NOVATO, Calif., May 28, 2009 (GLOBE NEWSWIRE) -- Sonic Solutions(r) (Nasdaq:SNIC) today announced financial results for the fourth quarter and fiscal year ended March 31, 2009:
Summary Financial Results
(in thousands, except per share amounts)
Three Months Ended March 31,
------------------------------------------
2009 2009 2008 2008
(GAAP) (Non-GAAP) (GAAP) (Non-GAAP)
--------- --------- --------- ---------
Net revenue $ 32,244 $ 32,244 $ 34,891 $ 34,891
Gross profit $ 23,622 $ 23,731 $ 26,426 $ 27,638
Net income (loss) $ 328 $ 1,473 $ 480 $ 2,108
Net income (loss) per
diluted share $ 0.01 $ 0.05 $ 0.02 $ 0.08
Twelve Months Ended March 31,
------------------------------------------
2009 2009 2008 2008
(GAAP) (Non-GAAP) (GAAP) (Non-GAAP)
--------- --------- --------- ---------
Net revenue $ 119,958 $ 119,958 $ 132,874 $ 132,874
Gross profit $ 67,478 $ 90,515 $ 99,723 $ 104,523
Net income (loss) $(118,123) $ (4,292) $ (5,537) $ 4,452
Net income (loss) per
diluted share $ (4.45) $ (0.16) $ (0.20) $ 0.16
Non-GAAP Presentation
To supplement our 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 gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income (loss) and non-GAAP net income (loss) per share. We also provide guidance regarding our projected earnings before interest, taxes, depreciation and amortization, excluding impairment charges, restructuring expense, stock option review expense and share-based compensation ("Adjusted EBITDA") performance. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, but should be considered in addition to and in conjunction with results presented in accordance with GAAP. They 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 institutional investors and the analyst community to help them analyze our operating results and budget planning decisions. 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 above table, the effect of calculating these financial measures on a non-GAAP basis is to increase our gross profit and decrease our net loss and net loss per fully diluted share for the fourth quarter and fiscal year ended March 31, 2009 and 2008, respectively. 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 earnings that does not include all of our expense obligations for the period in question, and (b) this may limit the comparability of our results to those of other companies who have treated such matters differently. We compensate for these limitations by providing full disclosure of the effects of these 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.
Additional information regarding our non-GAAP financial measures and adjustments is as follows:
Impairment of Goodwill and Intangible Assets. During the third quarter of fiscal 2009, we reviewed the current economic environment and our decline in market capitalization, and concluded that there were sufficient indicators for us to perform an impairment analysis on our goodwill and acquired intangibles. As a result of this preliminary analysis, we recorded non-cash impairment charges in the amount of $56.2 million with respect to goodwill and in the aggregate amount of $19.6 million with respect to acquired intangibles. During the fourth quarter for fiscal 2009, we concluded there were no further impairments. We have excluded the effect of these impairment charges from our calculation of the following: non-GAAP gross margin, non-GAAP gross profit, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. These non-cash charges do not result in ongoing cash expenditures, and, in our view, do not otherwise have a material impact on our ongoing business operations. Accordingly, we believe that providing non-GAAP financial measures that exclude these charges allows investors and analysts to make meaningful comparisons of our ongoing core business' operating results.
Stock Option Review Expense Adjustment. As we originally announced in February 2007, we recently conducted a voluntary review of our historical stock option grant practices and related accounting. We have excluded the effect of our stock option review expenses from our calculation of the following: non-GAAP operating expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA, as this provides our management with an important tool for financial and operations decision making and for evaluating our own recurring core business operating results over different periods of time. We believe that providing non-GAAP financial measures that exclude this stock option review expense allows investors and analysts to make meaningful comparisons of our ongoing core business operating results. We did not incur any option review expense during the fourth quarter ended March 31, 2009, but it is possible that certain option review expenses could be incurred in future periods as matters associated with the review are completed.
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 transactions we have consummated. We have excluded the effect of amortization of acquired intangibles from our calculation of the following: non-GAAP gross margin, non-GAAP gross profit, non-GAAP operating income, 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.
Share-Based Compensation Expense Adjustment. We have excluded the effect of our share-based compensation expense from our calculation of the following: non-GAAP operating expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA, as this provides our management with an important tool for financial and operational decision-making and for evaluating our own recurring core business operating results over different periods of time. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies may use under Statement of Financial Accounting Standards No.123R, which governs the accounting treatment for share-based compensation, 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 this share-based compensation expense allows investors and analysts to make meaningful comparisons between our ongoing core business operating results with those of other companies. Share-based compensation has been a significant non-cash recurring expense in our business and has been used as a key incentive offered to our employees. We believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues. Share-based compensation expense will recur in future periods for GAAP purposes.
Restructuring Expense Adjustment. We have excluded the effect of our restructuring expense from our calculation of the following: non-GAAP operating expense, non-GAAP operating income, 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 announced in June and October 2008 and January 2009. As these expenses are directly related to the recently announced restructurings, we believe that providing non-GAAP financial measures that exclude this restructuring expense allows investors and analysts to make meaningful comparisons of our ongoing core business operating results over different periods of time.
Valuation Allowance. During the third quarter, we established a valuation allowance of approximately $65.7 million for deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109"), for deferred tax assets previously recorded. We had operating losses in fiscal 2008 and 2009, and SFAS No. 109 requires, except in very limited circumstances, that a valuation allowance be established when there are cumulative losses in recent years. We have excluded the effect of this valuation allowance from our calculation of the following: non-GAAP net income (loss), non-GAAP net income (loss) per share and Adjusted EBITDA. The establishment of this valuation allowance does not result in ongoing cash expenditures, and, in our view, does not otherwise have a material impact on our ongoing business operations. Accordingly, we believe that providing non-GAAP financial measures that exclude this valuation expense allows investors and analysts to make meaningful comparisons of our ongoing core business operating results.
Adjusted EBITDA. We provide guidance regarding our Adjusted EBITDA. We believe this performance measure is useful to investors because (a) it corresponds more closely to the cash operating income generated from our core operations by excluding significant non-cash operating expenses such as impairment charges, restructuring expenses, stock option review expenses and share-based compensation expenses, as well as certain other 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.
Non-GAAP Reconciliations
As noted above and as reflected in the reconciliation tables contained in this release, we have provided reconciliations between the historical non-GAAP measures that we have disclosed and the most directly comparable GAAP measures. We have not provided a reconciliation of forward-looking non-GAAP financial measures to the directly comparable GAAP measures because, due primarily to variability and difficulty in making accurate forecasts and projections, not all of the information necessary for a quantitative reconciliation is available to us without unreasonable efforts. Although we cannot provide a full quantitative reconciliation of these forward-looking measures, we have provided certain projections and other information that is available to us at this time (see "Guidance" below in this release). Certain of this information (for example, our expectations regarding non-GAAP operating expense for the quarter ending June 30, 2009) is non-quantitative in nature, and other information (for example our expectations regarding non-GAAP operating expense and Adjusted EBITDA for the quarter ending June 30, 2009) describes a range of potential quantitative results. In addition, we do not currently have sufficient information regarding our future activities to accurately provide reconciling information relating to our operating margins for the quarter ending June 30, 2009. We believe the probable significance of our providing forward-looking non-GAAP financial measures without full reconciliation to the most directly comparable projected GAAP financial measures is that investors and analysts will have certain information that we believe to be useful and meaningful regarding our future projected results and opportunities, but that they will not have a complete picture of all of our projected financial results on a GAAP basis and they may be unable to accurately compare our projected results to projected results of other companies who may have treated such matters differently. We believe that, given the inherent uncertainty always present for forward-looking projections, our investors will be able to understand and appropriately take into account the limitations in the information we have provided. Investors are cautioned that, while we cannot predict the occurrence, timing or amount of all non-GAAP items that we exclude from our non-GAAP financial measures, the actual effect of these items, when determined could potentially be significant to the calculation of our GAAP financial measures for future calendar periods.
Guidance
For the first fiscal quarter ending June 30, 2009, we anticipate net revenue will be approximately $25 million. Non-GAAP operating expense should decrease in the first quarter due largely to cost-savings recognized from previously announced headcount reductions. We expect to generate negative Adjusted EBITDA in the first quarter of approximately $2.0 million. Our goal is to achieve break-even Adjusted EBITDA in the September quarter and, absent significant further deterioration in the macro environment, positive Adjusted EBITDA for the whole of fiscal 2010.
Call Details
Sonic will conduct a conference call today at 1:30 p.m. PT, or 4:30 p.m. ET to discuss financial results for the fourth fiscal quarter ended March 31, 2009. To participate in the conference call, interested parties may dial-in as follows 877-718-5106 (for domestic callers) and 719-325-4814 (for international callers).
A telephone replay will also be available shortly following the call on Thursday, May 28, 2009 through midnight (PT) on Tuesday, June 2, 2009. The replay can be accessed by dialing 888-203-1112 (for domestic callers) or 719-457-0820 (for international callers) and entering the passcode: 3467872.
To listen to a webcast of the conference call, 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.
The Sonic Solutions logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6157
Sonic Solutions
Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
March 31, March 31,
2009 2009
(unaudited) 2008 (unaudited) 2008
--------- --------- --------- ---------
Net revenue $ 32,244 $ 34,891 $ 119,958 $ 132,874
Cost of revenue 8,622 8,465 32,901 33,151
Impairment of intangibles -- -- 19,579 --
--------- --------- --------- ---------
Gross profit 23,622 26,426 67,478 99,723
--------- --------- --------- ---------
Operating expenses:
Marketing and sales 7,714 8,958 35,810 36,186
Research and development 8,134 10,346 39,250 44,511
General and
administrative 5,588 6,688 24,160 27,310
Impairment of goodwill -- -- 56,174 --
Restructuring 1,296 37 3,947 3,152
--------- --------- --------- ---------
22,732 26,029 159,341 111,159
--------- --------- --------- ---------
Operating income (loss) 890 397 (91,863) (11,436)
Other income (expense),
net (436) 321 (1,100) 1,645
--------- --------- --------- ---------
Income (loss) before
income taxes 454 718 (92,963) (9,791)
Provision (benefit) for
income taxes 126 238 25,160 (4,254)
--------- --------- --------- ---------
Net income (loss) $ 328 $ 480 $(118,123) $ (5,537)
========= ========= ========= =========
Net loss per share:
Basic $ 0.01 $ 0.02 $ (4.45) $ (0.21)
========= ========= ========= =========
Diluted $ 0.01 $ 0.02 $ (4.45) $ (0.21)
========= ========= ========= =========
Shares used in computing
net loss per share:
Basic 26,591 26,317 26,535 26,247
========= ========= ========= =========
Diluted 26,835 27,135 26,535 26,247
========= ========= ========= =========
Sonic Solutions
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, (1)
2009 2008
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 19,408 $ 61,955
Restricted cash and cash equivalents 456 454
Short-term investments -- 1,050
Accounts receivable, net of allowances of
$2,072 and $3,901 at March 31, 2009 and
2008, respectively 14,874 15,773
Inventory 1,086 1,030
Prepaid expenses and other current assets 4,504 5,085
Deferred tax benefits 41 13,920
--------- ---------
Total current assets 40,369 99,267
Fixed assets, net 2,851 2,959
Purchased and internally developed software
costs, net 448 704
Goodwill (2) 4,628 55,456
Acquired intangibles, net (3) 16,556 35,502
Deferred tax benefit, net of current portion 21 14,642
Other assets 1,864 1,519
--------- ---------
Total assets $ 66,737 $ 210,049
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,042 $ 6,118
Accrued expenses and other current
liabilities 27,026 29,467
Deferred revenue, current portion 6,875 6,854
Bank note payable -- 20,000
Obligations under capital leases, current
portion 130 --
--------- ---------
Total current liabilities 39,073 62,439
Other long term liabilities, net of current
portion 724 2,943
Deferred revenue, net of current portion 135 65
Obligations under capital leases, net of
current portion 161 --
--------- ---------
Total liabilities 40,093 65,447
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 100,000,000
shares authorized; 26,593,647 and
26,383,277 shares issued and outstanding
at March 31, 2009 and 2008, respectively 163,121 163,251
Accumulated deficit (135,076) (16,952)
Accumulated other comprehensive loss (1,401) (1,697)
--------- ---------
Total shareholders' equity 26,644 144,602
--------- ---------
Total liabilities and shareholders'
equity $ 66,737 $ 210,049
========= =========
--------
(1) The consolidated balance sheets for March 31, 2009 has been
derived from the Company's unaudited consolidated financial
statements. The consolidated balance sheet for March 31, 2008
has been derived from the Company's audited financial statements
included in the Company's 2008 Annual Report on Form 10-K.
(2) Reflects impairment of goodwill for $56.2 million posted during
the third quarter of fiscal 2009.
(3) Reflects impairment of intangibles for $19.6 million posted
during the third quarter of fiscal 2009.
Sonic Solutions
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(unaudited)
------------------------------------------
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Net Revenue $ 32,244 $ 34,891 $ 119,958 $ 132,874
GAAP cost of revenue $ 8,622 $ 8,465 $ 32,901 $ 33,151
Impairment of
intangibles (1) -- -- 19,579 --
--------- --------- --------- ---------
GAAP gross profit $ 23,622 $ 26,426 $ 67,478 $ 99,723
GAAP cost of revenue $ 8,622 $ 8,465 $ 32,901 $ 33,151
Acquisition-related
intangible
amortization expense (109) (1,212) (3,458) (4,800)
--------- --------- --------- ---------
Non-GAAP cost of revenue $ 8,513 $ 7,253 $ 29,443 $ 28,351
--------- --------- --------- ---------
Non-GAAP gross profit
(loss) $ 23,731 $ 27,638 $ 90,515 $ 104,523
========= ========= ========= =========
GAAP total operating
expense $ 22,732 $ 26,029 $ 159,341 $ 111,159
Share-based
compensation
expense (2) (576) (205) (2,191) (1,545)
Stock option review
expense (3) -- (1,424) (518) (8,167)
Restructuring
expense (4) (1,296) (37) (3,947) (3,152)
Goodwill
impairment (5) -- -- (56,174) --
--------- --------- --------- ---------
Non-GAAP total operating
expense $ 20,860 $ 24,363 $ 96,511 $ 98,295
--------- --------- --------- ---------
Non-GAAP operating income
(loss) $ 2,871 $ 3,275 $ (5,996) $ 6,228
========= ========= ========= =========
Other income (expense),
net (436) 321 (1,100) 1,645
Non-GAAP loss from
operations before
income taxes 2,435 3,596 (7,096) 7,873
Non-GAAP Provision
(benefit) for income
taxes(6) (7) 962 1,488 (2,804) 3,421
--------- --------- --------- ---------
Non-GAAP income (loss)
from operations $ 1,473 $ 2,108 $ (4,292) $ 4,452
========= ========= ========= =========
Basic income (loss) per
share
GAAP $ 0.01 $ 0.02 $ (4.45) $ (0.21)
========= ========= ========= =========
Non-GAAP $ 0.06 $ 0.08 $ (0.16) $ 0.17
========= ========= ========= =========
Diluted income (loss)
per share
GAAP $ 0.01 $ 0.02 $ (4.45) $ (0.20)
========= ========= ========= =========
Non-GAAP $ 0.05 $ 0.08 $ (0.16) $ 0.16
========= ========= ========= =========
Shares used in computing
net income (loss) per
share
Basic 26,591 26,317 26,535 26,247
========= ========= ========= =========
Diluted 26,835 27,135 26,535 27,146
========= ========= ========= =========
(1) Impairment of intangibles is included in Cost of Goods Sold on
a GAAP basis.
(2) Share-based compensation expense consists of:
Marketing and sales $ 173 $ 111 $ 842 $ 766
Research and
development 77 69 292 530
General and
administrative 326 25 1,057 249
--------- --------- --------- ---------
$ 576 $ 205 $ 2,191 $ 1,545
========= ========= ========= =========
(3) Stock option review expense is included in General and
Administrative expense on a GAAP basis.
(4) Restructuring expense is included as a separate line item in
operating expense on a GAAP basis.
(5) Goodwill impairment is included as a separate line item in
operating expense on a GAAP basis.
(6) Fiscal 2009 tax adjustment calculated by applying fiscal year
end March 31, 2009 effective tax rate of 39.52%.
(7) Fiscal 2008 tax adjustment calculated by applying fiscal year
end March 31, 2008 effective tax rate of 43.45%.
Three Months Ended Twelve Months Ended
-------------------- --------------------
March 31, March 31, March 31, March 31,
2009 (1) 2008 (1) 2009 (1) 2008 (1)
--------- --------- --------- ---------
Adjusted EBITDA $ 3,479 $ 3,914 $ (3,594) $ 9,016
Depreciation and
amortization 717 1,851 5,860 7,589
Impairment of
intangibles -- -- 19,579 --
Restructuring 1,296 37 3,947 3,152
Goodwill Impairment -- -- 56,174 --
Stock option review
expenses -- 1,424 518 8,167
Share-based
compensation 576 205 2,191 1,545
--------- --------- --------- ---------
GAAP Operating Income $ 890 $ 397 $ (91,863) $ (11,436)
Provision for (benefit)
income taxes 126 238 25,160 (4,254)
Other income (expense) (436) 321 (1,100) 1,645
--------- --------- --------- ---------
GAAP Net Income $ 328 $ 480 $(118,123) $ (5,537)
========= ========= ========= =========
(1) See the Reconciliation of GAAP to Non-GAAP Financial Measures
table for details related to EBITDA reconciliation.
About Sonic Solutions
Sonic Solutions(r) (Nasdaq:SNIC) is a leading developer of products and services that enable the creation, management, and enjoyment of digital media content across a wide variety of technology platforms. Our products and services offer innovative technologies to consumers, original equipment manufacturers ("OEMs"), enterprises, high-end professional DVD authoring experts and developers. We distribute our products and services through retailers and distributors, personal computer ("PC") and consumer electronics ("CE") OEMs, Internet websites including www.roxio.com, and other channels. We 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.
Forward-Looking Statements
This press release and our earnings conference call for the fourth quarter and fiscal year ended March 31, 2009 contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") 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. Such forward-looking statements include expectations regarding revenue, income, expenses, and other guidance for the fiscal quarter ending June 30, 2009. 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 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; * the timely introduction and acceptance of new products and services, including but not limited to the rate of acceptance of our CinemaNow and Qflix initiative, online services and high-definition products by content owners, original equipment manufacturers and consumers; * competing products and services that may, now or in the future, be available to consumers; * pricing pressures associated with products or services offered by current or future competitors; * our ability to maintain sufficient liquidity and continue to fund our capital needs; * the costs associated with new product and service introductions and the possible adverse effects on gross margins; * fluctuations in demand for our products and services; * unforeseen increases in operating expenses; * reliance on and the possible loss of significant customers, major distributors or key suppliers; * risks associated with international operations; * the loss of key management personnel; * risks related to acquisition and the integration of acquired business assets, personnel and systems. * costs associated with litigation or patent prosecution and intellectual property claims; and * changes in effective tax rates.
Other risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements include, but are not limited to:
* tax issues or liability that relate to adjustments to the measurement dates associated with stock options issued by us; * unforeseen issues resulting from the restatement of our fiscal year 2005 financial statements and related matters; and * the impact of litigation related to our stock options grant practices or any restatement of its financial statements.
This press release should be read in conjunction with our most recent annual report on Form 10-K expected to be filed on May 29, 2009, and our other reports currently on file with the Securities and Exchange Commission, which contain more detailed discussion of risks and uncertainties that may affect future results. Sonic does not undertake to update any forward-looking statements unless otherwise required by law.