DTS, Inc.

iBiquity Digital
Corporation

Pro Forma
Adjustments

Combined Pro
Forma

ASSETS

Current assets:

Cash and cash equivalents

$

55,204

$

4,818

$

(50,418)

(a)

$

9,604

Short-term investments

32,266

5,000

-

37,266

Accounts receivable, net

16,610

5,191

-

21,801

Deferred income taxes

12,066

-

-

12,066

Prepaid expenses and other current assets

3,610

3,217

641

(b)

7,468

Income taxes receivable

2,375

-

-

2,375

Total current assets

122,131

18,226

(49,777)

90,580

Property and equipment, net

26,903

1,076

-

27,979

Intangible assets, net

43,827

3,376

117,604

(c)

164,807

Goodwill

50,356

33,164

27,461

(d)

110,981

Deferred income taxes

29,028

-

-

29,028

Other long-term assets

2,705

378

2,782

(b)

5,865

Total assets

$

274,950

$

56,220

$

98,070

$

429,240

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

2,596

$

496

$

-

$

3,092

Accrued expenses

10,270

10,774

3,500

(e)

24,544

Deferred revenue

9,759

5,060

(4,917)

(f)

9,902

Income taxes payable

51

-

-

51

Current portion of long-term debt

7,500

138,301

(123,801)

(g)(h)

22,000

Current portion of interest payable on long-term debt

-

32,072

(32,072)

(h)

-

Management incentive plan liability

-

15,450

(15,450)

(h)

-

Total current liabilities

30,176

202,153

(172,740)

59,589

Long-term debt

17,500

-

120,500

(g)

138,000

Deferred income taxes

-

-

8,054

(i)

8,054

Other long-term liabilities

12,105

-

-

12,105

Redeemable convertible preferred stock

Series E redeemable convertible preferred stock

-

126,623

(126,623)

(j)

-

Series D redeemable convertible preferred stock

-

12,023

(12,023)

(j)

-

Series C redeemable convertible preferred stock

-

144,404

(144,404)

(j)

-

Series A redeemable convertible preferred stock

-

28,890

(28,890)

(j)

-

Stockholders’ equity (deficit):

Common stock

3

99

(99)

(j)

3

Additional paid-in capital

253,123

-

-

253,123

Treasury stock, at cost

(111,331)

-

-

(111,331

)

Accumulated other comprehensive income

810

-

-

810

Retained earnings (accumulated deficit)

72,564

(457,972)

454,295

(k)

68,887

Total stockholders’ equity

215,169

(457,873)

454,196

211,492

Total liabilities and stockholders’ equity

$

274,950

$

56,220

$

98,070

$

429,240

DTS, Inc.

iBiquity Digital
Corporation

Pro Forma
Adjustments

Combined Pro
Forma

Revenue

$

68,363

$

24,663

$

(1,324)

(l) 

$

91,702

Cost of revenue

5,527

2,681

5,191

(m) 

13,399

Gross profit

62,836

21,982

(6,515)

78,303

Operating expenses:

Selling, general and administrative

37,969

16,539

(5,607)

(n) 

48,901

Research and development

19,239

4,982

140

(o) 

24,361

Total operating expenses

57,208

21,521

(5,467)

73,262

Operating income

5,628

461

(1,048)

5,041

Interest and other expense, net

(619)

(11,871)

9,678

(p) 

(2,812

)

Mark-to-market adjustments on warrants

-

10,897

(10,897)

(q) 

-

Income (loss) before income taxes

5,009

(513)

(2,267)

2,229

Income tax provision

1,668

293

(793)

(r) 

1,168

Net income (loss)

$

3,341

$

(806)

$

(1,474)

$

1,061

Net income per common share:

Basic

$

0.19

$

0.06

Diluted

$

0.18

$

0.06

Weighted average shares used to compute net income per common share:

Basic

17,521

17,521

Diluted

18,326

18,326

DTS, Inc.

iBiquity Digital
Corporation

Pro Forma
Adjustments

Combined Pro
Forma

Revenue

$

143,913   

$

46,317

$

(940)

(l) 

$

189,290

Cost of revenue

11,095

3,288

10,381

(m)

24,764

Gross profit

132,818

43,029

(11,321)

164,526

Operating expenses:

Selling, general and administrative

78,570

16,537

1,530

(n)

96,637

Research and development

37,298

11,812

280

(o)

49,390

Change in fair value of contingent consideration

400

-

-

400

Total operating expenses

116,268

28,349

1,810

146,427

Operating income

16,550

14,680

(13,131)

18,099

Interest and other expense, net

(413)

(22,062)

18,229

(p)

(4,246

)

Mark-to-market adjustments on warrants

-

14,499

(14,499)

(q) 

-

Income before income taxes

16,137

7,117

(9,401)

13,853

Income tax benefit

(11,006)

(341)

(3,290)

(r)

(14,637

)

Net income

$

27,143

$

7,458

$

(6,111)

$

28,490

Net income per common share:

Basic

$

1.58

$

1.66

Diluted

$

1.55

$

1.62

Weighted average shares used to compute net income per common share:

Basic

17,180

17,180

Diluted

17,561

17,561

Weighted Average

Net Assets of

Estimated Useful

iBiquity as of

Life (years)

June 30, 2015

Short-term investments

  $

5,000

Accounts receivable

5,191

Prepaid expenses and other current assets

3,217

Property and equipment, net

1,076

Goodwill

60,625

Identifiable intangible assets:

Customer relationships

10

70,220

Developed technology

10

33,590

Tradenames

10

9,590

In-process research and development (IPR&D)

7,580

Total identifiable intangible assets

120,980

Other long-term assets

378

Accounts payable

(496)

Accrued expenses

(10,774)

Deferred revenue

(143)

Deferred income taxes, net

(8,054)

Total preliminary purchase price

  $

177,000

(a)

The pro forma financial information reflects that DTS financed the Merger with a combination of cash and debt. The pro forma adjustments to the cash balance are summarized as follows:

Sources of Cash

Debt issuance from new credit agreement (refer to note (g))

  $

160,000

Uses of Cash

Payoff existing debt under old credit agreement (refer to note (g))

(25,000

)

Payment of estimated debt issuance costs (refer to note (b))

(3,600

)

Payment of merger consideration

(177,000

)

Total uses of cash

(205,600

)

Reflect elimination of iBiquity historical cash balance

(4,818

)

Total adjustments to cash

  $

(50,418

)

The payment of merger consideration above includes $5,000 for acquired short-term investments on iBiquity’s historical balance sheet as of June 30, 2015. As of October 1, 2015, such short-term investments were $4,000. All short-term investments acquired from iBiquity were liquidated shortly after the acquisition date.

(b)

To reflect debt issuance costs associated with new debt issuance and the write-off of existing debt issuance costs. Refer to note (g) for additional information on debt. Debt issuance costs are assumed to be recorded as assets and amortized on a straight-line basis over the term of the loan, which is assumed to be 5 years.

Debt issuance costs classified as other current assets:

Capitalization of estimated new debt issuance costs

  $

720

Write-off of remaining existing debt issuance costs

(79

)

Net increase in short-term debt issuance costs

  $

641

Debt issuance costs classified as other long-term assets:

Capitalization of estimated new debt issuance costs

  $

2,880

Write-off of remaining existing debt issuance costs

(98

)

Net increase in long-term debt issuance costs

  $

2,782

(c)

To reflect adjustments in acquired intangible assets, net

To eliminate iBiquity historical acquired intangible assets

  $

(3,376

)

To record the estimated fair value of acquired identifiable intangible assets

120,980

Net impact on intangible assets, net

  $

117,604

(d)

To reflect adjustments in goodwill

To eliminate iBiquity historical goodwill

  $

(33,164

)

To record the estimated fair value of acquired goodwill

60,625

Net impact on goodwill

  $

27,461

(e)

To reflect in accrued expenses estimated DTS transaction costs due upon the closure of the transaction or shortly thereafter.

(f)

To reflect an adjustment to the fair value of acquired deferred revenue as part of purchase accounting.

(g)

The pro forma financial information reflects the impact of the new credit facility entered into by DTS which helped finance the Merger and pay off its existing credit facility. The adjustments to debt are summarized as follows:

Current portion of long-term debt

New debt issuance

  $

22,000

Pay-off of existing debt

(7,500

)

Net increase in outstanding debt, current portion

  $

14,500

Long-term debt

New debt issuance

  $

138,000

Pay-off of existing debt

(17,500

)

Net increase in outstanding debt, long-term

  $

120,500

Under the new credit facility, payments of approximately $5,500 are due quarterly over 5 years, with the remaining balance under the facility due at the end of the 5 year term.

(h)

To reflect elimination of iBiquity’s historical management incentive plan liability and debt, which were not assumed in the Merger.

(i)

To reflect adjustments to deferred income tax assets and liabilities:

To reflect estimated deferred income tax liability associated with purchase accounting adjustments, calculated using an estimated statutory tax rate of 35%.

Estimated deferred income tax liability related to intangible assets

  $

41,161

Estimated deferred income tax liability related to deferred revenue

1,721

Purchase accounting adjustments impacting deferred income tax liabilities

  $

42,882

To reflect estimated adjustments to deferred income tax assets upon consummation of Merger.

To recorded estimated acquired net deferred income tax assets

  $

155,621

To eliminate iBiquity’s historical net operating loss carryforward

(120,793

)

Acquired net deferred income tax assets

  $

34,828

Total impact on deferred income tax liabilities, net

  $

8,054

In connection with the acquisition of iBiquity, DTS acquired approximately $121,000 of net operating loss carryforwards (on a tax effected basis) that are likely to be subject to significant limitations. This amount consists of both federal and state net operating loss carryforwards, but primarily relates to federal net operating loss carryforwards. Management is currently evaluating the amount of operating loss carryforwards that can potentially be utilized. Based on a preliminary assessment, management believes that the available net operating loss carryforwards that can potentially be utilized falls within a range of $0 to $41,000 (on a tax effected basis). The unaudited pro forma condensed combined balance sheet has been prepared assuming that none of the operating loss carryforwards will be available for use. The actual amount of net operating loss carryforwards determined to be available may differ materially from the preliminary estimates presented.

(j)

To reflect the elimination of iBiquity’s historical common stock and convertible preferred stock.

(k)

To reflect adjustments to retained earnings (accumulated deficit):

To eliminate iBiquity’s historical accumulated deficit

  $

457,972

To reflect estimated DTS transaction costs due upon the closure of the transaction or shortly thereafter (refer to note (e))

(3,500

)

Write-off of existing debt issuance costs (refer to note (b))

(177

)

Total adjustment to retained earnings (accumulated deficit)

  $

454,295

(l)

To reflect adjustments to revenue as a result of the deferred revenue liability being adjusted to its fair market value.

For the six months ended June 30, 2015:

To eliminate historical iBiquity revenue amortized from deferred revenue balance

  $

(1,353

)

To record estimated iBiquity revenue amortized from adjusted deferred revenue balance

29

Net impact to revenue

  $

(1,324

)

For the year ended December 31, 2014:

To eliminate historical iBiquity revenue amortized from deferred revenue balance

  $

(997

)

To record estimated iBiquity revenue amortized from adjusted deferred revenue balance

57

Net impact to revenue

  $

(940

)

(m)

To record estimated amortization of identified finite-lived intangibles acquired classified in cost of revenue.

(n)

To reflect adjustments to SG&A.

For the six months ended June 30, 2015:

To eliminate historical iBiquity amortization of finite-lived intangibles

  $

(241

)

To record estimated amortization of identified finite lived intangibles acquired classified in SG&A

514

To eliminate iBiquity’s historical incentive compensation expense associated with its management incentive plan, which was not assumed in the Merger

(6,230

)

To record estimated stock-based compensation expense associated with stock awards granted by DTS to iBiquity employees

350

Total adjustments to SG&A for the six months ended June 30, 2015

  $

(5,607

)

For the year ended December 31, 2014:

To eliminate historical iBiquity amortization of finite-lived intangibles

  $

(481

)

To record estimated amortization of identified finite lived intangibles acquired classified in SG&A

1,027

To eliminate iBiquity’s historical incentive compensation expense associated with its management incentive plan, which was not assumed in the Merger

284

To record estimated stock-based compensation expense associated with stock awards granted by DTS to iBiquity employees

700

Total adjustments to SG&A for the year ended December 31, 2014

  $

1,530

(o)

To record estimated stock-based compensation expense associated with stock awards granted by DTS to iBiquity employees.

(p)

To reflect adjustments to interest and other expense, net.

For the six months ended June 30, 2015:

To eliminate DTS historical interest expense on old debt

  $

148

To eliminate DTS historical amortization of historical debt issuance costs

38

To reflect estimated interest expense associated with the new debt (an interest rate of LIBOR plus 2%, or approximately 2.2%, was assumed)

(1,760

)

To reflect estimated amortization of debt issuance costs associated with the new debt

(360

)

To eliminate iBiquity’s historical interest expense on debt

11,612

Incremental reduction in interest and other expense, net

  $

9,678

For the year ended December 31, 2014:

To eliminate DTS historical interest expense on old debt

  $

349

To eliminate DTS historical amortization of historical debt issuance costs

21

To reflect estimated interest expense associated with the new debt (an interest rate of LIBOR plus 2%, or approximately 2.2%, was assumed)

(3,520

)

To reflect estimated amortization of debt issuance costs associated with the new debt

(720

)

To eliminate iBiquity’s historical interest expense on debt

22,099

Incremental reduction in interest and other expense, net

  $

18,229

The interest rate on the new debt is variable and fluctuates based upon changes in various underlying interest rates and other factors. A 1/8 percent (or 0.125%) variance in interest rates would result in a change in interest expense of approximately $200 and $100 for annual and six months interest expense, respectively.

(q)

To eliminate iBiquity’s historical mark-to-market adjustments on warrants.

(r)

To reflect the tax effects of adjustments using an estimated statutory tax rate of 35%.