Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 9, 2004, Roxio, Inc. (“Roxio”) entered into an Asset Purchase Agreement (the “Agreement”) with Sonic Solutions (“Sonic”), a publicly listed California corporation, pursuant to which the parties contemplate a sale by Roxio, to Sonic of substantially all of the assets and liabilities constituting Roxio’s Consumer Software Division (“CSD”), including all of the capital stock of certain international subsidiaries historically included in CSD. Sonic has agreed to pay a total of $70 million in cash and 653,837 shares of Sonic’s common stock. The cash purchase price is subject to certain adjustments as described in the Agreement. The closing of this transaction is subject to the fulfillment of closing conditions, including approval by the stockholders of Roxio, the absence of a material adverse effect on Roxio as defined in the Agreement, regulatory approvals and the receipt of third-party consents to assignment. The disposition will be accounted for by Roxio as a discontinued operation in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial information has been prepared based on the historical financial statements of Roxio after giving effect to the sale to Sonic of substantially all of the assets and obligations related to Roxio’s Consumer Software Division, and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma consolidated condensed financial information. The unaudited pro forma condensed consolidated statements of operations give effect to the disposal of CSD by Roxio as if it had occurred on April 1, 2001 and the unaudited pro forma condensed consolidated balance sheet gives effect to the disposal of CSD by Roxio as if it had occurred on June 30, 2004. The unaudited pro forma condensed consolidated financial statements were derived by adjusting the historical financial statements of Roxio for the removal of assets, liabilities, revenues and expenses associated with CSD and the pro forma adjustment described in the footnotes. Roxio will treat the sale of CSD as a discontinued operation of its consumer software division segment and record a gain upon completion of the transaction.
The unaudited pro forma condensed consolidated financial information, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the audited historical consolidated financial statements and notes thereto included in Roxio’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, as filed with the Securities and Exchange Commission on June 14, 2004, and the unaudited interim condensed consolidated financial statements and notes thereto included in Roxio’s Quarterly Report on Form 10-Q for the three months ended June 30, 2004, as filed with the Securities and Exchange Commission on August 9, 2004.
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the disposition occurred April 1, 2001 for statements of operation purposes and as of June 30, 2004 for balance sheet purposes, nor is it necessarily indicative of the future financial position or results of operations. The pro forma adjustments are based upon information and assumptions available at the time of the filing of this Form 8-K.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 2004
(In thousands)
| Historical | ||||||||||||||||
| Roxio | Consumer Software Division | Pro Forma Adjustments | Pro Forma Ongoing Business | |||||||||||||
| ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 19,283 | $ | — | $ | 70,000 | (a) | $ | 89,283 | |||||||
Restricted cash | 735 | 735 | — | — | ||||||||||||
Short-term investments | 43,395 | — | — | 43,395 | ||||||||||||
Accounts receivable, net | 15,566 | 14,601 | 8,977 | (a) | 9,942 | |||||||||||
Prepaid expenses and other current assets | 15,230 | 1,840 | — | 13,390 | ||||||||||||
Deferred income taxes | 146 | 146 | — | — | ||||||||||||
Total current assets | 94,355 | 17,322 | 78,977 | 156,010 | ||||||||||||
Long-term investment | 3,000 | 3,000 | — | — | ||||||||||||
Property and equipment, net | 9,063 | 3,883 | — | 5,180 | ||||||||||||
Goodwill | 91,623 | 56,965 | — | 34,658 | ||||||||||||
Other intangibles assets, net | 4,565 | 1,699 | — | 2,866 | ||||||||||||
Other assets | 1,180 | 732 | — | 448 | ||||||||||||
Total assets | $ | 203,786 | $ | 83,601 | $ | 78,977 | $ | 199,162 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 5,895 | $ | 3,771 | — | $ | 2,124 | |||||||||
Income taxes payable | 2,803 | — | 5,000 | (d) | 7,803 | |||||||||||
Accrued liabilities | 27,403 | 22,405 | 1,750 | (b) | 6,748 | |||||||||||
Deferred revenues | 2,707 | 986 | — | 1,721 | ||||||||||||
Current portion of long-term debt | 15,491 | 321 | — | 15,170 | ||||||||||||
Total current liabilities | 54,299 | 27,483 | 6,750 | 33,566 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
Long-term debt | 155 | 51 | — | 104 | ||||||||||||
Other liabilities | 2,353 | 2,251 | — | 102 | ||||||||||||
Total liabilities | 56,807 | 29,785 | 6,750 | 33,772 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, $0.001 par value; Authorized: 100,000 shares; Issued and outstanding: 33,543 shares at June 30, 2004 | 35 | — | — | 35 | ||||||||||||
Additional paid-in capital | 200,737 | 137 | — | 200,600 | ||||||||||||
Deferred stock-based compensation | (1,034 | ) | (137 | ) | — | (897 | ) | |||||||||
Accumulated deficit | (57,728 | ) | 48,493 | 72,227 | (c) | (33,994 | ) | |||||||||
Accumulated other comprehensive income (loss) | 4,969 | 5,323 | — | (354 | ) | |||||||||||
Total stockholders’ equity | 146,979 | 53,816 | 72,227 | 165,390 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 203,786 | $ | 83,601 | $ | 78,977 | $ | 199,162 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2004
(In thousands, except per share data)
| Historical | |||||||||||||||
| Roxio | Consumer Software Division | Pro Forma Adjustments | Pro Forma Ongoing Business | ||||||||||||
Net revenues : | |||||||||||||||
Consumer software | $ | 22,048 | $ | 22,048 | $ | — | $ | — | |||||||
Online music | 7,867 | — | — | 7,867 | |||||||||||
Total net revenues | 29,915 | 22,048 | — | 7,867 | |||||||||||
Cost of revenues : | |||||||||||||||
Consumer software | 4,625 | 4,625 | — | — | |||||||||||
Online music | 6,416 | — | — | 6,416 | |||||||||||
Amortization of purchased technologies | 696 | 665 | — | 31 | |||||||||||
Total cost of revenues | 11,737 | 5,290 | — | 6,447 | |||||||||||
Gross profit | 18,178 | 16,758 | — | 1,420 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 6,478 | 3,593 | — | 2,885 | |||||||||||
Sales and marketing | 10,390 | 6,095 | — | 4,295 | |||||||||||
General and administrative | 4,861 | 105 | — | 4,756 | |||||||||||
Restructuring charges | (153 | ) | (153 | ) | — | — | |||||||||
Amortization of intangible assets | 576 | 62 | — | 514 | |||||||||||
Stock-based compensation charges | 382 | 145 | — | 237 | |||||||||||
Total operating expenses | 22,534 | 9,847 | — | 12,687 | |||||||||||
Income (loss) from operations | (4,356 | ) | 6,911 | — | (11,267 | ) | |||||||||
Gain on sale of GoBack product line | 1,682 | 1,682 | — | — | |||||||||||
Other income (loss), net | 219 | 111 | 108 | ||||||||||||
Income (loss) before provision for income taxes | (2,455 | ) | 8,704 | — | (11,159 | ) | |||||||||
Provision for income taxes | 185 | 185 | — | — | |||||||||||
Net income (loss) | $ | (2,640 | ) | $ | 8,519 | $ | — | $ | (11,159 | ) | |||||
Basic and diluted net loss per share | $ | (0.08 | ) | $ | (0.33 | ) | |||||||||
Weighted average shares used in computing basic and diluted net loss per share | 33,726 | 33,726 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2004
(In thousands except per share data)
| Historical | |||||||||||||||
| Roxio | Consumer Software Division | Pro Forma Adjustments | Pro Forma Ongoing Business | ||||||||||||
Net revenues : | |||||||||||||||
Consumer software | $ | 87,332 | $ | 87,332 | $ | — | $ | — | |||||||
Online music | 11,964 | — | — | 11,964 | |||||||||||
Total net revenues | 99,296 | 87,332 | — | 11,964 | |||||||||||
Cost of revenues : | |||||||||||||||
Consumer software | 23,495 | 23,495 | — | — | |||||||||||
Online music | 10,422 | — | — | 10,422 | |||||||||||
Amortization of purchased technologies | 2,399 | 2,294 | — | 105 | |||||||||||
Total cost of revenues | 36,316 | 25,789 | 10,527 | ||||||||||||
Gross profit | 62,980 | 61,543 | 1,437 | ||||||||||||
Operating expenses: | |||||||||||||||
Research and development | 31,142 | 19,202 | — | 11,940 | |||||||||||
Sales and marketing | 42,625 | 26,978 | — | 15,647 | |||||||||||
General and administrative | 23,994 | 2,712 | — | 21,282 | |||||||||||
Restructuring charges | 10,417 | 9,298 | — | 1,119 | |||||||||||
Amortization of intangible assets | 2,803 | 631 | — | 2,172 | |||||||||||
Stock-based compensation charges | 2,073 | 1,208 | — | 865 | |||||||||||
Total operating expenses | 113,054 | 60,029 | 53,025 | ||||||||||||
Income (loss) from operations | (50,074 | ) | 1,514 | (51,588 | ) | ||||||||||
Gain on sale of GoBack product line | 10,622 | 10,622 | — | — | |||||||||||
Other income (loss), net | (15 | ) | (834 | ) | 819 | ||||||||||
Income (loss) before provision for income taxes | (39,467 | ) | 11,302 | — | (50,769 | ) | |||||||||
Provision for income taxes | 4,946 | 4,946 | — | — | |||||||||||
Net income (loss) | $ | (44,413 | ) | $ | 6,356 | $ | — | $ | (50,769 | ) | |||||
Basic and diluted net loss per share | $ | (1.62 | ) | $ | (1.85 | ) | |||||||||
Weighted average shares used in computing basic and diluted net loss per share | 27,496 | 27,496 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2003
(In thousands, except per share data)
| Historical | |||||||||||||||
| Roxio | Consumer Software Division | Pro Forma Adjustments | Pro Forma Ongoing Business | ||||||||||||
Consumer software revenues | $ | 120,408 | $ | 120,408 | $ | — | $ | — | |||||||
Cost of revenues : | |||||||||||||||
Consumer software | 31,357 | 31,357 | — | — | |||||||||||
Amortization of purchased technologies | 2,791 | 2,791 | — | — | |||||||||||
Total cost of revenues | 34,148 | 34,148 | — | ||||||||||||
Gross profit | 86,260 | 86,260 | — | ||||||||||||
Operating expenses: | |||||||||||||||
Research and development | 21,582 | 21,582 | — | — | |||||||||||
Sales and marketing | 41,255 | 41,255 | — | — | |||||||||||
General and administrative | 26,804 | 8,876 | — | 17,928 | |||||||||||
Restructuring charges | 578 | 578 | — | — | |||||||||||
Amortization of intangible assets | 3,610 | 2,944 | — | 666 | |||||||||||
Stock-based compensation charges | 1,936 | 1,446 | — | 490 | |||||||||||
Total operating expenses | 95,765 | 76,681 | 19,084 | ||||||||||||
Income (loss) from operations | (9,505 | ) | 9,579 | — | (19,084 | ) | |||||||||
Other income (loss), net | 471 | (400 | ) | — | 871 | ||||||||||
Income (loss) before provision for income taxes | (9,034 | ) | 9,179 | — | (18,213 | ) | |||||||||
Provision for income taxes | 910 | 910 | — | — | |||||||||||
Net income (loss) | $ | (9,944 | ) | $ | 8,269 | $ | — | $ | (18,213 | ) | |||||
Basic and diluted net loss per share | $ | (0.51 | ) | $ | (0.94 | ) | |||||||||
Weighted average shares used in computing basic and diluted net loss per share | 19,477 | 19,477 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2002
(In thousands except per share data)
| Historical | |||||||||||||
| Roxio | Consumer Software Division | Pro Forma Adjustments | Pro Forma Ongoing Business | ||||||||||
Consumer software revenues | $ | 142,521 | $ | 142,521 | $ | — | $ | — | |||||
Cost of revenues : | |||||||||||||
Consumer software | 29,154 | 29,154 | — | — | |||||||||
Online music | — | — | — | — | |||||||||
Amortization of purchased technologies | 1,474 | 1,474 | — | — | |||||||||
Total cost of revenues | 30,628 | 30,628 | — | — | |||||||||
Gross profit | 111,893 | 111,893 | — | — | |||||||||
Operating expenses: | |||||||||||||
Research and development | 21,637 | 21,637 | — | — | |||||||||
Sales and marketing | 49,247 | 49,247 | — | — | |||||||||
General and administrative | 19,327 | 3,009 | — | 16,318 | |||||||||
Amortization of intangible assets | 4,672 | 4,672 | — | — | |||||||||
Stock-based compensation charges | 8,110 | 7,684 | — | 426 | |||||||||
Write-off of acquired in-process research and development | 1,110 | 1,110 | — | ||||||||||
Total operating expenses | 104,103 | 87,359 | 16,744 | ||||||||||
Income (loss) from operations | 7,790 | 24,534 | — | (16,744 | ) | ||||||||
Other income (loss), net | 1,285 | 131 | — | 1,154 | |||||||||
Income (loss) before provision for income taxes | 9,075 | 24,665 | — | (15,590 | ) | ||||||||
Provision for income taxes | 6,726 | 6,726 | — | — | |||||||||
Net income (loss) | $ | 2,349 | $ | 17,939 | $ | — | $ | (15,590 | ) | ||||
Net income (loss) per share | |||||||||||||
Basic | $ | 0.14 | $ | (0.91 | ) | ||||||||
Diluted | $ | 0.13 | $ | (0.91 | ) | ||||||||
Weighted average shares used in computing net income (loss) per share | |||||||||||||
Basic | 17,216 | 17,216 | |||||||||||
Diluted | 17,518 | 17,216 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. Basis of Pro Forma Presentation
The pro forma condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.
The unaudited pro forma condensed financial statements of Roxio and CSD have been prepared based on the historical consolidated balance sheets of Roxio and CSD as of June 30, 2004 and the historical consolidated statements of operations for Roxio and CSD for the years ended March 31, 2004, 2003 and 2004, and the three months ended June 30, 2004, after giving effect to the adjustments and assumptions described below.
Roxio and CSD employ accounting policies that are in accordance with generally accepted accounting principles in the United States. In management’s opinion, all material adjustments necessary to reflect fairly the pro forma financial position and pro forma results of operations of Roxio and CSD have been made.
The ongoing activity presented in these pro forma condensed consolidated financial statements represents Roxio’s online music distribution division and corporate assets, liabilities and expenses that will not be divested of in the sale of CSD. This pro forma financial information is presented for illustrative purposes only, and is not necessarily indicative of the operating results and financial position that might have been achieved had the transaction described above occurred on the dates indicated, nor are they necessarily indicative of the operating results and financial position that may occur in the future.
Note 2. Pro Forma Assumptions
Allocation of common costs:
Roxio and CSD have management service agreements with subsidiaries included in other segments of Roxio. Pursuant to these management service agreements, the actual costs incurred by CSD to support the other segments are charged to the segment plus a fixed mark up rate. Roxio management believes that the charge represents a reasonable approximation of what it would have cost to obtain these services from an outside third party.
Corporate overhead has not been allocated to CSD for any of the periods presented.
Pro forma adjustments:
The accompanying unaudited pro forma condensed consolidated financial statements have been prepared as if the divestiture was completed on June 30, 2004 for balance sheet purposes and as of April 1, 2001 for statement of operations purposes and reflect the following pro forma adjustments:
| (a) | To reflect sale consideration of $70 million cash and 653,837 shares of common stock from Sonic Solutions. In accordance with EITF ABSTRACTS Issue No. 99-12 “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination,” the $8.9 million fair value of the common stock was determined based on the market values of Sonic Solution’s common stock during the five trading days before and after the Agreement was signed. |
| (b) | To reflect the $1.75 million in estimated direct expenses of the transaction including legal, accounting, printing and other professional fees. |
| (c) | To reflect the net proceeds and resulting gain on the sale of assets sold to and the liabilities assumed by Sonic. |
Total consideration | $ | 78,977 | ||
Transaction costs | (1,750 | ) | ||
Income taxes | (5,000 | ) | ||
Net total proceeds | 72,227 | |||
Net assets acquired by Sonic | (53,816 | ) | ||
Cumulative translation adjustment | 5,323 | |||
Pro forma net gain | $ | 23,734 | ||
| (d) | To record the tax effect of pro forma adjustments considering management’s current expectations of available net operating losses and credits, as well as our effective tax rate. |
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Note 3. Unaudited Pro Forma Earnings Per Share Data
Basic and diluted pro forma earnings per share were calculated using the weighted average shares outstanding of Roxio for the years ended March 31, 2004, 2003 and 2002, and for the three months ended June 30, 2004. As the pro forma condensed consolidated statements of operations for all periods presented shows a net loss, weighted average basic and diluted shares are the same.
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