Dolby Investor Relations

Dolby Laboratories Reports Third Quarter Fiscal 2008 Results

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Jul 31, 2008

Dolby Laboratories Reports Third Quarter Fiscal 2008 Results

SAN FRANCISCO, Jul 31, 2008 (BUSINESS WIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its third quarter of fiscal 2008.

For the third quarter, Dolby reported total revenue of $154.3 million, compared to $119.6 million for the third quarter of fiscal 2007, an increase of 29 percent. Third quarter net income was $46.4 million, or $0.40 per diluted share, compared to $29.7 million, or $0.26 per diluted share, for the third quarter of fiscal 2007.

Net income for the third quarter of fiscal 2008 reflects stock-based compensation expense of $5.6 million compared to $5.1 million for the third quarter of fiscal 2007. Net income for the third quarter of fiscal 2008 also reflects charges related to the amortization of intangibles of $3.0 million compared to $1.0 million for the third quarter of fiscal 2007.

"During the quarter, we experienced strong financial results while continuing to make progress in key initiatives such as PC Entertainment Experience and Dolby Mobile," said Bill Jasper, President and Chief Executive Officer, Dolby Laboratories. "Earlier this week, LG, a global technology and design leader in mobile communications, announced it would introduce high-end multimedia handsets with Dolby Mobile by the end of calendar year 2008."

Guidance

Dolby now expects fiscal 2008 revenue to be $605 million to $625 million. Net income for fiscal 2008 is now expected to be $181 million to $190 million. Earnings per diluted share is now expected to be $1.57 to $1.65. While under FAS 123R, stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby now expects stock-based compensation expense for fiscal 2008 to be approximately $23 million. In addition, Dolby continues to expect charges related to the amortization of intangibles for fiscal 2008 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' Q3 fiscal 2008 financial results at 2:00 p.m. PT/5:00 p.m. ET, Thursday, July 31, 2008.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-228-5281. International callers can access the conference call at 1-913-312-1423.

A replay of the call will be available beginning at 5:00 p.m. PT on July 31, 2008 until 9:00 p.m. PT on August 7, 2008; dial 1-888-203-1112 (international callers can access the replay by dialing 1-719-457-0820) and enter confirmation code 8298423. An archived version of the teleconference will also be available on Dolby Laboratories' website, 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 26, 2008, Dolby's continued progress on key initiatives such as PC Entertainment Experience and Dolby(R) Mobile, and the timing and availability of LG handsets with Dolby Mobile 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(TM) DVD, broadcast, personal computer, gaming, mobile, or portable device markets, and trends relating to the development of additional and newer markets for Dolby technologies; the timing and effects of economic downturns in the United States and abroad; pricing pressures; the risk that LG may not ship handsets with Dolby Mobile by calendar year end or at all; 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 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 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. S08/20185 DLB-F

                       DOLBY LABORATORIES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                 Fiscal Quarter    Fiscal Year-to-Date
                                      Ended               Ended
                               ------------------- -------------------
                               June 29,  June 27,  June 29,  June 27,
                                  2007      2008      2007      2008
                               --------- --------- --------- ---------
                                             (unaudited)
                                  (in thousands, except per share
                                               amounts)
Revenue:
    Licensing                  $ 94,795  $127,558  $283,812  $399,607
    Product sales                17,191    18,060    47,870    53,698
    Services                      7,627     8,699    21,383    23,796
                               --------- --------- --------- ---------
        Total revenue           119,613   154,317   353,065   477,101
                               --------- --------- --------- ---------

Cost of revenue:
    Cost of licensing             8,478     3,361    26,287    12,179
    Cost of product sales(1)      8,119     9,461    24,519    29,649
    Cost of services(1)           2,963     3,194     8,470     9,400
                               --------- --------- --------- ---------
        Total cost of revenue    19,560    16,016    59,276    51,228
                               --------- --------- --------- ---------
Gross margin                    100,053   138,301   293,789   425,873
                               --------- --------- --------- ---------
Operating expenses:
    Selling, general and
     administrative(1)           48,430    54,979   128,266   161,275
    Research and
     development(1)              11,854    15,366    31,650    44,998
    Gain on settlements            (350)     (250)   (1,850)     (499)
                               --------- --------- --------- ---------
        Total operating
         expenses                59,934    70,095   158,066   205,774
                               --------- --------- --------- ---------
Operating income                 40,119    68,206   135,723   220,099
Other income, net                 5,759     2,661    17,118    10,269
                               --------- --------- --------- ---------
Income before provision for
 income taxes and controlling
 interest                        45,878    70,867   152,841   230,368
Provision for income taxes      (15,839)  (24,117)  (53,067)  (78,516)
                               --------- --------- --------- ---------
Income before controlling
 interest                        30,039    46,750    99,774   151,852
Controlling interest in net
 income, net of tax                (354)     (302)   (1,101)     (953)
                               --------- --------- --------- ---------
Net income                     $ 29,685  $ 46,448  $ 98,673  $150,899
                               ========= ========= ========= =========


Basic earnings per share       $   0.27  $   0.42  $   0.91  $   1.36
Diluted earnings per share     $   0.26  $   0.40  $   0.87  $   1.32

Weighted-average shares
 outstanding (basic)            109,692   111,844   108,898   111,209
Weighted-average shares
 outstanding (diluted)          113,696   114,875   113,389   114,672


(1) Stock-based compensation
 included above was classified
 as follows:
    Cost of product sales      $    269  $    167  $    679  $    670
    Cost of services                 39        48       107       126
    Selling, general and
     administrative               3,838     4,262    11,459    13,157
    Research and development        993     1,158     2,512     3,277

                       DOLBY LABORATORIES, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS

                                             September      June 27,
                                               28, 2007       2008
                                             ----------- -------------
                                                    (unaudited)
                                                  (in thousands)
                   ASSETS
Current assets:
    Cash and cash equivalents                   $368,467    $  369,907
    Short-term investments                       231,217        49,552
    Accounts receivable, net                      28,165        45,933
    Inventories                                   14,883        22,000
    Deferred income taxes                         73,686        85,576
    Prepaid expenses and other current
     assets                                       17,000        47,018
                                             ----------- -------------
        Total current assets                     733,418       619,986

Property, plant and equipment, net                85,552        85,775
Intangible assets, net                            35,389        90,751
Goodwill                                          39,364       273,552
Long-term investments                             73,224       179,538
Long-term deferred income taxes                   12,393        12,817
Other assets                                      12,357        13,188
                                             ----------- -------------
        Total assets                            $991,697    $1,275,607
                                             =========== =============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities    $119,068    $  143,312
    Income taxes payable                           9,051         2,833
    Current portion of long-term debt              1,563         1,607
    Deferred revenue                              13,522        30,894
                                             ----------- -------------
        Total current liabilities                143,204       178,646

Long-term debt                                     9,691         8,408
Long-term deferred revenue                         5,073         6,069
Deferred income tax liability                          -        18,985
Other non-current liabilities                     14,294        29,323
                                             ----------- -------------
        Total liabilities                        172,262       241,431

Controlling interest                              22,279        22,699
Stockholders' equity:
    Class A common stock                              49            52
    Class B common stock                              61            61
    Additional paid-in capital                   375,830       424,502
    Retained earnings                            409,749       560,936
    Accumulated other comprehensive income        11,467        25,926
                                             ----------- -------------
        Total stockholders' equity               797,156     1,011,477
                                             ----------- -------------
        Total liabilities and stockholders'
         equity                                 $991,697    $1,275,607
                                             =========== =============

SOURCE: Dolby Laboratories, Inc.

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

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