8-K

UNITED STATES

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

Date of Report (Date of earliest event reported): November 9, 2010

SONIC SOLUTIONS

(Exact name of registrant as specified in its charter)

California	23190	93-0925818
(State or other jurisdiction of organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

7250 Redwood Blvd., Suite 300  Novato, CA	94945
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code:	(415) 893-8000

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 (see General Instruction A.2. below):

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 9, 2010, Sonic Solutions (“Sonic”) issued a press release regarding its financial results for the second fiscal quarter ended September 30, 2010.  A copy of the press release, dated November 9, 2010, and related management commentary are attached hereto as Exhibits 99.1 and 99.2, respectively.

The information in this Item 2.02 of Form 8-K and Exhibits 99.1 and 99.2 attached hereto are being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Item 2.02 of Form 8-K and Exhibits 99.1 and 99.2 shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS.

(d)  Exhibits

The following exhibits are furnished with this Current Report on Form 8-K:

Exhibit	Description
99.1	Press Release of Sonic Solutions dated November 9, 2010
99.2	Management’s commentary on financial results for the second quarter ended September 30, 2010.

2

SIGNATURES

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.

	SONIC SOLUTIONS
Date:  November 9, 2010	By:	/s/ David C. Habiger
		Name: David C. Habiger
		Title: President and Chief Executive Officer (Principal Executive Officer)

3

EX-99.1

news release

FOR IMMEDIATE RELEASE:

November 9, 2010

NASDAQ: SNIC

Sonic Reports Second Quarter 2011 Financial Results

Novato, California (November 9, 2010) – Sonic Solutions® (NASDAQ: SNIC) today reported financial results for its second quarter of fiscal year 2011 ended September 30, 2010.

“Our second quarter results were in-line with our expectations and reflect the strength of our value proposition to our customers,” said Dave Habiger, president and CEO of Sonic. “Internet video delivery is transforming the entertainment experience and disrupting  traditional physical and broadcast based distribution models. With the combined technology portfolio of Sonic and DivX, we are uniguerly positioned to facilitate, and profit from, this shift in entertainment distribution and consumption.”

Second Quarter Fiscal 2011 GAAP Results

In the second quarter of fiscal 2011, Sonic recognized net revenue of $25.3 million, down from $26.1 million reported for the second quarter of fiscal 2010. Sonic’s gross profit for the second quarter of fiscal 2011 was $16.4 million, representing a gross margin of 65%, compared to $18.0 million and a gross margin of 69% in the second quarter of fiscal 2010.

Operating expenses were $19.7 million in the second quarter of fiscal 2011, compared to $17.4 million in the second quarter of fiscal 2010. The GAAP expenses break down as follows: sales and marketing expense was $7.9 million, research and development expense was $6.3 million, general and administration expense was $4.5 million, and expenses associated with acquisitions was $0.9 million.

Net loss for the second quarter of fiscal 2011 was $2.6 million, or $(0.08) per share based on 30.8 million weighted average shares, compared to a net loss of $0.2 million in the second quarter of fiscal 2010, or $(0.01) per share based on 26.7 million weighted average shares.

Second Quarter Fiscal 2011 Non-GAAP Results

Sonic’s non-GAAP net revenue for the second quarter of fiscal 2011 was $26.4 million. The company’s second quarter revenue target was approximately $26.0 million. The effect of $1.0 million of contra revenue associated with the vesting of a warrant issued during the third quarter of fiscal 2010 was excluded from the calculation of non-GAAP net revenue. There was no such contra revenue for the second quarter of fiscal 2010.

Non-GAAP gross profit for the second quarter of fiscal 2011 was $17.6 million, compared to $18.1 million reported for the second quarter of fiscal 2010. In addition Non-GAAP gross profit does not include acquisition-related intangible asset amortization expense of $0.1 million in both the second quarter of fiscal 2010 and 2011.

Non-GAAP operating expenses were $17.8 million in the second quarter of fiscal 2011, compared to $16.9 million in the second quarter of fiscal 2010. These expenses for fiscal 2011 exclude share-based compensation expense of $0.9 million and acquisition expenses of $0.9 million and for the second quarter of fiscal 2010 exclude share-based compensation expense of $0.5 million and restructuring charges of $46 thousand.

Non-GAAP net income for the second quarter of fiscal 2011 was $0.2 million, or $0.01 per diluted share based on 33.0 million weighted average shares. This compares to non-GAAP net income for the second quarter of fiscal 2010 of $0.4 million, or $0.01 per diluted share based on 28.1 million weighted average shares.

Sonic Solutions • 7250 Redwood Blvd., Suite 300 • Novato, CA 94945 • tel: 415.893.8000 • fax: 415.893.8008 • email: info@sonic.com

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

Earnings Conference Call

In conjunction with this earnings press release, the Company has posted management’s commentary to the Investor Relations section of its Web site at http://www.sonic.com. Members of Sonic’s management team will host a live conference call today at 4:30 p.m. EST (1:30 p.m. PST), to discuss the financial results. To participate in the conference call, interested parties may dial-in at 888-401-4669 (domestic) or 719-325-2411 (international) and referencing the ID number: 4174163.

To listen to a live audio broadcast of the conference call via the Internet, visit the Investor Relations section of the Sonic Solutions website at http://www.sonic.com. An archived version of the webcast will also be available through this site.

A telephone replay will be available shortly following the call on Tuesday, November 9, 2010 through midnight (PST) on Tuesday, November 16, 2010. The replay can be accessed by dialing (888) 203-1112 (domestic) or (719) 457-0820 (int'l) and entering the passcode: 4174163

2

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

Sonic Solutions

Condensed Consolidated Statements of Operations

(in thousands, except per share data - unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2010			2009			2010			2009
Net revenue	$	25,348		$	26,056		$	50,748		$	51,583
Cost of revenue		8,929			8,076			16,602			15,961
Gross profit		16,419			17,980			34,146			35,622
Operating expenses:
Marketing and sales		7,903			7,002			15,005			13,756
Research and development		6,334			6,126			12,267			13,240
General and administrative		4,539			4,264			9,219			9,016
Restructuring		-			46			-			566
DivX acquisition		948			-			2,566			-
Total operating expenses		19,724			17,438			39,057			36,578
Operating income (loss)		(3,305	)		542			(4,911	)		(956	)
Other income (expense), net		626			(501	)		388			(350	)
Income (loss) before income taxes		(2,679	)		41			(4,523	)		(1,306	)
Provision for (benefit from ) income taxes		(73	)		247			(849	)		731
Net loss	$	(2,606	)	$	(206	)	$	(3,674	)	$	(2,037	)
Net loss per share:	$	(0.08	)	$	(0.01	)	$	(0.12	)	$	(0.08	)
Shares used in computing basic and diluted net loss per share:		30,840			26,686			30,763			26,649

3

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

Sonic Solutions

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

	September 30,			March 31,
	2010			2010(1)
ASSETS
Current assets:
Cash and cash equivalents	$	54,549		$	54,536
Accounts receivable, net of allowances of $3,113 and $2,511 at September 30, 2010 and March 31, 2010, respectively		12,275			11,270
Inventory		2,351			1,941
Prepaid expenses and other current assets		4,123			3,497
Deferred tax benefits		89			-
Total current assets		73,387			71,244
Fixed assets, net		1,394			1,670
Purchased and internally developed software costs, net		135			165
Goodwill		4,628			4,628
Acquired intangibles, net		16,530			16,174
Deferred tax benefit, net of current portion		113			66
Other assets		543			1,463
Total assets	$	96,730		$	95,410
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,082		$	3,892
Accrued expenses and other current liabilities		21,459			21,916
Deferred revenue, current portion		5,717			5,874
Capital leases		95			123
Total current liabilities		32,353			31,805
Other long term liabilities, net of current portion		1,941			889
Deferred revenue, net of current portion		165			76
Capital leases, net of current portion		5			37
Total liabilities		34,464			32,807
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 100,000,000 shares authorized; 30,917,718 and 30,610,102 shares issued and outstanding at September 30, 2010 and March 31, 2010, respectively		203,735			200,375
Accumulated deficit		(139,962	)		(136,289	)
Accumulated other comprehensive loss		(1,507	)		(1,483	)
Total shareholders' equity		62,266			62,603
Total liabilities and shareholders' equity	$	96,730		$	95,410

(1)  Derived from audited consolidated financial statements as of March 31, 2010.

4

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

Non-GAAP Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles (“GAAP”), we report the following non-GAAP financial measures in presenting results and giving guidance: non-GAAP net revenue, non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) and non-GAAP net income (loss) per share. We also provide information and guidance regarding our earnings before interest, taxes, depreciation and amortization, excluding restructuring expense, acquisition related expense, share-based compensation and contra revenue (“Adjusted EBITDA”). Our non-GAAP financial measures are not meant to be considered in isolation nor as a substitute for comparable GAAP measures, but should be considered in addition to and in conjunction with results presented in accordance with GAAP. The non-GAAP financial measures are intended to provide additional insight into our operations that, when viewed with our GAAP results and the accompanying reconciliations to the most directly comparable GAAP financial measures, offer a more complete understanding of factors and trends affecting our business. Our non-GAAP presentations should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.

We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision-making and (2) they are used by some of our investors and the analyst community to help them analyze our operating results. We use these non-GAAP measures internally to plan and forecast future periods, to establish operational goals, to compare with our business plan and individual operating budgets and to allocate resources. As illustrated by the reconciliation tables below, the effect of calculating these financial measures on a non-GAAP basis is to increase profits, decrease losses and/or change losses to profits. Material limitations associated with the use of the non-GAAP financial measures versus the comparable GAAP measures and guidance are (a) the non-GAAP measures provide a view of our results that does not take into account certain GAAP expenses that would otherwise reduce our profits or increase our losses for the period in question, and (b) it may be difficult or impossible to meaningfully compare our non-GAAP results with those of other companies that do not present non-GAAP results utilizing similar assumptions. We compensate for these limitations by providing full disclosure of the effects of our non-GAAP measures and guidance. Additionally, we present reconciliations between non-GAAP measures and their most directly comparable GAAP measures for non-GAAP historical information and, to the extent available without unreasonable efforts, for non-GAAP forward-looking information, so that investors can use the information to perform their own analysis.

·   Contra Revenue. We have excluded the effect of contra revenue associated with our issuance and subsequent vesting of a warrant from our calculation of the following: non-GAAP net revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. Because of varying available valuation methodologies, subjective assumptions and the fact that the financial impacts of this warrant issuance do not result in ongoing cash expenditures or otherwise have a material impact on our ongoing business operations, we believe that providing non-GAAP financial measures that exclude contra revenue allows investors and analysts to make meaningful comparisons between our ongoing core business operating results and those of other companies. Contra revenue adjustments associated with the grant of this warrant and changes in the assumptions used to value the warrant will recur during the 2-year vesting period of the warrant.

·   Acquisition-Related Intangible Amortization.Under purchase accounting rules, some portion of an acquisition purchase price is generally allocated to intangibles, such as core and developed technology and customer contracts, which are then amortized over various periods of time. Our GAAP presentations include amortization on certain acquired intangibles from prior consummated transactions. We have excluded the effect of amortization of acquired intangibles from our calculation of the following: non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. Amortization of acquired intangible assets expense is inconsistent in amount and frequency and is significantly affected by the timing and size of our various acquisitions. Further, the amortization expense on acquired intangibles does not result in ongoing cash expenditures, and, in our view, does not otherwise have a material impact on our ongoing business operations. Investors should note that the use of acquired intangible assets contributed to revenues earned during the periods presented and will continue to contribute to future period revenues. This amortization expense will recur in future periods for GAAP purposes.

5

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

·   Acquisition Related Expense Adjustment. We have excluded the effect of acquisition expense from our calculation of the following: non-GAAP operating expense, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. These expenses are primarily attributable to acquisition expenses associated with the DivX acquisition, beginning in the fourth quarter of fiscal 2010, and consist of the following: (i) professional service fees; and (ii) transition and integration costs. We do not consider these acquisition-related costs to be related to our ongoing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. By excluding acquisition-related expenses from our non-GAAP measures, management is better able to evaluate the Company's ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. We believe that providing a supplemental non-GAAP measure which excludes these items allows management and investors to consider the ongoing operations of the business both with, and without, such expenses.

·   Restructuring Expense Adjustment. We have excluded the effect of restructuring expense from our calculation of the following: non-GAAP operating expense, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. These expenses are primarily associated with the restructuring actions commenced in the fourth quarter of fiscal 2009. As these expenses are directly related to such restructurings, we believe that providing non-GAAP financial measures that exclude these expenses allows investors and analysts to make meaningful comparisons of our ongoing core business operating results over different periods of time.

·   Share-Based Compensation Expense Adjustment. We have excluded the effect of share-based compensation expense from our calculation of the following: non-GAAP operating expense, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies may use, as well as the impact of non-operational factors such as our share price and events such as tender offers on the magnitude of this expense, we believe that providing non-GAAP financial measures that exclude share-based compensation expense allows investors and analysts to make meaningful comparisons between our ongoing core business operating results and those of other companies. Share-based compensation expense will recur in future periods for GAAP purposes.

·   Adjusted EBITDA. We provide information and guidance regarding our Adjusted EBITDA. We believe this performance measure is useful to investors because (a) it corresponds closely to the cash operating income (loss) generated from our core operations by excluding significant non-cash operating expenses that do not arise out of our core ongoing operating activities, and (b) it provides greater insight into management decision-making, as Adjusted EBITDA is one of our primary internal metrics for evaluating the performance of our business.

6

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

Reconciliation of GAAP to Non-GAAP Measures

As noted above and as reflected in the following reconciliation tables, we have provided reconciliations between the historical non-GAAP measures that we have disclosed and the most directly comparable GAAP measures.

·   Non-GAAP Net Revenue, Cost of Revenue, Gross Profit & Gross Margin. The following table provides reconciliations relating to net revenue, cost of revenue, gross profit and gross margin (in thousands, except for margin percentages, unaudited):

	Three Months Ended September 30,
	2010			2009
GAAP net revenue	$	25,348		$	26,056
Contra revenue associated with the warrant		1,020			-
Non-GAAP net revenue	$	26,368		$	26,056
GAAP cost of revenue	$	8,929		$	8,076
Acquisition-related intangible amortization expense		(141	)		(89	)
Non-GAAP cost of revenue	$	8,788		$	7,987
GAAP gross profit	$	16,419		$	17,980
GAAP gross margin (1)		65	%		69	%
Non-GAAP gross profit	$	17,580		$	18,069
Non-GAAP gross margin (2)		67	%		69	%

(1)  The GAAP gross margin percentage is calculated by dividing GAAP gross profit by GAAP net revenue.

(2)  The Non-GAAP gross margin percentage is calculated by dividing Non-GAAP gross profit by Non-GAAP net revenue.

	Six Months Ended September 30,
	2010			2009
GAAP net revenue	$	50,748		$	51,583
Contra revenue associated with the warrant		1,305			-
Non-GAAP net revenue	$	52,053		$	51,583
GAAP cost of revenue	$	16,602		$	15,961
Acquisition-related intangible amortization expense		(248	)		(203	)
Non-GAAP cost of revenue	$	16,354		$	15,758
GAAP gross profit	$	34,146		$	35,622
GAAP gross margin (1)		67	%		69	%
Non-GAAP gross profit	$	35,699		$	35,825
Non-GAAP gross margin (2)		69	%		69	%

(1)  The GAAP gross margin percentage is calculated by dividing GAAP gross profit by GAAP net revenue.

(2)  The Non-GAAP gross margin percentage is calculated by dividing Non-GAAP gross profit by Non-GAAP net revenue.

7

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

·   Operating Expenses. The following table provides reconciliations relating to operating expenses (in thousands, unaudited):

	Three Months Ended September 30,
	2010			2009
GAAP total operating expenses	$	19,724		$	17,438
Share-based compensation expense (1)		(945	)		(522	)
Restructuring expense (2)		-			(46	)
DivX acquisition expense (3)		(948	)		-
Non-GAAP total operating expenses	$	17,831		$	16,870

(1)  Share-based compensation expense is included in operating expenses on a GAAP basis.

(2)  Restructuring expense is included as a separate line item in operating expenses on a GAAP basis.

(3)  Acquisition expense is included as a separate line item in operating expenses on a GAAP basis.

	Six Months Ended September 30,
	2010			2009
GAAP total operating expenses	$	39,057		$	36,578
Share-based compensation expense (1)		(1,764	)		(1,102	)
Restructuring expense (2)		-			(566	)
DivX acquisition expense (3)		(2,566	)		-
Non-GAAP total operating expenses	$	34,727		$	34,910

(1)  Share-based compensation expense is included in operating expenses on a GAAP basis.

(2)  Restructuring expense is included as a separate line item in operating expenses on a GAAP basis.

(3)  Acquisition expense is included as a separate line item in operating expenses on a GAAP basis.

8

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

·   Non-GAAP Operating Income (Loss), Operating Margin, Net Income (Loss) & Adjusted EBITDA. The following table provides reconciliations relating to operating income (loss), operating margin, net income (loss) and Adjusted EBITDA (in thousands, except for margin percentages, unaudited):

	Three Months Ended September 30.
	2010			2009
GAAP operating income (loss) (1)	$	(3,305	)	$	542
Non-GAAP operating income (loss) (2)		(251	)		1,199
GAAP operating margin (3)		(13	%)		2	%
Non-GAAP operating margin (4)		(1	%)		5	%
GAAP net loss	$	(2,606	)	$	(206	)
Contra revenue associated with the  warrant		1,020			-
Acquisition-related intangible amortization  expense		141			89
Share-based compensation expense		945			522
Restructuring expense		-			46
DivX acquisition expense		948			-
Provision for (benefit from) income taxes		(73	)		247
Tax adjustment by applying an effective tax rate (5)		(150	)		(279	)
Non-GAAP net income	$	225		$	419
Depreciation		339			485
Other (income) expense		(626	)		501
Tax adjustment by applying an effective tax rate (5)		150			279
Adjusted EBITDA	$	88		$	1,684

(1) The GAAP operating loss is calculated by subtracting GAAP operating expenses from GAAP gross profit.

(2) The Non-GAAP operating income (loss) is calculated by subtracting Non-GAAP operating expenses from Non-GAAP gross profit.

(3) The GAAP operating margin percentage is calculated by dividing GAAP operating income (loss) by GAAP net revenue.

(4) The Non-GAAP operating margin percentage is calculated by dividing Non-GAAP operating income (loss) by Non-GAAP net revenue.

(5) Fiscal 2011 and 2010 are tax adjusted by applying an effective tax rate of 40%.

9

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

	Six Months Ended September 30.
	2010			2009
GAAP operating loss (1)	$	(4,911	)	$	(956	)
Non-GAAP operating income (2)		971			915
GAAP operating margin (3)		(10	%)		(2	%)
Non-GAAP operating margin (4)		2	%		2	%
GAAP net loss	$	(3,674	)	$	(2,037	)
Contra revenue associated with the  warrant		1,305			-
Acquisition-related intangible amortization  expense		248			203
Share-based compensation expense		1,764			1,102
Restructuring expense		-			566
DivX acquisition expense		2,566			-
Provision for (benefit from) income taxes		(849	)		731
Tax adjustment by applying an effective tax rate (5)		(544	)		(226	)
Non-GAAP net income	$	816		$	339
Depreciation		695			1,031
Other (income) expense		(388	)		350
Tax adjustment by applying an effective tax rate (5)		544			226
Adjusted EBITDA	$	1,667		$	1,946

(1) The GAAP operating loss is calculated by subtracting GAAP operating expenses from GAAP gross profit.

(2) The Non-GAAP operating income (loss) is calculated by subtracting Non-GAAP operating expenses from Non-GAAP gross profit.

(3) The GAAP operating margin percentage is calculated by dividing GAAP operating income (loss) by GAAP net revenue.

(4) The Non-GAAP operating margin percentage is calculated by dividing Non-GAAP operating income (loss) by Non-GAAP net revenue.

(5) Fiscal 2011 and 2010 are tax adjusted by applying an effective tax rate of 40%.

·   GAAP and Non-GAAP Net Income (Loss) Per Share. The following table provides net income (loss) per share (in thousands except per share data, unaudited):

	Three Months Ended September 30,
	2010			2009
GAAP net loss per share
Basic and diluted	$	(0.08	)	$	(0.01	)
Shares used in computing GAAP net loss per share
Basic and diluted		30,840			26,686

10

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

	Three Months Ended September 30,
	2010		2009
Non-GAAP net income per share
Basic	$	0.01	$	0.02
Diluted	$	0.01	$	0.01
Shares used in computing Non-GAAP net income per share
Basic		30,840		26,686
Diluted		33,045		28,080

	Six Months Ended September 30,
	2010			2009
GAAP net loss per share
Basic and diluted	$	(0.12	)	$	(0.08	)
Shares used in computing GAAP net loss per share
Basic and diluted		30,763			26,649

	Six Months Ended September 30,
	2010		2009
Non-GAAP net income per share
Basic	$	0.03	$	0.01
Diluted	$	0.02	$	0.01
Shares used in computing Non-GAAP net income per share
Basic		30,763		26,649
Diluted		33,261		27,792

About Sonic Solutions

Sonic Solutions® (NASDAQ: SNIC) is a leading developer of technologies, products and services that enable the creation, management, and enjoyment of digital media content across a wide variety of technology platforms. The Company’s products and services offer innovative technologies to consumers, Hollywood and independent studios, original equipment manufacturers (“OEMs”), businesses, high-end professional DVD authoring experts and developers. The Company distributes its products and services through retailers and distributors, personal computer (“PC”) and consumer electronic (“CE”) OEMs, Internet websites and other channels. The Company’s brands now include Roxio®, RoxioNow™, DivX®, Sonic® and MainConcept®, among others. The Company also licenses core technology and intellectual property to other software companies and technology manufacturers for integration into their own products and services. Sonic software is intended for use with Microsoft Windows and Apple Mac operating systems, as well as some Linux environments and proprietary platforms.

11

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

On October 7, 2010, the Company completed the DivX acquisition pursuant to the Agreement and Plan of Merger entered into June 1, 2010. Each share of DivX common stock issued and outstanding immediately prior to the acquisition date was converted into the right to receive 0.514 shares of the Company’s common stock and $3.75 in cash.

Forward-Looking Statements

This press release for the second quarter of fiscal year 2011 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are made as of the date of this press release based upon our current expectations. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenue, projected costs, projected savings, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “potential” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to:

·   the continuing negative impact of current macroeconomic conditions on consumers and associated impact on their ability and inclination to spend on leisure and entertainment related activities and related software and electronics;

·   our ability to generate net income;

·   our ability to integrate DivX into our operations;

·   our ability to maintain the strength of our brands;

·   our ability to adapt to rapid changes in technology and consumer preferences, and to successfully and cost-effectively develop and introduce new and enhanced products and services;

·   competitive pressures on our products and services, both from large established competitors with greater technological and financial resources than we possess, and from smaller companies that are able to compete effectively through low-cost Internet sales of their software products and services;

·   the impact of declines in our consumer products revenue relating to the DVD format;

·   changes in operating results, requirements or business models of our OEM or other major customers;

·   our ability to successfully introduce and profitably run our RoxioNow and DivX TV initiatives, businesses with which we have had limited experience, which are dependent on third parties for premium content selection and delivery services, and which may give rise to legal exposure and other business risks;

·   expenses and issues associated with qualifying and supporting our products on multiple computer platforms and in developing products and services designed to comply with industry standards;

·   issues impacting third parties who supply us with services and operate our web store, as well as retailers, resellers and distributors of our products;

·   risks associated with international operations, including risks related to currency fluctuations, as well as our extensive software development operations in China;

·   changes in our product and service offerings that could cause us to defer the recognition of revenue, thereby harming our operating results;

·   our ability to maintain sufficient liquidity and continue to fund our capital needs;

·   the loss of key management personnel;

·   risks related to acquisition and integration of acquired business assets, personnel and systems generally;

·   costs associated with litigation, patent prosecution, intellectual property and other claims;

·   changes in effective tax rates; and

·   earthquakes, natural disasters and other unexpected events.

This press release should be read in conjunction with our quarterly report on Form 10-Q expected to be filed on November 9, 2010, and our other reports currently on file with the Securities and Exchange Commission (“SEC”), which contain more detailed discussion of risks and uncertainties that may affect future results. We do not undertake to update any forward-looking statements unless otherwise required by law.

12

Sonic Solutions Reports Second Quarter Fiscal 2011 Financial Results

For more information, contact:	For more information, contact:
Sonic Solutions Investor Relations	Sonic Solutions Corporate Communications
Nils Erdmann	Chris Taylor
Phone: 415.893.8000 Fax: 415.893.8008	Phone: 415.893.8000 Fax: 415.893.8008

13

EX-99.2

Sonic Solutions  

Exhibit 99.2

Sonic Solutions

Management Commentary on Fiscal 2Q 2011 Earnings

November 9, 2010

Safe Harbor Statement

The following commentary contains forward-looking statements within the meaning of the federal securities laws. All statements, other than those of historical fact, are forward-looking statements, including but not limited to those regarding growth and financial performance, financial outlook, strategic and operational plans.  All forward-looking statements are made as of today based on current information and expectations and are inherently subject to change. We ask that you review the cautionary statements in today’s press release, which are also included at the end of this management’s commentary, and to read this management’s commentary in conjunction with Sonic’s quarterly report on Form 10-Q expected to be filed on November 9, 2010, and its other reports currently on file with the Securities and Exchange Commission, which contain more detailed discussions of the relevant risks and uncertainties that could cause actual results to differ from these forward looking statements. Except as required by law, Sonic undertakes no obligation to review or update any forward-looking statements.

In addition, unless otherwise noted, financial information is presented on a non-GAAP basis. These non-GAAP measures should be considered as supplemental to and not a substitute for or superior to the corresponding measures calculated in accordance with GAAP. While we believe that the non-GAAP measures provide information that is useful to investors, we recommend a careful review of the reconciliations between GAAP and non-GAAP measures provided in today's press release as well as the detailed disclosures related to the purpose of, and limitations on, non-GAAP disclosures. Today’s press release can be found on the Sonic website at www.sonic.com under “About Sonic – Investor Relations.”

1

Sonic Solutions

Dave Habiger

Sonic delivered solid results in the September quarter with non-GAAP revenues of $26.4 million dollars, positive Adjusted EBITDA and a cash balance of $55 million. Our results were in-line with our expectations and reflect the strength of our value proposition to our customers.  Never has there been a greater interest in the tools and technologies that we develop here at Sonic. Internet video delivery is on the verge of disrupting traditional physical and broadcast based distribution models, and with the combined resources of Sonic and now DivX, we are uniquely positioned to facilitate, and profit from, this transition.

Last quarter, we provided a comprehensive update of the status of our merger with DivX and, as I’m sure most of you know, we successfully closed the acquisition on October 7, 2010.  Due to the timing of the close, our results for the second quarter of fiscal 2011 do not include the results of DivX and because of the way in which quarterly financial reports are required to be prepared, there will be no separate full financial report for DivX’s September quarter results.  

We can tell you, though, that DivX’s business performed well during the September quarter.  Revenues were approximately $20.8 million, and non-GAAP net income was approximately $1.9 million, each at the top of the guidance range for DivX.

Before Paul takes you through our financial results in more detail, I’d like to offer a few thoughts on our businesses.  Particularly, I’d like to talk about our Roxio software business, about the business of DivX which is now being integrated with our operations, and finally, I’d like to spend a few minutes talking about the very exciting progress we’re making with our RoxioNow service for Internet delivery of premium content directly to connected devices.

Roxio Software

Roxio continues to dominate at retail with more than 62% revenue market share in its category which is 4x the dollar volume than the next largest competitor according to the latest data from the NPD Group. Roxio holds the Top 4 of 10 selling SKUs in our retail category, and continues to maintain this leadership position and exclusivity at top retailers that are not captured by NPD as well.

2

Sonic Solutions

Our OEM, Enterprise and PC licensing businesses, representing roughly half of Roxio Software revenue, are healthy and diversified in terms of our key OEM relationships and applications.  While the PC OEM segment has recently produced flat or modestly declining results for us, which is understandable given the forces at work in the PC industry, several trends suggest that our OEM business will strengthen over the next several quarters based on our upcoming product line, and in particular based on the links we’re constructing between this business and our DivX and RoxioNow platforms, as well as the cross-promotional opportunity between our Roxio and DivX installed base. OEM bids now underway with our significant customers should translate into additional revenue beginning this holiday season and in early 2011. The most successful new SKUs gaining traction with our customers include our PC Backup solution and the powerful new 3D capabilities, including 2D to 3D photo conversion, that were introduced in Creator 2011, which are suitable for a range of 3D-enabled systems and peripherals.

DivX

During the September quarter, DivX (still an independent company at that time) performed very well.  Including Main Concept, DivX achieved revenues of approximately $20.8M which fell at the high end of the guidance range DivX had previously provided to investors.  DivX results were fueled by increasing penetration in emerging consumer electronics categories with Digital Television and Blu-ray player segments posting record units and growth.  During the quarter, DivX also demonstrated its strength in both technology and brand by announcing a relationship with MediaMarkt, Europe’s largest consumer electronics retailer, to power their digital movie distribution business.  Exciting advancements have also been achieved by certifying and shipping the Samsung Galaxy S mobile phone and tablet with the DivX HD profile.  International expansion continues as evidenced by DivX entering into agreements with the largest China brands for DTVs, including Hisense, Skyworth and Konka.  Lastly, DivX accomplished a significant milestone by launching DivX TV in early October on both new and installed Blu-ray devices in the U.S. from LG Electronics.  

3

Sonic Solutions

We are excited that DivX is now part of Sonic.  DivX has a great business, but most importantly it provides us with amazing strategic advantages and opportunities:

· Consumer Electronics Footprint — DivX technology resides on over 350 million CE devices worldwide, with some of the highest concentration of these in Europe and Southeast Asia.  DivX has relationships with all the major CE OEMs, and an excellent CE technology delivery organization.  There’s no doubt this will accelerate our drive to put our RoxioNow platform on every internet connected CE device shipped anywhere in the world.

· The DivX Community — DivX supports a large online community of video enthusiasts.  The strength of this community is apparent in the numbers:  DivX downloaded more than 20M sets of its software tools in the September quarter, up 146% year over year and 34% over the prior quarter.  Since inception, DivX has seen more than 500 million downloads of its software, enjoying an average of 12 million unique website visits per month and over 3 billion player and web player launches in the last year alone.  There’s no doubt in our mind that this community will accelerate consumer adoption and use of our software tools, not to mention broad-scale adoption of our RoxioNow premium content delivery services.

· Industrial Strength Technology — DivX and its MainConcept subsidiary provide key codec technologies and tools to a customer list that can only be described as a “Who’s Who” of the internet and consumer electronics industries.   These industrial strength codecs will significantly improve our professional and RoxioNow offerings.

· DivX TV — The DivX TV platform provides a complementary technology to RoxioNow.  Designed to enable consumers to stream Internet video and services directly to Internet-connected digital televisions and other Internet-connected CE devices, the platform expands the range of service offerings we can provide to our storefront partners. With the combination of RoxioNow and DivX TV, Sonic becomes a single source for the delivery of paid entertainment and free web media to home and mobile electronics.

4

Sonic Solutions

RoxioNow

Our RoxioNow business is now growing rapidly.  For the quarter, RoxioNow generated $6.5 million in non-GAAP revenue, a 24% increase from last quarter and a 136% increase over the same quarter a year ago.

As you know, for the past two years, RoxioNow has been gearing up for a massive sea-change as premium video entertainment begins to be delivered over the Internet rather than through traditional physical or broadcast channels.  Through our partnerships, we have been designing, enabling and activating storefronts for brick and mortar retailers, cable operators, PC manufacturers, game system vendors, consumer electronics makers, and Hollywood studios’ direct-to-consumer initiatives. The RoxioNow platform allows these companies to participate in the entertainment supply chain, add value to product offerings, and form ongoing relationships with customers. “Powered by RoxioNow” stores enable consumers to instantly rent and purchase high-quality entertainment on their favorite devices and, through the RoxioNow online entertainment library, access their content at any time, on any RoxioNow-powered device.

Evidence of the value of our position is the high level of partnering activity RoxioNow has enjoyed since our last earnings call.  Let me highlight a few of these for you:

· Last week, we announced a partnership with Dolby Laboratories to deliver Dolby Digital Plus through the RoxioNow entertainment platform. The RoxioNow platform is enabling Dolby to expand the reach of their high-quality audio format and bring it to a broad, multi-manufacturer network of connected devices. Content sold or rented through RoxioNow-powered storefronts will be available in DTS, Dolby and AAC formats through RoxioNow.

· In late September,we announced our collaboration with Neustar to accelerate the efforts of the Digital Entertainment Content Ecosystem (DECE). Sonic and Neustar, as DECE members, will leverage their proprietary technologies to support the commercial launch of the consortium's consumer brand UltraViolet. The companies will work together to enable DECE members and licensees to rapidly integrate into the UltraViolet Digital Rights Locker. Neustar's content and rights management system together with RoxioNow’s cloud-based technologies will help to efficiently deliver digital entertainment to consumers, and both of us are together working on rapid and cost-effective integration of the UltraViolet Digital Rights Locker with retailer storefront and locker access service functions to provide a turn-key launch solution for UltraViolet participants.

5

Sonic Solutions

· MStar Semiconductor, Inc. and Renesas Electronics Corporation each announced that the RoxioNow premium entertainment platform has been selected for inclusion in the respective companies’ advanced System-on-a-Chip (“SoC”) solutions, which will be used in next-generation connected HDTVs and Blu-ray Disc players from a range of manufacturers. In addition, just last week we announced the DivX Plus HD Certification of the latest range of MStar Semiconductor digital TV chips. This is the first MStar DTV chip certified to power DivX Plus HD video based on H.264 technology and using the MKV container, which maximizes digital media playback for high definition video files and Hollywood movies.

We’re cooperating closely with Best Buy and our other major retail storefront partners such as Blockbuster and Sears/Kmart, and you should expect to see a roll-out of many of their services throughout this holiday shopping season. In particular, you should take note of extensive in-store activities at Best Buy designed to promote awareness of the Best Buy CinemaNow service, and to attach that service to CinemaNow-ready Blu-ray players and digital televisions being sold through Best Buy.

As we round the end of the calendar year, we'll be moving even more rapidly to deploy the RoxioNow platform on millions of CE devices, enabling the download or rental of premium content across a broader number of storefronts.  To give you an indication of our level of activity, at this time last year, we had 49 SKUs launched while today, well over 200 have launched and there are hundreds more in the pipeline.

From all of this, it should be clear that we remain on track to have RoxioNow enabled stores on millions of CE devices by the end of this calendar year, on our way to achieving or surpassing the target we’ve set for ourselves of 30 million devices by June of 2011.

6

Sonic Solutions

We continue to see positive trends with the activation rate1 of the RoxioNow service.  What’s most encouraging is that in the past several weeks, we have seen a number of indications of the power of in-store and point-of-sale promotions.  For example, prepaid gift cards (for a RoxioNow-powered service) have been attaching to new TVs and Blu-ray players at a rate of up to 50%. This is a good indicator of the power of in-store education we can expect to see over the Holiday season. Obviously, this is still early stage, and there is considerable experimentation yet to be done, but these indicators make us confident that we’ll continue to see activation rates increase.

Even more fascinating have been early trends that we’ve begun seeing in terms of consumer use of RoxioNow powered services.  Particularly interesting is the emergence of an “engaged user” – which we define to be someone who buys or rents at least one title per month for three consecutive months.  What we’ve seen is that this kind of consumer is likely to be transacting with us at least 4 times a month – impressionistically, RoxioNow has become their entertainment destination for weekend movie viewing.

Also particularly interesting are indications that the availability of the RoxioNow digital locker is directly affecting consumer purchase behavior.   In the past, most online delivery of premium content has been based on subscription or rental as opposed to a purchase.  We’re seeing – and again, this is very early data – that RoxioNow consumers who have registered more than one RoxioNow-powered device are significantly more likely to purchase content than those with just one device; what we’ve seen is that the propensity to purchase a movie transaction is roughly double among these multi-device consumers. The reason for this, we believe, is that anytime, anywhere access across multiple devices – the key benefit of the locker – is highly attractive to consumers.  This is potentially very significant for our business and most importantly for the business of our studio partners since it suggests that internet delivery can become a true value and revenue equivalent of DVDs.

1 We define “activation rate” as a fraction expressed as a percentage, the denominator of which is devices shipped with one of our RoxioNow “stores” resident, the numerator of which is the subset of those devices with which a consumer has associated a RoxioNow account (either a newly created account or a previously created account).

7

Sonic Solutions

What To Look For

Before turning to our financial results I’d like to suggest to everyone on the call what they should look for from Sonic over the coming months.

First, watch for more partnerships and product releases with device makers and SoC suppliers.  We are on track to deploy one or more RoxioNow powered stores on as much as 95% of the internet connectable Blu-ray Disc players and Digital Televisions shipped over the next several years.  And with the addition of DivX to our company, we gain the potential advantage of extending the RoxioNow footprint back to the 350 million devices on which DivX technology already resides.

Second, watch for announcements before the holidays that signal expansion of our business into international markets.  As you may know, North America accounts for at most 50% of worldwide premium content revenues.  Our studio partners, and our CE partners operate global businesses, and the internet delivery phenomenon will happen everywhere.  And Sonic aims to be a premier player across the planet.

Third, RoxioNow is adding a new monetization model.  As you know, our strategy is to be the supplier of technology and services that enables the internet delivery of premium content over a range of connected consumer electronic devices, with full support for consumer “locker-resident” rights.  In this, we support the branded offerings of our retail or “storefront” partners.  In the past we’ve noted that we are compensated for this in three different ways:

1. We receive compensation for our cloud-based services in the form of periodic service fees as well as on a per-transaction basis.

2.  We receive compensation for provisioning device-resident technology.

8

Sonic Solutions

3.  We receive a split of the content subscription, purchase, or rental revenues received by our storefront partners.

We’re now finding that there are more ways in which we can monetize our position.  One important instance of this: because we have assembled a comprehensive set of rights to Hollywood content, we’re seeing interest from other technology companies in piggy-backing on our rights inventory, an approach we are completely open to both for the extra revenue it will bring, plus the added value it will bestow on our consumer rights locker.   We anticipate that this new source of revenue will begin to show up in our March results.

Fourth, we’re adding new kinds of customers.  Along this line, you should watch for the first of what we hope will be a series of partnering announcements with cable TV MSOs and cell phone MNOs.

Fifth, and perhaps most importantly, look for partnership announcements with the content community that focus attention on Sonic’s unique capability to serve the Hollywood community in delivering high-value, post theatrical release premium content to movie goers.  You may have noticed recent publicity concerning the 28-day window.  That’s only the start of a very interesting set of developments.

Digital distribution of premium content will grow dramatically over the next few years, and Sonic’s role in this changing environment is to enable consumers to buy and play premium content anywhere and at anytime.  As the digital content ecosystem continues to expand and evolve, we aim to make our products and services available through an increasing range of platforms, devices and partners. We aim to be one of the very few companies that will wholeheartedly embrace this new model, and in doing so, we are confident that we can create significant value for our partners and for our shareholders.

9

Sonic Solutions

Paul Norris

Income Statement

For the September quarter, non-GAAP net revenue was $26.4 million, above our guidance and in line with analysts’ consensus. Excluded from this number was $1.0 million of contra revenue relating to the Best Buy warrant.  The contra revenue was higher than in prior periods due to the impact of Sonic’s higher share price on the quarterly warrant valuation we perform.

Roxio Consumer revenue was $19.9 million in the quarter, down slightly from $20.4 million last quarter due to somewhat softer consumer software sales and the establishment of end of life reserves relating to prior year products, partially offset by higher enterprise software revenue.  During the quarter we launched the latest version of Creator, our flagship retail product, and we are so far pleased with its performance in a challenging environment.  For instance, share of market in dollar volume, as reported by NPD through the first nine months of the year, for Creator and related SKUs, was 62% compared to 52% for the same period in 2009.

Our Premium Content Group, which includes our Professional Products, RoxioNow, Qflix, and CE licensing, contributed $5.5 million in GAAP revenue during the September quarter, up from $5.0 million in the June quarter. The increase over the prior quarter was due to greater licensing and services revenue from RoxioNow. Adjusting for contra revenue of $1.0 million relating to the Best Buy warrant, the Premium Content Group’s non-GAAP net revenue was $6.5 million, which is 24% above the previous quarter’s revenue and 136% above the same quarter a year ago.

Our gross margin (which, on a non-GAAP basis, excludes $141 thousand in amortization of acquired intangibles) was 67%, slightly below previous quarters as a result of costs associated with the retail launch of our Creator 2011 as well as increased headcount supporting RoxioNow customer deliverables.

10

Sonic Solutions

On a GAAP basis, operating expense was $19.7 million for the September quarter, up slightly from $19.3 million last quarter.  This figure includes $948 thousand of expenses associated with our acquisition of DivX.  GAAP operating expense breaks down as follows:

· Sales and marketing expense totaled $7.9 million, up from $7.1 million in the prior quarter, due primarily to Creator 2011 launch expenses and increased RoxioNow sales and marketing activities;

· Research and development expense totaled $6.3 million, up from $5.9 million in the prior quarter, due mostly to additional engineering headcount associated with the Retrospect acquisition; and

· General and administrative expense totaled $4.5 million, down slightly from $4.7 million in the prior quarter.

In addition to the DivX acquisition-related expenses, GAAP operating expense also includes $945 thousand in share-based compensation. On a non-GAAP basis, our operating expense was $17.8 million, leading to a non-GAAP operating loss of $252 thousand.

Other income and expense, consisting primarily of foreign currency gains, totaled $626 thousand for the quarter.  On a non-GAAP basis and assuming an effective tax rate of 40%, our net income in the September quarter was $224 thousand, or $0.01 cent per fully diluted share.  On a GAAP basis, our net loss was $2.6 million or $(0.08) cent per share. Our Adjusted EBITDA, which is comprised of earnings before interest, taxes, depreciation and amortization, excluding the warrant-related contra revenue, and share-based compensation, was $88 thousand, below the $500 thousand we projected last quarter due largely to increased end of life reserves established for our last year’s version of our Creator product.

Balance Sheet

Cash and cash equivalents ended the quarter at $54.5 million, down very slightly from $54.9 million at the end of the prior quarter.

11

Sonic Solutions

DivX Results

During the September quarter, DivX revenue was $20.8 million at the upper end of the guidance range of $20 to $21 million.  On a GAAP basis, DivX’s net loss was $1.0 million.  On a non-GAAP basis, which excludes share-based compensation expense of approximately $2.9 million, amortization and depreciation of approximately $900 thousand, acquisition-related expense of slightly more than $1 million, and assuming a tax rate of 40%, DivX’s net income was approximately $1.9 million.

Non-GAAP Revenue and Adjusted EBITDA

As you know, at our next quarter’s call we will report based on the combined operations of Sonic and DivX.  Because of the way in which an acquisition of this magnitude and type affects our financials, we will continue our policy of reporting revenue and profitability measures that attempt to adjust for anomalies introduced by purchase accounting.  This continues a long-standing policy of ours to focus on non-GAAP revenue and Adjusted EBITDA as important indicators of company performance and profitability.  We do this, of course, because we believe that these metrics provide investors a useful way of understanding company operations on a basis that is comparable with prior and future period results; additionally, these are principal measures that we use to manage internal operations.  We provide a reconciliation of these non-GAAP measures in our earnings releases, and we strongly encourage investors and shareholders to study the reconciliation of these non-GAAP measures with our GAAP financials.

I would like to review here the principal ways in which our measures of non-GAAP revenue and non-GAAP Adjusted EBITDA differ from the corresponding GAAP measures.

Non-GAAP Revenue

We adjust GAAP revenue principally in two ways.

· First, we eliminate the contra revenue and expense impacts of warrants that we issue in connection with certain operating agreements that we have entered into.

12

Sonic Solutions

· Second, we eliminate the impact of “black hole” revenue accounting.  Under GAAP rules, neither the acquiring company nor the target company can ever recognize certain revenue under customer contracts entered into by the target before the acquisition, even where the acquiring company receives the full customer payment and regardless of whether there are any post-acquisition deliveries of software or technology.  For example, in the case of the DivX acquisition, certain large fixed site license payments that Sonic will receive under DivX contracts post closing will be capitalized as assets (receivables) on Sonic’s balance sheet because they are so likely to be received.  Because neither company will be able to recognize these amounts, it has been suggested that the revenue in question has fallen into a black hole, leading to the informal name.

Cost Adjustments

In deriving Adjusted EBITDA we utilize our non-GAAP revenue figures, and make a number of adjustments to costs:

· Cost of Goods Sold is adjusted for non-cash amortization of acquired intangible assets.

· Operating Expense is adjusted for the impact of stock-based compensation.

· Operating Expense is adjusted for depreciation of fixed assets.

· Operating Expense is adjusted for transaction expenses related to pending and completed acquisition, including legal, accounting, banking, and other transaction related expenses.

· Operating Expense is adjusted for transition expenses related to completed acquisitions – that is expenses related to staff, contractors or facilities that are necessary to combine operations or that are in the process of being terminated or closed.

· Operating Expense is periodically adjusted for other one-time expenses, such as restructuring expenses or valuation allowances, that either do not result in cash expenditures or that otherwise do not have material impacts on our ongoing business operations.

13

Sonic Solutions

Guidance

As Dave mentioned, the acquisition of DivX was finalized on October 7, 2010.  We have made great progress in integrating our various business lines and are in the process of evaluating our overall company organizational and business segment structure.  Going forward, we expect to benefit from efficiencies associated with operating a larger business and anticipate significant annual savings resulting from the elimination of DivX’s public company reporting obligations and the achievement of cost synergies.

Our forecast for the third fiscal quarter of 2011 ending December 31 is for consolidated non-GAAP revenue of at least $46 million.  We estimate that non-GAAP gross margins for the quarter will be in the mid- to high-70 percent range, non-GAAP operating expenses will be approximately $34 million, operating margins will be in the mid-single digits and Adjusted EBITDA will be at least $3 million.

14

Sonic Solutions

Forward-Looking Statements

This Management Commentary contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are made as of the date of this Commentary based upon our current expectations.  All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenue, projected costs, projected savings, prospects, plans, opportunities, and objectives constitute “forward-looking statements.”  The words “may,” “will,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “potential” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.  Important factors that could cause such differences include, but are not limited to:

· the continuing negative impact of current macroeconomic conditions on consumers and associated impact on their ability and inclination to spend on leisure and entertainment related activities and related software and electronics;

· our ability to generate net income;

· our ability to integrate DivX into our operations;

· our ability to maintain the strength of our brands;

· our ability to adapt to rapid changes in technology and consumer preferences, and to successfully and cost-effectively develop and introduce new and enhanced products and services;

· competitive pressures on our products and services, both from large established competitors with greater technological and financial resources than we possess, and from smaller companies that are able to compete effectively through low-cost Internet sales of their software products and services;

· the impact of declines in our consumer products revenue relating to the DVD format;

· changes in operating results, requirements or business models of our OEM or other major customers;

· our ability to successfully introduce and profitably run our RoxioNow and DivX TV initiatives, businesses with which we have had limited experience, which are dependent on third parties for premium content selection and delivery services, and which may give rise to legal exposure and other business risks;

· expenses and issues associated with qualifying and supporting our products on multiple computer platforms and in developing products and services designed to comply with industry standards;

· issues impacting third parties who supply us with services and operate our web store, as well as retailers, resellers and distributors of our products;

· risks associated with international operations, including risks related to currency fluctuations, as well as our extensive software development operations in China;

· changes in our product and service offerings that could cause us to defer the recognition of revenue, thereby harming our operating results;

· our ability to maintain sufficient liquidity and continue to fund our capital needs;

· the loss of key management personnel;

· risks related to acquisition and integration of acquired business assets, personnel and systems generally;

· costs associated with litigation, patent prosecution, intellectual property and other claims;

· changes in effective tax rates; and

· earthquakes, natural disasters and other unexpected events.

This Commentary should be read in conjunction with our quarterly report on Form 10-Q expected to be filed on November 9, 2010, and our other reports currently on file with the Securities and Exchange Commission (“SEC”), which contain more detailed discussion of risks and uncertainties that may affect future results.  We do not undertake to update any forward-looking statements unless otherwise required by law.

15