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Dolby Laboratories Reports Second Quarter Fiscal 2011 Results

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May 5, 2011

Dolby Laboratories Reports Second Quarter Fiscal 2011 Results

SAN FRANCISCO--(BUSINESS WIRE)-- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its second quarter of fiscal 2011.

For the second quarter, Dolby reported total revenue of $250.0 million, compared to $243.4 million for the second quarter of fiscal 2010.

Second quarter GAAP net income was $82.1 million, or $0.72 per diluted share, compared to $85.9 million, or $0.74 per diluted share, for the second quarter of fiscal 2010. On a non-GAAP basis, second quarter net income was $92.2 million, or $0.81 per diluted share, compared to $93.1 million, or $0.80 per diluted share, for the second quarter of fiscal 2010. Dolby's non-GAAP measures exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items.

"Strong performance from broadcast, mobile, and gaming led to higher than expected licensing revenue, while deployments of our cinema products slowed," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "With our technologies included in a wide range of entertainment devices around the world, we remain focused on extending these technologies into new geographies and new devices."

Financial Targets

For fiscal 2011, Dolby is now targeting revenue of $905 million to $945 million, and continues to target total gross margin of approximately 88 percent on a GAAP basis, and approximately 89 percent on a non-GAAP basis. In addition, on a GAAP basis, Dolby is now targeting fiscal 2011 operating expense of $401 million to $413 million and other income of approximately $6 million to $7 million, and continues to target a tax rate of approximately 30 percent. On a non-GAAP basis, Dolby is now targeting fiscal 2011 operating expense of $350 million to $360 million and other income of approximately $6 million to $7 million, and continues to target a tax rate of approximately 33 percent. Dolby's non-GAAP targets exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. The non-GAAP measures also exclude the one-time tax benefit resulting from the release of the deferred tax liability for the first quarter of fiscal 2011. While stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby continues to target stock-based compensation expense for fiscal 2011 of approximately $47 million to $48 million. In addition, Dolby continues to target charges related to the amortization of acquired intangibles for fiscal 2011 of approximately $13 million and restructuring charges of approximately $1 million to $2 million. Dolby is now targeting diluted shares outstanding of approximately $113 million.

These targets lead to an updated fiscal 2011 diluted earnings per share target range of $2.49 to $2.65 on a GAAP basis and $2.75 to $2.91 on a non-GAAP basis.

The Company's Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Dolby Laboratories' Q2 2011 fiscal year financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, May 5, 2011.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-428-9496. International callers can access the conference call at 1-719-325-2495.

A replay of the call will be available from 5:00 p.m. PT on Thursday, May 5, 2011, until 9:00 p.m. PT on May 12, 2011 by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 6039019. An archived version of the teleconference will also be available at www.dolby.com.

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis, Dolby provides non-GAAP financial measures of gross margin, operating expense, tax rate, and diluted earnings per share. These measures are adjusted to exclude the charges and expenses discussed above. Dolby presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Dolby's operating results in a manner that focuses on what Dolby's management believes to be its ongoing business operations. Dolby's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the impact of stock-based compensation expense, amortization of acquired intangible assets through business combinations, restructuring charges, and the related tax impact of all of these items on the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Dolby's business for planning and forecasting in subsequent periods. Dolby's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above. Investors are also encouraged to review Dolby's GAAP financial statements as reported in its SEC filings. A reconciliation between GAAP and non-GAAP financial measures is provided at the end of this press release and at http://investor.dolby.com/medialist.cfm.

Forward-Looking Statements

Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, gross margin, operating expense, tax rate, and diluted earnings per share for fiscal 2011, and its statements regarding extending its technologies into new geographies and new devices and the benefits that may be derived from them 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 the effects of macroeconomic conditions; risks associated with trends in the markets in which Dolby operates, including the personal computer, DVD and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile markets; pricing pressures; 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 that have historically limited recognition and enforcement of intellectual property and contractual rights; risks associated with the health of 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, by 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 creates innovations that enrich entertainment at the movies, at home, or on the go. For more information about Dolby Laboratories or Dolby® technologies, visit www.dolby.com.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Blu-ray Disc is a trademark of Blu-ray Disc Association. S11/24277 DLB-F

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
       
 
Fiscal Quarter Ended Fiscal Year-to-Date Ended
March 26, 2010

April 1, 2011

March 26, 2010

April 1, 2011

(unaudited)
(in thousands, except per share amounts)
Revenue:
Licensing $ 195,944 $ 214,627 $ 361,719 $ 402,803
Product sales 39,839 26,347 87,496 72,374
Services   7,638     9,052     15,422     17,561  
Total revenue   243,421     250,026     464,637     492,738  
 
Cost of revenue:
Cost of licensing 5,537 5,771 9,563 9,732
Cost of products (1) 20,622 20,031 48,706 42,229
Cost of services (1)   3,464     2,655     7,147     5,635  
Total cost of revenue   29,623     28,457     65,416     57,596  
Gross margin   213,798     221,569     399,221     435,142  
Operating expenses:
Research and development (1) 25,248 28,399 48,048 56,726
Sales and marketing (1) 26,724 37,545 57,108 75,762
General and administrative (1) 29,630 35,155 57,512 72,197
Restructuring charges, net   118     -     303     785  
Total operating expenses   81,720     101,099     162,971     205,470  
Operating income 132,078 120,470 236,250 229,672
Other income, net   1,851     2,024     4,058     3,888  
Income before provision for income taxes 133,929 122,494 240,308 233,560
Provision for income taxes   (47,610 )   (40,012 )   (84,496 )   (64,313 )
Net income including controlling interest 86,319 82,482 155,812 169,247
Less: net income attributable to controlling interest   (421 )   (421 )   (828 )   (799 )
Net income attributable to Dolby Laboratories, Inc. $ 85,898   $ 82,061   $ 154,984   $ 168,448  
 
 
Earnings per share attributable to Dolby Laboratories, Inc. (basic) $ 0.75 $ 0.73 $ 1.36 $ 1.50
Earnings per share attributable to Dolby Laboratories, Inc. (diluted) $ 0.74 $ 0.72 $ 1.34 $ 1.48
 
Weighted-average shares outstanding (basic) 113,985 112,140 114,035 112,086
Weighted-average shares outstanding (diluted) 115,995 113,346 116,065 113,535
 
 
(1) Stock-based compensation included above was classified as follows:
Cost of products $ 101 $ 168 $ 179 $ 314
Cost of services 38 44 63 82
Research and development 1,548 2,611 2,744 4,934
Sales and marketing 2,217 3,367 3,949 6,363
General and administrative 3,258 4,550 5,936 10,307

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
   

September 24,
2010

April 1,
2011

(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 545,861 $ 520,268
Short-term investments 302,269 266,818
Accounts receivable, net 54,257 73,657
Inventories 28,338 31,382
Deferred taxes 102,758 94,656
Prepaid expenses and other current assets   26,930   35,654
Total current assets 1,060,413 1,022,435
Long-term investments 190,837 347,092
Property, plant and equipment, net 94,097 103,590
Intangible assets, net 67,019 61,804
Goodwill 264,580 267,255
Deferred taxes 19,948 17,657
Other non-current assets   14,878   6,135
Total assets $ 1,711,772 $ 1,825,968
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 148,214 $ 136,216
Income taxes payable 7,895 821
Deferred revenue   9,647   10,575
Total current liabilities 165,756 147,612
Long-term deferred revenue 12,775 13,839
Deferred taxes 11,547 606
Other non-current liabilities   27,015   23,775
Total liabilities 217,093 185,832
Stockholders' equity:
Class A common stock 53 53
Class B common stock 59 59
Additional paid-in capital 329,902 303,424
Retained earnings 1,135,922 1,304,370
Accumulated other comprehensive income   7,801   10,355
Total stockholders' equity - Dolby Laboratories, Inc. 1,473,737 1,618,261
Controlling interest   20,942   21,875
Total stockholders' equity   1,494,679   1,640,136
Total liabilities and stockholders' equity $ 1,711,772 $ 1,825,968

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       
Fiscal Quarter Ended Fiscal Year-to-Date Ended

March 26,
2010

April 1,
2011

March 26,
2010

April 1,
2011

(unaudited)
(in thousands)
Operating activities:
Net income including controlling interest $ 86,319 $ 82,482 $ 155,812 $ 169,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,588 11,506 17,394 21,045
Stock-based compensation 7,111 10,856 12,438 21,840
Amortization of premium on investments 2,110 4,570 3,978 7,805
Excess tax benefit from exercise of stock options (5,631 ) (1,919 ) (10,284 ) (11,305 )
Provision for doubtful accounts (97 ) 523 (208 ) 856
Losses on Put Rights 1,452 - 2,751 -
Gains on auction rate certificates (1,607 ) - (2,914 ) -
Deferred income taxes (4,801 ) 6,168 (10,430 ) (472 )
Cash distributions to controlling interest - - (128 ) -
Other non-cash items affecting net income 178 633 894 157
Changes in operating assets and liabilities:
Accounts receivable (1,047 ) (5,429 ) (21,447 ) (20,218 )
Inventories (1,073 ) (3,574 ) 2,417 (3,038 )
Prepaid expenses and other assets 6,336 (2,265 ) 13,263 (3,715 )
Accounts payable and accrued liabilities (1,728 ) 13,648 6,731 (13,892 )
Income taxes, net (1,279 ) (19,890 ) 33,512 620
Deferred revenues (10,042 ) 2,831 (19,538 ) 1,988
Other non-current liabilities   229     800     241     673  
Net cash provided by operating activities   86,018     100,940     184,482     171,591  
Investing activities:
Purchases of available-for-sale securities (111,820 ) (58,347 ) (376,733 ) (368,007 )
Proceeds from sales of available-for-sale and trading securities 97,914 78,551 232,698 238,376
Purchases of property, plant and equipment (7,445 ) (9,906 ) (18,064 ) (19,551 )
Acquisitions, net of cash acquired - - - (3,350 )
Purchases of intangible assets - - (125 ) -
Proceeds from sales of property, plan and equipment and assets held for sale   171     2,176     171     2,797  
Net cash used in investing activities   (21,180 )   12,474     (162,053 )   (149,735 )
Financing activities:
Repayment of long-term debt (392 ) - (790 ) -
Issuance of Class A common stock (ESPP) - - 1,921 2,536
Net proceeds / (payments) from exercise of stock options and awards 11,821 (534 ) 19,158 12,679
Repurchase of common stock (67,463 ) (29,158 ) (83,124 ) (75,124 )
Excess tax benefit from exercise of stock options   5,631     1,919     10,284     11,305  
Net cash used in financing activities   (50,403 )   (27,773 )   (52,551 )   (48,604 )
Effect of foreign exchange rate changes on cash and cash equivalents   (3,324 )   989     (4,207 )   1,155  
Net decrease in cash and cash equivalents 11,111 86,630 (34,329 ) (25,593 )
Cash and cash equivalents at beginning of period   406,238     433,638     451,678     545,861  
Cash and cash equivalents at end of period $ 417,349   $ 520,268   $ 417,349   $ 520,268  

GAAP to Non-GAAP Reconciliations    
(In millions, except per share data)
 

The following tables show the Company's second quarter of fiscal years 2010 and 2011 GAAP financial measures reconciled to non-GAAP financial measures included in this release:

 
Net income: Fiscal Quarter Ended

March 26,
2010

April 1,
2011

 
GAAP net income $ 85.9 $ 82.1
Stock-based compensation 7.2 10.7
Amortization of acquired intangibles 4.2 4.4
Restructuring charges, net 0.1 -
Income tax adjustments   (4.3 )   (5.0 )
Non-GAAP net income $ 93.1   $ 92.2  
 
Diluted earnings per share: Fiscal Quarter Ended

March 26,
2010

April 1,
2011

 
GAAP diluted earnings per share $ 0.74 $ 0.72
Stock-based compensation 0.06 0.09
Amortization of acquired intangibles 0.04 0.04
Restructuring charges, net - -
Income tax adjustments   (0.04 )   (0.04 )
Non-GAAP diluted earnings per share $ 0.80   $ 0.81  
 
Shares used in computing diluted earnings per share 116 113
 

The following tables show the Company's fiscal year 2011 GAAP financial targets reconciled to non-GAAP financial targets included in this release:

 
Gross margin:

Fiscal Year
2011

 
GAAP gross margin 88 %
Stock-based compensation 0 %
Amortization of acquired intangibles   1 %
Non-GAAP gross margin   89 %
 
Operating expenses: Fiscal Year 2011
Low High
 
GAAP operating expenses $ 401 $ 413
Stock-based compensation (46 ) (47 )
Amortization of acquired intangibles (4 ) (4 )
Restructuring charges, net   (1 )   (2 )
Non-GAAP operating expenses $ 350   $ 360  
 
Diluted earnings per share: Fiscal Year 2011
Low High
 
GAAP diluted earnings per share $ 2.49 $ 2.65
Stock-based compensation 0.42 0.42
Amortization of acquired intangibles 0.12 0.12
Restructuring charges, net 0.01 0.01
Income tax adjustments   (0.29 )   (0.29 )
Non-GAAP diluted earnings per share $ 2.75   $ 2.91  
 
Shares used in computing diluted earnings per share 113 113
 
Effective tax rate:

Fiscal Year
2011

 
GAAP effective tax rate 30 %
Stock-based compensation 0 %
Amortization of acquired intangibles 0 %
Release of deferred tax liability upon receipt of ruling 3 %
Restructuring charges, net   0 %
Non-GAAP effective tax rate   33 %

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

Source: Dolby Laboratories

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