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Dolby Laboratories Reports Fiscal 2012 Fourth Quarter And Year-End Financial Results

Q1 2013

For fiscal Q1 2013, Dolby is anticipating total revenue to range from $215 million to $225 million. For fiscal Q1 2013, gross margin is estimated to be approximately 90 percent on a GAAP basis and 91 percent on a non-GAAP basis.

For fiscal Q1 2013, Dolby is estimating that operating expenses will be approximately $135 million on a GAAP basis, and approximately $120 million on a non-GAAP basis. Included in the estimated GAAP basis operating expenses for fiscal Q1 2013 are approximately $14 million of stock-based compensation expense and $1 million of charges related to the amortization of acquired intangibles.

The Company’s effective tax rate is estimated to be approximately 28 percent for fiscal Q1 2013.

Diluted Earnings per Share

Dolby expects diluted earnings per share for fiscal Q1 2013 to be between $0.42 and $0.48 on a GAAP basis and between $0.54 and $0.60 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’ Q4 and year-end fiscal 2012 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, November 8, 2012.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-504-7953. International callers can access the conference call at 1-719-457-2647.

A replay of the call will be available from 5:00 p.m. PT on Thursday, November 8, 2012, until 9:00 p.m. PT on November 15, 2012, by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 4043524. An archived version of the teleconference will also be available on the Dolby Laboratories website, www.dolby.com.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, net income, 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 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 Securities and Exchange Commission 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, tax rate, stock-based compensation, amortization of intangibles, restructuring charges, and diluted earnings per share for fiscal 2013, and its statements regarding its long-term growth initiatives, the increasing adoption of Dolby ® technologies on smartphones and tablets, as well as anticipated benefits of its technologies 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; 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 in environments from the cinema to the living room to mobile devices, 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. S12/26253 DLB-F

 
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
  Fiscal Quarter Ended   Fiscal Year Ended
September 28,   September 30,   September 28,   September 30,
2012   2011   2012   2011
Revenue:
Licensing $ 191,154 $ 205,747 $ 794,563 $ 790,340
Products 27,628 30,842 103,388 131,611
Services 5,973     7,179     28,313     33,554  
Total revenue 224,755     243,768     926,264     955,505  
 
Cost of revenue:
Cost of licensing 3,401 3,793 12,924 17,620
Cost of products 20,273 18,779 66,325 81,328
Cost of services 3,320     3,070     12,778     12,223  
Total cost of revenue 26,994     25,642     92,027     111,171  
Gross margin 197,761     218,126     834,237     844,334  
Operating expenses:
Research and development 37,958 33,108 140,143 123,920
Sales and marketing 48,707 37,154 181,736 149,642
General and administrative 39,570 33,039 149,175 137,633
Restructuring charges, net (2 )   2,669     1,191     3,406  
Total operating expenses 126,233     105,970     472,245     414,601  
Operating income 71,528 112,156 361,992 429,733
Other income, net 1,423     4,476     6,999     10,910  
Income before income taxes 72,951 116,632 368,991 440,643
Provision for income taxes (20,906 )   (37,344 )   (103,857 )   (130,061 )
Net income including controlling interest 52,045 79,288 265,134 310,582
Less: net (income) / loss attributable to controlling interest (551 )   (217 )   (832 )   (1,315 )
Net income attributable to Dolby Laboratories, Inc. $ 51,494     $ 79,071     $ 264,302     $ 309,267  
 
Basic earnings per share $ 0.49 $ 0.72 $ 2.47 $ 2.78
Diluted earnings per share $ 0.49 $ 0.71 $ 2.46 $ 2.75
 
Weighted-average shares outstanding (basic) 104,079 110,063 106,926 111,444
Weighted-average shares outstanding (diluted) 104,915 110,662 107,541 112,554
 

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
  September 28,   September 30,
2012   2011
ASSETS
Current assets:
Cash and cash equivalents $ 492,600 $ 551,512
Short-term investments 302,693 391,281
Accounts receivable, net 43,495 61,815
Inventories 16,700 26,244
Deferred taxes 80,966 90,869
Prepaid expenses and other current assets 33,832     36,877
Total current assets 970,286 1,158,598
Long-term investments 361,614 272,797
Property, plant and equipment, net 254,676 117,107
Intangible assets, net 56,526 51,573
Goodwill 281,375 263,260
Deferred taxes 22,634 14,779
Other non-current assets 13,687     6,273
Total assets $ 1,960,798     $ 1,884,387
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 130,923 $ 127,922
Income taxes payable 2,424 4,762
Deferred revenue 23,493     26,701
Total current liabilities 156,840 159,385
Long-term deferred revenue 18,192 15,526
Deferred taxes 2,696 671
Other non-current liabilities 39,837     23,455
Total liabilities

217,565

 

199,037
Stockholders' equity:
Class A common stock 46 52
Class B common stock 57 58
Additional paid-in capital

 

210,681
Retained earnings 1,709,479 1,445,189
Accumulated other comprehensive income 10,687     7,533
Total stockholders' equity - Dolby Laboratories, Inc. 1,720,269 1,663,513
Controlling interest 22,964     21,837
Total stockholders' equity 1,743,233     1,685,350
Total liabilities and stockholders' equity $ 1,960,798     $ 1,884,387
 

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
  Fiscal Quarter Ended   Fiscal Year Ended

September 28,

 

September 30,

 

September 28,

  September 30,

2012

 

2011

 

2012

  2011
Operating activities:
Net income including controlling interest $ 52,045 $ 79,288 $ 265,134 $ 310,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,687 10,019 43,876 43,994
Stock-based compensation expense 13,338 10,749 47,581 43,665
Amortization of premium on investments 3,860 4,713 17,140 17,088
Excess tax benefit from exercise of stock options 89 6,050 (852 ) (6,593 )
Provision for doubtful accounts (828 ) (56 ) (379 ) 772
Deferred taxes 8,283 5,211 1,208 6,784
Loss on impairment of long-lived assets 95 226 275 226
Payment on litigation settlement (3,000 )
Other non-cash items affecting net income 237 357 95 532
Changes in operating assets and liabilities:
Accounts receivable 3,472 (22,579 ) 18,831 (8,514 )
Inventories (2,224 ) (2,822 ) 3,051 2,105
Prepaid expenses and other assets (4,690 ) (3,587 ) (4,108 ) (10,305 )
Accounts payable and other liabilities (5,074 ) 10,837 (6,641 ) (16,952 )
Income taxes, net (2,991 ) (5,678 ) 3,866 708
Deferred revenue (277 ) 14,400 (498 ) 19,800
Other non-current liabilities (1,223 )   2,401     1,218     2,796  
Net cash provided by operating activities 76,799     109,529     389,797     403,688  
Investing activities:
Purchases of available-for-sale securities (179,317 ) (164,443 ) (611,211 ) (619,238 )
Proceeds from sales of available-for-sale securities 96,622 56,558 358,142 225,977
Proceeds from maturities of available-for-sale securities 33,620 27,504 236,535 203,704
Purchases of property, plant and equipment (117,124 ) (17,028 ) (167,349 ) (47,362 )
Purchases of intangible assets (350 )
Acquisitions, net of cash acquired (11,946 ) (12,521 ) (3,350 )
Proceeds from sale of property, plant and equipment and assets held for sale 1,087     490     2,075     3,567  
Net cash used in investing activities (177,058 )   (96,919 )   (194,679 )   (236,702 )
Financing activities:
Payments on debt (518 ) (518 )
Proceeds from issuance of common stock 1,061 685 17,386 27,918
Repurchase of common stock (78,244 ) (49,910 ) (268,203 ) (192,410 )
Excess tax benefit from the exercise of stock options (89 ) (6,050 ) 852 6,593
Shares repurchased for tax withholdings on vesting of restricted stock (326 )   (286 )   (3,835 )   (4,599 )
Net cash used in financing activities (78,116 )   (55,561 )   (254,318 )   (162,498 )
Effect of foreign exchange rate changes on cash and cash equivalents 567     (141 )   288     1,163  
Net increase / (decrease) in cash and cash equivalents (177,808 ) (43,092 ) (58,912 ) 5,651
Cash and cash equivalents at beginning of period 670,408     594,604     551,512     545,861  
Cash and cash equivalents at end of period $ 492,600     $ 551,512     $ 492,600     $ 551,512  
Supplemental disclosure:
Cash paid for income taxes $ 15,312 $ 37,842 $ 98,497 $ 122,531
Cash paid for interest $ 125 $ 133 $ 133 $ 375
 

GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
       
The following tables show the Company’s fourth quarter of fiscal years 2011 and 2012 and fiscal year 2011 and 2012 year-to-date GAAP financial measures reconciled to Non-GAAP financial measures included in this release:
 
Net income: Fiscal Quarter Ended   Fiscal Year Ended
September 28, September 30, September 28, September 30,
2012   2011   2012   2011
GAAP net income $ 51.5 $ 79.1 $ 264.3 $ 309.3
Stock-based compensation 13.3 10.7 47.6 43.7
Amortization of acquired intangibles 3.1 2.7 10.8 15.2
Restructuring charges, net 2.7 1.2 3.4
Income tax adjustments (4.1 )   (5.3 )   (17.0 )   (31.7 )
Non-GAAP net income $ 63.8     $ 89.9     $ 306.9     $ 339.9  
 
Diluted earnings per share: Fiscal Quarter Ended   Fiscal Year Ended
September 28, September 30, September 28, September 30,
2012   2011   2012   2011
GAAP diluted earnings per share $ 0.49 $ 0.71 $ 2.46 $ 2.75
Stock-based compensation 0.13 0.10 0.44 0.39
Amortization of acquired intangibles 0.03 0.02 0.10 0.13
Restructuring charges, net 0.03 0.01 0.03
Income tax adjustments (0.04 )   (0.05 )   (0.16 )   (0.28 )
Non-GAAP diluted earnings per share $ 0.61     $ 0.81     $ 2.85     $ 3.02  
 
Shares used in computing diluted earnings per share (in millions) 105 111 108 113
 
The following tables show the Company’s first quarter and fiscal year 2013 GAAP financial targets reconciled to Non-GAAP financial targets included in this release (numbers are approximate):
 
Gross margin:
Q1 2013
GAAP gross margin 90 %
Stock-based compensation %
Amortization of acquired intangibles 1 %
Non-GAAP gross margin 91 %
 
Operating expenses: Q1 2013   Fiscal Year 2013
GAAP operating expenses $ 135 $ 550
Stock-based compensation (14 ) (55 )
Amortization of acquired intangibles (1 )   (5 )
Non-GAAP operating expenses $ 120     $ 490  
 
Diluted earnings per share: Q1 2013
Low   High
GAAP diluted earnings per share $ 0.42 $ 0.48
Stock-based compensation 0.13 0.13
Amortization of acquired intangibles 0.03 0.03
Income tax adjustments (0.04 )   (0.04 )
Non-GAAP diluted earnings per share $ 0.54     $ 0.60  
 

Shares used in computing diluted earnings per share

104 104




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