Dolby Reports Q4 2013 Financial Results

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Dolby Laboratories announced its fourth quarter 2013 financial results.

Dolby trades on the NYSE under the symbol DLB.

For more information visit: www.dolby.com

Unedited press release follows:

Dolby Laboratories Reports Fiscal 2013 Fourth Quarter and Year-End Financial Results

SAN FRANCISCO — Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company’s financial results for the fourth quarter and fiscal year ended September 27, 2013. For the fourth quarter, Dolby reported total revenue of $216.7 million, compared to $225.8 million for the fourth quarter of fiscal year 2012. For fiscal 2013, Dolby reported total revenue of $909.7 million, compared to $933.0 million for fiscal 2012.

Fourth quarter GAAP net income was $45.8 million, or $0.44 per diluted share, compared to $51.5 million, or $0.49 per diluted share, for the fourth quarter of fiscal 2012. On a non-GAAP basis, fourth quarter net income was $58.8 million, or $0.57 per diluted share, compared to $63.8 million, or $0.61 per diluted share, for the fourth quarter of fiscal 2012.

Fiscal year GAAP net income was $189.3 million, or $1.84 per diluted share, compared to $264.3 million, or $2.46 per diluted share, for fiscal 2012. On a non-GAAP basis, fiscal year net income was $250.1 million, or $2.43 per diluted share, compared to $306.9 million, or $2.85 per diluted share, for fiscal 2012. Dolby’s non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

“Fourth quarter results came in better than expected, as we saw growth in our mobile and broadcast markets,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Looking beyond these markets, Dolby Voice is our newest offering aimed at driving long term growth. BT recently launched BT MeetMe with Dolby Voice, a service which makes conference calls sound much more like in-person meetings.”

Financial Outlook

Q1 2014
Dolby estimates that total revenue will range from $205 million to $215 million. Gross margin percentages are projected to range between approximately 90 percent to 91 percent on a GAAP basis and 91 percent to 92 percent on a non-GAAP basis.

Dolby anticipates that operating expenses will be approximately $145 million on a GAAP basis and $127 million on a non-GAAP basis.

Dolby expects diluted earnings per share to be between $0.28 and $0.36 on a GAAP basis and $0.42 and $0.50 on a non-GAAP basis.

The Company estimates that its fiscal Q1 2014 effective tax rate will be between approximately 27 percent and 28 percent on both a GAAP and non-GAAP basis.

FISCAL YEAR 2014
Dolby anticipates that total revenue will range from $900 million to $930 million.

Dolby anticipates that operating expenses will be between approximately $590 million and $600 million on a GAAP basis and between $520 million and $530 million 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’ fourth quarter fiscal 2013 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Tuesday, October 29, 2013.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-233-7976. International callers can access the conference call at 1-913-981-5578.

A replay of the call will be available from 5:00 p.m. PT on Tuesday, October 29, 2013, until 9:00 p.m. PT on November 5, 2013, by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 8136638. 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, net income, and diluted earnings per share. These measures are adjusted to exclude amounts related to stock-based compensation, expense associated with dividend equivalents paid on restricted stock units, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. Dolby presents 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 both GAAP and non-GAAP measures 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 non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses non-GAAP financial measures, it provides a reconciliation of the non-GAAP financial measures to the most closely applicable GAAP financial measures. 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 measures 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, but not limited to, statements relating to Dolby’s expected financial results for Q1 2014 and fiscal 2014 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 loss of, or reduction in sales by, a key customer or licensee; 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 a shift from disc-based media to online media content could result in fewer devices with Dolby technologies; risks associated with the effects of macroeconomic conditions, including trends in consumer spending; risks relating to the expiration of patents; the timing of Dolby’s receipt of royalty reports and 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) creates audio, video, and voice technologies that transform entertainment and communications in mobile devices, at the cinema, at home, and at work. For nearly 50 years, sight and sound experiences have become more vibrant, clear, and meaningful in Dolby. For more information, please visit www.dolby.com.

DOLBY LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)
Fiscal Quarter Ended Fiscal Year Ended
September 27,
2013		 September 28,
2012		 September 27,
2013		 September 28,
2012
Revenue:
Licensing $ 191,043 $ 192,154 $ 807,081 $ 801,313
Products 19,998 27,628 80,603 103,388
Services 5,611 5,973 21,990 28,313
Total revenue 216,652 225,755 909,674 933,014
Cost of revenue:
Cost of licensing 3,314 3,401 16,856 12,924
Cost of products 16,306 20,273 64,270 66,325
Cost of services 3,871 3,320 15,593 12,778
Total cost of revenue 23,491 26,994 96,719 92,027
Gross margin 193,161 198,761 812,955 840,987
Operating expenses:
Research and development 41,447 37,958 168,746 140,143
Sales and marketing 56,024 49,707 231,103 188,486
General and administrative 38,646 39,570 161,970 149,175
Restructuring charges/(credits) (56 ) (2 ) 5,874 1,191
Total operating expenses 136,061 127,233 567,693 478,995
Operating income 57,100 71,528 245,262 361,992
Interest income 785 1,747 3,848 6,411
Interest expense (71 ) (139 ) (575 ) (196 )
Other income, net 1,054 (185 ) 2,111 784
Income before income taxes 58,868 72,951 250,646 368,991
Provision for income taxes (12,784 ) (20,906 ) (60,344 ) (103,857 )
Net income including controlling interest 46,084 52,045 190,302 265,134
Less: net (income)/loss attributable to controlling interest (289 ) (551 ) (1,031 ) (832 )
Net income attributable to Dolby Laboratories, Inc. $ 45,795 $ 51,494 $ 189,271 $ 264,302
Net income per share:
Basic $ 0.45 $ 0.49 $ 1.86 $ 2.47
Diluted $ 0.44 $ 0.49 $ 1.84 $ 2.46
Weighted-average shares outstanding:
Basic 101,768 104,079 101,879 106,926
Diluted 102,976 104,915 102,788 107,541

DOLBY LABORATORIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)
September 27,
2013		 September 28,
2012
ASSETS
Current assets:
Cash and cash equivalents $ 454,397 $ 492,600
Short-term investments 140,267 302,693
Accounts receivable, net 97,460 43,495
Inventories 10,093 16,700
Deferred taxes 78,381 80,966
Prepaid expenses and other current assets 32,124 33,832
Total current assets 812,722 970,286
Long-term investments 306,338 361,614
Property, plant and equipment, net 242,917 254,676
Intangible assets, net 41,315 56,526
Goodwill 279,724 281,375
Deferred taxes 43,291 22,634
Other non-current assets 11,638 13,687
Total assets $ 1,737,945 $ 1,960,798
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 10,695 $ 14,831
Accrued liabilities 137,795 116,092
Income taxes payable 3,394 2,424
Deferred revenue 20,931 23,493
Total current liabilities 172,815 156,840
Long-term deferred revenue 19,663 18,192
Deferred taxes — 2,696
Other non-current liabilities 45,441 39,837
Total liabilities 237,919 217,565
Stockholders’ equity:
Class A common stock 47 46
Class B common stock 55 57
Additional paid-in capital 18,812 —
Retained earnings 1,454,382 1,709,479
Accumulated other comprehensive income 7,814 10,687
Total stockholders’ equity – Dolby Laboratories, Inc. 1,481,110 1,720,269
Controlling interest 18,916 22,964
Total stockholders’ equity 1,500,026 1,743,233
Total liabilities and stockholders’ equity $ 1,737,945 $ 1,960,798

DOLBY LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)
Fiscal Quarter Ended Fiscal Year Ended
September 27,
2013		 September 28,
2012		 September 27,
2013		 September 28,
2012
Operating activities:
Net income including controlling interest $ 46,084 $ 52,045 $ 190,302 $ 265,134
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,630 12,687 53,245 43,876
Stock-based compensation 14,396 13,338 64,328 47,581
Amortization of premium on investments 2,133 3,860 10,234 17,140
Excess tax benefit from exercise of stock options 146 89 (475 ) (852 )
Provision for doubtful accounts (85 ) (828 ) (174 ) (379 )
Deferred income taxes (6,669 ) 8,283 (19,642 ) 1,208
Loss on impairment of long-lived assets — 95 — 275
Other non-cash items affecting net income (226 ) 237 (1,026 ) 95
Changes in operating assets and liabilities:
Accounts receivable (22,810 ) 3,472 (53,639 ) 18,831
Inventories 3,530 (2,224 ) 9,166 3,051
Prepaid expenses and other assets (3,033 ) (4,690 ) 3,891 (4,108 )
Accounts payable and other liabilities 22,730 (5,074 ) 21,890 (6,641 )
Income taxes, net 5,478 (2,991 ) 2,314 3,866
Deferred revenue (1,731 ) (277 ) (1,076 ) (498 )
Other non-current liabilities (6,400 ) (1,223 ) (4,677 ) 1,218
Net cash provided by operating activities 67,173 76,799 274,661 389,797
Investing activities:
Purchases of available-for-sale securities (68,682 ) (179,317 ) (482,370 ) (611,211 )
Proceeds from sales of available-for-sale securities 14,630 96,622 548,739 358,142
Proceeds from maturities of available-for-sale securities 50,904 33,620 143,754 236,535
Purchases of property, plant and equipment (8,910 ) (117,124 ) (26,711 ) (167,349 )
Acquisitions, net of cash acquired — (11,946 ) — (12,521 )
Other investments — — (3,000 ) —
Purchases of intangible assets — — (4,050 ) (350 )
Proceeds from sales of property, plant and equipment and assets held for sale 127 1,087 503 2,075
Net cash provided by/(used in) investing activities (11,931 ) (177,058 ) 176,865 (194,679 )
Financing activities:
Payments on debt (79 ) (518 ) (79 ) (518 )
Proceeds from issuance of common stock 2,342 1,190 15,958 17,386
Repurchase of common stock (8,103 ) (78,244 ) (82,245 ) (268,203 )
Payment of cash dividend — — (408,206 ) —
Distribution to controlling interest — — (5,039 ) —
Excess tax benefit from the exercise of stock options (146 ) (89 ) 475 852
Shares repurchased for tax withholdings on vesting of restricted stock (3,119 ) (455 ) (8,828 ) (3,835 )
Net cash used in financing activities (9,105 ) (78,116 ) (487,964 ) (254,318 )
Effect of foreign exchange rate changes on cash and cash equivalents (301 ) 567 (1,765 ) 288
Net increase/(decrease) in cash and cash equivalents 45,836 (177,808 ) (38,203 ) (58,912 )
Cash and cash equivalents at beginning of period 408,561 670,408 492,600 551,512
Cash and cash equivalents at end of period $ 454,397 $ 492,600 $ 454,397 $ 492,600

GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
The following tables present the Company’s GAAP financial measures reconciled to the non-GAAP financial measures included in this release for the fourth fiscal quarter of 2013 and 2012 and fiscal 2013 and 2012:
Net income: Fiscal Quarter Ended Fiscal Year Ended
September 27,
2013		 September 28,
2012		 September 27,
2013		 September 28,
2012
GAAP net income $ 45.8 $ 51.5 $ 189.3 $ 264.3
Stock-based compensation 14.4 13.3 62.4 47.6
RSU dividend equivalent 1.0 — 4.2 —
Amortization of acquired intangibles 3.2 3.1 13.2 10.8
Restructuring charges, net — — 5.9 1.2
Income tax adjustments (5.6 ) (4.1 ) (24.9 ) (17.0 )
Non-GAAP net income $ 58.8 $ 63.8 $ 250.1 $ 306.9
Diluted earnings per share: Fiscal Quarter Ended Fiscal Year Ended
September 27,
2013		 September 28,
2012		 September 27,
2013		 September 28,
2012
GAAP diluted earnings per share $ 0.44 $ 0.49 $ 1.84 $ 2.46
Stock-based compensation 0.14 0.13 0.61 0.44
RSU dividend equivalent 0.01 — 0.04 —
Amortization of acquired intangibles 0.03 0.03 0.12 0.10
Restructuring charges, net — — 0.06 0.01
Income tax adjustments (0.05 ) (0.04 ) (0.24 ) (0.16 )
Non-GAAP diluted earnings per share $ 0.57 $ 0.61 $ 2.43 $ 2.85
Shares used in computing diluted earnings per share (in millions) 103 105 103 108
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the first fiscal quarter of 2014 and fiscal year 2014 included in this release:
Gross margin: Q1 2014
GAAP gross margin (low – high end of range) 90% – 91%
Stock-based compensation —%
Amortization of acquired intangibles 1%
Non-GAAP gross margin (low – high end of range) 91% – 92%
Operating expenses: Q1 2014 Fiscal 2014
GAAP operating expenses (low – high end of range) $ 145 $590 – $600
Stock-based compensation (16 ) (62 )
RSU dividend equivalent (1 ) (4 )
Amortization of acquired intangibles (1 ) (4 )
Restructuring charges, net — —
Non-GAAP operating expenses (low – high end of range) $ 127 $520 – $530
Diluted earnings per share: Q1 2014
Low High
GAAP diluted earnings per share $ 0.28 $ 0.36
Stock-based compensation 0.16 0.16
RSU dividend equivalent 0.01 0.01
Amortization of acquired intangibles 0.03 0.03
Restructuring charges, net — —
Income tax adjustments (0.06 ) (0.06 )
Non-GAAP diluted earnings per share $ 0.42 $ 0.50
Shares used in computing diluted earnings per share (in millions) 103 103