimize their DTV investment and develop new
broadband media commerce revenue streams. These master control systems permit
broadcasters to perform multiple functions on a single platform that previously
would have required the engineering and integration of numerous discrete
products and systems. The Company's contribution, to date, to AgileVision was
$4.6 million. During the three month periods ended December 31, 2000 and 1999
the Company recognized $476,000 and $926,000, respectively in expenses related
to the operations of AgileVision. During the six month periods ended December
31, 2000 and 1999, the Company recognized $1.7 million and $1.4 million,
respectively, in expenses related to the operations of AgileVision.
PROVISION FOR INCOME TAX
The Company recorded a tax provision of $3.3 million during the three months
ended December 31, 2000 reflecting a 32% tax rate as compared to a $2.9 million
tax provision during the three months ended December 31, 1999, reflecting a 33%
tax rate. The Company recorded a tax provision of $6.6 million during the six
months ended December 31, 2000 reflecting a 32% tax rate as compared to a $7.5
million tax provision during the six months ended December 31, 1999, reflecting
a 35% tax rate. The decrease in the tax rate was due primarily to the expiration
of the research and experimentation tax credit last year. Congress reinstated
the tax credit during the second half of fiscal 2000, thus favorably affecting
the Company's current tax rate.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had cash and marketable investments of
approximately $78.6 million. During the six months ended December 31, 2000, the
Company generated approximately $9.4 million in cash from operations compared to
$21.3 million generated during the six months ended December 31, 1999. Trade
accounts receivable increased using $3.4 million, primarily attributable to the
increase in revenue late in the period and trade accounts payable decreased
using $3.5 million, primarily attributable to payments to key product suppliers.
Days sales outstanding was 59 days and 62 days at December 31, 2000 and 1999,
respectively.
During the six months ended December 31, 2000, the Company's investing
activities used cash of $943,000. During the period, investing activities
consisted of $3.9 million for the purchase of computers, furniture and
equipment. These cash outflows partially offset the receipt of $3.2 million net
of selling costs from proceeds received on the sale of the SSBU division. During
the six months ended December 31, 1999, the Company's investing activities used
cash of $36.9 million, which consisted of $32.7 million for the purchase of
marketable securities (net of sales), $2.5 million for the investment in a joint
venture, and $1.7 million for the purchase of computers, furniture equipment and
leasehold improvements.
During the six months ended December 31, 2000, the Company's financing
activities provided approximately $1.4 million. These financing activities
consisted primarily of inflows from the exercise of stock options and proceeds
received from the employee stock purchase plan, offset by outflows from payment
under capital lease obligations and debt. During the six months ended December
31, 1999, the Company's financing activities provided cash of $16.3 million,
which consisted primarily of $14.5 million in proceeds received upon the
issuance of two 7.30% senior secured financing notes. These notes are due
November 2014. In addition, $2.1 million in cash was generated in the six months
ended December 31, 1999 from the employee stock purchase plan and the exercise
of stock options.
Management believes that the Company's available cash, plus cash generated from
operations, will be sufficient to provide for the Company's working capital and
capital expenditure requirements for the foreseeable future. If the Company
acquires one or more businesses or products, the Company's capital requirements
could increase substantially. In the event of such an acquisition or in the
event that any unanticipated circumstances arise which significantly increase
the Company's capital requirements, there can be no assurance that necessary
additional capital will be available on terms acceptable to the Company, if at
all.
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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
INTEREST RATE RISK MANAGEMENT
There were no material changes in the Company's exposure to market risk from
June 30, 2000.
PART II. OTHER INFORMATION
ITEM 2. Use of Proceeds from Registered Securities:
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
On November 16, 2000, the Company held a Special Meeting in lieu of the
2000 Annual Meeting of Stockholders (the "Meeting"). At the meeting, James R.
Bertelli and R. Schorr Berman were reelected as directors for terms ending in
2002. The voting results were as follows:
James R. Bertelli For 17,181,930 Withheld 190,243
R. Schorr Berman For 17,179,990 Withheld 192,183
The terms of the following Directors continued after the meeting:
Dr. Albert P. Belle Isle
James A. Dwyer
Melvin Sallen
Dr. Gordon B. Baty
Sherman N. Mullin
ITEM 5. Other Information
Effective December 1, 2000, R. Schorr Berman resigned as a director of the
Company.
Effective January 15, 2001, Russell K. Johnsen and Michael Schneider were
elected to the Company's Board of Directors.
ITEM 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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MERCURY COMPUTER SYSTEMS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCURY COMPUTER SYSTEMS, INC.
Date: February 14, 2001 By: /s/ G. Mead Wyman
------------------------------------
G. Mead Wyman
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
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