Dolby Laboratories Reports First Quarter Fiscal 2010 Results

Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its first quarter of fiscal 2010.

For the first quarter, Dolby reported total revenue of $221.2 million, compared to $180.3 million for the first quarter of fiscal 2009, an increase of 23 percent.

First quarter GAAP net income was $69.1 million, or $0.59 per diluted share, compared to $78.1 million, or $0.68 per diluted share, for the first quarter of fiscal 2009. On a non-GAAP basis, first quarter net income was $74.3 million, or $0.64 per diluted share, compared to $70.3 million, or $0.61 per diluted share, for the first quarter of 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.

"In the first quarter, we made progress on a number of fronts,” said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "We experienced increased global adoption of our next-generation audio format, Dolby Digital Plus, experienced strong demand for our cinema 3D systems and, in January, saw a leading set-top-box manufacturer adopt Dolby Volume in certain models.”

In the first quarter of fiscal 2010, Dolby prospectively adopted new accounting standards on revenue recognition, resulting in $17.6 million in incremental product sales revenue when compared to revenue that would have been recognized under prior accounting guidance. The net impact of this accounting change to net income, on both a GAAP and non-GAAP basis, was approximately $4.4 million, or $0.04 per diluted share, in the first quarter of fiscal 2010.

Financial Targets

For fiscal 2010, Dolby is targeting revenue of $780 million to $810 million, total gross margin of approximately 87 percent on a GAAP basis, and 88 percent on a non-GAAP basis. In addition, Dolby is targeting fiscal 2010 operating expenses of $330 million to $342 million on a GAAP basis and $295 million to $305 million on a non-GAAP basis, and a tax rate of approximately 35 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.

These targets lead to a fiscal 2010 diluted earnings per share target range of $1.96 to $2.08 on a GAAP basis and $2.21 to $2.32 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’ fiscal first quarter 2010 financial results at 2:00 p.m. PT, 5:00 p.m. ET on February 3, 2010.

Access to the teleconference will be available over the Internet at http://investor.dolby.com/medialist.cfm or by phone by dialing 800-259-2693. International callers can access the conference call by dialing 913-312-1239.

A replay of the call will be available beginning at 5:00 p.m. PT on February 3, 2010 until 9:00 p.m. PT on February 10, 2010 by dialing 888-203-1112 (international callers can access the replay by dialing 719-457-0820) and entering the confirmation code 5145635. 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 2010, the progress Dolby is making in its markets, the continued adoption of Dolby technologies, 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 the economic recession both domestically and internationally; 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. Visit www.dolby.com for more information.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Blu-ray Disc is a trademark of Blu-ray Disc Association. S10/22364 DLB-F

A reconciliation between GAAP and non-GAAP actual financial measures also is provided on our investor relations website at http://investor.dolby.com/medialist.cfm.