Exar Corporation Reports Fiscal 2008 Third Quarter Results

FREMONT, Calif., Jan. 31 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), today reported financial results for its fiscal 2008 third quarter, ended December 30, 2007. The Company's financial results include the results of Sipex Corporation since its acquisition by the Company on August 25, 2007.

Net sales for the third quarter of fiscal 2008 were $25.2 million compared to net sales of $19.2 million for the prior quarter and to net sales of $16.1 million for the same period last year. The increases were primarily attributable to the inclusion of sales from Sipex Corporation for the third and second quarters of fiscal 2008 of approximately $10.8 million and $2.9 million, respectively. Net sales for the third and second quarters of fiscal 2008 exclude approximately $4.1 million and $2.1 million of revenue from shipments to the Company's two primary distributors as a result of the change in revenue recognition to the sell-through method from the sell-in method. Also, net sales for the third and second quarters of fiscal 2008 exclude approximately $5.2 million and $5.9 million, respectively, of shipments from Sipex's distributors as purchase accounting precludes the Company from recognizing revenue from the sell-through of inventories held by Sipex's distributors as of its acquisition date. Additionally, net sales for the fiscal 2008 second quarter do not include approximately $9.7 million of Sipex sales prior to its acquisition.

"Having largely resolved the supply chain issues noted in our updated guidance, which adversely impacted the quarter's results, we will now focus on taking immediate measures to improve operating margin with a target of delivering 20% over the longer term," stated John McFarlane, interim president and chief executive officer. "We are in the process of rationalizing our capabilities to improve our return on resource investment and maximize the synergies of the Sipex transaction. We intent to continue with our announced share repurchase program and drive specific initiatives to deliver improved operating performance," remarked Mr. McFarlane.

Generally Accepted Accounting Principles (GAAP) Results

The gross margin for the third quarter of fiscal 2008 was 30.0% as compared to gross margins of 54.7% for the prior quarter and 66.5% for the same period last year. The decreases in gross margins were primarily due to the addition of sales of Sipex products, the increase in acquired intangible asset amortization expense and to the fair value adjustments of acquired inventories sold.

The third quarter fiscal 2008 operating loss was $13.4 million, as compared to an operating loss of $14.3 million for the prior quarter and an operating loss of $0.9 million for the same period last year. The net loss for the fiscal quarter ended December 30, 2007 was $11.7 million, or $0.24 diluted loss per share, compared to a net loss of $16.4 million, or $0.39 diluted loss per share, in the previous quarter and net income of $3.0 million, or $0.08 diluted earnings per share, for the fiscal quarter ended December 31, 2006.

During the third quarter of fiscal 2008, the Company's cash, cash equivalents and marketable securities decreased by $21.0 million to $303.4 million primarily as a result of $25.6 million used to repurchase approximately 2.3 million shares of the Company's common stock in the open market at an average price of $10.95 per share.

Non-GAAP Results

On a non-GAAP basis, the gross margin for the third quarter of fiscal 2008 was 47.3% as compared to 63.1% in the prior quarter and 68.1% for the same period last year. The decreases in gross margins were primarily due to the addition of sales of Sipex products.

The third quarter fiscal 2008 non-GAAP operating loss was $6.2 million, as compared to a non-GAAP operating loss of $1.4 million for the prior quarter and non-GAAP operating income of $440 thousand for the same period last year. The non-GAAP net loss for the fiscal quarter ended December 30, 2007 was $1.8 million, or $0.04 diluted loss per share, as compared to non-GAAP net income of $2.0 million, or $0.05 diluted earnings per share, in the previous quarter, and non-GAAP net income of $3.9 million, or $0.11 diluted earnings per share, in the third quarter of fiscal 2007.

Product Line Highlights

Interface

During the quarter, the Company introduced two industry first highly-integrated 15 Mbps (fastest in the industry) eight channel Universal Asynchronous Receiver Transmitters (UARTs). Supporting the high-data rate requirements found in advanced consumer and industrial applications, the XR16V598 and XR16V698 devices give system architects additional design flexibility, and complement the Company's already extensive UART offering.

Communications

In the quarter, the Company released an industry-first multi-rate four channel Clock and Data Recovery (CDR) device that supports OC-3/OC-12 data transmission speeds. The XRT91L34's increased features and functionality sustain high-speed SONET applications including repeaters and extenders where advanced CDR capabilities are critical. Additionally, the device leverages the Company's phase lock loop technology which improves system performance and minimizes jitter characteristics.

Power

With an industry-first Light Emitting Diode (LED) driver, the Company entered the industrial and architectural LED lighting market at a time when it is accelerating its conversion from incandescent and florescent to LED lighting systems. The SP7601 delivers high voltage range (30V) in a very small 6-pin TSOT (2.9x2.8mm) package minimizing board space requirements and design complexity. Targeting high resolution camera and cell phone applications the Company introduced SP7682 -- a LED flash and backlight driver combination. In a space saving (3x3mm) package, it supports the high brightness LED flash and four-channel backlight functionality necessary for leading-edge portable and handset designs.

Regulatory Compliance/Current Business Outlook

The Company's statements about its future financial performance, product introductions or operating plans 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. For the fourth quarter of fiscal 2008 ending March 30, 2008, the Company projects net sales will increase to between $28.5 million and $31.5 million from $25.2 million in the third quarter of fiscal 2008. 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 (loss), and non-GAAP diluted earnings (loss) per share, which are adjusted to exclude from our GAAP results all stock-based compensation expense, amortization of acquired intangible assets, fair 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 third quarter of fiscal 2008, today, Thursday, January 31, 2008 at 4:30 p.m. EST/1:30 p.m. PST. To access the conference call, please dial (800) 230-1766 by 4:20 p.m. EST/1:20 p.m. PST and use conference ID number 907374. In addition, a live webcast will also be available. To access the webcast, please go to the Company's Investor Relations Homepage at: http://www.exar.com. A replay of the call will be available starting at 8:00 p.m. EST/5:00 p.m. PST this afternoon until 2:59 a.m. EST on February 8, 2008 and 11:59 p.m. PST on February 7, 2008. To access the replay, please dial (800) 475-6701 and use conference ID number 907374.

Safe Harbor Statement

The Company's statements about its future financial performance, anticipated results in connection with the acquisition of 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 reports on Form 10-Q for the quarters ended June 30, 2007 and September 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, 2006 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 OPERATIONS
                     (In thousands, except per share amounts)
                                   (Unaudited)

                                   THREE MONTHS ENDED       NINE MONTHS ENDED
                               DECEMBER SEPTEMBER DECEMBER  DECEMBER DECEMBER
                                  30,       30,      31,       30,      31,
                                 2007      2007     2006      2007     2006
    Net sales                   $20,691   $15,479  $13,102   $49,569  $42,347
    Net sales, related party      4,516     3,694    3,006    11,912   10,495
          Total net sales        25,207    19,173   16,108    61,481   52,842

    Cost of sales:
      Cost of sales              12,111     6,346    4,273    22,920   12,996
      Cost of sales, related
       party                      2,990     1,185      883     5,216    2,922
      Amortization of
       purchased intangible
       assets                     2,539     1,158      240     3,937      720
          Total cost of sales    17,640     8,689    5,396    32,073   16,638

    Gross profit                  7,567    10,484   10,712    29,408   36,204

    Operating expenses:
      Research and development    8,890     7,452    6,222    22,401   19,513
      Acquired in-process
       research and development       -     8,800        -     8,800        -
      Selling, general and
       administrative            12,071     8,503    5,347    26,104   18,090
          Total operating
           expenses              20,961    24,755   11,569    57,305   37,603
    Loss from operations        (13,394)  (14,271)    (857)  (27,897)  (1,399)

    Other income, net:
      Interest income and
       other, net                 3,377     4,467    4,289    12,341   12,231
      Other than temporary
       loss on long-term
       investments                    -      (449)       -      (449)    (957)
          Total interest and
           other income, net      3,377     4,018    4,289    11,892   11,274

    Income (loss) before
     income taxes               (10,017)  (10,253)   3,432   (16,005)   9,875
    Provision for income taxes    1,665     6,157      446     7,476    3,106

    Net income (loss)          $(11,682) $(16,410)  $2,986  $(23,481)  $6,769

    Earnings (loss) per share:
      Basic earnings (loss)
       per share                 $(0.24)   $(0.39)   $0.08    $(0.56)   $0.19

      Diluted earnings (loss)
       per share                 $(0.24)   $(0.39)   $0.08    $(0.56)   $0.19

    Shares used in the
     computation of earnings
     (loss) per share:

      Basic                      49,301    41,796   36,642    42,210   36,255

      Diluted                    49,301    41,796   36,790    42,210   36,518



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

                                                       DECEMBER 30,   MARCH 31,
                                                           2007         2007
                   ASSETS

    Current assets:
      Cash and cash equivalents                          $155,878     $119,809
      Short-term marketable securities                    147,524      236,270
      Accounts receivable (net of allowances of
       $386 and $322)                                      12,148        4,028
      Accounts receivable, related party
       (net of allowances of $1,184 and $816)               3,710          338
      Inventories                                          13,778        4,779
      Interest receivable and prepaid expenses              4,997        5,262
      Deferred income taxes, net                            3,393          809
          Total current assets                            341,428      371,295

    Property, plant and equipment, net                     47,743       25,404
    Goodwill                                              176,771        5,190
    Intangible assets, net                                 61,376        5,451
    Other non-current assets                                1,774          562
    Long-term investments                                   2,653        2,670
    Deferred income taxes, net                                  -       10,602

          Total assets                                   $631,745     $421,174

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts Payable                                    $10,193       $2,139
      Accrued compensation and related  benefits            6,169        3,418
      Deferred income                                       2,516            -
      Deferred income, related party                        7,981            -
      Accrued sales commission                                685          702
      Other accrued expenses                                7,743        2,448
      Income tax payable                                        -        5,520
          Total current liabilities                        35,287       14,227

      Long-term lease financing obligations                16,213            -
      Other non-current obligations                         4,600          191

          Total liabilities                                56,100       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; 48,255,531 and
       36,154,815 shares issued and outstanding at
       December 30, 2007 and March 31, 2007, respectively
       (net of treasury shares)                                 5            4
      Additional paid-in capital                          700,229      451,084
      Accumulated other comprehensive income                1,036           76
      Treasury stock at cost, 13,781,721 and 9,015,257
       shares at December 30, 2007 and March 31, 2007,
       respectively                                      (200,543)    (142,572)
      Retained Earnings                                    74,918       98,164
          Total stockholders' equity                      575,645      406,756
          Total liabilities and stockholders' equity     $631,745     $421,174



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

                                      THREE MONTHS ENDED     NINE MONTHS ENDED
                                 DECEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER
                                    30,       30,      31,       30,      31,
                                   2007      2007     2006      2007     2006

    GAAP gross margin              30.0%     54.7%    66.5%     47.8%    68.5%
      Stock-based compensation      1.4%      0.6%     0.1%      0.8%     0.1%
      Amortization of acquired
       intangible assets           10.1%      6.0%     1.5%      6.4%     1.4%
      Fair value adjustment of
       acquired inventories         5.8%      1.8%        -      2.9%        -
      Merger-related costs            -       0.1%        -         -        -
    Non-GAAP gross margin          47.3%     63.1%    68.1%     58.0%    70.0%

    GAAP research and
     development expenses        $8,890    $7,452   $6,222   $22,401  $19,513
      Stock-based compensation      389       324      285       937      963
      Merger-related costs            9       253        -       262        -
    Non-GAAP research and
     development expenses        $8,492    $6,875   $5,937   $21,202  $18,550

    GAAP selling, general and
     administrative expenses    $12,071    $8,503   $5,347   $26,104  $18,090
      Stock-based compensation    1,035       938      749     2,482    2,246
      Amortization of acquired
       intangible assets            474       196        -       670        -
      Merger-related costs          509       766        -     1,275        -
      Separation costs of
       executive officer            465         -        -       465      664
    Non-GAAP selling, general
     and administrative expenses $9,588    $6,603   $4,598   $21,212  $15,180

    GAAP operating expenses     $20,961   $24,755  $11,569   $57,305  $37,603
      Stock-based compensation    1,424     1,262    1,034     3,419    3,209
      Amortization of
       acquired intangible assets   474       196        -       670        -
       In-process research and
        development                   -     8,800        -     8,800        -
       Merger-related costs         518     1,019        -     1,537        -
       Separation costs of
        executive officer           465         -        -       465      664
    Non-GAAP operating expenses $18,080   $13,478  $10,535   $42,414  $33,730

    GAAP operating income
     (loss)                    $(13,394) $(14,271)   $(857) $(27,897) $(1,399)
      Stock-based compensation    1,785     1,368    1,057     3,914    3,286
      Amortization of acquired
       intangible assets          3,013     1,354      240     4,607      720
      Fair value adjustment of
       acquired inventories       1,458       341        -     1,799        -
      In-process research and
       development                    -     8,800        -     8,800        -
      Merger-related costs          518     1,035        -     1,553        -
      Separation costs of
       executive officer            465         -        -       465      664
    Non-GAAP operating income
     (loss)                     $(6,155)  $(1,373)    $440   $(6,759)  $3,271

    GAAP net income (loss)     $(11,682) $(16,410)  $2,986  $(23,481)  $6,769
      Stock-based compensation    1,785     1,368    1,057     3,914    3,286
      Amortization of acquired
       intangible assets          3,013     1,354      240     4,607      720
      Fair value adjustment of
       acquired inventories       1,458       341        -     1,799        -
      In-process research and
       development                    -     8,800        -     8,800        -
      Merger-related costs          518     1,035        -     1,553        -
      Separation costs of
       executive officer            465         -        -       465      664
      Other than temporary loss on
       long-term investments          -       449        -       449      957
       Income tax effects         2,691    (3,169)    (410)     (731)    (751)
      Charge to establish
       deferred tax asset
       valuation allowance            -     8,323        -     8,323        -
      Income tax benefit from
       the closure of federal
       tax audit                      -       (81)       -    (1,933)       -
    Non-GAAP net income (loss)  $(1,752)   $2,010   $3,873    $3,765  $11,645

    GAAP diluted earnings
     (loss) per share            $(0.24)   $(0.39)   $0.08    $(0.56)   $0.19
      Stock-based compensation     0.04      0.03     0.03      0.09     0.09
      Amortization of
       acquired intangible assets  0.06      0.03     0.01      0.11     0.02
      Fair value adjustment of
       acquired inventories        0.03      0.01        -      0.04        -
      In-process research and
       development                    -      0.21        -      0.21        -
      Merger-related costs         0.01      0.02        -      0.04        -
      Separation costs of
       executive officer           0.01         -        -      0.01     0.02
      Other than temporary
       loss on long-term
       investments                    -      0.01        -      0.01     0.03
      Income tax effects           0.05     (0.07)   (0.01)    (0.02)   (0.02)
      Charge to establish
       deferred tax asset
       valuation allowance            -      0.19        -      0.19        -
      Income tax benefit from
       the closure of federal
       tax audit                      -         -        -     (0.05)       -
    Non-GAAP diluted earnings
     (loss) per share            $(0.04)    $0.05    $0.11     $0.09    $0.32

    Shares used in diluted
     earnings (loss)
     per share --- GAAP          49,301    41,796   36,790    42,210   36,518
      The effect of dilutive
       potential common shares
       due to reporting Non-GAAP
       net income                     -       626        -       492        -
      The effect of removing
       stock-based compensation
       expense under SFAS 123R for
      Non-GAAP presentation purpose   -       350      (45)      175     (105)
    Shares used in diluted
     earnings per (loss)
     share ---  Non-GAAP         49,301    42,772   36,745    42,877   36,413

    Note: certain amounts may not total due to rounding

SOURCE Exar Corporation