EXFO Reports Third-Quarter Results for Fiscal 2009

- Sales reach US$43.6 million despite a challenging economic environment
- Gross margin improves to 62.3%, equaling highest level since 2001
- Non-cash goodwill impairment charge of US$21.7 million and foreign
exchange loss of US$4.7 million contribute to GAAP net loss of
US$23.3 million
- Implements cost-reduction plan providing US$6 million in annualized
pre-tax savings

QUEBEC CITY, June 30 /PRNewswire-FirstCall/ - EXFO Electro-Optical Engineering
Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the third
quarter ended May 31, 2009.
Sales decreased 10.2% to US$43.6 million in the third quarter of fiscal 2009
from US$48.6 million in the third quarter of 2008 and 5.9% from US$46.4
million in the second quarter of 2009. Net bookings dropped 20.7% to US$40.2
million for a book-to-bill ratio of 0.92 in the third quarter of fiscal 2009
from US$50.7 million in the same period last year and 14.9% from US$47.3
million in the second quarter of 2009.
Gross margin improved to 62.3% of sales in the third quarter of fiscal 2009
from 60.9% in the third quarter of 2008 and 60.4% in the second quarter of
2009.
GAAP net loss in the third quarter of fiscal 2009 amounted to US$23.3 million,
or US$0.39 per diluted share, compared to net earnings of US$11.2 million, or
US$0.16 per diluted share, in the same period last year and net earnings of
US$2.7 million, or US$0.04 per diluted share, in the second quarter of fiscal
2009.
It should be noted that EXFO recorded a non-cash charge of US$21.7 million for
impairment of goodwill in the third quarter of fiscal 2009, following a
significant drop in the company's market capitalization since June 1, 2009.
EXFO also incurred a pre-tax, foreign exchange loss of US$4.7 million in the
third quarter of 2009 mainly due to the impact of a 16.4% increase in the
period-end value of the Canadian/US exchange rate on the company's balance
sheet items. GAAP net loss in the third quarter of 2009 included US$1.2
million in after-tax amortization of intangible assets and US$0.4 million in
stock-based compensation costs.
"EXFO delivered a solid sales quarter despite an increasingly challenging
economic environment and I remain confident that we're continuing to gain
market share," said Germain Lamonde, EXFO's Chairman, President and CEO. "The
fundamental trends towards bandwidth growth and IP convergence remain intact
and EXFO is among the best-positioned companies to take advantage of these key
growth drivers, considering our strong product offering, strengthened by
several key new product introductions, along with targeted sales, channel and
marketing initiatives.
"In the meantime, we continue to maintain a strong balance sheet, generate
positive cash flow and have taken actions to protect our earnings through a
cost-reduction plan that will provide approximately US$6 million in annualized
pre-tax savings, while we carefully balance short-term profitability with
mid/long-term strategy."
As part of this plan, EXFO tightened cost controls and reduced its workforce
by approximately 5% (65 employees). The company has also applied for a
Canadian federal program that will allow certain employees to work four days
per week for a maximum of 52 weeks. EXFO will incur severance and other
pre-tax related charges of about US$1.3 million that will be accounted for in
the fourth quarter of fiscal 2009.

Unaudited Selected Financial Information
(In thousands of US dollars)

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented results: Q3 2009 Q3 2008 Q2 2009
---------------------------------------
Sales:
Telecom Division $ 39,047 $ 42,843 $ 41,367
Life Sciences and Industrial
Division 4,589 5,738 5,005
---------------------------------------
Total $ 43,636 $ 48,581 $ 46,372
---------------------------------------
---------------------------------------
Earnings (loss) from operations:
Telecom Division $ (21,990) $ 3,819 $ 2,117
Life Sciences and Industrial
Division 438 639 482
---------------------------------------
Total $ (21,552) $ 4,458 $ 2,599
---------------------------------------
---------------------------------------
Other selected information:
GAAP net earnings (loss) $ (23,346) $ 11,179 $ 2,655
Amortization of intangible
assets $ 1,355 $ 1,015 $ 1,246
Tax effect on amortization
of intangible assets $ (203) $ (224) $ (212)
Stock-based compensation costs $ 383 $ 334 $ 325
Recognition of previously
unrecognized
future income tax assets $ - $ (5,324) $ -
Extraordinary gain $ - $ (3,036) $ -
Impairment of goodwill $ 21,713 $ - $ -
Tax effect on impairment of
goodwill $ (2,070) $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Operating Expenses

Selling and administrative expenses amounted to US$16.7 million, or 38.3% of
sales, in the third quarter of fiscal 2009 compared to US$15.7 million, or
32.2% of sales, in the same period last year and US$15.8 million, or 34.1% of
sales, in the second quarter of 2009.
Gross research and development expenses totaled US$9.3 million, or 21.4% of
sales, in the third quarter of fiscal 2009 compared to US$8.8 million, or
18.2% of sales, in the third quarter of 2008 and US$8.8 million, or 19.0% of
sales, in the second quarter of 2009.
Net R&D expenses totaled US$7.8 million, or 17.8% of sales, in the third
quarter of fiscal 2009 compared to US$7.4 million, or 15.2% of sales, in the
same period last year and US$7.3 million, or 15.8% of sales, in the second
quarter of 2009.

Third-Quarter Business Highlights

Market expansion - EXFO's sales decreased 10.2% year-over-year to US$43.6
million in the third quarter of 2009. Telecom Division sales were down 8.9%
year-over-year, while Life Sciences & Industrial Division sales were more
affected by the global recession with a year-over-year decrease of 20.0%.
EXFO's top customer accounted for 10.8% of sales in the third quarter and its
top three customers 22.2%. After nine months into fiscal 2009, the company's
top customer represented 11.6% of sales and its top three customers 18.9%.

Profitability - GAAP net loss amounted to US$23.3 million, or US$0.39 per
diluted share, in the third quarter of 2009 largely due to a non-cash charge
of US$21.7 million for impairment of goodwill and an unfavorable Canada/US
exchange rate. On the other hand, the company generated US$1.8 million in cash
flows from operating activities in the third quarter of 2009 and US$15.5
million since the beginning of the fiscal year.

Innovation - EXFO launched an unprecedented 11 new products in the third
quarter and 23 since the beginning of fiscal 2009. Key product launches in the
third quarter included a portable test solution for characterizing 100 Gbit/s
Ethernet and 40/43 Gbit/s SONET/OTN networks; 1 Gbit/s and 10 Gbit/s test
heads for carrier Ethernet and mobile backhaul testing applications in Service
Assurance; IPv6 testing capabilities across the company's Transport and
DataCom product portfolio; and the next-generation FTB-500 multi-layer
platform for high-end test applications in the field and central office. Sales
from products that have been on the market two years or less accounted for
40.6% of total sales in the third quarter of 2009 and 38.3% since the
beginning of fiscal 2009.

Business Outlook

Given the current challenging economic environment and typical seasonality of
the summer months, EXFO forecasted sales between US$33 million and US$38
million and GAAP net loss between US$0.10 and US$0.06 per diluted share for
the fourth quarter of 2009. GAAP net loss includes US$0.04 per share in
after-tax amortization of intangible assets, after-tax restructuring expenses
and stock-based compensation costs.
This guidance was established by management based on existing backlog as of
the date of this press release, expected bookings for the remaining of the
quarter, as well as stability in exchange rates compared to the end of the
previous quarter.

Conference Call and Webcast

EXFO will host a conference call today at 5 p.m. (Eastern time) to review its
financial results for the third quarter of fiscal 2009. To listen to the
conference call and participate in the question period via telephone, dial
1-416-620-5690. Germain Lamonde, Chairman, President and CEO, and Pierre
Plamondon, CA, Vice-President of Finance and Chief Financial Officer, will
participate in the call. An audio replay of the conference call will be
available one hour after the event until 7 p.m. on July 7, 2009. The replay
number is 1-402-977-9141 and the reservation number is 21424856. The audio
Webcast and replay of the conference call will also be available on EXFO's
Website at www.EXFO.com, under the Investors section.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995, and we intend that
such forward-looking statements be subject to the safe harbors created
thereby. Forward-looking statements are statements other than historical
information or statements of current condition. Words such as may, will,
expect, believe, anticipate, intend, could, estimate, continue, or the
negative or comparable terminology are intended to identify forward-looking
statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events and circumstances are
considered forward-looking statements. They are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those in forward-looking statements due to various factors
including the effect of the actual worldwide recession on the telecom market
for our customers and suppliers; fluctuating exchange rates and our ability to
execute in these uncertain conditions; consolidation in the global
telecommunications test, measurement and service assurance industry; capital
spending levels in the telecommunications, life sciences and high-precision
assembly sectors; concentration of sales; the effects of the additional
actions we have taken in response to such economic uncertainty (including our
ability to quickly adapt cost structures with anticipated levels of business,
ability to manage inventory levels with market demand); market acceptance of
our new products and other upcoming products; limited visibility with regards
to customer orders and the timing of such orders; our ability to successfully
integrate our acquired and to-be-acquired businesses; our ability to
successfully expand international operations; the retention of key technical
and management personnel; and future economic, competitive, financial and
market condition. Assumptions relating to the foregoing involve judgments and
risks, all of which are difficult or impossible to predict and many of which
are beyond our control. Other risk factors that may affect our future
performance and operations are detailed in our Annual Report, on Form 20-F,
and our other filings with the U.S. Securities and Exchange Commission and the
Canadian securities commissions. We believe that the expectations reflected in
the forward-looking statements are reasonable based on information currently
available to us, but we cannot assure you that the expectations will prove to
have been correct. Accordingly, you should not place undue reliance on these
forward-looking statements. These statements speak only as of the date of this
document. Unless required by law or applicable regulations, we undertake no
obligation to revise or update any of them to reflect events or circumstances
that occur after the date of this document.

About EXFO

EXFO is a leading provider of test and service assurance solutions for network
service providers and equipment manufacturers in the global telecommunications
industry. The Telecom Division offers a wide range of innovative solutions
extending across the full technology lifecycle - from design to technology
deployment and onto service assurance - and covering all layers on a network
infrastructure to enable triple-play services and next-generation, converged
IP networking. The Life Sciences and Industrial Division offers solutions in
medical device and opto-electronics assembly, fluorescence microscopy and
other life science sectors. For more information, visit www.EXFO.com.

EXFO Electro-Optical Engineering Inc.
Interim Consolidated Balance Sheet

(in thousands of US dollars)

As at As at
May 31, August 31,
2009 2008
----------- -----------
(unaudited)

Assets

Current assets
Cash $ 11,083 $ 5,914
Short-term investments 53,412 81,626
Accounts receivable
Trade 32,295 31,473
Other 2,997 4,753
Income taxes and tax credits recoverable 4,263 4,836
Inventories 32,999 34,880
Prepaid expenses 2,034 1,774
Future income taxes 9,115 9,140
----------- -----------
148,198 174,396

Tax credits recoverable 23,817 20,657

Forward exchange contracts 578 -

Property, plant and equipment 19,355 19,875

Intangible assets 17,933 19,945

Goodwill 22,521 42,653

Future income taxes 14,522 15,540
----------- -----------

$ 246,924 $ 293,066
----------- -----------
----------- -----------
Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 23,843 $ 24,713
Deferred revenue 7,716 5,079
----------- -----------

31,559 29,792

Deferred revenue 4,577 3,759
----------- -----------

36,136 33,551
----------- -----------

Shareholders' equity

Share capital 105,952 142,786
Contributed surplus 17,035 5,226
Retained earnings 45,090 60,494
Accumulated other comprehensive income 42,711 51,009
----------- -----------

210,788 259,515
----------- -----------

$ 246,924 $ 293,066
----------- -----------
----------- -----------

EXFO Electro-Optical Engineering Inc.
Unaudited Interim Consolidated Statements of Earnings

(in thousands of US dollars, except share and per share data)

Three months Nine months Three months Nine months
ended ended ended ended
May 31, 2009 May 31, 2009 May 31, 2008 May 31 2008
------------- ------------- ------------- -------------
Sales $ 43,636 $ 136,371 $ 48,581 $ 132,847

Cost of
sales(1),(2) 16,441 52,274 19,004 55,208
------------- ------------- ------------- -------------

Gross margin 27,195 84,097 29,577 77,639
------------- ------------- ------------- -------------
Operating expenses
Selling and
administrative(1) 16,732 49,623 15,660 44,160
Net research and
development(1) 7,781 22,327 7,373 19,570
Amortization of
property, plant
and equipment 1,166 3,374 1,071 3,045
Amortization of
intangible assets 1,355 3,920 1,015 2,469
Impairment of
goodwill 21,713 21,713 - -
------------- ------------- ------------- -------------

Total operating
expenses 48,747 100,957 25,119 69,244
------------- ------------- ------------- -------------

Earnings (loss)
from operations (21,552) (16,860) 4,458 8,395

Interest income 42 683 964 4,063
Foreign exchange
gain (loss) (4,687) 971 (59) (907)
------------- ------------- ------------- -------------

Earnings (loss)
before income
taxes (26,197) (15,206) 5,363 11,551

Income taxes
Current (88) 148 112 (7,080)
Future (2,763) 50 2,432 11,881
Recognition of
previously
unrecognized
future income
tax assets - - (5,324) (5,324)
------------- ------------- ------------- -------------

(2,851) 198 (2,780) (523)
------------- ------------- ------------- -------------
Earnings
(loss) before
extraordinary gain (23,346) (15,404) 8,143 12,074

Extraordinary gain - - 3,036 3,036
------------- ------------- ------------- -------------

Net earnings (loss)
for the period $ (23,346) $ (15,404) $ 11,179 $ 15,110
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Basic earnings
(loss) before
extraordinary
gain per share $ (0.39) $ (0.25) $ 0.12 $ 0.18
Diluted earnings
(loss) before
extraordinary
gain per share $ (0.39) $ (0.25) $ 0.12 $ 0.17
Basic and diluted
net earnings
(loss) per share $ (0.39) $ (0.25) $ 0.16 $ 0.22
Basic weighted
average number
of shares
outstanding
(000's) 59,613 62,609 68,907 68,964
Diluted weighted
average number
of shares
outstanding (000's) 59,613 62,609 69,467 69,543

(1) Stock-based
compensation costs
included in:
Cost of sales $ 37 $ 97 $ 37 $ 112
Selling and
administrative 238 637 218 598
Net research and
development 108 296 79 194
------------- ------------- ------------- -------------

$ 383 $ 1,030 $ 334 $ 904
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(2) The cost of sales is exclusive of amortization, shown separately.

EXFO Electro-Optical Engineering Inc.
Unaudited Interim Statements of Comprehensive Income (Loss) and
Accumulated Other Comprehensive Income

(in thousands of US dollars)

Comprehensive
income (loss)
Three months Nine months Three months Nine months
ended ended ended ended
May 31, 2009 May 31, 2009 May 31, 2008 May 31 2008
------------- ------------- ------------- -------------
Net earnings (loss)
for the period $ (23,346) $ (15,404) $ 11,179 $ 15,110
Foreign currency
translation
adjustment 31,986 (9,593) (3,511) 16,222
Changes in
unrealized losses
on short-term
investments - 22 (50) 40
Unrealized gains
(losses) on
forward exchange
contracts 7,425 (1,238) 295 2,844
Reclassification
of realized gains
(losses) on
forward exchange
contracts in
net earnings 1,849 3,083 (1,218) (3,145)
Future income
taxes effect of
the above items (2,875) (572) 286 87
------------- ------------- ------------- -------------

Comprehensive
income (loss) $ 15,039 $ (23,702) $ 6,981 $ 31,158
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Accumulated other comprehensive income

Nine months Nine months
ended ended
May 31, 2009 May 31, 2008
------------- -------------
Foreign currency translation adjustment
Cumulative effect of prior periods $ 51,129 $ 53,418
Current period (9,593) 16,222
------------- -------------

41,536 69,640
------------- -------------
Unrealized gains (losses) on forward
exchange contracts
Cumulative effect of prior periods (96) 1,948
Current period, net of realized gains
(losses) and future income taxes 1,273 (214)
------------- -------------

1,177 1,734
------------- -------------
Unrealized losses on short-term investments
Cumulative effect of prior periods (24) (55)
Current period, net of future income taxes 22 40
------------- -------------

(2) (15)
------------- -------------

Accumulated other comprehensive income $ 42,711 $ 71,359
------------- -------------
------------- -------------

Total retained earnings and accumulated other comprehensive income
amounted to $128,141 and $87,801 as at May 31, 2008, and 2009, respectively.

EXFO Electro-Optical Engineering Inc.
Unaudited Interim Consolidated Statements of Retained Earnings
and Contributed Surplus

(in thousands of US dollars)

Retained earnings
Nine months Nine months
ended ended
May 31, 2009 May 31, 2008
------------- -------------
Balance - Beginning of the period $ 60,494 $ 42,330

Add (deduct)
Net earnings (loss)for the period (15,404) 15,110
Premium on redemption of share capital - (658)
------------- -------------

Balance - End of the period $ 45,090 $ 56,782
------------- -------------
------------- -------------

Contributed surplus
Nine months Nine months
ended ended
May 31, 2009 May 31, 2008
------------- -------------
Balance - Beginning of the period $ 5,226 $ 4,453

Add (deduct)
Stock-based compensation costs 1,012 919
Reclassification of stock-based
compensation costs to share capital
upon exercise of stock awards (460) (387)
Discount on redemption of share capital 11,257 -
------------- -------------

Balance - End of the period $ 17,035 $ 4,985
------------- -------------
------------- -------------

EXFO Electro-Optical Engineering Inc.
Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

Three months Nine months Three months Nine months
ended ended ended ended
May 31, 2009 May 31, 2009 May 31, 2008 May 31, 2008
------------- ------------- ------------- -------------
Cash flows from
operating
activities
Net earnings
(loss) for the
period $ (23,346) $ (15,404) $ 11,179 $ 15,110
Add (deduct) items
not affecting
cash
Change in
discount on
short-term
investments (18) 573 533 1,521
Stock-based
compensation
costs 383 1,030 334 904
Amortization 2,521 7,294 2,086 5,514
Deferred revenue (178) 3,245 (937) (435)
Write-down of
capital assets 237 237 - -
Impairment of
goodwill 21,713 21,713 - -
Future income
taxes (2,763) 50 (2,892) 6,557
Extraordinary
gain - - (3,036) (3,036)
Change in
unrealized
foreign exchange
(gain) loss 2,516 (1,541) 86 526
------------- ------------- ------------- -------------
1,065 17,197 7,353 26,661

Change in non-cash
operating items
Accounts receivable 3,456 639 (326) (145)
Income taxes and
tax credits (1,845) (2,189) (1,789) (11,437)
Inventories 568 689 (3,585) (2,878)
Prepaid expenses (104) (338) (110) (506)
Accounts payable
and accrued
liabilities (1,301) (539) (116) (3,075)
------------- ------------- ------------- -------------

1,839 15,459 1,427 8,620
------------- ------------- ------------- -------------
Cash flows from
investing
activities
Additions to
short-term
investments (94,435) (349,899) (235,160) (644,220)
Proceeds from
disposal and
maturity of
short-term
investments 97,936 374,042 277,791 686,371
Additions to
capital assets(1) (1,507) (5,967) (1,370) (5,056)
Business
combinations,
net of cash
acquired (2,414) (2,414) (40,938) (40,938)
------------- ------------- ------------- -------------

(420) 15,762 323 (3,843)
------------- ------------- ------------- -------------
Cash flows from
financing
activities
Change in bank
loan - - 786 1,485
Exercise of stock
options 10 41 51 61
Redemption of
share capital - (26,078) (3,219) (3,393)
------------- ------------- ------------- -------------

10 (26,037) (2,382) (1,847)
------------- ------------- ------------- -------------

Effect of foreign
exchange rate
changes on cash 424 (15) 3 111
------------- ------------- ------------- -------------

Change in cash 1,853 5,169 (629) 3,041

Cash - Beginning of
period 9,230 5,914 9,211 5,541
------------- ------------- ------------- -------------

Cash - End of
period $ 11,083 $ 11,083 $ 8,582 $ 8,582
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

(1) As at May 31, 2008 and 2009, unpaid purchases of capital assets
amounted to $35,000 and $324,000, respectively.

SOURCE EXFO ELECTRO-OPTICAL ENGINEERING INC.

Vance Oliver, Manager, Investor Relations, (418) 683-0913, Ext. 3733,
vance.oliver@exfo.com