Affymetrix, Inc., (Nasdaq:AFFX) today reported its operating
results for the third quarter of 2006. On a GAAP basis the Company
reported net loss of approximately $14.2 million or $0.21 per
diluted share, including restructuring charges of $10.0 million or
$0.15 per diluted share and stock-based compensation expense of
$3.6 million or $0.05 per diluted share, in the third quarter of
2006, as compared to net income of $9.4 million or $0.14 per
diluted share in the third quarter of 2005. On January 1, 2006, the
Company adopted FAS 123R and is reporting employee stock-based
compensation expense in its GAAP results. Excluding the impact of
FAS 123R, the Company reported non-GAAP net loss of approximately
$11.0 million or $0.16 per diluted share in the third quarter of
2006. Total revenue for the quarter was $84.7 million, of which
$4.6 million was related to the sale of products to Perlegen
Sciences, Inc., as compared to total revenue of $83.4 million in
the third quarter of 2005, of which $2.2 million was related to the
sale of products to Perlegen. Product and product related revenue
was $74.1 million for the third quarter of 2006, compared to $79.5
million in the same period in 2005. Third quarter sales included
GeneChip� consumable revenue of $59.8 million, consisting of array
revenue of $37.4 million, reagent revenue of $10.1 million,
genotyping services revenue of $7.7 million and $4.6 million of
Perlegen revenue. Additionally, the Company reported instrument
revenue of $8.6 million. Affymetrix shipped 33 GeneChip Systems in
the quarter, increasing the cumulative systems shipped to
approximately 1480. Royalties and other revenue were $6.0 million
for the third quarter of 2006 compared to $1.7 million in the third
quarter of 2005. Total operating costs and expenses were $101.6
million for the third quarter of 2006, including the $10.0 million
in restructuring charges previously mentioned, compared to $75.1
million in the third quarter of 2005. Cost of product and product
related revenue was $32.5 million in the third quarter of 2006
compared to $23.4 million in the same period of 2005. Product and
product related gross margin was 56.2 percent in the third quarter
of 2006 compared to 70.6 percent in the third quarter of 2005. The
primary factor which impacted the year-over-year gross margin
comparison was the price reduction on the Company�s two-chip 500K
Mapping Array which was instituted in July ahead of the planned
shipments of a single-array 500K in the fourth quarter of 2006.
This impacted gross margin by approximately $6 million or 8 points.
Research and development expenses were $21.6 million during the
third quarter of 2006 compared to $19.8 million in the third
quarter of 2005.�Excluding the impact of FAS 123R, on a non-GAAP
basis research and development expenses were $20.7 million during
the third quarter of 2006 compared to $19.8 million in the third
quarter of 2005. Selling, general and administrative expenses were
$35.9 million for the third quarter of 2006 compared to $30.4
million in third quarter of 2005. In the third quarter of 2006, the
Company incurred approximately $2.5 million of selling, general and
administrative expenses associated with increased legal costs as
well as expenses associated with the Company�s internal stock
option review. Excluding the impact of FAS 123R, on a non-GAAP
basis selling, general and administrative expenses were $33.6
million for the third quarter of 2006 compared to $30.2 million in
the third quarter of 2005. Recent Highlights DNA Analysis
Affymetrix has been selected to analyze more than 9,000 samples in
a large-scale whole-genome association project for the Framingham
Heart Study. As part of the SNP Health Association Resource
project, Affymetrix will collaborate with the National Heart Lung
and Blood Institute and the National Center for Biotechnology
Information of the National Institutes of Health to identify
genetic variants associated with heart, lung, blood and sleep
disorders. The Autism Consortium has selected the single Affymetrix
GeneChip Human Mapping 500K Array for the world's most
comprehensive study on the genes associated with autism. The Autism
Gene Discovery Project will be conducted across 3,700 samples by
scientific experts from the Autism Consortium and the Broad
Institute of MIT and Harvard. Researchers from Boston University
and Howard University will perform the first genome-wide scan of an
African American cohort searching for genes associated with
obesity, hypertension, diabetes and metabolic syndrome using the
Affymetrix 500K Array Set. Researchers at the Translational
Genomics Research Institute (TGen) have used the Affymetrix 500K
Array to discover a gene associated with memory performance in
humans. The team's findings may be used to develop new medicines
for memory-based diseases such as Alzheimer's and Parkinson's. The
study was published in the Oct. 20, 2006 issue of Science. The
Foundation for the National Institutes of Health (FNIH) announced
that six major studies of brain, skin, and kidney disorders have
been selected as the first to undergo whole genome analysis by the
Genetic Association Information Network (GAIN). GAIN is a unique
public-private partnership involving the NIH, Pfizer, Affymetrix,
FNIH, Perlegen Sciences, Abbott, and the Broad Institute. RNA
Analysis NCI and NHGRI announced grant awards in the Cancer Genome
Atlas Pilot Project. The $100 million Project will test the use of
large-scale genome analysis technologies in lung, brain, and
ovarian cancer research. Affymetrix technology will be used at two
institutions involved in the project. The Broad Institute of MIT
and Harvard will use Affymetrix chips to look at expression and
copy number changes. Lawrence Berkeley National Laboratory will use
the Affymetrix Exon Arrays to look at cancer transcription
profiles. The MicroArray Quality Control (MAQC) study, a
collaborative effort led by the FDA and published in the September
8, 2006 issue of Nature Biotechnology, demonstrated that at a high
level, gene expression signatures generated by microarrays are
repeatable, further advancing the field towards widespread use in
clinical applications. Affymetrix technology outperformed all other
platforms in four areas: Reproducibility, Robustness, Sensitivity,
and Controls. Molecular Diagnostics The Company has completed setup
of Affymetrix Clinical Services Lab (ACSL), including filing
Clinical Laboratory Improvement Amendments (CLIA) applications.
Located in West Sacramento, the�purpose of ACSL is to accelerate
adoption of GeneChip assays to clinical practice. This�lab will
perform clinical tests, clinical trials, and assist in the
development of clinical assays to accelerate the transition of
GeneChip technologies under CLIA-validated, reproducible,
standardized assay development practices. Pharmaceutical Wyeth has
extended its agreement with Affymetrix for three more years,
continuing the relationship that began in 1994. Under the
agreement, Wyeth will apply Affymetrix technology in numerous areas
of the drug discovery and development process. Wyeth was one of the
first pharmaceutical companies to apply genomics in clinical
research. Translational Medicine Affymetrix and Partners HealthCare
have entered into a three-year translational research collaboration
to develop microarray-based diagnostics for complex diseases such
as newborn hearing loss, autism and hypertrophic cardiomyopathy.
Researchers at Harvard Medical School, Partners HealthCare and
Harvard Medical School-Partners HealthCare Center for Genetics and
Genomics will create and validate microarray tests in CLIA
laboratories. Affymetrix has entered into a five-year collaboration
with the Peter MacCallum Cancer Centre (Peter Mac) in Melbourne,
Australia, to analyze genomic information across large sets of
patient samples. Peter Mac researchers will use Affymetrix arrays
for translational research projects, beginning with studies on
ovarian cancer and carcinoma of unknown primaries. Affymetrix and
Zhejiang California Nanosystem Institute at Zhejiang University
have entered into a collaboration to develop clinical applications
using GeneChip technology in the areas of cancer, newborn genetic
diseases and infectious diseases. This is Affymetrix' first
translational medicine collaboration in China. Licensing NimbleGen
has obtained a non-exclusive, worldwide license to a number of
Affymetrix patents covering the manufacture, use and sales of
nucleic acid microarrays and related products and services in the
research field. Affymetrix' management team will host a conference
call on October 25, 2006 at 2:00 p.m. PT to review its operating
results for the third quarter of 2006. A live webcast can be
accessed by visiting the Investor Relations section of the
Company�s website at www.affymetrix.com. In addition, investors and
other interested parties can listen by dialing domestic: (866)
500-AFFX, international: (706) 643-2771. A replay of this call will
be available from 5:00 p.m. PT on October 25, 2006 until 8:00 p.m.
PT on November 1, 2006 at the following numbers: domestic: (800)
642-1687, international: (706) 645-9291. The passcode for both
replays is 8258660. An archived webcast of the conference call will
be available under the Investor Relations section of the Company's
website at www.affymetrix.com. About Affymetrix Affymetrix
scientists invented the world's first high-density microarray in
1989 and began selling the first commercial microarray in 1994.
Since then, Affymetrix GeneChip(R) technology has become the
industry standard in molecular biology research. Affymetrix
technology is used by the world's top pharmaceutical, diagnostic
and biotechnology companies as well as leading academic, government
and not-for-profit research institutes. More than 1,400 systems
have been installed around the world and more than 7,000
peer-reviewed papers have been published using the technology.
Affymetrix' patented photolithographic manufacturing process
provides the most information capacity available today on an array,
enabling researchers to use a whole-genome approach to analyzing
the relationship between genetics and health. Affymetrix is
headquartered in Santa Clara, Calif., with manufacturing facilities
in Sacramento, Calif., and Bedford, Mass. The company maintains
important sales and marketing operations in Europe and Asia and has
about 1,100 employees worldwide. For more information about
Affymetrix, please visit the company's website at
www.affymetrix.com. Use of Non-GAAP Financial Measures In addition
to disclosing financial results calculated in accordance with GAAP,
the Company�s earnings release contains non-GAAP financial measures
that exclude the effects of non-cash equity-based stock
compensation expense as a result of the Company�s adoption of FAS
123R on January 1, 2006. The Company believes that the presentation
of results excluding non-cash equity-based stock compensation
expense provides meaningful supplemental information to both
management and investors that is indicative of the Company�s core
operating results. The Company used the Modified Prospective Method
to adopt FAS 123R and did not restate prior year results for the
impact of employee stock option expensing. Therefore, the Company
believes these non-GAAP financial measures facilitate comparison of
operating results across reporting periods. A reconciliation
between the Company�s results of operations on a GAAP and non-GAAP
basis for the periods reported is included as part of the condensed
consolidated statements of operations at the end of the Company�s
earnings release. The Company uses these non-GAAP financial
measures when evaluating its financial results as well as for
internal planning and forecasting purposes. The non-GAAP financial
measures disclosed by the Company should not be considered a
substitute for or superior to financial measures calculated in
accordance with GAAP, and the financial results calculated in
accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated. The non-GAAP financial
measures used by the Company may be calculated differently from,
and therefore may not be comparable to, similarly titled measures
used by other companies. All statements in this press release that
are not historical are "forward-looking statements"�under the
federal securities laws. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially,
including but not limited to: risks�related to�the Company's
ability to achieve and sustain higher levels of revenue and
improved�gross margins and operating income and reduced operating
expenses (including risks related to the outcome of the Company's
previously announced efforts to reduce expenses in the general and
administrative functions including the rationalization of the
Company's facilities); uncertainties relating to technological
approaches, manufacturing (including risks related to resolving any
manufacturing problems) and product development;�uncertainties
relating to changes in senior management personnel�and structure;
uncertainties related to cost and pricing of Affymetrix
products;�risks relating to dependence on collaborative partners;
uncertainties relating to sole source suppliers; uncertainties
relating to FDA and other regulatory approvals; competition; risks
relating to intellectual property of others and the uncertainties
of patent protection; and risks relating to intellectual property
and other litigation. These and other risk factors are discussed in
Affymetrix' Form 10-K/A for the year ended December 31, 2005 and
other SEC reports, including reports on Form 10-Q and Form 10-Q/A
for subsequent periods. Affymetrix expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any change in Affymetrix' expectations or any change in
events, conditions, or circumstances on which any such statements
are based. PLEASE NOTE: Affymetrix, the Affymetrix logo and
GeneChip are trademarks owned or used by Affymetrix, Inc.
AFFYMETRIX,�INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN
THOUSANDS) (UNAUDITED) � September 30,2006 December 31,2005 (Note
1) ASSETS Current assets: Cash and cash equivalents $ 66,487� $
100,236� Available-for-sale securities � short-term 179,055�
184,696� Accounts receivable 65,097� 93,028� Accounts receivable
from Perlegen Sciences 5,153� 4,082� Inventories 45,654� 35,980�
Deferred tax assets�current portion 26,375� 26,230� Prepaid
expenses and other current assets 7,584� 12,622� Total current
assets 395,405� 456,874� Property and equipment, net 132,465�
85,560� Acquired technology rights, net 57,204� 61,426� Goodwill
124,787� 124,498� Deferred tax assets � long-term portion 18,087�
17,594� Notes receivable from employees 2,364� 1,824� Other assets
33,051� 27,318� $ 763,363� $ 775,094� � LIABILITIES AND
STOCKHOLDERS� EQUITY Current liabilities: Accounts payable and
accrued liabilities $ 60,939� $ 71,551� Deferred revenue � current
portion 34,316� 35,644� Total current liabilities 95,255� 107,195�
Deferred revenue � long-term portion 12,029� 15,606� Other
long-term liabilities 5,279� 4,184� Convertible notes 120,000�
120,000� Stockholders� equity: Common stock 678� 672� Additional
paid-in capital 660,732� 646,186� Deferred stock compensation ��
(10,799) Accumulated other comprehensive loss (1,503) (1,227)
Accumulated deficit (129,107) (106,723) Total stockholders� equity
530,800� 528,109� $ 763,363� $ 775,094� � Note�1: The condensed
consolidated balance sheet at December�31, 2005 has been derived
from the audited consolidated financial statements at that date
included in the Company�s Form�10-K/A for the fiscal year ended
December�31, 2005. AFFYMETRIX,�INC. CONDENSED CONSOLIDATED
STATEMENTS OF (LOSS) INCOME (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) (UNAUDITED) � Three Months Ended September 30, Nine Months
Ended September 30, 2006� 2005� 2006� 2005� Revenue Product sales $
56,139� $ 69,044� $ 183,154� $ 211,808� Product related revenue
17,971� 10,456� 45,621� 32,707� Total product and product related
revenue 74,110� 79,500� 228,775� 244,515� Royalties and other
revenue 5,969� 1,727� 10,263� 5,280� Revenue from Perlegen Sciences
4,593� 2,220� 12,091� 6,318� Total revenue 84,672� 83,447� 251,129�
256,113� � Costs and expenses: Cost of product sales 23,618�
20,755� 62,338� 57,986� Cost of product related revenue 8,859�
2,655� 22,712� 7,619� Cost of revenue from Perlegen Sciences 1,646�
1,359� 4,304� 4,351� Research and development 21,639� 19,835�
66,737� 57,724� Selling, general and administrative 35,865� 30,362�
114,107� 92,499� Stock-based compensation �� 141� �� 257�
Restructuring 10,008� �� 10,008� �� Total costs and expenses
101,635� 75,107� 280,206� 220,436� (Loss) income from operations
(16,963) 8,340� (29,077) 35,677� Interest income and other, net
2,942� 2,294� 10,949� 3,961� Interest expense (350) (413) (1,174)
(1,129) � (Loss) income before income taxes (14,371) 10,221�
(19,302) 38,509� Income tax benefit (provision) 216� (823) (3,082)
(3,330) Net (loss) income $ (14,155) $ 9,398� $ (22,384) $ 35,179�
� Basic net (loss) income per common share $ (0.21) $ 0.15� $
(0.33) $ 0.56� Diluted net (loss) income per common share $ (0.21)
$ 0.14� $ (0.33) $ 0.52� � Shares used in computing basic net
(loss) income per share 67,248� 63,786� 67,320� 63,112� Shares used
in computing diluted net (loss) income per share 67,248� 70,463�
67,320� 69,966� AFFYMETRIX,�INC. RECONCILIATION OF GAAP TO NON-GAAP
RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) � Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2006� 2005� 2006� 2005� GAAP net (loss) income $
(14,155) $ 9,398� $ (22,384) $ 35,179� Stock-based compensation:
Cost of product sales(1) 408� �� 1,126� �� Research and
development(1) 934� 7� 3,038� 10� Selling, general and
administrative(1) 2,290� 134� 8,350� 247� Income tax effect(2)
(509) (12) (3,124) (22) Non-GAAP net (loss) income $ (11,032) $
9,527� $ (12,994) $ 35,414� � Non-GAAP diluted net (loss) income
per share $ (0.16) � $ 0.14� $ (0.19) $ 0.52� � Shares used in
computing non-GAAP diluted net (loss) income per share(3) 67,248�
70,463� 67,320� 69,966� Explanations for Non-GAAP adjustments
included in table above: � (1) For the three and nine months ended
September 30, 2006, the Company has added back stock-based
compensation expense recorded under FAS 123R to compute its
non-GAAP operating results. (2) Amount reflects the estimated tax
impact on the above noted non-GAAP adjustments. (3) For the three
and nine months ended September 30, 2006, the Company did not
adjust the shares used in computing non-GAAP diluted net loss per
share to conform to what the diluted shares would had been had it
applied prior accounting standards as the Company was in a loss
position. Affymetrix, Inc., (Nasdaq:AFFX) today reported its
operating results for the third quarter of 2006. On a GAAP basis
the Company reported net loss of approximately $14.2 million or
$0.21 per diluted share, including restructuring charges of $10.0
million or $0.15 per diluted share and stock-based compensation
expense of $3.6 million or $0.05 per diluted share, in the third
quarter of 2006, as compared to net income of $9.4 million or $0.14
per diluted share in the third quarter of 2005. On January 1, 2006,
the Company adopted FAS 123R and is reporting employee stock-based
compensation expense in its GAAP results. Excluding the impact of
FAS 123R, the Company reported non-GAAP net loss of approximately
$11.0 million or $0.16 per diluted share in the third quarter of
2006. Total revenue for the quarter was $84.7 million, of which
$4.6 million was related to the sale of products to Perlegen
Sciences, Inc., as compared to total revenue of $83.4 million in
the third quarter of 2005, of which $2.2 million was related to the
sale of products to Perlegen. Product and product related revenue
was $74.1 million for the third quarter of 2006, compared to $79.5
million in the same period in 2005. Third quarter sales included
GeneChip(R) consumable revenue of $59.8 million, consisting of
array revenue of $37.4 million, reagent revenue of $10.1 million,
genotyping services revenue of $7.7 million and $4.6 million of
Perlegen revenue. Additionally, the Company reported instrument
revenue of $8.6 million. Affymetrix shipped 33 GeneChip Systems in
the quarter, increasing the cumulative systems shipped to
approximately 1480. Royalties and other revenue were $6.0 million
for the third quarter of 2006 compared to $1.7 million in the third
quarter of 2005. Total operating costs and expenses were $101.6
million for the third quarter of 2006, including the $10.0 million
in restructuring charges previously mentioned, compared to $75.1
million in the third quarter of 2005. Cost of product and product
related revenue was $32.5 million in the third quarter of 2006
compared to $23.4 million in the same period of 2005. Product and
product related gross margin was 56.2 percent in the third quarter
of 2006 compared to 70.6 percent in the third quarter of 2005. The
primary factor which impacted the year-over-year gross margin
comparison was the price reduction on the Company's two-chip 500K
Mapping Array which was instituted in July ahead of the planned
shipments of a single-array 500K in the fourth quarter of 2006.
This impacted gross margin by approximately $6 million or 8 points.
Research and development expenses were $21.6 million during the
third quarter of 2006 compared to $19.8 million in the third
quarter of 2005. Excluding the impact of FAS 123R, on a non-GAAP
basis research and development expenses were $20.7 million during
the third quarter of 2006 compared to $19.8 million in the third
quarter of 2005. Selling, general and administrative expenses were
$35.9 million for the third quarter of 2006 compared to $30.4
million in third quarter of 2005. In the third quarter of 2006, the
Company incurred approximately $2.5 million of selling, general and
administrative expenses associated with increased legal costs as
well as expenses associated with the Company's internal stock
option review. Excluding the impact of FAS 123R, on a non-GAAP
basis selling, general and administrative expenses were $33.6
million for the third quarter of 2006 compared to $30.2 million in
the third quarter of 2005. Recent Highlights DNA Analysis --
Affymetrix has been selected to analyze more than 9,000 samples in
a large-scale whole-genome association project for the Framingham
Heart Study. As part of the SNP Health Association Resource
project, Affymetrix will collaborate with the National Heart Lung
and Blood Institute and the National Center for Biotechnology
Information of the National Institutes of Health to identify
genetic variants associated with heart, lung, blood and sleep
disorders. -- The Autism Consortium has selected the single
Affymetrix GeneChip Human Mapping 500K Array for the world's most
comprehensive study on the genes associated with autism. The Autism
Gene Discovery Project will be conducted across 3,700 samples by
scientific experts from the Autism Consortium and the Broad
Institute of MIT and Harvard. -- Researchers from Boston University
and Howard University will perform the first genome-wide scan of an
African American cohort searching for genes associated with
obesity, hypertension, diabetes and metabolic syndrome using the
Affymetrix 500K Array Set. -- Researchers at the Translational
Genomics Research Institute (TGen) have used the Affymetrix 500K
Array to discover a gene associated with memory performance in
humans. The team's findings may be used to develop new medicines
for memory-based diseases such as Alzheimer's and Parkinson's. The
study was published in the Oct. 20, 2006 issue of Science. -- The
Foundation for the National Institutes of Health (FNIH) announced
that six major studies of brain, skin, and kidney disorders have
been selected as the first to undergo whole genome analysis by the
Genetic Association Information Network (GAIN). GAIN is a unique
public-private partnership involving the NIH, Pfizer, Affymetrix,
FNIH, Perlegen Sciences, Abbott, and the Broad Institute. RNA
Analysis -- NCI and NHGRI announced grant awards in the Cancer
Genome Atlas Pilot Project. The $100 million Project will test the
use of large-scale genome analysis technologies in lung, brain, and
ovarian cancer research. Affymetrix technology will be used at two
institutions involved in the project. The Broad Institute of MIT
and Harvard will use Affymetrix chips to look at expression and
copy number changes. Lawrence Berkeley National Laboratory will use
the Affymetrix Exon Arrays to look at cancer transcription
profiles. -- The MicroArray Quality Control (MAQC) study, a
collaborative effort led by the FDA and published in the September
8, 2006 issue of Nature Biotechnology, demonstrated that at a high
level, gene expression signatures generated by microarrays are
repeatable, further advancing the field towards widespread use in
clinical applications. Affymetrix technology outperformed all other
platforms in four areas: Reproducibility, Robustness, Sensitivity,
and Controls. Molecular Diagnostics -- The Company has completed
setup of Affymetrix Clinical Services Lab (ACSL), including filing
Clinical Laboratory Improvement Amendments (CLIA) applications.
Located in West Sacramento, the purpose of ACSL is to accelerate
adoption of GeneChip assays to clinical practice. This lab will
perform clinical tests, clinical trials, and assist in the
development of clinical assays to accelerate the transition of
GeneChip technologies under CLIA-validated, reproducible,
standardized assay development practices. Pharmaceutical -- Wyeth
has extended its agreement with Affymetrix for three more years,
continuing the relationship that began in 1994. Under the
agreement, Wyeth will apply Affymetrix technology in numerous areas
of the drug discovery and development process. Wyeth was one of the
first pharmaceutical companies to apply genomics in clinical
research. Translational Medicine -- Affymetrix and Partners
HealthCare have entered into a three-year translational research
collaboration to develop microarray-based diagnostics for complex
diseases such as newborn hearing loss, autism and hypertrophic
cardiomyopathy. Researchers at Harvard Medical School, Partners
HealthCare and Harvard Medical School-Partners HealthCare Center
for Genetics and Genomics will create and validate microarray tests
in CLIA laboratories. -- Affymetrix has entered into a five-year
collaboration with the Peter MacCallum Cancer Centre (Peter Mac) in
Melbourne, Australia, to analyze genomic information across large
sets of patient samples. Peter Mac researchers will use Affymetrix
arrays for translational research projects, beginning with studies
on ovarian cancer and carcinoma of unknown primaries. -- Affymetrix
and Zhejiang California Nanosystem Institute at Zhejiang University
have entered into a collaboration to develop clinical applications
using GeneChip technology in the areas of cancer, newborn genetic
diseases and infectious diseases. This is Affymetrix' first
translational medicine collaboration in China. Licensing --
NimbleGen has obtained a non-exclusive, worldwide license to a
number of Affymetrix patents covering the manufacture, use and
sales of nucleic acid microarrays and related products and services
in the research field. Affymetrix' management team will host a
conference call on October 25, 2006 at 2:00 p.m. PT to review its
operating results for the third quarter of 2006. A live webcast can
be accessed by visiting the Investor Relations section of the
Company's website at www.affymetrix.com. In addition, investors and
other interested parties can listen by dialing domestic: (866)
500-AFFX, international: (706) 643-2771. A replay of this call will
be available from 5:00 p.m. PT on October 25, 2006 until 8:00 p.m.
PT on November 1, 2006 at the following numbers: domestic: (800)
642-1687, international: (706) 645-9291. The passcode for both
replays is 8258660. An archived webcast of the conference call will
be available under the Investor Relations section of the Company's
website at www.affymetrix.com. About Affymetrix Affymetrix
scientists invented the world's first high-density microarray in
1989 and began selling the first commercial microarray in 1994.
Since then, Affymetrix GeneChip(R) technology has become the
industry standard in molecular biology research. Affymetrix
technology is used by the world's top pharmaceutical, diagnostic
and biotechnology companies as well as leading academic, government
and not-for-profit research institutes. More than 1,400 systems
have been installed around the world and more than 7,000
peer-reviewed papers have been published using the technology.
Affymetrix' patented photolithographic manufacturing process
provides the most information capacity available today on an array,
enabling researchers to use a whole-genome approach to analyzing
the relationship between genetics and health. Affymetrix is
headquartered in Santa Clara, Calif., with manufacturing facilities
in Sacramento, Calif., and Bedford, Mass. The company maintains
important sales and marketing operations in Europe and Asia and has
about 1,100 employees worldwide. For more information about
Affymetrix, please visit the company's website at
www.affymetrix.com. Use of Non-GAAP Financial Measures In addition
to disclosing financial results calculated in accordance with GAAP,
the Company's earnings release contains non-GAAP financial measures
that exclude the effects of non-cash equity-based stock
compensation expense as a result of the Company's adoption of FAS
123R on January 1, 2006. The Company believes that the presentation
of results excluding non-cash equity-based stock compensation
expense provides meaningful supplemental information to both
management and investors that is indicative of the Company's core
operating results. The Company used the Modified Prospective Method
to adopt FAS 123R and did not restate prior year results for the
impact of employee stock option expensing. Therefore, the Company
believes these non-GAAP financial measures facilitate comparison of
operating results across reporting periods. A reconciliation
between the Company's results of operations on a GAAP and non-GAAP
basis for the periods reported is included as part of the condensed
consolidated statements of operations at the end of the Company's
earnings release. The Company uses these non-GAAP financial
measures when evaluating its financial results as well as for
internal planning and forecasting purposes. The non-GAAP financial
measures disclosed by the Company should not be considered a
substitute for or superior to financial measures calculated in
accordance with GAAP, and the financial results calculated in
accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated. The non-GAAP financial
measures used by the Company may be calculated differently from,
and therefore may not be comparable to, similarly titled measures
used by other companies. All statements in this press release that
are not historical are "forward-looking statements" under the
federal securities laws. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially,
including but not limited to: risks related to the Company's
ability to achieve and sustain higher levels of revenue and
improved gross margins and operating income and reduced operating
expenses (including risks related to the outcome of the Company's
previously announced efforts to reduce expenses in the general and
administrative functions including the rationalization of the
Company's facilities); uncertainties relating to technological
approaches, manufacturing (including risks related to resolving any
manufacturing problems) and product development; uncertainties
relating to changes in senior management personnel and structure;
uncertainties related to cost and pricing of Affymetrix products;
risks relating to dependence on collaborative partners;
uncertainties relating to sole source suppliers; uncertainties
relating to FDA and other regulatory approvals; competition; risks
relating to intellectual property of others and the uncertainties
of patent protection; and risks relating to intellectual property
and other litigation. These and other risk factors are discussed in
Affymetrix' Form 10-K/A for the year ended December 31, 2005 and
other SEC reports, including reports on Form 10-Q and Form 10-Q/A
for subsequent periods. Affymetrix expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any change in Affymetrix' expectations or any change in
events, conditions, or circumstances on which any such statements
are based. PLEASE NOTE: Affymetrix, the Affymetrix logo and
GeneChip are trademarks owned or used by Affymetrix, Inc. -0- *T
AFFYMETRIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN
THOUSANDS) (UNAUDITED) September 30, December 31, 2006 2005
------------- ------------ (Note 1) ASSETS Current assets: Cash and
cash equivalents $ 66,487 $ 100,236 Available-for-sale securities -
short- term 179,055 184,696 Accounts receivable 65,097 93,028
Accounts receivable from Perlegen Sciences 5,153 4,082 Inventories
45,654 35,980 Deferred tax assets--current portion 26,375 26,230
Prepaid expenses and other current assets 7,584 12,622
------------- ------------ Total current assets 395,405 456,874
Property and equipment, net 132,465 85,560 Acquired technology
rights, net 57,204 61,426 Goodwill 124,787 124,498 Deferred tax
assets -- long-term portion 18,087 17,594 Notes receivable from
employees 2,364 1,824 Other assets 33,051 27,318 -------------
------------ $ 763,363 $ 775,094 ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable and accrued liabilities $ 60,939 $ 71,551 Deferred revenue
-- current portion 34,316 35,644 ------------- ------------ Total
current liabilities 95,255 107,195 Deferred revenue -- long-term
portion 12,029 15,606 Other long-term liabilities 5,279 4,184
Convertible notes 120,000 120,000 Stockholders' equity: Common
stock 678 672 Additional paid-in capital 660,732 646,186 Deferred
stock compensation -- (10,799) Accumulated other comprehensive loss
(1,503) (1,227) Accumulated deficit (129,107) (106,723)
------------- ------------ Total stockholders' equity 530,800
528,109 ------------- ------------ $ 763,363 $ 775,094
============= ============
------------------------------------------- Note 1: The condensed
consolidated balance sheet at December 31, 2005 has been derived
from the audited consolidated financial statements at that date
included in the Company's Form 10-K/A for the fiscal year ended
December 31, 2005. *T -0- *T AFFYMETRIX, INC. CONDENSED
CONSOLIDATED STATEMENTS OF (LOSS) INCOME (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) (UNAUDITED) Three Months Ended Nine Months Ended
September 30, September 30, ------------------ -------------------
2006 2005 2006 2005 --------- -------- --------- --------- Revenue
Product sales $ 56,139 $69,044 $183,154 $211,808 Product related
revenue 17,971 10,456 45,621 32,707 --------- -------- ---------
--------- Total product and product related revenue 74,110 79,500
228,775 244,515 Royalties and other revenue 5,969 1,727 10,263
5,280 Revenue from Perlegen Sciences 4,593 2,220 12,091 6,318
--------- -------- --------- --------- Total revenue 84,672 83,447
251,129 256,113 --------- -------- --------- --------- Costs and
expenses: Cost of product sales 23,618 20,755 62,338 57,986 Cost of
product related revenue 8,859 2,655 22,712 7,619 Cost of revenue
from Perlegen Sciences 1,646 1,359 4,304 4,351 Research and
development 21,639 19,835 66,737 57,724 Selling, general and
administrative 35,865 30,362 114,107 92,499 Stock-based
compensation -- 141 -- 257 Restructuring 10,008 -- 10,008 --
--------- -------- --------- --------- Total costs and expenses
101,635 75,107 280,206 220,436 --------- -------- ---------
--------- (Loss) income from operations (16,963) 8,340 (29,077)
35,677 Interest income and other, net 2,942 2,294 10,949 3,961
Interest expense (350) (413) (1,174) (1,129) --------- --------
--------- --------- (Loss) income before income taxes (14,371)
10,221 (19,302) 38,509 Income tax benefit (provision) 216 (823)
(3,082) (3,330) --------- -------- --------- --------- Net (loss)
income $(14,155) $ 9,398 $(22,384) $ 35,179 ========= ========
========= ========= Basic net (loss) income per common share $
(0.21) $ 0.15 $ (0.33) $ 0.56 ========= ======== =========
========= Diluted net (loss) income per common share $ (0.21) $
0.14 $ (0.33) $ 0.52 ========= ======== ========= ========= Shares
used in computing basic net (loss) income per share 67,248 63,786
67,320 63,112 ========= ======== ========= ========= Shares used in
computing diluted net (loss) income per share 67,248 70,463 67,320
69,966 ========= ======== ========= ========= *T -0- *T AFFYMETRIX,
INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended
Nine Months Ended September 30, September 30, ------------------
------------------ 2006 2005 2006 2005 ---------- ------- ---------
-------- GAAP net (loss) income $ (14,155) $9,398 $(22,384) $35,179
Stock-based compensation: Cost of product sales(1) 408 -- 1,126 --
Research and development(1) 934 7 3,038 10 Selling, general and
administrative(1) 2,290 134 8,350 247 Income tax effect(2) (509)
(12) (3,124) (22) ---------- ------- --------- -------- Non-GAAP
net (loss) income $ (11,032) $9,527 $(12,994) $35,414 ==========
======= ========= ======== Non-GAAP diluted net (loss) income per
share $ (0.16) $ 0.14 $ (0.19) $ 0.52 ================== =========
======== Shares used in computing non- GAAP diluted net (loss)
income per share(3) 67,248 70,463 67,320 69,966 ========== =======
========= ======== Explanations for Non-GAAP adjustments included
in table above: (1) For the three and nine months ended September
30, 2006, the Company has added back stock-based compensation
expense recorded under FAS 123R to compute its non-GAAP operating
results. (2) Amount reflects the estimated tax impact on the above
noted non- GAAP adjustments. (3) For the three and nine months
ended September 30, 2006, the Company did not adjust the shares
used in computing non-GAAP diluted net loss per share to conform to
what the diluted shares would had been had it applied prior
accounting standards as the Company was in a loss position. *T
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