Exar Corporation Reports Fiscal 2009 Second Quarter Results

FREMONT, Calif., Oct. 30 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), today reported financial results for its fiscal 2009 second quarter ended September 28, 2008.

Net sales for the second quarter of fiscal 2009 were $32.7 million compared to net sales of $32.2 million for the first quarter of fiscal 2009 and $19.2 million for the second quarter of fiscal 2008.

On a GAAP basis, the gross margin for the second quarter of fiscal 2009 was 45.8% compared to 44.9% for the prior quarter and 54.7% in the second quarter of fiscal 2008. On a non-GAAP basis, the gross margin for the second quarter of fiscal 2009 was 49.3% compared to 48.8% for the prior quarter and 63.1% in the second quarter of fiscal 2008.

The GAAP net loss for the second quarter of fiscal 2009 was $2.2 million, or $0.05 net loss per share, compared to a net loss of $2.5 million, or $0.06 net loss per share in the prior quarter, and a net loss of $16.4 million, or $0.39 net loss per share, for the second quarter of fiscal 2008. On a non-GAAP basis, net income was $1.9 million, or $0.04 diluted earnings per share, for the second quarter of fiscal 2009, compared to net income of $0.6 million, or $0.01 diluted earnings per share, in the previous quarter, and net income of $2.0 million, or $0.05 diluted earnings per share, in the second quarter of fiscal 2008.

During the second quarter of fiscal 2009, the Company's cash, cash equivalents and short-term marketable securities increased by $2.2 million to $260.8 million.

"We had a solid quarter with continued improvements in gross margin and operating expenses. We are making good progress in business efficiency across the board with a special focus in product development," said Pete Rodriguez, the Company's president and chief executive officer. "Design wins were up in the quarter with initial design wins for storage and wireless UART products beginning to ramp. We have further strengthened our organization with key engineering and management additions to linear and digital power marketing. In light of the market turmoil, we will manage our discretionary spending particularly carefully, while continuing to invest in innovative solutions."

Business Outlook

For the third quarter of fiscal 2009 ending December 28, 2008, the Company projects that net sales will be between $29.0 million and $32.0 million. The gross margin is expected to be between 42% and 44% on a GAAP basis and between 46% and 48% on a non-GAAP basis. Operating expenses are expected to be between $18.3 million and $18.8 million on a GAAP basis and between $16.3 million and $16.8 million on a non-GAAP basis.

The Company's statements about its future financial performance 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.

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 second quarter of fiscal 2009, today, Thursday, October 30, 2008 at 1:30 p.m. PDT/4:30 p.m. EDT. To access the conference call, please dial (800) 230-1092 by 1:20 p.m. PDT/4:20 p.m. EDT and use conference ID number 965545. 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 November 6, 2008/2:59 a.m. EDT on November 7, 2008. To access the replay, please dial (800) 475-6701 and use conference ID number 965545.

Product Line Highlights

Interface

Exar Adds High Performance (15Mbps), Low Voltage & Power (1.62V) Octal UART Device Family http://www.exar.com/Common/Content/News.aspx?id=3862

Communications

Exar Adds Next Generation Single-Channel T1/E1/J1 BITS Framer and Line Interface Unit (LIU) Combo to Industry's Most Extensive T/E Portfolio http://www.exar.com/Common/Content/News.aspx?id=3866

Exar Adds SONET/SDH Clock and Data Recovery (CDR) OC-3/OC-12 Solution http://www.exar.com/Common/Content/News.aspx?id=3882

Safe Harbor Statement

The Company's statements about its future financial performance, anticipated benefits in connection with the acquisition of Sipex Corporation, changes in gross margins, revenues and operating expenses, 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 financial volatility, economic recession, industry and market conditions, such as customer and distributor relationships; limited visibility associated with customer or distributor 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, quality 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 impairment analyses 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 30, 2008 and Quarterly Report on Form 10-Q for the three months ended June 29, 2008.

Generally Accepted Accounting Principles

The Company reports its financial results in accordance with GAAP. Additionally, the Company 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 periods presented, we are disclosing non-GAAP gross margin, non-GAAP research and development expenses, non-GAAP selling, general and administrative expenses, non-GAAP operating expenses, non-GAAP operating 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, fair value adjustment of acquired inventories, acquired in-process research and development expenses, merger- related costs, impairment charges on investments, net of realized gains, income tax effects, a 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.

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, except share amounts)
                           (Unaudited)

                                         SEPTEMBER 28, MARCH 30,
                                              2008       2008
                   ASSETS
    Current assets:
      Cash and cash equivalents              $58,377  $122,016
      Short-term marketable securities       202,375   146,844
      Accounts receivable (net of
       allowances of $777 and $714)           10,375     9,943
      Accounts receivable, related party
      (net of allowances of $882 and $1,421)   2,371     3,712
      Inventories                             15,426    14,201
      Interest receivable and prepaid
       expenses                                3,222     3,889
      Deferred income taxes, net                 466       507
        Total current assets                 292,612   301,112

    Property, plant and equipment, net        43,826    46,130
    Goodwill                                  47,208    47,626
    Intangible assets, net                    22,887    26,019
    Other non-current assets                   2,581     3,333
        Total assets                        $409,114  $424,220

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts payable                        $8,379    $8,801
      Accrued compensation and related
       benefits                                6,000     5,744
      Deferred income and allowances on
       sales to distributors                   3,583     3,253
      Deferred income and allowances on
       sales to distributors, related party    8,817     9,118
      Other accrued expenses                   8,577     8,136
          Total current liabilities           35,356    35,052
    Long-term lease financing obligations     15,581    16,379
    Other non-current obligations              1,648     1,712
        Total liabilities                     52,585    53,143

    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;
       42,847,218 and 43,928,762 shares
       issued and  outstanding at
       September 28, 2008 and
       March 30, 2008, respectively (net
       of treasury shares)                         4         4
      Additional paid-in capital             707,237   702,218
      Accumulated other comprehensive
       income (loss)                            (134)    1,873
      Treasury stock at cost, 19,835,425
       and 18,288,021 shares at
       September 28, 2008 and
       March 30, 2008, respectively         (248,450) (235,538)
      Accumulated deficit                   (102,128)  (97,480)
        Total stockholders' equity           356,529   371,077
        Total liabilities and stockholders'
         equity                             $409,114  $424,220



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

                                  THREE MONTHS ENDED        SIX MONTHS ENDED
                              SEPTEMBER  JUNE    SEPTEMBER SEPTEMBER SEPTEMBER
                                 28,      29,        30,      28,       30,
                                2008     2008       2007     2008      2007

    Net sales                   $21,581  $20,171   $15,479  $41,752   $28,878
    Net sales, related party     11,167   12,040     3,694   23,207     7,396
        Total net sales          32,748   32,211    19,173   64,959    36,274

    Cost of sales:
      Cost of sales              11,579   10,939     5,748   22,518    10,211
      Cost of sales, related
       party                      5,208    5,847     1,442   11,055     2,483
      Amortization of purchased
       intangible assets            956      955     1,499    1,911     1,739
        Total cost of sales      17,743   17,741     8,689   35,484    14,433

    Gross profit                 15,005   14,470    10,484   29,475    21,841

    Operating expenses:
      Research and development    8,133    8,092     7,452   16,225    13,511
      Acquired in-process
       research and development       -        -     8,800        -     8,800
      Selling, general and
       administrative             9,746   11,301     8,503   21,047    14,033
        Total operating expenses 17,879   19,393    24,755   37,272    36,344
    Loss from operations         (2,874)  (4,923)  (14,271)  (7,797)  (14,503)

    Other income, net:
      Interest income and
       other, net                 2,508    2,452     4,588    4,960     9,064
      Interest expense             (330)    (331)     (152)    (661)     (152)
      Impairment charges on
       investments, net of
       realized gains            (1,427)     218      (418)  (1,209)     (397)
        Total other income and
         expense, net               751    2,339     4,018    3,090     8,515

    Loss before income taxes     (2,123)  (2,584)  (10,253)  (4,707)   (5,988)
    Provision (benefit) for
     income taxes                    64     (123)    6,157      (59)    5,811

    Net loss                    $(2,187) $(2,461) $(16,410) $(4,648) $(11,799)

    Loss per share:
      Basic loss per share       $(0.05)  $(0.06)   $(0.39)  $(0.11)   $(0.30)

      Diluted loss per share     $(0.05)  $(0.06)   $(0.39)  $(0.11)   $(0.30)

    Shares used in the
     computation of loss per
     share:

      Basic                      42,735   42,973    41,796   42,854    38,843

      Diluted                    42,735   42,973    41,796   42,854    38,843


    Note: Certain amounts previously reported above have been reclassified to
          conform to the current periods' presentation.



                        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 SEPTEMBER
                                  28,      29,       30,       28,        30,
                                 2008     2008      2007      2008       2007

     GAAP gross margin            45.8%    44.9%     54.7%    45.4%     60.2%
       Stock-based compensation    0.5%     0.6%      0.6%     0.6%      0.4%
       Amortization of acquired
        intangible assets          2.9%     3.0%      6.0%     2.9%      3.9%
       Fair value adjustment of
        acquired inventories          -        -      1.8%        -      0.9%
       Merger-related costs           -     0.4%       -       0.2%         -
    Non-GAAP gross margin         49.3%    48.8%     63.1%    49.1%     65.4%

    GAAP research and
     development expenses        $8,133   $8,092    $7,452  $16,225   $13,511
      Stock-based compensation      481      358       324      839       548
      Amortization of acquired
       intangible assets            263      263         -      526         -
      Merger-related costs            -        -       253        -       253
    Non-GAAP research and
     development expenses        $7,389   $7,471    $6,875  $14,860   $12,710

    GAAP selling, general and
     administrative expenses     $9,746  $11,301    $8,503  $21,047   $14,033
      Stock-based compensation      435      809       938    1,244     1,447
      Amortization of acquired
       intangible assets            162      162       196      324       196
      Merger-related costs            -      541       766      541       766
    Non-GAAP selling, general
     and administrative
     expenses                    $9,149   $9,789    $6,603  $18,938   $11,624

    GAAP operating expenses     $17,879  $19,393   $24,755  $37,272   $36,344
      Stock-based compensation      916    1,167     1,262    2,083     1,995
      Amortization of acquired
       intangible assets            425      425       196      850       196
      Acquired in-process
       research and development       -        -     8,800        -     8,800
      Merger-related costs            -      541     1,019      541     1,019
      Non-GAAP operating
       expenses                 $16,538  $17,260   $13,478  $33,798   $24,334

    GAAP operating loss         $(2,874) $(4,923) $(14,271) $(7,797) $(14,503)
      Stock-based compensation    1,090    1,359     1,368    2,449     2,129
      Amortization of acquired
       intangible assets          1,380    1,380     1,354    2,760     1,594
      Fair value adjustment of
       acquired inventories           -        -       341        -       341
      Acquired in-process
       research and development       -        -     8,800        -     8,800
      Merger-related costs            -      656     1,035      656     1,035
    Non-GAAP operating loss       $(404) $(1,528)  $(1,373) $(1,932)    $(604)

    GAAP net loss               $(2,187) $(2,461) $(16,410) $(4,648) $(11,799)
      Stock-based compensation    1,090    1,359     1,368    2,449     2,129
      Amortization of acquired
       intangible assets          1,380    1,380     1,354    2,760     1,594
      Fair value adjustment of
       acquired inventories           -        -       341        -       341
      Acquired in-process
       research and development       -        -     8,800        -     8,800
      Merger-related costs            -      656     1,035      656     1,035
      Impairment charges on
       investments, net of
       realized gains             1,427     (218)      418    1,209       397
      Income tax effects            142     (161)   (3,169)     (19)   (3,422)
      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          $1,852     $555    $1,979   $2,407    $5,465

    GAAP loss per share          $(0.05)  $(0.06)   $(0.39)  $(0.11)   $(0.30)
      Stock-based compensation     0.03     0.03      0.03     0.06      0.05
      Amortization of acquired
       intangible assets           0.03     0.03      0.03     0.06      0.04
      Fair value adjustment of
       acquired inventories           -        -      0.01        -      0.01
      Acquired in-process
       research and development       -        -      0.21        -      0.22
      Merger-related costs            -     0.02      0.02     0.02      0.03
      Impairment charges on
       investments, net of
       realized gains              0.03    (0.01)     0.01     0.03      0.01
      Income tax effects              -        -     (0.07)       -     (0.09)
      Charge to establish
       deferred tax asset
       valuation allowance            -        -      0.19        -      0.21
      Income tax benefit from
       the closure of federal
       tax audit                      -        -       -          -     (0.05)
    Non-GAAP diluted earnings
     per share                    $0.04    $0.01     $0.05    $0.06     $0.14

    Shares used in loss per
     share -- GAAP               42,735   42,973    41,796   42,854    38,843
      The effect of dilutive
       potential common shares
       due to reporting Non-GAAP
       net income                   246      260       626      239       582
      The effect of removing
       stock-based compensation
       expense under SFAS 123R
       for Non-GAAP presentation
       purpose                     (130)     (81)      350      (99)      394
    Shares used in diluted
     earnings per share --
     Non-GAAP                    42,851   43,152    42,772   42,994    39,819

    Notes: Certain amounts may not total due to rounding.
           Certain amounts previously reported above have been reclassified to
           conform to the current periods' presentation.

SOURCE Exar Corporation