SOURCE: Adaptec

May 08, 2008 16:05 ET

Adaptec Reports Fourth Quarter and Fiscal 2008 Results

Company Continues to Improve Margins and Generate Cash

MILPITAS, CA--(Marketwire - May 8, 2008) - Adaptec, Inc. (NASDAQ: ADPT), a global leader in storage solutions, today reported its financial results for the fourth quarter and fiscal year ended March 31, 2008.

"I am pleased with Adaptec's execution on a number of fronts this quarter," said S. "Sundi" Sundaresh, president and CEO of Adaptec. "From a technology innovation perspective, we have made considerable strides in our DPS Business with the very successful global launch of our Series 5 Unified Serial RAID controller family. From an operational perspective, we continue to align expenses with our revenue while improving margins and generating cash."

Net revenues for the Company's fourth quarter of fiscal 2008 were $39.9 million, compared with $51.9 million for the fourth quarter of fiscal 2007. Gross margins were 42.5% for the fourth quarter of fiscal 2008, compared with 33.8% for the fourth quarter of fiscal 2007.

The Company's loss from continuing operations, net of taxes, computed on a generally accepted accounting principles (GAAP) basis, for the fourth quarter of fiscal 2008 was $(0.1) million, or $(0.00) per share, compared with a loss from continuing operations, net of taxes, of $(4.2) million, or $(0.04) per share, for the fourth quarter of fiscal 2007. GAAP net income for the fourth quarter of fiscal 2008 was $0.5 million, or $0.00 per share, compared with a net loss of $(3.3) million, or $(0.03) per share, for the fourth quarter of fiscal 2007.

Non-GAAP income from continuing operations, net of taxes, for the fourth quarter of fiscal 2008 was $5.7 million, or $0.04 per diluted share, compared with a non-GAAP loss from continuing operations, net of taxes, of $(2.7) million, or $(0.02) per share, for the fourth quarter of fiscal 2007.

Net revenues for the Company's fiscal year ended March 31, 2008 were $167.4 million, compared with $255.2 million for the fiscal year ended March 31, 2007.

The Company's loss from continuing operations, net of taxes, computed on a GAAP basis, for the fiscal year ended March 31, 2008 was $(10.1) million, or $(0.09) per share, compared with income from continuing operations of $24.8 million, or $0.20 per diluted share, for the fiscal year ended March 31, 2007.

GAAP net loss for the fiscal year ended March 31, 2008 was $(9.6) million, or $(0.08) per share, compared with net income of $30.8 million, or $0.25 per diluted share for the fiscal year ended March 31, 2007, which included $61.3 million of discrete tax benefits primarily related to settlements with the IRS.

Non-GAAP income from continuing operations, net of taxes, for the fiscal year ended March 31, 2008 was $2.1 million, or $0.02 per diluted share, compared with non-GAAP loss from continuing operations of $(5.9) million, or $(0.05) per share, for the fiscal year ended March 31, 2007.

The non-GAAP results for all the periods presented, including, but not limited to, the fourth quarter of fiscal 2008 and the fiscal year ended March 31, 2008, as defined below in the section "Use of Non-GAAP Financial Measures," differ from results measured under GAAP as they exclude stock-based compensation expense, expense associated with a management incentive program, amortization of acquisition-related intangible assets, restructuring costs, other charges or gains, and tax differences due to GAAP versus non-GAAP measurements. A complete reconciliation between GAAP and non-GAAP information referred to in this release is provided in the attached tables at the end of this press release.

Conference Call

The Adaptec fourth quarter fiscal 2008 earnings conference call is scheduled for 1:45 p.m. Pacific Time on May 8, 2008. Individuals may participate via webcast by visiting www.adaptec.com/investor 15 minutes prior to the call. A telephone replay of the teleconference will be available through May 22, 2008 by calling (888) 203-1112 in the U.S. or (719) 457-0820 internationally and referencing reservation number 7966641.

About Adaptec

Adaptec, Inc. (NASDAQ: ADPT) provides trusted storage solutions that reliably move, manage, and protect critical data and digital content. Adaptec's software and hardware-based solutions are delivered through leading original equipment manufacturers (OEMs) and channel partners to provide storage connectivity, data protection, and networked storage to enterprises, government organizations, medium and small businesses worldwide. More information is available at www.adaptec.com.

Safe Harbor Statement

This news release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements are statements regarding future events or the future performance of Adaptec, and may be identified by words such as "expects," "anticipates," "will," "intends," "plans," "projects," "believes" and other words or phrases expressing the possibility or potential for events to occur in the future. These forward-looking statements are based on current expectations, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include: if we do not meet our restructuring objectives, we may have to continue to implement additional plans in order to reduce our operating costs; achieving necessary support from the contract manufacturers to which we have outsourced manufacturing, assembly and packaging of our products; retaining key management; Adaptec's ability to launch new software products; difficulty in forecasting the volume and timing of customer orders; reduced demand in the server, network storage and desktop computer markets; our target markets' failure to accept, or delay in accepting, network storage and other advanced storage solutions, including our SAS, SATA and iSCSI lines of products; decline in consumer acceptance of our current products; the timing and volume of orders by OEM customers for storage products; our ability to control and manage costs associated with the delivery of new products; and the adverse effects of the intense competition we face in our business. For a more complete discussion of risks related to our business, reference is made to the section titled "Risk Factors" included in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2007 on file with the Securities and Exchange Commission. Adaptec assumes no obligation to update any forward-looking information that is included in this release.

Adaptec is a registered trademark in the United States and other countries. Other product and company names are trademarks or registered trademarks of their respective owners.

                           Adaptec, Inc.
        GAAP Condensed Consolidated Statements of Operations
                           (unaudited)


                                                         Twelve-Month
                       Three-Month Period Ended          Period Ended
                     -----------------------------------------------------
                     March 31,  December   March 31,  March 31,  March 31,
                       2008     31, 2007     2007       2008       2007
                     ---------  ---------  ---------  ---------  ---------
                           (in thousands, except per share amounts)

Net revenues         $  39,877  $  41,162  $  51,934  $ 167,400  $ 255,208
Cost of revenues        22,948     24,993     34,356    104,927    173,974
                     ---------  ---------  ---------  ---------  ---------
Gross profit            16,929     16,169     17,578     62,473     81,234
                     ---------  ---------  ---------  ---------  ---------
Operating expenses:
  Research and
   development           8,332      8,824     12,788     39,804     56,573
  Selling,
   marketing and
   administrative       13,950     14,115     14,892     57,351     61,325
  Amortization of
   acquisition-
   related
   intangible assets       720        720      1,470      2,893      5,996
  Restructuring
   charges                 613        706         --      6,273      3,711
  Other charges
   (gains)               2,428         --        758     (3,371)    14,700
                     ---------  ---------  ---------  ---------  ---------
    Total operating
     expenses           26,043     24,365     29,908    102,950    142,305
                     ---------  ---------  ---------  ---------  ---------
Loss from continuing
 operations             (9,114)    (8,196)   (12,330)   (40,477)   (61,071)
Interest and other
 income                  7,979      8,838      7,290     31,335     25,618
Interest expense          (872)      (805)      (856)    (3,646)    (3,405)
                     ---------  ---------  ---------  ---------  ---------
Loss from continuing
 operations before
 income taxes           (2,007)      (163)    (5,896)   (12,788)   (38,858)
Benefit from income
 taxes                  (1,928)    (1,271)    (1,732)    (2,694)   (63,704)
                     ---------  ---------  ---------  ---------  ---------
Income (loss) from
 continuing
 operations, net of
 taxes                     (79)     1,108     (4,164)   (10,094)    24,846
                     ---------  ---------  ---------  ---------  ---------
Discontinued
 operations:
  Loss from
   discontinued
   operations, net
   of taxes                 --         --       (678)        --       (546)
  Income from
   disposal of
   discontinued
   operations, net
   of taxes                623         --      1,512        479      6,543
                     ---------  ---------  ---------  ---------  ---------
Income from
 discontinued
 operations, net
 of taxes                  623         --        834        479      5,997
                     ---------  ---------  ---------  ---------  ---------
Net income (loss)    $     544  $   1,108  $  (3,330) $  (9,615) $  30,843
                     =========  =========  =========  =========  =========

Income (loss) per
 common share:
  Basic
    Continuing
     operations      $   (0.00) $    0.01  $   (0.04) $   (0.09) $    0.21
    Discontinued
     operations      $    0.01  $      --  $    0.01  $    0.00  $    0.05
    Net income
     (loss)          $    0.00  $    0.01  $   (0.03) $   (0.08) $    0.26
  Diluted
    Continuing
     operations      $   (0.00) $    0.01  $   (0.04) $   (0.09) $    0.20
    Discontinued
     operations      $    0.01  $      --  $    0.01  $    0.00  $    0.04
    Net income
     (loss)          $    0.00  $    0.01  $   (0.03) $   (0.08) $    0.25

Shares used in
 computing income
 (loss) per share:
  Basic                119,163    118,987    117,516    118,613    116,602
  Diluted              119,163    119,622    117,516    118,613    136,690

To supplement its condensed consolidated financial statements in accordance with generally accepted accounting principles (GAAP), the Company's earnings release contains non-GAAP financial measures that exclude certain expenses, gains and losses. The Company believes that the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of its current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that the Company believes are not indicative of its core operating results. In addition, non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring the Company's performance, and the Company believes that it is providing investors with financial measures that most closely align to its internal measurement processes. The Company also believes, based on feedback provided to the Company during its earnings calls, Q&A sessions and discussions with the investment community, that the non-GAAP financial measures it provides enhance the ability of the investment community to review the Company's results and projections.

The non-GAAP financial information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP financial measures presented by the Company may be different than the non-GAAP financial measures presented by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures.

The Company excludes the following expenses, gains and losses from its non-GAAP financial measures, when applicable:

Stock-based compensation expense: Stock-based compensation expense consists of expenses recorded under SFAS 123(R), "Share-Based Payment," in connection with stock awards such as stock options, restricted stock awards and restricted stock units granted under the Company's equity incentive plans and shares issued pursuant to the Company's employee stock purchase plan. The Company excludes stock-based compensation expense from non-GAAP financial measures because it is a non-cash measurement that does not reflect the Company's ongoing business; the Company believes that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense.

Management incentive program: The Company excludes expenses associated with the management incentive program, which were limited cash payments made to selected members of management of an acquired company, as these payments were instituted as a component of the acquisition process and do not reflect the Company's ongoing business.

Amortization of acquisition-related intangible assets: Amortization of acquisition-related intangible assets primarily relate to core and existing technologies, patents, a trade name and customer relationships that were acquired from prior acquisitions. The Company excludes the amortization of acquisition-related intangible assets because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business. In addition, in accordance with GAAP, the Company generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, the Company believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangible assets in order to enhance the period-over-period comparison of its operating results, as there is significant variability and unpredictability across companies with respect to this expense.

Restructuring charges and other charges (gains): Restructuring charges primarily relate to activities engaged in by the Company's management to simplify its infrastructure. Other charges (gains) primarily relate to the impairment of acquisition-related intangible assets from prior acquisitions and gain on sale of long-lived assets. Restructuring charges and other charges (gains) are excluded from non-GAAP financial measures because they are not considered core operating activities and the occurrence of such costs is infrequent. Although the Company has engaged in various restructuring activities over the past several years, each has been a discrete, extraordinary event based on a unique set of business objectives. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures, as it enhances the ability of investors to compare the Company's period-over-period operating results.

Income taxes: Incremental income taxes associated with certain non-GAAP items.

                            Adaptec, Inc.
         Reconciliation of GAAP to Non-GAAP Operating Results
                             (unaudited)


                                                         Twelve-Month
                       Three-Month Period Ended          Period Ended
                     -----------------------------------------------------
                     March 31,  December   March 31,  March 31,  March 31,
                       2008     31, 2007     2007       2008       2007
                     ---------  ---------  ---------  ---------  ---------
                                        (in thousands)
GAAP income (loss)
 from continuing
 operations, net of
 taxes               $     (79) $   1,108  $  (4,164) $ (10,094) $  24,846
  Stock-based
   compensation
   expense               2,034      1,982      1,667      6,628      8,473
  Management
   incentive
   program                  --         --         --         --        799
  Amortization of
   acquisition-
   related
   intangible assets       720        720      1,470      2,893      5,996
  Restructuring
   charges                 613        706         --      6,273      3,711
  Other charges
   (gains)               2,428         --        758     (3,371)    14,700
  Income taxes              23         52     (2,408)      (274)   (64,422)
                     ---------  ---------  ---------  ---------  ---------
Non-GAAP income
 (loss) from
 continuing
 operations, net
 of taxes            $   5,739  $   4,568  $  (2,677) $   2,055  $  (5,897)
                     =========  =========  =========  =========  =========

Shares used in
 computing income
 (loss) per share:
  Basic - GAAP and
   Non-GAAP            119,163    118,987    117,516    118,613    116,602

  Diluted - GAAP       119,163    119,622    117,516    118,613    136,690
    Employee options       724         --         --        696       (864)
    3/4% convertible
     notes              19,224         --         --         --    (19,224)
                     ---------  ---------  ---------  ---------  ---------
  Diluted - Non-GAAP   139,111    119,622    117,516    119,309    116,602
                     =========  =========  =========  =========  =========




                                Adaptec, Inc.
                  Summary Balance Sheet and Cash Flow Data
                                 (unaudited)

                                                 As of
                              --------------------------------------------
                                 March 31,    December 31,     March 31,
Balance Sheet Data                 2008          2007            2007
                              -------------- -------------- --------------
                                             (in thousands)
Cash, cash equivalents and
 marketable securities        $      626,206 $      597,756 $      572,423
Accounts receivable, net              23,204         29,250         34,127
Inventories                            9,926         14,363         28,717
Other intangible assets, net              --          3,148          7,011
Other assets                          37,986         51,024         73,124
                              -------------- -------------- --------------
     Total assets             $      697,322 $      695,541 $      715,402
                              ============== ============== ==============

Current liabilities           $       32,669 $       44,259 $       65,235
Current portion of
 convertible notes                   225,321        225,241             --
Convertible notes, less
 current portion and other
 long-term obligations                15,236          5,894        228,009
Stockholders' equity                 424,096        420,147        422,158
                              -------------- -------------- --------------
     Total liabilities and
      stockholders' equity    $      697,322 $      695,541 $      715,402
                              ============== ============== ==============


                                       Three-Month Period Ended
                              --------------------------------------------
                                 March 31,    December 31,     March 31,
Cash Flow Data                     2008          2007            2007
                              -------------- -------------- --------------
                                             (in thousands)
Net income (loss)             $          544 $        1,108 $       (3,330)
Less: Income (loss) from
 discontinued operations, net
 of taxes                                623             --            834
                              -------------- -------------- --------------
Income (loss) from continuing
 operations, net of taxes                (79)         1,108         (4,164)
Adjustments to reconcile
 income (loss) from continuing
 operations, net of taxes,
 to net cash provided by
 (used in) operating
 activites:
  Non-cash P&L items:
    Non-cash charges
     associated with other
     charges                              --             --            922
    Non-cash effect of tax
     settlement                           --             --         (1,389)
    Stock-based
     compensation                      2,034          1,982          1,667
    Depreciation and
     amortization                      1,824          1,533          4,070
    Inventory-related
     charges                           1,149            910          2,378
    Impairment of
     long-lived assets                 2,545             --             --
    Other items                          368             --            118
  Changes in assets and
   liabilities                        15,172         (7,105)         1,757
                              -------------- -------------- --------------
Net cash provided by (used in)
 operating activities
 of continuing operations             23,013         (1,572)         5,359
Net cash provided by operating
 activities of discontinued
 operations                            2,500             --          2,778
                              -------------- -------------- --------------
Net cash provided by (used in)
 operating activities         $       25,513 $       (1,572)$        8,137
                              ============== ============== ==============

Other significant cash flow
 activities:
  Proceeds from issuance of
   common stock                           36            572          1,862
  Repurchase of 3%
   convertible notes                      --             --        (10,637)