Silicon Image Reports Fourth Quarter and 2008 Financial Results

Use of Non-GAAP Financial Information

Silicon Image presents and discusses gross margin, operating expenses, net income and basic and diluted net income per share in accordance with Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis for informational purposes only. Silicon Image believes that non-GAAP reporting, giving effect to the adjustments shown in the attached reconciliation, provides meaningful information and therefore uses non-GAAP reporting to supplement its GAAP reporting and internally in evaluating operations, managing and monitoring performance, and determining bonus compensation. Further, Silicon Image uses non-GAAP information as certain non-cash charges such as amortization of intangibles and stock based compensation do not reflect the cash operating results of the business. Silicon Image has chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of its operating results and to illustrate the results of operations giving effect to such non-GAAP adjustments. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Conference Call

The company will host an investor conference call today to discuss its fourth quarter and fiscal year 2008 results at 2:00 p.m. Pacific Time and will web cast that event. To access the conference call, dial 719-457-2558 and enter pass code 9443022. The webcast will be accessible on Silicon Image's investor relations website at http://www.SiliconImage.com. A replay of the conference call will be available within two hours of the conclusion of the conference call though February 10, 2009. To access the replay, please dial 888-203-1112 or 719-457-0820 and enter pass code 9443022.

About Silicon Image, Inc.

Silicon Image, Inc. is a leading provider of semiconductor and intellectual property products for the secure distribution, presentation and storage of high-definition content. With a rich history of technology innovation that includes creating industry standards such as DVI and HDMI, the company’s solutions facilitate the use of digital content amongst consumer electronics, personal computer (PC) and storage devices, with the goal to securely deliver digital content anytime, anywhere and on any device. Founded in 1995, the company is headquartered in Sunnyvale, California, with regional engineering and sales offices in China, Germany, Japan, Korea, Taiwan and the United Kingdom. For more information, please visit www.siliconimage.com.

NOTE: Silicon Image, the Silicon Image logo, LiquidHD, LiquidPlay, and MHL are trademarks, registered trademarks or service marks of Silicon Image, Inc. in the United States and/or other countries. HDMI is a trademark or registered trademark of HDMI Licensing, LLC in the United States and/or other countries. All other trademarks and registered trademarks are the property of their respective owners in the Unites States and/or other countries.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements include, but are not limited to, statements related to Silicon Image's future operating results, including revenue, gross margin, operating expenses, interest income, tax rates and use of cash. These forward-looking statements involve risks and uncertainties, including the risks of uncertain economic conditions, competition in our markets, the Company's ability to deliver financial performance in-line with its stated goals and other risks and uncertainties described from time to time in Silicon Image's filings with the Securities and Exchange Commission (SEC). These risks and uncertainties could cause the actual results to differ materially from those anticipated by these forward-looking statements. In addition, see the Risk Factors section of the most recent Form 10-K and 10-Q filed by Silicon Image with the U.S. Securities and Exchange Commission. These forward-looking statements are made of the date of this press release, and Silicon Image assumes no obligation to update any such forward-looking information.

SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
  Three Months Ended  

Twelve Months Ended December 31,

December 31, 2008

 

September 30, 2008

 

December 31, 2007

2008   2007
Revenue:
Product $ 49,204 $ 64,974 $ 74,676 $ 233,201 $ 272,374
Licensing   10,239   12,802   10,655   41,214   48,129
Total revenue   59,443   77,776   85,331   274,415   320,503
Cost of revenue and operating expenses:
Cost of product revenue (1) 24,618 31,518 34,625 112,539 135,168
Cost of license revenue 123 223 622 1,187 5,275
Research and development (2) 20,265 20,714 21,285 84,819 77,994
Selling, general and administrative (3) 16,866 17,468 19,240 71,719 70,362
Amortization of intangible assets 1,587 1,587 1,857 6,348 3,549
Restructuring expense (4)   3,982     1,876   -   5,858   -
Total cost of revenue and operating expenses   67,441     73,386   77,629   282,470   292,348
Income (loss) from operations (7,998) 4,390 7,702 (8,055) 28,155
Interest income and other, net   1,151   1,798   2,779   6,245   11,397
Income (loss) before provision for income taxes (6,847) 6,188 10,481 (1,810) 39,552
Provision (benefit) for income taxes   (11,860)   114   2,878   (11,873)   20,551
Net income $ 5,013 $ 6,074 $ 7,603 $ 10,063 $ 19,001
Net income per share
Basic and diluted $ 0.07 $ 0.08 $ 0.09 $ 0.13 $ 0.22
Weighted average shares
Basic 74,068 73,861 84,218 75,570 85,557
Diluted 74,940 75,334 85,228 76,626 87,388
_________________
(1) Includes stock compensation expense $ 313 $ 351 $ 387 $ 1,445 $ 1,597
(2) Includes stock compensation expense 1,934 1,753 1,866 7,134 8,411
(3) Includes stock compensation expense 2,836 2,004 2,646 10,893 9,442
(4) Includes stock compensation expense 14 - - 14 -
 
SILICON IMAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited
 

December 31,

2008   2007
Assets
Current Assets:
Cash and cash equivalents $ 95,414 $ 137,822
Short-term investments 89,591 111,889
Accounts receivable, net 5,922 21,254
Inventories 12,775 20,198
Prepaid expenses and other current assets 15,275 13,732
Deferred income taxes   6,665   3,984
Total current assets   225,642   308,879
Property and equipment, net 19,394 24,191
Goodwill 19,210 19,210
Intangible assets, net 32,921 39,269
Deferred income taxes, non-current 28,193 19,978
Other assets   1,181   1,421
Total assets $ 326,541 $ 412,948
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable $ 7,278 $ 17,892
Accrued liabilities and other liabilities 23,023 36,996
Deferred license revenue 2,348 3,860
Deferred margin on sales to distributors   6,881   26,443
Current liabilities 39,530 85,191
Other long-term liabilities   8,064   13,910
Total liabilities   47,594     99,101
Stockholders’ Equity:
Total stockholders’ equity   278,947   313,847
Total liabilities and stockholders’ equity $ 326,541 $ 412,948
 
SILICON IMAGE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)
 

Year ended December 31,

2008   2007
Cash flows from operating activities:
Net income $ 10,063 $ 19,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 10,349 9,464
Amortization of intangible assets 6,348 3,549
Provision for doubtful accounts 1,218 334
Stock-based compensation expense 19,486 19,450
Income tax benefit (deficiency) from employee based compensation plans (810) 182
Excess tax benefits from employee stock transactions (548) (2,543)
Amortization / (accretion) of investment premium / (discount) 1,189 (524)
Realized (gain) / loss on sale of investments (301) 18
Non cash restructuring expenses 1,063 -

Deferred income taxes

(10,896)

1,195

Loss on disposal of property and equipment 554 1,270
Changes in assets and liabilities:
Accounts receivable 14,114 21,430
Inventories 7,423 8,280
Prepaid expenses and other assets (1,303) (7,999)
Accounts payable (10,684) 1,857
Accrued and other liabilities (550) (14,227)
Deferred revenue (1,512) (2,325)
Deferred margin on sales to distributors   (19,562)   8,731
Cash provided by operating activities 25,641 67,143
Cash flows from investing activities:
Proceeds from sales of short-term investments 246,370 137,135
Purchases of short-term investments (224,499) (79,473)
Business acquisition, net of cash acquired - (13,751)
Purchases of property and equipment (7,046) (13,388)

Payments for intellectual property

- (18,750)
Proceeds from sale of property and equipment   -   43
Cash provided by investing activities 14,825 11,816
Cash flows from financing activities:
Proceeds from issuances of common stock 4,758 12,909
Excess tax benefits from employee stock transactions 548 2,543
Payment for vendor financed software and intangibles purchased (19,278) (528)
Payments to acquire treasury stock   (68,180)   (38,096)
Cash used in financing activities (82,152) (23,172)
Effect of exchange rate changes on cash and cash equivalents (722) 114
Net increase (decrease) in cash and cash equivalents (42,408) 55,901
Cash and cash equivalents — beginning of period   137,822   81,921
Cash and cash equivalents — end of period $ 95,414 $ 137,822
Supplemental cash flow information:
Cash payment for interest $ 68 $ 35
Cash payment for income taxes 3,017 36,316
Unrealized net gain on investment securities 219 204
Property and equipment received and accrued 79 1,566

Intellectual property received and accrued

- 21,250
 
SILICON IMAGE, INC.
GAAP NET INCOME TO NON-GAAP NET INCOME RECONCILIATION
 
(In thousands, except per share amounts) Three Months Ended       Twelve Months Ended
December 31,   September 30,   December 31, December 31,
  2008   2008   2007       2008   2007
(unaudited)  
GAAP net income $ 5,013 $ 6,074 $ 7,603 $ 10,063 $ 19,001
 
Non-GAAP adjustments:
Stock-based compensation expense (1) 5,097 4,108 4,899 19,486 19,450
Amortization of intangible assets (2) 1,587 1,587 1,857 6,348 3,549
Restructuring expenses 3,968 1,876 - 5,844 -
Adjustments related to change in recognition of distributor revenue (3)   -     -     (4,105)   -     (4,105)
Non-GAAP net income before tax adjustments 15,665 13,645 10,254 41,741 37,895
 

Income tax effects on above adjustments (4)

  -     4,037     (707)   -     (5,226)
Non-GAAP net income $ 15,665   $ 17,682   $ 9,547 $ 41,741   $ 32,669
 
Non-GAAP net income per share
Basic $ 0.21 $ 0.24 $ 0.11 $ 0.55 $ 0.38
Diluted $ 0.21 $ 0.23 $ 0.11 $ 0.54 $ 0.37
Weighted average shares
Basic 74,068 73,861 84,218 75,570 85,557
Diluted 74,940 75,334 85,228 76,626 87,388
 

(1) For the three months ended December 31, 2008, September 30, 2008 and December 31, 2007, and for the twelve months ended December 31, 2008 and 2007, these adjustments represent the non-cash amortization of stock-based compensation associated with SFAS No. 123 (R) Share-based Payment .

 
Cost of revenue $ 313 $ 351 $ 387 $ 1,445 $ 1,597
Research and development 1,934 1,753 1,866 7,134 8,411
Selling general and administrative 2,836 2,004 2,646 10,893 9,442
Restructuring expense   14     -     -   14     -
Total $ 5,097   $ 4,108   $ 4,899 $ 19,486   $ 19,450
 

(2) This adjustment represents expenses for the amortization of intangible assets recorded in connection with our acquisitions. These on-going expenses pertain to intangible assets that are not expected to be replaced when fully amortized, as might a depreciable tangible asset.

 
(3) This adjustment represents the change in recognition of distributor revenue and related standard cost of sales.
 

(4) Non-GAAP related items for Q4 2008 and for the year ended December 31, 2008 are not tax-effected as our effective tax rate results in a benefit for those periods.





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