Exar Corporation Reports Fiscal 2009 Third Quarter Results

FREMONT, Calif., Jan. 29 /PRNewswire-FirstCall/ -- Exar Corporation (Nasdaq: EXAR), today reported financial results for its fiscal 2009 third quarter ended December 28, 2008.

Net sales for the third quarter of fiscal 2009 were $26.3 million compared to net sales of $32.7 million for the prior quarter and $25.2 million for the third quarter of fiscal 2008.

On a GAAP basis, the gross margin for the third quarter of fiscal 2009 was 40.7% compared to 45.8% for the prior quarter and 30.0% in the third quarter of fiscal 2008. On a non-GAAP basis, the gross margin for the third quarter of fiscal 2009 was 45.3% compared to 49.3% for the prior quarter and 47.3% in the third quarter of fiscal 2008.

The GAAP net loss for the third quarter of fiscal 2009 was $63.8 million, or $1.49 net loss per share, compared to a net loss of $2.2 million, or $0.05 net loss per share in the prior quarter, and a net loss of $11.7 million, or $0.24 net loss per share, for the third quarter of fiscal 2008. On a non-GAAP basis, the net loss was $0.8 million, or $0.02 net loss per share, for the third quarter of fiscal 2009, compared to net income of $1.9 million, or $0.04 diluted earnings per share, in the previous quarter, and a net loss of $1.8 million, or $0.04 net loss per share, in the third quarter of fiscal 2008.

The results for the third quarter of fiscal 2009 include estimated non-cash charges of $60.9 million, which is related to the full impairment of goodwill, partial impairment of intangible assets, and acceleration of depreciation on abandoned equipment of $1.2 million. The impairment charges resulted from the evaluation of the Company's carrying value of goodwill and other intangible assets which is required under FASB statements No. 142 and No. 144 due to the impact of negative macroeconomic conditions on our business and our market capitalization which was below our net book value for an extended period.

During the third quarter of fiscal 2009, the Company's cash, cash equivalents and short-term marketable securities decreased by $3.3 million to $257.5 million primarily as a result of the cycle time required to adjust inventory to the drop off in sales.

"We had a tough quarter in a very challenging semiconductor and macro-economic environment and our revenues declined approximately 20% quarter over quarter," said Pete Rodriguez, the Company's president and chief executive officer. "As a result, we have accelerated our cost optimizing initiatives and have significantly reduced operating expenses while continuing to dedicate resources to develop winning products. As positive news, we have received the first commitment for our new digital power product for a set top box application. We will continue to do everything possible to focus on exemplary product development, while carefully managing our expenses, and we believe that we will come out of this economic downturn stronger in our core markets," remarked Mr. Rodriguez.

Business Outlook

For the fourth quarter of fiscal 2009 ending March 29, 2009, the Company projects that net sales will be between $21.0 million and $23.0 million. The gross margin is expected to be between 40% and 42% on a GAAP basis and between 43% and 45% on a non-GAAP basis. Operating expenses are expected to be between $16.1 million and $16.6 million on a GAAP basis and between $14.6 million and $15.1 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 third quarter of fiscal 2009, today, Thursday, January 29, 2009 at 1:30 p.m. PST/4:30 p.m. EST. To access the conference call, please dial (800) 230-1093 by 1:20 p.m. PST/4:20 p.m. EST and use conference ID number 981412. 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. PST/8:00 p.m. EST this afternoon until 11:59 p.m. PST on February 5, 2009/2:59 a.m. EST on February 6, 2009. To access the replay, please dial (800) 475-6701 and use conference ID number 981412.

    Product Line Highlights

    Communications

    http://www.exar.com/Common/Content/News.aspx?id=4112

Safe Harbor Statement

The Company's statements about its future financial performance, changes in gross margins, revenues and operating expenses, resource allocation and its impact on future performance and product development 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 Reports on Form 10-Q for the periods ended June 29, 2008 and September 28, 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 (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, acquired in-process research and development expenses, merger-related costs, separation costs of executive officers, accelerated depreciation on abandoned equipment, goodwill and other intangible asset impairment, 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)

                                         DECEMBER 28,           MARCH 30,
                                             2008                 2008
                      ASSETS

    Current assets:
      Cash and cash equivalents              $70,835            $122,016
      Short-term marketable securities       186,646             146,844
      Accounts receivable (net of
       allowances of $568 and $714)            7,335               9,943
      Accounts receivable, related party
       (net of allowances of $1,305 and
       $1,421)                                    51               3,712
      Inventories                             18,125              14,201
      Interest receivable and prepaid
       expenses                                4,174               3,889
      Deferred income taxes, net                 466                 507
          Total current assets               287,632             301,112

    Property, plant and equipment, net        44,106              46,130
    Goodwill                                       -              47,626
    Intangible assets, net                     8,102              26,019
    Other non-current assets                   2,668               3,333
          Total assets                      $342,508            $424,220

        LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts payable                        $6,785              $8,801
      Accrued compensation and related
       benefits                                5,344               5,744
      Deferred income and allowances on
       sales to distributors                   3,366               3,253
      Deferred income and allowances on
       sales to distributors, related party    7,244               9,118
      Other accrued expenses                   6,362               8,136
              Total current liabilities       29,101              35,052

    Long-term lease financing obligations     16,037              16,379
    Other non-current obligations              1,584               1,712

          Total liabilities                   46,722              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;
       42,892,806 and 43,928,762 shares
       issued and outstanding at
       December 28, 2008 and March 30, 2008,
       respectively (net of treasury shares)       4                   4
    Additional paid-in capital               709,005             702,218
    Accumulated other comprehensive income     1,702               1,873
    Treasury stock at cost, 19,923,011
     and 18,288,021 shares at
     December 28, 2008 and March 30,
     2008, respectively                     (248,974)           (235,538)
    Accumulated deficit                     (165,951)            (97,480)
          Total stockholders' equity         295,786             371,077
          Total liabilities and
           stockholders' equity             $342,508            $424,220



                      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
                                 28,      28,       30,       28,       30,
                                2008     2008      2007      2008      2007

    Net sales                  $17,201  $21,581   $20,691   $58,953   $49,569
    Net sales, related party     9,104   11,167     4,516    32,311    11,912
          Total net sales       26,305   32,748    25,207    91,264    61,481

    Cost of sales:
      Cost of sales             10,821   11,579    12,422    33,339    22,974
      Cost of sales, related
       party                     3,998    5,208     2,679    15,053     5,162
      Amortization of
       purchased intangible
       assets                      782      956     2,539     2,693     3,937
          Total cost of sales   15,601   17,743    17,640    51,085    32,073

    Gross profit                10,704   15,005     7,567    40,179    29,408

    Operating expenses:
      Research and
       development               8,092    8,133     8,890    24,317    22,401
      Acquired in-process
       research and development      -        -         -         -     8,800
      Goodwill and other
       intangible asset
       impairment               59,676        -         -    59,676         -
      Selling, general and
       administrative            9,099    9,746    12,071    30,146    26,104
          Total operating
           expenses             76,867   17,879    20,961   114,139    57,305
    Loss from operations       (66,163)  (2,874)  (13,394)  (73,960)  (27,897)

    Other income, net:
      Interest income and
       other, net                2,454    2,508     3,652     7,414    12,768
      Interest expense            (266)    (330)     (275)     (927)     (427)
      Impairment charges on
       investments, net of
       realized gains               82   (1,427)        -    (1,127)     (449)
          Total other income
           and expense, net      2,270      751     3,377     5,360    11,892

    Loss before income taxes   (63,893)  (2,123)  (10,017)  (68,600)  (16,005)
    Provision (benefit) for
     income taxes                  (70)      64     1,665      (129)    7,476

    Net loss                  $(63,823) $(2,187) $(11,682) $(68,471) $(23,481)


    Loss per share:
      Basic loss per share      $(1.49)  $(0.05)   $(0.24)   $(1.60)   $(0.56)

      Diluted loss per share    $(1.49)  $(0.05)   $(0.24)   $(1.60)   $(0.56)

    Shares used in the
     computation of loss per
     share:

      Basic                     42,889   42,735    49,301    42,866    42,210

      Diluted                   42,889   42,735    49,301    42,866    42,210


    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       NINE MONTHS ENDED
                              DECEMBER SEPTEMBER DECEMBER  DECEMBER  DECEMBER
                                 28,       28,      30,       28,       30,
                                2008      2008     2007      2008      2007

     GAAP gross margin           40.7%    45.8%     30.0%     44.0%     47.8%
       Stock-based
        compensation              0.5%     0.5%      1.4%      0.5%      0.8%
       Amortization of
        acquired intangible
        assets                    3.0%     2.9%     10.1%      3.0%      6.4%
       Fair value adjustment
        of acquired
        inventories                 -        -       5.8%        -       2.9%
       Merger-related costs         -        -         -       0.1%        -
      Acceleration of
       depreciation on
       abandoned equipment        1.1%       -         -      0.3%         -
    Non-GAAP gross margin        45.3%    49.3%     47.3%     48.0%     58.0%

    GAAP research and
     development expenses      $8,092   $8,133    $8,890   $24,317   $22,401
      Stock-based
       compensation               392      481       389     1,231       937
      Amortization of
       acquired intangible
       assets                     200      263         -       726         -
      Merger-related costs          -        -         9         -       262
      Acceleration of
       depreciation on
       abandoned equipment        437        -         -       437         -
    Non-GAAP research and
     development expenses      $7,063   $7,389    $8,492   $21,923   $21,202

    GAAP selling, general and
     administrative expenses   $9,099   $9,746   $12,071   $30,146   $26,104
      Stock-based
       compensation               768      435     1,035     2,012     2,482
      Amortization of
       acquired intangible
       assets                     122      162       474       446       670
      Merger-related costs          -        -       509       541     1,275
      Separation costs of
       executive officers           -        -       465         -       465
     Acceleration of
      depreciation on
      abandoned equipment         437        -         -       437         -
    Non-GAAP selling, general
     and administrative
     expenses                  $7,772   $9,149    $9,588   $26,710   $21,212

    GAAP operating expenses   $76,867  $17,879   $20,961  $114,139   $57,305
      Stock-based
       compensation             1,160      916     1,424     3,243     3,419
      Amortization of
       acquired intangible
       assets                     322      425       474     1,172       670
      Acquired in-process
       research and
       development                  -        -         -         -     8,800
      Merger-related costs          -        -       518       541     1,537
      Separation costs of
       executive officers           -        -       465         -       465
      Acceleration of
       depreciation on
       abandoned equipment        874        -         -       874         -
      Goodwill and other
       intangible asset
       impairment              59,676        -         -    59,676         -
    Non-GAAP operating
     expenses                 $14,835  $16,538   $18,080   $48,633   $42,414

    GAAP operating loss      $(66,163) $(2,874) $(13,394) $(73,960) $(27,897)
     Stock-based
      compensation              1,278    1,090     1,785     3,727     3,914
     Amortization of
      acquired intangible
      assets                    1,105    1,380     3,013     3,865     4,607
     Fair value adjustment
      of acquired
      inventories                   -        -     1,458         -     1,799
     Acquired in-process
      research and
      development                   -        -         -         -     8,800
     Merger-related costs           -        -       518       656     1,553
     Separation costs of
      executive officers            -        -       465         -       465
     Acceleration of
      depreciation on
      abandoned equipment       1,174        -         -     1,174         -
     Goodwill and other
      intangible asset
      impairment               59,676        -         -    59,676         -
    Non-GAAP operating loss   $(2,930)   $(404)  $(6,155)  $(4,862)  $(6,759)

    GAAP net loss            $(63,823) $(2,187) $(11,682) $(68,471) $(23,481)
      Stock-based
       compensation             1,278    1,090     1,785     3,727     3,914
      Amortization of
       acquired intangible
       assets                   1,105    1,380     3,013     3,865     4,607
      Fair value adjustment
       of acquired
       inventories                  -        -     1,458         -     1,799
      Acquired in-process
       research and
       development                  -        -         -         -     8,800
      Merger-related costs          -        -       518       656     1,553
      Separation costs of
       executive officers           -        -       465         -       465
      Acceleration of
       depreciation on
       abandoned equipment      1,174        -         -     1,174         -
      Goodwill and other
       intangible asset
       impairment              59,676        -         -    59,676         -
      Impairment charges on
       investments, net of
       realized gains             (82)   1,427       (20)    1,127       377
      Income tax effects         (103)     142     2,691      (122)     (731)
      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)                      $(775)  $1,852   $(1,772)   $1,632    $3,693

    GAAP loss per share         $(1.49)  $(0.05)   $(0.24)   $(1.60)   $(0.56)
      Stock-based
       compensation               0.03     0.03      0.04      0.09      0.09
      Amortization of
       acquired intangible
       assets                     0.03     0.03      0.06      0.09      0.11
      Fair value adjustment
       of acquired
       inventories                   -        -      0.03         -      0.04
      Acquired in-process
       research and
       development                   -        -         -         -      0.21
      Merger-related costs           -        -      0.01      0.02      0.04
      Separation costs of
       executive officers            -        -      0.01         -      0.01
      Acceleration of
       depreciation on
       abandoned equipment        0.03        -         -      0.03         -
      Goodwill and other
       intangible asset
       impairment                 1.39        -         -      1.39         -
      Impairment charges on
       investments, net of
       realized gains                -     0.03         -      0.03      0.01
      Income tax effects             -        -      0.05         -     (0.02)
      Charge to establish
       deferred tax asset
       valuation allowance           -        -         -         -      0.19
      Income tax benefit
       from the closure of
       federal tax audit             -        -         -         -     (0.05)
    Non-GAAP diluted earnings
     (loss) per share           $(0.02)   $0.04    $(0.04)    $0.04     $0.09


    Shares used in earnings
     (loss) per share --
     GAAP                       42,889   42,735    49,301    42,866    42,210
      The effect of dilutive
       potential common
       shares due to
       reporting Non-GAAP
       net income                    -      246         -         -       492
      The effect of removing
       stock-based
       compensation expense
       under SFAS 123R for
       Non-GAAP presentation
       purpose                       -     (130)        -         -       175
    Shares used in diluted
     earnings per share --
     Non-GAAP                   42,889   42,851    49,301    42,866    42,877


    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