EX-99.1 2 a4882039ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 Dolby Laboratories Reports Record Revenue for Second Quarter of Fiscal 2005; Company Issues Full-Year Guidance SAN FRANCISCO--(BUSINESS WIRE)--May 5, 2005--In its first earnings report as a public company, Dolby Laboratories (NYSE:DLB) today announced the Company's financial results for the second quarter of fiscal 2005 ended April 1, 2005. For the second quarter, Dolby reported total revenue of $85.1 million, the highest quarterly revenue in its 40-year history, compared to $78.7 million for the second quarter of fiscal 2004. Second-quarter net income was $10.3 million, or $0.10 per diluted share compared to $12.4 million, or $0.14 per diluted share for the second quarter of fiscal 2004. Per-share calculations are based on 105.5 million diluted shares in the second quarter of fiscal 2005 compared with 91.0 million diluted shares in the comparable year-ago quarter as a result of the Company's IPO in February 2005. "We are very pleased with this quarter's results. Revenue was at a record quarterly level, driven by continued growth in licensees' sales of DVD-related products," said Bill Jasper, Dolby Laboratories' President and Chief Executive Officer. "During the second quarter we continued to make significant investments in our infrastructure to support anticipated growth and to meet the needs of being a public company. We also remain focused on the future through research and development as we strive to bring new high-quality entertainment technologies to the market." On a pro forma basis, second-quarter net income was $14.9 million, or $0.14 per diluted share, compared to $18.5 million, or $0.20 per diluted share last year. Pro forma results exclude the effect of royalties payable to the Company's founder for the use of intellectual property rights under licensing agreements, which discontinued as of February 2005. These amounts were $7.7 million and $10.0 million in the second quarter of fiscal 2005 and 2004, respectively. The second-quarter 2005 results included the Company's continued investment in its infrastructure, research and development, and stock-based compensation expense. Stock-based compensation expense was $5.3 million, compared to $2.1 million for the second quarter of fiscal 2004. Operating highlights during the quarter include: -- Raised $247 million in initial public offering on the New York Stock Exchange effective on February 16, 2005. -- Company founder and Chairman Ray Dolby contributed intellectual property rights to the Company, eliminating future royalty obligations. -- Debuted Dolby(R) Digital Cinema system at ShoWest in Las Vegas. -- All films nominated for 2004 Oscars(R) in the Sound Editing and Sound Mixing categories incorporated Dolby Digital or Dolby Digital Surround EX(TM) technology. Business Outlook For fiscal 2005, revenue is expected to be in the range of $335 million to $350 million, compared to $289 million in fiscal 2004. Net income for fiscal 2005 is expected to be between $49 million and $55 million, compared to $39.8 million in fiscal 2004. Pro forma net income for fiscal 2005 is expected to be between $60 million and $67 million, compared to pro forma net income of $63.3 million in fiscal 2004. Earnings per diluted share for the full fiscal year 2005 are expected to be in the range of $0.45 to $0.51 and, on a pro forma basis, $0.55 to $0.62. This compares to $0.43 per diluted share and $0.68 per diluted share, pro forma, in fiscal 2004. Stock-based compensation expense for the full year is expected to be between $14 million and $15 million. EPS is estimated on a diluted share count of 108 million shares. As noted in its prospectus, the Company's operating results may fluctuate due to a number of factors outside of the Company's control. Because the Company does not manufacture or sell the products that drive the licensing business, there is limited ability to control the timing of revenue on a quarterly basis. As a result, the business is managed over the long-term, focusing on year-over-year growth. Therefore, the Company's policy is to provide guidance for the full year. Pro Forma Information Throughout the Company's history, Ray Dolby retained ownership of the intellectual property he created related to the Company's business and licensed those rights to the Company in exchange for royalty payments. In connection with the Company's IPO, Ray Dolby contributed to the Company all of these intellectual property rights. The pro forma financial information included in this release gives effect to the asset contribution as though such transactions had been completed prior to the beginning of fiscal 2004. The Company provides this information because it believes the pro forma presentation more accurately reflects the Company's financial position going forward. A reconciliation of the Company's actual results to its pro forma results is included in this release. Conference Call Information Today, beginning at 2:00 p.m. PDT, Bill Jasper, President and CEO, and Marty Jaffe, Executive Vice President Business and Finance, will lead a conference call open to all interested parties to discuss the quarterly results and answer analysts' and portfolio managers' questions. Access to the teleconference is available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 800-810-0924 (international callers can access the call by dialing 913-981-4900). A replay of the call will be available until May 13 by dialing 888-203-1112 (international callers can access the replay by dialing 719-457-0820) and entering confirmation code number 8477436. An archived version of the teleconference will also be available on www.dolby.com. About Dolby Laboratories Dolby Laboratories (NYSE: DLB) develops and delivers products and technologies that make the entertainment experience more realistic and immersive. For nearly 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. Based in San Francisco with European headquarters in England, the company has entertainment industry liaison offices in New York and Los Angeles, and licensing liaison offices in London, Shanghai, Beijing, Hong Kong, and Tokyo. For more information about Dolby Laboratories or Dolby technologies, please visit www.dolby.com. Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue and earnings per share for the fiscal year ending September 30, 2005, its expectations regarding future growth and its expectations regarding bringing entertainment technologies to the market in the future 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. These risks and uncertainties include, without limitation, the following: risks associated with Dolby's ability to maintain and strengthen the Dolby brand; the growth in sales by consumer electronics products manufacturers of products that incorporate Dolby's technologies; the timing of Dolby's receipt of royalty reports and/or payments from its licensees; Dolby's ability to develop and deliver innovative technologies in response to changes in the entertainment industry; risks associated with Dolby's ability to have its products and technologies adopted as industry standards; Dolby's ability to enforce its intellectual property rights; Dolby's ability to develop, maintain and strengthen relationships with industry participants; Dolby's ability to have semiconductor manufacturers incorporate Dolby's technologies into their ICs; the growth of markets for surround sound technologies; competition risks; pricing pressures; 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 operating Dolby's business internationally; risks associated with licensing certain of Dolby's technologies in patent pools; Dolby's ability to develop proprietary technology in markets in which open standards are adopted; risks associated with the health of the motion picture industry generally; the growth of the market for digital cinema; Dolby's ability to expand our business into non-sound technologies; and other risks detailed in Dolby's Securities and Exchange Commission filings and reports, including, its registration statement on Form S-1, as amended, filed in connection with its initial public offering. Dolby disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or otherwise. Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Surround EX is a trademark of Dolby Laboratories. S05/16289. DLB-F DOLBY LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Quarter Fiscal Year-To-Date Ended Ended ------------------- ------------------- March 26, April 1, March 26, April 1, 2004 2005 2004 2005 ------------------- ------------------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $58,948 $64,717 $106,747 $126,908 Product sales 14,386 14,807 27,778 31,294 Production services 5,357 5,577 9,589 11,162 ------------------- ------------------- Total revenue 78,691 85,101 144,114 169,364 Cost of revenue: Cost of licensing 15,105 14,062 27,886 30,211 Cost of product sales(1) 7,717 7,472 14,613 16,284 Cost of production services(1) 1,931 2,181 3,518 4,196 ------------------- ------------------- Total cost of revenue 24,753 23,715 46,017 50,691 Gross margin 53,938 61,386 98,097 118,673 Operating expenses: Selling, general and administrative(1) 26,301 35,610 46,393 68,467 Research and development(1) 5,700 7,740 10,634 16,029 Settlements - - - (2,000) In-process research and development 1,540 - 1,540 - ------------------- ------------------- Total operating expenses 33,541 43,350 58,567 82,496 ------------------- ------------------- Operating income 20,397 18,036 39,530 36,177 Other income, net 156 751 380 1,038 ------------------- ------------------- Income before provision for income taxes and controlling interest 20,553 18,787 39,910 37,215 Provision for income taxes 8,124 8,000 14,949 15,743 ------------------- ------------------- Income before controlling interest 12,429 10,787 24,961 21,472 Controlling interest in net income (70) (457) (356) (765) ------------------- ------------------- Net income $12,359 $10,330 $24,605 $20,707 =================== =================== Basic net income per share $0.14 $0.11 $0.29 $0.23 Diluted net income per share $0.14 $0.10 $0.27 $0.20 Shares used in the calculation of basic net income per share 85,432 94,806 85,221 90,649 Shares used in the calculation of diluted net income per share 90,986 105,544 90,770 101,573 (1) Stock-based compensation was classified as follows: Cost of product sales $- $56 $- $110 Cost of production services - 30 - 56 Selling, general and administrative 2,130 4,603 2,134 6,790 Research and development - 570 - 1,251 ------------------- ------------------- Total stock-based compensation $2,130 $5,259 $2,134 $8,207 =================== =================== DOLBY LABORATORIES, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS Pro Forma ---------------------------------------- Fiscal Quarter Fiscal Year-To-Date Ended Ended -------------------- ------------------- March 26, April 1, March 26, April 1, 2004 2005 2004 2005 ---------------------------------------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $58,948 $64,717 $106,747 $126,908 Product sales 14,386 14,807 27,778 31,294 Production services 5,357 5,577 9,589 11,162 -------------------- ------------------- Total revenue 78,691 85,101 144,114 169,364 Cost of revenue: Cost of licensing 5,917 6,789 10,585 12,787 Cost of product sales (1) 6,946 7,088 13,085 14,998 Cost of production services (1) 1,931 2,181 3,518 4,196 -------------------- ------------------- Total cost of revenue 14,794 16,058 27,188 31,981 Gross margin 63,897 69,043 116,926 137,383 Operating expenses: Selling, general and administrative (1) 26,301 35,610 46,393 68,467 Research and development(1) 5,700 7,740 10,634 16,029 Settlements - - - (2,000) In-process research and development 1,540 - 1,540 - -------------------- ------------------- Total operating expenses 33,541 43,350 58,567 82,496 -------------------- ------------------- Operating income 30,356 25,693 58,359 54,887 Other income, net 156 751 380 1,038 -------------------- ------------------- Income before provision for income taxes and controlling interest 30,512 26,444 58,739 55,925 Provision for income taxes 11,992 11,070 22,235 23,330 -------------------- ------------------- Income before controlling interest 18,520 15,374 36,504 32,595 Controlling interest in net income (70) (457) (356) (765) -------------------- ------------------- Net income $18,450 $14,917 $36,148 $31,830 ==================== =================== Basic net income per share $0.22 $0.16 $0.42 $0.35 Diluted net income per share $0.20 $0.14 $0.40 $0.31 Shares used in the calculation of basic net income per share 85,432 94,806 85,221 90,649 Shares used in the calculation of diluted net income per share 90,986 105,544 90,770 101,573 (1) Stock-based compensation was classified as follows: Cost of product sales $- $56 $- $110 Cost of production services - 30 - 56 Selling, general and administrative 2,130 4,603 2,134 6,790 Research and development - 570 - 1,251 -------------------- ------------------- Total stock-based compensation $2,130 $5,259 $2,134 $8,207 ==================== =================== DOLBY LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS Sept. 24, April 1, 2004 2005 ----------- ----------- (unaudited) (in thousands) ASSETS Current assets: Cash and cash equivalents $78,711 $350,650 Accounts receivable, net 18,257 18,824 Accounts receivable from related parties 1,927 225 Inventories 7,163 8,195 Income tax receivable 4,246 145 Deferred income taxes 30,813 34,593 Prepaid expenses and other current assets 3,640 3,038 ----------- ----------- Total current assets 144,757 415,670 Property, plant and equipment, net 72,333 78,028 Intangible assets, net 6,778 18,109 Goodwill 22,030 23,200 Long-term deferred income taxes 6,669 6,812 Other assets 9,299 8,122 ----------- ----------- Total assets $261,866 $549,941 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $56,540 $62,392 Accounts payable and accrued royalties due to related parties 291 7,688 Income taxes payable 3,793 2,348 Current portion of debt 1,290 1,347 Deferred revenue 2,562 2,544 ----------- ----------- Total current liabilities 64,476 76,319 Long-term debt 13,580 13,131 Other non-current liabilities 23,283 23,723 ----------- ----------- Total liabilities 101,339 113,173 Controlling interest 17,200 18,257 Stockholders' equity: Class A common stock - 32 Class B common stock 87 71 Additional paid-in capital 48,731 300,963 Deferred stock-based compensation (33,728) (32,745) Retained earnings 125,076 145,783 Accumulated other comprehensive income 3,161 4,407 ----------- ----------- Total stockholders' equity 143,327 418,511 ----------- ----------- Total liabilities and stockholders' equity $261,866 $549,941 =========== =========== DOLBY LABORATORIES, INC. RECONCILIATION OF PRO FORMA STATEMENTS OF OPERATIONS Fiscal Quarter Ended April 1, 2005 ------------------------------- Actual Effect of Pro Related Forma Party Royalty Agreements ------------------------------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $64,717 $- $64,717 Product sales 14,807 - 14,807 Production services 5,577 - 5,577 ------------------------------- Total revenue 85,101 - 85,101 Cost of revenue: Cost of licensing 14,062 (7,273) 6,789 Cost of product sales 7,472 (384) 7,088 Cost of production services 2,181 - 2,181 ------------------------------- Total cost of revenue 23,715 (7,657) 16,058 Gross margin 61,386 7,657 69,043 Operating expenses: Selling, general and administrative 35,610 - 35,610 Research and development 7,740 - 7,740 Settlements - - - ------------------------------- Total operating expenses 43,350 - 43,350 ------------------------------- Operating income 18,036 7,657 25,693 Other income, net 751 - 751 ------------------------------- Income before provision for income taxes and controlling interest 18,787 7,657 26,444 Provision for income taxes 8,000 3,070 11,070 ------------------------------- Income before controlling interest 10,787 4,587 15,374 Controlling interest in net income (457) - (457) ------------------------------- Net income $10,330 $4,587 $14,917 =============================== Basic net income per share $0.11 $0.05 $0.16 Diluted net income per share $0.10 $0.04 $0.14 Shares used in the calculation of basic net income per share 94,806 94,806 Shares used in the calculation of diluted net income per share 105,544 105,544 Fiscal Year-To-Date Ended April 1, 2005 ------------------------------ Actual Effect of Pro Related Forma Party Royalty Agreements --------- ---------- --------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $126,908 $- $126,908 Product sales 31,294 - 31,294 Production services 11,162 - 11,162 ------------------------------ Total revenue 169,364 - 169,364 Cost of revenue: Cost of licensing 30,211 (17,424) 12,787 Cost of product sales 16,284 (1,286) 14,998 Cost of production services 4,196 - 4,196 ------------------------------ Total cost of revenue 50,691 (18,710) 31,981 Gross margin 118,673 18,710 137,383 Operating expenses: Selling, general and administrative 68,467 - 68,467 Research and development 16,029 - 16,029 Settlements (2,000) - (2,000) ------------------------------ Total operating expenses 82,496 - 82,496 ------------------------------ Operating income 36,177 18,710 54,887 Other income, net 1,038 - 1,038 ------------------------------ Income before provision for income taxes and controlling interest 37,215 18,710 55,925 Provision for income taxes 15,743 7,587 23,330 ------------------------------ Income before controlling interest 21,472 11,123 32,595 Controlling interest in net income (765) - (765) ------------------------------ Net income $20,707 $11,123 $31,830 ============================== Basic net income per share $0.23 $0.12 $0.35 Diluted net income per share $0.20 $0.11 $0.31 Shares used in the calculation of basic net income per share 90,649 90,649 Shares used in the calculation of diluted net income per share 101,573 101,573 DOLBY LABORATORIES, INC. RECONCILIATION OF PRO FORMA STATEMENTS OF OPERATIONS Fiscal Quarter Ended March 26, 2004 ----------------------------------- Actual Effect of Pro Related Forma Party Royalty Agreements ----------------------------------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $ 58,948 $ - $ 58,948 Product sales 14,386 - 14,386 Production services 5,357 - 5,357 -------------------------------- Total revenue 78,691 - 78,691 Cost of revenue: Cost of licensing 15,105 (9,188) 5,917 Cost of product sales 7,717 (771) 6,946 Cost of production services 1,931 - 1,931 -------------------------------- Total cost of revenue 24,753 (9,959) 14,794 Gross margin 53,938 9,959 63,897 Operating expenses: Selling, general and administrative 26,301 - 26,301 Research and development 5,700 - 5,700 Settlements - - - In-process research and development 1,540 - 1,540 -------------------------------- Total operating expenses 33,541 - 33,541 -------------------------------- Operating income 20,397 9,959 30,356 Other income, net 156 - 156 -------------------------------- Income before provision for income taxes and controlling interest 20,553 9,959 30,512 Provision for income taxes 8,124 3,868 11,992 -------------------------------- Income before controlling interest 12,429 6,091 18,520 Controlling interest in net income (70) - (70) -------------------------------- Net income $ 12,359 $ 6,091 $ 18,450 ================================ Basic net income per share $ 0.14 $ 0.08 $ 0.22 Diluted net income per share $ 0.14 $ 0.06 $ 0.20 Shares used in the calculation of basic net income per share 85,432 85,432 Shares used in the calculation of diluted net income per share 90,986 90,986 Fiscal Year-To-Date Ended March 26, 2004 -------------------------------- Actual Effect of Pro Related Forma Party Royalty Agreements -------------------------------- Revenue: Licensing $106,747 $- $106,747 Product sales 27,778 - 27,778 Production services 9,589 - 9,589 -------------------------------- Total revenue 144,114 - 144,114 Cost of revenue: Cost of licensing 27,886 (17,301) 10,585 Cost of product sales 14,613 (1,528) 13,085 Cost of production services 3,518 - 3,518 -------------------------------- Total cost of revenue 46,017 (18,829) 27,188 Gross margin 98,097 18,829 116,926 Operating expenses: Selling, general and administrative 46,393 - 46,393 Research and development 10,634 - 10,634 Settlements - - - In-process research and development 1,540 - 1,540 -------------------------------- Total operating expenses 58,567 - 58,567 -------------------------------- Operating income 39,530 18,829 58,359 Other income, net 380 - 380 ------------------------------ Income before provision for income taxes and controlling interest 39,910 18,829 58,739 Provision for income taxes 14,949 7,286 22,235 ------------------------------ Income before controlling interest 24,961 11,543 36,504 Controlling interest in net income (356) - (356) -------------------------------- Net income $24,605 $11,543 $36,148 ============================== Basic net income per share $0.29 $0.13 $0.42 Diluted net income per share $0.27 $0.13 $0.40 Shares used in the calculation of basic net income per share 85,221 85,221 Shares used in the calculation of diluted net income per share 90,770 90,770 CONTACT: Dolby Laboratories Paula Dunn, 415-645-4100 investor@dolby.com or Kalt Rosen & Co. Pierre Hirsch, 415-397-2686 hirsch@krc-ir.com