EX-99.1 2 a4940551ex99_1.txt EXHIBIT 99.1 - PRESS RELEASE Exhibit 99.1 Dolby Laboratories Reports Financial Results for Third Quarter of Fiscal Year 2005 SAN FRANCISCO--(BUSINESS WIRE)--July 28, 2005--Dolby Laboratories (NYSE:DLB) today announced the Company's financial results for the third quarter of fiscal 2005 ended July 1, 2005. For the third quarter, Dolby reported total revenue of $79.7 million, compared to $76.1 million for the third quarter of fiscal 2004, an increase of 5%. Third quarter net income was $14.8 million, or $0.13 per diluted share, compared to $12.0 million, or $0.13 per diluted share, in the same period a year ago. Per share calculations are based on 112.8 million diluted shares in the third quarter of fiscal 2005 compared with 95.3 million diluted shares in the comparable year-ago quarter. The increase in shares is principally attributable to the shares sold by the Company in its February 2005 initial public offering (IPO). In connection with the Company's IPO, Ray Dolby contributed to the Company all of his intellectual property rights related to the Company's business, which he had previously licensed to the Company in exchange for royalty payments. As a result of the contribution, the Company's royalty obligations to Ray Dolby terminated in February 2005. As such, net income for the third quarter of fiscal 2005 did not include any royalty obligations to Ray Dolby, while the third quarter of fiscal 2004 included $9.2 million of such obligation payments. Pro forma net income, which excludes royalty payments to Ray Dolby and thus gives effect to the asset contribution as though such transactions had been completed prior to the beginning of fiscal 2004, was $14.8 million, or $0.13 per diluted share, for the third quarter of fiscal 2005, compared to $17.6 million, or $0.18 per diluted share, for the third quarter of fiscal 2004. Net income for the third quarter of fiscal 2005 also included stock-based compensation charges of $3.2 million, compared to $2.3 million for the third quarter of fiscal 2004. Net income excluding both the Ray Dolby royalty obligations and stock-based compensation charges was $18.4 million, or $0.16 per diluted share, for the third quarter of fiscal 2005, compared to $19.7 million, or $0.21 per diluted share, for the third quarter of fiscal 2004. "The growth in quarterly revenue on a year-over-year basis was driven primarily by higher licensing revenue attributable to the PC, broadcast, and gaming markets. While we did note a slowdown in the growth of sales of traditional consumer DVD players, the overall DVD market is still growing," said Bill Jasper, President and Chief Executive Officer, Dolby Laboratories. "We are pleased by this quarter's key achievements, which we believe lay the groundwork for the Company's future and enhance the overall entertainment experience." Highlights from the quarter include the following: -- Dolby launched Dolby(R) Digital Cinema in select cinemas around the world with Star Wars: Episode III -- Revenge of the Sith. -- Together Dolby and Disney announced their collaboration for the first studio-supported digital cinema rollout plan to install Dolby Digital Cinema in 100 select cinemas nationwide in time for Disney's fall 2005 release of Chicken Little in digital 3-D. -- Shanghai Media Entertainment Group announced the first television channel in China's broadcasting history to offer 5.1 programming, for which Dolby Digital 5.1 surround sound was selected. -- Three leading motherboard manufacturers, Abit, ASUSTeK, and Gigabyte, launched motherboards built on the Intel(R) Express Chipset with Intel High Definition Audio implementations that meet the Designed for Dolby Master Studio(TM) requirements, making it possible for PC enthusiasts to build PCs with audio performance and surround sound capabilities typically found in consumer electronics. -- In Europe, broadcasters continue to add 5.1 surround sound to new and existing services. Most recently, Premiere, the dominant pay-TV broadcaster in Germany, launched video-on- demand services using Dolby Digital 5.1. M6, one of France's leading broadcasters, also added Dolby Digital 5.1 surround sound for programming on both its new digital terrestrial television network and its network satellite service. -- Dolby's subsidiary, Via Licensing Corporation, announced final licensing terms and availability of a license for the IEEE 802.11 standard, making Via the only group to run a joint patent licensing program for the most widely used wireless networking standard. Fiscal Year 2005: Year-To-Date For the nine-month period ended July 1, 2005, Dolby reported total revenue of $249.0 million, compared to $220.2 million for the nine-month period ended June 25, 2004. Net income for the nine-month period ended July 1, 2005 was $35.5 million, or $0.34 per diluted share, compared to $36.6 million, or $0.40 per diluted share, for the nine-month period ended June 25, 2004. The Company had 105.0 million diluted shares outstanding for the nine-month period ended July 1, 2005, compared with 91.1 million diluted shares for the nine-month period ended June 25, 2004. Net income also included $18.7 million in now-discontinued royalty obligations paid to Ray Dolby for the nine-month period ended July 1, 2005, and $28.0 million in royalty obligations paid to Ray Dolby for the nine-month period ended June 25, 2004. Pro forma net income, which excludes these royalty obligations, was $46.6 million, or $0.44 per diluted share, for the nine-month period ended July 1, 2005, compared to $53.8 million, or $0.59 per diluted share, for the nine-month period ended June 25, 2004. Net income also included $11.4 million of stock-based compensation for the nine-month period ended July 1, 2005, compared with a $4.4 million charge for the nine-month period ended June 25, 2004. Net income excluding both royalty obligations payable to Ray Dolby and the stock-based compensation charges was $57.5 million, or $0.55 per diluted share, for the nine-month period ended July 1, 2005, compared to $57.5 million, or $0.63 per diluted share, for the nine-month period ended June 25, 2004. Guidance The Company currently expects revenue for fiscal 2005 to be at the low end of its previously forecasted range of $335 million to $350 million. Net income for fiscal 2005 is still expected to be between $49 million and $55 million. Pro forma net income, which excludes royalty obligations to Ray Dolby, for fiscal 2005 is still expected to be between $60 million and $67 million. Earnings per diluted share for the full fiscal year 2005 are still expected to be in the range of $0.45 to $0.51 and, on a pro forma basis, $0.55 to $0.62. Stock-based compensation expense for the full year is still expected to be between $14 million and $15 million. Net income excluding the royalty obligations to Ray Dolby and stock-based compensation expense for fiscal 2005 is expected to be in the range of $73 million and $80 million, or between $0.67 and $0.74 per diluted share. Pro Forma Information and Non-GAAP Measures Prior to the Company's IPO, 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. In addition, the Company provides net income excluding royalties payable to Ray Dolby and stock-based compensation, which is a non-GAAP measure. The Company believes these are important metrics as they represent how profitable the Company is exclusive of charges that have been eliminated in the future or that resulted largely from the revaluation of the Company in connection with its IPO. The Company uses these metrics internally to measure its performance and believes these metrics may be meaningful for investors in analyzing the Company's results of operations. A reconciliation of the Company's actual results to these additional metrics is included in this release. Conference Call Information Today, beginning at 2 p.m. Pacific Daylight Time, Bill Jasper, President and Chief Executive Officer, and Marty Jaffe, Executive Vice President, Business and Finance, will lead a conference call open to all interested parties to discuss the quarterly results, provide annual guidance, and answer analysts' and portfolio managers' questions. Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 800-289-0572 (international callers can access the call by dialing 913-981-5543). A replay of the call will be available until August 5 by dialing 888-203-1112 (international callers can access the replay by dialing 719-457-0820) and entering confirmation code #9747704. An archived version of the teleconference will also be available on Dolby Laboratories' website, 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 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. Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Master Studio is a trademark of Dolby Laboratories. Intel is a registered trademark of Intel Corporation. S05/16490 DLB-F Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, net income, earnings per share, and stock-based compensation for the fiscal year ending September 30, 2005, 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 manufacturers of consumer electronics 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 its business into non-sound technologies; and other risks detailed in Dolby's Securities and Exchange Commission filings and reports, including its Quarterly Report on Form 10-Q filed with the SEC on May 13, 2005. 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 LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Quarter Fiscal Year-To-Date Ended Ended ------------------- ------------------- June 25, July 1, June 25, July 1, 2004 2005 2004 2005 --------- --------- --------- --------- (unaudited) (in thousands, except per share amounts) Revenue: Licensing $55,487 $ 60,775 $162,234 $187,683 Product sales 15,355 13,486 43,133 44,780 Production services 5,208 5,418 14,797 16,580 ---------------------------------------------------------------------- Total revenue 76,050 79,679 220,164 249,043 Cost of revenue: Cost of licensing 13,441 5,156 41,327 35,367 Cost of product sales (1) 7,822 6,754 22,435 23,038 Cost of production services (1) 1,935 2,246 5,453 6,442 ---------------------------------------------------------------------- Total cost of revenue 23,198 14,156 69,215 64,847 Gross margin 52,852 65,523 150,949 184,196 Operating expenses: Selling, general and administrative (1) 28,182 33,372 74,575 101,839 Research and development (1) 6,186 6,885 16,820 22,914 Settlements (2,000) - (2,000) (2,000) In-process research and development - - 1,540 - ---------------------------------------------------------------------- Total operating expenses 32,368 40,257 90,935 122,753 ---------------------------------------------------------------------- Operating income 20,484 25,266 60,014 61,443 Other income, net 370 2,062 750 3,100 ---------------------------------------------------------------------- Income before provision for income taxes and controlling interest 20,854 27,328 60,764 64,543 Provision for income taxes 8,392 12,332 23,341 28,075 ---------------------------------------------------------------------- Income before controlling interest 12,462 14,996 37,423 36,468 Controlling interest in net income (494) (218) (850) (983) ---------------------------------------------------------------------- Net income $11,968 $ 14,778 $ 36,573 $ 35,485 ====================================================================== Basic net income per share $ 0.14 $ 0.14 $ 0.43 $ 0.37 Diluted net income per share $ 0.13 $ 0.13 $ 0.40 $ 0.34 ---------------------------------------------------------------------- Basic shares outstanding 85,707 103,410 85,383 94,796 Diluted shares outstanding 95,306 112,750 91,149 104,954 ---------------------------------------------------------------------- (1) Stock-based compensation included in net income above was classified as follows: Cost of product sales $ 52 $ 56 $ 52 $ 166 Cost of production services 18 27 18 83 Selling, general and administrative 1,814 2,674 3,948 9,464 Research and development 405 471 405 1,722 ---------------------------------------------------------------------- Total stock-based compensation $ 2,289 $ 3,228 $ 4,423 $ 11,435 ====================================================================== DOLBY LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS September 24, July 1, 2004 2005 ------------- ------------- (unaudited) (in thousands) ASSETS Current assets: Cash and cash equivalents $ 78,711 $361,551 Restricted cash - 175 Accounts receivable, net 18,257 17,730 Accounts receivable from related parties 1,927 - Inventories 7,163 9,143 Income tax receivable 4,246 1,767 Deferred income taxes 30,813 38,394 Prepaid expenses and other current assets 3,640 2,775 ---------------------------------------------------------------------- Total current assets 144,757 431,535 Property, plant and equipment, net 72,333 76,563 Intangible assets, net 6,778 17,593 Goodwill 22,030 23,200 Long-term deferred income taxes 6,669 6,812 Other assets 9,299 8,299 ---------------------------------------------------------------------- Total assets $261,866 $564,002 ====================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 56,540 $ 62,207 Accounts payable and accrued royalties due to related parties 291 - Income taxes payable 3,793 9,064 Current portion of debt 1,290 1,329 Deferred revenue 2,562 2,865 ---------------------------------------------------------------------- Total current liabilities 64,476 75,465 Long-term debt 13,580 12,471 Other non-current liabilities 23,283 22,179 ---------------------------------------------------------------------- Total liabilities 101,339 110,115 Controlling interest 17,200 17,573 Stockholders' equity: Class A common stock - 32 Class B common stock 87 72 Additional paid-in capital 48,731 301,329 Deferred stock-based compensation (33,728) (29,367) Retained earnings 125,076 160,561 Accumulated other comprehensive income 3,161 3,687 ---------------------------------------------------------------------- Total stockholders' equity 143,327 436,314 ---------------------------------------------------------------------- Total liabilities and stockholders' equity $261,866 $564,002 ====================================================================== DOLBY LABORATORIES, INC. REGULATION G: RECONCILIATION OF PRO FORMA NET INCOME AND NET INCOME EXCLUDING ROYALTIES PAYABLE TO RAY DOLBY AND STOCK-BASED COMPENSATION TO GAAP FINANCIAL MEASURES Fiscal Quarter Fiscal Year-To-Date Ended Ended ------------------- ------------------- June 25, July 1, June 25, July 1, 2004 2005 2004 2005 --------- --------- --------- --------- (unaudited) (in thousands, except per share amounts) Net income $11,968 $ 14,778 $36,573 $ 35,485 Add: Royalties payable to Ray Dolby (net of taxes) 5,637 - 17,180 11,123 ---------------------------------------------------------------------- Pro forma net income (a) $17,605 $ 14,778 $53,753 $ 46,608 ====================================================================== Add: Stock-based compensation (net of taxes) 2,109 3,651 3,786 10,863 ---------------------------------------------------------------------- Net income excluding royalties payable to Ray Dolby and stock-based compensation (a) $19,714 $ 18,429 $57,539 $ 57,471 ====================================================================== Basic shares outstanding 85,707 103,410 85,383 94,796 Diluted shares outstanding 95,306 112,750 91,149 104,954 ---------------------------------------------------------------------- Basic net income per share $ 0.14 $ 0.14 $ 0.43 $ 0.37 Diluted net income per share $ 0.13 $ 0.13 $ 0.40 $ 0.34 ---------------------------------------------------------------------- Basic pro forma net income per share $ 0.21 $ 0.14 $ 0.63 $ 0.49 Diluted pro forma net income per share $ 0.18 $ 0.13 $ 0.59 $ 0.44 ---------------------------------------------------------------------- Basic net income per share excluding royalties payable to Ray Dolby and stock-based compensation $ 0.23 $ 0.18 $ 0.67 $ 0.61 Diluted net income per share excluding royalties payable to Ray Dolby and stock-based compensation $ 0.21 $ 0.16 $ 0.63 $ 0.55 ---------------------------------------------------------------------- GUIDANCE FY 2005 Diluted Earnings Net Income Per Share ------------------- ------------------- (unaudited) (in millions, except per share amounts) GAAP guidance $ 49 to 55 $ 0.45 to 0.51 Add: Royalties payable to Ray 11 to 12 0.10 to 0.11 Dolby (net of taxes) ---------------------------------------------------------------------- Pro forma guidance 60 to 67 0.55 to 0.62 Add: Stock-based compensation 13 to 13 0.12 to 0.12 (net of taxes) ---------------------------------------------------------------------- Net income excluding royalties $ 73 to 80 $ 0.67 to 0.74 payable to Ray Dolby and stock-based compensation guidance ====================================================================== (a) Prior to the Company's IPO, 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. In addition, the Company provides net income excluding royalties payable to Ray Dolby and stock-based compensation, which is a non-GAAP measure. The Company believes these are important metrics as they represent how profitable the Company is exclusive of charges that have been eliminated in the future or that resulted largely from the revaluation of the Company in connection with its IPO. The Company uses these metrics internally to measure its performance and believes these metrics may be meaningful for investors in analyzing the Company's results of operations. A reconciliation of the Company's actual results to these additional metrics is included in this release. CONTACT: Dolby Laboratories Paula Dunn, 415-645-4100 investor@dolby.com or Kalt Rosen & Co. Pierre Hirsch, 415-397-2686 hirsch@krc-ir.com