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Soapstone Networks Reports Fourth Quarter 2008 Results

Companies mentioned in this article: Soapstone Networks

BILLERICA, MA -- (Marketwire) -- 02/12/09 -- Soapstone Networks Inc. (NASDAQ: SOAP) today reported results for its fourth quarter and fiscal year ended December 31, 2008.

The Company also announced that it has undertaken an initiative to reduce permanent headcount by approximately 10% and its contractor workforce by approximately 75%, while lowering certain discretionary spending to conserve cash. The Company expects to incur charges for severance and related costs of approximately $0.3 million in the first quarter of fiscal 2009 in connection with this action and anticipates overall cash savings of approximately $5.0 million during 2009 as a result of these reductions when compared to the expense run rate in the fourth quarter of 2008. The actions related to this initiative are expected to be completed in the first quarter of 2009.

"We are taking the critical steps necessary to right size our business in the current economic environment," said Bill Leighton, Soapstone's CEO. "While we are disappointed that the PBT market has been delayed, we continue to see strong interest in the overall Carrier Ethernet market, with the PNC deployed in a Tier 1 Carrier's lab during the fourth quarter."

Bill Leighton continued, "We are committed to a more focused strategy aimed at making the PNC generally available for other Carrier Ethernet technology markets beyond PBT in 2009 and executing on our existing sales pipeline. Soapstone remains in the unique position of delivering a multi-technology, multi-vendor control plane solution for deployment in Carrier Ethernet networks."

As previously announced, the Company has exited the manufacture, sale and support of router products, making its last shipments in December 2007 and providing related support only through the end of December 2008. Accordingly, the Company will be disclosing its historical activities associated with its legacy router products and services as discontinued operations, as reflected in the attached Consolidated Statements of Operations which will be the Company's presentation from this time forward.

In addition and for a final time, the Company has also presented its results on a non-GAAP basis by including activities associated with its legacy business as continuing operations, which is consistent with its historical presentation. These Results of Operations are on a non-GAAP basis and exclude the charges for restructuring, certain stock based compensation and inventory credits.

GAAP loss from continuing operations for the fourth quarter ended December 31, 2008 was $7.1 million, or $(0.48) per share, compared to a GAAP loss from continuing operations of $3.7 million, or $(0.25) per share, in the prior year's fourth quarter. Including discontinued operations, GAAP net loss for the fourth quarter ended December 31, 2008 was $5.1 million, or $(0.35) per share, compared to a GAAP net income of $29.2 million, or $1.99 per share, in the prior year's fourth quarter. GAAP net (loss) income in the 2008 and 2007 periods include $0.8 million and $0.6 million, respectively, of certain non-cash equity based charges associated with Financial Accounting Standards Board Statement No. 123R ("SFAS 123R").

GAAP loss from continuing operations for the twelve months ended December 31, 2008 was $27.3 million, or $(1.84) per share, compared to a GAAP loss from continuing operations of $12.1 million, or $(0.85) per share, in the twelve months ended December 31, 2007. Including discontinued operations, GAAP net loss for the twelve months ended December 31, 2008 was $18.9 million, or $(1.28) per share, compared to a GAAP net income of $62.3 million, or $4.37 per share, in the twelve months ended December 31, 2007. GAAP net loss in the 2008 period includes $3.1 million of certain non-cash equity based charges associated with SFAS 123R. GAAP net income in the 2007 period includes $2.3 million of certain non-cash equity based charges associated with SFAS 123R and $0.3 million of special charges associated with the restructuring in the first quarter of 2006, partially offset by $0.2 million from the utilization of certain inventory previously written off.

Non-GAAP loss from continuing operations (GAAP loss from continuing operations excluding charges for certain stock based compensation) for the fourth quarter ended December 31, 2008 was $6.4 million or $(0.43) per share compared to non-GAAP loss from continuing operations of $3.3 million or $(0.22) per share in the fourth quarter of 2007. Including discontinued operations, non-GAAP net loss (GAAP net loss or income excluding charges for restructuring, certain stock based compensation and inventory credits, as applicable) for the fourth quarter ended December 31, 2008 was $4.3 million, or $(0.29) per share compared to non-GAAP net income of $29.8 million, or $2.03 per share in the fourth quarter of 2007.

Non-GAAP loss from continuing operations for the twelve months ended December 31, 2008 was $24.3 million, or $(1.64) per share compared to non-GAAP loss from continuing operations of $10.2 million, or $(0.71) per share in the twelve month period ended December 31, 2007. Including discontinued operations, non-GAAP net loss for the twelve months ended December 31, 2008 was $15.8 million, or $(1.07) per share compared to non-GAAP net income of $64.7 million, or $4.54 per share in the twelve month period ended December 31, 2007.

Cash, cash equivalents and marketable securities totaled $89.2 million at December 31, 2008.

Soapstone Networks will discuss these quarterly results as well as future business and financial expectations in an investor conference on February 12, 2009 at 8:30 AM eastern standard time. The conference telephone number is (800) 230-1085. A replay of the conference call will be available after 11:15 AM. Replay information will be available at (800) 475-6701 (USA) access code: 984885. Replay of this call is also available on Soapstone's Web site, www.soapstonenetworks.com, along with a copy of this release.

Soapstone and PNC (Provider Network Controller) are trademarks of Soapstone Networks Inc.

This release contains information about Soapstone's future expectations, plans, and prospects, including Soapstone's expectations for annual revenue, profitability, product introduction, commercial activities and the growth opportunity for Soapstone Networks, that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Statements made with regard to interim results are not necessarily indicative of results that may be expected for future interim periods or for the full year. When used in this press release, the word "will," "expected" and other similar expressions are intended to identify such forward looking statements. Such risks and uncertainties include, but are not limited to, the early stage of Soapstone Networks, market acceptance of our products, services and enhancements, customer purchasing patterns and commitments, development of the market place, product development and enhancement, intensity of competition of other vendors, technological changes, reliance on technology and distribution partners, and other risks set forth in Soapstone's filings with the Securities and Exchange Commission. Soapstone does not undertake any duty to update forward-looking statements.

About Soapstone Networks

Soapstone Networks is at the forefront of the movement to Carrier Ethernet by developing resource and service control systems that realize NGN software-provisioned services in the new Carrier Ethernet transport network. Soapstone's common control framework decouples services from underlying network technologies. The Soapstone solution is designed to dynamically provision precise, SLA-quality services, continuously optimizing utilization of network resources to bring orderly, predictable business-driven behavior to service provider networks. The future of Carrier Ethernet -- www.soapstonenetworks.com.

                          SOAPSTONE NETWORKS INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                (Unaudited)


                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

   Revenue                  $        -  $        -  $        -  $        -
   Cost of revenue                   -           -           -           -
                            ----------  ----------  ----------  ----------
      Gross margin                   -           -           -           -


   Research and
    Development (1)              4,779       2,382      17,401       7,149
   Sales and marketing (1)       1,668         820       6,258       2,117
   General and
    administrative (1)           1,446       1,570       6,615       6,584
                            ----------  ----------  ----------  ----------
      Total operating
       expenses                  7,893       4,772      30,274      15,850
                            ----------  ----------  ----------  ----------

                                (7,893)     (4,772)    (30,274)    (15,850)
   Interest income                 465       1,045       2,665       3,771
   Benefit from income tax         304           -         304           -
                            ----------  ----------  ----------  ----------
Loss from continuing
 operations                     (7,124)     (3,727)    (27,305)    (12,079)

   Income from discontinued
    operations, net of tax
    (1)(2)(3)                    2,002      32,932       8,370      74,356

                            ----------  ----------  ----------  ----------
Net (loss) income           $   (5,122) $   29,205  $  (18,935) $   62,277
                            ==========  ==========  ==========  ==========

Weighted average common
 shares used in computing
 diluted net (loss) income
 per share                  14,851,755  14,714,772  14,827,800  14,247,480

Loss per diluted share from
 continuing operations      $    (0.48) $    (0.25) $    (1.84) $    (0.85)
Income per diluted share
 from discontinued
 operations                 $     0.13  $     2.24  $     0.56  $     5.22
Net (loss) income per
 diluted share              $    (0.35) $     1.99  $    (1.28) $     4.37

   (1) Includes certain
       non-cash, stock-based
       compensation, as
       follows:
         Research and
          development       $      361  $      209  $    1,330  $      817
         Sales and marketing       186          89         686         290
         General and
          administrative           210         173         977         811
         Discontinued
          operations                17         108         127         405

   (2) Includes inventory
       charge and (credits),
       as follows:
         Inventory and
          inventory related
          charge            $        -  $        -  $        -  $      175
         Credits from
          utilization of
          inventory
          previously written
          off in 2006 and
          2001              $        -  $        -  $        -  $     (218)

   (3) Includes
       restructuring
       expenses             $        -  $        -  $        -  $      100



                          SOAPSTONE NETWORKS INC.
              NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                (Unaudited)
                                  Note 1


                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

  Revenue                   $        -  $        -  $        -  $        -
  Cost of revenue                    -           -           -           -
                            ----------  ----------  ----------  ----------
    Gross margin                     -           -           -           -


  Research and development       4,418       2,173      16,071       6,332
  Sales and marketing            1,482         731       5,572       1,827
  General and
   administrative                1,236       1,397       5,638       5,773
                            ----------  ----------  ----------  ----------
    Total operating
     expenses                    7,136       4,301      27,281      13,932
                            ----------  ----------  ----------  ----------

                                (7,136)     (4,301)    (27,281)    (13,932)
  Interest income                  465       1,045       2,665       3,771
  Benefit from income tax          304           -         304           -
                            ----------  ----------  ----------  ----------
Non-GAAP loss from
 continuing operations          (6,367)     (3,256)    (24,312)    (10,161)

  Non-GAAP income from
   discontinued operations,
   net of tax                    2,019      33,040       8,497      74,818

                            ----------  ----------  ----------  ----------
Non-GAAP net (loss) income  $   (4,348) $   29,784  $  (15,815) $   64,657
                            ==========  ==========  ==========  ==========

Weighted average common
 shares used in computing
 diluted net (loss) income
 per share                  14,851,755  14,714,772  14,827,800  14,247,480

Loss per diluted share from
 continuing operations      $    (0.43) $    (0.22) $    (1.64) $    (0.71)
Income per diluted share
 from discontinued
 operations                 $     0.14  $     2.25  $     0.57  $     5.25
Net (loss) income per
 diluted share              $    (0.29) $     2.03  $    (1.07) $     4.54

Note 1 - The above non-GAAP consolidated statements of operations for the three and twelve months ended December 31st, 2008 and 2007 are not presented in accordance with generally accepted accounting principles (GAAP) and are presented for informational purposes only. These statements exclude the impact of restructuring expenses, non-cash charges related certain stock based compensation as well as charges and credits related to inventory and related items as presented in the following reconciliation for the applicable periods. The Company believes that this presentation of non-GAAP results provides helpful information to both management and investors in assessing our core operating performance. Such information should not be considered superior to, in isolation from, or as a substitute for results presented in accordance with generally accepted accounting principles.

                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

Non-GAAP net (loss) income  $   (4,348) $   29,784  $  (15,815) $   64,657
 Continuing operations:
   Certain non-cash stock
    based compensation            (757)       (471)     (2,993)     (1,918)
 Discontinued operations:
   Certain non-cash stock
    based compensation             (17)       (108)       (127)       (405)
   Restructuring expenses            -           -           -        (100)
   Inventory and inventory
    related charge                   -           -           -        (175)
   Utilization of inventory
    previously written-off           -           -           -         218
                            ----------  ----------  ----------  ----------
GAAP net (loss) income      $   (5,122) $   29,205  $  (18,935) $   62,277
                            ==========  ==========  ==========  ==========



                          SOAPSTONE NETWORKS INC.
                RESULTS OF OPERATIONS ON A NON-GAAP BASIS
            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                (Unaudited)
                                  Note 1


                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

Revenue:
  Product (2)               $       --  $   42,137  $    1,201  $  114,388
  Service                        2,221       2,737       9,891       9,912
                            ----------  ----------  ----------  ----------
    Total revenue                2,221      44,874      11,092     124,300

Cost of revenue - Product           --       8,029          --      27,505
Cost of revenue - Service          411         264       3,000       1,434
                            ----------  ----------  ----------  ----------
  Total cost of revenue            411       8,293       3,000      28,939
                            ----------  ----------  ----------  ----------

    Gross margin                 1,810      36,581       8,092      95,361
                            ----------  ----------  ----------  ----------

Operating expenses:
  Research and development       4,418       5,284      16,071      25,010
  Sales and marketing            1,482         820       5,572       2,762
  General and
   administrative                1,236       1,397       5,638       5,773
                            ----------  ----------  ----------  ----------
    Total operating
     expenses                    7,136       7,501      27,281      33,545
                            ----------  ----------  ----------  ----------

(Loss) income from
 operations                     (5,326)     29,080     (19,189)     61,816
Interest income, net               465       1,045       2,665       3,771
Other Income                        62         163         199         244
Benefit from (Provision
 for) income tax                   451        (504)        510      (1,174)
                            ----------  ----------  ----------  ----------

Non-GAAP net (loss) income  $   (4,348) $   29,784  $  (15,815) $   64,657
                            ==========  ==========  ==========  ==========

  Non-GAAP net (loss)
   earnings per diluted
   share                    $    (0.29) $     2.03  $    (1.07) $     4.54
                            ==========  ==========  ==========  ==========
Weighted average common
 shares used in computing
 diluted net (loss) income
 per share
                            14,851,755  14,714,772  14,827,800  14,247,480
                            ==========  ==========  ==========  ==========

Note 1 - The above results of operations on a non-GAAP basis for the three and twelve months ended December 31st, 2008 and 2007 are not presented in accordance with generally accepted accounting principles (GAAP) and are presented for informational purposes only. These results exclude the impact of restructuring expenses, non-cash charges related certain stock based compensation as well as charges and credits related to inventory and related items as presented in the following reconciliation for the applicable periods. In addition, the Company has also presented these results on a non-GAAP basis by including activities associated with its legacy business as continuing operations, which is consistent with its historical presentation. The Company believes that this presentation of non-GAAP results provides helpful information to both management and investors in assessing our core operating performance and in a format consistent with historical presentation. Such information should not be considered superior to, in isolation from, or as a substitute for results presented in accordance with generally accepted accounting principles.

                              Three Months Ended      Twelve Months Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------
Non-GAAP net (loss) income  $   (4,348) $   29,784  $  (15,815) $   64,657
Restructuring expenses              --          --          --        (100)
Certain non-cash stock
 based compensation               (774)       (579)     (3,120)     (2,323)
Inventory and inventory
 related charge                     --          --          --        (175)
Utilization of inventory
 previously written-off             --          --          --         218
                            ----------  ----------  ----------  ----------

GAAP net (loss) income      $   (5,122) $   29,205  $  (18,935) $   62,277
                            ==========  ==========  ==========  ==========

Note 2 - Revenue deferral from prior years' product shipments recorded as product revenue in the three months ended June 30, 2008 upon the termination of certain customer terms and conditions.

                          SOAPSTONE NETWORKS INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (IN THOUSANDS)
                                (Unaudited)


                                                  December 31, December 31,
                                                  ------------ ------------
                                                      2008         2007
                                                  ------------ ------------

Assets
  Cash, cash equivalents and marketable
   securities                                     $     89,166 $     99,988
  Trade accounts receivable, net                            --       11,769
  Prepaid expenses and other current assets              1,245          790
                                                  ------------ ------------

    Total current assets                                90,411      112,547

  Long-term marketable securities                           --        3,000
  Property and equipment, net                            4,289        3,306
  Prepaid rents and other non-current assets               537           --
                                                  ------------ ------------
    Total assets                                  $     95,237 $    118,853
                                                  ============ ============

Liabilities and Stockholders' Equity
  Accounts payable and accrued expenses           $      3,059 $      9,002
  Deferred revenue                                          --        2,343
  Stockholders' equity                                  92,178      107,508
                                                  ------------ ------------

  Total liabilities and stockholders' equity      $     95,237 $    118,853
                                                  ============ ============


December 31, 2007 amounts are derived from audited financial statements.


Contact:

For more information, contact:

Inna Vyadro
Director of Investor Relations
Soapstone Networks
978-715-2300
Email Contact

William J. Stuart
Chief Financial Officer
Soapstone Networks
978-715-2300
Email Contact