SOURCE: Zoran Corporation

Zoran Corporation

January 26, 2009 16:03 ET

Zoran Corporation Reports Fourth Quarter and Year End 2008 Results

DTV Revenues Grow 59 Percent Annually, Achieving Records in Revenues and Units Shipped; Company Generates Nearly $26 Million in Cash From Operations During the Fourth Quarter and Enters 2009 With $396 Million in Cash and Short-Term Investments and Long-Term Investments

SUNNYVALE, CA--(Marketwire - January 26, 2009) - Zoran Corporation (NASDAQ: ZRAN), a leading provider of digital solutions for applications in the digital entertainment and digital imaging markets, today reported results for its fourth quarter and year ended December 31, 2008.

Revenues for the fourth quarter were $74.7 million, compared to $126.1 million last quarter and $129.4 million for the fourth quarter of 2007. The Company reported a fourth quarter GAAP net loss of $20.2 million, or $0.40 per share, which includes $3.1 million for stock-based compensation expense, $109 thousand for amortization of acquired intangible assets and an adjustment of the tax provision to a non-GAAP rate of $6.5 million. This compares with a net loss of $154.2 million, or $3.01 per share, for the previous quarter and net income of $58.7 million, or $1.11 per diluted share, for the fourth quarter last year. As a reminder, the previous quarter's net loss included non-cash charges of $167.6 million for impairment of intangible assets.

Non-GAAP net loss for the fourth quarter was $10.5 million, or $0.21 per share, which excludes charges related to the amortization of acquisition-related purchased intangible assets, stock-based compensation expenses and the adjustment of the tax provision to a non-GAAP rate. This compares with non-GAAP net income of $13.9 million, or $0.27 per diluted share, for the previous quarter, and $18.1 million, or $0.34 per diluted share, for the same period last year.

For the full year 2008, revenues were $438.5 million, compared to $507.4 million for 2007. GAAP net loss for 2008 was $215.7 million, or $4.20 per diluted share, compared to net income of $66.2 million or $1.29 per diluted share for the full year 2007. Non-GAAP net income for 2008 was $8.4 million, or $0.16 per diluted share. This compares with non-GAAP net income of $70.9 million, or $1.37 per diluted share for 2007.

"At the onset of 2008, we stated that revenues from our DTV and mobile phone processor product lines would grow substantially throughout the year and we are pleased that despite the worldwide recession, we were able to deliver on this objective," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "DTV grew 59 percent on an annual basis and mobile phone processors increased nearly five-fold during the same period. These strong results were not enough to offset the impact of the deteriorating economy on our remaining markets however, and we do not expect any near-term improvements in those markets. Our focus remains on managing our resources and controlling expenses and we are pleased to have generated nearly $26 million in cash from operations during the quarter, enabling us to begin the year with $396 million in cash and short-term investments and long-term investments. We have multiple new product introductions scheduled for 2009 and continue to see solid design win activity for existing product lines, positioning us well for when the economy recovers."

Recent Highlights

--  Revenues by product line for the fourth quarter of 2008 were 36
    percent Digital Camera, 23 percent DTV, 23 percent Printer Imaging, 10
    percent DVD, 7 percent mobile phone processors and 1 percent other
    
--  Zoran demonstrated new HDTV, Set-Top Box, Digital Camera, HD DVD,
    Multimedia Mobile Phone, Printer and Connected Technologies at CES 2009
    
--  Over 70 new consumer electronic product models Powered by Zoran were
    displayed at CES 2009
    
--  Products powered by Zoran gained CES 2009 Innovation recognition,
    including Aiptek's Portable Media Player PocketCinema V10, Samsung's
    Upconverting DVD Player DVD-H1080, and  new digital camera models under
    major brand names
    
--  Flip Mino HD from Pure Digital using Zoran's COACH digital camera
    technology was named "Gadget of the Year" by Freep.com and listed under PC
    World's Best Products of CES 2009
    
--  Printing devices using Zoran's IPS Software Solution won industry
    awards again in 2008
    
--  Zoran shipped new SupraHD® 775 & SupraHD® 785 HDTV Processors with
    Advanced Audio Processing and Color Management capabilities
    

Future Outlook

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

The Company is currently expecting first quarter 2009 revenues to range between $50 million and $55 million, with gross margins ranging between 46 and 48 percent. Excluding acquisition related amortization costs and stock-based compensation expense, non-GAAP operating expenses are expected to be in a range of $51 million to $52 million. Acquisition-related amortization costs are expected to be approximately $109 thousand and stock-based compensation expense is expected to range between $2.9 and $3.4 million. The Company expects to record a first quarter loss in the range of $0.54 to $0.58 per share on approximately 51.5 million shares. On a non-GAAP basis, which excludes acquisition-related amortization costs and stock-based compensation expense, the Company expects to record a loss in the range of $0.48 and $0.53 per share. With this outlook, cash is expected to decline between $25 million and $30 million.

Zoran will provide more commentary on its fourth 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 provides non-GAAP financial information, consisting of non-GAAP operating expense and non-GAAP net income (loss) that excludes impairment of intangible assets, acquisition related in-process research and development expenses, amortization of acquired intangible assets and stock-based compensation expense and associated income tax adjustments.

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 items 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, to determine executive officer incentive compensation, 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 fourth quarter and year end results. To listen to the call, please call 617-614-4070 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 4:30 p.m. PT on January 26, until 4:30 p.m. PT on February 1, 2009. The access number for the replay is 617-801-6888, confirmation number 62707715. 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 additional operations in Canada, China, England, France, 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 "Future Outlook," that reflect the Company's current views with respect to future events and future 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 declines in the Company's sales as a result of a global economic slowdown that could reduce demand for consumer electronic and other products; recent tightening in global credit markets, which could result in insolvency of key suppliers or customers, and customer inability to finance purchases of our products; the rapidly evolving markets for the Company's products and uncertainty regarding the pace and direction of development of those markets; cost and length of time required for new product development; timing and impact of new product introductions by the Company and its competitors, and of transitions away from older products; intense competition in our markets and in the markets in which our customers operate; the Company's reliance on other parties for wafer supplies, product assembly and testing, and 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 tax rate caused by projections of the geographic sources of Company income; dependence on key personnel; and reliance on international 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, APPROACH, SupraTV and SupraXD 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          Year Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

Revenues:
   Hardware product
    revenues                $   59,808  $  113,860  $  379,823  $  445,370
   Software and other
    revenues                    14,881      15,513      58,716      61,991
                            ----------  ----------  ----------  ----------
      Total revenues            74,689     129,373     438,539     507,361

Costs and expenses:
   Cost of hardware product
    revenues                    36,413      62,030     229,008     236,282
   Research and development     30,342      30,113     117,948     113,140
   Selling, general and
    administrative              21,010      27,372      94,562     112,422
   Amortization of
    intangibles                    109       9,238      23,096      43,224
   Impairment of intangible
    assets                           -           -     167,579           -
   In-process research and
    development                      -           -      22,383           -
                            ----------  ----------  ----------  ----------
      Total costs and
       expenses                 87,874     128,753     654,576     505,068

Operating income (loss)        (13,185)        620    (216,037)      2,293

Interest and other income,
 net                             2,925       1,925      12,589      14,058
                            ----------  ----------  ----------  ----------
Income (loss) before income
 taxes                         (10,260)      2,545    (203,448)     16,351

Provision (benefit) for
 income taxes                    9,949     (56,185)     12,279     (49,835)
                            ----------  ----------  ----------  ----------
Net income (loss)           $  (20,209) $   58,730  $ (215,727) $   66,186
                            ==========  ==========  ==========  ==========

Basic net income (loss) per
 share                      $    (0.40) $     1.15  $    (4.20) $     1.32
                            ==========  ==========  ==========  ==========
Diluted net income (loss)
 per share                  $    (0.40) $     1.11  $    (4.20) $     1.29
                            ==========  ==========  ==========  ==========

Shares used to compute
 basic net income (loss)
 per share                      51,018      50,991      51,350      49,981
                            ==========  ==========  ==========  ==========
Shares used to compute
 diluted net income (loss)
 per share                      51,018      52,728      51,350      51,404
                            ==========  ==========  ==========  ==========




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




                        Three Months Ended             Year Ended
                           December 31,                December 31,
                      -----------------------    ----------------------
                         2008          2007         2008        2007
                      ----------     --------    ---------    ---------

GAAP net income (loss)$  (20,209)    $ 58,730    $(215,727)   $  66,186

Adjusting items to
 GAAP net income
 (loss):

  Operating expenses
   related to stock
   based
   compensation
   expense                 3,117(a)     3,452(a)    13,106(a)    14,775(a)
  Amortization of
   intangibles               109(b)     9,238(b)    23,096(b)    43,224(b)
  Impairment of
   intangible assets           -            -      167,579(c)         -
  In-process
   research and
   development
   expense                     -            -       22,383(d)         -
  Provision
   (benefit) for
   income taxes            6,486(e)   (53,334)      (2,044)(e)  (53,334)
                      ----------     --------    ---------    ---------

Non-GAAP net income
 (loss)               $  (10,497)(f) $ 18,086(f) $   8,393(f) $  70,851(f)
                      ==========     ========    =========    =========

Non-GAAP basic net
 income (loss) per
 share                $    (0.21)(f) $   0.35(f) $    0.16(f) $    1.42(f)
                      ==========     ========    =========    =========
Non-GAAP diluted
 net income (loss)
 per share            $    (0.21)(f) $   0.34(f) $    0.16(f) $    1.37(f)
                      ==========     ========    =========    =========

Shares used to
 compute non-GAAP
 basic net income
 (loss) per share         51,018       50,991       51,350       49,981
                      ==========     ========    =========    =========
Shares used to
 compute non-GAAP
 diluted net income
 (loss) per share         51,018       52,861       51,548       51,659
                      ==========     ========    =========    =========



(a) This adjustment reflects the stock-based compensation expense recorded
under SFAS 123R.  For 2007, 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 (f) 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, Oren Semiconductor, Inc. in June 2005
and Let It Wave in June 2008.  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 (f) below)

(c) This adjustment represents the impairment of acquisition related to
goodwill and intangible assets recorded by the Company as part of the
annual Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets" and SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" analysis.  The impairment of
goodwill and intangible assets does not impact the Company's ongoing cash
flows and is excluded by management when evaluating our core operating
results. (see (f) below)

(d) This adjustment reflects the in process research and development charge
recorded by the Company as part of the acquisition of Let It Wave in June
2008.  This in process research and development charge does not impact the
Company's ongoing cash flows and is excluded by management when evaluating
our core operating results. (see (f) below)

(e) This adjustment represents the difference between the non-GAAP income
tax rate and the GAAP income tax rate. This adjustment is made by the
Company when it evaluates its continuing operational performance.  (see (f)
below)

(f) 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, to determine executive officer incentive compensation 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)




                                                December 31,  December 31,
                                                    2008          2007
                                                ------------  ------------

ASSETS

   Current assets:
      Cash and short-term investments           $    358,527  $    319,809
      Accounts receivable, net                        22,845        58,220
      Inventory                                       37,365        48,992
      Prepaid expenses and other current assets       25,549        25,189
                                                ------------  ------------
         Total current assets                        444,286       452,210

   Property and equipment, net                        15,811        17,636
   Long-term investments                              37,425        85,350
   Other assets                                       69,659        70,500
   Intangible assets, net                              5,266       194,636
                                                ------------  ------------

      Total assets                              $    572,447  $    820,332
                                                ============  ============



LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
      Accounts payable                          $     29,918  $     67,836
      Accrued expenses and other liabilities          36,134        43,968
                                                ------------  ------------
         Total current liabilities                    66,052       111,804

   Long term liabilities                              26,985        20,756

   Stockholders' equity:
      Common stock                                        51            51
      Additional paid-in capital                     858,429       847,597
      Accumulated other comprehensive income
       (loss)                                         (2,472)          995
      Accumulated deficit                           (376,598)     (160,871)
                                                ------------  ------------
         Total stockholders' equity                  479,410       687,772

      Total liabilities and stockholders'
       equity                                   $    572,447  $    820,332
                                                ============  ============

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