Room 4561
April 3, 2006
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 8-K Filed May 17, 2005 and August 16, 2005
File No. 000-23190
Dear Mr. Doris:
We have reviewed your response to our comment letter dated
February 24, 2006 and have the following additional comments. 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
Notes to Consolidated Financial Statements
Note 10 - Roxio CSD Acquisition, page 82
1. You indicated in your response letter dated January 20, 2006
that
you considered a specific trademark/trade name license that you
had
entered into prior to the Roxio acquisition but concluded that
using
other industry comparables were more appropriate as the margins on
the products sold under your previous trademark were lower than
those
of the Roxio products. Please explain to us in more detail why
you
did not believe that your previous trademark/trade name history
was
relevant to your analysis.
2. You indicated in your response letter dated January 20, 2006
that
you selected a royalty rate that was within the mean range of the
comparable arrangements. Please tell us more about your process
for
selecting the appropriate royalty rate. Explain what you mean by
"mean range" and why you believe it was appropriate to select a
rate
that was within this range rather than the mean itself. As part
of
your response, provide us with the royalty rate that you selected
and
the rates of each of the nine comparable transactions.
3. We have read your response to prior comment number 1. Please
provide us with the following additional information related to
each
of the comparable transactions on a disaggregated basis:
* Explain your basis for selecting the comparable transaction and
summarize how the arrangement was comparable to the Roxio
transaction;
* Explain how you concluded that adequate information was
available
for purposes of concluding that the comparable transaction was
sufficiently similar to the Roxio transaction. In this regard,
explain how the unknown elements of the comparable transactions
impacted your analysis;
* Describe the underlying technologies/products sold in connection
with the comparable transaction as compared to those offered under
the Roxio name;
* Describe the magnitude and the long-term or perpetual nature of
the
comparable transaction as compared with the Roxio transaction; and
* Explain, in detail, how the rights and rewards of the comparable
transaction compared to those of the Roxio transaction.
In addition, explain to us how you determined that five of the
arrangements were "likely" exclusive and why you included four
arrangements in your analysis for which you were unable to
determine
exclusivity.
4. Please provide us with the following additional information
regarding your conclusion that the Roxio trade name has an
indefinite
life:
* Explain how the relatively brief and somewhat volatile operating
history associated with the Roxio trade name factored into your
conclusion;
* Explain how the size of your company, as compared to companies
that
you currently compete with and those you expect to compete with in
the future, factored into your conclusion;
* Provide us with the periods over which cash flows were assumed
for
valuing the Roxio trade name and in the comparable transactions,
if
known;
* Explain how you will maintain consumers` association of the
Roxio
trade name from products offered using the current technology to
products containing newer and substantially different
technologies;
* Describe how you evaluated the expected length of your OEM
relationships and the likelihood of retention; and
* Clarify the extent to which your retail channel is dependent on
retaining the OEM relationships and explain how any such
dependence
factored into your conclusion.
Form 8-K Filed May 17, 2005 and August 16, 2005
5. We have read your response to prior comment number 3 and note
that
you will not use these non-GAAP measures in future earnings
releases.
As a result, we will only provide our remaining concerns related
to
your proposed disclosures for your future reference. However, if
you
disclose such non-GAAP measures in future documents filed or
furnished with the Commission, we may have future comment. With
this
view toward future disclosure, we noted the following:
* It remains unclear to us how excluding the amortization of
intangible assets helps investors understand your operating
results
on a cash basis considering that your non-GAAP measure excludes
charges that appear to be paid in cash and includes several other
items that could be considered non-cash. Further, if your non-
GAAP
measure is intended to be a measure of liquidity, it appears that
the
measure should be reconciled to GAAP cash flow from operations
rather
than net income;
* Your disclosures regarding certain OEM and distributor revenue
indicates that your presentation provides a more complete picture
of
the company`s revenues during the period. It is unclear to us why
adjusting your GAAP revenues provides a more complete picture of
your
revenues during the period;
* Your disclosure does not appear to address the inconsistency of
excluding the various costs associated with your acquisitions
(i.e.,
intangible asset amortization and integration) but including the
benefits realized such as increased revenues; and
* Your disclosures regarding the acquired patents appears to
suggest
that period costs directly related to developing your patent
portfolio should not be considered similar to the costs allocated
to
the patents acquired from Roxio. It is unclear to us why the
timing
of directly related costs should result in such an adjustment.
Please note that it is your responsibility to provide the
disclosures
required by Regulation G, Item 10(e) of Regulation S-K and the
Frequently Asked Questions Regarding the Use of Non-GAAP Financial
Measures when a non-GAAP measure is disclosed in a filed or
furnished
document.
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.
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
Mr. Robert J. Doris
Sonic Solutions
April 3, 2006
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