SOURCE: Adaptec

August 01, 2006 16:31 ET

Adaptec Reports Results for the First Quarter of Fiscal 2007

Q1 Net Revenue From Continuing Operations: $69.1 million

MILPITAS, CA -- (MARKET WIRE) -- August 1, 2006 -- Adaptec, Inc. (NASDAQ: ADPT), a global leader in storage solutions, today reported financial results for the first quarter of its fiscal year 2007, which ended on June 30, 2006. The Snap Server systems business, which had previously been classified as a discontinued operation, has been re-classified as part of Adaptec's continuing operations and is reflected as such in these results. For purposes of comparison, results from prior periods also reflect this reclassification.

Net revenue for the Company's continuing operations for the first quarter of fiscal 2007 was $69.1 million, compared with $83.8 million for the first quarter of 2006.

The loss from continuing operations, computed on a generally accepted accounting principles (GAAP) basis, for the first quarter of fiscal 2007 was ($25.6) million or ($0.22) per share, compared with ($14.1) million or ($0.13) per share for the first quarter of fiscal 2006.

The non-GAAP loss from continuing operations for the first quarter of fiscal 2007 was ($3.5) million or ($0.03) per share, compared with a non-GAAP loss from continuing operations of ($10.1) million or ($0.09) per share for the first quarter of fiscal 2006.

The GAAP net loss for the first quarter of fiscal 2007 was ($24.1) million or ($0.21) per share, compared with a net loss of ($36.0) million or ($0.32) per share for the first quarter of fiscal 2006. The non-GAAP net loss for the first quarter of fiscal 2007 was $(3.2) million or ($0.03) per share compared with a non-GAAP net loss of ($14.3) million or ($0.13) per share for the first quarter of fiscal 2006.

A complete reconciliation between GAAP and non-GAAP information referred to in this release is provided in the attached tables.

The Company's performance was hindered during the first fiscal quarter due to supply issues that resulted from the transition of its manufacturing operations to Sanmina-SCI. During the quarter, Sanmina-SCI was challenged with material shortages that impacted their ability to meet delivery commitments on a consistent basis.

"Although we are disappointed with this quarter's results, we continue to drive our business toward a model that will create long-term growth and profitability," said S. "Sundi" Sundaresh, president and CEO of Adaptec. "It appears to us that Sanmina-SCI underestimated the systems and processes required to facilitate a smooth transition. However, Sanmina-SCI has been a responsive partner and has worked with Adaptec to put corrective actions in place. We feel confident that we will be back to previous production levels in August 2006."

Sundaresh continued, "The good news is that market demand for our products remains strong and we are now through the structural changes that were necessary to focus our business. We have achieved improved execution and fundamentals on all fronts. And now, we are in a strong position to continue to deliver on our core serial technologies and storage solutions as we begin to execute on our growth strategies."

Conference Call

The Adaptec first quarter fiscal 2007 earnings conference call is scheduled for 1:45 p.m. Pacific Time on August 1, 2006. 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 September 1, 2006 by calling (888) 203-1112 in the U.S. or (719) 457-0820 internationally and referencing reservation number 5405209.

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, and consumers worldwide. More information is available at www.adaptec.com

Safe Harbor Statement

This news release includes 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 include statements regarding future events or the future performance of Adaptec. 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: the ability for Sanmina-SCI to consistently meet delivery commitments; identifying and retaining key management; market demand for RAID 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 Annual Report on Form 10-K for the Fiscal Year ended March 30, 2006, 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, Inc.
         GAAP Condensed Consolidated Statements of Operations and
         Reconciliation of GAAP to Non-GAAP Operating Results (*)
                                (unaudited)


                                             Three-Month Period Ended
                                        ----------------------------------
                                                  June 30, 2006
                                        ==================================
                                          GAAP     Adjustments   Non-GAAP
                                        =========  ============  =========
                                          (in thousands, except per share
                                                     amounts)

Net revenues                            $  69,071  $       -     $  69,071
Cost of revenues                           46,801       (188) (a)   46,613
                                        ---------  ---------     ---------
Gross profit                               22,270        188        22,458
                                        ---------  ---------     ---------
Operating expenses:
     Research and development              17,294     (1,635) (c)   15,659
     Selling, marketing and
      administrative                       15,394     (1,332) (c)   14,062
     Amortization of
      acquisition-related
      intangible assets                     1,586     (1,586) (d)
     Restructuring charges                  3,011     (3,011) (e)
     Goodwill impairment                                   -
     Other charges                         13,942    (13,942) (f)
                                        ---------  ---------     ---------
         Total operating expenses          51,227    (21,506)       29,721
                                        ---------  ---------     ---------
Loss from continuing operations           (28,957)    21,694        (7,263)
Interest and other income                   5,903          -         5,903
Interest expense                             (876)         1          (875)
                                        ---------  ---------     ---------
Income (loss) from continuing
 operations before income taxes           (23,930)    21,695        (2,235)
Provision for (benefit from) income
 taxes                                      1,714       (405) (h)    1,309
                                        ---------  ---------     ---------
Income (loss) from continuing
 operations                               (25,644)    22,100        (3,544)
                                        ---------  ---------     ---------
Discontinued operations:
     Income (loss) from discontinued
      operations, net of taxes                264         66  (i)      330
     Income from disposal of
      discontinued operations, net
      of taxes                              1,290     (1,290) (i)        -
                                        ---------  ---------     ---------
Income (loss) from discontinued
 operations, net of taxes                   1,554     (1,224)          330
                                        ---------  ---------     ---------
Net income (loss)                       $ (24,090) $  20,876     $  (3,214)
                                        =========  =========     =========

Net income (loss) per common share:
    Basic
        Continuing operations           $   (0.22)               $   (0.03)
        Discontinued operations         $    0.01                $    0.00
        Net income (loss)               $   (0.21)               $   (0.03)
    Diluted
        Continuing operations           $   (0.22)               $   (0.03)
        Discontinued operations         $    0.01                $    0.00
        Net income (loss)               $   (0.21)               $   (0.03)

Shares used in computing net income
 (loss) per share:
    Basic                                 115,609          -       115,609
    Diluted                               115,609          -       115,609



                                             Three-Month Period Ended
                                                  June 30, 2005
                                        ==================================
                                          GAAP     Adjustments   Non-GAAP
                                        =========  ============  =========
                                          (in thousands, except per share
                                                     amounts)

Net revenues                            $  83,813  $       -     $  83,813
Cost of revenues                           59,725       (181) (b)   59,544
                                        ---------  ---------     ---------
Gross profit                               24,088        181        24,269
                                        ---------  ---------     ---------
Operating expenses:

     Research and development              18,380       (434) (b)   17,946
     Selling, marketing and
      administrative                       18,461       (945) (b)   17,516
     Amortization of
      acquisition-related
      intangible assets                     3,056     (3,056) (d)        -
     Restructuring charges                     40        (40) (e)        -
     Goodwill impairment                        -          -             -
     Other charges                              -          -             -
                                        ---------  ---------     ---------
         Total operating expenses          39,937     (4,475)       35,462
                                        ---------  ---------     ---------
Loss from continuing operations           (15,849)     4,656       (11,193)
Interest and other income                   3,608         86  (g)    3,694
Interest expense                             (973)         1          (972)
                                        ---------  ---------     ---------
Income (loss) from continuing
 operations before income taxes           (13,214)     4,743        (8,471)
Provision for (benefit from) income
 taxes                                        846        822  (h)    1,668
                                        ---------  ---------     ---------
Income (loss) from continuing
 operations                               (14,060)     3,921       (10,139)
                                        ---------  ---------     ---------
Discontinued operations:
     Income (loss) from discontinued
      operations, net of taxes            (21,913)    17,768  (i)   (4,145)
     Income from disposal of
      discontinued operations, net
      of taxes                                  -          -             -
                                        ---------  ---------     ---------
Income (loss) from discontinued
 operations, net of taxes                 (21,913)    17,768        (4,145)
                                        ---------  ---------     ---------
Net income (loss)                       $ (35,973) $  21,689     $ (14,284)
                                        =========  =========     =========

Net income (loss) per common share:
    Basic
        Continuing operations           $   (0.13)               $   (0.09)
        Discontinued operations         $   (0.19)               $   (0.04)
        Net income (loss)               $   (0.32)               $   (0.13)
    Diluted
        Continuing operations           $   (0.13)               $   (0.09)
        Discontinued operations         $   (0.19)               $   (0.04)
        Net income (loss)               $   (0.32)               $   (0.13)

Shares used in computing net income
 (loss) per share:
    Basic                                 112,445          -       112,445
    Diluted                               112,445          -       112,445


The amounts for all periods reflect the reclassification out of
discontinuing operations to continuing operations for our Snap Server
systems business.
(*) To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income/(loss) and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that we believe are not indicative of our core operating results. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. The non-GAAP 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.

a) Charge for Fas 123R expense.

(b) Management incentive program of $0.6 million with the Snap Appliance acquisition (acquired in July 2004).

(c) Deferred compensation expense related to assumed stock options associated with the Platys acquisition.These assumed options were negotiated as part of the acquisition and represent compensation over and above the amounts that we provide to these acquired employees. Additional charge related to the Fas 123R entry.

(d) Amortization of acquisition-related intangible assets, primarily core and existing technologies, patents, trade name and supply agreement intangible assets, related to the acquisitions of Platys, Eurologic (acquired in April 2003), ICP vortex (acquired in June 2003), and Elipsan (acquired in February 2004).

(e) Restructuring expense primarily related to adjustments made to restructuring plans in the first quarter of fiscal 2007 to reduce headcount, consolidate facilities, consolidate engineering resources.

(f) Write off of the intangibles for Snap, which included existing and core technology along with trademarks and trade names.

(g) Loss on conversion of subordinated notes.

(h) Incremental income taxes associated with certain non-GAAP adjustments.

(i) Loss (income) from disposal of the IBM i/p Series RAID business and Systems business, impairment of the IBM i/p Series RAID long-lived assets, impairment of the Systems long-lived assets, write-off of in-process research and development costs associated with the acquisitions of Snap Appliance and the IBM i/p Series RAID business, amortization of acquisition-related intangible assets related to the acquisitions of Platys, Eurologic, ICP vortex, Snap Appliance and the IBM i/p Series RAID business, management incentive program associated with the Snap Appliance acquisition, deferred compensation expense related to assumed stock options associated with the Snap Appliance acquisition, cash hire-on payments associated with the IBM i/p Series RAID business acquisition, and incremental income taxes associated with certain GAAP and non-GAAP adjustments.

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


      Balance Sheet Data                                As of
                                           ===============================
                                           June 30,   March 31,  June 30,
                                             2006       2006       2005
                                           =========  =========  =========
                                                   (in thousands)

Cash, cash equivalents and marketable
 securities                                $ 555,658  $ 556,553  $ 479,936
Accounts receivable, net                      45,207     47,876     74,648
Inventories                                   35,149     28,259     46,451
Goodwill and other intangible assets          16,156     32,524    125,661
Other assets                                  69,152     72,187     80,233
Assets from discontinued operations                -          -     78,166
                                           ---------  ---------  ---------
     Total assets                          $ 721,322  $ 737,399  $ 885,095
                                           =========  =========  =========

Current liabilities                          143,088    138,605    146,797
Liabilities from discontinued operations           -          -     20,133
Convertible notes and other long-term
 obligations                                 228,554    229,349    243,804
Stockholders' equity                         349,680    369,445    474,361
                                           ---------  ---------  ---------
     Total liabilities and stockholders'
      equity                               $ 721,322  $ 737,399  $ 885,095
                                           =========  =========  =========




     Cash Flow Data                            Three-Month Period Ended
                                           ===============================
                                           June 30,   March 31,  June 30,
                                             2006       2006       2005
                                           =========  =========  =========
                                                   (in thousands)

Net income (loss) from continuing
 operations                                $ (25,644) $ (15,827) $ (14,060)
Adjustments to reconcile net income (loss)
 to net cash provided by (used for)
 operations:
  Non-cash P&L items:
    Loss (gain) on sale of long-lived
     assets                                        -        107          -
    Impairment of long-lived assets           13,203     10,024          -
    Stock-based compensation                   2,529        127        274
    Loss on repurchase of 3%
     convertible notes                                      (22)        86
    Depreciation and amortization              5,013      5,113      6,482
    Other items                                  444     (1,804)       133
   Changes in assets and liabilities            (159)   (13,245)   (17,761)
                                           ---------  ---------  ---------
Net cash provided by (used for) operating
 activities of continuing operations          (4,614)   (15,527)   (24,846)
Net cash provided by (used for) operating
 activities of discontinued operations         1,554         (5)     1,831
                                           ---------  ---------  ---------
Net cash provided by (used for) operating
 activities                                $  (3,060) $ (15,532) $ (23,015)
                                           =========  =========  =========


Other significant cash flow activities:
    Proceeds from sale of business                       35,490
    Proceeds from issuance of common
     stock                                     1,582                     -
    Repurchase of 3% convertible notes             -      1,321    (18,645)


The amounts for all periods reflect the reclassification out of
discontinuing operations to continuing operations for our Snap Server
systems business.