SOURCE: Zoran Corporation

Zoran Corporation

October 26, 2009 16:02 ET

Zoran Corporation Reports Third Quarter 2009 Results

Sequential Revenues Increase 12 Percent Driven Primarily by Growth in Flat Panel TVs and Digital Cameras; Company Generates $9 Million in Cash From Operations

SUNNYVALE, CA--(Marketwire - October 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 third quarter ended September 30, 2009.

Revenues for the third quarter were $115.5 million, compared to $102.7 million last quarter and $126.1 million for the third quarter of 2008. The Company reported third quarter GAAP net income of $4.9 million, or $0.09 per diluted share, which compares with a GAAP net loss of $13.8 million, or $0.27 per share, for the previous quarter and a GAAP net loss of $154.2 million, or $3.01 per share, for the third quarter of the prior year. As a reminder, results for the third quarter of 2008 include non-cash charges of $167.6 million for impairment of intangible assets.

Non-GAAP net income for the third quarter was $8.7 million, or $0.17 per diluted share, which excludes $109 thousand of amortization of acquired intangible assets, $3.0 million of stock-based compensation expenses, and $1.2 million related to restructuring expenses in connection with a reduction in force in our APPROACH product line and the closing of our facility in Toronto, Canada, but includes an adjustment of $500 thousand for the tax provision to a non-GAAP rate. This compares with a non-GAAP net loss of $4.3 million, or $0.08 per share, for the previous quarter, and non-GAAP net income of $13.9 million, or $0.27 per diluted share, for the same period last year.

"While continued weakness in global consumer spending persists, Zoran achieved 12 percent sequential revenue growth in the third quarter, reflecting the strength of our leading market positions," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "Demand for HDTVs remained strong and we continued to gain share in the U.S. market. Growth in digital cameras was strong across all segments and our partnerships with major ODMs in this market continued to benefit Zoran. The DVD market also showed strength as a result of increasing demand for higher margin, value-add DVD products such as HDMI players and portables. As we enter what is typically our seasonally down fourth quarter, we are pleased with the design win activity we are seeing in our end markets, which indicates a strong 2010."

"During the quarter, we discontinued development activity on our APPROACH processors for the multimedia mobile phone market. While we achieved some major successes, including LG's Viewty Camera Phone, we decided that it would be a more efficient use of our resources to explore related market segments, including Camera Phones, with our COACH product line," concluded Dr. Gerzberg.

Recent Highlights

--  Revenues by product line for the third quarter of 2009 were 39 percent
    DTV, 30 percent Digital Camera, 15 percent DVD, 12 percent Printer Imaging
    and 4 percent mobile phone processors
--  Zoran's SupraHD® processors power new 1080p high definition Insignia
    brand flat panel televisions at Best Buy
--  Zoran demonstrated latest TV technologies for top-tier CE
    manufacturers in Japan at CEATEC 2009
--  Zoran announced NDS certification for new STB products and
    demonstrated new platforms for global Pay-TV market at IBC in Amsterdam
--  Zoran's COACH 12-based camera models go to production for holiday
    selling season
--  Zoran addressed "Technology Advances Needed to Enable TV 3.0" on IMS
    Research panel at Television 3.0 Summit in Beverly Hills
--  Zoran delivered "The Evolving TV" presentation at the DisplaySearch TV
    Ecosystem Conference in San Jose
    

Future Outlook

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

The Company is currently expecting fourth quarter 2009 revenues to range between $91 million and $95 million, with gross margins ranging between 49 and 50 percent. Excluding acquisition related amortization costs and stock-based compensation expense, non-GAAP operating expenses are expected to be in a range of $47.5 million to $48.5 million. Acquisition-related amortization costs are expected to be approximately $108 thousand and stock-based compensation expense is expected to range between $2.9 and $3.2 million. The Company expects to record a fourth quarter GAAP loss in the range of $0.06 to $0.14 per share on approximately 53.7 million shares. On a non-GAAP basis, which excludes acquisition-related amortization costs and stock-based compensation expense, the Company expects a net loss in the range of $0.00 and $0.07 per share.

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 provides non-GAAP financial information, consisting of non-GAAP operating expense and non-GAAP net income (loss) and EPS that excludes charges such as impairment of intangible assets, acquisition related in-process research and development expenses, amortization of acquired intangible assets, stock-based compensation expense, restructuring expense, non-recurring IP licensing related settlements and associated income tax adjustments. Non-GAAP results are reconciled to GAAP results on the attached Schedule.

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 its third quarter results. To listen to the call, please call 617-896-9871 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 October 26, until 4:30 p.m. PT on November 1, 2009. The access number for the replay is 617-801-6888, confirmation number 63535089. 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. This press release will be furnished to the SEC on a Form 8-K and posted to the company's website prior to the conference call.

Company Profile

Zoran Corporation, based in Sunnyvale, California, is a leading provider of digital solutions in the digital entertainment and digital imaging markets. With over 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 DTV, set-top-box, DVD, digital camera, 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 China, England, France, India, Israel, Japan, Korea, Sweden 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 currently expected, including risks associated with: potential declines in the Company's sales as a result of the continuing global economic slowdown that could continue to reduce demand for consumer electronic and other products; continued tightening in global credit markets, which could result in insolvency of key suppliers, customers, or retailers 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; the Company's dependence on sales to a limited number of large customers; 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 the Company's markets and in the markets in which its 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; 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 under the caption "Risk Factors" and elsewhere in the Company's most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and other filings with the SEC.

Zoran, the Zoran logo, and SupraHD are trademarks or registered trademarks of Zoran Corporation and/or its subsidiaries 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,
                            ----------------------- ----------------------
                               2009        2008        2009        2008
                            ----------- ----------  ----------  ----------

Revenues:
   Hardware product
    revenues                $   104,980 $  112,112  $  253,120  $  320,015
   Software and other
    revenues                     10,558     14,022      33,627      43,835
                            ----------- ----------  ----------  ----------
      Total revenues            115,538    126,134     286,747     363,850

Costs and expenses:
   Cost of hardware product
    revenues                     59,844     66,446     150,154     192,595
   Research and development      27,013     28,922      83,494      87,606
   Selling, general and
    administrative               23,100     23,653      84,247      73,552
   Amortization of
    intangibles                     109      4,494         327      22,987
   Restructuring expense          1,194          -       2,053           -
   Impairment of intangible
    assets                            -    167,579           -     167,579
   In-process research and
    development                       -          -           -      22,383
                            ----------- ----------  ----------  ----------
      Total costs and
       expenses                 111,260    291,094     320,275     566,702

Operating income (loss)           4,278   (164,960)    (33,528)   (202,852)

Interest and other income,
 net                              1,748      3,020       7,383       9,664
                            ----------- ----------  ----------  ----------
Income (loss) before income
 taxes                            6,026   (161,940)    (26,145)   (193,188)

Provision (benefit) for
 income taxes                     1,150     (7,720)      3,890       2,330
                            ----------- ----------  ----------  ----------
Net income (loss)           $     4,876 $ (154,220) $  (30,035) $ (195,518)
                            =========== ==========  ==========  ==========

Basic net income (loss) per
 share                      $      0.09 $    (3.01) $    (0.58) $    (3.80)
                            =========== ==========  ==========  ==========
Diluted net income (loss)
 per share                  $      0.09 $    (3.01) $    (0.58) $    (3.80)
                            =========== ==========  ==========  ==========

Shares used to compute
 basic net income (loss)
 per share                       51,684     51,231      51,451      51,464
                            =========== ==========  ==========  ==========
Shares used to compute
 diluted net income (loss)
 per share                       52,320     51,231      51,451      51,464
                            =========== ==========  ==========  ==========





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




                     Three Months Ended           Nine Months Ended
                       September 30,                September 30,
                 -------------------------    -------------------------
                    2009           2008          2009           2008
                 ----------    -----------    ----------    -----------

GAAP net income
 (loss)            $ 4,876     $  (154,220)   $  (30,035)   $  (195,518)

Adjusting items
 to GAAP net
 income (loss):

  Operating
   expenses
   related to
   stock based
   compensation
   expense            3,029 (a)      3,405 (a)     9,061 (a)      9,989 (a)
  Operating
   expenses
   related to IP
   licensing
   related
   settlements            -              -        11,000 (b)          -
  Amortization
   of
   intangibles          109 (c)      4,494 (c)       327 (c)     22,987 (c)
  Restructuring
   expense            1,194 (d)          -         2,053 (d)          -
  Impairment of
   intangible
   assets                 -        167,579 (e)         -        167,579 (e)
  In-process
   research and
   development
   expense                -              -             -         22,383 (f)
  Provision for
   income taxes        (500)(g)     (7,390)(g)    (5,660)(g)     (8,530)(g)
                 ----------    -----------    ----------    -----------

Non-GAAP net
 income (loss)   $    8,708 (h)$    13,868 (h)$  (13,254)(h)$    18,890 (h)
                 ==========    ===========    ==========    ===========

Non-GAAP basic
 net income
 (loss) per
 share           $     0.17 (h)$      0.27 (h)$    (0.26)(h)$      0.37 (h)
                 ==========    ===========    ==========    ===========
Non-GAAP diluted
 net income
 (loss) per
 share           $     0.17 (h)$      0.27 (h)$    (0.26)(h)$      0.36 (h)
                 ==========    ===========    ==========    ===========

Shares used to
 compute
 non-GAAP basic
 net income
 (loss) per
 share               51,684         51,231        51,451         51,464
                 ==========    ===========    ==========    ===========
Shares used to
 compute
 non-GAAP
 diluted net
 income (loss)
 per share           52,752         51,321        51,451         51,795
                 ==========    ===========    ==========    ===========


(a) This adjustment reflects the stock-based compensation expense recorded
under ASC Topic 718-10.  The Company excludes this item 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 (h) below)

(b) This adjustment reflects a non-recurring expense recorded during the
quarter ended June 30, 2009 as a result of IP licensing related
settlements.  The Company excludes this item 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 (h) below)

(c) For 2008, this adjustment represents the amortization of intangibles
assets primarily associated with the acquisition of Oak Technology, Inc. in
August 2003, the acquisition of Emblaze Semiconductor in July 2004 and the
acquisition of Oren Semiconductor in June 2005.  For 2009, this adjustment
represents the amortization of intangible assets associated with the
acquisition of Let It Wave, Inc. in June 2008.  Such amortization expense
does not impact the Company’s cash flows and is excluded by management when
evaluating our core operating results.  (see (h) below)

(d) This adjustment reflects the restructuring expense recorded by the
Company as part of closing its facility in Netanya, Israel during the
quarter ended March 31, 2009 and the restructuring of its Mobile division
and closing of its Toronto facility during the quarter ended September 30,
2009.  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 (h)
below)

(e) This adjustment represents the impairment of acquisition related to
goodwill and intangible assets recorded by the Company as part of the
annual analysis under ASC Topic 350-20 and ASC Topic 360-10.  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 (h) below)

(f) 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 (h) below)

(g) 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 (h)
below)

(h) 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, 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.





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




                                            September 30,    December 31,
                                                 2009            2008
                                            --------------  --------------

ASSETS

   Current assets:
         Cash and short-term investments    $      397,972  $      358,527
         Accounts receivable, net                   31,808          22,845
         Inventory                                  31,073          37,365
         Prepaid expenses and other current
          assets                                    18,915          25,549
                                            --------------  --------------
            Total current assets                   479,768         444,286

   Property and equipment, net                      12,286          15,811
   Long-term investments                                 -          37,425
   Other assets                                     70,111          69,659
   Intangible assets, net                            4,939           5,266
                                            --------------  --------------

         Total assets                       $      567,104  $      572,447
                                            ==============  ==============



LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
         Accounts payable                   $       32,742  $       29,918
         Accrued expenses and other
          liabilities                               38,216          36,134
                                            --------------  --------------
            Total current liabilities               70,958          66,052

   Long-term liabilities                            28,863          26,985

   Stockholders' equity:
         Common stock                                   52              51
         Additional paid-in capital                871,246         858,429
         Accumulated other comprehensive
          income (loss)                              2,618          (2,472)
         Accumulated deficit                      (406,633)       (376,598)
                                            --------------  --------------
            Total stockholders' equity             467,283         479,410

         Total liabilities and
          stockholders' equity              $      567,104  $      572,447
                                            ==============  ==============

Contact Information