[May 03, 2012]

Dolby Laboratories Reports Second Quarter Fiscal 2012 Results

Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its second quarter of fiscal 2012.

For the second quarter, Dolby reported total revenue of $260.3 million, compared to $250.0 million for the second quarter of fiscal 2011.

Second quarter GAAP net income was $88.1 million, or $0.81 per diluted share, compared to $82.1 million, or $0.72 per diluted share, for the second quarter of fiscal 2011. On a non-GAAP basis, second quarter net income was $99.2 million, or $0.91 per diluted share, compared to $92.2 million, or $0.81 per diluted share, for the second quarter of fiscal 2011. 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.

"We continue to make excellent progress toward establishing Dolby^® Digital Plus as a de facto standard in the online and cloud-based ecosystem," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "Microsoft^® will incorporate Dolby Digital Plus in all versions of its Windows^® 8 operating system for PCs and tablets for online and file-based content, and leading providers of cloud-encoding solutions, such as Microsoft's Azure, Encoding.com, Zencoder™, Digital Rapids^®, Nativ, and LinkoTec will also adopt Dolby Digital Plus in their platforms."

Microsoft and Dolby have entered into an agreement pursuant to which Microsoft will include Dolby Digital Plus 5.1-channel decoding and Dolby Digital two-channel encoding in Windows 8. Under this arrangement, original equipment manufacturers (OEMs) generally will be required to directly license and pay Dolby a base royalty rate for the right to use the Dolby technologies included in Windows 8 and installed on PCs and tablets for online and file-based content. Dolby expects the majority of PCs to continue to ship with optical disc drives when Windows 8 is released and to include optical disc playback functionality. For devices that also include optical disc playback functionality, which will be enabled by independent software vendor (ISV) applications installed on devices running Windows 8, OEMs will be required to pay a higher per-unit rate. This higher rate is consistent with historical rates paid for the inclusion of Dolby disc playback software. Dolby expects to receive only one royalty payment per device containing these technologies.

Dolby does not expect this agreement to affect its fiscal 2012 outlook because Windows 8 is not expected to ship until Dolby's fiscal 2013.

Financial Targets

For fiscal 2012, Dolby is now targeting revenue of $910 million to $960 million.

GAAP

For fiscal 2012, Dolby continues to target 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 now targeting an effective tax rate of approximately 28 percent to 29 percent for fiscal 2012. Although 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 2012 of approximately $51 million. In addition, Dolby continues to target 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 continues to target 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 now targeting an effective tax rate of approximately 28 percent to 29 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. In addition, the non-GAAP measures exclude a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011.

Diluted Earnings per Share

Dolby continues to target diluted shares outstanding of approximately 108 million. These targets lead to a fiscal 2012 diluted earnings per share target range of $2.38 to $2.62 on a GAAP basis and $2.80 to $3.04 on a non-GAAP basis.

The Company's Conference Call Information

Members of Dolby Laboratories' management will lead a conference call open to all interested parties to discuss the Company's Q2 fiscal 2012 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, May 3, 2012.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-800-211-3767 from within the United States or 1-719-325-2371 from outside the country.

A replay of the call will be available from 5:00 p.m. PT on Thursday, May 3, 2012, until 9:00 p.m. PT on Thursday, May 10, 2012. Callers can dial 1-877-870-5176 from within the United States or 1-858-384-5517 from outside the country, and then enter the confirmation code 2955384. 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, the related tax impact of all of these items on the provision for income taxes, and a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011, 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 Dolby's 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 establishing Dolby Digital Plus as a de facto standard in the online and cloud-based ecosystem, Dolby licensees' plans, Dolby's expectations regarding the incorporation of Dolby Digital Plus in the Microsoft Windows operating system, the number of PCs that will ship with optical disc drives and include optical disc playback functionality when Windows 8 is launched, the timing of Windows 8 shipments and related effect on Dolby's fiscal 2012 outlook, Dolby's direct license arrangements with OEMs, anticipated royalty rates, the benefits that may be derived from these expectations and the anticipated future licensing revenue that will be derived from the inclusion of Dolby Digital Plus in the Windows operating system 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 the personal computer, DVD, and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile markets; the timing of the launch date of Windows 8; pricing pressures; risks associated with the rate at which OEMs include optical disc playback in Windows 8 devices and the rate of consumer adoption of Windows operating systems; 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. All other trademarks remain the property of their respective owners. S12/25645 DLB-F

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