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SGI Reports Third Quarter Fiscal Year 2008 Results

SUNNYVALE, Calif., May 6 /PRNewswire-FirstCall/ -- SGI (Nasdaq: SGIC) today announced financial results for the third quarter of fiscal 2008, which ended March 28, 2008.

SUNNYVALE, Calif., May 6 /PRNewswire-FirstCall/ — SGI (Nasdaq: SGIC) today announced financial results for the third quarter of fiscal 2008, which ended March 28, 2008.

The Company's Webcast and conference call to discuss results is Tuesday, May 6 at 2:00 p.m. PDT. The Webcast and presentation materials will be available on the SGI Investors Relations Web page at the time of the call, at http://www.sgi.com/company_info/investors/.

Third Quarter FY08 Highlights Overall in its third quarter, SGI: — Grew orders 50 percent over orders received in the third quarter of the prior year — Grew backlog to $134 million as of March 28, 2008, an 80 percent increase over the beginning of the company's fiscal year on a comparable basis — Accelerated its software strategy with acquisition of key IP assets formerly owned by Linux Networx

"We have made great strides in continuing to execute on our strategy this quarter," said Bo Ewald, SGI Chief Executive Officer. "We saw a 50 percent increase in orders compared to the third quarter of last year, acquired significant software assets to strengthen our business and accelerate development of our Industrial Strength Linux Environment, announced a new support solutions program to reinforce our services offerings, and continued building on solid traction in our core markets. And with new significant customer wins in April, the fourth quarter is off to a strong start as well."

In this press release, SGI uses certain pro forma financial measures that are not calculated in accordance with GAAP, or non-GAAP financial measures. These measures are referred to as "pro forma" in this press release. In addition, the company uses bookings and backlog to measure performance. Bookings, also referred to as orders, reflect authorized orders for SGI products and professional services accepted in the period that are expected to ship in the next twelve months. Backlog is the cumulative bookings for which the company has not yet recognized revenue. Management believes that these non-GAAP financial measures, bookings and backlog are useful to investors because they facilitate period to period comparisons of SGI performance and because they help investors view the company's results of operations through the eyes of management and the company's lenders. SGI's credit line covenants, management reporting and incentive plans are measured against certain of these non-GAAP financial measures.

GAAP Q3 Results

GAAP revenue for the third quarter was $79.1 million, compared to $90.1 million in the second quarter. The third quarter GAAP operating loss was $40.6 million, compared to $30.8 million in the second quarter of fiscal 2008. GAAP operating expenses were $59.2 million for the third quarter of 2008, as compared to $58.6 million for the second quarter of fiscal 2008.

Pro Forma Q3 Results

Pro forma revenue was $80.9 million in the third quarter of fiscal 2008, compared with $109.1 million in the second quarter of fiscal 2008. Backlog at the end of the third quarter of 2008 grew to $133.9 million compared to $95.8 million at the end of the second quarter of fiscal 2008, the highest backlog level in the past five quarters.

"We are on track with growth in bookings, with much of the growth being attributable to significant wins and large long-term installations," said Kathy Lanterman, SGI Chief Financial Officer. "As we have said, our challenge is the revenue conversion cycle for these long-term orders, where revenue is not recognized for several months or quarters after we receive an order. We expect our operating results to improve as our growing backlog starts converting to revenue over the next two quarters."

Pro forma revenue excludes the impact of fresh-start accounting and the deferral of the company's recognition of revenues for certain of the company's transactions where software is more than incidental to the overall solution pursuant to AICPA Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). Pro forma gross margin for the third quarter, which is adjusted for similar items, was 26.9 percent compared with 35.7 percent in the second quarter of fiscal 2008. Pro forma operating expenses, which exclude restructuring and reorganization-related expenses, the non-cash impact of the acquisition of IP assets of Linux Networx, stock-based compensation expense and the impact of fresh start accounting, were $52.7 million in the third quarter of fiscal 2008 compared with $55.3 million in the second quarter of fiscal 2008. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of fiscal 2008, as defined in the company's debt agreements, were a loss of $25.7 million, compared with an $11.0 million loss for the second quarter of fiscal 2008.

A reconciliation of the non-GAAP financial measures used in this press release to the company's GAAP results of operations, including an illustration of the impact of the company's fresh start accounting and the impact of the implementation of SOP 97-2, is attached to this press release and is also available at http://www.sgi.com/company_info/investors.

Strong Start to Fourth Quarter

SGI also reported that it has secured several major domestic and international wins during the fourth quarter to date. These included:

— NASA chose SGI to supply its next major supercomputer, a 20,480-core, 20TB SGI(R) Altix(R) ICE system, after a competitive evaluation the space agency launched last year. The new supercomputer will support NASA's aeronautics, science, space operations and space exploration initiatives, including its plan to resume manned missions to the moon and eventually manned exploration of Mars. — SGI entered into a multi-year agreement with total contract payments to SGI expected to be more than $25M with a major national European supercomputing center to equip the institution with high-performance SGI computing and storage solutions. The systems will be used to drive multiple applications and manage massive amounts of data. — SGI also will provide a large European weather service with an extensive data warehouse solution, which will run Oracle 10g and Oracle Clusterware. The solution incorporates SGI Altix 4700 and SGI Altix 450 servers, and will enable the weather service to analyze more than 30 years of meteorological data — a challenge that represents 360 terabytes of user data.

"We believe this quarter's wins show significant momentum for SGI across multiple geographies and product lines," added Ewald. "Our ability to prevail in many exceptionally competitive sales situations shows that customers recognize the value of open-standards-based solutions that deliver superior price/performance and leading energy efficiency."

Recent SGI Announcements — Virtu VN200: A high density, highly scalable visualization system that can fully incorporate leading edge visualization capabilities into the full line of SGI Altix, SGI Altix XE and SGI Altix ICE servers. — InfiniteStorage 4600: A new flagship RAID storage system that augments the InfiniteStorage product line and helps organizations meet the escalating bandwidth and I/O demands of today's performance-driven applications. — Virtualized Storage Migration Solution: The new solution allows enterprises to choose the storage device that best suits their needs — an advantage that can lead to better data utilization and significantly lower ownership costs. The new solution also allows enterprises to migrate data without disrupting operations. — Climate Savers: SGI joined the Climate Savers Computing Initiative, a nonprofit group of consumers, businesses and conservation organizations dedicated to improving the power efficiency and reducing the energy consumption of computers. — Support Solutions Plus: Through this new services support program, SGI provides a single, centralized contact for technical support, secured site management, and parts logistics requirements for many other vendors' products as well as SGI products. — SGI Altix ICE enhancements: This quarter Altix ICE boasts new blade enclosures and blade options that increase the performance density of the platform by including improvements to memory, bandwidth and interconnect performance, and an enhanced cluster management environment, as well as make use of the next-generation InfiniBand chip technology. — The NBA and SGI announced a multi-year extension of their relationship to expand the league's groundbreaking digital workflow and media management system, the NBA Digital Media Management System. The extended relationship will enable NBA to accelerate and double the historical digital archiving effort by ingesting 60,000 hours of video content each year.

Conference Call

SGI will conduct a conference call today at 2 p.m. PT to provide additional details. The webcast and presentation materials are available at http://www.sgi.com/company_info/investors/. The conference call can be accessed by dialing (877) 495-0297 or (706) 643-9931 for participants outside of North America, conference ID: 45113222. An audio replay of this call will be available after 5 p.m. PT today at (800) 642-1687 or (706) 645-9291 (passcode: 45113222) and will be available until May 13, 2008 midnight PT. After May 13, 2008, the call will be available as an archived webcast. All links to the archived webcast, presentation materials and audio replay are available through the SGI web site at http://www.sgi.com/company_info/investors/.

SGI – Innovation for Results(TM)

SGI (Nasdaq: SGIC) is a leader in high-performance computing. SGI delivers a complete range of high-performance server, visualization 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 significant 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 change, providing technologies for homeland security and defense, or helping enterprises manage large amounts of data. With offices worldwide, the company is headquartered in Sunnyvale, California, and can be found on the Web at sgi.com.

(C) 2008 SGI. All rights reserved. SGI, the SGI cube, the SGI logo and Altix are registered trademarks of SGI in the United States and/or other countries worldwide. All other registered trademarks mentioned herein are the property of their respective owners.

This press release contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein, including increased demands on our working capital due to growth in backlog, in particular for large deals; our ability to raise additional capital in the future on commercially attractive terms or at all, which would restrict our growth and impair our ability to operate; our historical losses and possible failure to attain profitability on a quarterly, annual or sustained basis and risks related to the impact on our business of cost reduction initiatives to be effected in the coming quarters to bring costs more in line with current revenues; our operating results continuing to fluctuate significantly and continuing to be difficult to predict; our stock continuing to have extremely low trading volume and price volatility; our failure to continue growth in bookings, delays in the conversion of backlog to revenue due to application of SOP 97-2, shipment delays and the other risks and uncertainties discussed under the caption "Risk Factors" and elsewhere in SGI's Form 10-K or Form 10-Q most recently filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. SGI disclaims any intent or obligation to update these forward-looking statements.

MEDIA CONTACT Marla Robinson marlar@sgi.com 256.773.2371 SGI PR HOTLINE 650.933.7777 SGI PR FACSIMILE 650.933.0714 SILICON GRAPHICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts, unaudited) Predecessor Successor Company Company Nine Six Three Months Months Months Three Months Ended Ended Ended Ended Mar. 28, Mar. 30, Mar. 28, Mar. 30, Sep. 28, 2008 2007 2008 2007 2006 Product and other revenue $29,592 $56,117 $110,194 $114,797 $45,229 Product revenue from related party (1) 6,340 2,454 14,747 7,456 15,377 Global services revenue 43,146 52,475 135,333 96,516 61,199 Total revenue 79,078 111,046 260,274 218,769 121,805 Costs and expenses: Cost of product and other revenue 32,038 41,330 104,668 101,248 42,710 Cost of global services revenue 28,446 33,025 81,645 62,412 32,265 Research and development (2) 16,520 14,186 44,280 29,170 16,007 Selling, general and administrative 42,484 42,017 127,871 83,623 42,359 Other operating expense, net 230 358 425 3,243 3,926 Total costs and expenses 119,718 130,916 358,889 279,696 137,267 Operating loss (40,640) (19,870) (98,615) (60,927) (15,462) Interest expense (2,049) (1,430) (5,051) (3,432) (7,688) Interest expense from related parties (1,921) (1,406) (4,861) (2,562) – Interest and other income (expense), net (3) 4,996 174 (2,357) 1,373 11,391 Loss before reorganization items and income taxes (39,614) (22,532) (110,884) (65,548) (11,759) Reorganization items, net – – – – 340,397 Income (loss) before income taxes (39,614) (22,532) (110,884) (65,548) 328,638 Income tax provision 119 488 7,218 1,166 2,382 Net income (loss) $(39,733) $(23,020) $(118,102) $(66,714) $326,256 Net income (loss) per share: Basic $(3.49) $(2.07) $(10.53) $(6.00) $1.20 Diluted $(3.49) $(2.07) $(10.53) $(6.00) $0.77 Weighted-average shares used to compute net income (loss) per share: Basic 11,372 11,125 11,215 11,125 271,563 Diluted 11,372 11,125 11,215 11,125 423,875 (1) Represents product sales to SGI Japan, a related party of which we owned a 10% interest at March 28, 2008 and at September 29, 2006. (2) The three-month period ended March 28, 2008 includes approximately $2 million of in-process research and development resulting form our acquisition of certain assets formerly owned by Linux Networx, Inc. (3) The three-month period ended March 28, 2008 includes a gain of approximately $4 million on the sale of our investment in MicroUnity Systems Engineering, Inc. The nine-month period ended March 28, 2008 includes a write-down of approximately $6 million of our equity investment in SGI Japan to the estimated fair value of the investment, which was approximately $15 million at March 28, 2008. The three-month period ended September 29, 2006 includes a pre-tax gain of approximately $10 million on the sale of a portion of the Predecessor Company's investment in SGI Japan. SILICON GRAPHICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, unaudited) March 28, June 29, 2008 2007 ASSETS Current assets: Cash and cash equivalents $42,731 $69,887 Short-term marketable investments 22 223 Short-term restricted investments 9,460 6,763 Accounts receivable, net 46,939 47,643 Inventories 73,394 54,354 Prepaid expenses 8,923 6,153 Other current assets 52,486 49,576 Total current assets 233,955 234,599 Restricted investments 434 302 Property and equipment, net 43,085 43,392 Other intangibles, net 60,860 71,264 Other non-current assets, net 71,948 59,501 Total assets $410,282 $409,058 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $22,070 $14,387 Accrued compensation 36,886 35,382 Income taxes payable 3,915 2,209 Other current liabilities 43,897 44,420 Current portion of long-term debt 8,513 261 Current portion of deferred revenue 110,590 84,798 Current portion of restructuring liability 1,075 1,410 Total current liabilities 226,946 182,867 Long-term debt 124,000 85,000 Non-current portion of deferred revenue 57,882 32,362 Other non-current liabilities 25,997 24,370 Total liabilities 434,825 324,599 Total stockholders' equity (deficit) (24,543) 84,459 Total liabilities and stockholders' equity $410,282 $409,058 Calculation of Non-GAAP Quarterly Results of Operations and Adjusted EBITDA Successor Company Three Months Ended: 28-Mar 28-Dec 28-Sep 29-Jun 30-Mar 29-Dec -08 -07 -07 -07 -07 -06 (in thousands) Total revenue (GAAP) $79,078 $90,111 $91,085 $122,295 $111,046 $107,723 Plus: Fresh-start accounting adjustments 2,046 2,094 3,835 5,472 8,329 15,877 SOP 97-2 revenue deferrals (1) (253) 16,935 25,813 13,726 10,392 10,544 Non-GAAP total revenue 80,871 109,140 120,733 141,493 129,767 134,144 Cost of revenue (GAAP) 60,484 62,248 63,581 90,148 74,355 89,305 Plus: Fresh-start accounting adjustments (1,492) (3,834) (2,762) (6,644) (4,703) (12,549) SOP 97-2 revenue deferrals (1) 286 11,794 18,576 8,213 3,574 6,293 Depreciation & amortization – Linux Networx (45) – – – – – Stock-based compensation expense (84) 8 (87) (57) (45) (12) Non-GAAP cost of revenue 59,149 70,216 79,308 91,660 73,181 83,037 Research and development expense (GAAP) 16,520 14,464 13,296 14,870 14,186 14,984 Plus: Fresh-start accounting adjustments (108) (12) 47 65 52 (348) Depreciation & amortization – Linux Networx (60) – – – – – Write-off of in- process R&D – Linux Networx (2,400) – – – – – Stock-based compensation expense (320) (253) (309) (257) (200) (58) Non-GAAP research and development expense 13,632 14,199 13,034 14,678 14,038 14,578 Selling, general and administrative expenses (GAAP) 42,484 44,163 41,224 41,697 42,017 41,606 Plus: Fresh-start accounting adjustments (2,545) (2,525) (2,076) (2,580) (2,587) (2,635) Restructuring and bankruptcy related expenses – – – – – – Goodwill impairment – – – – – – Depreciation & amortization – Linux Networx (118) – – – – – Stock-based compensation expense (705) (530) (718) (581) (949) (54) Non-GAAP selling, general and administrative expenses 39,116 41,108 38,430 38,536 38,481 38,917 Other operating expenses (GAAP) 230 20 175 358 358 2,885 Plus: Restructuring and bankruptcy related expenses (230) (20) (175) (358) (358) (2,885) Non-GAAP other operating expenses – – – – – – Operating expenses (GAAP) 59,234 58,647 54,695 56,925 56,561 59,475 Plus: Fresh-start accounting adjustments (2,653) (2,537) (2,029) (2,515) (2,535) (2,983) Stock-based compensation expense (1,025) (783) (1,027) (838) (1,149) (112) Goodwill impairment – – – – – – Depreciation & amortization – Linux Networx (178) – – – – – Write-off of in-process R&D – Linux Networx (2,400) – – – – – Restructuring and bankruptcy related expenses (230) (20) (175) (358) (358) (2,885) Non-GAAP operating expenses 52,748 55,307 51,464 53,214 52,519 53,495 Operating income (loss) (GAAP) (40,640) (30,784) (27,191) (24,778) (19,870) (41,057) Plus: Fresh-start accounting adjustments 6,191 8,465 8,626 14,631 15,567 31,409 SOP 97-2 revenue deferrals (1) (539) 5,141 7,237 5,513 6,818 4,251 Stock-based compensation expense 1,109 775 1,114 895 1,194 124 Goodwill impairment – – – – – – Depreciation & amortization – Linux Networx 223 – – – – – Write-off of in- process R&D – Linux Networx 2,400 – – – – – Restructuring and bankruptcy related expenses 230 20 175 358 358 2,885 Non-GAAP operating income (loss) (2): (31,026) (16,383) (10,039) (3,381) 4,067 (2,388) Plus: Depreciation 5,375 5,414 6,224 6,169 6,128 6,552 Adjusted EBITDA (25,651) (10,969) (3,815) 2,788 10,195 4,164 Predecessor Company Three Months Ended: 29-Sep 30-Jun 31-Mar 30-Dec 30-Sep -06 -06 -06 -05 -05 (in thousands) Total revenue (GAAP) $121,805 $115,708 $105,562 $136,796 $160,739 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 5,154 13,476 2,112 7,597 8,938 Non-GAAP total revenue 126,959 129,184 107,674 144,393 169,677 Cost of revenue (GAAP) 74,975 70,532 68,227 80,952 100,722 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 2,795 4,675 1,334 3,366 4,810 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense 7 22 (53) (71) (228) Non-GAAP cost of revenue 77,777 75,229 69,508 84,247 105,304 Research and development expense (GAAP) 16,007 18,220 20,838 21,254 23,365 Plus: Fresh-start accounting adjustments – – – – – Depreciation & amortization – Linux Networx – – – – – Write-off of in- process R&D – Linux Networx – – – – – Stock-based compensation expense 5 32 (112) (231) (300) Non-GAAP research and development expense 16,012 18,252 20,726 21,023 23,065 Selling, general and administrative expenses (GAAP) 42,359 42,903 59,722 57,627 59,865 Plus: Fresh-start accounting adjustments – – – – – Restructuring and bankruptcy related expenses – – (3,452) (6,413) (2,082) Goodwill impairment – – (8,386) – – Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense (134) (64) (344) (381) (455) Non-GAAP selling, general and administrative expenses 42,225 42,839 47,540 50,833 57,328 Other operating expenses (GAAP) 3,926 (7,694) 11,550 10,114 7,185 Plus: Restructuring and bankruptcy related expenses (3,926) 7,694 (11,550) (10,114) (7,185) Non-GAAP other operating expenses – – – – – Operating expenses (GAAP) 62,292 53,429 92,110 88,995 90,415 Plus: Fresh-start accounting adjustments – – – – – Stock-based compensation expense (129) (32) (456) (612) (755) Goodwill impairment – – (8,386) – – Depreciation & amortization – Linux Networx – – – – – Write-off of in- process R&D – Linux Networx – – – – – Restructuring and bankruptcy related expenses (3,926) 7,694 (15,002) (16,527) (9,267) Non-GAAP operating expenses 58,237 61,091 68,266 71,856 80,393 Operating income (loss) (GAAP) (15,462) (8,253) (54,775) (33,151) (30,398) Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 2,359 8,801 778 4,231 4,128 Stock-based compensation expense 122 10 509 683 983 Goodwill impairment – – 8,386 – – Depreciation & amortization – Linux Networx – – – – – Write-off of in- process R&D – Linux Networx – – – – – Restructuring and bankruptcy related expenses 3,926 (7,694) 15,002 16,527 9,267 Non-GAAP operating income (loss) (2): (9,055) (7,136) (30,100) (11,710) (16,020) Plus: Depreciation 6,467 10,003 10,898 11,959 13,379 Adjusted EBITDA (2,588) 2,867 (19,202) 249 (2,641) Three Months Ended: FY2007 FY2006 (in thousands) Total revenue (GAAP) $462,869 $518,805 Plus: Fresh-start accounting adjustments 29,678 – SOP 97-2 revenue deferrals (1) 39,816 32,123 Non-GAAP total revenue 532,363 550,928 Cost of revenue (GAAP) 328,783 320,433 Plus: Fresh-start accounting adjustments (23,896) – SOP 97-2 revenue deferrals (1) 20,875 14,185 Depreciation & amortization – Linux Networx – – Stock-based compensation expense (107) (330) Non-GAAP cost of revenue 325,655 334,288 Research and development expense (GAAP) 60,047 83,677 Plus: Fresh-start accounting adjustments (231) – Depreciation & amortization – Linux Networx – – Write-off of in-process R&D – Linux Networx – – Stock-based compensation expense (510) (611) Non-GAAP research and development expense 59,306 83,066 Selling, general and administrative expenses (GAAP) 167,679 220,117 Plus: Fresh-start accounting adjustments (7,802) – Restructuring and bankruptcy related expenses – (11,947) Goodwill impairment – (8,386) Depreciation & amortization – Linux Networx – – Stock-based compensation expense (1,718) (1,244) Non-GAAP selling, general and administrative expenses 158,159 198,540 Other operating expenses (GAAP) 7,527 21,155 Plus: Restructuring and bankruptcy related expenses (7,527) (21,155) Non-GAAP other operating expenses – – Operating expenses (GAAP) 235,253 324,949 Plus: Fresh-start accounting adjustments (8,033) – Stock-based compensation expense (2,228) (1,855) Goodwill impairment – (8,386) Depreciation & amortization – Linux Networx – – Write-off of in-process R&D – Linux Networx – – Non-GAAP operating expenses 217,465 281,606 Operating income (loss) (GAAP) (101,167) (126,577) Plus: Fresh-start accounting adjustments 61,607 – SOP 97-2 revenue deferrals (1) 18,941 17,938 Stock-based compensation expense 2,335 2,185 Goodwill impairment – 8,386 Depreciation & amortization – Linux Networx – – Write-off of in-process R&D – Linux Networx – – Restructuring and bankruptcy related expenses 7,527 33,102 Non-GAAP operating income (loss) (2): (10,757) (64,966) Plus: Depreciation 25,316 46,239 Adjusted EBITDA 14,559 (18,727) Calculation of Non-GAAP Revenues by Reporting Segment(1) Successor Company Three Months Ended: 28-Mar 28-Dec 28-Sep 29-Jun 30-Mar 29-Dec -08 -07 -07 -07 -07 -06 (in thousands) Core systems: Server products (GAAP) $22,703 $23,282 $31,627 $47,926 $32,692 $40,954 Plus: Fresh-start accounting adjustments 306 196 22 332 1,100 1,109 SOP 97-2 revenue deferrals (2) (346) 12,324 20,887 6,067 4,857 4,075 Non-GAAP server products revenue 22,663 35,802 52,536 54,325 38,649 46,138 Storage products revenue (GAAP) 8,374 13,505 8,233 14,486 12,063 10,920 Plus: Fresh-start accounting adjustments – – – 293 – 320 SOP 97-2 revenue deferrals (2) 203 2,303 3,377 5,392 2,676 3,834 Non-GAAP storage products revenue 8,577 15,808 11,610 20,171 14,739 15,074 Non-GAAP core systems revenue 31,240 51,610 64,146 74,496 53,388 61,212 Legacy systems: Legacy systems (GAAP) 4,855 6,626 5,736 11,846 13,816 11,808 Plus: Fresh-start accounting adjustments – – – – 37 1,952 SOP 97-2 revenue deferrals (2) (348) 1,190 424 259 634 895 Non-GAAP legacy systems revenue 4,507 7,816 6,160 12,105 14,487 14,655 Non-GAAP products revenue 35,747 59,426 70,306 86,601 67,875 75,867 Global services: Customer support (GAAP) 35,163 40,193 38,231 39,332 37,527 35,080 Plus: Fresh-start accounting adjustments 1,345 1,898 3,813 4,789 6,545 12,228 SOP 97-2 revenue deferrals (2) (316) (2,215) 77 677 159 231 Non-GAAP customer support revenue 36,192 39,876 42,121 44,798 44,231 47,539 Professional services (GAAP) 7,983 6,505 7,258 8,705 14,948 8,961 Plus: Fresh-start accounting adjustments 395 – – 58 647 268 SOP 97-2 revenue deferrals (2) 554 3,333 1,048 1,331 2,066 1,509 Non-GAAP professional services revenue 8,932 9,838 8,306 10,094 17,661 10,738 Non-GAAP global services revenue 45,124 49,714 50,427 54,892 61,892 58,277 Non-GAAP revenue $80,871 $109,140 $120,733 $141,493 $129,767 $134,144 Predecessor Company Three Months Ended: 29-Sep 30-Jun 31-Mar 30-Dec 30-Sep -06 -06 -06 -05 -05 (in thousands) Core systems: Server products (GAAP) $34,914 $21,168 $20,484 $28,182 $53,993 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (2) 2,304 3,895 30 2,485 2,524 Non-GAAP server products revenue 37,218 25,063 20,514 30,667 56,517 Storage products revenue (GAAP) 12,750 13,134 11,798 11,185 13,816 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (2) 1,584 1,288 854 2,070 2,766 Non-GAAP storage products revenue 14,334 14,422 12,652 13,255 16,582 Non-GAAP core systems revenue 51,552 39,485 33,166 43,922 73,099 Legacy systems: Legacy systems (GAAP) 12,942 14,701 13,810 27,095 22,729 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (2) (580) 7,169 1,338 2,933 2,940 Non-GAAP legacy systems revenue 12,362 21,870 15,148 30,028 25,669 Non-GAAP products revenue 63,914 61,355 48,314 73,950 98,768 Global services: Customer support (GAAP) 48,396 49,552 52,053 55,304 57,174 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (2) 144 1,299 (190) (317) 97 Non-GAAP customer support revenue 48,540 50,851 51,863 54,987 57,271 Professional services (GAAP) 12,803 17,153 7,417 15,030 13,027 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (2) 1,702 (175) 80 426 611 Non-GAAP professional services revenue 14,505 16,978 7,497 15,456 13,638 Non-GAAP global services revenue 63,045 67,829 59,360 70,443 70,909 Non-GAAP revenue $126,959 $129,184 $107,674 $144,393 $169,677 Three Months Ended: FY2007 FY2006 (in thousands) Core systems: Server products (GAAP) $156,486 $123,827 Plus: Fresh-start accounting adjustments 2,541 – SOP 97-2 revenue deferrals (2) 17,303 8,934 Non-GAAP server products revenue 176,330 132,761 Storage products revenue (GAAP) 50,219 49,933 Plus: Fresh-start accounting adjustments 613 – SOP 97-2 revenue deferrals (2) 13,486 6,978 Non-GAAP storage products revenue 64,318 56,911 Non-GAAP core systems revenue 240,648 189,672 Legacy systems: Legacy systems (GAAP) 50,412 78,335 Plus: Fresh-start accounting adjustments 1,989 – SOP 97-2 revenue deferrals (2) 1,208 14,380 Non-GAAP legacy systems revenue 53,609 92,715 Non-GAAP products revenue 294,257 282,387 Global services: Customer support (GAAP) 160,335 214,083 Plus: Fresh-start accounting adjustments 23,562 – SOP 97-2 revenue deferrals (2) 1,211 889 Non-GAAP customer support revenue 185,108 214,972 Professional services (GAAP) 45,417 52,627 Plus: Fresh-start accounting adjustments 973 – SOP 97-2 revenue deferrals (2) 6,608 942 Non-GAAP professional services revenue 52,998 53,569 Non-GAAP global services revenue 238,106 268,541 Non-GAAP revenue $532,363 $550,928 (1) For each of the periods indicated, non-GAAP core systems revenue is obtained by adding non-GAAP server products revenue and non-GAAP storage products revenue, non-GAAP products revenue is obtained by adding non-GAAP core systems revenue and non-GAAP legacy systems revenue, non-GAAP global services revenue is obtained by adding non-GAAP customer support revenue and non-GAAP professional services revenue and non-GAAP revenue is obtained by adding non-GAAP products revenue and non-GAAP global services revenue. This table includes a reconciliation of each listed component to the comparable GAAP figures. (2) The non-GAAP adjustments for SOP 97-2 are indicative of the revenue results the company would have recorded without the effect of SOP 97-2, although these are unaudited adjustments. We believe that this presentation more closely matches the results that would have been recorded had SAB 104 been applied, in which case the revenue for the hardware components of the arrangement would have been recorded when those deliverables were completed, and the primary remaining deliverable is customer support. Generally, this presentation matches the timing of billings to customers for the hardware deliverables, and therefore allows more transparency to cashflows. Successor Company Three Months 28-Mar 28-Dec 28-Sep 29-Jun 30-Mar 29-Dec Ended: -08 -07 -07 -07 -07 -06 (in thousands) Products revenue (GAAP) $35,932 $43,413 $45,596 $74,258 $58,571 $63,682 Plus: Fresh-start accounting adjustments 306 196 22 625 1,137 3,381 SOP 97-2 revenue deferrals(1) (491) 15,817 24,688 11,718 8,167 8,804 Non-GAAP products revenue 35,747 59,426 70,306 86,601 67,875 75,867 Global services revenue (GAAP) 43,146 46,698 45,489 48,037 52,475 44,041 Plus: Fresh-start accounting adjustments 1,740 1,898 3,813 4,847 7,192 12,496 SOP 97-2 revenue deferrals(1) 238 1,118 1,125 2,008 2,225 1,740 Non-GAAP global services revenue 45,124 49,714 50,427 54,892 61,892 58,277 Total revenue (GAAP) 79,078 90,111 91,085 122,295 111,046 107,723 Plus: Fresh-start accounting adjustments 2,046 2,094 3,835 5,472 8,329 15,877 SOP 97-2 revenue deferrals(1) (253) 16,935 25,813 13,726 10,392 10,544 Non-GAAP total revenue 80,871 109,140 120,733 141,493 129,767 134,144 Products cost of revenue (GAAP) 32,038 34,938 37,692 61,114 41,330 59,918 Plus: Fresh-start accounting adjustments(1,588) (3,789) (2,718) (6,814) (5,329) (12,875) SOP 97-2 revenue deferrals(1) (50) 9,913 18,092 7,966 2,454 5,318 Depreciation & amortization – Linux Networx (24) – – – – – Stock-based compensation expense (39) (34) (27) (24) (21) (6) Non-GAAP products cost of revenue 30,337 41,028 53,039 62,242 38,434 52,355 Global services cost of revenue (GAAP) 28,446 27,310 25,889 29,034 33,025 29,387 Plus: Fresh-start accounting adjustments 96 (45) (44) 170 626 326 SOP 97-2 revenue deferrals(1) 336 1,881 484 247 1,120 975 Depreciation & amortization – Linux Networx (21) – – – – – Stock-based compensation expense (45) 42 (60) (33) (24) (6) Non-GAAP global services cost of revenue 28,812 29,188 26,269 29,418 34,747 30,682 Cost of revenue (GAAP) 60,484 62,248 63,581 90,148 74,355 89,305 Plus: Fresh-start accounting adjustments(1,492) (3,834) (2,762) (6,644) (4,703) (12,549) SOP 97-2 revenue deferrals(1) 286 11,794 18,576 8,213 3,574 6,293 Depreciation & amortization – Linux Networx (45) – – – – – Stock-based compensation expense (84) 8 (87) (57) (45) (12) Non-GAAP cost of revenue 59,149 70,216 79,308 91,660 73,181 83,037 Products gross profit (GAAP) 3,894 8,475 7,904 13,144 17,241 3,764 Plus: Fresh-start accounting adjustments 1,894 3,985 2,740 7,439 6,466 16,256 SOP 97-2 revenue deferrals(1) (441) 5,904 6,596 3,752 5,713 3,486 Depreciation & amortization – Linux Networx 24 – – – – – Stock-based compensation expense 39 34 27 24 21 6 Non-GAAP products gross profit 5,410 18,398 17,267 24,359 29,441 23,512 Non-GAAP products gross profit margin 15.1% 31.0% 24.6% 28.1% 43.4% 31.0% Global services gross profit (GAAP) 14,700 19,388 19,600 19,003 19,450 14,654 Plus: Fresh-start accounting adjustments 1,644 1,943 3,857 4,677 6,566 12,170 SOP 97-2 revenue deferrals(1) (98) (763) 641 1,761 1,105 765 Depreciation & amortization – Linux Networx 21 – – – – – Stock-based compensation expense 45 (42) 60 33 24 6 Non-GAAP global services gross profit 16,312 20,526 24,158 25,474 27,145 27,595 Non-GAAP global services gross profit margin 36.1% 41.3% 47.9% 46.4% 43.9% 47.4% Gross profit (GAAP) 18,594 27,863 27,504 32,147 36,691 18,418 Plus: Fresh-start accounting adjustments 3,538 5,928 6,597 12,116 13,032 28,426 SOP 97-2 revenue deferrals(1) (539) 5,141 7,237 5,513 6,818 4,251 Depreciation & amortization – Linux Networx 45 – – – – – Stock-based compensation expense 84 (8) 87 57 45 12 Non-GAAP gross profit 21,722 38,924 41,425 49,833 56,586 51,107 Non-GAAP gross profit margin 26.9% 35.7% 34.3% 35.2% 43.6% 38.1% Predecessor Company Three Months Ended: 29-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 30-Sep-05 (in thousands) Products revenue (GAAP) $60,606 $49,003 $46,092 $66,462 $90,538 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 3,308 12,352 2,222 7,488 8,230 Non-GAAP products revenue 63,914 61,355 48,314 73,950 98,768 Global services revenue (GAAP) 61,199 66,705 59,470 70,334 70,201 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 1,846 1,124 (110) 109 708 Non-GAAP global services revenue 63,045 67,829 59,360 70,443 70,909 Total revenue (GAAP) 121,805 115,708 105,562 136,796 160,739 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 5,154 13,476 2,112 7,597 8,938 Non-GAAP total revenue 126,959 129,184 107,674 144,393 169,677 Products cost of revenue (GAAP) 42,710 36,218 35,042 43,517 62,550 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 2,114 4,518 1,180 2,941 4,215 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense – 4 (14) (24) (54) Non-GAAP products cost of revenue 44,824 40,740 36,208 46,434 66,711 Global services cost of revenue (GAAP) 32,265 34,314 33,185 37,435 38,172 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 681 157 154 425 595 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense 7 18 (39) (47) (174) Non-GAAP global services cost of revenue 32,953 34,489 33,300 37,813 38,593 Cost of revenue (GAAP) 74,975 70,532 68,227 80,952 100,722 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 2,795 4,675 1,334 3,366 4,810 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense 7 22 (53) (71) (228) Non-GAAP cost of revenue 77,777 75,229 69,508 84,247 105,304 Products gross profit (GAAP) 17,896 12,785 11,050 22,945 27,988 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 1,194 7,834 1,042 4,547 4,015 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense – (4) 14 24 54 Non-GAAP products gross profit 19,090 20,615 12,106 27,516 32,057 Non-GAAP products gross profit margin 29.9% 33.6% 25.1% 37.2% 32.5% Global services gross profit (GAAP) 28,934 32,391 26,285 32,899 32,029 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 1,165 967 (264) (316) 113 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense (7) (18) 39 47 174 Non-GAAP global services gross profit 30,092 33,340 26,060 32,630 32,316 Non-GAAP global services gross profit margin 47.7% 49.2% 43.9% 46.3% 45.6% Gross profit (GAAP) 46,830 45,176 37,335 55,844 60,017 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals(1) 2,359 8,801 778 4,231 4,128 Depreciation & amortization – Linux Networx – – – – – Stock-based compensation expense (7) (22) 53 71 228 Non-GAAP gross profit 49,182 53,955 38,166 60,146 64,373 Non-GAAP gross profit margin 38.7% 41.8% 35.4% 41.7% 37.9% Three Months Ended: FY2007 FY2006 (in thousands) Products revenue (GAAP) $257,117 $252,095 Plus: Fresh-start accounting adjustments 5,143 – SOP 97-2 revenue deferrals (1) 31,997 30,292 Non-GAAP products revenue 294,257 282,387 Global services revenue (GAAP) 205,752 266,710 Plus: Fresh-start accounting adjustments 24,535 – SOP 97-2 revenue deferrals (1) 7,819 1,831 Non-GAAP global services revenue 238,106 268,541 Total revenue (GAAP) 462,869 518,805 Plus: Fresh-start accounting adjustments 29,678 – SOP 97-2 revenue deferrals (1) 39,816 32,123 Non-GAAP total revenue 532,363 550,928 Products cost of revenue (GAAP) 205,072 177,327 Plus: Fresh-start accounting adjustments (25,018) – SOP 97-2 revenue deferrals (1) 17,852 12,854 Depreciation & amortization – Linux Networx – – Stock-based compensation expense (51) (88) Non-GAAP products cost of revenue 197,855 190,093 Global services cost of revenue (GAAP) 123,711 143,106 Plus: Fresh-start accounting adjustments 1,122 – SOP 97-2 revenue deferrals (1) 3,023 1,331 Depreciation & amortization – Linux Networx – – Stock-based compensation expense (56) (242) Non-GAAP global services cost of revenue 127,800 144,195 Cost of revenue (GAAP) 328,783 320,433 Plus: Fresh-start accounting adjustments (23,896) – SOP 97-2 revenue deferrals (1) 20,875 14,185 Depreciation & amortization – Linux Networx – – Stock-based compensation expense (107) (330) Non-GAAP cost of revenue 325,655 334,288 Products gross profit (GAAP) 52,045 74,768 Plus: Fresh-start accounting adjustments 30,161 – SOP 97-2 revenue deferrals (1) 14,145 17,438 Depreciation & amortization – Linux Networx – – Stock-based compensation expense 51 88 Non-GAAP products gross profit 96,402 92,294 Non-GAAP products gross profit margin 32.8% 32.7% Global services gross profit (GAAP) 82,041 123,604 Plus: Fresh-start accounting adjustments 23,413 – SOP 97-2 revenue deferrals (1) 4,796 500 Depreciation & amortization – Linux Networx – – Stock-based compensation expense 56 242 Non-GAAP global services gross profit 110,306 124,346 Non-GAAP global services gross profit margin 46.3% 46.3% Gross profit (GAAP) 134,086 198,372 Plus: Fresh-start accounting adjustments 53,574 – SOP 97-2 revenue deferrals (1) 18,941 17,938 Depreciation & amortization – Linux Networx – – Stock-based compensation expense 107 330 Non-GAAP gross profit 206,708 216,640 Non-GAAP gross profit margin 38.8% 39.3% Calculation of Non-GAAP Quarterly Products Standard Profit Margin Successor Company Three Months Ended: 28-Mar-08 28-Dec-07 28-Sep-07 29-Jun-07 30-Mar-07 (in thousands) Total products revenue (GAAP) $35,932 $43,413 $45,596 $74,258 $58,571 Less: Other revenue (1,015) (286) (395) (810) (248) Plus: Fresh-start accounting adjustments 306 196 22 625 1,137 SOP 97-2 revenue deferrals (491) 15,817 24,688 11,718 8,167 Non-GAAP total products revenue 34,732 59,140 69,911 85,791 67,627 Products standard cost of revenue (GAAP) 20,549 24,919 28,163 48,084 32,497 Plus: Fresh-start accounting adjustments (441) (2,521) (1,555) (5,144) (3,736) SOP 97-2 revenue deferrals (50) 9,913 18,092 7,966 2,454 Non-GAAP products standard cost of revenue 20,058 32,311 44,700 50,906 31,215 Products standard margin (GAAP) 14,368 18,208 17,038 25,364 25,826 Plus: Fresh-start accounting adjustments 747 2,717 1,577 5,769 4,873 SOP 97-2 revenue deferrals (441) 5,904 6,596 3,752 5,713 Non-GAAP products standard margin 14,674 26,829 25,211 34,885 36,412 Non-GAAP products standard margin 42.2% 45.4% 36.1% 40.7% 53.8% Calculation of Non-GAAP Revenue by Reporting Segment Successor Company Three Months Ended: 28-Mar-08 28-Dec-07 28-Sep-07 29-Jun-07 (in thousands) Core systems: Shared memory products (GAAP) $15,031 $19,312 $21,318 $43,526 Plus: Fresh-start accounting adjustments 306 196 22 332 SOP 97-2 revenue deferrals (1,949) 6,167 16,788 4,955 Non-GAAP shared memory products revenue 13,388 25,675 38,128 48,813 Cluster products (GAAP) $7,672 $3,970 $10,309 $4,400 Plus: Fresh-start accounting adjustments – – – – SOP 97-2 revenue deferrals 1,603 6,157 4,099 1,112 Non-GAAP cluster products revenue 9,275 10,127 14,408 5,512 Storage products revenue (GAAP) 8,374 13,505 8,233 14,486 Plus: Fresh-start accounting adjustments – – – 293 SOP 97-2 revenue deferrals 203 2,303 3,377 5,392 Non-GAAP storage products revenue 8,577 15,808 11,610 20,171 Non-GAAP core systems revenue 31,240 51,610 64,146 74,496 Legacy systems: Server products (GAAP) 4,523 6,216 4,887 11,265 Plus: Fresh-start accounting adjustments – – – – SOP 97-2 revenue deferrals (296) 1,223 516 176 Non-GAAP server products revenue 4,227 7,439 5,403 11,441 Storage products (GAAP) 332 410 849 581 Plus: Fresh-start accounting adjustments – – – – SOP 97-2 revenue deferrals (52) (33) (92) 83 Non-GAAP storage products revenue 280 377 757 664 Non-GAAP legacy systems revenue 4,507 7,816 6,160 12,105 Global services: Customer support (GAAP) 35,163 40,193 38,231 39,332 Plus: Fresh-start accounting adjustments 1,345 1,898 3,813 4,789 SOP 97-2 revenue deferrals (316) (2,215) 77 677 Non-GAAP customer support revenue 36,192 39,876 42,121 44,798 Professional services (GAAP) 7,983 6,505 7,258 8,705 Plus: Fresh-start accounting adjustments 395 – – 58 SOP 97-2 revenue deferrals 554 3,333 1,048 1,331 Non-GAAP professional services revenue 8,932 9,838 8,306 10,094 Non-GAAP global services revenue 45,124 49,714 50,427 54,892 Non-GAAP revenue 80,871 $109,140 $120,733 $141,493 Calculation of Non-GAAP Revenue by Reporting Segment Successor Company Predecessor Company Three Months Ended: 30-Mar-07 29-Dec-06 29-Sep-06 Core systems: Shared memory products (GAAP) $30,328 $39,237 $34,331 Plus: Fresh-start accounting adjustments 1,100 1,091 – SOP 97-2 revenue deferrals 4,834 3,912 2,304 Non-GAAP shared memory products revenue 36,262 44,240 36,635 Cluster products (GAAP) $2,364 $1,717 $583 Plus: Fresh-start accounting adjustments – 18 – SOP 97-2 revenue deferrals 23 163 – Non-GAAP cluster products revenue 2,387 1,898 583 Storage products revenue (GAAP) 12,063 10,920 12,750 Plus: Fresh-start accounting adjustments – 320 – SOP 97-2 revenue deferrals 2,676 3,834 1,584 Non-GAAP storage products revenue 14,739 15,074 14,334 Non-GAAP core systems revenue 53,388 61,212 51,552 Legacy systems: Server products (GAAP) 12,612 10,966 12,324 Plus: Fresh-start accounting adjustments 37 1,588 – SOP 97-2 revenue deferrals 600 703 (504) Non-GAAP server products revenue 13,249 13,257 11,820 Storage products (GAAP) 1,204 842 618 Plus: Fresh-start accounting adjustments – 364 – SOP 97-2 revenue deferrals 34 192 (76) Non-GAAP storage products revenue 1,238 1,398 542 Non-GAAP legacy systems revenue 14,487 14,655 12,362 Global services: Customer support (GAAP) 37,527 35,080 48,396 Plus: Fresh-start accounting adjustments 6,545 12,228 – SOP 97-2 revenue deferrals 159 231 144 Non-GAAP customer support revenue 44,231 47,539 48,540 Professional services (GAAP) 14,948 8,961 12,803 Plus: Fresh-start accounting adjustments 647 268 – SOP 97-2 revenue deferrals 2,066 1,509 1,702 Non-GAAP professional services revenue 17,661 10,738 14,505 Non-GAAP global services revenue 61,892 58,277 63,045 Non-GAAP revenue $129,767 $134,144 $126,959 Calculation of Non-GAAP Quarterly Backlog Successor Company Three Months Ended: 28-Mar-08 28-Dec-07 28-Sep-07 29-Jun-07 30-Mar-07 (in millions) Total beginning backlog (GAAP) $163 $113 $89 $118 $136 Plus: Bookings 83 100 77 54 55 Products and professional services revenue (GAAP) (44) (50) (53) (83) (73) Total ending backlog (GAAP) $202 $163 $113 $89 $118 Total non-GAAP beginning backlog $96 $65 $66 $109 $139 Plus: Bookings 83 100 77 54 55 Non-GAAP products and professional services revenue (45) (69) (79) (97) (85) Total non-GAAP ending backlog $134 $96 $65 $66 $109

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