Exar Corporation Reports Fiscal 2008 Second Quarter Results

- Acquisition of Sipex Corporation Completed on August 25, 2007

- GAAP Net Loss of $16.4 Million or $0.39 per share

- Non-GAAP Net Income of $2.0 million or $0.05 per share

FREMONT, Calif., Oct. 31 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), today reported financial results for its fiscal 2008 second quarter, ended September 30, 2007. The fiscal 2008 second quarter results include the results of Sipex Corporation from August 26, 2007 through September 30, 2007.

Net sales for the second quarter of fiscal 2008 were $19.2 million, a 12% increase from net sales of $17.1 million for the prior quarter and a 4% increase from net sales of $18.5 million for the same period last year. Net sales for the second quarter of fiscal 2008 include $2.9 million of sales attributable to Sipex and exclude approximately $9.7 million of sales recognized by Sipex prior to its acquisition and $5.9 million of shipments from Sipex's distributors after acquisition as purchase accounting precludes the Company from recognizing revenue on inventories held by Sipex's distributors as of the acquisition date. In addition, on August 26, 2007, the Company began recognizing revenue on shipments to its primary distributors on a sell-through basis. This resulted in the deferral of revenue on approximately $2.1 million of shipments during the second quarter.

"We have made significant progress since our merger," stated Ralph Schmitt, president and chief executive officer. "Our employees are aggressively pursuing opportunities and are committed to delivering superior products and services to our customers. On a combined basis using historical revenue recognition accounting, revenue grew by 4% in the second quarter to $36.9 million from $35.5 million. In addition to the expected cost synergies, we are already realizing cross selling opportunities. We have also identified product solutions which we expect will further leverage our technologies and accelerate revenue expansion," commented Mr. Schmitt.

Generally Accepted Accounting Principles (GAAP) Results

The gross margin for the second quarter of fiscal 2008 was 54.7% as compared to 66.4% in the prior quarter and 68.8% for the same period last year. The second quarter fiscal 2008 operating loss was $14.3 million, as compared to an operating loss of $0.2 million for the prior quarter and operating income of $46 thousand for the same period last year. The net loss for the fiscal quarter ended September 30, 2007 was $16.4 million, or $0.39 diluted loss per share, compared to net income of $4.6 million, or $0.13 diluted earnings per share, in the previous quarter and net income of $1.8 million, or $0.05 diluted earnings per share, for the fiscal quarter ended September 30, 2006.

During the second quarter of fiscal 2008, the Company's cash, cash equivalents and marketable securities decreased by $29.2 million to $324.4 million primarily as a result of $28.4 million used to repurchase approximately 2.1 million shares of the Company's common stock in the open market at an average price of $13.35 per share.

Non-GAAP Results

On a non-GAAP basis, the gross margin for the second quarter of fiscal 2008 was 63.1% as compared to 68.0% in the prior quarter and 70.3% for the same period last year. The second quarter fiscal 2008 non-GAAP operating loss was $1.4 million, as compared to non-GAAP operating income of $0.8 million for the prior quarter and non-GAAP operating income of $1.4 million for the same period last year. Non-GAAP net income for the fiscal quarter ended September 30, 2007 was $2.0 million, or $0.05 diluted earnings per share, as compared to non-GAAP net income of $3.5 million, or $0.10 diluted earnings per share, in the previous quarter, and non-GAAP net income of $3.8 million, or $0.10 diluted earnings per share, in the second quarter of fiscal 2007.

Quarterly Highlights

The Company has already made significant progress towards stated synergy targets with layoffs and restructuring that has generated a substantial headcount reduction. All organizational changes have been made and the corporate offices have been consolidated. Leveraging our integrated R&D capabilities has already shown results with our first joint project concentrating on digital power. This is being done in cooperation with the recently announced Toronto Design Center.

The Company launched its Powering Connectivity campaign building on its combined heritage of high-speed physical layer interface and analog power competencies. "We are committed to driving success by leveraging our unique combination of technologies to higher growth consumer applications while continuing to support infrastructure demand," stated Ed Lam, senior vice president, Product Lines. "We believe this strategy will enable us to grow more rapidly over the next few years."

Product Line Highlights

Interface

Our overall interface business was down in the quarter while market demand increased. The UART sub-segment had strong growth as the Company continued to gain market share; especially in high growth GPS and mobile platform applications that require low power and high-speed interconnect. While transceiver sub-segment demand showed improvement we were unable to meet demand due to manufacturing constraints. We believe this fab related issue has been resolved for products needed in fiscal third quarter of 2008.

Power

Our power business was up substantially in the fiscal period as many products began volume production. We continued to execute and drove a significant amount of new product introductions in the quarter. In the lighting sub-segment the products included the SP7120-22 LED driver family that leverages a very small 3mm x 3mm footprint minimizing board space and simplifying design projects by eliminating unnecessary external components. In the DC to DC sub-segment, the Company introduced the SP619 current limit switch, which offers greater system reliability and longer battery life for portable applications. Also, the Company released the SP6260 highly specialized Linear Drop Out (LDO) targeting applications such as mobile phones and portable instrumentation.

Communications

The Company saw growth in its networking sub-segment based on a few key designs at Alcatel/Lucent and Ericsson. Our transmission business was down in the quarter due to a decrease in overall market demand. In the quarter Exar added a highly integrated 16-channel feature-rich Line Interface Unit (LIU), the XRT83VSH316, to its already extensive T/E solutions portfolio. This product is optimized for high-density applications where board space is a premium and offers a space reduction of up to 40% in such applications as multi-service provisioning platforms, routers, optical, and wireless transport equipment.

The Company also improved its networking product portfolio by entering the Ethernet Media Access Control (MAC) market with its release of the XRT95L524. This 24-port Ethernet MAC is the first in a series of Ethernet MAC devices offering intelligent Quality of Service (QoS) and innovative traffic management features for metro access service cards, enterprise core switches, and metro Ethernet boxes. Supporting 24 ports, the XRT95L524 can replace competitors' multi-chip approaches, while delivering reduced costs and more design flexibility.

In its drive to be a system level provider, the Company announced the Orion (TM) platform to help customers develop complex communications systems. This platform uses products across each of our product lines: Communications, Interface and Power. The modular reference design platform can support up to 84 T1's aggregated over Sonet/SDH.

Regulatory Compliance/Current Business Outlook

The Company's statements about its future financial performance are based on current information and expectations and the Company undertakes no duty to update such statements. These statements are forward-looking and actual results could differ materially due to various risks and uncertainties, some of which are described herein. The Company will not provide any further guidance or updates on its performance during the quarter unless it does so in a news release, such as this one, or in such other manner that is compliant with Regulation FD and Regulation G, as the case may be, and other applicable laws, rules and regulations.

Generally Accepted Accounting Principles

The Company reports its financial results in accordance with GAAP. Additionally, the Company from time to time supplements reported GAAP financials with non-GAAP measures which are included in related press releases and reports furnished to the SEC, copies of which are available at the Company's website: http://www.exar.com or the SEC's website at: http://www.sec.gov. For the period presented, we are disclosing non-GAAP gross margins, non-GAAP research and development expenses, non-GAAP selling, general and administrative expenses, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP net income, and non-GAAP diluted earnings per share, which are adjusted to exclude from our GAAP results all stock-based compensation expense, amortization of acquired intangible assets, for value adjustment of acquired inventories, merger-related costs, in-process research and development, separation cost of an executive officer, other than temporary loss on long-term investments, income tax effects, charge to establish deferred tax asset valuation allowance and an income tax benefit from the closure of federal tax audit. These non-GAAP measures are presented in part to enhance the understanding of the Company's historical financial performance and comparability between reporting periods. The Company believes the non- GAAP presentation, when shown in conjunction with the corresponding GAAP measures, provide relevant and useful information to analysts, investors, management and other interested parties following the semiconductor industry. For its internal purposes, the Company uses the foregoing non-GAAP measures to evaluate performance across reporting periods, determine certain employee benefits as well as plan for and forecast the Company's future periods. These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP 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. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

Earnings Conference Call

The Company invites investors, financial analysts, and the general public to listen to its conference call discussing the Company's financial results for the second quarter of fiscal 2008, today, Wednesday, October 31, 2007 at 4:30 p.m. EDT/1:30 p.m. PDT. To access the conference call, please dial (800) 230-1085 by 4:20 p.m. EDT/1:20 p.m. PDT and use conference ID number 891631. In addition, a live webcast will also be available. To access the webcast, please go to the Exar Investors' Homepage at: http://www.exar.com. A replay of the call will be available starting at 8:00 p.m. EDT/5:00 p.m. PDT this afternoon until 2:59 a.m. EST on November 8, 2007 and 11:59 p.m. PST on November 7, 2007. To access the replay, please dial (800) 475-6701 and use conference ID number 891631.

Safe Harbor Statement

The Company's statements about its future financial performance, anticipated results in connection with the merger with Sipex Corporation, changes in gross margins and revenues, uncertain timing of expense reductions or synergies associated with corporate restructuring, internal initiatives, distribution and OEM trends, among others, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include global economic, industry and market conditions, such as customer and distributor relationships; limited visibility associated with customer demand for the Company's products; the possible loss of, or decrease in orders from, an important customer; adjustments in interest rates and cash balances; vendor capacity or throughput constraints; possible disruption in commercial activities as a consequence of terrorist activity, natural disasters, armed conflict or health issues; successful development, market acceptance and demand for the Company's products, including those for which the Company has achieved design wins; competitive factors, such as pricing or competing solutions; customer ordering patterns; accounting considerations related to option expensing or merger related issues; the level of inventories maintained at the Company's OEMs and distributors; and the Company's successful execution of internal performance plans, as well as the other risks detailed from time to time in the Company's SEC reports, including the Annual Report on Form 10-K for the year ended March 31, 2007 and quarterly report on Form 10-Q for the quarter ended June 30, 2007, as well as those risks set forth in Sipex Corporation's Annual Report on Form 10-K for the year ended December 31, 2007 and its quarterly report on Form 10-Q for the quarter ended June 30, 2007

About Exar

Exar Corporation is Powering Connectivity by delivering highly differentiated silicon solutions empowering products to connect. With distinctive knowledge in analog and digital technologies, Exar enables a wide array of applications such as portable devices, home media gateways, communications systems, and industrial automation equipment. Exar has locations worldwide providing real-time system-level support to drive rapid product innovation. For more information about Exar visit: http://www.exar.com.



                      EXAR CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                   (In thousands, except per share amounts)
                                 (Unaudited)

                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                               SEPTEMBER   JUNE   SEPTEMBER     SEPTEMBER
                                  30,       30,      30,           30,
                                 2007      2007     2006      2007     2006

    Net sales                   $14,169   $13,361  $14,840   $27,530  $29,018
    Net sales, related party      5,004     3,740    3,663     8,744    7,716
          Total net sales        19,173    17,101   18,503    36,274   36,734

    Cost of sales:
      Cost of sales               5,867     4,462    4,500    10,175    8,723
      Cost of sales, related
       party                      1,323     1,042    1,030     2,365    2,039
      Amortization of purchased
       intangible assets          1,499       240      240     1,893      480
          Total cost of sales     8,689     5,744    5,770    14,433   11,242

    Gross profit                 10,484    11,357   12,733    21,841   25,492

    Operating expenses:
      Research and development    7,452     6,058    6,677    13,511   13,291
      In-process research and
       development                8,800       -        -       8,800      -
      Selling, general and
       administrative             8,503     5,531    6,010    14,033   12,743
          Total operating
           expenses              24,755    11,589   12,687    36,344   26,034
    Income (loss) from
     operations                 (14,271)     (232)      46   (14,503)    (542)

    Other income, net:
      Interest income and
       other, net                 4,467     4,497    4,229     8,964    7,942
      Other than temporary loss
       on long-term investments    (449)      -       (957)     (449)    (957)
          Total interest and
           other income, net      4,018     4,497    3,272     8,515    6,985

    Income (loss) before income
     taxes                      (10,253)    4,265    3,318    (5,988)   6,443
    Provision (benefit) for
     income taxes                 6,157      (346)   1,539     5,811    2,659

    Net income (loss)          $(16,410)   $4,611   $1,779  $(11,799)  $3,784

    Earnings (loss) per share:
      Basic earnings (loss) per
       share                     $(0.39)    $0.13    $0.05    $(0.30)   $0.10

      Diluted earnings (loss)
       per share                 $(0.39)    $0.13    $0.05    $(0.30)   $0.10

    Shares used in the
     computation of earnings
     per share:

      Basic                      41,796    35,998   36,315    38,843   36,061

      Diluted                    41,796    36,134   36,506    38,843   36,381



                      EXAR CORPORATION AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In thousands)
                                 (Unaudited)

                                          SEPTEMBER 30,       MARCH 31,
                                              2007              2007
                   ASSETS

    Current assets:
      Cash and cash equivalents              $99,637          $119,809
      Short-term marketable securities       224,725           236,270
      Accounts receivable (net of allowance
       of $1,030 and $322)                     9,655             4,028
      Accounts receivable, related party
       (net of allowance of $1,538 and $816)   3,520               338
      Inventories                             15,459             4,779
      Interest receivable and prepaid
       expenses                                8,509             5,262
      Deferred income taxes, net               3,509               809
        Total current assets                 365,014           371,295

    Property, plant and equipment, net        43,391            25,404
    Goodwill                                 176,517             5,190
    Intangible assets, net                    64,185             5,451
    Other non-current assets                   3,067               562
    Long-term investments                      2,505             2,670
    Deferred income taxes, net                   -              10,602
        Total assets                        $654,679          $421,174

      LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts Payable                        $7,433            $2,139
      Accrued compensation and related
       benefits                                6,924             3,418
      Deferred income, related party           3,915               -
      Deferred income other                    1,281               -
      Accrued sales commission                 1,096               702
      Other accrued expenses                   6,446             2,448
      Income tax payable                         -               5,520
        Total current liabilities             27,095            14,227

    Long-term lease financing obligations     13,160               -
    Other long-term obligations                4,685               191

        Total liabilities                     44,940            14,418

    Total stockholders' equity
      Preferred stock, $.0001 par value;
       2,250,000 shares authorized; no
       shares outstanding
      Common stock, $.0001 par value;
       100,000,000 shares authorized;
       50,435,541 and 35,154,815 shares
       issued and outstanding at
       September 30, 2007 and March 31, 2007,
       respectively (net of treasury shares)       5                 4
      Additional paid-in capital             697,695           451,084
      Accumulated other comprehensive gain       372                76
      Retained Earnings                       86,600            98,164
      Treasury stock at cost, 11,442,765
       and 9,015,257 shares at
       September 30, 2007 and March 31,
       2007, respectively                   (174,933)         (142,572)
        Total stockholders' equity           609,739           406,756
        Total liabilities and stockholders'
         equity                             $654,679          $421,174



                      EXAR CORPORATION AND SUBSIDIARIES
           SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP RESULTS
                   (In thousands, except per share amounts)
                                 (Unaudited)

                                 THREE MONTHS ENDED       SIX MONTHS ENDED
                            SEPTEMBER   JUNE  SEPTEMBER      SEPTEMBER
                               30,       30,     30,            30,
                              2007      2007    2006       2007     2006

    GAAP gross margin          54.7%    66.4%    68.8%     60.2%    69.4%
      Stock-based compensation  0.6%     0.2%     0.2%      0.4%     0.1%
      Amortization of acquired
       intangible assets        6.0%     1.4%     1.3%      3.9%     1.3%
      Fair value adjustment of
       acquired inventories     1.8%      -        -        0.9%      -
      Merger-related costs      0.1%      -        -         -        -
    Non-GAAP gross margin      63.1%    68.0%    70.3%     65.4%    70.8%

    GAAP research and
     development expenses     $7,452   $6,058   $6,677   $13,511  $13,291
      Stock-based compensation   324      224      352       548      678
      Merger-related costs       253      -        -         253      -
    Non-GAAP research and
     development expenses     $6,875   $5,834   $6,325   $12,710  $12,613

    GAAP selling, general
     and administrative
     expenses                 $8,503   $5,531   $6,010   $14,033  $12,743
      Stock-based compensation   938      509      782     1,447    1,497
      Amortization of acquired
       intangible assets         196      -        -         196      -
      Merger-related costs       766      -        -         766      -
      Separation costs of
       executive officer         -        -        -         -        664
    Non-GAAP selling,
     general and
     administrative
     expenses                 $6,603   $5,022   $5,228   $11,624  $10,582

    GAAP operating expenses  $24,755  $11,589  $12,687   $36,344  $26,034
      Stock-based
       compensation            1,262      733    1,134     1,995    2,175
      Amortization of acquired
       intangible assets         196      -        -         196      -
      In-process research
       and development         8,800      -        -       8,800      -
      Merger-related costs     1,019      -        -       1,019      -
      Separation costs of
       executive officer         -        -        -         -        664
    Non-GAAP operating
     expenses                $13,478  $10,856  $11,553   $24,334  $23,195

    GAAP operating
     income (loss)          $(14,271)   $(232)     $46  $(14,503)   $(542)
      Stock-based
       compensation            1,368      761    1,163     2,129    2,229
      Amortization of acquired
       intangible assets       1,354      240      240     1,594      480
      Fair value adjustment of
       acquired inventories      341      -        -         341      -
      In-process research
       and development         8,800      -        -       8,800      -
      Merger-related costs     1,035      -        -       1,019      -
      Separation costs of
       executive officer         -        -        -         -        664
    Non-GAAP operating
     income (loss)           $(1,373)    $769   $1,449     $(620)  $2,831

    GAAP net income (loss)  $(16,410)  $4,611   $1,779  $(11,799)  $3,784
      Stock-based
       compensation            1,368      761    1,163     2,129    2,229
      Amortization of acquired
       intangible assets       1,354      240      240     1,594      480
      Fair value adjustment of
       acquired inventories      341      -        -         341      -
      In-process research
       and development         8,800      -        -       8,800      -
      Merger-related costs     1,035      -        -       1,035      -
      Separation costs of
       executive officer         -        -        -         -        664
      Other than temporary
       loss on long-term
       investments               449      -        957       449      957
      Income tax effects      (3,169)    (253)    (383)   (3,422)    (751)
      Charge to establish
       deferred tax asset
       valuation allowance     8,323      -        -       8,323      -
      Income tax benefit
       from the closure of
       federal tax audit         (81)  (1,852)     -      (1,933)     -
    Non-GAAP net income       $2,010   $3,507   $3,756    $5,517   $7,363

    GAAP diluted earnings
     (loss) per share         $(0.39)   $0.13    $0.05    $(0.30)   $0.10
      Stock-based compensation  0.03     0.02     0.03      0.05     0.06
      Amortization of acquired
       intangible assets        0.03     0.01     0.01      0.04     0.01
      Fair value adjustment of
       acquired inventories     0.01      -        -        0.01      -
      In-process research
       and development          0.21      -        -        0.22      -
      Merger-related costs      0.02      -        -        0.03      -
      Separation costs of
       executive officer         -        -        -         -       0.02
      Other than temporary
       loss on long-term
       investments              0.01      -       0.03      0.01     0.03
      Income tax effects       (0.07)   (0.01)   (0.01)    (0.09)   (0.02)
      Charge to establish
       deferred tax asset
       valuation allowance      0.19      -        -        0.21      -
      Income tax benefit
       from the closure of
       federal tax audit         -      (0.05)     -       (0.05)     -
    Non-GAAP diluted
     earnings per share        $0.05    $0.10    $0.10     $0.14    $0.20


    Shares used in diluted
     earnings (loss) per
     share --- GAAP           41,796   36,134   36,506    38,843   36,381
      The effect of dilutive
       potential common shares
       due to reporting
       Non-GAAP net income       626      -        -         582      -
      The effect of removing
       stock-based compensation
       expense under SFAS 123-R
       for Non-GAAP presentation
       purpose                   350       13      (61)      394     (143)
    Shares used in diluted
     earnings per share ---
     Non-GAAP                 42,772   36,147   36,445    39,819   36,238

    Note: certain amounts may not total due to rounding

SOURCE Exar Corporation