Dolby Laboratories Reports Second Quarter Fiscal 2011 Results.(Financial report)

SAN FRANCISCO -- 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[TM], 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([R]) 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%