Exar Corporation Reports Fiscal 2008 Fourth Quarter and Year End Results

FREMONT, Calif., May 15 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), today reported financial results for its fiscal 2008 fourth quarter and year-ended, March 30, 2008.

Revenue

Net sales for the fourth quarter of fiscal 2008 were $28.3 million compared to net sales of $25.2 million for the prior quarter and to net sales of $15.7 million for the same period last year. Net sales for fiscal year 2008 were $89.7 million compared to net sales of $68.5 million for fiscal year 2007. Fiscal 2008 fourth quarter net sales exclude approximately $2.5 million of shipments (1) from Sipex distributor inventories held prior to the acquisition of Sipex and (2) to the Company's two primary distributors as a result of the change in revenue recognition to the sell-through method.

CEO Comment

"I welcome this opportunity and I am firmly committed to increasing revenue and achieving operational profitability," said Pete Rodriguez, the Company's president and chief executive officer. "We continue to be operationally cash flow positive, have strong customer engagements and provide proven technologies to capitalize on unique market opportunities. I am encouraged by our team's ongoing measures to continue to improve operations and I am optimistic about our prospects going forward."

Gross Margin

On a GAAP basis, the gross margin for the fourth quarter of fiscal 2008 was 37.9% as compared to 30.0% for the prior quarter. On a non-GAAP basis, the gross margin for the fourth quarter of fiscal 2008 was 45.3% as compared to 47.3% for the prior quarter. Both the GAAP and Non-GAAP gross margins for the fourth quarter are net of costs of approximately two percent as a result of a product issue which is being addressed.

Impairment Charge

The results for the fiscal 2008 fourth quarter and year include a non-cash charge of $165.2 million, for the impairment of goodwill and other intangible assets related to the acquisition of Sipex. This charge resulted from the evaluation of the Company's carrying value of goodwill and other intangible assets which was required under FASB Statements No. 142 and No. 144 as the Company's market capitalization was below its net book value for an extended period. This impairment charge does not affect the Company's business, its operations or its cash position.

Net Income

The GAAP net loss for the fiscal quarter ended March 30, 2008 was $172.4 million, or $3.77 loss per share, which included the $165.2 million impairment charge, compared to a net loss of $11.7 million, or $0.24 loss per share, in the previous quarter and net income of $1.3 million, or $0.03 diluted earnings per share, for the fiscal quarter ended March 31, 2007. The non-GAAP net loss for the fiscal quarter ended March 30, 2008 was $1.7 million, or $0.04 loss per share, as compared to the non-GAAP net loss of $1.8 million, or $0.04 loss per share, in the previous quarter, and non-GAAP net income of $2.7 million, or $0.07 diluted earnings per share, in the fourth quarter of fiscal 2007.

The GAAP net loss for fiscal year 2008 was $195.9 million, or $4.55 loss per share, as compared to net income of $8.0 million, or $0.22 diluted earnings per share, for the previous fiscal year. The non-GAAP net income for fiscal 2008 was $8.5 million, or $0.19 diluted earnings per share, as compared to non-GAAP net income of $13.5 million, or $0.37 diluted earnings per share, for the previous fiscal year.

Cash Flow

During the fourth quarter of fiscal 2008, the Company's cash, cash equivalents and short-term marketable securities decreased by $34.5 million to approximately $269 million primarily as a result of $35.0 million used to repurchase approximately 4.5 million shares of the Company's common stock at an average price of $7.77 per share. The Company generated cash from operations of $3.4 million in the March 2008 quarter and $13.8 million in fiscal year 2008.

Current Business Outlook

For the first quarter of fiscal 2009 ending June 29, 2008, the Company projects that net sales will increase to between $29.0 million and $31.5 million. The gross margin is expected to be between 44% and 46% on a GAAP basis and between 47% and 49% on a non-GAAP basis. Operating expenses are expected to be between $19.2 million and $19.7 million on a GAAP basis and between $17.2 million and $17.7 million on a non-GAAP basis.

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.

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 costs of executive officers goodwill and other intangible asset impairment, 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.

Results 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 fourth quarter of fiscal 2008, today, Thursday, May 15, 2008 at 1:30 p.m. PDT/4:30 p.m. EDT. To access the conference call, please dial (888) 428-4479 by 1:20 p.m. PDT/4:20 p.m. EDT and use conference ID number 920564. 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 5:00 p.m. PDT/8:00 p.m. EDT this afternoon until 11:59 p.m. PDT on May 22, 2008/2:59 a.m. EDT on May 23, 2008. To access the replay, please dial (800) 475-6701 and use conference ID number 920564.

Product Line Highlights

Power Management

Exar Launches 1.5 MHz, 600mA Step-Down Inductive Converter -- Supports Systems with Universal Serial Bus (USB) Interface

http://www.exar.com/Common/Content/News.aspx?id=3630

Exar Offers Light Emitting Diode (LED) Driver with Inductive Boost Capabilities -- Ideal for Space Constrained Backlighting Applications

http://www.exar.com/Common/Content/News.aspx?id=3592

Exar's Light Emitting Diode (LED) Driver Delivers Reduced Board Space Requirements Critical in the Design of Handheld Electronics

http://www.exar.com/Common/Content/News.aspx?id=3568

Exar Announces New PowerBlox(TM) Solution -- 29V Input, 4A Peak Output Current Buck Regulator in 8-Lead Surface Mount Power Package

http://www.exar.com/Common/Content/News.aspx?id=3538

Exar Continues to Provide New Solutions for Driving High Power Light Emitting Diodes (LEDs)

http://www.exar.com/Common/Content/News.aspx?id=3504

Exar Releases First in a Family of Boost Controllers Supporting Light Emitting Diode (LED) Lighting and General DC/DC Conversion

    http://www.exar.com/Common/Content/News.aspx?id=3288

Communications

Exar Extends Market Proven EXstor(TM) Storage Product Family with Two eSATA Compliant Products: 2:1 eSATA Port Selector and 2:2 eSATA Two Port Selector/Multiplier Combo

    http://www.exar.com/Common/Content/News.aspx?id=3578


    Interface
    Exar Adds 5V RS-485/RS-422 Half-Duplex Transceiver --
    http://www.exar.com/Common/Content/News.aspx?id=3278

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, revenues and operating expenses, uncertain timing of expense reductions or synergies associated with corporate restructuring, internal initiatives, distribution and OEM trends, supply chain issues 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, September 30, 2007 and December 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 BALANCE SHEETS
                                (In thousands)
                                 (Unaudited)

                                                 MARCH 30,      MARCH 31,
                                                   2008           2007
                          ASSETS

    Current assets:
      Cash and cash equivalents                  $122,016       $119,809
      Short-term marketable securities            146,844        236,270
      Accounts receivable (net of allowances of
       $739 and $322)                               9,943          4,028
      Accounts receivable, related party (net of
       allowances of $1,063 and $816)               3,712            338
      Inventories                                  14,201          4,779
      Interest receivable and prepaid expenses      3,889          5,262
      Deferred income taxes, net                      507            809
        Total current assets                      301,112        371,295

    Property, plant and equipment, net             46,130         25,404
    Goodwill                                       47,626          5,190
    Intangible assets, net                         26,019          5,451
    Other non-current assets                          697            562
    Long-term investments                           2,636          2,670
    Deferred income taxes, net                          -         10,602

        Total assets                             $424,220       $421,174

             LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts Payable                             $8,801         $2,139
      Accrued compensation and related benefits     5,744          3,418
      Deferred income and allowances on sales to
       distributors                                 3,253              -
      Deferred income and allowances on sales to
       distributors, related party                  9,118              -
      Other accrued expenses                        8,136          3,150
      Income tax payable                                -          5,520
        Total current liabilities                  35,052         14,227

    Long-term lease financing obligations          16,379              -
    Other non-current obligations                   1,712            191

        Total liabilities                          53,143         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;
       43,928,762 and 36,154,815 shares issued
       and outstanding at March 30, 2008 and
       March 31, 2007, respectively (net of
       treasury shares)                                 4              4
      Additional paid-in capital                  702,217        451,084
      Accumulated other comprehensive income        1,873             76
      Treasury stock at cost, 18,288,021 and
       9,015,257 shares at March 30, 2008 and
       March 31, 2007, respectively              (235,537)      (142,572)
      Retained Earnings                           (97,480)        98,164
        Total stockholders' equity                371,077        406,756
        Total liabilities and stockholders'
         equity                                  $424,220       $421,174



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

                                  THREE MONTHS ENDED       TWELVE MONTHS ENDED
                           MARCH 30, DECEMBER 30, MARCH 31, MARCH 30, MARCH 31,
                             2008       2007        2007      2008      2007



    Net sales              $18,356    $20,691    $12,233     $67,925  $54,580
    Net sales, related
     party                   9,906      4,516      3,427      21,818   13,922
        Total net sales     28,262     25,207     15,660      89,743   68,502

    Cost of sales:
      Cost of sales         10,798     12,422      4,045      33,773   17,041
      Cost of sales,
       related party         5,244      2,679      1,045      10,406    3,967
      Amortization of
       purchased
       intangible assets     1,515      2,539        240       5,452      960
        Total cost of
         sales              17,557     17,640      5,330      49,631   21,968

    Gross profit            10,705      7,567     10,330      40,112   46,534

    Operating expenses:
      Research and
       development           8,259      8,890      6,325      30,660   25,838
      Selling, general
       and
       administrative       11,793     12,071      6,834      37,899   24,925
      Goodwill and
       other intangible
       asset impairment    165,191          -          -     165,191        -
     Acquired
      in-process
      research and
      development                -          -          -       8,800        -
        Total operating
         expenses          185,243     20,961     13,159     242,550   50,763
    Loss from operations  (174,538)   (13,394)    (2,829)   (202,438)  (4,229)

    Other income, net:
      Interest income
       and other, net        2,922      3,377      4,294      15,266   16,526
      Other than
       temporary loss on
       long-term
       investments            (142)         -          -        (591)    (957)
        Total interest
         and other
         income, net         2,780      3,377      4,294      14,675   15,569

    Income (loss) before
     income taxes         (171,758)   (10,017)     1,465    (187,763)  11,340
    Provision for income
     taxes                     640      1,665        210       8,116    3,316

    Net income (loss)    $(172,398)  $(11,682)    $1,255   $(195,879)  $8,024


    Earnings (loss) per
     share:
      Basic earnings
       (loss) per share     $(3.77)    $(0.24)     $0.03      $(4.55)   $0.22

      Diluted earnings
       (loss) per share     $(3.77)    $(0.24)     $0.03      $(4.55)   $0.22

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

      Basic                 45,712     49,301     36,254      43,090   36,255

      Diluted               45,712     49,301     36,369      43,090   36,480



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

                                  THREE MONTHS ENDED       TWELVE MONTHS ENDED
                           MARCH 30, DECEMBER 30, MARCH 31, MARCH 30, MARCH 31,
                             2008       2007        2007      2008      2007

     GAAP gross margin       37.9%      30.0%      66.0%       44.7%    67.9%
       Stock-based
        compensation          0.5%       1.4%       0.1%        0.7%     0.1%
       Amortization of
        acquired
        intangible
        assets                5.4%      10.1%       1.5%        6.1%     1.4%
       Fair value
        adjustment of
        acquired
        inventories           1.5%       5.8%          -        2.5%        -
       Merger-related
        costs                 0.1%          -          -        0.1%        -
    Non-GAAP gross margin    45.3%      47.3%      67.6%       54.0%    69.5%

    GAAP research and
     development expenses   $8,259     $8,890     $6,325     $30,660  $25,838
       Stock-based
        compensation           270        389        218       1,207    1,181
       Merger-related
        costs                  131          9          -         393        -
    Non-GAAP research and
     development expenses   $7,858     $8,492     $6,107     $29,060  $24,657

    GAAP selling, general
     and administrative
     expenses              $11,793    $12,071     $6,834     $37,899  $24,925
       Stock-based
        compensation           884      1,035        831       3,366    3,077
       Amortization of
        acquired
        intangible assets      266        474          -         936        -
       Merger-related
        costs                  717        509          -       1,992        -
       Separation costs
        of executive
        officers                 -        465        985         465    1,649
    Non-GAAP selling,
     general and
     administrative
     expenses               $9,926     $9,588     $5,018     $31,140  $20,199

    GAAP operating
     expenses             $185,243    $20,961    $13,159    $242,550  $50,763
       Stock-based
        compensation         1,154      1,424      1,049       4,573    4,258
       Amortization of
        acquired
        intangible assets      266        474          -         936        -
       In-process
        research and
        development              -          -          -       8,800        -
       Merger-related
        costs                  848        518          -       2,385        -
       Separation costs
        of executive
        officers                 -        465        985         465    1,649
       Goodwill and
        other intangible
        asset impairment   165,191          -          -     165,191      -
       Non-GAAP
        operating
        expenses           $17,784    $18,080    $11,125     $60,200  $44,856

    GAAP operating
     income (loss)       $(174,538)  $(13,394)   $(2,829)  $(202,438) $(4,229)
       Stock-based
        compensation         1,282      1,785      1,063       5,196    4,349
       Amortization of
        acquired
        intangible assets    1,781      3,013        240       6,388      960
       Fair value
        adjustment of
        acquired
        inventories            432      1,458          -       2,231        -
       In-process
        research and
        development              -          -          -       8,800        -
       Merger-related
        costs                  884        518          -       2,437        -
       Separation costs
        of executive
        officers                 -        465        985         465    1,649
       Goodwill and
        other intangible
        asset impairment   165,191          -          -     165,191        -
    Non-GAAP operating
     income (loss)         $(4,968)   $(6,155)     $(541)   $(11,730)  $2,729

    GAAP net income
     (loss)              $(172,398)  $(11,682)    $1,255   $(195,879)  $8,024
       Stock-based
        compensation         1,282      1,785      1,063       5,196    4,349
       Amortization of
        acquired
        intangible assets    1,781      3,013        240       6,388      960
       Fair value
        adjustment of
        acquired
        inventories            432      1,458          -       2,231        -
       In-process
        research and
        development              -          -          -       8,800        -
       Merger-related
        costs                  884        518          -       2,437        -
       Separation costs
        of executive
        officers                 -        465        985         465    1,649
       Goodwill and
        other
        intangible
        asset
        impairment         165,191          -          -     165,191        -
       Other than
        temporary loss
        on long-term
        investments            142          -          -         591      957
       Income tax effects    1,035      2,691       (859)      6,694   (2,394)
       Charge to establish
        deferred tax asset
        valuation
        allowance                -          -          -       8,323        -
       Income tax benefit
        from the closure
        of federal tax
        audit                    -          -          -      (1,933)       -
    Non-GAAP net income
     (loss)                $(1,651)   $(1,752)    $2,684      $8,504  $13,545

    GAAP diluted
     earnings (loss)
     per share              $(3.77)    $(0.24)     $0.03      $(4.55)   $0.22
       Stock-based
        compensation          0.03       0.04       0.03        0.12     0.12
       Amortization of
        acquired
        intangible assets     0.04       0.06       0.01        0.16     0.03
       Fair value
        adjustment of
        acquired
        inventories           0.01       0.03          -        0.05        -
       In-process
        research and
        development              -          -          -        0.21        -
       Merger-related
        costs                 0.02       0.01          -        0.06        -
       Separation costs of
        executive officers       -       0.01       0.03        0.01     0.05
       Goodwill and other
        intangible asset
        impairment            3.61          -          -        3.80        -
       Other than
        temporary loss on
        long-term
        investments              -          -          -        0.01     0.03
       Income tax effects     0.02       0.05      (0.02)       0.16    (0.07)
       Charge to establish
        deferred tax asset
        valuation
        allowance                -          -          -        0.20        -
       Income tax benefit
        from the closure
        of federal tax
        audit                    -          -          -       (0.04)       -
    Non-GAAP diluted
     earnings (loss) per
     share                  $(0.04)    $(0.04)     $0.07       $0.19    $0.37


    Shares used in
     diluted earnings
     (loss) per share ---
     GAAP                   45,712     49,301     36,369      43,090   36,480
       The effect of
        dilutive potential
        common shares due
        to reporting
        Non-GAAP net income      -          -         95         540      137
       The effect of removing
        stock-based
        compensation expense
        under SFAS 123R for
        Non-GAAP presentation
        purpose                  -          -       (115)          -     (225)
    Shares used in
     diluted earnings
     per (loss) share
     --  Non-GAAP           45,712     49,301     36,349      43,630   36,392

     Note: certain amounts may not total due to rounding

SOURCE Exar Corporation