Realnetworks (RNWK) 8-K Realnetworks Announces Fourth Quarter and 2006 Financial Results

Exhibit 99.1

REALNETWORKS ANNOUNCES FOURTH QUARTER AND
2006 FINANCIAL RESULTS

Record Annual and Quarterly Revenue of $395.3 million and $125.6 million

SEATTLE — February 14, 2007— RealNetworks^®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the fourth quarter and fiscal year ended December 31, 2006.

Quarterly Highlights:

• Record revenue of $125.6 million

• Net income of $39.3 million

• Earnings per diluted share of $0.22 and adjusted earnings per diluted share of $0.05

Full Year Highlights:

• Record revenue of $395.3 million

• Net income of $145.2 million

• Earnings per diluted share of $0.81 and adjusted earnings per diluted share of $0.15

“2006 was a very successful year for RealNetworks,” said Rob Glaser, Chairman and CEO of RealNetworks. “We are pleased to report another year of record revenue and strong profitability. In addition to the company’s financial achievements, 2006 was a year of important strategic achievements for Real that set us up for our next phase of growth.”

For the fourth quarter of 2006, revenue grew 50% to $125.6 million compared to $83.6 million for the fourth quarter of 2005. Fourth quarter 2006 revenue includes two months of revenue totaling $26.7 million from the acquisition of WiderThan. For the fourth quarter of 2006, revenue in the Consumer Products and Services segment was as follows: Games revenue was $23.9 million, a 52% increase over the fourth quarter of 2005; Music revenue was $33.6 million, a 21% increase over the fourth quarter of 2005; and Media Software and Services revenue was $30.5 million, a 2% increase over the fourth quarter of 2005. In the Technology Products and Solutions segment, revenue was $37.6 million, a 270% increase over the fourth quarter of 2005, and includes $26.7 million of revenue related to WiderThan. Foreign currency exchange rate fluctuations positively impacted 2006 fourth quarter revenue by approximately $1.1 million compared to the fourth quarter of 2005.

Net income for the fourth quarter of 2006 was $39.3 million or $0.22 per diluted share, compared to $295.6 million or $1.61 per diluted share in the fourth quarter of 2005. Both periods’ results include payments related to Real’s antitrust settlement and commercial agreements with Microsoft. Further information regarding these payments can be found in Real’s SEC filings. Adjusted net income, described below in Real’s description of non-GAAP measures, was $9.9 million or $0.05 per diluted share for the fourth quarter of 2006, compared to a loss of ($6.1) million or ($0.04)

per share in the fourth quarter of 2005. Adjusted EBITDA for the fourth quarter of 2006 was $9.1 million compared to a loss of ($6.2) million in the fourth quarter of 2005. A reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 66% in the fourth quarter of 2006 compared to 71% in the fourth quarter of 2005. Operating expenses for the fourth quarter of 2006 were $31.1 million, compared to a benefit of $342.8 million in the prior year’s quarter. Fourth quarter 2006 and 2005 operating expenses include benefits related to payments under Real’s settlement and commercial agreements with Microsoft. Adjusted operating expenses in the fourth quarter of 2006 were $81.0 million compared to $70.1 million in the fourth quarter of 2005. A reconciliation of GAAP operating expenses to adjusted operating expenses is provided in the financial tables that accompany this release. For the fourth quarter of 2006, Real’s effective tax rate was approximately 33% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

Fourth Quarter Acquisition of WiderThan

On October 31,2006, Real acquired substantially all of the capital stock of WiderThan Co., Ltd. (Nasdaq: WTHN) through a cash tender offer. As a result of the tender offer, WiderThan became a majority-owned subsidiary of Real, and the financial results of WiderThan are included in Real’s consolidated financial statements subsequent to the acquisition date. Real currently owns 99.7% of WiderThan shares, and to date has paid approximately $337 million for its purchase of these shares.

Full Year 2006 Results

For the full year, revenue grew 22% to $395.3 million from $325.1 million in 2005. For the full year, revenue in the Consumer Products and Services segment was as follows: Games revenue was $86.2 million, a 53% increase over 2005; Music revenue was $123.0 million, a 21% increase over 2005; and Media Software & Services revenue was $113.5 million, a decrease of 7% compared to 2005. In the Technology Products and Solutions segment, revenue was $72.5 million, an increase of 61% over 2005. Foreign currency exchange rate fluctuations negatively impacted 2006 revenue by approximately $0.7 million compared to 2005.

Net Income for 2006 was $145.2 million or $0.81 per diluted share compared to $312.3 million or $1.70 per diluted share in 2005. Net income for 2006 and 2005 include benefits related to the Microsoft settlement. Adjusted net income for 2006 was $26.8 million or $0.15 per diluted share compared to $6.6 million or $0.04 per diluted share in 2005. Adjusted EBITDA for 2006 was $20.7 million compared to $11.3 million for 2005.

Gross margin in 2006 was 69%, compared to 70% in the prior year. Operating expenses were $80.6 million in 2006, compared to a benefit of $170.6 million in 2005. Operating expenses in 2006 and 2005 were significantly impacted by the Microsoft settlement. For 2006, Real’s effective tax rate was 36% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

As of December 31, 2006, Real had approximately $679 million in unrestricted cash, cash equivalents and short-term investments, which includes the proceeds from

$100 million of convertible debt. Further, Real received approximately $61 million in additional payments related to the Microsoft agreements during the first quarter of 2007.

Under Real’s stock repurchase program, approximately 11.8 million shares were repurchased for $98.9 million during 2006. As of December 31, 2006, approximately $78.1 million remained available under the existing stock repurchase program.

As of December 31, 2006, Real had 1,594 full time employees.

Business Outlook

The following forward-looking statements reflect RealNetworks’ expectations as of February 14, 2007. The Company currently does not intend to update these forward-looking statements until its next quarterly results announcement.

For the full year 2007, Real expects revenue in the range of $540 million to $560 million, which represents approximately 37% to 42% growth over 2006. As a result of purchase price adjustments related to the WiderThan acquisition, Real will recognize approximately $5 million less in 2007 revenue than if WiderThan had remained a stand-alone company. Real expects 2007 GAAP net income per diluted share of $0.18 to $0.23 and adjusted net income per diluted share of $0.19 to $0.23. Included in Real’s GAAP guidance is approximately $21 million, or $0.11 per share, of acquisition costs related to WiderThan, including intangible asset amortization and stock options converted to cash rights, and $26 million to $30 million, or $0.14 to $0.16 per diluted share of non-cash stock based compensation expense. Stock based compensation expense is projected to be higher in 2007 than 2006 primarily due to options granted to employees who joined Real from WiderThan. In addition to the foregoing expenses, estimated adjusted net income in 2007 also excludes the effects from amortization of intangible assets of approximately $4 million, or $0.02 per share, from all previous acquisitions other than WiderThan. This guidance assumes an effective tax rate of approximately 41%, up from approximately 36% in 2006 due to certain non-deductible international expenses. See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

For the first quarter of 2007, Real expects revenue in the range of $122 million to $126 million, GAAP net income per diluted share of $0.16 to $0.18 and adjusted net income per diluted share of $0.02 to $0.04. This guidance assumes an effective tax rate of approximately 41%. See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

About Non-GAAP Financial Measures

To supplement the Company’s consolidated financial results presented in accordance with GAAP, RealNetworks uses non-GAAP measures for certain components of financial performance. These non-GAAP measures include adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted operating expenses. For actual results presented through 2006, adjusted net income excludes the impact of the following: stock-based compensation expense; income and expenses including charitable contributions related to the Microsoft agreements; equity investment gains and losses from sale or impairments; acquisition costs

related to the purchase of WiderThan, including amortization of intangible assets and expenses for employee stock options that were converted to cash rights; an estimate of the income taxes from the aforementioned items; and changes in deferred tax asset valuation allowances. Estimated 2007 adjusted net income excludes the impact of the items in Real’s 2006 adjusted net income, listed above, in addition to amortization of intangible assets for all acquisitions. Adjusted EBITDA excludes the impact of the following: interest income, net; income taxes; depreciation; amortization; stock based compensation; expenses for employee stock options that were converted to cash rights; equity investment gains and losses from sale or impairments; and income and expenses including charitable contributions related to the Microsoft agreements. The presentation of these non-GAAP financial measures is not intended to be considered as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current and expected future financial performance. The Company believes these non-GAAP measures provide useful information to management and investors by excluding certain income, expenses and gains and losses that may not be indicative of its core operating and financial results. Management uses these measures on an ongoing basis to track and assess the Company’s financial performance. The accompanying financial tables provide reconciliations to the nearest GAAP measure of all non-GAAP measures provided in this press release.

The Company will host a webcast and conference call today at 5:00pm (Eastern)/2:00pm (Pacific). The live webcast featuring slides and audio, will be available at http://investor.realnetworks.com. Listeners will require RealPlayer^® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 800-857-5305 (773-681-5857 for international callers). The passcode is “Fourth Quarter Earnings,” and the leader is Rob Glaser. A telephonic replay will be available until 8:00pm (Eastern) on February 21, 2007 and may be accessed by dialing 800-813-5527 (203-369-3347 for international callers).

RNWK-F

For More Information Contact
Press:Bill Hankes, (206) 892-6614, bhankes@real.com
Financial:Roy Goodman, (206) 674-2330, rgoodman@real.com

ABOUT REALNETWORKS

RealNetworks, Inc. is a leading creator of digital media services and software including Rhapsody, RealPlayer^® 10, and casual PC and mobile games. Broadcasters, network operators, media companies and enterprises use RealNetworks’ products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. Consumers can access and experience audio/video programming and download RealNetworks’ consumer software at http://www.real.com. RealNetworks’ corporate information is located at http://www.realnetworks.com.

Forward Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: (a) Real’s future revenue, GAAP and adjusted net income per diluted share, amortization

of intangible assets, stock based compensation expense and income tax rate; (b) the continuing growth in demand for Real’s consumer products and business technologies; and (c) expected future payments resulting from the Microsoft agreements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services generally and RealNetworks’ content services in particular because these are relatively new and unproven business models and markets; risks associated with acquisitions generally, and the acquisition of WiderThan in particular, including the risks of integration, unknown liabilities and operations in new markets and geographies, as well as risks specifically associated with WiderThan’s business; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks associated with the introduction of new products and services; risks inherent in strategic relationships, especially with competitors, and technology and service integration efforts; and risks relating to the ability of Real’s strategic partners to generate subscribers for Real’s digital content services. More information about potential risk factors that could affect RealNetworks’ business and financial results is included in RealNetworks’ annual report on Form 10-K for the most recent year ended December 31, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission. The preparation of our financial statements and forward looking financial guidance requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The Company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, Rhapsody and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

	Quarters Ended December 31,						Years Ended December 31,
	2006			2005			2006			2005
				(in thousands, except per share data)
Net revenue	$	125,574		$	83,568		$	395,261		$	325,059
Cost of revenue		42,320			23,976			124,108			98,249
Gross profit		83,254			59,592			271,153			226,810
Operating expenses:
Research and development		22,259			25,351			77,386			70,731
Sales and marketing		53,998			36,709			165,602			130,515
General and administrative		15,746			29,573			57,332			50,697
Loss on excess office facilities (A)		—			—			738			—
Subtotal operating expenses		92,003			91,633			301,058			251,943
Antitrust litigation benefit, net (B)		(60,856	)		(434,425	)		(220,410	)		(422,500	)
Total operating expenses, net		31,147			(342,792	)		80,648			(170,557	)
Operating income		52,107			402,384			190,505			397,367
Other income (expense), net:
Interest income, net		9,644			7,012			37,622			14,511
Equity in net income (loss) of equity method investments		326			—			326			(1,068	)
Impairment of equity investments		(3,116	)		(266	)		(3,116	)		(266	)
Gain on sales of equity investments		—			—			2,286			19,330
Other, net		(302	)		(55	)		130			(331	)
Other income, net		6,552			6,691			37,248			32,176
Income before income taxes		58,659			409,075			227,753			429,543
Income tax provision		(19,357	)		(113,435	)		(82,537	)		(117,198	)
Net income	$	39,302		$	295,640		$	145,216		$	312,345
Net income per basic share	$	0.24		$	1.76		$	0.90		$	1.84
Net income per diluted share	$	0.22		$	1.61		$	0.81		$	1.70
Shares used to compute net income per basic share		162,130			167,573			160,973			169,986
Shares used to compute net income per diluted share		180,919			183,728			179,281			184,161

(A)	The loss on unoccupied excess office facilities represents an increase in the estimate of the loss from building operating costs not expected to be recovered.
(B)	Consists of amounts received under the Settlement and Commercial agreements with Microsoft, net of certain legal fees, personnel costs, public relations and other professional service fees incurred related to antitrust complaints against Microsoft, including proceedings in the European Union.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

	December 31,		December 31,
	2006		2005
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	525,232	$	651,971
Short-term investments		153,688		129,356
Trade accounts receivable, net		65,751		16,721
Deferred tax assets, net, current portion		892		54,204
Prepaid expenses and other current assets		23,632		11,933
Total current assets		769,195		864,185
Equipment, software and leasehold improvements, at cost:
Equipment and software		83,587		56,402
Leasehold improvements		29,665		27,964
Total equipment, software and leasehold improvements		113,252		84,366
Less accumulated depreciation and amortization		65,509		51,228
Net equipment, software and leasehold improvements		47,743		33,138
Restricted cash equivalents		17,300		17,300
Equity investments		22,649		46,163
Other assets		5,148		2,397
Deferred tax assets, net, non-current portion		27,150		19,147
Goodwill		309,122		123,330
Other intangible assets, net		105,109		7,337
Total assets	$	1,303,416	$	1,112,997
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	52,097	$	11,397
Accrued and other liabilities		104,328		112,340
Deferred revenue, current portion		24,137		25,021
Accrued loss on excess office facilities, current portion		4,508		4,623
Total current liabilities		185,070		153,381
Deferred revenue, non-current portion		3,440		276
Accrued loss on excess office facilities, non-current portion		9,993		13,393
Deferred rent		4,331		4,018
Convertible debt		100,000		100,000
Deferred tax liabilties, net, non-current portion		27,076		—
Other long-term liabilities		3,740		196
Total liabilities		333,650		271,264
Total shareholders’ equity		969,766		841,733
Total liabilities and shareholders’ equity	$	1,303,416	$	1,112,997

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Years Ended December 31,
	2006			2005
	(in thousands)
Cash flows from operating activities:
Net income	$	145,216		$	312,345
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,980			16,243
Stock-based compensation		18,151			128
Equity in net losses of equity method investments		—			1,068
Impairment of equity investments		3,116			266
Gain on sales of equity investments		(2,286	)		(19,330	)
Changes in accrued loss on excess office facilities and content agreement		(3,516	)		(9,161	)
Loss on disposal of equipment		276			—
Deferred income taxes		64,645			107,208
Other		97			804
Excess tax benefit from stock option exercises		(4,966	)		—
Net change in certain operating assets and liabilities, net of balances from businesses acquired during the year		(37,886	)		51,182
Net cash provided by operating activities		203,827			460,753
Cash flows from investing activities:
Purchases of equipment, software and leasehold improvements		(13,808	)		(13,782	)
Purchases of intangible assets		—			(1,125	)
Purchases of short-term investments		(204,841	)		(153,491	)
Proceeds from sales and maturities of short-term investments		180,973			168,358
Decrease in restricted cash equivalents		—			2,851
Proceeds from sales of equity investments		2,286			19,530
Purchases of cost based investments		(834	)		(647	)
Payment of acquisition costs, net of cash acquired		(257,841	)		(14,705	)
Net cash provided by (used in) investing activities		(294,065	)		6,989
Cash flows from financing activities:
Net proceeds from sale of common stock under employee stock purchase plan and exercise of stock options		54,929			20,361
Repayment of long-term note payable		—			(648	)
Excess tax benefit from stock option exercises		4,966			—
Repurchase of common stock		(98,876	)		(54,321	)
Net cash used in financing activities		(38,981	)		(34,608	)
Effect of exchange rate changes on cash and cash equivalents		2,480			(589	)
Net increase (decrease) in cash and cash equivalents		(126,739	)		432,545
Cash and cash equivalents at beginning of year		651,971			219,426
Cash and cash equivalents at end of year	$	525,232		$	651,971

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

	2006												2005
	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
										(in thousands)
Net Revenue by Line of Business: *
Consumer products and services (A)	$	88,022		$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Technology products and solutions (B)		37,552			11,179			11,967			11,791			10,153			10,483			12,093			12,366
Total net revenue	$	125,574		$	93,676		$	89,409		$	86,602		$	83,568		$	82,233		$	82,686		$	76,572
Consumer Products and Services: *
Subscriptions (C)	$	50,835		$	50,878		$	47,452		$	47,832		$	47,508		$	47,347		$	47,821		$	44,400
Media properties (D)		18,815			13,883			11,546			9,484			10,224			9,606			8,986			6,033
E-commerce and other (E)		18,372			17,736			18,444			17,495			15,683			14,797			13,786			13,773
Total consumer products and services revenue	$	88,022		$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Consumer Products and Services: *
Music (F)	$	33,623		$	30,375		$	30,118		$	28,918		$	27,760		$	26,193		$	24,933		$	22,883
Media software and services (G)		30,513			29,586			26,127			27,277			29,914			30,858			32,012			29,134
Games (H)		23,886			22,536			21,197			18,616			15,741			14,699			13,648			12,189
Total consumer products and services revenue	$	88,022		$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Net Revenue by Geography:
United States	$	81,758		$	69,433		$	66,542		$	65,700		$	65,177		$	63,478		$	63,443		$	57,757
Rest of world		43,816			24,243			22,867			20,902			18,391			18,755			19,243			18,815
Total net revenue	$	125,574		$	93,676		$	89,409		$	86,602		$	83,568		$	82,233		$	82,686		$	76,572
Gross Margin by Line of Business:
Consumer products and services		70	%		68	%		68	%		67	%		70	%		68	%		68	%		65	%
Technology products and solutions		58	%		81	%		81	%		83	%		81	%		82	%		83	%		82	%
Total gross margin		66	%		70	%		70	%		69	%		71	%		70	%		70	%		68	%
Subscribers (presented as greater than) **
Total Subscribers (I)		22,700			2,450			2,400			2,400			2,250			2,200			2,000			1,850
Technology Products and Solutions Application Services Subscribers (J)		20,200
Total Music Subscribers (K)		2,550			1,650			1,625			1,575			1,425			1,300			1,150			975

*	Reclassifications were made to the presentation of 2005 data to conform to the presentation for 2006
**	Beginning the quarter ended December 31, 2006, total subscribers reflect the inclusion of subscribers related to wireless carrier application subscription services.

Total Music Subscribers includes subscribers from our Technology Products and Solutions Application Subscription Service, such as Music-on-Demand, as well as our Consumer Music Services, such as Rhapsody and Premium Radio. Although Music-on-Demand subscribers are included in the Technology Products and Solutions Applications Services subscribers and Total Music subscribers, these subscribers are only counted once as part of our Total Subscribers.

(A)	Revenue is derived from consumer digital media subscription services, RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music, and advertising
(B)	Revenue is derived from carrier application services such as ringback tones and music-on-demand, media delivery system software, support and maintenance services, broadcast hosting services and consulting services
(C)	Revenue is derived from consumer digital media subscription services including: SuperPass, RadioPass, Rhapsody, GamePass and stand-alone subscriptions
(D)	Revenue is derived from advertising and through the distribution of third party products
(E)	Revenue is derived from RealPlayer Plus and related products, sales of third party software products, and content such as games and music
(F)	Revenue is derived from Rhapsody and RadioPass subscription services and sales of music content, advertising generated from our music and music related websites and the distribution of third party products
(G)	Revenue is derived from SuperPass subscriptions, RealPlayer Plus and related products, stand-alone subscription services, sales and distribution of third party software products and advertising related to our non-game and non-music related web properties
(H)	Revenue is derived from the GamePass subscription service, sales of games, advertising generated from our games and game-related websites and the distribution of third party products
(I)	Total subscribers include Technology Products and Solutions application services and consumer subscription services including: Ringback Tones, Music-on-Demand, Video-on-Demand, Rhapsody, Rhapsody-to-Go, RadioPass, SuperPass, GamePass and stand-alone subscriptions
(J)	Technology Products and Solutions application service subscribers include: Ringback Tones, Music-on-Demand and Video-on-Demand
(K)	Music subscribers represent an aggregate of all of our music services and include both Technology Products and Solutions application services subscribers and consumer subscription services. Music Subscribers include: Rhapsody, Rhapsody-to-Go, premium radio and Music-on-Demand. Revenue from Technology Products and Solutions application services, including Music-on-Demand are included in our Technology Products and Solutions revenue.

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

A reconciliation of net income in accordance with GAAP to total adjusted net income (loss) is as follows:

	Year Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2006			2006			2006			2006			2006
				(in thousands, except per share data)
Net income in accordance with GAAP	$	145,216		$	39,302		$	42,153		$	38,878		$	24,883
Stock based compensation		18,151			5,819			5,021			3,673			3,638
Loss (gain) on equity investments		830			3,116			—			(2,286	)		—
Conversion of WiderThan stock options to a cash equivalent		641			641			—			—			—
WiderThan acquisition related intangible asset amortization		3,056			3,056			—			—			—
Expenses (benefit) related to antitrust litigation:
Income		(221,000	)		(61,000	)		(62,000	)		(58,000	)		(40,000	)
Expenses		3,994			1,026			1,000			997			971
Charitable contributions		6,928			2,009			1,889			1,805			1,225
Tax impact of above proforma items		71,640			18,604			20,587			19,732			12,717
Income tax valuation allowance changes		(2,662	)		(2,662	)		—			—			—
Total adjusted net income	$	26,794		$	9,911		$	8,650		$	4,799		$	3,434
GAAP net income per basic share	$	0.90		$	0.24		$	0.26		$	0.24		$	0.15
GAAP net income per diluted share	$	0.81		$	0.22		$	0.24		$	0.22		$	0.14
Adjusted basic net income per share	$	0.17		$	0.06		$	0.05		$	0.03		$	0.02
Adjusted diluted net income per share	$	0.15		$	0.05		$	0.05		$	0.03		$	0.02
Shares used to compute net income per basic share		160,973			162,130			160,578			159,938			160,887
Shares used to compute net income per diluted share		179,281			180,919			178,913			177,337			176,923

	Year Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2005*			2005*			2005			2005			2005
				(in thousands, except per share data)
Net income in accordance with GAAP	$	312,345		$	295,640		$	11,182		$	4,709		$	814
Stock based compensation		128			19			25			48			36
Loss (gain) on equity investments		(19,064	)		266			(11,740	)		(7,590	)		—
Conversion of WiderThan stock options to a cash equivalent		—			—			—			—			—
WiderThan acquisition related intangible asset amortization		—			—			—			—			—
Expenses (benefit) related to antitrust litigation:
Income		(478,571	)		(478,571	)		—			—			—
Expenses		62,775			50,850			3,531			4,650			3,744
Charitable contributions		14,786			14,786			—			—			—
Tax impact of above proforma items		156,871			153,547			3,324			—			—
Income tax valuation allowance changes		(42,645	)		(42,645	)		—			—			—
Total adjusted net income (loss)	$	6,625		$	(6,108	)	$	6,322		$	1,817		$	4,594
GAAP net income per basic share	$	1.84		$	1.76		$	0.07		$	0.03		$	0.00
GAAP net income per diluted share	$	1.70		$	1.61		$	0.06		$	0.03		$	0.00
Adjusted basic net income (loss) per share	$	0.04		$	(0.04	)	$	0.04		$	0.01		$	0.03
Adjusted diluted net income per share	$	0.04			n/a		$	0.03		$	0.01		$	0.02
Shares used to compute net income (loss) per basic share		169,986			167,573			170,797			171,393			170,947
Shares used to compute net income per diluted share		184,161			183,728			184,180			184,816			184,686

* Fourth quarter and full year 2005 have been restated to conform to the presentation for 2006 Due to the use of rounding convention for quarterly reporting, the sum of quarters may not equal annual totals

A reconciliation of net income in accordance with GAAP to total adjusted EBITDA is as follows:

	Year Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2006			2006			2006			2006			2006
	(in thousands)
Net income in accordance with GAAP	$	145,216		$	39,302		$	42,153		$	38,878		$	24,883
Interest income, net		(37,622	)		(9,644	)		(10,618	)		(9,381	)		(7,979	)
Stock based compensation		18,151			5,819			5,021			3,673			3,638
Conversion of WiderThan stock options to a cash equivalent		641			641			—			—			—
Loss (gain) on equity investments		830			3,116			—			(2,286	)		—
Depreciation and amortization		20,980			8,500			4,261			3,967			4,252
Expenses (benefit) related to antitrust litigation:
Income		(221,000	)		(61,000	)		(62,000	)		(58,000	)		(40,000	)
Expenses		3,994			1,026			1,000			997			971
Charitable contributions		6,928			2,009			1,889			1,805			1,225
Income taxes		82,537			19,357			25,908			22,521			14,751
Total adjusted EBITDA	$	20,655		$	9,126		$	7,614		$	2,174		$	1,741

	Year Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2005			2005			2005			2005			2005
	(in thousands)
Net income in accordance with GAAP	$	312,345		$	295,640		$	11,182		$	4,709		$	814
Interest income, net		(14,511	)		(7,012	)		(2,904	)		(2,579	)		(2,016	)
Stock based compensation		128			19			25			48			36
Conversion of WiderThan stock options to a cash equivalent		—			—			—			—			—
Loss (gain) on equity investments		(19,064	)		266			(11,740	)		(7,590	)		—
Depreciation and amortization		16,243			4,374			4,195			4,044			3,630
Expenses (benefit) related to antitrust litigation:
Income		(478,571	)		(478,571	)		—			—			—
Expenses		62,775			50,850			3,531			4,650			3,744
Charitable contributions		14,786			14,786			—			—			—
Income taxes		117,198			113,435			3,457			162			144
Total adjusted EBITDA	$	11,329		$	(6,213	)	$	7,746		$	3,444		$	6,352

A reconciliation of GAAP cost of revenue and operating expenses for the quarters and years ended December 31, 2006 and 2005 to adjusted cost of revenue and operating expenses is as follows:

	Quarter Ended December 31, 2006
	As			Stock-Based			Antitrust Litigation			WiderThan Acquisition
	Reported			Compensation			Related			Related Costs (1)			Adjusted
							(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	42,320		$	(108	)	$	—		$	(1,314	)	$	40,898
Operating expenses:
Research and development	$	22,259		$	(1,946	)	$	—		$	(108	)	$	20,205
Sales and marketing		53,998			(2,440	)		—			(2,131	)		49,427
General and adminstrative		15,746			(1,325	)		(2,891	)		(144	)		11,386
Antitrust litigation benefit, net		(60,856	)		—			60,856						—
Total adjusted operating expenses, net	$	31,147		$	(5,711	)	$	57,965		$	(2,383	)	$	81,018

	Quarter Ended December 31, 2005
	As			Stock-Based			Antitrust Litigation
	Reported			Compensation			Related			Adjusted
				(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	23,976		$	—		$	—		$	23,976
Operating expenses:
Research and development	$	25,351		$	(16	)	$	—		$	25,335
Sales and marketing		36,709			—			—			36,709
General and adminstrative		29,573			(3	)		(21,490	)		8,080
Antitrust litigation benefit, net		(434,425	)		—			434,425			—
Total adjusted operating expenses, net	$	(342,792	)	$	(19	)	$	412,935		$	70,124

	Year Ended December 31, 2006
	As			Stock-Based			Antitrust Litigation			WiderThan Acquisition
	Reported			Compensation			Related			Related Costs (1)			Adjusted
							(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	124,108		$	(257	)	$	—		$	(1,314	)	$	122,537
Operating expenses:
Research and development	$	77,386		$	(6,512	)	$	—		$	(108	)	$	70,766
Sales and marketing		165,602			(7,152	)		—			(2,131	)		156,319
General and adminstrative		57,332			(4,230	)		(10,332	)		(144	)		42,626
Loss on excess office facilities		738												738
Antitrust litigation benefit, net		(220,410	)		—			220,410						—
Total adjusted operating expenses, net	$	80,648		$	(17,894	)	$	210,078		$	(2,383	)	$	270,449

	Year Ended December 31, 2005
	As			Stock-Based			Antitrust Litigation
	Reported			Compensation			Related			Adjusted
				(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	98,249		$	—		$	—		$	98,249
Operating expenses:
Research and development	$	70,731		$	(100	)	$	—		$	70,631
Sales and marketing		130,515			—			—			130,515
General and adminstrative		50,697			(28	)		(21,490	)		29,179
Antitrust litigation benefit, net		(422,500	)		—			422,500			—
Total adjusted operating expenses, net	$	(170,557	)	$	(128	)	$	401,010		$	230,325

(1) Includes acquisition related intangible amortization and the expense related to the conversion of WiderThan outstanding stock options to cash rights

Forward Looking Guidance

A reconciliation of GAAP net income per diluted share guidance for the quarter ending March 31, 2007 and the full year ending December 31, 2007 to adjusted net income per diluted share guidance is as follows:

	Quarter Ending March 31, 2007						Year Ending December 31, 2007
	Low			High			Low			High
Net Income per diluted share in accordance with GAAP	$	0.16		$	0.18		$	0.18		$	0.23
Stock-based compensation		0.03			0.03			0.16			0.14
Conversion of WiderThan stock options to a cash equivalent		0.00			0.00			0.01			0.01
Acquisition related intangible asset amortization		0.03			0.03			0.12			0.12
Net benefit related to antitrust litigation:		(0.32	)		(0.32	)		(0.32	)		(0.31	)
Tax impact of above proforma items		0.12			0.12			0.04			0.04
Total adjusted net income	$	0.02		$	0.04		$	0.19		$	0.23