Roxio Reports Strong Third Quarter Earnings

Revenues Up 19% Sequentially

Milpitas, California - (January 23, 2002) - Roxio, Inc., the Digital Media Company (Nasdaq: ROXI), today reported financial results for its third quarter ended December 31, 2001. Net revenue for the third quarter was $36.2 million, and pro forma net income was $3.4 million, or $0.20 per basic and $0.19 per diluted share, excluding non-cash charges. This compares with net revenue of $27.5 million and pro forma net income of $5.9 million or $0.36 per basic and diluted share for the third quarter of the prior fiscal year.

Net revenue for the nine month period ended December 31, 2001 was $103.6 million, as compared with net revenue of $85.6 million for the comparable period in the prior year. Pro forma net income excluding non-cash charges was $12.7 million or $0.76 per basic and $0.75 per diluted share for the first nine months of the current fiscal year, as compared with pro forma net income of $19.2 million or $1.17 per basic and diluted share for the comparable period in the prior year.

"The third quarter marked another solid financial performance for Roxio with revenues up 19% from the previous quarter, reflecting strong growth in retail sales," commented Chris Gorog, President and Chief Executive Officer of Roxio. "We believe this increase was driven by inherent strong demand for our award-winning products, together with support from our branding and advertising initiatives and the launch of Windows XP. We also succeeded this quarter in creating a key strategic alliance with content owners by becoming the CD burning and marketing partner of pressplay, the music subscription service offered by Universal, Sony and EMI. Additionally, we expanded on our relationship with Real Networks by providing the burn engine for Real Network's new 'RealOne' media player. Roxio continues to expand its business in the digital media space, and upon the conclusion of our pending acquisition of MGI Software, our product line will include the top-selling consumer software in CD recording, photo editing and video editing."

Reported net income for the third quarter of fiscal 2002 was $0.6 million or $0.04 per basic and diluted share including non-cash charges related to the amortization of goodwill and deferred stock-based compensation. This compares with reported net income of $1.2 million or $0.07 per basic and diluted share for the third quarter of fiscal 2001.

Reported net income for the nine months ended December 31, 2001 was $2.0 million or $0.12 per basic and diluted share including non-cash charges. This compares with reported net income of $5.5 million or $0.33 per basic and diluted share for the first nine months of fiscal 2001. For a reconciliation of reported earnings to pro forma earnings, see table below.

Elliot Carpenter, Roxio's Chief Financial Officer, said, "Revenues for the third fiscal quarter were greater than anticipated as we experienced strong demand from consumers for our flagship CD burning products during the holiday season. In addition, we continued to strengthen our balance sheet, with a reported cash position of $60.6 million and working capital of $60.9 million. We are reiterating our revenue guidance of $33.0 million for the fourth quarter, which when combined with our nine months' performance, raises our previous year-end target to $136.6 million."

Recent Corporate Highlights

Roxio recently:

  • Agreed to acquire all of the outstanding shares of MGI Software Corp. The proposed combination will result in the creation of one of the world's largest consumer digital media software companies with the best-selling products in CD recording, photo editing, video editing and system recovery. The acquisition has received interim court approval by the Superior Court of Justice of Ontario and a special meeting of MGI shareholders has been set for January 28, 2002.
  • Became the provider of CD recording capabilities for pressplay's music subscription service, as well as a pressplay affiliate, offering consumers digital music on 'Roxio pressplay'. Pressplay includes music from some of the largest record companies including EMI Recorded Music, Sony Music Entertainment and Universal Music Group and is the first major music subscription service to offer CD burning in recognition of the importance of portability to the consumer.
  • Expanded its relationship with RealNetworks® as the provider of the CD recording technology for the new RealOne Player, the all-in-one digital media player, which integrates functions of RealPlayer and RealJukebox, a media browser and content discovery window, and a significantly enhanced subscription service.
  • Established an enterprise software team led by Kamal Arafeh in the new position of General Manager of Enterprise Products. The group is charged with addressing a significant new market opportunity through Roxio's new Volume Licensing program, which allows corporate customers to purchase and deploy Easy CD Creator and GoBack across a number of seats in their organizations.
  • Appointed Vernon E. Altman, a Director of Bain & Company, to its board of directors, expanding the number of board members to five.
  • Signed a multi-year license that provides Gracenote CDDB as the exclusive CD recognition service to current and future Roxio customers through Roxio's current and future CD-recording products. Concurrent with the licensing agreement, Gracenote and Roxio settled all litigation between the two companies in a sealed agreement.

Reconciliation of Reported Earnings to Pro Forma Earnings:

ROXIO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
2001 2000 2001 2000
Net revenues $ 36,164 $ 27,496 $ 103,627 $ 85,568
Cost of revenues (excludes stock-based
compensation charges of $14, $0,
$89 and $0, respectively) 8,168 4,488 21,070 16,840
Gross profit 27,996 23,008 82,557 68,728
Operating expenses:
Research and development (excludes stock-based
compensation charges of $208, $698,
$1,307 and $1,994, respectively) 4,763 3,671 15,958 13,052
Sales and marketing (excludes stock-based
compensation charges of $807, $0,
$2,964 and $0, respectively) 13,510 8,813 35,149 23,682
General and administrative (excludes stock-based
compensation charges of $309, $177,
$2,024 and $177, respectively.) 4,681 4,145 13,149 9,718
Amortization of intangible assets 1,433 3,861 4,297 11,581
Stock-based compensation charges 1,338 875 6,384 2,171
Total operating expenses 25,725   21,365 74,937   60,204
Income from operations 2,271 1,643 7,620 8,524
Other income, net 278 - 993 -
Income before provision for income taxes 2,549 1,643 8,613 8,524
Provision for income tax (1,910) (472) (6,604) (3,033)
Net income $ 639 $ 1,171 $ 2,009 $ 5,491
Earnings per share:
Basic $ 0.04 $ 0.07 $ 0.12 $ 0.33
Diluted $ 0.04 $ 0.07 $ 0.12 $ 0.33
Weighted average shares used in computing basic and
diluted net income per share
Basic 16,883 16,500 16,766 16,500
Diluted 17,591 16,500 16,945 16,500


ROXIO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)
December 31, March 31,  
2001 2001  
ASSETS
Current assets:
Cash $ 60,593 $ -  
Accounts receivable, net of allowance for doubtful accounts of
$918 and $155, respectively 19,201 31,525  
Inventories 191 1,211  
Prepaid expenses and other current assets 3,503 2,354  
Deferred income taxes 3,482 3,133  
Total current assets 86,970 38,223  
Property and equipment, net 3,175 1,426  
Goodwill, net 16,255 16,255  
Other intangibles, net 5,758 10,268  
Other assets 533 -  
     
Total assets $ 112,691 $ 66,172  
LIABILITIES AND OWNER'S NET INVESTMENT /
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,566 $ 7,721  
Income taxes payable 1,654 9,508  
Accrued liabilities 11,372 6,075  
Current portion of long term debt 443 -  
Total current liabilities 26,035 23,304  
Long term liabilities:
Long term debt 891 -  
Deferred income taxes 1,407 2,251  
Total liabilities 28,333 25,555  
Owner's net investment / stockholders' equity:
Common stock, $0.001 par value; 100,000 shares authorized;
16,928 and 16,500 issued and outstanding 17 17  
Additional paid-in capital 93,875 16  
Deferred stock-based compensation (8,462) -  
Accumulated deficit (1,071) -  
Accumulated other comprehensive income (loss) (1) 402  
Owner's net investment - 40,182  
Total owner's net investment / stockholder's equity 84,358 40,617  
Total liabilities and owner's net investment / stockholders' equity $ 112,691 $ 66,172  

Safe Harbor Statement

The matters discussed relating to Roxio in this press release, in particular matters related to Roxio's OEM relationships, include forward-looking statements that are subject to certain risks and uncertainties, including delays in product development, competition in the software industry, and failure to maintain OEM relationships, that could cause actual results to differ materially from those projected. Additional information on these and other factors are contained in Roxio's reports filed with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 10-K as filed with the SEC on July 1, 2002 and Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2002, copies of which are available at the website maintained by the SEC at http://www.sec.gov. Roxio assumes no obligation to update the forward-looking statements included in this press release.

About Roxio

Roxio, a division of Sonic Solutions, develops and markets the best-selling digital media software in the world. Roxio offers award-winning software products for CD/DVD burning, photo editing and video editing and has an installed base of over 150 million users. Roxio distributes its products globally through strategic partnerships with major hardware manufacturers, through leading retailers, through Internet partnerships and through direct sales at www.roxio.com. Roxio's parent company, Sonic Solutions (NASDAQ: SNIC; http://www.sonic.com) is the leader in digital media software and provides a broad range of software tools and applications for creative professionals, business and home users and technology partners. Sonic's products range from professional DVD authoring systems and interactive content delivery technologies that are used to produce the majority of Hollywood movies released on DVD, to the award-winning Roxio- and Sonic-branded CD and DVD creation, playback and backup applications that have become the premiere solutions for consumers and business users worldwide. Sonic's AuthorScript® is the de facto standard for CD and DVD burning and formatting and has been licensed by major software and hardware manufacturers, including Adobe, Broadcom, Microsoft, Scientific-Atlanta, Sony, and many others. Sonic Solutions is headquartered in Marin County, California.

Sonic, the Sonic logo, Sonic Solutions, Roxio, MyDVD, CineMagic, Plug & Burn, LiveShare, Roxio Easy Media Creator, and AuthorScript are trademarks or registered trademarks of Sonic Solutions or its subsidiaries in the United States and/or other countries. Dolby is a trademark of Dolby Laboratories. All other company or product names are trademarks of their respective owners and, in some cases, are used by Sonic Solutions under license. Specifications, pricing and delivery schedules are subject to change without notice.