|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Washington
|
|
91-1628146
|
(State of incorporation)
|
|
(I.R.S. Employer Identification Number)
|
2601 Elliott Avenue, Suite 1000
|
|
98121
|
Seattle, Washington
|
|
(Zip Code)
|
(Address of principal executive offices)
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
Common Stock, Par Value $0.001 per share
Preferred Share Purchase Rights
|
|
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
|
Large accelerated filer
¨
|
|
Accelerated filer
þ
|
|
Non-accelerated filer
¨
|
|
Smaller reporting company
¨
|
|
|
(Do not check if a smaller reporting company)
|
|
|
|
|
|
|
|
Page
|
|
||
PART I
|
||
Item 1.
|
||
Item 1A.
|
||
Item 1B.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
||
PART II
|
||
Item 5.
|
||
Item 6.
|
||
Item 7.
|
||
Item 7A.
|
||
Item 8.
|
||
Item 9.
|
||
Item 9A.
|
||
Item 9B.
|
||
|
||
PART III
|
||
Item 10.
|
||
Item 11.
|
||
Item 12.
|
||
Item 13.
|
||
Item 14.
|
||
|
||
PART IV
|
||
Item 15.
|
||
•
|
future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;
|
•
|
the effects of our past acquisitions and expectations for future acquisitions and divestitures;
|
•
|
the effect on our businesses of the sale of certain patent assets and next generation codec assets to Intel Corporation;
|
•
|
plans, strategies and expected opportunities for future growth, increased profitability and innovation;
|
•
|
the prospects for creation and growth of strategic partnerships and the resulting financial benefits from such partnerships;
|
•
|
the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;
|
•
|
our involvement in potential claims, legal proceedings and government investigations, the expected course and costs of existing claims, legal proceedings and government investigations, and the potential outcomes and effects of both existing and potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;
|
•
|
the expected benefits and other consequences from the 2010 restructuring of Rhapsody and from our other strategic initiatives;
|
•
|
our expected introduction of new and enhanced products, services and technologies across our businesses;
|
•
|
the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;
|
•
|
the continuation and expected nature of certain customer relationships;
|
•
|
impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;
|
•
|
the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and
|
•
|
the effect of economic and market conditions on our business, prospects, financial condition or results of operations.
|
Item 1.
|
Business
|
Item 1A.
|
Risk Factors
|
•
|
reduced prices or margins,
|
•
|
loss of current and potential customers, or partners and potential partners who provide content we distribute to our customers,
|
•
|
changes to our products, services, technologies, licenses or business practices or strategies,
|
•
|
lengthened sales cycles,
|
•
|
industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,
|
•
|
pressure to prematurely release products or product enhancements, or
|
•
|
degradation in our stature or reputation in the market.
|
•
|
impairments of long-lived assets,
|
•
|
integrating and operating newly acquired businesses and assets, and
|
•
|
the general difficulty in forecasting our operating results and metrics, which could result in actual results that differ significantly from expected results.
|
•
|
difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;
|
•
|
retaining key management or employees of the acquired company;
|
•
|
entrance into unfamiliar markets, industry segments, or types of businesses;
|
•
|
operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;
|
•
|
diversion of management time and other resources from existing operations;
|
•
|
impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and
|
•
|
assumption of known and unknown liabilities of the acquired company, including intellectual property claims.
|
•
|
elect or defeat the election of our directors;
|
•
|
amend or prevent amendment of our articles of incorporation or bylaws;
|
•
|
effect or prevent a merger, sale of assets or other corporate transaction; and
|
•
|
control the outcome of any other matter submitted to the shareholders for vote.
|
•
|
adopt a plan of merger;
|
•
|
authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;
|
•
|
authorize our voluntary dissolution; or
|
•
|
take any action that has the effect of any of the above.
|
Item 1B.
|
Unresolved Staff Comments
|
Item 2.
|
Properties
|
Location
|
|
Area leased
(sq. feet)
|
|
Lease expiration
|
Seattle, Washington
|
|
264,000
|
|
September 2014, with an option to
renew for two five-year periods
|
Seoul, Republic of Korea(1)
|
|
46,000
|
|
October 2014
|
Reston, Virginia(1)
|
|
29,000
|
|
September 2017
|
(1)
|
This facility is utilized only by our Core segment.
|
Item 3.
|
Legal Proceedings
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
|
|
|
Years Ended December 31,
|
||||||||||||||
|
|
2012
|
|
2011
|
||||||||||||
|
|
High
|
|
Low
|
|
High
|
|
Low
|
||||||||
First Quarter
|
|
$
|
11.19
|
|
|
$
|
6.88
|
|
|
$
|
17.24
|
|
|
$
|
14.00
|
|
Second Quarter
|
|
10.00
|
|
|
8.13
|
|
|
15.08
|
|
|
13.20
|
|
||||
Third Quarter
|
|
8.78
|
|
|
7.48
|
|
|
14.60
|
|
|
7.40
|
|
||||
Fourth Quarter
|
|
8.57
|
|
|
6.80
|
|
|
10.20
|
|
|
6.92
|
|
Item 6.
|
Selected Financial Data
|
|
|
Years Ended December 31,
|
||||||||||||||||||
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
|
(In thousands, except per share data)
|
||||||||||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
|
$
|
562,264
|
|
|
$
|
604,810
|
|
Cost of revenue
|
|
103,731
|
|
|
126,637
|
|
|
144,723
|
|
|
222,142
|
|
|
233,244
|
|
|||||
Impairment of deferred costs and prepaid royalties
|
|
—
|
|
|
19,962
|
|
|
—
|
|
|
—
|
|
|
19,666
|
|
|||||
Gross profit
|
|
155,111
|
|
|
189,087
|
|
|
257,010
|
|
|
340,122
|
|
|
351,900
|
|
|||||
Sale of patents and other technology assets, net of costs (See Note 1 to the Financial Statements)
|
|
116,353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Research and development
|
|
63,194
|
|
|
70,212
|
|
|
100,955
|
|
|
119,448
|
|
|
113,680
|
|
|||||
Sales and marketing
|
|
90,301
|
|
|
111,300
|
|
|
118,543
|
|
|
165,856
|
|
|
211,922
|
|
|||||
Advertising with related party
|
|
—
|
|
|
—
|
|
|
1,065
|
|
|
33,292
|
|
|
44,213
|
|
|||||
General and administrative
|
|
43,891
|
|
|
37,181
|
|
|
51,217
|
|
|
79,164
|
|
|
69,981
|
|
|||||
Impairment of goodwill and long-lived assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
175,583
|
|
|
192,676
|
|
|||||
Restructuring and other charges
|
|
15,225
|
|
|
8,650
|
|
|
12,361
|
|
|
4,017
|
|
|
6,833
|
|
|||||
Loss (gain) on excess office facilities
|
|
3,290
|
|
|
(646
|
)
|
|
7,396
|
|
|
—
|
|
|
—
|
|
|||||
Total operating expenses
|
|
215,901
|
|
|
226,697
|
|
|
291,537
|
|
|
577,360
|
|
|
639,305
|
|
|||||
Operating income (loss)
|
|
55,563
|
|
|
(37,610
|
)
|
|
(34,527
|
)
|
|
(237,238
|
)
|
|
(287,405
|
)
|
|||||
Other income (expense), net
|
|
1,796
|
|
|
(6,819
|
)
|
|
204
|
|
|
(2,470
|
)
|
|
27,800
|
|
|||||
Income (loss) before income taxes
|
|
57,359
|
|
|
(44,429
|
)
|
|
(34,323
|
)
|
|
(239,708
|
)
|
|
(259,605
|
)
|
|||||
Income tax expense (benefit)
|
|
12,518
|
|
|
(17,329
|
)
|
|
(36,451
|
)
|
|
3,321
|
|
|
25,828
|
|
|||||
Net income (loss)
|
|
44,841
|
|
|
(27,100
|
)
|
|
2,128
|
|
|
(243,029
|
)
|
|
(285,433
|
)
|
|||||
Net loss attributable to the noncontrolling interest in Rhapsody
|
|
—
|
|
|
—
|
|
|
2,910
|
|
|
26,265
|
|
|
41,555
|
|
|||||
Net income (loss) attributable to common shareholders
|
|
$
|
44,841
|
|
|
$
|
(27,100
|
)
|
|
$
|
5,038
|
|
|
$
|
(216,764
|
)
|
|
$
|
(243,878
|
)
|
Diluted net income (loss) per share available to common shareholders
|
|
$
|
1.28
|
|
|
$
|
(0.79
|
)
|
|
$
|
0.26
|
|
|
$
|
(6.55
|
)
|
|
$
|
(6.95
|
)
|
Shares used to compute diluted net income (loss) per share available to common shareholders
|
|
35,122
|
|
|
34,185
|
|
|
34,013
|
|
|
33,653
|
|
|
35,108
|
|
|||||
Special cash dividend of $1.00 per common share
|
|
—
|
|
|
$
|
136,793
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
As of December 31,
|
||||||||||||||||||
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
|
(In thousands)
|
||||||||||||||||||
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash, cash equivalents, and short-term investments
|
|
$
|
271,414
|
|
|
$
|
185,072
|
|
|
$
|
334,321
|
|
|
$
|
384,900
|
|
|
$
|
370,734
|
|
Working capital
|
|
237,646
|
|
|
160,787
|
|
|
286,315
|
|
|
278,198
|
|
|
266,990
|
|
|||||
Total assets
|
|
433,897
|
|
|
393,397
|
|
|
577,936
|
|
|
606,883
|
|
|
789,013
|
|
|||||
Shareholders’ equity
|
|
342,728
|
|
|
286,894
|
|
|
425,239
|
|
|
375,811
|
|
|
553,558
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
|
$
|
(76,844
|
)
|
|
(23
|
)%
|
|
$
|
(66,047
|
)
|
|
(16
|
)%
|
Cost of revenue
|
|
103,731
|
|
|
126,637
|
|
|
144,723
|
|
|
(22,906
|
)
|
|
(18
|
)%
|
|
(18,086
|
)
|
|
(12
|
)%
|
|||||
Impairment of deferred costs
|
|
—
|
|
|
19,962
|
|
|
—
|
|
|
(19,962
|
)
|
|
(100
|
)%
|
|
19,962
|
|
|
100
|
%
|
|||||
Gross profit
|
|
155,111
|
|
|
189,087
|
|
|
257,010
|
|
|
(33,976
|
)
|
|
(18
|
)%
|
|
(67,923
|
)
|
|
(26
|
)%
|
|||||
Gross margin
|
|
60
|
%
|
|
56
|
%
|
|
64
|
%
|
|
4
|
%
|
|
|
|
(8
|
)%
|
|
|
|||||||
Sale of patent assets and other technology assets, net of costs
|
|
116,353
|
|
|
—
|
|
|
—
|
|
|
116,353
|
|
|
100
|
%
|
|
|
|
|
|||||||
Total operating expenses
|
|
215,901
|
|
|
226,697
|
|
|
291,537
|
|
|
(10,796
|
)
|
|
(5
|
)%
|
|
(64,840
|
)
|
|
(22
|
)%
|
|||||
Operating income (loss)
|
|
$
|
55,563
|
|
|
$
|
(37,610
|
)
|
|
$
|
(34,527
|
)
|
|
$
|
93,173
|
|
|
248
|
%
|
|
$
|
(3,083
|
)
|
|
(9
|
)%
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
149,211
|
|
|
$
|
191,240
|
|
|
$
|
212,845
|
|
|
$
|
(42,029
|
)
|
|
(22
|
)%
|
|
$
|
(21,605
|
)
|
|
(10
|
)%
|
Cost of revenue
|
|
70,796
|
|
|
83,696
|
|
|
83,733
|
|
|
(12,900
|
)
|
|
(15
|
)%
|
|
(37
|
)
|
|
—
|
%
|
|||||
Impairment of deferred costs
|
|
—
|
|
|
19,329
|
|
|
—
|
|
|
(19,329
|
)
|
|
(100
|
)%
|
|
19,329
|
|
|
100
|
%
|
|||||
Gross profit
|
|
78,415
|
|
|
88,215
|
|
|
129,112
|
|
|
(9,800
|
)
|
|
(11
|
)%
|
|
(40,897
|
)
|
|
(32
|
)%
|
|||||
Gross margin
|
|
53
|
%
|
|
46
|
%
|
|
61
|
%
|
|
7
|
%
|
|
|
|
(15
|
)%
|
|
|
|||||||
Total operating expenses
|
|
64,960
|
|
|
75,188
|
|
|
86,217
|
|
|
(10,228
|
)
|
|
(14
|
)%
|
|
(11,029
|
)
|
|
(13
|
)%
|
|||||
Operating income (loss)
|
|
$
|
13,455
|
|
|
$
|
13,027
|
|
|
$
|
42,895
|
|
|
$
|
428
|
|
|
3
|
%
|
|
$
|
(29,868
|
)
|
|
(70
|
)%
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
67,055
|
|
|
$
|
97,856
|
|
|
$
|
111,394
|
|
|
$
|
(30,801
|
)
|
|
(31
|
)%
|
|
$
|
(13,538
|
)
|
|
(12
|
)%
|
Cost of revenue
|
|
21,613
|
|
|
30,646
|
|
|
29,071
|
|
|
(9,033
|
)
|
|
(29
|
)%
|
|
1,575
|
|
|
5
|
%
|
|||||
Gross profit
|
|
45,442
|
|
|
67,210
|
|
|
82,323
|
|
|
(21,768
|
)
|
|
(32
|
)%
|
|
(15,113
|
)
|
|
(18
|
)%
|
|||||
Gross margin
|
|
68
|
%
|
|
69
|
%
|
|
74
|
%
|
|
(1
|
)%
|
|
|
|
(5
|
)%
|
|
|
|||||||
Total operating expenses
|
|
49,804
|
|
|
60,633
|
|
|
78,275
|
|
|
(10,829
|
)
|
|
(18
|
)%
|
|
(17,642
|
)
|
|
(23
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(4,362
|
)
|
|
$
|
6,577
|
|
|
$
|
4,048
|
|
|
$
|
(10,939
|
)
|
|
(166
|
)%
|
|
$
|
2,529
|
|
|
62
|
%
|
|
|
|
|
2010
|
||
Total revenue
|
|
|
|
$
|
35,733
|
|
Cost of revenue
|
|
|
|
21,864
|
|
|
Gross profit
|
|
|
|
13,869
|
|
|
Gross margin
|
|
|
|
39
|
%
|
|
Total operating expenses
|
|
|
|
13,911
|
|
|
Operating income (loss)
|
|
|
|
$
|
(42
|
)
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Cost of revenue
|
|
$
|
3,357
|
|
|
$
|
416
|
|
|
$
|
2,932
|
|
|
$
|
2,941
|
|
|
707
|
%
|
|
$
|
(2,516
|
)
|
|
(86
|
)%
|
Gain on sale of patents and other technology assets, net of costs
|
|
116,353
|
|
|
—
|
|
|
—
|
|
|
116,353
|
|
|
100
|
%
|
|
—
|
|
|
—
|
%
|
|||||
Total operating expenses
|
|
70,328
|
|
|
54,865
|
|
|
85,081
|
|
|
15,463
|
|
|
28
|
%
|
|
(30,216
|
)
|
|
(36
|
)%
|
|||||
Operating income (loss)
|
|
$
|
42,668
|
|
|
$
|
(55,281
|
)
|
|
$
|
(88,013
|
)
|
|
$
|
97,949
|
|
|
177
|
%
|
|
$
|
32,732
|
|
|
37
|
%
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Research and Development
|
|
$
|
63,194
|
|
|
$
|
70,212
|
|
|
$
|
100,955
|
|
|
$
|
(7,018
|
)
|
|
(10
|
)%
|
|
$
|
(30,743
|
)
|
|
(31
|
)%
|
As a percent of revenue
|
|
24
|
%
|
|
21
|
%
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
Sales and Marketing
|
|
$
|
90,301
|
|
|
$
|
111,300
|
|
|
$
|
118,543
|
|
|
$
|
(20,999
|
)
|
|
(19
|
)%
|
|
$
|
(7,243
|
)
|
|
(6
|
)%
|
As a percent of revenue
|
|
35
|
%
|
|
33
|
%
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
General and Administrative
|
|
$
|
43,891
|
|
|
$
|
37,181
|
|
|
$
|
51,217
|
|
|
$
|
6,710
|
|
|
18
|
%
|
|
$
|
(14,036
|
)
|
|
(27
|
)%
|
As a percent of revenue
|
|
17
|
%
|
|
11
|
%
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
Change
|
|
2011
|
|
Change
|
|
2010
|
||||||||
Interest income, net
|
|
$
|
1,192
|
|
|
(23
|
)%
|
|
$
|
1,552
|
|
|
(36
|
)%
|
|
$
|
2,417
|
|
Gain (loss) on sale of equity investments
|
|
5,072
|
|
|
n/a
|
|
|
—
|
|
|
n/a
|
|
|
(9
|
)
|
|||
Equity in net loss of Rhapsody
|
|
(5,709
|
)
|
|
(28
|
)%
|
|
(7,898
|
)
|
|
(44
|
)%
|
|
(14,164
|
)
|
|||
Gain on deconsolidation of Rhapsody
|
|
—
|
|
|
n/a
|
|
|
—
|
|
|
n/a
|
|
|
10,929
|
|
|||
Other income (expenses)
|
|
1,241
|
|
|
(362
|
)%
|
|
(473
|
)
|
|
(146
|
)%
|
|
1,031
|
|
|||
Other income (expense), net
|
|
$
|
1,796
|
|
|
(126
|
)%
|
|
$
|
(6,819
|
)
|
|
(3,443
|
)%
|
|
$
|
204
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012-2011
Change
|
|
%
Change
|
|
2011-2010
Change
|
|
%
Change
|
||||||||||||
United States
|
|
$
|
117,844
|
|
|
$
|
162,720
|
|
|
$
|
227,823
|
|
|
$
|
(44,876
|
)
|
|
(28
|
)%
|
|
$
|
(65,103
|
)
|
|
(29
|
)%
|
Europe
|
|
56,473
|
|
|
74,602
|
|
|
79,820
|
|
|
(18,129
|
)
|
|
(24
|
)%
|
|
(5,218
|
)
|
|
(7
|
)%
|
|||||
Rest of World
|
|
84,525
|
|
|
98,364
|
|
|
94,090
|
|
|
(13,839
|
)
|
|
(14
|
)%
|
|
4,274
|
|
|
5
|
%
|
|||||
Total Revenue
|
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
|
$
|
(76,844
|
)
|
|
(23
|
)%
|
|
$
|
(66,047
|
)
|
|
(16
|
)%
|
|
|
December 31,
|
||||||
|
|
2012
|
|
2011
|
||||
Working capital
|
|
$
|
237,646
|
|
|
$
|
160,787
|
|
Cash, cash equivalents, and short-term investments
|
|
271,414
|
|
|
185,072
|
|
||
Restricted cash and investments
|
|
10,000
|
|
|
10,168
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Cash provided by (used in) operating activities
|
|
$
|
(33,313
|
)
|
|
$
|
(708
|
)
|
|
$
|
(31,122
|
)
|
Cash provided by (used in) investing activities
|
|
87,135
|
|
|
6,624
|
|
|
(17,525
|
)
|
|||
Cash provided by (used in) financing activities
|
|
2,807
|
|
|
(133,542
|
)
|
|
3,939
|
|
Contractual Obligations
|
|
Total
|
|
Less than
1 Year
|
|
1-3
Years
|
|
3-5
Years
|
|
After
5 Years
|
||||||||||
|
|
(In thousands)
|
||||||||||||||||||
Office leases
|
|
$
|
26,137
|
|
|
$
|
12,258
|
|
|
$
|
11,102
|
|
|
$
|
2,709
|
|
|
$
|
68
|
|
Other contractual obligations
|
|
140
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual cash obligations
|
|
$
|
26,277
|
|
|
$
|
12,398
|
|
|
$
|
11,102
|
|
|
$
|
2,709
|
|
|
$
|
68
|
|
•
|
Revenue recognition;
|
•
|
Estimating music publishing rights and music royalty accruals;
|
•
|
Estimating recoverability of deferred costs;
|
•
|
Estimating allowances for doubtful accounts and sales returns;
|
•
|
Estimating losses on excess office facilities;
|
•
|
Valuation of equity method investments;
|
•
|
Valuation of long-lived assets;
|
•
|
Valuation of goodwill;
|
•
|
Stock-based compensation; and
|
•
|
Accounting for income taxes.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
December 31,
2012 |
|
December 31,
2011 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
163,198
|
|
|
$
|
106,333
|
|
Short-term investments
|
108,216
|
|
|
78,739
|
|
||
Trade accounts receivable, net of allowances
|
30,754
|
|
|
41,165
|
|
||
Deferred costs, current portion
|
825
|
|
|
1,424
|
|
||
Deferred tax assets - current
|
2,869
|
|
|
6,684
|
|
||
Prepaid expenses and other current assets
|
17,002
|
|
|
15,218
|
|
||
Total current assets
|
322,864
|
|
|
249,563
|
|
||
Equipment, software, and leasehold improvements, at cost:
|
|
|
|
||||
Equipment and software
|
98,041
|
|
|
104,352
|
|
||
Leasehold improvements
|
22,767
|
|
|
25,947
|
|
||
Total equipment, software, and leasehold improvements, at cost
|
120,808
|
|
|
130,299
|
|
||
Less accumulated depreciation and amortization
|
91,492
|
|
|
92,825
|
|
||
Net equipment, software, and leasehold improvements
|
29,316
|
|
|
37,474
|
|
||
Restricted cash equivalents and investments
|
10,000
|
|
|
10,168
|
|
||
Equity method investment (See Note 1)
|
19,204
|
|
|
23,405
|
|
||
Available for sale securities
|
34,334
|
|
|
37,204
|
|
||
Other assets
|
3,153
|
|
|
2,954
|
|
||
Deferred costs, non-current portion
|
531
|
|
|
843
|
|
||
Deferred tax assets, net, non-current portion
|
4,911
|
|
|
18,419
|
|
||
Other intangible assets, net
|
3,275
|
|
|
7,169
|
|
||
Goodwill
|
6,309
|
|
|
6,198
|
|
||
Total assets
|
$
|
433,897
|
|
|
$
|
393,397
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
19,013
|
|
|
$
|
17,151
|
|
Accrued and other current liabilities
|
57,530
|
|
|
59,790
|
|
||
Deferred revenue, current portion
|
8,675
|
|
|
11,835
|
|
||
Total current liabilities
|
85,218
|
|
|
88,776
|
|
||
Deferred revenue, non-current portion
|
169
|
|
|
195
|
|
||
Deferred rent
|
2,250
|
|
|
2,944
|
|
||
Deferred tax liabilities, net, non-current portion
|
432
|
|
|
1,443
|
|
||
Other long-term liabilities
|
3,100
|
|
|
13,145
|
|
||
Total liabilities
|
91,169
|
|
|
106,503
|
|
||
Commitments and contingencies
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.001 par value, no shares issued and outstanding:
|
|
|
|
||||
Series A: authorized 200 shares
|
—
|
|
|
—
|
|
||
Undesignated series: authorized 59,800 shares
|
—
|
|
|
—
|
|
||
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 35,324 shares in 2012 and 34,422 shares in 2011
|
35
|
|
|
34
|
|
||
Additional paid-in capital (See Note 1)
|
603,770
|
|
|
591,122
|
|
||
Accumulated other comprehensive loss
|
(26,540
|
)
|
|
(24,884
|
)
|
||
Retained deficit
|
(234,537
|
)
|
|
(279,378
|
)
|
||
Total shareholders’ equity
|
342,728
|
|
|
286,894
|
|
||
Total liabilities and shareholders’ equity
|
$
|
433,897
|
|
|
$
|
393,397
|
|
|
Years Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Net revenue (A)
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
Cost of revenue (B)
|
103,731
|
|
|
126,637
|
|
|
144,723
|
|
|||
Impairment of deferred costs
|
—
|
|
|
19,962
|
|
|
—
|
|
|||
Gross profit
|
155,111
|
|
|
189,087
|
|
|
257,010
|
|
|||
Sale of patents and other technology assets, net of costs (See Note 1)
|
116,353
|
|
|
—
|
|
|
—
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
63,194
|
|
|
70,212
|
|
|
100,955
|
|
|||
Sales and marketing
|
90,301
|
|
|
111,300
|
|
|
118,543
|
|
|||
Advertising with related party
|
—
|
|
|
—
|
|
|
1,065
|
|
|||
General and administrative
|
43,891
|
|
|
37,181
|
|
|
51,217
|
|
|||
Restructuring and other charges
|
15,225
|
|
|
8,650
|
|
|
12,361
|
|
|||
Loss (gain) on excess office facilities
|
3,290
|
|
|
(646
|
)
|
|
7,396
|
|
|||
Total operating expenses
|
215,901
|
|
|
226,697
|
|
|
291,537
|
|
|||
Operating income (loss)
|
55,563
|
|
|
(37,610
|
)
|
|
(34,527
|
)
|
|||
Other income (expenses):
|
|
|
|
|
|
||||||
Interest income, net
|
1,192
|
|
|
1,552
|
|
|
2,417
|
|
|||
Gain (loss) on sale of equity and other investments, net
|
5,072
|
|
|
—
|
|
|
(9
|
)
|
|||
Equity in net loss of Rhapsody investment
|
(5,709
|
)
|
|
(7,898
|
)
|
|
(14,164
|
)
|
|||
Gain on deconsolidation of Rhapsody
|
—
|
|
|
—
|
|
|
10,929
|
|
|||
Other income (expense), net
|
1,241
|
|
|
(473
|
)
|
|
1,031
|
|
|||
Total other income (expenses), net
|
1,796
|
|
|
(6,819
|
)
|
|
204
|
|
|||
Income (loss) before income taxes
|
57,359
|
|
|
(44,429
|
)
|
|
(34,323
|
)
|
|||
Income tax expense (benefit)
|
12,518
|
|
|
(17,329
|
)
|
|
(36,451
|
)
|
|||
Net income (loss)
|
44,841
|
|
|
(27,100
|
)
|
|
2,128
|
|
|||
Net loss attributable to noncontrolling interest in Rhapsody prior to deconsolidation
|
—
|
|
|
—
|
|
|
2,910
|
|
|||
Net income (loss) attributable to common shareholders
|
$
|
44,841
|
|
|
$
|
(27,100
|
)
|
|
$
|
5,038
|
|
Basic net income (loss) per share attributable to common shareholders
|
$
|
1.29
|
|
|
$
|
(0.79
|
)
|
|
$
|
0.26
|
|
Diluted net income (loss) per share attributable to common shareholders
|
$
|
1.28
|
|
|
$
|
(0.79
|
)
|
|
$
|
0.26
|
|
Shares used to compute basic net income (loss) per share
|
34,873
|
|
|
34,185
|
|
|
33,894
|
|
|||
Shares used to compute diluted net income (loss) per share
|
35,122
|
|
|
34,185
|
|
|
34,013
|
|
|||
Comprehensive income (loss):
|
|
|
|
|
|
||||||
Unrealized investment holding gains, net of reclassification adjustments
|
$
|
(633
|
)
|
|
$
|
9,459
|
|
|
$
|
7,676
|
|
Foreign currency translation adjustments, net of reclassification adjustments
|
(1,023
|
)
|
|
(1,800
|
)
|
|
(1,605
|
)
|
|||
Total other comprehensive income (loss)
|
(1,656
|
)
|
|
7,659
|
|
|
6,071
|
|
|||
Net income (loss)
|
44,841
|
|
|
(27,100
|
)
|
|
2,128
|
|
|||
Comprehensive income (loss)
|
$
|
43,185
|
|
|
$
|
(19,441
|
)
|
|
$
|
8,199
|
|
(A) Components of net revenue:
|
|
|
|
|
|
||||||
License fees
|
$
|
56,640
|
|
|
$
|
69,644
|
|
|
$
|
74,908
|
|
Service revenue
|
202,202
|
|
|
266,042
|
|
|
326,825
|
|
|||
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
(B) Components of cost of revenue:
|
|
|
|
|
|
||||||
License fees
|
$
|
11,689
|
|
|
$
|
17,794
|
|
|
$
|
21,451
|
|
Service revenue
|
92,042
|
|
|
108,843
|
|
|
123,272
|
|
|||
|
$
|
103,731
|
|
|
$
|
126,637
|
|
|
$
|
144,723
|
|
|
Years Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
44,841
|
|
|
$
|
(27,100
|
)
|
|
$
|
2,128
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
16,959
|
|
|
16,895
|
|
|
23,401
|
|
|||
Stock-based compensation
|
8,123
|
|
|
11,747
|
|
|
12,203
|
|
|||
Loss (gain) on equipment, software, and leasehold improvements
|
2,509
|
|
|
(62
|
)
|
|
(41
|
)
|
|||
Equity in net loss of Rhapsody
|
5,709
|
|
|
7,898
|
|
|
14,164
|
|
|||
Gain on deconsolidation of Rhapsody
|
—
|
|
|
—
|
|
|
(10,929
|
)
|
|||
Excess tax benefit from stock option exercises
|
—
|
|
|
(74
|
)
|
|
(48
|
)
|
|||
Accrued loss (gain) on excess office facilities
|
3,290
|
|
|
(646
|
)
|
|
5,670
|
|
|||
Deferred income taxes, net
|
20,324
|
|
|
(23,985
|
)
|
|
622
|
|
|||
Gain on sale of patent and other technology assets, net of costs of $3,647
|
(116,353
|
)
|
|
—
|
|
|
—
|
|
|||
Loss (gain) on sale of equity and other investments, net
|
(5,072
|
)
|
|
—
|
|
|
9
|
|
|||
Realized translation gain
|
(1,966
|
)
|
|
—
|
|
|
—
|
|
|||
Other
|
—
|
|
|
114
|
|
|
451
|
|
|||
Net change in certain operating assets and liabilities:
|
|
|
|
|
|
||||||
Trade accounts receivable
|
11,163
|
|
|
6,835
|
|
|
4,856
|
|
|||
Prepaid expenses and other assets
|
(986
|
)
|
|
43,169
|
|
|
(15,425
|
)
|
|||
Accounts payable
|
549
|
|
|
(14,601
|
)
|
|
(1,202
|
)
|
|||
Accrued and other liabilities
|
(22,403
|
)
|
|
(20,898
|
)
|
|
(66,981
|
)
|
|||
Net cash provided by (used in) operating activities
|
(33,313
|
)
|
|
(708
|
)
|
|
(31,122
|
)
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Purchases of equipment, software, and leasehold improvements
|
(7,170
|
)
|
|
(9,873
|
)
|
|
(12,904
|
)
|
|||
Proceeds from sale of patents and other technology assets, net of costs of $3,647
|
116,353
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from sale of equity and other investments
|
7,261
|
|
|
—
|
|
|
49
|
|
|||
Purchases of short-term investments
|
(116,963
|
)
|
|
(96,841
|
)
|
|
(116,831
|
)
|
|||
Proceeds from sales and maturities of short-term investments
|
87,487
|
|
|
116,405
|
|
|
126,398
|
|
|||
Decrease (increase) in restricted cash equivalents and investments, net
|
167
|
|
|
(179
|
)
|
|
3,700
|
|
|||
Payment in connection with the restructuring of Rhapsody
|
—
|
|
|
—
|
|
|
(18,000
|
)
|
|||
Repayment of temporary funding on deconsolidation of Rhapsody
|
—
|
|
|
—
|
|
|
5,869
|
|
|||
Payment of acquisition costs, net of cash acquired
|
—
|
|
|
(2,888
|
)
|
|
(5,806
|
)
|
|||
Net cash provided by (used in) investing activities
|
87,135
|
|
|
6,624
|
|
|
(17,525
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Proceeds from issuance of common stock (stock options and stock purchase plan)
|
3,802
|
|
|
3,177
|
|
|
2,678
|
|
|||
Common stock cash dividend paid
|
—
|
|
|
(136,793
|
)
|
|
—
|
|
|||
Tax payments from shares withheld upon vesting of restricted stock
|
(995
|
)
|
|
—
|
|
|
—
|
|
|||
Excess tax benefit from stock option exercises
|
—
|
|
|
74
|
|
|
48
|
|
|||
Net proceeds from sale of interest in Rhapsody
|
—
|
|
|
—
|
|
|
1,213
|
|
|||
Net cash provided by (used in) financing activities
|
2,807
|
|
|
(133,542
|
)
|
|
3,939
|
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
236
|
|
|
(2,059
|
)
|
|
3,696
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
56,865
|
|
|
(129,685
|
)
|
|
(41,012
|
)
|
|||
Cash and cash equivalents, beginning of year
|
106,333
|
|
|
236,018
|
|
|
277,030
|
|
|||
Cash and cash equivalents, end of year
|
$
|
163,198
|
|
|
$
|
106,333
|
|
|
$
|
236,018
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||||||
Cash received from income tax refunds
|
$
|
456
|
|
|
$
|
10,166
|
|
|
$
|
29,800
|
|
Cash paid for income taxes
|
$
|
3,296
|
|
|
$
|
6,284
|
|
|
$
|
4,905
|
|
Non-cash investing activities:
|
|
|
|
|
|
||||||
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Redeemable
Noncontrolling
Interest in
Rhapsody
America
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Sale of
Noncontrolling
Interest in
Rhapsody
America
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
(Deficit)
|
|
Total
Shareholders’
Equity
|
|||||||||||||||||
Shares
|
|
Amount
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
(See Note 1)
|
|
|
|
|
|
|
|
(See Note 1)
|
|||||||||||||||
Balances, December 31, 2009
|
|
$
|
7,253
|
|
|
33,764
|
|
|
$
|
34
|
|
|
$
|
647,663
|
|
|
$
|
24,044
|
|
|
$
|
(38,614
|
)
|
|
$
|
(257,316
|
)
|
|
$
|
375,811
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
—
|
|
|
257
|
|
|
—
|
|
|
2,567
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,567
|
|
|||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,203
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,203
|
|
|||||||
Unrealized gain on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,676
|
|
|
—
|
|
|
7,676
|
|
|||||||
Translation adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,605
|
)
|
|
—
|
|
|
(1,605
|
)
|
|||||||
Termination of MTVN redemption and preferred return rights in Rhapsody
|
|
(10,436
|
)
|
|
—
|
|
|
—
|
|
|
10,436
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,436
|
|
|||||||
Contributions and other transactions with owners
|
|
616
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
—
|
|
|
619
|
|
|||||||
Deconsolidation of Rhapsody
|
|
5,477
|
|
|
—
|
|
|
—
|
|
|
24,663
|
|
|
(24,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Rhapsody capital transactions with MTVN
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,494
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,494
|
|
|||||||
Net income (loss)
|
|
(2,910
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,038
|
|
|
5,038
|
|
|||||||
Balances, December 31, 2010
|
|
$
|
—
|
|
|
34,021
|
|
|
$
|
34
|
|
|
$
|
710,026
|
|
|
$
|
—
|
|
|
$
|
(32,543
|
)
|
|
$
|
(252,278
|
)
|
|
$
|
425,239
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
—
|
|
|
401
|
|
|
—
|
|
|
3,029
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,029
|
|
|||||||
Common Stock cash dividend paid
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(136,793
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(136,793
|
)
|
|||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,747
|
|
|||||||
Unrealized gain on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,459
|
|
|
—
|
|
|
9,459
|
|
|||||||
Translation adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,800
|
)
|
|
—
|
|
|
(1,800
|
)
|
|||||||
Rhapsody capital transactions with MTVN
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,113
|
|
|||||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,100
|
)
|
|
(27,100
|
)
|
|||||||
Balances, December 31, 2011
|
|
$
|
—
|
|
|
34,422
|
|
|
$
|
34
|
|
|
$
|
591,122
|
|
|
$
|
—
|
|
|
$
|
(24,884
|
)
|
|
$
|
(279,378
|
)
|
|
$
|
286,894
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
—
|
|
|
902
|
|
|
1
|
|
|
2,807
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,808
|
|
|||||||
Dilution gain related to Rhapsody's equity issuance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,718
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,718
|
|
|||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,123
|
|
|||||||
Unrealized gain on investments, net of reclassification adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(633
|
)
|
|
—
|
|
|
(633
|
)
|
|||||||
Translation adjustment, net of reclassification adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,023
|
)
|
|
—
|
|
|
(1,023
|
)
|
|||||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,841
|
|
|
44,841
|
|
|||||||
Balances, December 31, 2012
|
|
$
|
—
|
|
|
35,324
|
|
|
$
|
35
|
|
|
$
|
603,770
|
|
|
$
|
—
|
|
|
$
|
(26,540
|
)
|
|
$
|
(234,537
|
)
|
|
$
|
342,728
|
|
Note 1.
|
Description of Business and Summary of Significant Accounting Policies
|
|
As of December 31, 2011
|
||||
|
As previously reported
|
|
Adjustment
|
|
Revised
|
Equity method investment
|
$7,798
|
|
$15,607
|
|
$23,405
|
Total assets
|
$377,790
|
|
$15,607
|
|
$393,397
|
Additional paid-in capital
|
$575,515
|
|
$15,607
|
|
$591,122
|
Total shareholders' equity
|
$271,287
|
|
$15,607
|
|
$286,894
|
Total liabilities and shareholders' equity
|
$377,790
|
|
$15,607
|
|
$393,397
|
|
As of December 31, 2010
|
||||
|
As previously reported
|
|
Adjustment
|
|
Revised
|
Equity method investment
|
$15,486
|
|
$12,494
|
|
$27,980
|
Total assets
|
$565,442
|
|
$12,494
|
|
$577,936
|
Additional paid-in capital
|
$697,532
|
|
$12,494
|
|
$710,026
|
Total shareholders' equity
|
$412,745
|
|
$12,494
|
|
$425,239
|
Total liabilities and shareholders' equity
|
$565,442
|
|
$12,494
|
|
$577,936
|
|
|
December 31,
|
||||||
|
|
2012
|
|
2011
|
||||
Unrealized gains on investments, net of tax effects of $(846) for 2012 and 2011
|
|
$
|
26,685
|
|
|
$
|
27,318
|
|
Foreign currency translation adjustments
|
|
(53,225
|
)
|
|
(52,202
|
)
|
||
Accumulated other comprehensive income (loss)
|
|
$
|
(26,540
|
)
|
|
$
|
(24,884
|
)
|
Note 2.
|
Recent Accounting Pronouncements
|
Note 3.
|
Rhapsody Joint Venture
|
|
|
Twelve Months Ended December 31,
2012 |
|
Twelve Months Ended December 31,
2011 |
|
Nine Months Ended December 31,
2010 |
||||||
Net revenue
|
|
$
|
143,674
|
|
|
$
|
127,184
|
|
|
$
|
91,279
|
|
Gross profit
|
|
36,260
|
|
|
39,137
|
|
|
25,702
|
|
|||
Net loss
|
|
(12,228
|
)
|
|
(13,580
|
)
|
|
(31,007
|
)
|
|
|
As of December 31,
2012 |
|
As of December 31,
2011 |
||||
Current assets
|
|
$
|
34,035
|
|
|
$
|
38,128
|
|
Non-current assets
|
|
19,688
|
|
|
21,717
|
|
||
Current liabilities
|
|
36,756
|
|
|
35,259
|
|
||
Non-current liabilities
|
|
—
|
|
|
691
|
|
Note 4.
|
Fair Value Measurements
|
•
|
Level 1: Quoted prices in active markets for identical assets or liabilities
|
•
|
Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
|
•
|
Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use
|
|
Fair Value Measurements as of
|
||||||||||||||
|
December 31, 2012
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
10,680
|
|
|
$
|
—
|
|
|
$
|
10,680
|
|
|
$
|
—
|
|
Corporate notes and bonds
|
81,235
|
|
|
—
|
|
|
81,235
|
|
|
—
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
Corporate notes and bonds
|
65,502
|
|
|
—
|
|
|
65,502
|
|
|
—
|
|
||||
U.S. government agency securities
|
42,714
|
|
|
42,113
|
|
|
601
|
|
|
—
|
|
||||
Restricted cash equivalents and investments
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
||||
Equity investments in publicly traded securities
|
34,334
|
|
|
34,334
|
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
244,465
|
|
|
$
|
76,447
|
|
|
$
|
168,018
|
|
|
$
|
—
|
|
|
Fair Value Measurements as of
|
||||||||||||||
|
December 31, 2011
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
6,544
|
|
|
$
|
—
|
|
|
$
|
6,544
|
|
|
$
|
—
|
|
Corporate notes and bonds
|
20,697
|
|
|
—
|
|
|
20,697
|
|
|
—
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
Corporate notes and bonds
|
39,254
|
|
|
—
|
|
|
39,254
|
|
|
—
|
|
||||
U.S. government agency securities
|
39,485
|
|
|
34,881
|
|
|
4,604
|
|
|
—
|
|
||||
Restricted cash equivalents and investments
|
10,168
|
|
|
1,668
|
|
|
8,500
|
|
|
—
|
|
||||
Equity investments in publicly traded securities
|
37,204
|
|
|
37,204
|
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
153,352
|
|
|
$
|
73,753
|
|
|
$
|
79,599
|
|
|
$
|
—
|
|
Note 5.
|
Cash and Cash Equivalents, Short-Term Investments, and Restricted Cash Equivalents and Investments
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
Cash and cash equivalents:
|
|
|
|
||||
Cash
|
$
|
71,283
|
|
|
$
|
71,283
|
|
Money market mutual funds
|
10,680
|
|
|
10,680
|
|
||
Corporate notes and bonds
|
81,237
|
|
|
81,235
|
|
||
Total cash and cash equivalents
|
163,200
|
|
|
163,198
|
|
||
Short-term investments:
|
|
|
|
||||
Corporate notes and bonds
|
65,426
|
|
|
65,502
|
|
||
U.S. government agency securities
|
42,693
|
|
|
42,714
|
|
||
Total short-term investments
|
108,119
|
|
|
108,216
|
|
||
Total cash, cash equivalents and short-term investments
|
$
|
271,319
|
|
|
$
|
271,414
|
|
Restricted cash equivalents and investments
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
Cash and cash equivalents:
|
|
|
|
||||
Cash
|
$
|
79,092
|
|
|
$
|
79,092
|
|
Money market mutual funds
|
6,544
|
|
|
6,544
|
|
||
Corporate notes and bonds
|
20,697
|
|
|
20,697
|
|
||
Total cash and cash equivalents
|
106,333
|
|
|
106,333
|
|
Short-term investments:
|
|
|
|
||||
Corporate notes and bonds
|
39,309
|
|
|
39,254
|
|
||
U.S. Government agency securities
|
39,413
|
|
|
39,485
|
|
||
Total short-term investments
|
78,722
|
|
|
78,739
|
|
||
Total cash, cash equivalents, and short-term investments
|
$
|
185,055
|
|
|
$
|
185,072
|
|
Restricted cash equivalents and investments
|
$
|
10,168
|
|
|
$
|
10,168
|
|
|
Estimated
Fair Value
|
||
Within one year
|
$
|
75,299
|
|
Between one year and five years
|
32,917
|
|
|
Total short-term investments
|
$
|
108,216
|
|
Note 6.
|
Allowance for Doubtful Accounts Receivable and Sales Returns
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Balance, beginning of year
|
|
$
|
1,445
|
|
|
$
|
1,529
|
|
|
$
|
2,912
|
|
Addition (reduction) to allowance
|
|
76
|
|
|
693
|
|
|
114
|
|
|||
Amounts written off
|
|
(529
|
)
|
|
(742
|
)
|
|
(1,364
|
)
|
|||
Effects of foreign currency translation
|
|
18
|
|
|
(35
|
)
|
|
(133
|
)
|
|||
Balance, end of year
|
|
$
|
1,010
|
|
|
$
|
1,445
|
|
|
$
|
1,529
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Balance, beginning of year
|
|
$
|
668
|
|
|
$
|
1,039
|
|
|
$
|
1,012
|
|
Addition (reduction) to allowance
|
|
153
|
|
|
939
|
|
|
3,175
|
|
|||
Amounts written off
|
|
(168
|
)
|
|
(1,311
|
)
|
|
(3,149
|
)
|
|||
Effects of foreign currency translation
|
|
—
|
|
|
1
|
|
|
1
|
|
|||
Balance, end of year
|
|
$
|
653
|
|
|
$
|
668
|
|
|
$
|
1,039
|
|
Total, Allowance for Doubtful Accounts Receivable and Sales Returns
|
|
$
|
1,663
|
|
|
$
|
2,113
|
|
|
$
|
2,568
|
|
Note 7.
|
Other Intangible Assets
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
||||||
Customer relationships
|
|
$
|
30,831
|
|
|
$
|
28,211
|
|
|
$
|
2,620
|
|
Developed technology
|
|
24,532
|
|
|
23,885
|
|
|
647
|
|
|||
Service contracts
|
|
5,467
|
|
|
5,459
|
|
|
8
|
|
|||
Total other intangible assets, December 31, 2012
|
|
$
|
60,830
|
|
|
$
|
57,555
|
|
|
$
|
3,275
|
|
Total other intangible assets, December 31, 2011
|
|
$
|
69,631
|
|
|
$
|
62,462
|
|
|
$
|
7,169
|
|
|
|
||
2013
|
$
|
2,540
|
|
2014
|
407
|
|
|
2015
|
328
|
|
|
Total
|
$
|
3,275
|
|
Note 8.
|
Goodwill
|
|
|
December 31,
|
||||||
|
|
2012
|
|
2011
|
||||
Balance, beginning of year
|
|
|
|
|
||||
Goodwill
|
|
$
|
316,851
|
|
|
$
|
315,613
|
|
Accumulated impairment losses
|
|
(310,653
|
)
|
|
(310,653
|
)
|
||
|
|
6,198
|
|
|
4,960
|
|
||
|
|
|
|
|
||||
Increases due to current year acquisitions
|
|
—
|
|
|
1,385
|
|
||
Effects of foreign currency translation
|
|
111
|
|
|
(147
|
)
|
||
|
|
111
|
|
|
1,238
|
|
||
Balance, end of year
|
|
|
|
|
||||
Goodwill
|
|
316,962
|
|
|
316,851
|
|
||
Accumulated impairment losses
|
|
(310,653
|
)
|
|
(310,653
|
)
|
||
|
|
$
|
6,309
|
|
|
$
|
6,198
|
|
|
|
December 31,
|
||||||
|
|
2012
|
|
2011
|
||||
Core products
|
|
$
|
779
|
|
|
$
|
769
|
|
Emerging products
|
|
580
|
|
|
580
|
|
||
Games
|
|
4,950
|
|
|
4,849
|
|
||
Total goodwill
|
|
$
|
6,309
|
|
|
$
|
6,198
|
|
Note 9.
|
Accrued and Other Current Liabilities
|
|
December 31, 2012
|
|
December 31, 2011
|
||||
Royalties and other fulfillment costs
|
$
|
19,435
|
|
|
$
|
26,651
|
|
Employee compensation, commissions and benefits
|
13,368
|
|
|
12,698
|
|
||
Sales, VAT and other taxes payable
|
10,959
|
|
|
11,389
|
|
||
Deferred tax liabilities—current
|
3,894
|
|
|
232
|
|
||
Accrued loss on excess office facilities
|
2,463
|
|
|
596
|
|
||
Other
|
7,411
|
|
|
8,224
|
|
||
Total accrued and other current liabilities
|
$
|
57,530
|
|
|
$
|
59,790
|
|
Note 10.
|
Restructuring Charges
|
|
By Type of Cost
|
|
|||
|
Employee Separation Costs
|
Contract Assignment Costs
|
Asset Disposal Expense and Other
|
Total
|
|
Costs incurred and charged to expense for the year ended December 31, 2012
|
$9,052
|
3,629
|
|
$2,544
|
$15,225
|
Costs incurred and charged to expense for the year ended December 31, 2011
|
$7,739
|
—
|
|
$911
|
$8,650
|
Costs incurred and charged to expense for the year ended December 31, 2010
|
$11,345
|
—
|
|
$1,016
|
$12,361
|
|
By Type of Cost
|
|
||||
|
Employee Separation Costs
|
Contract Assignment Costs
|
Total
|
|||
Accrued liability as of December 31, 2011
|
$131
|
—
|
|
$131
|
||
Costs incurred and charged to expense for the year ended December 31, 2012, excluding non-cash charges
|
8,300
|
|
3,629
|
|
11,929
|
|
Cash payments
|
(7,700
|
)
|
(1,929
|
)
|
(9,629
|
)
|
Accrued liability as of December 31, 2012
|
$731
|
$1,700
|
$2,431
|
Note 11.
|
Loss on Excess Office Facilities
|
|
|
Years Ended December 31,
|
||||||||
|
|
2012
|
2011
|
2010
|
||||||
Accrued loss, beginning of year
|
|
$
|
2,747
|
|
$
|
4,524
|
|
$
|
3,228
|
|
Additions and adjustments to the lease loss accrual, including sublease income estimate revision, and related asset write-downs
|
|
3,290
|
|
(646
|
)
|
7,396
|
|
|||
Less write-down of leasehold improvements
|
|
(496
|
)
|
—
|
|
(1,552
|
)
|
|||
Less amounts paid, net of sublease income
|
|
(1,328
|
)
|
(1,131
|
)
|
(4,548
|
)
|
|||
Accrued loss, end of year
|
|
4,213
|
|
2,747
|
|
4,524
|
|
|||
Less current portion (included in Accrued and other current liabilities)
|
|
(2,463
|
)
|
(596
|
)
|
(1,144
|
)
|
|||
Accrued loss, non-current portion (included in Other long term liabilities)
|
|
$
|
1,750
|
|
$
|
2,151
|
|
$
|
3,380
|
|
Note 12.
|
Shareholders’ Equity
|
Note 13.
|
Employee Stock and Benefit Plans
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Total stock-based compensation expense
|
|
$
|
8,123
|
|
|
$
|
11,747
|
|
|
$
|
12,203
|
|
|
|
Years Ended December 31,
|
|||||||
|
|
2012
|
|
2011
|
|
2010
|
|||
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Risk-free interest rate
|
|
0.50
|
%
|
|
1.31
|
%
|
|
1.56
|
%
|
Expected term (years)
|
|
4.2
|
|
|
4.0
|
|
|
4.0
|
|
Volatility
|
|
58
|
%
|
|
54
|
%
|
|
62
|
%
|
|
Shares
|
Weighted Average Grant Date Fair Value Per Share
|
Total Fair Value of Vested Awards (000's)
|
|
Nonvested shares, December 31, 2009
|
118
|
|
$24.59
|
|
Granted
|
71
|
|
$12.68
|
|
Vested
|
(44
|
)
|
$21.82
|
$719
|
Forfeited/Canceled
|
(58
|
)
|
$24.87
|
|
Nonvested shares, December 31, 2010
|
87
|
|
$12.04
|
|
Granted
|
520
|
|
$9.40
|
|
Vested
|
(94
|
)
|
$11.58
|
$1,078
|
Forfeited/Canceled
|
(50
|
)
|
$9.59
|
|
Nonvested shares, December 31, 2011
|
463
|
|
$9.42
|
|
Granted
|
1,536
|
|
$8.70
|
|
Vested
|
(437
|
)
|
$9.47
|
$4,106
|
Forfeited/Canceled
|
(313
|
)
|
$9.42
|
|
Nonvested shares, December 31, 2012
|
1,249
|
|
$8.52
|
|
|
|
|
Options Outstanding
|
|
Weighted
Average Fair
Value
Grants
|
||||||
Number
of Shares
in (000’s)
|
|
Weighted
Average
Exercise Price
|
|
||||||||
Outstanding, December 31, 2009
|
|
|
6,525
|
|
|
$
|
24.44
|
|
|
|
|
Options granted at common stock price
|
|
|
1,752
|
|
|
15.56
|
|
|
7.48
|
|
|
Options exercised
|
|
|
(133
|
)
|
|
11.80
|
|
|
|
||
Options cancelled
|
|
|
(2,585
|
)
|
|
21.36
|
|
|
|
||
Outstanding, December 31, 2010
|
|
|
5,559
|
|
|
19.68
|
|
|
|
||
Options granted at common stock price
|
|
|
2,250
|
|
|
9.54
|
|
|
5.08
|
|
|
Options exercised
|
|
|
(210
|
)
|
|
10.57
|
|
|
|
||
Options cancelled
|
|
|
(1,234
|
)
|
|
14.72
|
|
|
|
||
Outstanding, December 31, 2011
|
|
|
6,365
|
|
|
14.24
|
|
|
|
||
Options granted at common stock price
|
|
|
1,422
|
|
|
8.29
|
|
|
3.71
|
|
|
Options exercised
|
|
|
(466
|
)
|
|
6.61
|
|
|
|
||
Options cancelled
|
|
|
(2,787
|
)
|
|
12.76
|
|
|
|
||
Outstanding, December 31, 2012
|
|
|
4,534
|
|
|
14.07
|
|
|
|
||
Exercisable, December 31, 2012
|
|
|
2,844
|
|
|
17.06
|
|
|
|
||
Vested and expected to vest, December 31, 2012
|
|
|
3,775
|
|
|
15.14
|
|
|
|
Note 14.
|
Income Taxes
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
United States operations
|
|
$
|
59,807
|
|
|
$
|
(50,100
|
)
|
|
$
|
(49,650
|
)
|
Foreign operations
|
|
(2,448
|
)
|
|
5,671
|
|
|
15,327
|
|
|||
Income (loss) before income taxes
|
|
$
|
57,359
|
|
|
$
|
(44,429
|
)
|
|
$
|
(34,323
|
)
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Current:
|
|
|
|
|
|
|
||||||
United States federal
|
|
$
|
1,372
|
|
|
$
|
422
|
|
|
$
|
(45,844
|
)
|
State and local
|
|
(2,957
|
)
|
|
920
|
|
|
(379
|
)
|
|||
Foreign
|
|
(6,221
|
)
|
|
5,314
|
|
|
9,150
|
|
|||
Total current
|
|
(7,806
|
)
|
|
6,656
|
|
|
(37,073
|
)
|
|||
Deferred:
|
|
|
|
|
|
|
||||||
United States federal
|
|
22,029
|
|
|
(22,006
|
)
|
|
—
|
|
|||
State and local
|
|
556
|
|
|
(555
|
)
|
|
—
|
|
|||
Foreign
|
|
(2,261
|
)
|
|
(1,424
|
)
|
|
622
|
|
|||
Total deferred
|
|
20,324
|
|
|
(23,985
|
)
|
|
622
|
|
|||
Total income tax expense (benefit)
|
|
$
|
12,518
|
|
|
$
|
(17,329
|
)
|
|
$
|
(36,451
|
)
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
United States federal tax expense (benefit) at statutory rate
|
|
$
|
20,076
|
|
|
$
|
(15,550
|
)
|
|
$
|
(12,013
|
)
|
State taxes, net of United States federal tax benefit
|
|
(1,098
|
)
|
|
1,320
|
|
|
(379
|
)
|
|||
Change in valuation allowance
|
|
2,136
|
|
|
(9,119
|
)
|
|
13,191
|
|
|||
Non-deductible stock compensation
|
|
341
|
|
|
571
|
|
|
992
|
|
|||
Impact of non-U.S. jurisdictional tax rate difference
|
|
313
|
|
|
(368
|
)
|
|
(1,173
|
)
|
|||
Non-taxable income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
1,018
|
|
|||
Extraterritorial Income Exclusion and previously acquired NOLs
|
|
—
|
|
|
—
|
|
|
(32,232
|
)
|
|||
Research and development tax credit
|
|
(1,923
|
)
|
|
(1,372
|
)
|
|
(2,053
|
)
|
|||
Transfer pricing adjustment
|
|
—
|
|
|
2,426
|
|
|
—
|
|
|||
Increase (reversal) of unrecognized tax benefits
|
|
(7,826
|
)
|
|
2,100
|
|
|
(4,410
|
)
|
|||
Other
|
|
499
|
|
|
2,663
|
|
|
608
|
|
|||
Total income tax expense (benefit)
|
|
$
|
12,518
|
|
|
$
|
(17,329
|
)
|
|
$
|
(36,451
|
)
|
|
|
December 31,
|
||||||
|
|
2012
|
|
2011
|
||||
Deferred tax assets:
|
|
|
|
|
||||
United States federal net operating loss carryforwards
|
|
$
|
16,581
|
|
|
$
|
28,228
|
|
Deferred expenses
|
|
8,461
|
|
|
14,056
|
|
||
Research and development tax credit carryforwards
|
|
22,101
|
|
|
21,496
|
|
||
Alternative minimum tax credit carryforward
|
|
3,698
|
|
|
3,068
|
|
||
Net unrealized loss on investments
|
|
95
|
|
|
10,943
|
|
||
Capital loss carryforwards
|
|
—
|
|
|
5,297
|
|
||
Accrued loss on excess office facilities
|
|
1,340
|
|
|
997
|
|
||
Stock-based compensation
|
|
13,639
|
|
|
16,101
|
|
||
State net operating loss carryforwards
|
|
3,109
|
|
|
3,999
|
|
||
Foreign net operating loss carryforwards
|
|
31,087
|
|
|
20,582
|
|
||
Deferred revenue
|
|
357
|
|
|
495
|
|
||
Equipment, software, and leasehold improvements
|
|
9,359
|
|
|
8,133
|
|
||
Intangibles
|
|
64
|
|
|
48
|
|
||
Other
|
|
7,769
|
|
|
6,457
|
|
||
Gross deferred tax assets
|
|
117,660
|
|
|
139,900
|
|
||
Less valuation allowance (See Note 1)
|
|
90,799
|
|
|
99,571
|
|
||
Gross deferred tax assets, net of valuation allowance
|
|
26,861
|
|
|
40,329
|
|
||
Deferred tax liabilities:
|
|
|
|
|
||||
Other intangible assets
|
|
(688
|
)
|
|
(1,550
|
)
|
||
Net unrealized gains and basis differences on investments (See Note 1)
|
|
(16,538
|
)
|
|
(9,522
|
)
|
||
Other
|
|
(787
|
)
|
|
(880
|
)
|
||
Prepaid expenses
|
|
(1,076
|
)
|
|
(1,445
|
)
|
||
Capitalized software development costs
|
|
(4,317
|
)
|
|
(3,504
|
)
|
||
Gross deferred tax liabilities
|
|
(23,406
|
)
|
|
(16,901
|
)
|
||
Net deferred tax assets
|
|
$
|
3,455
|
|
|
$
|
23,428
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Balance, beginning of year
|
|
$
|
16,721
|
|
|
$
|
14,033
|
|
|
$
|
59,826
|
|
Increases related to prior year tax positions
|
|
416
|
|
|
—
|
|
|
130
|
|
|||
Decreases related to prior year tax positions
|
|
(94
|
)
|
|
(768
|
)
|
|
(57,234
|
)
|
|||
Settlements with taxing authorities
|
|
(13,065
|
)
|
|
—
|
|
|
—
|
|
|||
Increases related to current year tax positions
|
|
—
|
|
|
3,518
|
|
|
11,311
|
|
|||
Expiration of the statute of limitations
|
|
—
|
|
|
(62
|
)
|
|
—
|
|
|||
Balance, end of year
|
|
$
|
3,978
|
|
|
$
|
16,721
|
|
|
$
|
14,033
|
|
Note 15.
|
Earnings (Loss) Per Share
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
Net income (loss) available to common shareholders:
|
|
|
|
|
|
|
||||||
Net income (loss) attributable to common shareholders
|
|
$
|
44,841
|
|
|
$
|
(27,100
|
)
|
|
$
|
5,038
|
|
Less termination (accretion) of MTVN’s preferred return in Rhapsody
|
|
—
|
|
|
—
|
|
|
3,700
|
|
|||
Net income (loss) available to common shareholders
|
|
$
|
44,841
|
|
|
$
|
(27,100
|
)
|
|
$
|
8,738
|
|
Weighted average common shares outstanding used to compute basic EPS
|
|
34,873
|
|
|
34,185
|
|
|
33,894
|
|
|||
Dilutive effect of stock based awards
|
|
249
|
|
|
—
|
|
|
119
|
|
|||
Shares used to compute diluted EPS
|
|
35,122
|
|
|
34,185
|
|
|
34,013
|
|
|||
Basic EPS
|
|
$
|
1.29
|
|
|
$
|
(0.79
|
)
|
|
$
|
0.26
|
|
Diluted EPS
|
|
$
|
1.28
|
|
|
$
|
(0.79
|
)
|
|
$
|
0.26
|
|
Note 16.
|
Commitments and Contingencies
|
|
|
Office
Leases
|
|
Other
Contractual
Obligations
|
|
Total
|
||||||
2013
|
|
$
|
12,258
|
|
|
$
|
140
|
|
|
$
|
12,398
|
|
2014
|
|
9,013
|
|
|
—
|
|
|
9,013
|
|
|||
2015
|
|
2,089
|
|
|
—
|
|
|
2,089
|
|
|||
2016
|
|
1,777
|
|
|
—
|
|
|
1,777
|
|
|||
2017
|
|
932
|
|
|
—
|
|
|
932
|
|
|||
Thereafter
|
|
68
|
|
|
—
|
|
|
68
|
|
|||
Total minimum payments
|
|
$
|
26,137
|
|
|
$
|
140
|
|
|
$
|
26,277
|
|
Note 17.
|
Guarantees
|
Note 18.
|
Segment Information
|
|
|
2012
|
|
2011
|
|
2010
|
||||||
Revenue
|
|
$
|
149,211
|
|
|
$
|
191,240
|
|
|
$
|
212,845
|
|
Cost of revenue
|
|
70,796
|
|
|
83,696
|
|
|
83,733
|
|
|||
Impairment of deferred costs
|
|
—
|
|
|
19,329
|
|
|
—
|
|
|||
Gross profit
|
|
78,415
|
|
|
88,215
|
|
|
129,112
|
|
|||
Operating expenses
|
|
64,960
|
|
|
75,188
|
|
|
86,217
|
|
|||
Operating income
|
|
$
|
13,455
|
|
|
$
|
13,027
|
|
|
$
|
42,895
|
|
|
|
2012
|
|
2011
|
|
2010
|
||||||
Revenue
|
|
$
|
42,576
|
|
|
$
|
46,590
|
|
|
$
|
41,761
|
|
Cost of revenue
|
|
7,965
|
|
|
11,879
|
|
|
7,123
|
|
|||
Impairment of deferred costs
|
|
—
|
|
|
633
|
|
|
—
|
|
|||
Gross profit
|
|
34,611
|
|
|
34,078
|
|
|
34,638
|
|
|||
Operating expenses
|
|
30,809
|
|
|
36,011
|
|
|
28,053
|
|
|||
Operating income (loss)
|
|
$
|
3,802
|
|
|
$
|
(1,933
|
)
|
|
$
|
6,585
|
|
|
|
2012
|
|
2011
|
|
2010
|
||||||
Total revenue
|
|
$
|
67,055
|
|
|
$
|
97,856
|
|
|
$
|
111,394
|
|
Cost of revenue
|
|
21,613
|
|
|
30,646
|
|
|
29,071
|
|
|||
Gross profit
|
|
45,442
|
|
|
67,210
|
|
|
82,323
|
|
|||
Operating expenses
|
|
49,804
|
|
|
60,633
|
|
|
78,275
|
|
|||
Operating income (loss)
|
|
$
|
(4,362
|
)
|
|
$
|
6,577
|
|
|
$
|
4,048
|
|
|
2010
|
||
Total revenue
|
$
|
35,733
|
|
Cost of revenue
|
21,864
|
|
|
Gross profit
|
13,869
|
|
|
Operating expenses
|
13,911
|
|
|
Operating income (loss)
|
$
|
(42
|
)
|
|
|
2012
|
|
2011
|
|
2010
|
||||||
Cost of revenue
|
|
$
|
3,357
|
|
|
$
|
416
|
|
|
$
|
2,932
|
|
Gain on sale of patents and other technology assets, net of costs
|
|
116,353
|
|
|
—
|
|
|
—
|
|
|||
Operating expenses
|
|
70,328
|
|
|
54,865
|
|
|
85,081
|
|
|||
Operating income (loss)
|
|
$
|
42,668
|
|
|
$
|
(55,281
|
)
|
|
$
|
(88,013
|
)
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
United States
|
|
$
|
117,844
|
|
|
$
|
162,720
|
|
|
$
|
227,823
|
|
Europe
|
|
56,473
|
|
|
74,602
|
|
|
79,820
|
|
|||
Rest of the World
|
|
84,525
|
|
|
98,364
|
|
|
94,090
|
|
|||
Total
|
|
$
|
258,842
|
|
|
$
|
335,686
|
|
|
$
|
401,733
|
|
|
|
December 31,
|
||||||||||
|
|
2012
|
|
2011
|
|
2010
|
||||||
United States
|
|
$
|
27,915
|
|
|
$
|
38,543
|
|
|
$
|
43,655
|
|
Europe
|
|
2,350
|
|
|
2,949
|
|
|
3,069
|
|
|||
Rest of the World
|
|
8,635
|
|
|
9,349
|
|
|
8,559
|
|
|||
Total long-lived assets
|
|
$
|
38,900
|
|
|
$
|
50,841
|
|
|
$
|
55,283
|
|
Note 19.
|
Related Party Transactions
|
Note 20.
|
Quarterly Information (Unaudited)
|
|
|
Total
|
|
Dec. 31 (3)
|
|
Sept. 30
|
|
June 30 (2)
|
|
Mar. 31
|
||||||||||
2012
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
258,842
|
|
|
$
|
67,264
|
|
|
$
|
59,088
|
|
|
$
|
65,526
|
|
|
$
|
66,964
|
|
Gross profit
|
|
155,111
|
|
|
42,166
|
|
|
33,844
|
|
|
39,564
|
|
|
39,537
|
|
|||||
Operating (loss) income
|
|
55,563
|
|
|
(6,888
|
)
|
|
(23,175
|
)
|
|
104,168
|
|
|
(18,542
|
)
|
|||||
Net income (loss) attributable to common shareholders
|
|
44,841
|
|
|
3,073
|
|
|
(22,214
|
)
|
|
80,997
|
|
|
(17,015
|
)
|
|||||
Basic net income (loss) per share available to common shareholders(1)
|
|
1.29
|
|
|
0.09
|
|
|
(0.63
|
)
|
|
2.33
|
|
|
(0.49
|
)
|
|||||
Diluted net income (loss) per share available to common shareholders(1)
|
|
1.28
|
|
|
0.09
|
|
|
(0.63
|
)
|
|
2.32
|
|
|
(0.49
|
)
|
|||||
2011
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
335,686
|
|
|
$
|
80,219
|
|
|
$
|
84,414
|
|
|
$
|
83,752
|
|
|
$
|
87,301
|
|
Gross profit
|
|
189,087
|
|
|
28,168
|
|
|
52,598
|
|
|
53,086
|
|
|
55,235
|
|
|||||
Operating (loss) income
|
|
(37,610
|
)
|
|
(23,677
|
)
|
|
(3,483
|
)
|
|
(4,784
|
)
|
|
(5,666
|
)
|
|||||
Net income (loss) attributable to common shareholders
|
|
(27,100
|
)
|
|
(2,764
|
)
|
|
(5,182
|
)
|
|
(6,849
|
)
|
|
(12,305
|
)
|
|||||
Basic net income (loss) per share available to common shareholders(1)
|
|
(0.79
|
)
|
|
(0.08
|
)
|
|
(0.15
|
)
|
|
(0.20
|
)
|
|
(0.36
|
)
|
|||||
Diluted net income (loss) per share available to common shareholders(1)
|
|
(0.79
|
)
|
|
(0.08
|
)
|
|
(0.15
|
)
|
|
(0.20
|
)
|
|
(0.36
|
)
|
(1)
|
The sum of the quarterly net income per share amounts will not necessarily equal net income per share for the year due to the use of weighted average quarterly shares and the effects of rounding.
|
(2)
|
In the quarter ended June 30,
2012
, we recognized a net gain of
$117.9 million
from the sale to Intel of certain patents, patent applications, and related rights. The net gain for the full year 2012 totaled
$116.4 million
. See Note 1, Description of Business and Summary of Significant Accounting Policies, for additional details.
|
(3)
|
The quarter ended December 31,
2011
included impairments of deferred costs of
$20.0 million
, described more fully in Note 1, Description of Business and Summary of Significant Accounting Policies, and an income tax benefit of
$22.6 million
resulting from a release of a portion of the valuation allowance, as described more fully in Note 14, Income Taxes.
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|
Plan Category
|
|
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(in 000’s)(a)
|
|
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
|
|
Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(in 000’s)(c)
|
|
|
||||
Equity compensation plans approved by security holders
|
|
5,778
|
|
|
$
|
14.05
|
|
|
3,956
|
|
|
(1)(2)
|
Equity compensation plans not approved by security holders
|
|
5
|
|
|
$
|
28.96
|
|
|
—
|
|
|
|
Total
|
|
5,783
|
|
|
$
|
14.07
|
|
|
3,956
|
|
|
(3)
|
(1)
|
On January 1, 2008, the 2007 ESPP became effective. Column (c) above excludes an aggregate of 0.6 million shares of the Company’s common stock that are authorized for issuance pursuant to the 2007 ESPP.
|
(2)
|
Includes shares available for future issuances pursuant to the RealNetworks, Inc. 2007 Director Compensation Stock Plan (2007 Director Plan), a sub-plan that operates and is administered under the 2005 Plan. Under the 2007 Director Plan, outside directors may elect to receive all or a portion of his or her quarterly director compensation in shares of the Company’s common stock in lieu of cash. Shares issued to directors under the 2007 Director Plan are issued from the shares reserved under the 2005 Plan.
|
(3)
|
The total securities in column (a) include 4,534 stock options and 1,249 restricted stock units and awards. The weighted average exercise prices in columns (b) relate to the stock options only; restricted stock units and awards have no exercise price.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accountant Fees and Services
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
2.1
|
|
Transaction, Contribution and Purchase Agreement dated as of February 9, 2010 among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
8-K
|
000-23137
|
2.1
|
04/06/10
|
2.2
|
|
Combination Agreement by and among RealNetworks, Inc., RN International Holdings B.V. and WiderThan Co., Ltd. dated as of September 12, 2006
|
8-K
|
000-23137
|
2.1
|
09/14/06
|
2.3
|
s
|
Asset Purchase Agreement dated as of January 26, 2012, by and between RealNetworks, Inc. and Intel Corporation. Certain schedules and exhibits referenced in the Asset Purchase Agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
|
8-K
|
000-23137
|
2.1
|
01/30/12
|
3.1
|
|
Amended and Restated Articles of Incorporation
|
10-Q
|
000-23137
|
3.1
|
08/11/00
|
3.2
|
|
Articles of Amendment to the Amended and Restated Articles of Incorporation
|
8-K
|
000-23137
|
3.1
|
08/31/11
|
3.3
|
|
Amended and Restated Bylaws effective July 23, 2010
|
8-K
|
000-23137
|
3.1
|
07/29/10
|
4.1
|
|
Amended and Restated Shareholder Rights Plan dated as of December 2, 2008, by and between RealNetworks, Inc. and Mellon Investor Services LLC including the form of Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C, respectively
|
8-K
|
000-23137
|
4.1
|
12/03/08
|
10.1
|
†
|
RealNetworks, Inc. 1995 Stock Option Plan
|
S-8
|
333-63333
|
99.1
|
09/14/98
|
10.2
|
†
|
RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated on June 1, 2001
|
10-Q
|
000-23137
|
10.1
|
08/13/01
|
10.3
|
†
|
Amendment No. 1 to the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated on June 1, 2001
|
8-K
|
000-23137
|
10.3
|
12/21/09
|
10.4
|
†
|
RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001
|
10-Q
|
000-23137
|
10.2
|
08/13/01
|
10.5
|
†
|
Amendment No. 1 to the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001
|
8-K
|
000-23137
|
10.2
|
12/21/09
|
10.6
|
†
|
RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.2
|
07/25/02
|
10.7
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.1
|
11/14/02
|
10.8
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.2
|
11/14/02
|
10.9
|
†
|
Forms of Stock Option Agreement under the RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.3
|
11/14/02
|
10.10
|
†
|
RealNetworks, Inc. 2007 Employee Stock Purchase Plan as amended and restated effective October 18, 2010
|
10-K
|
000-23137
|
10.10
|
03/16/11
|
10.11
|
†
|
RealNetworks, Inc. 2007 Director Compensation Stock Plan
|
10-K
|
000-23137
|
10.9
|
02/29/08
|
10.12
|
†
|
RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated effective December 17, 2009
|
8-K
|
000-23137
|
10.1
|
12/21/09
|
10.13
|
† *
|
Form of Non-Qualified Stock Option Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
10.14
|
† *
|
Form of Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
10.15
|
† *
|
Form of Performance Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
10.16
|
|
Lease dated January 21, 1998 between RealNetworks, Inc. as Lessee and 2601 Elliott, LLC, as amended
|
10-Q
|
000-23137
|
10.1
|
11/09/04
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
10.17
|
†
|
Form of Director and Officer Indemnification Agreement
|
S-1
|
333-36553
|
10.14
|
09/26/97
|
10.18
|
|
Voting Agreement dated September 25, 1997 by and among RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor and Bruce Jacobsen
|
S-1
|
333-36553
|
10.17
|
09/26/97
|
10.19
|
|
Agreement dated September 26, 1997 by and between RealNetworks and Robert Glaser
|
S-1
|
333-36553
|
10.18
|
09/26/97
|
10.20
|
†
|
Employment Agreement and Development, Confidentiality and Noncompetition Agreement by and between Thomas Nielsen and RealNetworks, Inc. effective as of November 9, 2011
|
10-K
|
000-23137
|
10.20
|
02/29/12
|
10.21
|
†
|
Offer Letter dated February 13, 2006 between RealNetworks, Inc. and Michael Eggers
|
10-K
|
000-23137
|
10.19
|
03/16/06
|
10.22
|
†
|
Offer Letter dated January 17, 2008 between RealNetworks, Inc. and Michael Lunsford
|
10-K
|
000-23137
|
10.23
|
03/10/10
|
10.23
|
†
|
Offer Letter dated September 2, 2010 between RealNetworks, Inc. and Tracy D. Daw
|
10-K/A
|
000-23137
|
10.23
|
05/02/11
|
10.24
|
†
|
Offer Letter dated June 25, 2009 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.27
|
04/30/12
|
10.25
|
†
|
Promotion Letter dated October 4, 2010 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.28
|
04/30/12
|
10.26
|
† *
|
Promotion Letter dated May 31, 2011 between RealNetworks, Inc. and Scott Uomoto
|
|
|
|
|
10.27
|
† *
|
Promotion Letter dated April 2, 2012 between RealNetworks, Inc. and Tim Wan
|
|
|
|
|
10.28
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Michael Eggers
|
8-K
|
000-23137
|
10.2
|
02/26/10
|
10.29
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Michael Lunsford
|
8-K
|
000-23137
|
10.3
|
02/26/10
|
10.30
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Tracy D. Daw
|
10-K/A
|
000-23137
|
10.30
|
05/02/11
|
10.31
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Michael Lunsford
|
10-Q
|
000-23137
|
10.1
|
08/09/11
|
10.32
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Michael Eggers
|
10-Q
|
000-23137
|
10.2
|
08/09/11
|
10.33
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Tracy D. Daw
|
10-Q
|
000-23137
|
10.4
|
08/09/11
|
10.34
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.40
|
04/30/12
|
10.35
|
†
|
Form of Amended and Restated Change in Control and Severance Agreement for Executive Officers
|
10-Q
|
000-23137
|
10.5
|
08/09/11
|
10.36
|
†
|
Separation Agreement and Release between RealNetworks, Inc. and Thomas Nielsen dated July 3, 2012
|
10-Q
|
000-23137
|
10.1
|
08/09/12
|
10.37
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2011 Executive Compensation Program
|
10-K
|
000-23137
|
10.35
|
03/16/11
|
10.38
|
† *
|
Form of MBO Plan Document under the RealNetworks, Inc. 2012 Executive Compensation Program
|
|
|
|
|
10.39
|
s
|
Amended and Restated Settlement Agreement dated as of March 10, 2006 between RealNetworks, Inc. and Microsoft Corporation
|
10-K
|
000-23137
|
10.24
|
03/16/06
|
10.40
|
s
|
Transaction, Contribution and Purchase Agreement dated as of August 20, 2007 by and among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
10-Q
|
000-23137
|
10.1
|
11/09/07
|
REALNETWORKS, INC.
|
||
|
|
|
BY:
|
|
/s/ ROBERT GLASER
|
|
|
Robert Glaser
|
|
|
Chairman of the Board and interim Chief Executive Officer
|
|
|
|
Signature
|
|
Title
|
|
|
|
/
S
/ _______
ROBERT GLASER
________
Robert Glaser
|
|
Chairman of the Board and interim Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/
S
/ __________
TIM M. WAN
__________
Tim M. Wan
|
|
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
|
/
S
/ ___
JOHN E. CUNNINGHAM IV
___
John E. Cunningham IV
|
|
Director
|
|
|
|
/
S
/ ______
MICHAEL T. GALGON
______
Michael T. Galgon
|
|
Director
|
|
|
|
/
S
/ ________
KALPANA RAINA
________
Kalpana Raina
|
|
Director
|
|
|
|
/
S
/ ________
JANICE ROBERTS
________
Janice Roberts
|
|
Director
|
|
|
|
/
S
/ _______
MICHAEL B. SLADE
_______
Michael B. Slade
|
|
Director
|
|
|
|
/
S
/ ____
DOMINIQUE TREMPONT
_____
Dominique Trempont
|
|
Director
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
2.1
|
|
Transaction, Contribution and Purchase Agreement dated as of February 9, 2010 among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
8-K
|
000-23137
|
2.1
|
04/06/10
|
2.2
|
|
Combination Agreement by and among RealNetworks, Inc., RN International Holdings B.V. and WiderThan Co., Ltd. dated as of September 12, 2006
|
8-K
|
000-23137
|
2.1
|
09/14/06
|
2.3
|
s
|
Asset Purchase Agreement dated as of January 26, 2012, by and between RealNetworks, Inc. and Intel Corporation. Certain schedules and exhibits referenced in the Asset Purchase Agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
|
8-K
|
000-23137
|
2.1
|
01/30/12
|
3.1
|
|
Amended and Restated Articles of Incorporation
|
10-Q
|
000-23137
|
3.1
|
08/11/00
|
3.2
|
|
Articles of Amendment to the Amended and Restated Articles of Incorporation
|
8-K
|
000-23137
|
3.1
|
08/31/11
|
3.3
|
|
Amended and Restated Bylaws effective July 23, 2010
|
8-K
|
000-23137
|
3.1
|
07/29/10
|
4.1
|
|
Amended and Restated Shareholder Rights Plan dated as of December 2, 2008, by and between RealNetworks, Inc. and Mellon Investor Services LLC including the form of Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C, respectively
|
8-K
|
000-23137
|
4.1
|
12/03/08
|
10.1
|
†
|
RealNetworks, Inc. 1995 Stock Option Plan
|
S-8
|
333-63333
|
99.1
|
09/14/98
|
10.2
|
†
|
RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated on June 1, 2001
|
10-Q
|
000-23137
|
10.1
|
08/13/01
|
10.3
|
†
|
Amendment No. 1 to the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated on June 1, 2001
|
8-K
|
000-23137
|
10.3
|
12/21/09
|
10.4
|
†
|
RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001
|
10-Q
|
000-23137
|
10.2
|
08/13/01
|
10.5
|
†
|
Amendment No. 1 to the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001
|
8-K
|
000-23137
|
10.2
|
12/21/09
|
10.6
|
†
|
RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.2
|
07/25/02
|
10.7
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.1
|
11/14/02
|
10.8
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.2
|
11/14/02
|
10.9
|
†
|
Forms of Stock Option Agreement under the RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.3
|
11/14/02
|
10.10
|
†
|
RealNetworks, Inc. 2007 Employee Stock Purchase Plan as amended and restated effective October 18, 2010
|
10-K
|
000-23137
|
10.10
|
03/16/11
|
10.11
|
†
|
RealNetworks, Inc. 2007 Director Compensation Stock Plan
|
10-K
|
000-23137
|
10.9
|
02/29/08
|
10.12
|
†
|
RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated effective December 17, 2009
|
8-K
|
000-23137
|
10.1
|
12/21/09
|
10.13
|
† *
|
Form of Non-Qualified Stock Option Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
10.14
|
† *
|
Form of Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
10.15
|
† *
|
Form of Performance Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
10.16
|
|
Lease dated January 21, 1998 between RealNetworks, Inc. as Lessee and 2601 Elliott, LLC, as amended
|
10-Q
|
000-23137
|
10.1
|
11/09/04
|
10.17
|
†
|
Form of Director and Officer Indemnification Agreement
|
S-1
|
333-36553
|
10.14
|
09/26/97
|
10.18
|
|
Voting Agreement dated September 25, 1997 by and among RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor and Bruce Jacobsen
|
S-1
|
333-36553
|
10.17
|
09/26/97
|
10.19
|
|
Agreement dated September 26, 1997 by and between RealNetworks and Robert Glaser
|
S-1
|
333-36553
|
10.18
|
09/26/97
|
10.20
|
†
|
Employment Agreement and Development, Confidentiality and Noncompetition Agreement by and between Thomas Nielsen and RealNetworks, Inc. effective as of November 9, 2011
|
10-K
|
000-23137
|
10.20
|
02/29/12
|
10.21
|
†
|
Offer Letter dated February 13, 2006 between RealNetworks, Inc. and Michael Eggers
|
10-K
|
000-23137
|
10.19
|
03/16/06
|
10.22
|
†
|
Offer Letter dated January 17, 2008 between RealNetworks, Inc. and Michael Lunsford
|
10-K
|
000-23137
|
10.23
|
03/10/10
|
10.23
|
†
|
Offer Letter dated September 2, 2010 between RealNetworks, Inc. and Tracy D. Daw
|
10-K/A
|
000-23137
|
10.23
|
05/02/11
|
10.24
|
†
|
Offer Letter dated June 25, 2009 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.27
|
04/30/12
|
10.25
|
†
|
Promotion Letter dated October 4, 2010 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.28
|
04/30/12
|
10.26
|
† *
|
Promotion Letter dated May 31, 2011 between RealNetworks, Inc. and Scott Uomoto
|
|
|
|
|
10.27
|
† *
|
Promotion Letter dated April 2, 2012 between RealNetworks, Inc. and Tim Wan
|
|
|
|
|
10.28
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Michael Eggers
|
8-K
|
000-23137
|
10.2
|
02/26/10
|
10.29
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Michael Lunsford
|
8-K
|
000-23137
|
10.3
|
02/26/10
|
10.30
|
†
|
Retention Letter dated February 24, 2010 between RealNetworks, Inc. and Tracy D. Daw
|
10-K/A
|
000-23137
|
10.30
|
05/02/11
|
10.31
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Michael Lunsford
|
10-Q
|
000-23137
|
10.1
|
08/09/11
|
10.32
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Michael Eggers
|
10-Q
|
000-23137
|
10.2
|
08/09/11
|
10.33
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Tracy D. Daw
|
10-Q
|
000-23137
|
10.4
|
08/09/11
|
10.34
|
†
|
Severance Letter Agreement dated May 31, 2011 between RealNetworks, Inc. and Mathew Hulett
|
10-K/A
|
000-23137
|
10.40
|
04/30/12
|
10.35
|
†
|
Form of Amended and Restated Change in Control and Severance Agreement for Executive Officers
|
10-Q
|
000-23137
|
10.5
|
08/09/11
|
10.36
|
†
|
Separation Agreement and Release between RealNetworks, Inc. and Thomas Nielsen dated July 3, 2012
|
10-Q
|
000-23137
|
10.1
|
08/09/12
|
10.37
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2011 Executive Compensation Program
|
10-K
|
000-23137
|
10.35
|
03/16/11
|
10.38
|
† *
|
Form of MBO Plan Document under the RealNetworks, Inc. 2012 Executive Compensation Program
|
|
|
|
|
10.39
|
s
|
Amended and Restated Settlement Agreement dated as of March 10, 2006 between RealNetworks, Inc. and Microsoft Corporation
|
10-K
|
000-23137
|
10.24
|
03/16/06
|
10.40
|
s
|
Transaction, Contribution and Purchase Agreement dated as of August 20, 2007 by and among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
10-Q
|
000-23137
|
10.1
|
11/09/07
|
5.
|
Termination of Employment
.
|
6.
|
Death; Disability
.
|
8.
|
Payment of Exercise Price
.
|
(A)
|
if there is no change in the number of outstanding Shares and the Change in Control does not result from the consummation of a merger, consolidation, statutory share exchange, reorganization or similar form of corporate transaction, there are no changes to the terms and conditions of this option that materially and adversely affect this option, including the number of Shares subject to the Option and the exercise price of the option; or
|
(B)
|
if there is a change in the number of outstanding Shares and/or the Change in Control does result from the consummation of a merger, consolidation, statutory share exchange, reorganization or similar form of corporate transaction: (1) the Shares subject to the Option and the exercise price of the option are adjusted in a manner which is not materially less favorable than as provided under Section 424(a) of the Code and regulations thereunder, (2) if applicable, the Shares subject to the Option are converted into the common stock of the Parent Corporation or, if there is no Parent Corporation, the Surviving Corporation (as such terms are defined below), and (3) there are no other changes to the terms and conditions of this option that materially and adversely affect the Option.
|
•
|
For the period Jan 1- April 30, 2012 your annual target for the 2012 plan year was 30% so 4/12th of a full year's target at 30% of your former base salary is $24,500.
|
•
|
For the period May 1 - Dec 31, 2012 your annual target for the 2012 plan year is 75% so 8/12th of a full year's target at 75% of your new base salary is $142,500.
|
1.
|
A Performance Share Unit (PSU) target grant in the amount of 40,000 shares which if earned, will vest on December 31, 2013. The PSU Executive Plan for 2012 is currently under review by the Compensation Committee, and the grant of the PSU remains subject to the approval of the Compensation Committee. The details of your PSU grant as well as the PSU Executive Plan will be provided under separate cover following approval by the Compensation Committee.
|
2.
|
A Promotional Share Grant of 16,000 RSUs effective as of your start date, which vest over two years, subject to your continued employment through the vesting dates and subject to applicable tax withholdings. The details of your Promotional grant will be provided within the next 30 days under separate cover.
|
|
•
|
|
In order to encourage revenue growth year over year, performance under 90% of the revenue target goal will not be rewarded.
|
Attainment
|
|
Incentive Payout
|
< 90%**
|
|
No Payout
|
90% - 100%
|
|
70% - 100%
|
100% - 120%+
|
|
100% - 200%*, **
|
*
|
Payout for revenue results will have a maximum payout of 200%.
|
**
|
For certain revenue in the Games division, performance may be rewarded above 70%, and the maximum possible payout is 200%.
|
|
•
|
|
In order to maintain fiscal responsibility, performance under 80% of the EBITDA target will not be rewarded.
|
Attainment
|
|
Incentive Payout
|
< 80%
|
|
No Payout
|
80% - 100%
|
|
50% - 100%
|
100% - 120%+*
|
|
100% - 160%*
|
*
|
Payout for EBITDA results will be capped at 100% until revenue attainment reaches 100%, and will have a maximum payout of 160%.
|
|
•
|
|
2012 Executive MBO Plan calculations and payments are completed and made after the end of the plan year with payout timing approximately 30 - 45 days after the close of the plan year. In all circumstances, any payouts that are earned in the plan year will be paid by March 15 of the following year, at the latest.
|
|
•
|
|
You must be in an eligible position on the first and last day of the month to participate in the plan for that month.
|
|
•
|
|
Salary, eligible position changes and/or transfers from one eligible group to another within a month will be based on status at the beginning of the quarter. Changes after the first day of the quarter will be reflected in the next month.
|
|
•
|
|
In order to receive a payout from the plan you must be on the company’s payroll as of the last day of the plan year and on the company’s payroll as of the date the award is scheduled to be paid, subject to the following. If your employment terminates due to your total and permanent disability or death, you or your estate, still may, in the discretion of the Compensation Committee be eligible to receive any payout that otherwise was earned.
|
|
•
|
|
Notwithstanding any other provision of the plan, the Compensation Committee may, in its sole discretion, increase (other than for a Section 162(m) Participant), reduce or eliminate a participant’s award at any time before it is paid, whether or not calculated on the basis of pre-established performance goals or formulas.
|
|
•
|
|
The Compensation Committee has all power and discretion to interpret and administer the plan, including (but not limited to) the power to determine who is eligible for the plan and the size of any payouts.
|
|
•
|
|
The Compensation Committee may delegate all or any part of its powers under the plan to the company’s chief executive officer or head of human resources, except that such individual may not administer the plan with respect to participants who are executive officers of the company. (For this purpose, an individual will be considered an executive officer of the company if his or her role at the company falls within the definition of “officer” under Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended.)
|
|
•
|
|
The Compensation Committee reserves the right to adjust targets/measurements based on acquisition or disposition of businesses/assets.
|
|
•
|
|
The Section 162(m) Participants are the company’s chief executive officer, chief financial officer, and any president or executive vice president.
|
Name of Subsidiary
|
|
Jurisdiction of Incorporation
|
Atrativa Latin America Ltda.
|
|
Brazil
|
Backstage Technologies Incorporated
|
|
British Columbia, Canada
|
Beijing RealNetworks Technology Co. Ltd.
|
|
China
|
Game Trust, Inc.
|
|
Delaware
|
Listen.com, Inc.
|
|
California
|
PT RealNetworks Indonesia
|
|
Indonesia
|
GameHouse Europe B.V.
|
|
The Netherlands
|
RealNetworks Asia Pacific Co., Ltd.
|
|
Republic of Korea
|
RealNetworks Australia Pty. Limited
|
|
Australia
|
RealNetworks Digital Music of California, Inc.
|
|
California
|
RealNetworks Dijital Medya Yazilim Limited Sirketi
|
|
Turkey
|
RealNetworks Finland Oy
|
|
Finland
|
RealNetworks Global, Inc.
|
|
Delaware
|
RealNetworks GmbH
|
|
Germany
|
RealNetworks GmbH
|
|
Austria
|
RealNetworks Hong Kong, Limited
|
|
Hong Kong
|
RealNetworks India Pvt. Ltd.
|
|
India
|
RealNetworks International SARL
|
|
Luxembourg
|
RealNetworks Investments LLC
|
|
Delaware
|
RealNetworks K.K.
|
|
Japan
|
RealNetworks Korea, Ltd.
|
|
Republic of Korea
|
RealNetworks Ltd.
|
|
United Kingdom
|
RealNetworks of Brazil LtdA
|
|
Brazil
|
RealNetworks Singapore Pte. Limited
|
|
Singapore
|
RealNetworks, SARL
|
|
France
|
RN Acquisition Corp.
|
|
Washington
|
RN Gemco, Inc.
|
|
Delaware
|
RN International Holdings B.V.
|
|
The Netherlands
|
RN International Holdings C.V.
|
|
The Netherlands
|
Syncredible, Inc.
|
|
Delaware
|
TM Acquisition LLC
|
|
Delaware
|
Trymedia Systems Sociedad Limitada
|
|
Spain
|
Varia LLC
|
|
Delaware
|
1.
|
I have reviewed this report on Form 10-K of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
/s/ ROBERT GLASER
|
Robert Glaser
|
Title: Chairman and interim Chief Executive Officer
|
(Principal Executive Officer)
|
1.
|
I have reviewed this report on Form 10-K of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
/s/ TIM M. WAN
|
Tim M. Wan
|
Title: Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|
|
|
By:
|
/s/ ROBERT GLASER
|
Name:
|
Robert Glaser
|
Title:
|
Chairman and interim Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
By:
|
/s/ TIM M. WAN
|
Name:
|
Tim M. Wan
|
Title:
|
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|