Agere Systems Reports Results for the Second Quarter of Fiscal Year 2005 -- Revenues Increase Sequentially With Double-Digit Growth In Chips for GPRS Mobile Phones, Satellite Radio and Digital Signal Processors for Wireless Network Equipment ALLENTOWN, Pa., April 26 /PRNewswire-FirstCall/ -- Agere Systems (NYSE:AGR.ANYSE:AGR.B) today reported that revenues for the second quarter of fiscal 2005, ended March 31, 2005, were $417 million, at the high end of the guidance range provided by the company in January. The company's revenues were $410 million in the December quarter and $462 million in the year-ago quarter. (Logo: http://www.newscom.com/cgi-bin/prnh/20040618/AGERELOGO ) The company reported a GAAP net loss of $68 million, or $0.04 per share, including purchased in-process R&D charges of $55 million related to the acquisition of Modem-Art, Ltd., $33 million in net restructuring charges and related costs, and a $22 million benefit resulting from the reversal of a tax contingency. For the December quarter, Agere reported a GAAP net loss of $67 million, or $0.04 per share, including $60 million in net restructuring charges and related costs. In the year-ago quarter, the company reported GAAP net income of $74 million, or $0.04 per share, which included $8 million in net restructuring charges and related costs as well as a tax benefit of $79 million. Pro forma net loss was $1 million, or breakeven per share, in the March quarter, at the high end of guidance, compared to a pro forma net loss of $8 million, or breakeven per share, in the December quarter, and pro forma net income of $5 million, or breakeven per share, in the year-ago quarter. Pro forma net income excludes gain or loss from the sale of, and income or loss from, discontinued operations; restructuring-related charges included in costs, primarily increased depreciation; certain other non-cash charges; net restructuring and other charges; purchased in-process research and development charges; amortization of acquired intangible assets; net gain or loss from the sale of operating assets; certain tax adjustments; cumulative effect of accounting changes and certain non-recurring charges. The company's cash flow from operations, less capital expenditures, was $15 million. This is the seventh consecutive quarter the company has achieved a positive result. Cash in excess of total debt was $244 million, which is a decrease of $6 million from the December quarter. In the March quarter, the company used $26 million of cash as part of the Modem-Art acquisition. Also today, Agere announced plans to consolidate its two classes of common stock - Class A and Class B - into a new, single class trading under the ticker symbol "AGR" and to execute a 1-for-10 reverse stock split. The company is taking these actions, which are expected to be effective on May 27, 2005, to alleviate investor confusion and to reduce costs. "As we move forward with our reclassification and reverse stock split, our financial footing is solid and we are well positioned for future growth," said John Dickson, president and CEO, Agere Systems. "Our performance during this quarter is a reflection of our focus and strong execution across our core businesses. Overall, we expect to see revenue and profitability growth as we move through the second half of fiscal 2005." Revenue by Operating Segment Quarter Ended Mar 31 Dec 31 Mar 31 2005 2004 2004 Consumer Enterprise segment: Storage $150 $166 $171 Mobility 89 83 96 Enterprise and Networking 113 104 132 Consumer Enterprise segment 352 353 399 Telecommunications segment 65 57 63 $417 $410 $462 Each operating segment includes revenue from the licensing of intellectual property. Product and Customer Highlights Recent company highlights include: -- Acquisition of Modem-Art, a privately held developer of advanced processor technology for 3G/UMTS mobile devices. This acquisition further enhances Agere's ability to deliver integrated chips and software for the 3G/UMTS and HSDPA (High-Speed Downlink Packet Access) markets. Already, Agere and Modem-Art have secured multiple designs with leading wireless device manufacturers for phones and PC card applications. -- Selection of Agere's dual-mode 3G and EDGE, or W-EDGE(TM), technology for Sony Ericsson's new GC95 PC card and follow-on products for high-speed wireless connectivity in laptop PCs. -- Shipment of the Sceptre(R) HPE solution in volume to Samsung for the first EDGE phones from an Asia-based manufacturer delivered for the U.S. market. Cingular, the U.S. wireless market leader, recently began offering the SGH-P207 and the SGH-P777, both of which provide a 262K color display, a digital camera, CD-quality sound, as well as the ability to play and record video. -- Introduction of the TrueAdvantage(TM) portfolio of converged access solutions allowing wireline and wireless service providers to expand their product offerings, generate higher revenues and reduce costs. Corecess, a leading provider of IP DSLAM (Internet Protocol Digital Subscriber Line Access Multiplexer) equipment, will incorporate Agere's TrueAdvantage APP300 product into its platforms for voice, data and video services. Outlook In the June quarter, the company expects to report revenues in the range of $415 million to $435 million. The company expects GAAP net income on a pre-reverse stock split basis to be in the range of breakeven to a loss of $0.02 per share. Pro forma net income on a pre-reverse stock split basis is expected to be in the range of breakeven to $0.02 per share. Earnings Webcast Agere Systems will host a conference call today at 8:30 a.m. EDT to discuss its financial results and outlook. To listen to the conference call via the Internet, visit http://www.agere.com/webcast. Subsequent to the conference call, a replay will be available at the same web address. Supplemental financial information is also available on the company's website at http://www.agere.com/investor. Agere Systems is a global leader in semiconductors for storage, wireless data, and public and enterprise networks. The company's chips and software power a broad range of computing and communications applications, from cell phones, PCs, PDAs, hard disk drives and gaming devices to the world's most sophisticated wireless and wireline networks. Agere's customers include top manufacturers of consumer electronics, communications and computing equipment. Agere's products connect people to information and entertainment at home, at work and on the road -- enabling the connected lifestyle. Agere and Sceptre are registered trademarks, and Agere Systems, the Agere Systems logo, W-EDGE and TrueAdvantage are trademarks of Agere Systems Inc. This release contains forward-looking statements based on information currently available to Agere. Agere's actual results could differ materially from the results stated or implied by those forward-looking statements due to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, our reliance on major customers and suppliers, our ability to keep pace with technological change, our dependence on new product development, price and product competition, availability of manufacturing capacity, customer demand for our products and services, and general industry and market conditions. For a further discussion of these and other risks and uncertainties, see our annual report on Form 10-K for the fiscal year ended September 30, 2004, and our quarterly report on Form 10-Q for the quarter ended December 31, 2004. Agere disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Agere Systems Inc. Unaudited Condensed Consolidated Statements of Operations (Dollars in millions except per share amounts) Quarter Ended Six Months Ended Mar 31 Dec 31 Mar 31 Mar 31 Mar 31 2005 2004 2004 2005 2004 Revenue $417 $410 $462 $827 $978 Costs 263 274 254 537 539 Gross profit - $ 154 136 208 290 439 Gross profit - % 36.9% 33.2% 45.0% 35.1% 44.9% Operating Expenses Selling, general and administrative 60 55 70 115 146 Research and development 113 119 128 232 247 Amortization of acquired intangible assets 3 1 1 4 3 Purchased in-process research and development 55 - - 55 13 Restructuring and other charges - net 4 14 7 18 54 (Gain) Loss on sale of operating assets - net (2) (2) 1 (4) - Total operating expenses 233 187 207 420 463 Operating Income (Loss) (79) (51) 1 (130) (24) Other income (expense) - net 3 (2) 4 1 5 Interest expense 8 8 10 16 22 Income (Loss) before income taxes (84) (61) (5) (145) (41) (Benefit) Provision for income taxes (16) 6 (79) (10) (76) Net Income (Loss) $(68) $(67) $74 $(135) $35 Basic and diluted income (loss) per share $(0.04) $(0.04) $0.04 $(0.08) $0.02 Weighted average shares outstanding - basic (in millions) 1,754 1,731 1,711 1,742 1,704 Weighted average shares outstanding - diluted (in millions) 1,754 1,731 1,734 1,742 1,727 Agere Systems Inc. Unaudited Pro Forma Results of Operations (Dollars in millions except per share amounts) Quarter Ended Six Months Ended Mar 31 Dec 31 Mar 31 Mar 31 Mar 31 2005 2004 2004 2005 2004 Revenue: Consumer Enterprise: Storage $150 $166 $171 $316 $347 Mobility 89 83 96 172 242 Enterprise and Networking 113 104 132 217 266 Consumer Enterprise 352 353 399 705 855 Telecommunications 65 57 63 122 123 Total Revenue 417 410 462 827 978 Pro Forma Gross Profit - $ Consumer Enterprise 137 140 164 277 358 Telecommunications 46 42 45 88 88 Pro Forma Gross Profit - $ 183 182 209 365 446 Pro Forma Gross Profit - % Consumer Enterprise 38.9% 39.7% 41.1% 39.3% 41.9% Telecommunications 70.8% 73.7% 71.4% 72.1% 71.5% Pro Forma Gross Profit - % 43.9% 44.4% 45.2% 44.1% 45.6% Operating Expenses Included in Pro Forma Results Selling, general and administrative 60 55 70 115 146 Research and development 113 119 128 232 247 Total Pro Forma Operating Income (Loss) 10 8 11 18 53 Other income (expense) - net 3 (2) 4 1 5 Interest expense 8 8 10 16 22 Pro Forma provision for income taxes 6 6 - 12 3 Pro Forma Net Income (Loss) $(1) $(8) $5 $(9) $33 Pro Forma Net Income (Loss) per share $(0.00) $(0.00) $0.00 $(0.01) $0.02 Weighted average shares outstanding - basic (in millions) 1,754 1,731 1,711 1,742 1,704 Weighted average shares outstanding - diluted (in millions) 1,754 1,731 1,734 1,742 1,727 Reconciliation of Pro Forma Gross Profit-$ to Gross Profit-$ Pro Forma Gross Profit-$ $183 $182 $209 $365 $446 Restructuring related charges, including increased depreciation 29 46 1 75 7 Gross Profit-$ $154 $136 $208 $290 $439 Reconciliation of Pro Forma Gross Profit-% to Gross Profit-% Pro Forma Gross Profit-% 43.9% 44.4% 45.2% 44.1% 45.6% Restructuring related charges, including increased depreciation (7.0)% (11.2)% (0.2)% (9.0)% (0.7)% Gross Profit-% 36.9% 33.2% 45.0% 35.1% 44.9% Reconciliation of Pro Forma Operating Income (Loss) to Operating Income (Loss) Pro Forma Operating Income (Loss) $10 $8 $11 $18 $53 Restructuring related charges, including increased depreciation 29 46 1 75 7 Amortization of acquired intangible assets 3 1 1 4 3 Purchased in-process research and development 55 - - 55 13 Restructuring and other charges - net 4 14 7 18 54 (Gain) loss on sale of operating assets - net (2) (2) 1 (4) - Operating Income (Loss) $(79) $(51) $1 $(130) $(24) Reconciliation of Pro Forma provision for income taxes to (Benefit) provision for income taxes Pro Forma provision for income taxes $6 $6 $- $12 $3 Reversal of tax contingencies 22 - 79 22 79 (Benefit) provision for income taxes $(16) $6 $(79) $(10) $(76) Reconciliation of Pro Forma Net Income (Loss) to Net Income (Loss) Pro Forma Net Income (Loss) $(1) $(8) $5 $(9) $33 Restructuring related charges, including increased depreciation 29 46 1 75 7 Amortization of acquired intangible assets 3 1 1 4 3 Purchased in-process research and development 55 - - 55 13 Restructuring and other charges - net 4 14 7 18 54 (Gain) loss on sale of operating assets - net (2) (2) 1 (4) - Reversal of tax contingencies 22 - 79 22 79 Net Income (Loss) $(68) $(67) $74 $(135) $35 Agere Systems Inc. Unaudited Condensed Consolidated Balance Sheets (Millions) Mar 31 Dec 31 2005 2004 ASSETS CURRENT ASSETS Cash and cash equivalents $675 $686 Cash held in trust 6 6 Trade receivables 209 205 Inventories 123 147 Other current assets 40 50 TOTAL CURRENT ASSETS 1,053 1,094 Property, plant and equipment - net 577 621 Goodwill 196 119 Acquired intangible assets - net 11 5 Other assets 141 153 TOTAL ASSETS $1,978 $1,992 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $178 $167 Short-term debt 16 19 Other current liabilities 438 472 TOTAL CURRENT LIABILITIES 632 658 Long-term debt 415 417 Other liabilities 516 552 TOTAL LIABILITIES 1,563 1,627 STOCKHOLDERS' EQUITY 415 365 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,978 $1,992 Agere Systems Inc. Unaudited Cash Flow Measures Three Months Ended March 31, 2005 (Millions) Restructuring Ongoing and Related Operations Activities TOTAL OPERATING ACTIVITIES Gross profit (loss) $183 $(29) $154 Total operating expenses 229 4 233 Other income - net 3 - 3 Interest expense and income tax (benefit) provision (8) - (8) Net income (loss) (35) (33) (68) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Restructuring expense - net of cash payments - (13) (13) Depreciation and amortization 45 29 74 Other operating activities 48 - 48 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 58 (17) 41 INVESTING ACTIVITIES Capital expenditures (25) (1) (26) Other investing activities (23) - (23) NET CASH USED BY INVESTING ACTIVITIES (48) (1) (49) FINANCING ACTIVITIES Other financing activities (3) - (3) NET CASH USED BY FINANCING ACTIVITIES (3) - (3) Effect of exchange rate changes on cash and cash equivalents - - - Net increase (decrease) in cash and cash equivalents 7 (18) (11) Cash and cash equivalents at beginning of period 686 Cash and cash equivalents at end of period $675 Net Cash provided (used) by Operating Activities $58 $(17) $41 Capital Expenditures (25) (1) (26) Net Cash provided (used) by Operating Activities and Capital Expenditures $33 $(18) $15 Agere Systems Inc. Unaudited Net Income (Loss) Per Share Guidance* Quarter Ending Jun 30 2005 Reconciliation of Pro Forma Net Income (Loss) Per Share to Net Income (Loss) Per Share Pro Forma Net Income (Loss) (High End of Range) $0.02 Pro Forma Net Income (Loss) (Low End of Range) $0.00 Less: Restructuring related charges included in costs, primarily increased depreciation 0.02 Restructuring and other charges - net 0.00 Amortization of acquired intangible assets 0.00 Expenses associated with reverse stock split 0.00 (Gain) loss on sale of operating assets - net 0.00 0.02 Net Income (Loss) (High End of Range) $0.00 Net Income (Loss) (Low End of the Range) ($0.02) * All per share information shown is on a pre-reverse stock split basis. http://www.newscom.com/cgi-bin/prnh/20040618/AGERELOGO http://photoarchive.ap.org/ DATASOURCE: Agere Systems CONTACT: Media Contact: JoAnna Schooler, +1-610-712-1746 (office) or +1-908-283-4060 (cellular) or , or Investor Contact: Sujal Shah, +1-610-712-5471 (office) or , both of Agere Systems Web site: http://www.agere.com/ http://www.agere.com/webcast http://www.agere.com/investor

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