Dolby Investor Relations

Dolby Laboratories Reports FY 2008 Fourth Quarter and Year-End Results

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Nov 6, 2008

Dolby Laboratories Reports FY 2008 Fourth Quarter and Year-End Results

SAN FRANCISCO, Nov 06, 2008 (BUSINESS WIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the fourth quarter and fiscal year ended September 26, 2008.

For the fourth quarter, Dolby reported total revenue of $163.1 million, compared to $129.0 million for the fourth quarter of fiscal 2007, an increase of 26 percent. Fourth quarter net income was $48.6 million, or $0.42 per diluted share, compared to $44.2 million, or $0.39 per diluted share, for the fourth quarter of fiscal 2007.

For fiscal year 2008, Dolby reported total revenue of $640.2 million, compared to $482.0 million for fiscal year 2007, an increase of 33 percent. Net income for fiscal year 2008 was $199.5 million, or $1.74 per diluted share, compared to $142.8 million, or $1.26 per diluted share, for fiscal year 2007.

Net income for the fourth quarter and fiscal year 2008 reflects stock-based compensation expense of $5.5 million and $22.7 million, respectively, compared to $5.1 million and $19.8 million for the same periods in fiscal 2007.

Net income for the fourth quarter and fiscal year 2008 also reflects charges related to the amortization of intangibles of $3.1 million and $12.5 million, respectively, compared to $1.3 million and $3.3 million for the same periods in fiscal 2007.

"Fiscal 2008 was a strong year for us, as we continued to benefit from the adoption of Dolby technologies globally," said Bill Jasper, President and Chief Executive Officer of Dolby Laboratories. "We finished fiscal 2008 with excellent profitability, a strong balance sheet, a global brand, and a continued focus on driving the adoption of existing and new technologies across our markets."

Guidance

Dolby expects fiscal 2009 revenue to be $660 million to $720 million. Net income is expected to be $184 million to $208 million. Earnings per diluted share are expected to be $1.57 to $1.77. Included in Dolby's fiscal 2009 earnings guidance is approximately $5.0 million in estimated restructuring charges for the consolidation of manufacturing operations. The impact of this restructuring charge on net income is approximately $3.0 million, or $0.03 per diluted share. While under FAS 123R, stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby expects stock-based compensation expense for the full year to be approximately $25 million. In addition, Dolby expects charges related to the amortization of intangibles for fiscal 2009 to be approximately $13 million.

The Company's Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Dolby Laboratories' Q4 and fiscal 2008 year-end financial results at 2:00 p.m. PT/5:00 p.m. ET, Thursday, November 6, 2008.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 888-205-6875. International callers can access the conference call at 913-981-5582.

A replay of the call will be available beginning at 5:00 p.m. PT on November 6, 2008 until 9:00 p.m. PT on November 13, 2008 at 888-203-1112 (international callers can access the replay at 719-457-0820) using confirmation code 1214655. An archived version of the teleconference will also be available on www.dolby.com.

Forward-Looking Statements

Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, net income, earnings per diluted share, stock-based compensation expense and charges relating to the amortization of intangibles, for the fiscal year ending September 25, 2009, and the expected future benefits from our global brand and driving adoption of our existing and new technologies, are "forward-looking statements" that are subject to risks and uncertainties. These forward-looking statements are based on management's current expectations, and as a result of certain risks and uncertainties, actual results may differ materially from those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the forward-looking statements: risks associated with trends in the markets in which Dolby operates, including trends related to DVD and Blu-ray Disc(TM), broadcast, personal computer, gaming, mobile, or portable device markets, and trends relating to the development of additional and newer markets for Dolby technologies; general economic risks both domestically and internationally; the timing of Dolby's receipt of royalty reports and/or payments from its licensees; Dolby's accuracy of calculation of royalties due to its licensors; Dolby's ability to develop, maintain, and strengthen relationships with industry participants; Dolby's ability to develop and deliver innovative technologies in response to new and growing markets in the entertainment industry; competitive risks; risks associated with conducting business in China and other countries, including countries that have historically limited recognition and enforcement of intellectual property and contractual rights; risks associated with the motion picture industry generally; the development and growth of the market for digital cinema and digital 3D and Dolby's ability to successfully penetrate this market; Dolby's ability to expand its business generally, and to expand its business beyond sound technologies to other technologies related to digital entertainment delivery, including acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby's Securities and Exchange Commission filings and reports, including the risks identified under the section captioned "Risk Factors" in its most recent Quarterly Report on Form 10-Q. Dolby disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

About Dolby Laboratories

Dolby Laboratories (NYSE:DLB) is the global leader in technologies that are essential elements in the best entertainment experiences. Founded in 1965 and best known for high-quality audio and surround sound, Dolby(R) innovations enrich entertainment at the movies, at home, or on the go. Visit www.dolby.com for more information.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. All other trademarks remain the property of their respective owners. S08/20618 DLB-F

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                       Fiscal Quarter Ended                              Fiscal Year-to-Date Ended
                                                                       September 28,            September 26,            September 28,             September 26,
                                                                       2007                     2008                     2007                      2008
                                                                       (unaudited)
                                                                       (in thousands, except per share amounts)
Revenue:
Licensing                                                              $     103,305            $     137,756            $     387,117             $     537,363
Product sales                                                                19,617                   18,586                   67,487                    72,284
Services                                                                     6,041                    6,788                    27,424                    30,584
Total revenue                                                                128,963                  163,130                  482,028                   640,231
Cost of revenue:
Cost of licensing                                                            2,151                    3,623                    28,438                    15,802
Cost of product sales (1)                                                    9,978                    9,806                    34,497                    39,455
Cost of services (1)                                                         2,860                    3,120                    11,330                    12,520
Total cost of revenue                                                        14,989                   16,549                   74,265                    67,777
Gross margin                                                                 113,974                  146,581                  407,763                   572,454
Operating expenses:
Selling, general and administrative (1)                                      50,536                   62,815                   178,802                   224,090
Research and development (1)                                                 12,459                   17,082                   44,109                    62,080
Gain on settlements                                                          (250     )               -                        (2,100   )                (499      )
Total operating expenses                                                     62,745                   79,897                   220,811                   285,671
Operating income                                                             51,229                   66,684                   186,952                   286,783
Other income, net                                                            5,346                    4,750                    22,464                    15,019
Income before provision for income taxes and controlling interest            56,575                   71,434                   209,416                   301,802
Provision for income taxes                                                   (12,064  )               (22,254  )               (65,131  )                (100,770  )
Income before controlling interest                                           44,511                   49,180                   144,285                   201,032
Controlling interest in net income, net of tax                               (353     )               (621     )               (1,454   )                (1,574    )
Net income                                                             $     44,158             $     48,559             $     142,831             $     199,458
Basic earnings per share                                               $     0.40               $     0.43               $     1.31                $     1.79
Diluted earnings per share                                             $     0.39               $     0.42               $     1.26                $     1.74
Weighted-average shares outstanding (basic)                                  110,112                  112,342                  109,202                   111,492
Weighted-average shares outstanding (diluted)                                114,118                  115,010                  113,573                   114,781
(1) Stock-based compensation included above was classified as
follows:
Cost of product sales                                                  $     232                $     183                $     911                 $     853
Cost of services                                                             41                       51                       148                       177
Selling, general and administrative                                          3,875                    4,110                    15,334                    17,267
Research and development                                                     936                      1,136                    3,448                     4,413
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
                                                   September 28, 2007           September 26, 2008
                                                   (unaudited)
                                                   (in thousands)
ASSETS
Current assets:
Cash and cash equivalents                          $          368,467           $          394,761
Short-term investments                                        231,217                      119,667
Accounts receivable, net                                      28,165                       27,650
Inventories                                                   14,883                       18,133
Deferred taxes                                                73,686                       91,824
Prepaid expenses and other current assets                     17,000                       39,834
Total current assets                                          733,418                      691,869
Property, plant and equipment, net                            85,552                       87,915
Intangible assets, net                                        35,389                       83,060
Goodwill                                                      39,364                       250,356
Long-term investments                                         73,224                       180,996
Deferred taxes                                                12,393                       24,900
Other assets                                                  12,357                       17,050
Total assets                                       $          991,697           $          1,336,146
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities           $          119,068           $          156,925
Income taxes payable                                          9,051                        4,811
Current portion of long-term debt                             1,563                        1,593
Deferred revenue                                              13,522                       37,344
Total current liabilities                                     143,204                      200,673
Long-term debt                                                9,691                        7,782
Long-term deferred revenue                                    5,073                        6,171
Deferred taxes                                                -                            16,755
Other non-current liabilities                                 14,294                       33,414
Total liabilities                                             172,262                      264,795
Controlling interest                                          22,279                       22,098
Stockholders' equity:
Class A common stock                                          49                           52
Class B common stock                                          61                           60
Additional paid-in capital                                    375,830                      434,907
Retained earnings                                             409,749                      609,495
Accumulated other comprehensive income                        11,467                       4,739
Total stockholders' equity                                    797,156                      1,049,253
Total liabilities and stockholders' equity         $          991,697           $          1,336,146

SOURCE: Dolby Laboratories, Inc.

Dolby Laboratories 
Alex Hughes, 415-645-4572 (Investors) 
investor@dolby.com 
Jeanne Alford, 415-645-5000 (Media) 
news@dolby.com

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