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November 17, 2011

Dolby Laboratories Reports Fiscal 2011 Fourth Quarter and Year-End Financial Results

SAN FRANCISCO--(BUSINESS WIRE)-- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the fourth quarter and fiscal year ended September 30, 2011.

For the fourth quarter, Dolby reported total revenue of $243.8 million, compared to $227.8 million for the fourth quarter of fiscal 2010.

Fourth quarter GAAP net income was $79.1 million, or $0.71 per diluted share, compared to $65.0 million, or $0.57 per diluted share, for the fourth quarter of fiscal 2010. On a non-GAAP basis, fourth quarter net income was $89.9 million, or $0.81 per diluted share, compared to $74.9 million, or $0.66 per diluted share, for the fourth quarter of fiscal 2010.

Fiscal year GAAP net income was $309.3 million, or $2.75 per diluted share, compared to $283.4 million, or $2.46 per diluted share, for fiscal year 2010. On a non-GAAP basis, fiscal year net income was $339.9 million, or $3.02 per diluted share, compared to $313.5 million, or $2.72 per diluted share for 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. The non-GAAP measures also exclude the one-time tax benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011.

"We continued to see solid growth from our broadcast market in the fourth quarter, helping licensing revenue finish up 11 percent for the fiscal year," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "We continue to see a significant opportunity in broadcast and remain focused on extending our technologies to online content and a growing array of portable devices."

Financial Targets

For fiscal 2012, Dolby is targeting revenue of $910 million to $970 million.

GAAP

For fiscal 2012, Dolby is targeting total gross margin of approximately 90 percent, operating expenses of $465 million to $475 million, and other income of approximately $5 million. In addition, Dolby is targeting a tax rate of approximately 29 percent to 30 percent for fiscal 2012. While stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby is targeting stock-based compensation expense for fiscal 2012 of approximately $51 million. In addition, Dolby is targeting charges related to the amortization of acquired intangibles for fiscal 2012 of approximately $10 million and restructuring charges of approximately $2 million.

Non-GAAP

For fiscal 2012, Dolby is targeting total gross margin of approximately 91 percent, operating expenses of $410 million to $420 million, and other income of approximately $5 million. In addition, Dolby is targeting a tax rate of approximately 29 percent to 30 percent for fiscal 2012. 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.

Diluted Earnings Per Share

Dolby is targeting diluted shares outstanding of approximately 110 million. These targets lead to fiscal 2012 diluted earnings per share target range of $2.31 to $2.61 on a GAAP basis and $2.71 to $3.02 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' Q4 and year-end fiscal 2011 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, November 17, 2011.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-329-8903 from within the United States or 1-719-457-2731 from outside the country.

A replay of the call will be available from 5:00 p.m. PT on Thursday, November 17, 2011, until 9:00 p.m. PT on Thursday, November 24, 2011. Callers can dial 1-877-870-5176 from within the United States or 1-858-384-5517 from outside the US, then enter the confirmation code 4184766. An archived version of the teleconference will also be available on the Dolby Laboratories website, 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 intangible assets acquired 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 on our investor relations website 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, other income, tax rate, stock-based compensation, amortization of intangibles, restructuring charges, and diluted earnings per share for fiscal 2012, and its statements regarding continued broadcast growth opportunities, and extending its technologies to online content and a growing array of portable 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 that Dolby technologies may not be included in future PC operating systems; 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; risks that shifts from disc-based media to online media content could result in fewer devices with Dolby technologies; risks associated with the effects of macroeconomic conditions; 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, please 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. S11/25076 DLB-F

             
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Fiscal Quarter Ended     Fiscal Year Ended

September 24,
2010

   

September 30,
2011

   

September 24,
2010

   

September 30,
2011

(in thousands, except per share amounts)
Revenue:
Licensing $ 178,429 $ 205,747 $ 710,474 $ 790,340
Products 40,255 30,842 180,402 131,611
Services   9,123         7,179         31,837         33,554  
Total revenue   227,807         243,768         922,713         955,505  
 
Cost of revenue:
Cost of licensing 4,283 3,793 17,565 17,620
Cost of products (1) 18,653 18,779 90,695 81,328
Cost of services (1) 3,407 3,070 13,961 12,223
Impairment of products provided under operating leases   -         -         9,594         -  
Total cost of revenue   26,343         25,642         131,815         111,171  
Gross margin   201,464         218,126         790,898         844,334  
Operating expenses:
Research and development (1) 29,417 33,108 104,978 123,920
Sales and marketing (1) 36,525 37,154 130,160 149,642
General and administrative (1) 32,676 33,039 119,353 137,633
Restructuring charges, net   5,655         2,669         7,026         3,406  
Total operating expenses   104,273         105,970         361,517         414,601  
Operating income 97,191 112,156 429,381 429,733
Other income, net   1,431         4,476         7,631         10,910  
Income before provision for income taxes 98,622 116,632 437,012 440,643
Provision for income taxes   (35,295 )       (37,344 )       (154,185 )       (130,061 )
Net income including controlling interest 63,327 79,288 282,827 310,582
Less: net (income) / loss attributable to controlling interest   1,684         (217 )       620         (1,315 )
Net income attributable to Dolby Laboratories, Inc. $ 65,011       $ 79,071       $ 283,447       $ 309,267  
 
Basic earnings per share $ 0.58 $ 0.72 $ 2.50 $ 2.78
Diluted earnings per share $ 0.57 $ 0.71 $ 2.46 $ 2.75
 
Weighted-average shares outstanding (basic) 112,486 110,063 113,452 111,444
Weighted-average shares outstanding (diluted) 114,276 110,662 115,388 112,554
 
(1) Stock-based compensation included above was classified as follows:
Cost of products $ 115 $ 159 $ 427 $ 642
Cost of services 34 53 126 182
Research and development 1,922 2,591 6,535 10,157
Sales and marketing 2,321 3,392 8,843 13,184
General and administrative 3,408 4,554 12,884 19,500
 

 
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
     
September 24, 2010     September 30, 2011
(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 545,861 $ 551,512
Short-term investments 302,269 391,281
Accounts receivable, net 54,257 61,815
Inventories 28,338 26,244
Deferred taxes 102,758 90,869
Prepaid expenses and other current assets   26,930       36,877
Total current assets 1,060,413 1,158,598
Long-term investments 190,837 272,797
Property, plant and equipment, net 94,097 117,107
Intangible assets, net 67,019 51,573
Goodwill 264,580 263,260
Deferred taxes 19,948 14,779
Other non-current assets   14,878       6,273
Total assets $ 1,711,772     $ 1,884,387
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 148,214 $ 127,922
Income taxes payable 7,895 4,762
Deferred revenue   9,647       26,701
Total current liabilities 165,756 159,385
Long-term deferred revenue 12,775 15,526
Deferred taxes 11,547 671
Other non-current liabilities   27,015       23,455
Total liabilities 217,093 199,037
Stockholders' equity:
Class A common stock 53 52
Class B common stock 59 58
Additional paid-in capital 329,902 210,681
Retained earnings 1,135,922 1,445,189
Accumulated other comprehensive income   7,801       7,533
Total stockholders' equity - Dolby Laboratories, Inc. 1,473,737 1,663,513
Controlling interest   20,942       21,837
Total stockholders' equity   1,494,679       1,685,350
Total liabilities and stockholders' equity $ 1,711,772     $ 1,884,387
 

 
DOLBY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
             
Fiscal Quarter Ended     Fiscal Year Ended

September 24,
2010

   

September 30,
2011

   

September 24,
2010

   

September 30,
2011

(unaudited)
(in thousands)
Operating activities:
Net income including controlling interest $ 63,327 $ 79,288 $ 282,827 $ 310,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,392 10,019 34,937 43,994
Stock-based compensation expense 7,800 10,749 28,815 43,665
Amortization of premium on investments 2,734 4,713 9,118 17,088
Excess tax benefit from exercise of stock options (7,749 ) 6,050 (24,639 ) (6,593 )
Provision for doubtful accounts 546 (56 ) 365 772
Deferred taxes 5,751 5,211 (16,031 ) 6,784
Losses / (gains) on Put Rights 1,095 - 7,601 -
Losses / (gains) on auction rate certificates - - (7,601 ) -
Loss on impairment of long-lived assets 3,392 226 12,986 226
Payment on litigation settlement - - (3,000 ) (3,000 )
Other non-cash items affecting net income (1,660 ) 357 347 532
Changes in operating assets and liabilities:
Accounts receivable (6,734 ) (22,579 ) (31,329 ) (8,514 )
Inventories (11,609 ) (2,822 ) (15,696 ) 2,105
Prepaid expenses and other assets (721 ) (3,587 ) 15,009 (10,305 )
Accounts payable and accrued liabilities 7,797 10,837 31,556 (16,952 )
Income taxes, net (3,908 ) (5,678 ) 27,995 708
Deferred revenue (1,443 ) 14,400 (25,725 ) 19,800
Other non-current liabilities   (163 )       2,401         (237 )       2,796  
Net cash provided by operating activities   67,847         109,529         327,298         403,688  
Investing activities:
Purchases of available-for-sale securities (89,880 ) (164,443 ) (646,052 ) (619,238 )
Proceeds from sale of available-for-sale and trading securities 123,586 84,062 643,443 429,681
Purchases of property, plant and equipment (12,429 ) (17,028 ) (37,482 ) (47,362 )
Acquisitions, net of cash acquired (5,601 ) - (5,601 ) (3,350 )
Purchases of intangible assets - - (825 ) -
Proceeds from sale of property, plant and equipment   1,989         490         2,160         3,567  
Net cash provided by/(used in) investing activities   17,665         (96,919 )       (44,357 )       (236,702 )
Financing activities:
Payments on debt (6,488 ) - (7,680 ) -
Proceeds from issuance of Class A common stock (Employee Stock Purchase Plan) - 13 4,060 5,442
Proceeds from exercise of stock options 2,621 386 35,569 17,877
Repurchase of common stock (63,714 ) (49,910 ) (241,362 ) (192,410 )
Excess tax benefit from exercise of stock options   7,749         (6,050 )       24,639         6,593  
Net cash used in financing activities   (59,832 )       (55,561 )       (184,774 )       (162,498 )
Effect of foreign exchange rate changes on cash and cash equivalents   1,083         (141 )       (3,984 )       1,163  
Net increase in cash and cash equivalents 26,763 (43,092 ) 94,183 5,651
Cash and cash equivalents at beginning of period   519,098         594,604         451,678         545,861  
Cash and cash equivalents at end of period $ 545,861       $ 551,512       $ 545,861       $ 551,512  
 

 
GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
   
The following tables show the Company's fourth quarter of fiscal 2011 and fiscal 2011 year-to-date GAAP financial measures reconciled to non-GAAP financial measures included in this release:
 
Net income: Fiscal Quarter Ended   Fiscal Year Ended

September 30,
2011

 

September 30,
2011

 
GAAP net income $ 79.1 $ 309.3
Stock-based compensation 10.7 43.7
Amortization of acquired intangibles 2.7 15.2
Restructuring charges, net 2.7 3.4
Income tax adjustments   (5.3 )     (31.7 )
Non-GAAP net income   89.9       339.9  
 
Diluted earnings per share: Fiscal Quarter Ended   Fiscal Year Ended

September 30,
2011

 

September 30,
2011

 
GAAP diluted earnings per share $ 0.71 $ 2.75
Stock-based compensation 0.10 0.39
Amortization of acquired intangibles 0.02 0.13
Restructuring charges, net 0.03 0.03
Income tax adjustments   (0.05 )     (0.28 )
Non-GAAP diluted earnings per share $ 0.81     $ 3.02  
 
Shares used in computing diluted earnings per share 111 113
 
The following tables show the Company's fiscal year 2012 GAAP financial targets reconciled to non-GAAP financial targets included in this release (numbers are approximate):
 
Gross margin:
Fiscal Year 2012
GAAP gross margin 90 %
Stock-based compensation 0 %
Amortization of acquired intangibles   1 %
Non-GAAP gross margin   91 %
 
Product gross margin: Fiscal Year 2012
Low   High
GAAP products gross margin 37 % 39 %
Stock-based compensation 1 % 1 %
Amortization of acquired intangibles   2 %     2 %
Non-GAAP products gross margin   40 %     42 %
 
Operating expenses: Fiscal Year 2012
Low   High
GAAP operating expenses $ 465 $ 475
Stock-based compensation (50 ) (50 )
Amortization of acquired intangibles (3 ) (3 )
Restructuring charges, net   (2 )     (2 )
Non-GAAP operating expenses $ 410     $ 420  
 
Operating expense run-rate:
Q4 2011 Exit Run-Rate    
GAAP operating expense run-rate $ 115
Stock-based compensation (12 )
Amortization of acquired intangibles (1 )
Restructuring charges, net   (1 )
Non-GAAP operating expense run-rate $ 101  
 
Diluted earnings per share: Fiscal Year 2012
Low   High
GAAP diluted earnings per share $ 2.31 $ 2.61
Stock-based compensation 0.46 0.46
Amortization of acquired intangibles 0.09 0.09
Restructuring charges, net 0.02 0.02
Income tax adjustments   (0.17 )     (0.16 )
Non-GAAP diluted earnings per share $ 2.71     $ 3.02  
 
Shares used in computing diluted earnings per share 110 110

Dolby Laboratories
Investor Contact:
Alex Hughes, 415-645-4572
investor@dolby.com
Media Contact:
Sean Durkin, 415-645-5176
news@dolby.com

Source: Dolby Laboratories, Inc.

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