8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

November 6, 2006
Date of Report (date of earliest event reported)

REALNETWORKS, INC.

(Exact name of Registrant as specified in its charter)

Washington
(State or other jurisdiction of
incorporation or organization) 0-23137
(Commission File Number) 91-1628146
(I.R.S. Employer
Identification Number)

2601 Elliott Avenue, Suite 1000
Seattle, Washington 98121
(Address of principal executive offices)

(206) 674-2700
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

     On November 6, 2006, the Company announced via press release the Company’s results for its third quarter ended September 30, 2006. A copy of the Company’s press release is attached hereto as Exhibit 99.1. The information in this Form 8-K and the attached exhibit are furnished to, but not filed with, the Securities and Exchange Commission.

Item 9.01. Financial Statements and Exhibits

     (c) Exhibits.

     Pursuant to the rules and regulations of the Securities and Exchange Commission, the attached exhibit is deemed to have been furnished to, but not filed with, the Securities and Exchange Commission:

Exhibit No.	Description
99.1	Press Release issued by RealNetworks, Inc. dated November 6, 2006.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

REALNETWORKS, INC.
By:	/s/ Robert Kimball
	Senior Vice President, Legal and Business Affairs,
	General Counsel and Corporate Secretary

Dated: November 6, 2006

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release issued by RealNetworks, Inc. dated November 6, 2006.

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES THIRD QUARTER 2006 FINANCIAL RESULTS

Achieves Record Quarterly Revenue

SEATTLE — November 6, 2006 — RealNetworks^®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the third quarter ended September 30, 2006.

Quarterly Highlights:

• Record revenue of $93.7 million

• Net income of $42.2 million

• Earnings per diluted share of $0.24 and adjusted earnings per diluted share of $0.05

• Agreement to acquire WiderThan announced on September 12^th; successfully acquired approximately 95% of shares on October 31^st

“This quarter has been both very successful financially and very eventful strategically for Real,” said Rob Glaser, chairman and CEO of RealNetworks. “By joining forces with WiderThan, Real greatly accelerates our efforts in mobile entertainment, and deepens our relationships with Tier 1 mobile carriers. And by launching the world’s first Rhapsody-optimized MP3 players and home audio systems, we have put the celestial jukebox into the palm of consumers’ hands.”

For the third quarter of 2006, revenue grew 14% to $93.7 million compared to $82.2 million for the third quarter of 2005. For the third quarter of 2006, revenue in the Consumer Products and Services segment was as follows: Games revenue was $22.5 million, a 53% increase over the third quarter of 2005; Music revenue was $30.4 million, a 16% increase over the third quarter of 2005; and Media Software and Services revenue was $29.6 million, a decrease of 4% from the third quarter of 2005. In the Technology Products and Solutions segment, revenue was $11.2 million, a 7% increase over the third quarter of 2005. Foreign currency exchange rate fluctuations positively impacted 2006 third quarter revenue by approximately $0.4 million compared to the third quarter of 2005.

Net income for the third quarter of 2006 was $42.2 million or $0.24 per diluted share, compared to $11.2 million or $0.06 per diluted share in the third quarter of 2005. Adjusted net income, which excludes the impact of our agreements with Microsoft, equity investment gains, stock-based compensation expenses and estimated income tax expense related to these items, was $8.7 million or $0.05 per diluted share, compared to $6.3 million or $0.03 per diluted share in the third quarter of 2005. A reconciliation of GAAP net income to adjusted net income is provided in the financial tables that accompany this release.

Gross margin was 70% in the third quarter of both 2006 and 2005. Operating expenses for the third quarter of 2006 were $8.1 million compared to $57.7 million in the prior year’s quarter. Third quarter 2006 operating expenses include a benefit related to Microsoft’s payment under the settlement and commercial agreements signed in the fourth quarter of 2005. Operating expenses also include non-cash stock-based compensation expense. Excluding the impact from the Microsoft agreements and stock-based compensation expense, adjusted operating expenses in the third quarter of 2006 were $62.2 million compared to $54.1 million in the third 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 third quarter of 2006, Real’s effective tax rate was approximately 38%.

As of September 30, 2006, Real had approximately $845 million in unrestricted cash, cash equivalents and short-term investments which include the proceeds from $100 million of convertible debt. Further, Real expects to receive up to $122 million in additional payments related to the Microsoft agreements over the next two quarters. Microsoft can earn credits against its future payments as a result of delivering music users to Real through its promotional efforts.

Under Real’s stock repurchase program, approximately 200,000 shares were repurchased for $1.9 million during the third quarter of 2006. As of September 30, 2006, approximately $78.1 million remained available under the existing stock repurchase program.

Acquisition of WiderThan

On October 31, 2006, Real acquired approximately 95% 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 will be included in Real’s consolidated financial statements subsequent to the acquisition date. Real paid approximately $320 million for its purchase of 95% of WiderThan shares.

The Real executive responsible for the WiderThan operations will be John Giamatteo, who is being promoted to President, Technology Products and Solutions and International Operations, RealNetworks. WiderThan executives reporting to Mr. Giamatteo include DJ Lee, President and CEO of WiderThan APAC, Vern Poyner, President and CEO of WiderThan Americas, and Dr. Jinsoo Yoon, Head of Global Technology for WiderThan.

Business Outlook

The following forward looking statements reflect Real’s expectations as of November 6, 2006. The Company currently does not intend to update these forward-looking statements until the next quarterly results announcement. This guidance reflects the acquisition of approximately 95% of WiderThan effective October 31, 2006. This guidance is also based on preliminary purchase price adjustments resulting from the acquisition of WiderThan, which are subject to change upon finalization of the purchase price allocation. For the fourth quarter of 2006, Real expects revenue in the range of $117 million to $123 million, including approximately $22 million to $24 million related to two months of WiderThan results. For the fourth quarter of 2006, GAAP net income per diluted share is expected to be $0.18 to $0.21 and adjusted net income per diluted share is expected to be $0.00 to $0.03. For the full year 2006, Real expects revenue in the range of $387 million to $393 million, including approximately $22 million to $24 million related to WiderThan. Real expects full year GAAP net income per diluted share of $0.77 to $0.80 and adjusted net income per diluted share of $0.09 to $0.12. The guidance for the fourth quarter and full year 2006 assumes an effective tax rate of approximately 37%, which may vary due to fluctuations in certain assets and liabilities, including unrealized gains on equity investments and the valuation of our deferred tax assets. These rate variations generally have no material impact on the amount paid for income taxes. For both the fourth quarter and full year 2006, the impact of the WiderThan acquisition is expected to be slightly dilutive to GAAP net income per share and slightly accretive to adjusted net income per share.

Adjusted net income per diluted share for both the fourth quarter and full year 2006 excludes approximately $2.7 million of WiderThan acquisition related charges. The expected fourth quarter 2006 results of WiderThan subsequent to the date of acquisition are not necessarily indicative of results of WiderThan for the entire fourth quarter. A reconciliation of expected GAAP net income per diluted share to expected adjusted net income per diluted share is provided in the financial tables that accompany this 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 and adjusted operating expenses. Adjusted net income excludes the impact related to non-cash stock-based compensation expense, income and expenses including charitable contributions, related to the Microsoft agreements, equity investment gains and losses, amortization of intangible assets resulting from the WiderThan acquisition and an estimate of the income taxes from the aforementioned items. 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 5:00 pm (Eastern)/2:00 pm (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 “Third Quarter Earnings,” and the leader is Rob Glaser. A telephonic replay will be available until 8:00 pm (Eastern) on November 15, 2006 and may be accessed by dialing 888-568-0723 (203-369-3193 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/company.

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 and GAAP and adjusted operating expenses; (b) Real’s position in the mobile music entertainment market, and the related growth and profitability potential; (c) the impact of the WiderThan acquisition on Real’s earnings and Real’s expectations regarding the timing of consolidation of WiderThan’s financial results into Real’s financial statements; (d) the effect of final purchase price accounting relating to the WiderThan acquisition; and (e) 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 risk that the collaborative agreements we have with Microsoft will be less successful than we expect; the emergence of new entrants and competition in the market for digital media subscription offerings and online music sales; 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 September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	(in thousands, except per share data)
Net revenue	$	93,676		$	82,233		$	269,687		$	241,491
Cost of revenue		28,389			24,695			81,788			74,273
Gross profit		65,287			57,538			187,899			167,218
Operating expenses:
Research and development		18,344			16,354			55,127			45,381
Sales and marketing		37,560			30,745			111,604			93,809
General and administrative		14,043			7,037			41,586			21,120
Loss on excess office facilities (A)		—			—			738			—
Subtotal operating expenses		69,947			54,136			209,055			160,310
Antitrust litigation expenses (benefit) (B)		(61,861	)		3,531			(159,554	)		11,925
Total operating expenses, net		8,086			57,667			49,501			172,235
Operating income (loss)		57,201			(129	)		138,398			(5,017	)
Other income (expense), net:
Interest income, net		10,618			2,904			27,978			7,499
Equity in net loss of MusicNet		—			—			—			(1,068	)
Gain on sales of equity investments		—			11,740			2,286			19,330
Other, net		242			124			432			(276	)
Other income, net		10,860			14,768			30,696			25,485
Income before income taxes		68,061			14,639			169,094			20,468
Income tax provision		(25,908	)		(3,457	)		(63,180	)		(3,763	)
Net income	$	42,153		$	11,182		$	105,914		$	16,705
Basic net income per share	$	0.26		$	0.07		$	0.66		$	0.10
Diluted net income per share	$	0.24		$	0.06		$	0.59		$	0.09
Shares used to compute basic net income per share		160,578			170,797			160,467			170,761
Shares used to compute diluted net income per share		178,913			184,180			178,551			184,276

(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)

	September 30,		December 31,
	2006		2005
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	693,057	$	651,971
Short-term investments		151,745		129,356
Trade accounts receivable, net of allowances for doubtful accounts and sales returns		24,481		16,721
Deferred tax assets, net, current portion		7,046		54,204
Prepaid expenses and other current assets		11,488		11,933
Total current assets		887,817		864,185
Equipment, software and leasehold improvements, at cost:
Equipment and software		65,551		56,402
Leasehold improvements		29,139		27,964
Total equipment, software and leasehold improvements		94,690		84,366
Less accumulated depreciation and amortization		60,235		51,228
Net equipment, software and leasehold improvements		34,455		33,138
Restricted cash equivalents		17,300		17,300
Equity investments		26,269		46,163
Other assets		4,177		2,397
Deferred tax assets, net, non-current portion		15,967		19,147
Goodwill		132,789		123,330
Other intangible assets, net		7,386		7,337
Total assets	$	1,126,160	$	1,112,997
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,905	$	11,397
Accrued and other liabilities		72,105		112,340
Deferred revenue, current portion		25,469		25,021
Accrued loss on excess office facilities, current portion		4,053		4,623
Total current liabilities		116,532		153,381
Deferred revenue, non-current portion		340		276
Accrued loss on excess office facilities, non-current portion		11,323		13,393
Deferred rent		4,472		4,018
Convertible debt		100,000		100,000
Other long-term liabilities		1,679		196
Total liabilities		234,346		271,264
Total shareholders’ equity		891,814		841,733
Total liabilities and shareholders’ equity	$	1,126,160	$	1,112,997

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

	Nine Months Ended September 30,
	2006			2005
	(in thousands)
Cash flows from operating activities:
Net income	$	105,914		$	16,705
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,480			11,869
Stock-based compensation		12,332			109
Equity in net losses of MusicNet		—			1,068
Changes in accrued loss on excess office facilities and content agreement		(2,640	)		(6,230	)
Loss on disposal of equipment		76			250
Gain on sales of equity investments		(2,286	)		(19,330	)
Deferred income taxes		56,508			3,324
Other		73			48
Net change in certain operating assets and liabilities, net of balances from businesses acquired during the year		(48,496	)		6,127
Net cash provided by operating activities		133,961			13,940
Cash flows from investing activities:
Purchases of equipment, software and leasehold improvements		(9,316	)		(10,728	)
Purchases of intangible assets		—			(1,000	)
Purchases of short-term investments		(177,868	)		(121,540	)
Proceeds from sales and maturities of short-term investments		156,006			127,790
Decrease in restricted cash equivalents		—			2,095
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		(7,086	)		(14,705	)
Net cash provided by (used in) investing activities		(36,812	)		795
Cash flows from financing activities:
Net proceeds from sale of common stock under employee purchase plan and exercise of stock options		41,976			4,926
Repayment of long-term note payable		—			(648	)
Repurchase of common stock		(98,869	)		(29,275	)
Net cash used in financing activities		(56,893	)		(24,997	)
Effect of exchange rate changes on cash and cash equivalents		830			(492	)
Net decrease in cash and cash equivalents		41,086			(10,754	)
Cash and cash equivalents at beginning of period		651,971			219,426
Cash and cash equivalents at end of period	$	693,057		$	208,672

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

	2006									2005
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
	(in thousands)
Net Revenue by Line of Business: *
Consumer products and services (A)	$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Technology products and solutions (B)		11,179			11,967			11,791			10,153			10,483			12,093			12,366
Total net revenue	$	93,676		$	89,409		$	86,602		$	83,568		$	82,233		$	82,686		$	76,572
Consumer Products and Services: *
Subscriptions (C)	$	50,878		$	47,452		$	47,832		$	47,508		$	47,347		$	47,821		$	44,400
Media properties (D)		13,883			11,546			9,484			10,224			9,606			8,986			6,033
E-commerce and other (E)		17,736			18,444			17,495			15,683			14,797			13,786			13,773
Total consumer products and services revenue	$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Consumer Products and Services: *
Music (F)	$	30,375		$	30,118		$	28,918		$	27,760		$	26,193		$	24,933		$	22,883
Media software and services (G)		29,586			26,127			27,277			29,914			30,858			32,012			29,134
Games (H)		22,536			21,197			18,616			15,741			14,699			13,648			12,189
Total consumer products and services revenue	$	82,497		$	77,442		$	74,811		$	73,415		$	71,750		$	70,593		$	64,206
Net Revenue by Geography:
United States	$	69,433		$	66,542		$	65,700		$	65,177		$	63,478		$	63,443		$	57,757
Rest of world		24,243			22,867			20,902			18,391			18,755			19,243			18,815
Total net revenue	$	93,676		$	89,409		$	86,602		$	83,568		$	82,233		$	82,686		$	76,572
Gross Margin by Line of Business:
Consumer products and services		68	%		68	%		67	%		70	%		68	%		68	%		65	%
Technology products and solutions		81	%		81	%		83	%		81	%		82	%		83	%		82	%
Total gross margin		70	%		70	%		69	%		71	%		70	%		70	%		68	%
Subscribers (presented as greater than)**
Total		2,450			2,400			2,400			2,250			2,200			2,000			1,850
Music		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 March 31, 2005, total and music subscribers reflect the inclusion of subscribers that registered for the Comcast Rhapsody Radio Plus service
(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 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 all 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

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:

	Quarters Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2006			2006			2006			2005			2005			2005			2005
	(in thousands, except per share data)
Net income in accordance with GAAP	$	42,153		$	38,878		$	24,883		$	295,640		$	11,182		$	4,709		$	814
Stock based compensation		5,021			3,673			3,638			19			25			48			36
Loss (gain) on equity investments		—			(2,286	)		—			266			(11,740	)		(7,590	)		—
Expenses (benefit) related to antitrust litigation:
Income		(62,000	)		(58,000	)		(40,000	)		(478,571	)		—			—			—
Expenses		1,000			997			971			50,850			3,531			4,650			3,744
Charitable contributions		1,889			1,805			1,225			14,786			—			—			—
Tax impact of proforma items		20,587			19,732			12,717			113,325			3,324			—			—
Total adjusted net income (loss)	$	8,650		$	4,799		$	3,434		$	(3,685	)	$	6,322		$	1,817		$	4,594
GAAP basic net income per share	$	0.26		$	0.24		$	0.15		$	1.76		$	0.07		$	0.03		$	0.00
GAAP diluted net income per share	$	0.24		$	0.22		$	0.14		$	1.61		$	0.06		$	0.03		$	0.00
Adjusted basic net income (loss) per share	$	0.05		$	0.03		$	0.02		$	(0.02	)	$	0.04		$	0.01		$	0.03
Adjusted diluted net income per share	$	0.05		$	0.03		$	0.02			n/a		$	0.03		$	0.01		$	0.02
Shares used to compute basic net income (loss) per share		160,578			159,938			160,887			167,573			170,797			171,393			170,947
Shares used to compute diluted net income per share		178,913			177,337			176,923			183,728			184,180			184,816			184,686

A reconciliation of GAAP cost of revenue and operating expenses for the quarters ended September 30, 2006 and 2005 to adjusted cost of revenue and operating expenses is as follows:

	Quarter ended September 30, 2006
	As			Stock-Based			Antitrust Litigation
	Reported			Compensation			Related			Adjusted
	(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	28,389		$	(57	)	$	—		$	28,332
Operating expenses:
Research and development	$	18,344		$	(1,878	)	$	—		$	16,466
Sales and marketing		37,560			(1,920	)		—			35,640
General and adminstrative		14,043			(1,166	)		(2,750	)		10,127
Antitrust litigation benefit		(61,861	)		—			61,861			—
Total adjusted operating expenses, net	$	8,086		$	(4,964	)	$	59,111		$	62,233

	Quarter ended September 30, 2005
	As		Stock-Based			Antitrust Litigation
	Reported		Compensation			Related			Adjusted
	(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	24,695	$	—		$	—		$	24,695
Operating expenses:
Research and development	$	16,354	$	(20	)	$	—		$	16,334
Sales and marketing		30,745		—			—			30,745
General and adminstrative		7,037		(5	)		—			7,032
Antitrust litigation expenses		3,531		—			(3,531	)		—
Total adjusted operating expenses, net	$	57,667	$	(25	)	$	(3,531	)	$	54,111

Forward Looking Guidance

A reconciliation of GAAP net income per diluted share guidance for the quarter and the full year ending December 31, 2006 to adjusted net income per diluted share guidance is as follows:

	Quarter Ending December 31, 2006						Year Ending December 31, 2006
	Low			High			Low			High
Net Income per diluted share in accordance with GAAP	$	0.18		$	0.21		$	0.77		$	0.80
Intangible amortization related to WiderThan acquisition		0.01			0.01			0.01			0.01
Antitrust litigation related benefit, net		(0.33	)		(0.33	)		(1.18	)		(1.18	)
Stock-based compensation		0.03			0.03			0.10			0.10
Gains on sales of equity investments		—			—			(0.01	)		(0.01	)
Tax effect of above proforma items		0.11			0.11			0.40			0.40
Total adjusted net income per diluted share	$	0.00		$	0.03		$	0.09		$	0.12