Echelon to Record Approximately $2 Million of Additional Non-Cash Equity Compensation...

Echelon to Record Approximately $2 Million of Additional Non-Cash Equity Compensation Expense Due to Incorrect Software Setting

Company to Revise Previously Issued Financial Statements
SAN JOSE, Calif.--(Business Wire)--
During the preparation of its financial results for the quarter
ended March 31, 2008, Echelon Corporation (NASDAQ:ELON) identified an
error caused by a misapplication of the company's widely-used equity
compensation software that the company uses to manage and account for
its equity compensation awards. Based on a preliminary calculation,
Echelon believes that cumulative equity compensation expense during
the years ended December 31, 2006 and 2007 was understated by
approximately $2.0 million. Equity compensation is a non-cash expense
and does not impact the company's previously reported non-GAAP results
from operations. The error was isolated to expense associated with
performance share awards (sometimes referred to as restricted stock
units) and did not affect expense for other forms of equity
compensation awards issued by the company, namely stock options and
stock settled stock appreciation rights.

While the grant date fair value of the performance share awards
was determined correctly, the amount of expense associated with these
awards that was recognized in 2006 and 2007 was not correct. The
misapplication of the software caused the quarterly expense associated
with performance share awards to be calculated using the
straight-line, single-option approach rather than the accelerated,
multiple-option method, which the company had elected to use for all
of its equity compensation awards when it adopted Statement of
Financial Accounting Standards No. 123R, Share-Based Payment, in
January 2006. Use of the straight-line, single option method resulted
in lower reported equity compensation expense for these periods than
otherwise would have been reported.

Echelon's management and the Audit Committee of its Board of
Directors have discussed this matter with KPMG LLP, the company's
independent registered public accounting firm. Based on these
discussions, and upon the recommendation of management, Echelon's
Audit Committee has concluded that the company will need to restate
its historical financial statements to record these additional
non-cash charges for stock-based compensation expense. Accordingly,
the company has filed a Form 8-K with the Securities and Exchange
Commission stating that on April 18, 2008, the Audit Committee
concluded that the financial statements and all earnings press
releases and similar communications issued by Echelon relating to
periods beginning on or after January 1, 2006 should no longer be
relied upon, including the company's financial statements for fiscal
years 2006 and 2007 and the interim periods contained therein.

Echelon's management and the Audit Committee have also concluded
that the misapplication of the company's equity compensation software
was unintentional, and no misdeed or fraud was involved in any
respect. The Audit Committee determined that the error was in no way
caused by any backdating of or similar improper activity involving
stock options granted by the company. While the incorrect method was
used to calculate the periodic expense, the total value of
compensation expense over the life of the performance shares was
calculated correctly.

Echelon is committed to resolving this issue as expeditiously as
possible and expects to file its Quarterly Report on Form 10-Q for the
period ended March 31, 2008, as well as the required restated
financial statements for the periods in question, on or before the
Form 10-Q due date of May 12, 2008. More information, including
Questions and Answers, can be obtained in the Company's 8-K filing.

About Echelon Corporation

Echelon Corporation (NASDAQ:ELON) is a pioneer and world leader in
control networking -- networks that connect machines and other
electronic devices -- for the purpose of sensing, monitoring and
controlling the world around us. Echelon's LonWorks platform for
control networking was released in 1990 and has become a worldwide
standard in the building, industrial, transportation, and home
automation markets. Launched in 2003, Echelon's Networked Energy
Services system is an open, extensible, advanced metering
infrastructure that can bring benefits to every aspect of a utility's
operation, from metering and customer services to distribution
operations and value-added business. In 2005 Echelon released the
world's first embedded control network infrastructure, the Pyxos(TM)
platform, extending the benefits of networking inside machines to the
sensors and actuators that make them function.

Echelon is based in San Jose, California, with international
offices in China, France, Germany, Italy, Hong Kong, Japan, Korea, The
Netherlands, and the United Kingdom. Further information regarding
Echelon can be found at http://www.echelon.com.

Echelon, LonWorks, Digital Home, and the Echelon logo are
registered trademarks of Echelon Corporation registered in the United
States and other countries.

Risk Factors Regarding Forward Looking Statements

This press release may contain statements relating to future
plans, events or performance, such as statements regarding the
expected amount of the cumulative underreported equity compensation
expense and the expected timing of filing Echelon's Quarterly Report
on Form 10-Q for the period ended March 31, 2008, as well as its
restated financial statements, by May 12, 2008. Such statements may
involve risks and uncertainties, such as the risk that the amounts
involved in underreported equity compensation expense restatement may
change or that other adjustments to Echelon's financial statements may
be required; or the risk that Echelon is not able to file its
Quarterly Report or restated financial statements by the expected
date; and other risks identified in Echelon's SEC filings. Actual
results, events and performance may differ materially. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Echelon undertakes
no obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Echelon Corporation
Chris Stanfield, 408-938-5243
cstanfield@echelon.com

Copyright Business Wire 2008