MOUNTAIN VIEW, Calif. (November 15, 2006) — Explanatory Note: This is a corrected version of the press release issued on November 13, 2006 to remedy two typographical errors in the text of the press release relating to GAAP operating expense and operating loss for the quarter ended September 29, 2006. The financial statements attached to the release did not change as a result of this correction. The information was accurately disclosed in the Company's Form 10-Q filed on November 13, 2006.
SGI (NASDAQ: SGIC) today announced financial results for the first quarter of fiscal 2007 ended September 29, 2006. Revenue for the first quarter was $122 million, compared to $116 million in the fourth quarter of fiscal 2006 and $106 million in the third quarter of fiscal 2006-marking two consecutive quarters of improved revenue.
"SGI made significant progress this quarter executing our strategic growth initiatives, focusing on delivering 'innovation for results' for our customers, and rebuilding sales momentum," said Dennis McKenna, SGI's CEO. "Our momentum comes from refreshing 75% of our server and storage products, defining solutions that are re-engaging our traditional markets of engineering analysis, sciences, and government intelligence. In addition, we made significant progress on our operating results, which has had a positive impact on our liquidity position and overall financial stability. We were able to make this progress during the same period we worked through and completed our restructuring. This accomplishment is a tribute to the passion and focus of our SGI employees."
Gross margins remained consistently strong at 38.4% during the first quarter of fiscal 2007 compared to 39.0% in the prior quarter.
GAAP operating expenses for the first quarter of fiscal 2007 were $62 million compared to $53 million for the fourth quarter of fiscal 2006. Excluding restructuring charges and other unusual items, operating expenses were $58 million in the first quarter compared to $61 million in the prior quarter, reflecting the impact of the company's cost reduction initiatives. First quarter operating expenses were higher than we expect to see for the remainder of the fiscal year as a result of a significant increase in selling, general and administrative expense due to the change in accounting firms effective for fiscal 2006.
SGI reported a GAAP operating loss of $15 million in the first quarter of fiscal 2007, compared with a GAAP operating loss of $8 million for the last quarter of fiscal 2006.
Management believes that a non-GAAP presentation of operating results is useful to investors to facilitate period to period comparisons of SGI's operating performance. A full reconciliation is available in the Investor Relations portion of our website at www.sgi.com/company_info/investors.
For details on the Company's cash and liquidity, please refer to the attached summary financials and the detailed disclosures in the Notes to the Form 10-Q for the first quarter filed today.
Fresh-Start Accounting
On October 17, 2006, the Company emerged from chapter 11. SGI adopted fresh-start financial accounting on September 29, 2006. The effects of fresh-start accounting on the Condensed Consolidated Balance Sheet are presented on a preliminary basis in Note 4 of the Form 10-Q for the quarter ended September 29, 2006 separately filed today. Under fresh-start accounting, the Company is required to adjust its balance sheet to reflect fair value, similar to purchase accounting. This includes recording all Plan effects per the Plan of Reorganization approved by the bankruptcy court, revaluing assets and liabilities to current estimated fair values, establishing the new shareholders' equity of the Company, and recording any portion of the equity value that cannot be attributed to specific tangible or intangible assets as goodwill. The adoption of fresh-start accounting had and will continue to have a material effect on SGI's financial statements, primarily due to the valuation impacts on the ending balance sheet for the first quarter of fiscal 2007, and the associated future period non-cash amortization that will flow through the income statement for periods of up to 15 years. As a result of the adoption of fresh-start accounting, SGI's financial statements in future periods will not be comparable with financial statements prior to the adoption of fresh-start accounting.
Conference Calls
SGI will not be holding a conference call to discuss earnings for the first fiscal quarter of 2007 but does plan to return to regularly scheduled quarterly conference calls effective for the report of earnings for the second quarter of fiscal 2007.
Forward-Looking Statements
This news release contains forward-looking statements relating to future events or expected financial performance that involve risks and uncertainties. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. The company's future results could differ materially from the expectations discussed herein. Factors that might cause such a difference include our ability to implement business strategies and restructuring plans; our ability to maintain adequate liquidity; our ability to obtain and maintain normal terms with customers, suppliers and service providers; our ability to operate pursuant to the terms, including the covenants, of our credit agreement; our ability to maintain contracts that are critical to our operation; risks associated with the volatility of our stock price; risks associated with the timely development, production and acceptance of new products and services; increased competition; dependence on third party partners and suppliers; the failure to achieve expected product mix and revenue levels; failure to manage costs and generate improved operating results and cash flows; and failure to maintain adequate cash resources for the operation of the business. These and other risks are detailed from time to time in SGI's periodic reports that are filed with the Securities and Exchange Commission, including SGI's quarterly report on Form 10-Q for the quarter ended September 29, 2006. SGI is under no obligation to publicly update or revise any forward-looking statements, whether changes occur as a result of new information, future events or otherwise.
SGI - Innovation for Results™
SGI delivers a complete range of high-performance server and storage solutions along with industry-leading professional services and support that enable its customers to overcome the challenges of complex data-intensive workflows and accelerate breakthrough discoveries, innovation and information transformation. SGI helps customers solve their computing challenges whether it's enhancing the quality of life through drug research, designing and manufacturing safer and more efficient cars and airplanes, studying global climate, providing technologies for homeland security and defense, or helping enterprises manage large data. With offices worldwide, the company is headquartered in Mountain View, Calif., and can be found on the Web at www.sgi.com.
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