Room 4561
September 26, 2005
Mr. Robert J. Doris
Chairman of the Board and Chief Executive Officer
Sonic Solutions
101 Rowland Way, Suite 110
Novato, CA 94945
Re: Sonic Solutions
Form 10-K for Fiscal Year Ended March 31, 2005
Filed June 29, 2005
Form 10-Q for Fiscal Quarter Ended June 30, 2005
Filed August 15, 2005
Form 8-K Filed March 17, 2005 and August 16, 2005
File No. 000-23190
Dear Mr. Doris:
We have reviewed the above referenced filings and have the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. We may ask you to
provide us with supplemental information so we may better
understand
your disclosure. Please be as detailed as necessary in your
explanation. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended March 31, 2005
Financial Statements
Consolidated Statements of Operations, page 60
1. Please provide to us the amount of service revenue that you
have
recognized during the periods presented and explain how you
considered Rule 5-03 of Regulation S-X.
Notes to Consolidated Financial Statements
Note 1 - Summary of Operations and Significant Accounting Policies
Revenue Recognition, page 64
2. Please tell us more about your AuthorScript license
arrangements
and patent program. Describe these arrangements to us and tell us
how
much revenue you have recognized related to these offerings.
Describe
to us your revenue recognition policies and explain how these
policies comply with the relevant accounting literature.
3. You disclose that revenue from distributors that do not meet
your
credit standards is recognized upon sell-through to the end-user.
Please explain to us why you believe that your fees are fixed or
determinable upon sell-through rather than cash collection under
these circumstances.
Note 10 - Roxio CSD Acquisition, page 82
4. Tell us how you concluded that the trade name you acquired in
connection with the Roxio acquisition had an indefinite useful
life.
Explain to us how you considered the effects of obsolescence,
demand,
competitive and other economic factors that could limit the useful
life of the trade name. In addition, describe to us the method
used
to value the asset and explain your basis for using that method.
5. We note that you have excluded certain non-recurring items from
the pro forma information. Please explain your basis for
excluding
these items and refer to the authoritative guidance that supports
your accounting. As part of your response, tell us how you have
considered paragraph 55 of SFAS 141.
Item 9A. Controls and Procedures
Management`s Report on Internal Control Over Financial Reporting,
page 87
6. We note that material errors were corrected prior to the filing
of
your annual report and the subsequent Form 10-Q due to the
existence
of several material weaknesses. Please explain to us the impact,
if
any, of these material weaknesses on any previously filed
financial
statements or confirm to us that the errors discovered related
only
to the periods in which the adjustments were necessary. In
addition,
describe to us the additional procedures performed by management
and
your auditors to ensure that your disclosure obligations under the
Exchange Act have been met considering the existence of these
material weaknesses.
Form 10-Q for the Fiscal Quarter Ended June 30, 2005
Item 2. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Comparison of Quarter Ended June 30, 2004 and 2005
Provision (Benefit) for Income Taxes, page 29
7. You disclose that you will absorb $7.2 million of your
valuation
allowance to operating results proportionally over the three
remaining quarters and the final $9.7 million will be an
adjustment
to APIC in the fourth quarter. Please explain the basis for the
timing of these reversals and tell us how you considered
paragraphs
20 through 25 of SFAS 109.
Item 4. Controls and Procedures, page 47
8. We note your disclosure that "other than as described above,
there
has been no change in our internal control over financial
reporting
during our most recently completed fiscal quarter." Please
explain
to us how you considered the guidance in Item 308(c) of Regulation
S-
K. In this regard, your disclosure should indicate, if true, that
there were changes in your internal control over financial
reporting
that occurred during the quarter that have materially affected, or
are reasonably likely to materially affect, your internal control
over financial reporting.
9. Your current disclosures under this item refer to changes that
appear to have occurred after the end of the quarter. Please
clarify
for us whether each corrective action was taken during the quarter
or
in the subsequent period through the filing date of your annual
report.
Form 8-K Filed March 17, 2005 and August 16, 2005
10. Please explain to us how you have complied with Item
10(e)(1)(i)(B) of Regulation S-K as it applies to your
presentation
of non-GAAP gross profit and gross margin.
11. We note that you indicate that your non-GAAP presentation
allows
investors to better understand your operating results because it
excludes non-recurring acquisition-related expenses and other non-
recurring expenses. Please explain to us how you have complied
with
Item 10(e)(1)(ii)(B) as it relates to each adjustment made to
arrive
at your non-GAAP measures.
12. We note that you excluded the value assigned to certain
patents
that were acquired in the Roxio transaction and subsequently sold
as
"it is a non-cash charge that obscures the cash profit derived
from
the transactions." Please explain to us why you believe the value
assigned to the patents was non-cash considering these were
acquired
in the Roxio transaction for consideration consisting primarily of
cash. Further explain to us why you believe the amount paid for
the
patents is not relevant in evaluating the profit realized on the
sale.
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Christine Davis, Staff Accountant, at (202)
551-
3408, Mark Kronforst, Senior Staff Accountant at (202) 551-3451 or
me
at (202) 551-3489 if you have questions regarding these comments.
Sincerely,
Brad Skinner
Accounting Branch Chief
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Mr. Robert J. Doris
Sonic Solutions
September 26, 2005
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