Adaptec Reports Second Quarter Results for Fiscal 2010

http://www.businesswire.com/news/home/20091029006453/en

MILPITAS, Calif.--(Business Wire)--
Adaptec, Inc. (NASDAQ:ADPT), today reported its results for the second quarter
of fiscal 2010, which ended on October 2, 2009.

Financial Highlights for Second Quarter of Fiscal 2010

* Total net revenues of $18.4 million
* GAAP gross margins of 44%; non-GAAP gross margins of 50%
* GAAP net loss per share of $(0.03); non-GAAP net loss per share of $(0.01)
* Positive operating cash flows from continuing operations of $4.9 million
* Ended the quarter with $385.6 million in combined cash, cash equivalents and
marketable securities

Business Highlights for Second Quarter of Fiscal 2010

* Unveiled strategic vision for the Company`s Data Conditioning Platform, which
enables next-generation enterprise and cloud data centers to utilize our
technologies to improve server and storage utilization, lower costs and address
green initiatives.
* Launched the Company`s Max IQ SSD Cache Performance Solution, an industry
"first" for building and managing High-Performance Hybrid Arrays in commodity
servers to maximize performance while minimizing capital and operating costs,
without disrupting existing operations.
* Received Editor`s Choice Award for one of Adaptec`s Series 5 Unified Serial
controller from PC Magazine Belgium.

Financial Results

Net revenues for the Company's second quarter of fiscal 2010 were $18.4 million,
compared with $31.7 million for the second quarter of fiscal 2009. Gross
margins, computed on a generally accepted accounting principles (GAAP) basis,
were 44% for the second quarter of fiscal 2010, compared with 42% for the second
quarter of fiscal 2009. Non-GAAP gross margins for the second quarter of fiscal
2010 were 50%, compared with 44% for the second quarter of fiscal 2009.

The Company`s GAAP loss from continuing operations, net of taxes, for the second
quarter of fiscal 2010 was $(4.1) million, or $(0.03) per share, compared with
GAAP income from continuing operations, net of taxes, of $3.3 million, or $0.02
per share, for the second quarter of fiscal 2009. GAAP net loss for the second
quarter of fiscal 2010 was $(3.8) million, or $(0.03) per share, compared with
GAAP net income of $3.3 million, or $0.02 per share, for the second quarter of
fiscal 2009.

Non-GAAP loss from continuing operations, net of taxes, for the second quarter
of fiscal 2010 was $(1.8) million, or $(0.01) per share, compared with non-GAAP
income from continuing operations, net of taxes, of $4.0 million, or $0.03 per
share, for the second quarter of fiscal 2009. Non-GAAP net loss for the second
quarter of fiscal 2010 was $(1.8) million, or $(0.01) per share, compared with
non-GAAP net income of $4.0 million, or $0.03 per share, for the second quarter
of fiscal 2009.

"Although customer engagements with our new products continue to grow, our new
product revenue is not enough to offset the decline in revenues from our legacy
products," said S. "Sundi" Sundaresh, President and Chief Executive Officer of
Adaptec. "Our recent product introductions, such as our MaxIQ Cache Performance
Solution that was successfully launched in September as part of our Data
Conditioning Platform, allow us to deliver new server, storage and application
optimization technologies with the ability to reduce financial costs and address
green initiatives for the next generation enterprise and cloud data centers. We
continue to focus on attracting new customers for our new products while
maintaining tight controls on our operating expense levels."

Business Outlook

For the third quarter of fiscal 2010, net revenues are projected to be between
$15 million and $17 million. GAAP net loss per share is projected to be in the
range of $(0.06) and $(0.04). Non-GAAP net loss per share is projected to be in
a range of $(0.04) and $(0.02). Actual results may vary depending on a number of
factors including challenging economic conditions in IT spending for servers and
timing of the Company`s revenue transitions.

Non-GAAP Financial Information

The non-GAAP results for all periods presented differ from results measured
under GAAP as they exclude stock-based compensation expense, expense associated
with the management liquidation pool established in connection with the Aristos
Logic Corporation transaction, amortization of acquisition-related intangible
assets, restructuring costs, gain on extinguishment of debt, tax differences due
to GAAP versus non-GAAP measurements and certain items related to discontinued
operations. 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 in the section "Use of Non-GAAP Financial Measures."

Conference Call

The Adaptec second quarter of fiscal 2010 earnings conference call is scheduled
for 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) on October 29, 2009.
Individuals may participate via webcast at least 15 minutes prior to the
teleconference or listen to an audio replay by visiting
www.adaptec.com/investor. A telephone replay of the teleconference will be
available through November 5, 2009 by calling (888) 286-8010 in the U.S. or
(617) 801-6888 internationally and referencing "passcode" number 61561219.

About Adaptec

Adaptec, Inc. (NASDAQ:ADPT) provides innovative data center I/O solutions that
protect, accelerate, optimize, and condition data in today`s most demanding data
center environments. Adaptec products are used in IT environments ranging from
traditional enterprise environments to fast growing, on-demand cloud computing
data centers. The company`s products enable data center managers, channel
partners and OEMs to deploy best-in-class storage solutions to meet their
customers` evolving IT and business requirements. Around the world, leading
corporations, government organizations, and medium and small businesses trust
Adaptec technology. More information is available at www.adaptec.com, on its
blog, storageadvisors.adaptec.com, and at adaptec.com/facebook and
twitter.com/Adaptec_Inc.

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 such
as "will," "believe," "are projected to be" and similar expressions are
statements regarding future events or the future performance of Adaptec, and
include statements regarding projected operating results. 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: general economic conditions; that if we do not meet our
operational objectives, we may have to continue to implement additional plans to
reduce our operating costs; achieving necessary support from the contract
manufacturers to which we have outsourced manufacturing, assembly and packaging
of our products; Adaptec's ability to launch new 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 MaxIQ SSD Cache Performance Solution, 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 July 3, 2009 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 and Unified Serial is a trademark in the
United States and other countries. Other company names are trademarks or
registered trademarks of their respective owners. Adaptec disclaims any and all
rights in these trademarks.

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

Three-Month Period Ended Six-Month Period Ended
October 2, July 3, September 26, October 2, September 26,
2009 2009 2008 2009 2008
(in thousands, except per share amounts)
Net revenues $ 18,442 $ 21,738 $ 31,655 $ 40,180 $ 63,158
Cost of revenues 10,279 11,635 18,326 21,914 35,147
Gross profit 8,163 10,103 13,329 18,266 28,011
Operating expenses:
Research and development 7,195 7,554 4,863 14,749 10,766
Selling, marketing and administrative 7,926 6,635 8,753 14,561 18,250
Amortization of acquisition-related intangible assets 325 325 108 650 108
Restructuring charges (credits) (92 ) 149 1,402 57 3,239
Total operating expenses 15,354 14,663 15,126 30,017 32,363
Loss from continuing operations (7,191 ) (4,560 ) (1,797 ) (11,751 ) (4,352 )
Interest and other income, net 2,364 2,647 6,242 5,011 11,504
Interest expense (1 ) (4 ) (476 ) (5 ) (1,317 )
Income (loss) from continuing operations before income taxes (4,828 ) (1,917 ) 3,969 (6,745 ) 5,835
Benefit from (provision for) income taxes 737 2,071 (657 ) 2,808 (2,570 )
Income (loss) from continuing operations, net of taxes (4,091 ) 154 3,312 (3,937 ) 3,265
Discontinued operations:
Loss from discontinued operations, net of taxes -- -- -- -- (734 )
Gain on disposal of discontinued operations, net of taxes 318 440 -- 758 5,794
Income from discontinued operations, net of taxes 318 440 -- 758 5,060
Net income (loss) $ (3,773 ) $ 594 $ 3,312 $ (3,179 ) $ 8,325

Income (loss) per common share:
Basic
Continuing operations $ (0.03 ) $ 0.00 $ 0.03 $ (0.03 ) $ 0.03
Discontinued operations $ 0.00 $ 0.00 $ -- $ 0.01 $ 0.04
Net income (loss) $ (0.03 ) $ 0.00 $ 0.03 $ (0.03 ) $ 0.07
Diluted
Continuing operations $ (0.03 ) $ 0.00 $ 0.02 $ (0.03 ) $ 0.02
Discontinued operations $ 0.00 $ 0.00 $ -- $ 0.01 $ 0.04
Net income (loss) $ (0.03 ) $ 0.00 $ 0.02 $ (0.03 ) $ 0.06

Shares used in computing income (loss) per share:
Basic 118,961 119,284 119,682 119,122 119,437
Diluted 118,961 119,869 134,594 119,122 137,038

Use of Non-GAAP Financial Measures

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 is associated
with stock awards, such as stock options, restricted stock awards and restricted
stock units that are granted under the Company`s equity incentive plans. 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 liquidation pool: The management liquidation pool of $5.6 million was
included as part of the total consideration to acquire Aristos Logic
Corporation. Under the merger agreement, the Company paid $3.2 million upon
closing the merger transaction. The remaining $2.4 million was paid within
twelve months from the acquisition date, to certain employees of the acquired
company, contingent upon their continued employment with the Company. The
Company excluded expenses associated with the management liquidation pool as
these payments were instituted as a component of the acquisition process and did
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, customer relationships and backlog that were acquired from Aristos
Logic Corporation. The Company excludes the amortization of acquisition-related
intangible assets because it does not reflect the Company`s ongoing 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, 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.
The amortization of acquisition-related intangible assets for core and existing
technologies and backlog are being reflected as cost of revenues, while the
amortization of acquisition-related intangible assets for customer relationships
is being reflected as part of operating expenses.

Restructuring charges (credits): Restructuring charges (credits) primarily
relate to activities engaged in by the Company`s management to implement
extensive company-wide expense-control programs. Restructuring charges (credits)
are excluded from non-GAAP financial measures because they are not considered to
be part of 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, individual event based on
a unique set of business objectives. The Company does not engage in
restructuring activities in the ordinary course of business. As such, the
Company believes it is appropriate to exclude restructuring charges (credits)
from its non-GAAP financial measures, as it enhances the ability of investors to
compare the Company`s period-over-period operating results.

Gain on extinguishment of debt: The gain on extinguishment of debt relates to
repurchases of the Company`s 3/4% convertible notes in the open market. The gain
on extinguishment of debt is excluded from non-GAAP financial measures because
the occurrence of such costs is infrequent, which would affect the ability of
investors to compare the Company`s period-over-period operating results, and
because the Company does not believe that these activities are reflective of
gains customarily incurred in the management of its cash resources.

Income taxes: Income taxes relates to incremental income taxes associated with
certain non-GAAP items and tax provisions and refunds from certain discrete tax
events.

Discontinued operations: Discontinued operations relates to the sale of the Snap
Server NAS business. Certain items from discontinued operations are excluded
from non-GAAP financial measures, which include the gain on disposal of
discontinued operations, net of taxes, and certain expenses discussed above
related to stock-based compensation and income taxes. The gain on disposal of
discontinued operations is excluded from non-GAAP financial measures because the
occurrence of such costs is infrequent, which would affect the ability of
investors to compare the Company`s period-over-period operating results, and
because the Company does not believe that this activity is reflective of gains
and losses customarily incurred in the management of its cash resources.

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

Three-Month Period Ended Six-Month Period Ended
October 2, July 3, September 26, October 2, September 26,
2009 2009 2008 2009 2008
(in thousands)

GAAP gross profit $ 8,163 $ 10,103 $ 13,329 $ 18,266 $ 28,011
Stock-based compensation expense (1) 148 77 118 225 221
Amortization of acquisition-related intangible assets (2) 940 940 427 1,880 427
Non-GAAP gross profit $ 9,251 $ 11,120 $ 13,874 $ 20,371 $ 28,659

GAAP income (loss) from continuing operations, net of taxes $ (4,091 ) $ 154 $ 3,312 $ (3,937 ) $ 3,265
Stock-based compensation expense (1) 1,116 1,086 (219 ) 2,202 1,167
Management liquidation pool 51 77 332 128 332
Amortization of acquisition-related intangible assets (2) 1,265 1,265 535 2,530 535
Restructuring charges (credits) (92 ) 149 1,402 57 3,239
Gain on extinguishment of debt -- -- (1,283 ) -- (1,283 )
Income taxes -- (2,279 ) (31 ) (2,279 ) 1,586
Non-GAAP income (loss) from continuing operations, net of taxes $ (1,751 ) $ 452 $ 4,048 $ (1,299 ) $ 8,841

GAAP net income (loss) $ (3,773 ) $ 594 $ 3,312 $ (3,179 ) $ 8,325
Stock-based compensation expense (1) 1,116 1,086 (219 ) 2,202 1,167
Management liquidation pool 51 77 332 128 332
Amortization of acquisition-related intangible assets (2) 1,265 1,265 535 2,530 535
Restructuring charges (credits) (92 ) 149 1,402 57 3,239
Gain on extinguishment of debt -- -- (1,283 ) -- (1,283 )
Income taxes -- (2,279 ) (31 ) (2,279 ) 1,586
Income from discontinued operations, net of taxes (318 ) (440 ) -- (758 ) (5,563 )
Non-GAAP net income (loss) $ (1,751 ) $ 452 $ 4,048 $ (1,299 ) $ 8,338

Shares used in computing income (loss) per share:
Basic - GAAP and non-GAAP 118,961 119,284 119,682 119,122 119,437

Diluted - GAAP 118,961 119,869 134,594 119,122 137,038
Employee options and awards -- -- -- -- --
3/4% convertible notes -- -- (14,152 ) -- (16,688 )
Diluted - non-GAAP 118,961 119,869 120,442 119,122 120,350

(1) Stock-based compensation expense by caption was as follows:

Three-Month Period Ended Six-Month Period Ended
October 2, July 3, September 26, October 2, September 26,
2009 2009 2008 2009 2008
(in thousands)

Cost of revenues $ 148 $ 77 $ 118 $ 225 $ 221
Research and development 375 333 (701 ) 708 (266 )
Selling, marketing and administrative 593 676 364 1,269 1,212
Total stock-based compensation expense $ 1,116 $ 1,086 $ (219 ) $ 2,202 $ 1,167

(2) Amortization of acquisition-related intangible assets by caption was as follows:

Three-Month Period Ended Six-Month Period Ended
October 2, July 3, September 26, October 2, September 26,
2009 2009 2008 2009 2008
(in thousands)

Cost of revenues $ 940 $ 940 $ 427 $ 1,880 $ 427
Amortization of acquisition-related intangible assets 325 325 108 650 108
Total amortization of acquisition-related intangible assets $ 1,265 $ 1,265 $ 535 $ 2,530 $ 535

Adaptec, Inc.
Condensed Consolidated Balance Sheet
(unaudited)

As of
October 2, 2009 March 31, 2009 September 26, 2008
(in thousands)
Cash, cash equivalents and marketable securities $ 385,587 $ 376,592 $ 456,922
Accounts receivable, net 7,718 11,735 18,333
Inventories 2,913 4,095 6,524
Goodwill and other intangible assets, net 18,851 19,748 39,452
Other assets 31,080 37,937 42,818
Total assets $ 446,149 $ 450,107 $ 564,049

Current liabilities, excluding current portion of convertible notes $ 22,776 $ 23,779 $ 35,475
Current portion of convertible notes 414 474 86,959
Other long-term obligations 12,563 14,974 17,514
Stockholders' equity 410,396 410,880 424,101
Total liabilities and stockholders' equity $ 446,149 $ 450,107 $ 564,049

Adaptec, Inc.
Guidance, including GAAP to Non-GAAP Net Loss Per Share Reconciliation
(unaudited)

Three-Month Period Ended
January 1, 2010
Net revenues $15.0 million - $17.0 million

GAAP diluted net loss per share $(0.06) - $(0.04)
Stock-based compensation expense $0.01
Amortization of acquisition-related intangible assets $0.01
Non-GAAP diluted net loss per share $(0.04) - $(0.02)

Adaptec, Inc.
Investor Relations Desk, 408-957-7811
Investor_Relations@adaptec.com

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