Dolby Laboratories Reports Third Quarter Fiscal 2008 Results

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® 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™ 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 Ended Fiscal Year-to-Date Ended June 29, 2007 June 27, 2008 June 29, 2007 June 27, 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 28, 2007    June 27, 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