Dolby Laboratories Reports Second-Quarter Fiscal 2008 Results

Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its second quarter of fiscal 2008.

For the second quarter, Dolby reported total revenue of $172.6 million, compared to $129.0 million for the second quarter of fiscal 2007, an increase of 34 percent. Second-quarter net income was $56.8 million, or $0.49 per diluted share, compared to $39.1 million, or $0.34 per diluted share, for the second quarter of fiscal 2007.

Net income for the second quarter of fiscal 2008 reflects stock-based compensation expense of $6.1 million compared to $4.8 million for the second quarter of fiscal 2007. Net income for the second quarter of fiscal 2008 also reflects charges related to the amortization of intangibles of $4.1 million, compared to $0.6 million for the second quarter of fiscal 2007.

"We experienced another strong quarter across many of our global markets, including PC, gaming, and broadcast, said Bill Jasper, President and Chief Executive Officer, Dolby Laboratories. "With our position in entertainment technology, we remain focused on developing and delivering innovations that improve the digital media experience.

Guidance

Dolby now expects fiscal 2008 revenue to be $585 million to $615 million. Net income is now expected to be $170 million to $182 million. Earnings per diluted share is now expected to be $1.47 to $1.57. 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 the full year to be approximately $22 million. In addition, Dolby now expects charges related to the amortization of intangibles for fiscal 2008 to be approximately $13 million.

As part of Dolbys updated fiscal 2008 guidance, Dolby now expects increased licensing revenue and lower products and services revenue compared to its prior expectations. The higher licensing revenue expectations are the result of expected increased revenue from the PC market, while the lower products and services revenue expectations are due to the expectation that product revenue related to digital cinema will be deferred through fiscal 2008. Since licensing revenue carries a significantly higher margin than products and services revenue, Dolby now expects profitability to be higher in fiscal 2008 than its prior guidance.

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 fiscal 2008 financial results at 2:00 p.m. PT/5:00 p.m. ET, Thursday, May 1, 2008.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 888-713-3588. International callers can access the conference call at 913-981-4903.

A replay of the call will be available beginning at 5:00 p.m. PT on May 1 until 9:00 p.m. PT on May 8, 2008; dial 888-203-1112 (international callers can access the replay by dialing 719-457-0820) and enter confirmation code 9142240. 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, including licensing revenue and products and services revenue, net income, earnings per diluted share, margin, stock-based compensation expense, charges relating to the amortization of intangibles, the licensing revenue related to the performance of the PC market and the deferral of product revenue related to digital cinema for the fiscal year ending September 26, 2008, Dolbys strength across its global markets, Dolbys position in entertainment technology and focus on developing and delivering innovations that improve the digital media experience, including long-term growth opportunities, that may be derived therefrom, are forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on managements 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 DVD and next-generation 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 timing of Dolby's receipt of royalty reports and/or payments from its licensees; Dolbys accuracy of calculation of royalties due to its licensors; Dolbys ability to develop, maintain, and strengthen relationships with industry participants; Dolbys 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 Dolbys ability to successfully penetrate this market; Dolbys 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 Dolbys 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) develops and delivers products and technologies around the world that make the entertainment experience more realistic and immersive. For more than four decades, Dolby has been at the forefront of defining high-quality audio and surround sound in cinema, broadcast, home audio systems, cars, DVDs, headphones, games, televisions, and personal computers. 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. S08/19736 DLB-F

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Quarter EndedFiscal Year-to-Date Ended
March 30, 2007March 28, 2008March 30, 2007March 28, 2008
(unaudited)
(in thousands, except per share amounts)
Revenue:
Licensing $ 106,642 $ 149,619 $ 189,017 $ 272,049
Product sales 15,469 15,628 30,679 35,638
Services 6,899 7,310 13,756 15,097
Total revenue 129,010 172,557 233,452 322,784
Cost of revenue:
Cost of licensing 10,149 5,555 17,809 8,818

Cost of product sales (1)

7,714 8,540 16,400 20,188

Cost of services (1)

2,824 3,151 5,507 6,206
Total cost of revenue 20,687 17,246 39,716 35,212
Gross margin 108,323 155,311 193,736 287,572
Operating expenses:

Selling, general and administrative (1)

42,525 55,310 79,836 106,296

Research and development (1)

10,960 15,725 19,796 29,632
Gain on settlements (1,500 ) (249 ) (1,500 ) (249 )
Total operating expenses 51,985 70,786 98,132 135,679
Operating income 56,338 84,525 95,604 151,893
Other income, net 5,932 2,404 11,359 7,608
Income before provision for income taxes and controlling interest 62,270 86,929 106,963 159,501
Provision for income taxes (22,776 ) (29,792 ) (37,228 ) (54,399 )
Income before controlling interest 39,494 57,137 69,735 105,102
Controlling interest in net income, net of tax (399 ) (359 ) (747 ) (651 )
Net income$39,095$56,778$68,988$104,451
Basic earnings per share $ 0.36 $ 0.51 $ 0.64 $ 0.94
Diluted earnings per share $ 0.34 $ 0.49 $ 0.61 $ 0.91
Weighted-average shares outstanding (basic) 109,055 111,192 108,501 110,892
Weighted-average shares outstanding (diluted) 113,412 114,736 113,165 114,579

(1) Stock-based compensation included above was classified as follows:

Cost of product sales $ 192 $ 262 $ 410 $ 503
Cost of services 31 38 68 78
Selling, general and administrative 3,762 4,600 7,621 8,895
Research and development 772 1,229 1,519 2,119

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 28, 2007March 28, 2008
(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 368,467 $ 347,502
Short-term investments 231,217 28,905
Accounts receivable, net 28,165 43,399
Inventories 14,883 20,153
Deferred income taxes 73,686 81,874
Prepaid expenses and other current assets 17,000 27,596
Total current assets 733,418 549,429
Property, plant and equipment, net 85,552 84,565
Intangible assets, net 35,389 93,863
Goodwill 39,364 272,542
Long-term investments 73,224 165,880
Long-term deferred income taxes 12,393 11,956
Other assets 12,357 13,033
Total assets$991,697$1,191,268
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 119,068 $ 131,006
Income taxes payable 9,051 2,069
Current portion of long-term debt 1,563 1,591
Deferred revenue 13,522 24,594
Total current liabilities 143,204 159,260
Long-term debt 9,691 8,810
Long-term deferred revenue 5,073 5,221
Deferred income tax liability - 19,001
Other non-current liabilities 14,294 28,914
Total liabilities 172,262 221,206
Controlling interest 22,279 22,392
Stockholders' equity:
Class A common stock 49 51
Class B common stock 61 61
Additional paid-in capital 375,830 407,599
Retained earnings 409,749 514,488
Accumulated other comprehensive income 11,467 25,471
Total stockholders' equity 797,156 947,670
Total liabilities and stockholders' equity$991,697$1,191,268

Contacts:

Dolby Laboratories (Investor)
Alex Hughes, 415-645-4572
investor@dolby.com
or
Dolby Laboratories (Media)
Jeanne Alford, 415-645-5000
news@dolby.com

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