SOURCE: Zoran Corporation

October 22, 2007 16:05 ET

Zoran Corporation Reports Third Quarter 2007 Results

Company Achieves Records in Total Revenues, Units Shipped, and Revenues From DTV and Printer Imaging Product Lines; DTV Grows 41 Percent Sequentially

SUNNYVALE, CA--(Marketwire - October 22, 2007) - Zoran Corporation (NASDAQ: ZRAN), a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets, today reported results for its third quarter ended September 30, 2007.

Revenues for the third quarter were $146.4 million, compared to $129.9 million last quarter and $129.4 million in the third quarter of 2006. The Company reported third quarter GAAP net income of $13.1 million, or $0.26 per diluted share, which includes charges of $9.6 million for amortization of acquired intangible assets and $3.6 million for stock-based compensation expense. This compares with GAAP net income of $0.2 million, or $0.00 per diluted share, for the previous quarter and GAAP net income of $1.9 million, or $0.04 per diluted share, for the third quarter last year.

Non-GAAP net income for the third quarter was $26.4 million, or $0.51 per diluted share. This compares with non-GAAP net income of $16.9 million, or $0.33 per diluted share, for the previous quarter, and $18.0 million, or $0.35 per diluted share, for the third quarter last year. For all periods, non-GAAP net income excludes charges related to the amortization of acquired intangible assets and stock-based compensation expense.

"The results of the quarter reflect the continued success of our diversification strategy and our ability to grow revenues, profits and market share within our expanding target markets," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "We are also leveraging synergies across all product lines to develop new applications, enabling continued leadership in the digital media markets we serve."

Recent Highlights

--  Revenues by product line for the third quarter of 2007 were 33 percent
    Digital Camera, 31 percent DVD, 18 percent Printer Imaging, 16 percent DTV,
    and 2 percent other.
    
--  Zoran's APPROACH 5C processor was selected for high-end 3.5G 5
    megapixel camera phone by major manufacturer and receives 2007 Frost &
    Sullivan "Best Bang for the Buck" award in multimedia processors.
    
--  Zoran and its customers demonstrate new HDTV, DVD, digital camera and
    digital printing platforms at CEATEC Japan.
    
--  Zoran demonstrates SupraHD® based ATSC DTV set-top converter box
    designed to meet ENERGY STAR requirements.
    
--  Zoran demonstrates new SupraHD® family of highly integrated 1080P
    HDTV processors for ATSC market at IBC.
    
--  Zoran demonstrates highly integrated SupraHD® HDTV 1080P processor
    with HDMI 1.3 European DVB-T market at IBC.
    
--  Zoran's Vaddis® processor selected by Sony for its Car In-Dash AV
    entertainment system with Super Audio CD Playback.
    
--  Zoran's Vaddis® 9 DVD multimedia processor plus HDXtreme® 2
    upscaler power Samsung's new generation of 1080P HDMI DVD players.
    
--  Zoran delivers enhanced IPS Interpreter for XPS Printer and
    multifunction printer manufacturers.
    

Outlook

The following statements are based on our current expectations. These statements are forward-looking, and actual results may differ materially.

The Company currently expects fourth quarter 2007 revenues to be in the range between $128.0 and $132.0 million, with gross margins in the range of 51.5 to 52.5 percent. Non-GAAP operating expenses, which exclude non-cash charges for amortization of acquired intangible assets of approximately $9.2 million, and stock-based compensation expense of approximately $3.25 to $3.75 million, are expected to be in a range of $53.0 to $54.0 million. The Company expects to record net income for the fourth quarter in the range of $0.05 to $0.10 per diluted share. Non-GAAP net income for the quarter, which excludes the aforementioned non-cash charges, is expected to range between $0.30 and $0.34 per diluted share on approximately 52.5 million shares.

Zoran will provide more commentary on its third quarter results during the quarterly conference call.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Zoran reports non-GAAP financial information, consisting of non-GAAP operating expense and non-GAAP net income (loss) that excludes proceeds received as part of litigation settlements and the associated provision for income taxes, amortization of acquired intangible assets and stock-based compensation expense.

The Company believes that its non-GAAP financial information provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations because it excludes charges that management considers to be outside of the Company's core operating results. The Company believes that this non-GAAP net income (loss), in combination with the Company's financial results calculated in accordance with GAAP, provides investors with additional perspective and a more meaningful understanding of the Company's ongoing operating performance. In addition, the Company's management uses these non-GAAP measures to review and assess the financial performance of the Company and to plan and forecast performance in future periods. The Company's non-GAAP net income (loss) is not prepared in accordance with GAAP, is not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies.

Quarterly Conference Call

Zoran Corporation has scheduled a conference call for 2:00 p.m. PT today to discuss third quarter results. To listen to the call, please call 617-847-8707 approximately five minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available from approximately 4:00 p.m. PT on October 22, until 4:00 p.m. PT on October 29. The access number for the replay is 617-801-6888, confirmation number 53959639. Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties through the investor relations section of Zoran's website at www.zoran.com. Please access the website at least fifteen minutes prior to the start of the call to register and to download and install any necessary audio software.

Company Profile

Zoran Corporation, based in Sunnyvale, California, is a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets. With two decades of expertise developing and delivering digital signal processing technologies, Zoran has pioneered high-performance digital audio and video, imaging applications, and Connect Share Entertain technologies for the digital home. Zoran's proficiency in integration delivers major benefits for OEM customers, including greater capabilities within each product generation, reduced system costs, and shorter time to market. Zoran-based DVD, digital camera, DTV, multimedia mobile phone, and multifunction printer products have received recognition for excellence and are now in hundreds of millions of homes and offices worldwide. With headquarters in the U.S. and operations in Canada, China, England, Germany, India, Israel, Japan, Korea, and Taiwan, Zoran may be contacted on the World Wide Web at www.zoran.com or at 408-523-6500.

Forward-Looking Statements

This press release includes forward-looking statements, including the chief executive officer quotation and the material presented under "Outlook," that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from what is expected, including risks associated with: potential litigation or regulatory action related to our review of historical stock option practices and related financial restatements; the rapidly evolving markets for the Company's products and uncertainty regarding the pace and direction of development of those markets; cost and timing of new product development; timing and impact of new product introductions by the Company and its competitors and transitions away from older products; intense competition in our markets; the Company's reliance on third parties for wafer supplies, product assembly and testing, and scalable manufacturing capacity; the effects of changes in revenue and product mix on the Company's gross margins; the Company's dependence on sales to large customers; fluctuations in product mix; dependence on key personnel; and reliance on international sales and operations, particularly operations in Israel. Further information regarding these and other risks and uncertainties can be found in the Company's most recently filed Annual Report on Form 10-K and other filings with the SEC.

Zoran, the Zoran logo, SupraHD, SupraTV, Vaddis, Quatro, APPROACH and IPS are trademarks of Zoran Corporation in the United States and/or other countries. All other brands or names may be claimed as property of others.

                            ZORAN CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except per share data)
                                (unaudited)


                                 Three Months Ended     Nine Months Ended
                                   September 30,         September 30,
                                --------------------  ---------------------
                                  2007       2006       2007       2006
                                ---------- ---------  ---------- ----------

Revenues:
   Hardware product revenues    $  129,820 $ 115,602  $  331,510 $  323,007
   Software and other revenues      16,606    13,777      46,478     40,755
   License litigation
    settlement revenues                  -         -           -     35,792
                                ---------- ---------  ---------- ----------
      Total revenues               146,426   129,379     377,988    399,554

Costs and expenses:
   Cost of hardware product
    revenues                        69,876    66,810     174,252    180,815
   Research and development         28,063    25,255      83,027     74,729
   Selling, general and
    administrative                  28,043    25,907      85,050     80,917
   Amortization of intangibles       9,648    12,423      33,986     37,893
                                ---------- ---------  ---------- ----------
      Total costs and expenses     135,630   130,395     376,315    374,354

Operating income (loss)             10,796    (1,016)      1,673     25,200

Interest & other income, net         4,046     2,798      12,133      8,035
                                ---------- ---------  ---------- ----------
Income before income taxes          14,842     1,782      13,806     33,235

Provision (benefit) for income
 taxes                               1,700       (70)      6,350      5,921
                                ---------- ---------  ---------- ----------
Net income                      $   13,142 $   1,852  $    7,456 $   27,314
                                ========== =========  ========== ==========

Basic net income per share      $     0.26 $    0.04  $     0.15 $     0.57
                                ========== =========  ========== ==========
Diluted net income per share    $     0.26 $    0.04  $     0.15 $     0.54
                                ========== =========  ========== ==========

Shares used to compute basic
 net income per share               49,863    49,333      49,633     48,013
                                ========== =========  ========== ==========
Shares used to compute diluted
 net income per share               51,284    50,712      50,861     50,286
                                ========== =========  ========== ==========



                            ZORAN CORPORATION
                    NON-GAAP ADJUSTMENTS TO NET INCOME
                  (in thousands, except per share data)
                                (unaudited)


                        Three Months Ended         Nine Months Ended
                           September 30,             September 30,
                       ---------------------     ----------------------
                         2007         2006         2007         2006
                       --------     --------     --------     --------


GAAP net income        $ 13,142     $  1,852     $  7,456     $ 27,314

Adjusting items to
 GAAP net income:
   Litigation
    settlement
    revenues (net)            -            -            -      (31,546) (a)
   Amortization of
    intangibles           9,648 (b)   12,423 (b)   33,986 (b)   37,893  (b)
   Operating expenses
    related to stock
    based compensation
    expense               3,567 (c)    3,770 (c)   11,323 (c)   13,728  (c)
                       --------     --------     --------     --------

Non-GAAP net income    $ 26,357 (d) $ 18,045 (d) $ 52,765 (d) $ 47,389  (d)
                       ========     ========     ========     ========

Non-GAAP basic net
 income per share      $   0.53 (d) $   0.37 (d) $   1.06 (d) $   0.99  (d)
                       ========     ========     ========     ========
Non-GAAP diluted net
 income per share      $   0.51 (d) $   0.35 (d) $   1.03 (d) $   0.93  (d)
                       ========     ========     ========     ========

Shares used to compute
 non-GAAP basic net
 income per share        49,863       49,333       49,633       48,013
                       ========     ========     ========     ========
Shares used to compute
 non-GAAP diluted net
 income per share        51,507       51,028       51,148       50,913
                       ========     ========     ========     ========



(a) This adjustment reflects the proceeds received from the settlement of a
license litigation net of associated fees and estimated income taxes.  This
amount is excluded by management when evaluating our core operating results
as it is considered a non-recurring item which is not part of our ordinary,
ongoing and customary course of operations.  (see (d) below)

(b) This adjustment reflects the amortization of intangible assets
associated with the acquisitions of Oak Technology, Inc. in August 2003,
Emblaze Semiconductor in July 2004 and Oren Semiconductor, Inc. in June
2005.  These acquired intangible assets are amortized over their estimated
useful lives.  Such amortization expense does not impact the Company's cash
flows and is excluded by management when evaluating our core operating
results.  (see (d) below)

(c) This adjustment reflects the stock-based compensation expense recorded
under SFAS 123R.  The adjustment also includes additional stock based
compensation expense attributable to options that were remeasured as part
of the stock option review and the attributable tax implications under IRS
regulation 409(A) that will be incurred by the Company.  The Company
excludes these items when it evaluates the continuing operational
performance of the Company as management believes this GAAP measure is not
indicative of its core operating performance.  (see (d) below)

(d) The Company believes that its non-GAAP financial information provides
useful information to management and investors regarding financial and
business trends relating to its financial condition and results of
operations because it excludes charges that management considers to be
outside of the Company's core operating results. The Company believes that
this non-GAAP net income, in combination with the Company's financial
results calculated in accordance with GAAP, provides investors with
additional perspective and a more meaningful understanding of the Company's
ongoing operating performance. In addition, the Company's management uses
these non-GAAP measures to review and assess the financial performance of
the Company and to plan and forecast performance in future periods. The
Company's non-GAAP net income is not prepared in accordance with GAAP, is
not an alternative to GAAP financial information, and may be calculated
differently than non-GAAP financial information disclosed by other
companies.



                            ZORAN CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (unaudited)


                                              September 30,  December 31,
                                                  2007           2006
                                              -------------  -------------

ASSETS

   Current assets:
        Cash and short-term investments       $     356,589  $     296,229
        Accounts receivable, net                     60,470         42,640
        Inventory                                    33,601         45,044
        Prepaid expenses & other current
         assets                                      12,864         10,726
                                              -------------  -------------
           Total current assets                     463,524        394,639

   Property & equipment, net                         17,214         15,673
   Other assets                                      28,508         22,890
   Intangible assets, net                           207,974        243,428
                                              -------------  -------------

        Total assets                          $     717,220  $     676,630
                                              =============  =============


LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
        Accounts payable                      $      40,052  $      33,767
        Accrued expenses and other
         liabilities                                 50,859         46,082
                                              -------------  -------------
           Total current liabilities                 90,911         79,849

   Long term liabilities                             20,510         12,784

   Stockholders' equity:
        Common stock                                     50             49
        Additional paid-in capital                  823,661        807,220
        Accumulated other comprehensive
         income                                       1,689          4,238
        Accumulated deficit                        (219,601)      (227,510)
                                              -------------  -------------
           Total stockholders' equity               605,799        583,997

        Total liabilities and stockholders'
         equity                               $     717,220  $     676,630
                                              =============  =============


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