SUNNYVALE, CA -- (MARKET WIRE) -- Oct 27, 2008 -- 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, 2008.
Revenues for the third quarter were $126.1 million, compared to $128.7 million last quarter and $146.4 million for the third quarter of 2007. The Company reported a third quarter GAAP net loss of $154.2 million, or $3.01 per share, which includes non-cash charges of $167.6 million for impairment of intangible assets, $4.5 million for amortization of acquired intangible assets and $3.4 million for stock-based compensation expense. This compares with a net loss of $36.6 million, or $0.71 per share, for the previous quarter and net income of $13.1 million, or $0.26 per diluted share, for the third quarter last year.
Zoran recently performed its annual goodwill impairment analysis in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." These annual impairment analyses, which are based on a forecast discounted cash flows model, indicate a $167.6 million non-cash impairment of goodwill and intangible assets within the Company's Consumer segment. Factors within the analysis that led to this outcome include an extended decline in the market capitalization of the Company at September 30, 2008 combined with a decline in the Company's forecasted business outlook, which management attributes to the impact of a weakening macroeconomic environment for Zoran's consumer business.
Non-GAAP net income for the third quarter was $13.9 million, or $0.27 per diluted share, which excludes the non-cash goodwill impairment, charges related to the amortization of acquisition-related purchased intangible assets, stock-based compensation expenses, and an adjustment of the tax provision to a non-GAAP rate. This compares with non-GAAP net income of $1.5 million, or $0.03 per diluted share, for the previous quarter, and $26.4 million, or $0.51 per diluted share, for the same period last year.
"During the third quarter we saw strength in both flat panel TVs and set-top-boxes, achieving record revenues and 22 percent sequential growth in DTV," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "In addition, continued demand for our COACH processors enabled stronger than expected revenues in digital cameras, driven largely by increases in orders for top-tier Japanese branded products sourced through Taiwan ODMs, where Zoran is a major supplier. The DVD market exhibited even weaker demand than we anticipated, particularly in the U.S. and Europe. While we are making strides in our geographic expansion efforts, this market is expected to remain challenged in the near term. Sales of our APPROACH processors were also weaker than expected; however, the next generation to the very successful Viewty by LG Electronics, the Renoir, has recently been released and is shipping to Europe with expansion plans to other geographies by the end of the year."
Dr. Gerzberg continued, "We continued to focus on managing the business to maintain financial strength even in the tough macroeconomic environment. We generated over $21 million in cash from operations, resulting in a modest increase in cash and cash equivalents, despite repurchasing roughly 1.2 million shares of our stock for approximately $10 million, and declines in the market value of our short-term investments. In addition, we closely managed our inventory levels and achieved a 19 percent reduction over last quarter. We will continue to focus on managing cash and inventory levels as we navigate through these uncertain times. Looking ahead, we are expecting our seasonally weakest fourth quarter to be further impacted by the recession and subsequent decline in consumer spending. However, we are well positioned to return to growth once the economy begins to recover, and will continue to invest our resources in order to maintain and grow market share in our core markets."
Recent Highlights
-- Revenues by product line for the third quarter of 2008 were 35 percent
DTV, 34 percent Digital Camera, 13 percent DVD, 13 percent Printer Imaging,
3 percent mobile phone processors and 2 percent other
-- Zoran announces SupraXD® 170 & SupraXD® 180 Processors supporting
a broad range of video formats in set-top boxes for global markets such as
Pay Satellite and IP set-top boxes
-- Zoran announces SupraTV® 260 Processor family optimized for cable
set-top box markets and designed to address China Cable market
-- Zoran-powered Apex Digital converter box supporting Analog Pass-
Through gains NTIA approval
-- Zoran's APPROACH® 5C Multimedia Processor powers LG's Renoir KC910 8-
megapixel Smartphone
-- Zoran's COACH-based HD video camera under top-tier Japanese brand
shipping to global markets
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 2008 revenues to range between $85 million and $90 million, with gross margins ranging between 48 and 49 percent. Excluding acquisition related amortization costs and stock-based compensation expense, non-GAAP operating expenses are expected to be in a range of $51.5 million to $52.5 million. Acquisition-related amortization costs are expected to be approximately $100,000, and stock-based compensation expense is expected to range between $3.3 and $3.8 million. The Company expects to record a fourth quarter loss in the range of $0.20 to $0.25 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 $0.15 and $0.20 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) that excludes impairment of intangible assets, acquisition related in-process research and development expenses, 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 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 third quarter 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 October 27, until 4:30 p.m. PT on November 2, 2008. The access number for the replay is 617-801-6888, confirmation number 73364417. 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, 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 quotations 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. Those include risks associated with: potential declines in the Company's sales as a result of a widespread 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 Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
---------- ----------- ---------- -----------
Revenues:
Hardware product
revenues $ 112,112 $ 129,820 $ 320,015 $ 331,510
Software and other
revenues 14,022 16,606 43,835 46,478
---------- ----------- ---------- -----------
Total revenues 126,134 146,426 363,850 377,988
Costs and expenses:
Cost of hardware product
revenues 66,446 69,876 192,595 174,252
Research and development 28,922 28,063 87,606 83,027
Selling, general and
administrative 23,653 28,043 73,552 85,050
Amortization of
intangibles 4,494 9,648 22,987 33,986
Impairment of intangible
assets 167,579 - 167,579 -
In-process research and
development - - 22,383 -
---------- ----------- ---------- -----------
Total costs and
expenses 291,094 135,630 566,702 376,315
Operating income (loss) (164,960) 10,796 (202,852) 1,673
Interest and other income,
net 3,020 4,046 9,664 12,133
---------- ----------- ---------- -----------
Income (loss) before income
taxes (161,940) 14,842 (193,188) 13,806
Provision (benefit) for
income taxes (7,720) 1,700 2,330 6,350
---------- ----------- ---------- -----------
Net income (loss) $ (154,220) $ 13,142 $ (195,518) $ 7,456
========== =========== ========== ===========
Basic net income (loss) per
share $ (3.01) $ 0.26 $ (3.80) $ 0.15
========== =========== ========== ===========
Diluted net income (loss)
per share $ (3.01) $ 0.26 $ (3.80) $ 0.15
========== =========== ========== ===========
Shares used to compute
basic net income (loss)
per share 51,231 49,863 51,464 49,633
========== =========== ========== ===========
Shares used to compute
diluted net income (loss)
per share 51,231 51,284 51,464 50,861
========== =========== ========== ===========
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,
------------------------ ------------------------
2008 2007 2008 2007
---------- -------- ---------- --------
GAAP net income
(loss) $ (154,220) $ 13,142 $ (195,518) $ 7,456
Adjusting items
to GAAP net
income (loss):
Operating expenses
related to stock
based compensation
expense 3,405(a) 3,567(a) 9,989(a) 11,323(a)
Amortization of
intangibles 4,494(b) 9,648(b) 22,987(b) 33,986(b)
Impairment of
intangible
assets 167,579(c) - 167,579(c) -
In-process research
and development
expense - - 22,383(d) -
Provision for
income taxes (7,390)(e) - (8,530)(e) -
---------- -------- ---------- --------
Non-GAAP net
income $ 13,868(f) $ 26,357(f) $ 18,890(f) $ 52,765(f)
========== ======== ========== ========
Non-GAAP basic
net income per
share $ 0.27(f) $ 0.53(f) $ 0.37(f) $ 1.06(f)
========== ======== ========== ========
Non-GAAP diluted
net income per
share $ 0.27(f) $ 0.51(f) $ 0.36(f) $ 1.03(f)
========== ======== ========== ========
Shares used to
compute non-GAAP
basic net income
per share 51,231 49,863 51,464 49,633
========== ======== ========== ========
Shares used to
compute non-GAAP
diluted net
income per share 51,321 51,507 51,795 51,148
========== ======== ========== ========
(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)
September 30, December 31,
2008 2007
------------ ------------
ASSETS
Current assets:
Cash and short-term investments $ 304,134 $ 319,809
Accounts receivable, net 54,245 58,220
Inventory 49,320 48,992
Prepaid expenses and other current
assets 30,949 25,189
------------ ------------
Total current assets 438,648 452,210
Property and equipment, net 17,006 17,636
Other assets 128,929 155,850
Intangible assets, net 5,375 194,636
------------ ------------
Total assets $ 589,958 $ 820,332
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,894 $ 67,836
Accrued expenses and other liabilities 41,977 43,968
------------ ------------
Total current liabilities 75,871 111,804
Long term liabilities 25,030 20,756
Stockholders' equity:
Common stock 51 51
Additional paid-in capital 851,447 847,597
Accumulated other comprehensive income (6,052) 995
Accumulated deficit (356,389) (160,871)
------------ ------------
Total stockholders' equity 489,057 687,772
Total liabilities and stockholders'
equity $ 589,958 $ 820,332
============ ============
Zoran Corporation: Karl Schneider Chief Financial Officer (408) 523-6500 Email Contact Bonnie McBride (Investors) (323) 466-0960 Email Contact Company Web Site: www.zoran.com