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SGI Reports Fiscal Q2

SUNNYVALE, Calif. -- SGI (NASDAQ:SGIC) today announced financial results for the second quarter of its fiscal 2007 ended December 29, 2006. On a GAAP basis, revenue for the quarter was $108 million, and operating loss was $41 million. GAAP gross margin was 17.1% and operating expenses were $59 million. As previously noted and more fully described below, GAAP financial results for the quarter are significantly impacted by non-cash adjustments dictated by fresh start accounting associated with the Company's emergence from chapter 11 bankruptcy protection in October 2006, as well as other accounting changes. Non-GAAP and proforma measures are used in this press release because management believes that a non-GAAP presentation of certain financial results is useful to investors to facilitate period to period comparisons of SGI's performance. Credit line covenants for SGI are also measured against certain non-GAAP numbers, and the Company's management reporting and incentive plans are measured against these numbers.

Proforma revenue was $134 million in the second quarter of fiscal 2007, compared with $127 million in the first quarter of fiscal 2007. Proforma revenue excludes the impact of fresh start accounting and a change in accounting for certain of our transactions where software is more than incidental to the overall solution. Proforma gross margin for the second quarter adjusted for similar items was 38.1% compared with 38.7% in the prior quarter. Excluding restructuring, bankruptcy-related expenses, stock-based compensation expense and amortization of intangibles, proforma operating expenses were $54 million in the second quarter compared with $58 million in the prior quarter, reflecting the impact of the company's cost reduction initiatives. Adjusted EBITDA for the quarter, as defined in the company's debt agreements, was $4.2 million, compared with ($2.6) million for the first quarter of fiscal 2007.