Dolby Investor Relations

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 24, 2010.

For the fourth quarter, Dolby reported total revenue of $227.8 million, compared to $163.9 million for the fourth quarter of fiscal 2009.

Fourth quarter GAAP net income was $65.0 million, or $0.57 per diluted share, compared to $44.3 million, or $0.38 per diluted share, for the fourth quarter of fiscal 2009. On a non-GAAP basis, fourth quarter net income was $74.9 million, or $0.66 per diluted share, compared to $50.6 million, or $0.44 per diluted share, for the fourth quarter of fiscal 2009.

For the fiscal year, Dolby reported total revenue of $922.7 million, compared to $719.5 million for fiscal year 2009.

Fiscal year GAAP net income was $283.4 million, or $2.46 per diluted share, compared to $243.0 million, or $2.11 per diluted share, for fiscal year 2009. On a non-GAAP basis, fiscal year net income was $313.5 million, or $2.72 per diluted share, compared to $254.5 million, or $2.21 per diluted share for fiscal 2009. Dolby's non-GAAP measures exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, a gain from an amended patent licensing agreement, and the related tax impact of these items.

"I am pleased with our fourth quarter and fiscal year results," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "We finished the year with record revenue and profitability while continuing to extend our multi-channel formats to the online ecosystem. Recently, Netflix and Sonic Solutions each announced that they would adopt Dolby Digital Plus to deliver multi-channel surround sound with movie and TV content."

Guidance

For fiscal 2011, Dolby is targeting revenue of $950 million to $990 million, total gross margin of approximately 88 percent on a GAAP basis, and approximately 89 percent on a non-GAAP basis. In addition, Dolby is targeting fiscal 2011 operating expense of $411 million to $423 million on a GAAP basis and $360 million to $370 million on a non-GAAP basis, and a tax rate of approximately 33 percent on a GAAP basis and non-GAAP basis. 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. 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 2011 to be approximately $45 to $47 million. In addition, Dolby is targeting charges related to the amortization of acquired intangibles for fiscal 2011 to be approximately $13 million.

These targets lead to a fiscal 2011 diluted earnings per share target range of $2.52 to $2.66 on a GAAP basis and $2.87 to $3.03 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 2010 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, November 4, 2010.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-452-4007. International callers can access the conference call at 1-719-325-2269.

A replay of the call will be available from 5:00 p.m. PT on Thursday, November 4, 2010, until 9:00 p.m. PT on November 11, 2010 by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 7947454. An archived version of the teleconference will also be available on 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, a gain from an amended patent licensing agreement, 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, tax rate, and diluted earnings per share for fiscal 2011, the progress Dolby is making in extending its multichannel format to the online ecosystem, 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 DVD and Blu-ray Disc™, broadcast, personal computer, 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, 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. S10/23607 DLB-F

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
				Fiscal Quarter Ended															Fiscal Year-to-Date Ended
				September 25, 2009						September 24, 2010									September 25, 2009						September 24, 2010
				(unaudited)
				(in thousands, except per share amounts)
Revenue:
Licensing				$	138,621					$	178,429								$	594,697					$	710,474
Products					20,223						40,255									95,967						180,402
Services					5,033						9,123									28,839						31,837
Total revenue					163,877						227,807									719,503						922,713
Cost of revenue:
Cost of licensing					3,580						4,283									14,803						17,565
Cost of products (1)					10,444						18,653									57,220						90,695
Cost of services (1)					3,240						3,407									12,786						13,961
Gain from amended patent licensing agreement					-						-									(20,041	)					-
Impairment of products provided under operating leases					-						-									-						9,594
Total cost of revenue					17,264						26,343									64,768						131,815
Gross margin					146,613						201,464									654,735						790,898
Operating expenses:
Research and development (1)					21,712						29,417									81,543						104,978
Sales and marketing (1)					29,875						36,525									98,838						130,160
General and administrative (1)					28,929						32,676									105,841						119,353
Restructuring charges, net					835						5,655									4,847						7,026
Total operating expenses					81,351						104,273									291,069						361,517
Operating income					65,262						97,191									363,666						429,381
Other income, net					1,959						1,431									7,753						7,631
Income before provision for income taxes					67,221						98,622									371,419						437,012
Provision for income taxes					(22,518	)					(35,295	)								(127,073	)					(154,185	)
Net income including controlling interest					44,703						63,327									244,346						282,827
Less: net (income) / loss attributable to controlling interest					(404	)					1,684									(1,355	)					620
Net income attributable to Dolby Laboratories, Inc.				$	44,299					$	65,011								$	242,991					$	283,447
Basic earnings per share				$	0.39					$	0.58								$	2.15					$	2.50
Diluted earnings per share				$	0.38					$	0.57								$	2.11					$	2.46
Weighted-average shares outstanding (basic)					113,684						112,486									113,101						113,452
Weighted-average shares outstanding (diluted)					115,845						114,276									115,367						115,388
(1) Stock-based compensation included above was classified as follows:
Cost of products				$	93					$	122								$	564					$	427
Cost of services					30						27									115						126
Research and development					1,403						1,922									5,191						6,535
Sales and marketing					1,924						2,321									6,670						8,843
General and administrative					2,997						3,408									9,882						12,884

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
				September 25, 2009					September 24, 2010
				(unaudited)
				(in thousands)
ASSETS
Current assets:
Cash and cash equivalents				$	451,678				$	545,861
Short-term investments					283,808					302,269
Accounts receivable, net					22,981					54,257
Inventories					12,975					28,338
Deferred taxes					83,438					102,758
Prepaid expenses and other current assets					45,958					26,930
Total current assets					900,838					1,060,413
Long-term investments					205,938					190,837
Property, plant and equipment, net					92,178					94,097
Intangible assets, net					82,035					67,019
Goodwill					261,121					264,580
Deferred taxes					23,755					19,948
Other non-current assets					15,450					14,878
Total assets				$	1,581,315				$	1,711,772
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities				$	113,822				$	148,214
Income taxes payable					3,934					7,895
Current portion of long-term debt					1,624					-
Deferred revenue					37,204					9,647
Total current liabilities					156,584					165,756
Long-term debt, net of current portion					5,825					-
Long-term deferred revenue					10,759					12,775
Deferred taxes					13,573					11,547
Other non-current liabilities					31,469					27,015
Total liabilities					218,210					217,093
Stockholders' equity:
Class A common stock					53					53
Class B common stock					60					59
Additional paid-in capital					478,979					329,902
Retained earnings					852,475					1,135,922
Accumulated other comprehensive income					9,541					7,801
Total stockholders' equity - Dolby Laboratories, Inc.					1,341,108					1,473,737
Controlling interest					21,997					20,942
Total stockholders' equity					1,363,105					1,494,679
Total liabilities and stockholders' equity				$	1,581,315				$	1,711,772

DOLBY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
						Fiscal Quarter Ended									Fiscal Year-to-Date Ended
						September 25, 2009				September 24, 2010					September 25, 2009				September 24, 2010
						(unaudited)
						(in thousands)
Operating activities:
Net income						$ 44,703				$ 63,327					$ 244,346				$ 282,827
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization					7,231				9,392					28,732				34,937
	Stock-based compensation expense					6,207				7,193					21,758				27,694
	Amortization of premium on investments					1,647				2,734					5,589				9,118
	Excess tax benefit from exercise of stock options					(2,279)				(7,749)					(5,827)				(24,639)
	Provision for doubtful accounts					244				546					1,392				365
	Deferred taxes					(14,595)				5,751					5,237				(16,031)
	Losses / (gains) on Put Rights					(56)				1,095					(9,508)				7,601
	Losses / (gains) on auction rate certificates					15				-					10,869				(7,601)
	Loss on impairment of long-lived assets					-				3,392					-				12,986
	Gain from amended patent licensing agreement					-				-					(20,041)				-
	Cash distributions to controlling interest					(136)				(137)					(257)				(263)
	Other non-cash items affecting net income					492				(1,523)					2,408				610
	Changes in operating assets and liabilities:
		Accounts receivable				26,491				(6,734)					1,797				(31,329)
		Inventories				(3,783)				(11,609)					(3,638)				(15,696)
		Prepaid expenses and other assets				(3,310)				(721)					(147)				15,009
		Accounts payable and accrued liabilities				2,882				8,404					(21,362)				32,677
		Income taxes, net				8,354				(3,908)					8,602				27,995
		Deferred revenue				2,700				(1,443)					7,488				(25,725)
		Other non-current liabilities				1,154				(163)					(1,213)				(237)
		Payment on litigation settlement				-				-					(3,000)				(3,000)
	Net cash provided by operating activities					77,961				67,847					273,225				327,298
Investing activities:
		Purchases of available-for-sale securities				(68,500)				(89,880)					(373,223)				(646,052)
		Proceeds from sale of available-for-sale and trading securities				78,923				123,586					176,908				643,443
		Purchases of property, plant and equipment				(4,758)				(12,429)					(13,994)				(37,482)
		Purchases of intangible assets				(1,250)				-					(9,571)				(825)
		Acquisitions, net of cash acquired				-				(5,601)					(16,621)				(5,601)
		Proceeds from sale of property, plant and equipment				-				1,989					-				2,160
	Net cash provided by / (used in) investing activities					4,415				17,665					(236,501)				(44,357)
Financing activities:
		Payments on debt				(401)				(6,488)					(1,522)				(7,680)
		Proceeds from exercise of stock options				4,306				2,621					13,716				35,569
		Proceeds from issuance of Class A common stock (ESPP)				37				0					3,502				4,060
		Repurchase of common stock				-				(63,714)					-				(241,362)
		Excess tax benefit from exercise of stock options				2,279				7,749					5,827				24,639
	Net cash provided by / (used in) financing activities					6,221				(59,832)					21,523				(184,774)
		Effect of foreign exchange rate changes on cash and cash equivalents				(295)				1,083					(1,330)				(3,984)
		Net increase in cash and cash equivalents				88,302				26,763					56,917				94,183
		Cash and cash equivalents at beginning of period				363,376				519,098					394,761				451,678
		Cash and cash equivalents at end of period				$ 451,678				$ 545,861					$ 451,678				$ 545,861

GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
The following tables show the Company's fourth quarter of fiscal 2010 and fiscal 2010 year-to-date GAAP financial measures reconcilied to non-GAAP financial measures included in this release:
Net income:				Fiscal Quarter Ended							Fiscal Year Ended
				September 24, 2010							September 24, 2010
GAAP net income				$	65						$	283
Stock-based compensation					8							29
Amortization of acquired intangibles					3							13
Restructuring charges, net					6							7
Income tax adjustments					(5	)						(17	)
Controlling interest restructuring					(2	)						(2	)
Non-GAAP net income				$	75						$	313
Diluted earnings per share:				Fiscal Quarter Ended							Fiscal Year Ended
				September 24, 2010							September 24, 2010
GAAP diluted earnings per share				$	0.57						$	2.46
Stock-based compensation					0.07							0.25
Amortization of acquired intangibles					0.03							0.11
Restructuring charges, net					0.05							0.06
Income tax adjustments					(0.04	)						(0.15	)
Controlling interest restructuring					(0.02	)						(0.01	)
Non-GAAP diluted earnings per share				$	0.66						$	2.72
Shares used in computing diluted earnings per share					114							115
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
Net income attributable to Dolby Laboratories, Inc.					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				$	411						$	423
Stock-based compensation					(44	)						(46	)
Amortization of acquired intangibles					(5	)						(5	)
Restructuring charges, net					(2	)						(2	)
Non-GAAP operating expenses				$	360						$	370
Diluted earnings per share:				Fiscal Year 2011
				Low							High
GAAP diluted earnings per share				$	2.52						$	2.66
Stock-based compensation					0.40							0.42
Amortization of acquired intangibles					0.11							0.11
Restructuring charges, net					0.02							0.02
Income tax adjustments					(0.18	)						(0.18	)
Non-GAAP diluted earnings per share				$	2.87						$	3.03
Shares used in computing diluted earnings per share					114							114

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

Source: Dolby Laboratories

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