UNIVERSITY OF OREGON INVESTMENT GROUP

May 25, 2010 Financials

Dolby Laboratories, Inc.

SELL

Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap Current Price Dividend Dividend Yield Valuation (per share) DCF Analysis Comparables Analysis Current Price Target Price

34.14 - 63.63 DLB/NYSE .97 116.1 Million 441,492 Million 7.191 Billion $61.96
$0.00 0.00%

$48.25 $58.07 $61.96 $53.16

Summary Financials Revenue Net Income Operating Cash Flow

799.76 Million 250.43 Million 277.55 Million

BUSINESS OVERVIEW

Dolby Laboratories (DLB) was founded in 1965 by Ray Dolby. The company was first founded in England, but was always a US corporation. In 1976, the company moved its headquarters in San Francisco, California. Dolby laboratories focuses on creating technological innovations that are used throughout the
Covering Analyst: Farbod Sedeh Email: Farbod@uoregon.edu

The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIGs portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIGs portfolio.

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entertainment industry, including content creating, distribution, and playback software. Dolby technologies are used in products such as DVD players, DVD playback software, set top boxes, portable media devices, and other consumer electronic devices. Dolby derives its revenues from three different business segments: licensing, products, and services. Dolby generates the majority of its revenue from licensing which was about 83% in the 2009 fiscal year, compared to its product and service revenues which generated about 13% and 4% of their 2009 fiscal year revenue. Even though Dolbys headquarters are in the United States, 65% of their revenue was earned outside of the United States. Dolbys three revenue segments can be broken down into smaller segments: licensing, product sales, and services. Licensing Dolby licenses its technologies to manufacturers of consumer electronics and media software vendors. The majority of its licensing business comes from their two-tier licensing model. In this model, Dolby technologies that are embodied in reference software and firmware code are provided to semiconductor manufacturers (also known as implementation licensees) integrated in the form of semiconductor chips. Their implementation licensees then sell these chips to manufacturers of consumer electronics, which also hold licenses to use Dolby technologies. These consumer electronic manufactures are known as system licensees. The system licensees separately obtain licenses from Dolby to incorporate their technologies in their consumer electronic products. Dolbys licensing technologies are included in products such as DVD players, Blu-ray players, personal computers, digital television, mobile devices, video game consoles, set top boxes, audio/video receivers, and many other consumer electronic products. In addition to two-tier licensing, Dolby licenses its technologies to operating and independent system vendors. Products 13% of their total revenue came from product sales in 2009. Dolby designs and manufactures video and audio products for the broadcast and motion picture industries. These products are used in content creation, distribution, and playback to enhance image and sound quality, accommodate surround sound, and increase the efficiency of storage and distribution. Dolby sells products such as traditional cinema processors, broadcast products, digital cinema servers, digital 3D products, and many other products. Services Dolby offers a collection of services in the broadcast, cinema, music, and video game content industries. Their engineers work alongside television broadcasters, filmmakers, music producers, and video game designers to help them use Dolby products and technologies. In the 2009 fiscal year, service revenues counted for 4% of the total revenue.
BUSINESS AND GROWTH STRATEGIES

Dolby describes several elements that are factors to their growth strategy. First, Dolby sees the global transition to digital broadcast, the headway of online and mobile delivery, and the upgrade to HD,

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consumers now have multiple avenues in receiving quality technologies in the increasing adoption of Dolbys multi-channel formats. As of September 29, 2009, Dolby currently has 1600 patents and 2000 pending patent applications. However, multiple patents will be expiring in various amounts from now till 2025. Of these, 110 patents are expiring in the 2010, 34 in 2011, and 51 in 2012. It is essential for Dolby to continue in developing and delivering innovative technologies to maintain their licensing growth, especially in non-sound technologies. Other than organic growth, Dolbys second growth strategy is through acquisitions. In November 2007, Dolby acquired a Swedish company called Coding Technologies AB headquartered in Stockholm, Sweden. Coding Technologies is a provider for audio compression technologies for the mobile, digital broadcast, and internet markets. Dolby also squired BrightSide Technologies Inc in April of 2007, which is a company that focuses on the capture, distribution, and display of more vibrant video on LCD TV sets. It is imperative for Dolby to continue to discover possible and strategic acquisitions as another method of maintaining revenue growth.
PORTFOLIO HISTORY Dolby was recommended a buy on February 28, 2008 with a purchasing price of $45.45. We currently own shares of Dolby in both the Svigals and Tall Firs portfolios.

Svigals Portfolio We currently own 50 shares of Dolby in the Svigals portfolio. The cost basis is $3,098and has seen a return on Dolby of 36.31%. Tall Firs Portfolio We currently own 375 shares of Dolby in the Tall Firs portfolio. The cost basis is $23,235 and has seen a return on Dolby of 36.33%.
RECENT NEWS

Dolby and Nokia to Bring High Definition Audio Experience to Mobile April 29, 2010 Dolby and Nokia are planning to collaborate on Nokias launch of the Nokia N8 which is the latest smart phone to incorporate Dolby Digital plus 5.1 surround sound technologies. The Nokia N8 will be able to output high definition content such as HD-ready TV, audio/video receivers, and home theater systems. Nokia, the market leader in mobile entertainment, and Dolby, both believe this new product will change how consumers use mobile devices by exposing them to HD content with family and friends.
Dolby Works with Disney and Pixar to Create a New Audio Experience for Digital Cinema Audiences and Exhibitors March 16, 2010

Dolby announced it will be working with Walt Disney Pictures and Pixar Animation Studios in launching Dolby Surround 7.1, which is a new audio format, intended to bring a more exciting sensory experience to the movie theatre audience for 2D and 3D movies. This new audio format will give the audiences the chance to experience the content as the content creator intended. Dolby Surround 7.1 will be launched in select theatres with the release of Toy Story 3 and will be included in many future 3D movies as well.
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Dolby is listed by Yahoo finance and Google finance as a competitor is in the diversified electronics industry. However, Dolby cannot be defined by one industry considering they derive their revenue by operating in various industries. Dolby generates their revenue in the consumer electronics, broadcast, personal computers, and cinema industries. Therefore, I feel its appropriate to describe the characteristics within the specific industries that Dolby operates in. Dolbys derives some of their revenue through licensing and product sales in the consumer electronic industry. However, this industry has declined in the last 3 years due to the economic recession and the little amount of disposable income consumers have. The majority of Dolbys revenues associated with this industry come from DVD players. Blu-ray acts as an opportunity for growth in this industry, but because of the high prices of Blu-ray players and the current economic recession, this industry will continue to suffer until the global economy becomes stable. In Dolbys broadcast market, Dolby has the opportunity increase their sales of their multi-channel formats globally as more and more countries transition from analog to digital television and eventually to HDTV. Competition in the PC market is high and Dolby faces high competitive pressures. Dolby not only competes against their normal competitors, but they also compete with some of their customers, including Microsoft and Sony. Because of the economic recession, resulting in less disposable income, many of the PC manufactures have been producing cheaper PCs with less technological offerings. This will continue to happen until the economy becomes stable. The cinema industry is transitioning to digital cinema. Digital cinema offers the motion picture industry an opportunity to decrease their costs in printing and distributing movies, combating piracy, and allowing movies to play repeatedly without damaging the video or audio quality. Digital cinema is expensive and theatres do not want to make the transition in their equipment. However, with more and more movies being released in 3D, it is almost imperative that theatres transition to digital cinema.
S.W.O.T. ANALYSIS Strengths

Dolby Technologies are incorporated in a collection of different products in different market segments, including four of the six editions of Microsofts new Windows 7. So if growth in one segment is suffering, other segments can maintain high growth. Dolbys brand name and reputation is known as a trusted provider of audio and other entertainment technologies. Dolby technologies are incorporated in the majority of DVD products, as well as Blu-ray technologies.

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Dolby will have various amounts of patents expiring in the next few years. Of the 1600 patents held by Dolby, 110 will be expiring in 2010, 34 in 2011, and 51 in 2012. Dolby has limited patent protection in some countries like China, Taiwan, and India, which could limit their growth in these markets. Dolbys future growth could be limited if they cannot expand their business into non-sound technologies.

Opportunities

Threats

The Blu-ray market acts as an opportunity for future growth for Dolby as DVD players are being replaced. Non-sound technologies will be a key opportunity for Dolby as they continue to develop innovative technologies and expand through acquisitions. The growth digital cinema is an extensive growth opportunity for Dolby, especially in the future years as more and more 3D movies are being released.

Revenue growth can be negatively impacted if the global economy does not improve. One of Dolbys competitors has introduced a digital cinema solution which supports movies with higher resolution 4K digital cinema projectors. If Dolby cannot offer a 4K digital cinema solution, their future prospects in digital cinema may be limited as many theatres replace upgrade their equipment with 4K digital cinema. Dolby faces competitive risk and measures from situations where their customers are also their potential competitors, such as Sony and Microsoft.

COMPARABLES ANALYSIS

The comparable companies I chose were DTS, Inc., DivX, Inc., NVDA, Corp., and SRS Labs. When picking these companies, I wanted to make sure they generated revenue in a similar manner and were subject to similar business risks. All four of these companies are direct competitors to Dolby in various markets. The size of the company was not a factor in choosing my company because Dolby is the leading developer of technologies in the markets they operate in.

DTS (35%) DTS, Inc. provides technologies that are incorporated into an array of entertainment products worldwide. Its principal DTS digital multichannel audio technology enables the delivery and playback of compelling surround sound. The companys technology is used in various product applications, including audio/video receivers, DVD players, Blu-ray disc players, personal computers, car audio products, video game consoles, home theater systems, digital media players, set-top-boxes, and televisions. DTS, Inc. also
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provides products and services to studios, radio and television broadcasters, game developers, and other content creators to facilitate the inclusion of realistic DTS-encoded soundtracks in movies, music, and broadcast entertainment content. It serves consumer electronics and other product manufacturers, as well as semiconductor manufacturers. I chose DTS as a comparable for Dolby and weighted it the most at 30% for several reasons. Dolby listed in their 10-K that DTS was a direct competitor in all three of Dolbys operating segments: licensing, product sales, and services. Therefore, they derive revenue in the same manner. DTS is also vulnerable to the same business risks as Dolby in multiple of their identical business segments. DivX (30%) DivX, Inc. is a digital media company. It creates, distributes and licenses digital video technologies that span the three screens comprising consumer media environment, the personal computer (PC), the television and mobile devices. In January 2009, the Company released the version of its codec, DivX Plus. DivX Plus technology offers consumers and consumer electronics manufacturers an improved version of its codecs for certain implementations, including for high-definition and mobile content. DivX was listed in Dolbys 10-K, Google Finance, and Yahoo Finance as a direct competitor to Dolbys licensing segment along with a few other smaller segments, including the PC and mobile market. Since both Dolby and DivX incorporate their technologies in almost identical types of products, they share similar business risks which is why I choice to weight DivX at 30% Nvidia Corporation (20%) Nvidia Corporation provides visual computing technologies that generate interactive graphics on workstations, personal computers, game consoles, and mobile devices. It operates in four segments: Graphic Processing Unit (GPU), Professional Solutions Business (PSB), Media and Communications Processor (MCP), and Consumer Products Business (CPB) Ive chosen Nvidia corp. as my third comparable to Dolby. Unlike Dolby, Nvidia generates most of its revenues from product sales. However, Nvidia operates in many of same industries as Dolby, such personal computers, gaming consoles, and mobile devices, therefore, sharing many of the same risks in a collection of different industry. Because of the similar risks Nvidia and Dolby share in multiple markets, Ive decided to weight them 20%. SRS Labs (15%) SRS Labs, Inc., through its subsidiaries, engages in the development and provision of audio and voice technology solutions. The company principally develops and markets audio rendering, voice, and surround sound technologies and solutions to original equipment manufacturers, original design manufacturers, semiconductor manufacturers, and software providers I chose SRS Labs as my last comparable to Dolby. I have chosen to weight them at 15% because they are a smaller company compared to Dolby. SRS Labs is a direct licensing competitor for audio rendering, voice,
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and surround sound technologies and solutions. Since they generate their revenue in the same manner in several markets, they therefore are subject to the same risks in those markets as Dolby. The four multiples I used were EV/Revenue, EV/Gross Profit, EV/EBITDA, and EV/OCF. EV/Revenue is a measure of how the market is pricing the company based off of its revenue. EV/Gross Profit was used as a measure of how well the company controlled their respective cost of sales. EV/EBITDA was used to measure how the companies were able to turn revenue into income. EV/OCF was used to measure the efficiency of generating cash flows plus non-cash expenses given relative enterprise value size. Due to outliers, I did not weight my EV/EBITDA at all. Rather, I weighted the other multiples evenly at 33.33%
DISCOUNTED CASH FLOW ANALYSIS

Revenue I used the percent of revenue method for my discounted cash flow analysis (DCF). To project Dolbys revenues, I had to break down their licensing and product sales revenues into different segments. I segmented Dolbys licensing revenue into the categories of PC market, broadcast market, consumer electronics, and other (mobile, gaming, and automotive). Product sales was segmented to the categories of cinema products, broadcast products, and other. I first projected the revenue of different segments. My projections were based on historical data and opportunities presented in their 10-Ks, 10-Qs, and conference calls. Licensing Revenue PC Market Dolbys personal computer market represented 35% of the total licensing revenue in 2009. This has been driven by Dolby technologies in media applications such as DVD playback and/or DVD authoring software. Dolby technologies are also included in Microsoft operating systems. Two editions of Microsoft Vista and four editions of Windows 7 utilize Dolby technology. I projected revenues for this market to growth to increase till 2013 then drop off until the terminal year. This drop off is due to the possibility of Dolby technologies included in Windows 7 editions resulting in a greater percentage of PCs shipped. Dolby generates most of its revenue from sales of the consumer editions of Windows 7, but because of the substantial discount given to Microsoft, Dolby will receive smaller royalties for PCs shipped, compared to consumer edition royalties. Broadcast Market Dolby views the broadcast market as a potential area for growth. I projected revenue to grow at a steady rate till the terminal year because of the increased globalization of Dolby broadcasting products such as set top boxes and HDTV. Dolby also sees the surround sound at reduced bit rates from Dolby Digital Plus and HE-AAC as a successful avenue in the broadcast market. Consumer electronics Consumer electronic revenue is primarily driven by the segment of DVD players. The decrease in consumer electronic sales from 40% in 2007 to 25% in 2009 was due to the recession and Dolbys faster revenue growth in their other markets, mostly the market of Blu-ray. However, due to the increase of royalties received from Blu-ray format and Blu-ray disc players, I projected the licensing revenue for consumer electronics to continue to grow at a steady rate until the terminal year.
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Other (mobile, gaming, automotive) Dolbys licensing revenue from the other market has been generated from AAC and HE-AAC technologies in mobile devices, video game consoles, portable gaming devices, in-car entertainment systems, and MPEG 4 audio and MPEG 2 audio technologies using in portable devices. I projected the other market to grow till the terminal ranging from 8% to 25%. There is no way of assessing the possible mobile growth from the recent collaboration of Nokia and Dolby on the Nokia N8 Product Sales Revenue Cinema products I projected Dolbys cinema product revenue to grow tremendously till 2012, where it will then moderate till the terminal year. The majority of their product sales revenue and growth comes the from their cinema products. Not only does Dolby own most of the traditional cinema market, but they are also expanding their Digital Cinema market as well. Dolby offers Dolby 3D Digital Cinema technology, which delivers a 3D experience combined with digital cinema projector and server. With many films coming out in 3D, Dolby believes the film industry will completely transitioned to digital cinema in near future periods. Broadcast Products I projected fairly high growth for this market, ranging from 10% to 12% till the terminal year as the transition to HDTV and HE-AAC progresses. The growth of this segment can be associated with the broadcasting licensing revenue, but at a slightly lower level. Other (Music, automotive) I projected this segment to grow moderately around 5% till the terminal year. Dolby did not give any indication in their 10-K or recent quarterly reports whether this market was opportunity bound. Service Revenue Dolbys service revenue is primarily tired to the motion picture industry and the number of films being made by studies and independent filmmakers. Dolby engineers work alongside filmmakers to help them use Dolby products and technologies. I have projected the growth rate to be 4% till the terminal year. Cost of Revenues I broke down Dolbys cost of revenue into the three segments: licensing, product sales, and services. Licensing costs consists of amortization expenses that associated with purchased intangible assets. The cost of licensing also incorporated royalty obligations to third parties from which they have sublicensing arrangements. I projected the licensing cost to be maintained at 3.5% till the terminal year. This projection was based on past licensing gross margin percentages. Cost of product sales primarily consist of material cost, labor, and manufacturing overhead. Once again, I based my projection of 55% in 2011 sustain itself till the terminal year from their past product sales gross margin percentages. Cost of services consists of the payroll and benefit costs of employees performing out professional services. I have projected the cost of services to be 43% till the terminal year which is an average of their historical percentages.
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SG&A Selling, general, and administrative expense consists of personnel and personnel related expenses, professional service fees, travel expenses, and facility cost of Dolbys sales. I have project SG&A at 35% till the terminal year based on historical trends. . Research and Development I have projected R&D cost to be around 11% till 2015 and then 10% till the terminal year. Dolby has many patents expiring so they will be looking to expand their business into non-sound technologies. Tax Rate Dolbys tax rate has been around 35% the last two years, therefore I have projected their tax rate to stay at 35% till the terminal year. Depreciation and Amortization I have projected depreciation at 3.66% then decreasing to 3.4% of revenue by the terminal year. Dolby plans to make no purchases in the near future, which is why a historical average acts as the best representation for the future. Current Assets When projecting current assets, I took out cash because it was not being used in operations. I have projected their current assets to be 73.49% of their revenue till the terminal year based on the historical average of their assets without cash as a percent of their revenue. Current Liabilities I projected Dolbys current liabilities as 24% of revenue till the terminal year based historical percentages. Capital Expenditures I projected Dolbys PPE percentage of revenue at 4% till the terminal year because Dolby has not declared any plans of major capital expenditures in the future. Acquisitions One of Dolbys strategies for growth is through acquisitions. Dolby acquired Coding Technologies and BrightSide Technologies within the last three fiscal years which is why their percent of revenue spiked up to nearly 40% in 2008. Though acquisitions in the non-sound related technologies market is essential to maintain revenue growth, its very difficult to project their future acquisitions. I projected their acquisitions to range from $50 to $55 million till the terminal year. Cost of Debt The cost of debt that was used is 6.2%. This number came from the interest rate on their latest long term loan issuance. Beta I ran a 5 year monthly regression beta can came up with .97. I felt this is accurate because it is in line with their capital structure and is consistent with their competitors betas as well.

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RECOMMENDATION I recommend a SELL in all portfolios for Dolby. Both my DCF and comparable analysis gave me a target price of $42.80, an overvaluation of 30.92%. My DCF gave me an implied price of $42.17, an overvaluation of 31.93%. My comparables analysis gave me an implied price of $43.43, an overvaluation of 29.91%. I weighted both my DCF and comparables equally at 50%. Though Dolby has given us over a 36% return in the Tall Firs and Svigals portfolios, I believe it has reached its market potential.

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Full Company Name APPENDIX 1 COMPARABLES ANALYSIS

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Comparable Analysis
In Thousands (Except shares outstanding) Weight Current Price Price (52 Weeks) Shares Outstanding Market Cap Beta Long Term Debt (MRQ) Cash(MRQ) Enterprise Value Revenue(TTM) Gross Profit (TTM) EBITDA(TTM) OCF(TTM) DLB 61.96 34.14 - 63.63 116,065 7,191,387 0.97 6,527 799,446 6,398,468 799,758 697,328 379,931 327,640 DTSI DIVX NVDA SRSL Total 40% 35% 20% 5% 100% 33.40 6.90 12.42 8.72 18.695 23.41 - 36.18 4.55 - 8.84 8.33 - 18.96 5.46 - 10.05 17,689 32,883 549,574 14,813 129,240 590,813 226,893 6,825,709 129,169 1,687,338 1.41 0.92 1.67 1.03 1.27 0 0 0 0 78,818 135,572 1,764,896 33,714 433,642 511,995 91,321 5,060,813 95,455 1,253,695 82,196 75,184 3,664,000 27,646 793,375 80,425 65,719 1,443,604 27,368 345,261 26,879 4,492 425,405 3,784 97,594 25,341 13,204 487,807 3,320 112,485

Multiples
EV/Rev EV/Gross Profit EV/EBITDA EV/OCF 8.00 9.18 16.84 19.53 6.23 6.37 19.05 20.20 1.21 1.39 20.33 6.92 1.38 3.51 11.90 10.37 3.45 3.49 25.23 28.75

Weighted Average Implied Value Weighting

3.37 3.91 18.38 14.01 Implied Price Current Price Overvaluation 30.02 30.31 66.98 46.39 43.43 61.96 29.91% 25% 25% 25% 25%

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Full Company Name APPENDIX 2 DISCOUNTED CASH FLOWS ANALYSIS

2005 Revenues Licensing Product sales Services Total revenue % Growth Cost of revenues Cost of licensing % of licensing revenue Cost of product sales % of product sales revenue Cost of services % of services revenue Gain from amended patent licensing agreement Total cost of revenue % of revenue Gross Margin Operating Expenses SG&A % of revenue Research and development % of revenue Restructuring Charges % of revenue Gain on settlements % of revenue Total operating expenses % of revenue EBIT % of revenue Other Income (Expense) net % of revenue Income before provision for income taxes and controlling interest % of revenue Provision for income taxes Effective Tax Rate Income before controlling interest % of revenue Controlling interest in netincome, net of tax % of revenue Net Income % of revenue Add Back: Depreciation and amortization % of revenue Cash Flows from operations Current Assets % of revenue Current Liabilities % of revenue Net working capital Change in NWC Capital Expenitures/Acquisitions Purchase of PPE % of revenue Acquisitions, net of sale % of revenue Purchase of intangible assets % of revenue Net CapX and acquisitions % of revenue FCF PV Free Cash Flow 246,298 60,021 21,648 327,967 2006 301,663 65,413 24,466 391,542 19.38% 2007 $387,117 67,487 27,424 482,028 23.11% 2008

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2009 2010Q12A 2010A+E 361,719 87,496 15,422 464,637

2011

2012

2013

2014

2015

2016

2017

2018

2019 2,262,356 938,416 42,689 3,243,461 10.84%

2020 2,494,812 1,049,428 44,396 3,588,636 10.64%

$537,363 $594,697 72,284 95,967 30,584 28,839 640,231 719,503 32.82% 12.38%

693,119 814,613 976,181 1,136,391 1,298,615 1,477,323 1,658,439 1,851,738 2,046,711 161,369 242,376 320,595 397,758 492,764 578,918 669,498 749,220 838,479 29,993 31,192 32,440 33,738 35,087 36,491 37,950 39,468 41,047 884,480 1,088,181 1,329,216 1,567,888 1,826,466 2,092,731 2,365,886 2,640,427 2,926,237 22.93% 23.03% 22.15% 17.96% 16.49% 14.58% 13.05% 11.60% 10.82%

40,558 16.47% 31,181 51.95% 8,479 39.17%

26,887 8.91% 38,487 58.84% 10,668 43.60%

28,438 7.35% 34,497 51.12% 11,330 41.31%

15,802 2.94% 39,455 54.58% 12,520 40.94%

14,803 2.49% 57,220 59.62% 12,786 44.34% (20,041) 64,768 9.00% 654,735 225,489 31.34% 66,710 9.27% 4,847 0.67% (5977) -9.23% 291,069 40% 334,934 47% -2,577 -0.36% 371,419 52% 127,073 34.21% 244,346 34% 1,355 0.19% 242,991 34% 28,732 3.99% 236,593 449,160 62.43% 156,584 21.76% 292,576 196,141 13,994 1.94% 16,621 2.31% 9,571 1.33% 30,615 4.26% 9,837

9,563 2.64% 48,706 55.67% 7,147 46.34% 0 65,416 14.08% 399,221 114,620 24.67% 48,048 10.34% 303 0.07% 0 0.00% 162,971 35% 218,856 47% 469 0.10% 240,308 51.72% 84,496 35.16% 155,812 34% 828 0.18% 154,984 33% 17,394 3.74% 151,754 557,685 120.03% 163,705 35.23% 393,980 101,404 18,064 3.89% 0 0.00% 250 0.05% 18,064 3.89% 32,286

47,265 54,409 53,169 5.34% 5.00% 4% 90,008 133,307 176,327 56% 55% 55% 13,934 13,725 14,274 46.46% 44% 44% 0 0 0 151,207 201,441 243,770 17.10% 18.51% 18.34% 733,274 886,741 1,085,447

54,876 3.50% 218,767 55% 14,845 44% 0 288,488 18.40% 1,279,400 548,761 35% 172,468 11% 0 0.00% 0 0.00% 721,228 46%

63,926 3.50% 271,020 55% 15,438 44% 0 350,385 19.18% 1,476,081 639,263 35% 200,911 11% 0 0.00% 0 0.00% 840,174 46%

73,246 3.50% 318,405 55% 16,056 44% 0 407,706 19.48% 1,685,025

82,806 3.50% 368,224 55% 16,698 44% 0 467,728 19.77% 1,898,159

92,415 3.50% 412,071 55% 17,366 44% 0 521,852 19.76% 2,118,575

102,418 3.50% 461,163 55% 18,061 44% 0 581,642 19.88% 2,344,594

113,521 3.50% 516,129 55% 18,783 44% 0 648,433 19.99% 2,595,028 1,135,211 35% 324,346 10% 0 0.00% 0 0.00% 1,459,558 45% 1,038,167 32% 0 0.00% 1,038,167 32% 363,358 35% 674,808 21% 0 0.00% 674,808 21% 97,304 3.00% 772,112 2,383,620 73.49% 778,431 24% 1,605,189 156,995 129,738 4% 50,000 1.54% 0 0.00% 179,738 5.54% 435,379 177,241

125,602 3.50% 577,185 55% 19,534 44% 0 722,322 20.13% 2,866,314 1,256,023 35% 358,864 10% 0 0.00% 0 0.00% 1,614,886 45% 1,143,769 32% 0 0.00% 1,143,769 32% 400,319 35% 743,450 21% 0 0.00% 743,450 21% 107,659 3.00% 851,109 2,637,288 73.49% 878,857 24% 1,758,432 153,243 143,545 4% 50,000 1.39% 0 0.00% 193,545 5.39% 504,321 186,298

80,218 24.46% 247,749 135,115 41.20% 30,532 9.31% 0 0 (2000) -2.49% 163,647 50% 72,754 22% 2,047 0.62% 91,218 28% 37,330 40.92% 53,888 16% 1,595 0.49% 52,293 16% 11,348 3.46% 46,772 81,785 24.94% 72,794 22.20% 8,991

76,042 19.42% 315,500 154,165 39.37% 35,377 9.04% 0 0 (3625) -4.77% 185,917 47% 116,637 30% 95 0.02% 146,637 37% 55,833 38.08% 90,804 23% 1,255 0.32% 89,549 23% 12,946 3.31% 73,750 209,095 53.40% 92,854 23.71% 116,241 107,250 8,039 2.05% 0 0.00% 0 0.00% 8,039 2.05% (41,539)

74,265 15.41% 407,763 178,802 37.09% 44,109 9.15% 0 0 (2100) -2.83% 220,811 46% 172,469 36% -581 -0.12% 209,416 43% 65,131 31.10% 144,285 30% 1,454 0.30% 142,831 30% 14,483 3.00% 121,821 364,951 75.71% 143,204 29.71% 221,747 105,506 10,578 2.19% 30,208 6.27% 5,225 1.08% 40,786 8.46% (24,471)

67,777 10.59% 572,454 224,090 35.00% 62,080 9.70% 0 0 (499) -0.74% 285,671 45% 261,969 41% -744 -0.12% 301,802 47% 100,770 33.39% 201,032 31% 1,574 0.25% 199,458 31% 24,814 3.88% 186,013 297,108 46.41% 200,673 31.34% 96,435 -125,312 13,610 2.13% 253,047 39.52% 0 0.00% 266,657 41.65% 44,668

309,568 380,863 465,226 35% 35% 35% 90,494 119,590 146,214 10.23% 10.23% 11% 0 0 0 0.00% 0.00% 0.00% 0 0 0 0.00% 0.00% 0.00% 400,062 467,488 611,439 45% 43% 46%

732,456 828,060 924,149 1,024,183 35% 35% 35% 35% 209,273 236,589 264,043 292,624 10% 10% 10% 10% 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0.00% 0.00% 0.00% 0.00% 941,729 1,064,649 1,188,192 1,316,806 45% 45% 45% 45%

300,871 381,339 434,131 511,135 581,113 680,514 762,533 851,170 940,001 34% 35% 33% 33% 32% 33% 32% 32% 32% 596 0 0 0 0 0 0 0 0 0.07% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 456,653 381,339 434,131 511,135 581,113 680,514 762,533 851,170 940,001 52% 35% 33% 33% 32% 33% 32% 32% 32% 159,829 133,469 151,946 178,897 203,389 238,180 266,887 297,909 329,000 35% 35% 35% 35% 35% 35% 35% 35% 35% 296,825 247,870 282,185 332,238 377,723 442,334 495,647 553,260 611,000 34% 23% 21% 21% 21% 21% 21% 21% 21% 1,500 0 0 0 0 0 0 0 0 0.17% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 295,325 247,870 282,185 332,238 377,723 442,334 495,647 553,260 611,000 33% 23% 21% 21% 21% 21% 21% 21% 21% 32,340 36,998 39,876 47,037 54,794 62,782 70,977 79,213 87,787 3.66% 3.40% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 173,383 284,835 322,061 379,274 432,517 505,116 566,623 632,473 698,788 650,000 799,705 976,841 1,152,241 1,342,270 1,537,948 1,738,690 1,940,450 2,150,491 73.49% 73.49% 73.49% 73.49% 73.49% 73.49% 73.49% 73.49% 73.49% 196,403 261,164 319,012 376,293 438,352 502,256 567,813 633,702 702,297 25.43% 24% 24% 24% 24% 24% 24% 24% 24% 453,597 538,541 657,829 775,948 903,918 1,035,693 1,170,877 1,306,747 1,448,194 161,021 144,561 119,288 118,118 127,970 131,775 135,184 135,870 141,447 31,841 43,527 3.60% 4% 25,500 40,000 2.88% 3.68% 400 0 0.05% 0.00% 57,341 83,527 6.48% 7.68% (44,979) 132,059 130,105 53,169 4% 50,000 3.76% 0 0.00% 103,169 7.76% 99,605 80,046 62,716 4% 55,000 3.51% 0 0.00% 117,716 7.51% 143,440 104,601 73,059 4% 55,000 3.01% 0 0.00% 128,059 7.01% 176,488 116,785 83,709 4% 55,000 2.63% 0 0.00% 138,709 6.63% 234,632 140,885 94,635 4% 55,000 2.32% 0 0.00% 149,635 6.32% 281,803 153,542 105,617 4% 55,000 2.08% 0 0.00% 160,617 6.08% 335,986 166,115 117,049 4% 55,000 1.88% 0 0.00% 172,049 5.88% 385,291 172,854

14,734 4.49% 4,589 1.40% 11,789 3.59% 19,323 5.89%

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Full Company Name APPENDIX 3 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS

university of oregon investment group

http://uoig.uoregon.edu

Assumptions for Discounted Cash Flows

Rfr Market Risk Premium Beta Cost of Equity Cost of Debt % Equity % Debt Tax Rate WACC 3.44% 7.00% 0.97 10.21% 6.20% 99.91% 0.09% 35.00% 10.20% Terminal Growth Rate Sum of PV CFs Termincal value PV of Terminal Value Firm Value Long Term Debt Excess Cash Equity Value Diluted Shares Implied Price Current Price Overvalued 3.00% 1,436,582 7211186.259 2663840.101 4,899,868
4,880

799,446 4,894,988 116,065 42.17 61.96 31.93%

DCF Implied Price Comps Implied Price Target Price Current Price Overvalued

42.17 43.43 42.80 61.96 30.92%

APPENDIX 4 BETA SENSITIVITY ANALYSIS

Beta Sensastivity Analysis (St. error = .301)

Beta 1.571 1.42 1.269 1.118 0.967 0.816 0.665 0.514 0.363 St. Deviation Price Over (Under) Valued 2 26.93 -56.54% 1.5 29.99 -51.60% 1 33.79 -45.46% 0.5 38.63 -37.65% 0 44.98 -27.40% -0.5 53.61 -13.48% -1 65.95 6.44% -1.5 84.95 37.10% -2 117.69 89.95%

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Full Company Name

university of oregon investment group

http://uoig.uoregon.edu

REVENUE MODEL
Revenue Model
Licensing
2007 387,117 80.31% 2008 537,363 83.93% 38.81% 214,945 40% 58.64% 107,473 20% 85.08% 134,341 25% -13.24% 80,604 15% 108.22% 72,284 11.29% 7.11% 49,153 68% 2.58% 17,348 24% 11.76% 5,783 8% 42.81% 30,584 4.78% 11.52%
640,231

% Total revenue % Growth PC market 135,491 % Licensing 35% % Growth Broadcast market 58,068 % Licensing 15% % Growth Consumer electronics 154,847 % Licensing 40% % Growth Other (mobile, gaming, automotive) 38,712 % Licensing 10% % Growth Product Sales 67,487 % Total revenue 14.00% % Growth Cinema Products 47,916 % Product sales 71% % Growth Broadcast products 15,522 % Product sales 23% % Growth Other (mobile, gaming, automotive) 4,049 % Product sales 6% % Growth Services 27,424 % Total revenue 5.69% % Growth
Total Revenue 482,028

2009 594,697 82.65% 10.67% 208,144 35% -3.16% 148,674 25% 38.34% 148,674 25% 10.67% 89,205 15% 10.67% 95,967 13.34% 32.76% 78,693 82% 60.10% 12,476 13% -28.09% 4,798 5% -17.02% 28,839 4.01% -5.71%
719,503

2010 693,119 78.36% 16.55% 228,958 33% 10% 193,277 28% 30% 170,975 25% 15% 99,909 14% 12% 161,369 18.24% 68% 141,647 88% 80% 14,347 9% 15% 5,374 3% 12% 29,993 3% 4%
884,480

2011 814,613 74.86% 17.53% 261,013 32% 14% 239,663 29% 24% 200,041 25% 17% 113,896 14% 14% 242,376 22.27% 50% 219,553 91% 55% 16,643 7% 16% 6,180 3% 15% 31,192 3% 4%
1,088,181

2012 976,181 73.44% 19.83% 300,164 31% 15% 287,595 29% 20% 246,051 25% 23% 142,370 15% 25% 320,595 24.12% 32% 294,201 92% 34% 19,472 6% 17% 6,922 2% 12% 32,440 2% 4%
1,329,216

2013 1,136,391 72.48% 16.41% 345,189 30% 15% 336,487 30% 17% 295,261 26% 20% 159,455 14% 12% 397,758 25.37% 24% 367,752 92% 25% 22,393 6% 15% 7,614 2% 10% 33,738 2% 4%
1,567,888

2014 1,298,615 71.10% 14.28% 393,516 30% 14% 386,960 30% 15% 339,550 26% 15% 178,590 14% 12% 492,764 26.98% 24% 459,690 93% 25% 25,080 5% 12% 7,995 2% 5% 35,087 2% 4%
1,826,466

2015 1,477,323 70.59% 13.76% 448,608 30% 14% 445,004 30% 15% 383,691 26% 13% 200,020 14% 12% 578,918 27.66% 17% 542,434 94% 18% 28,089 5% 12% 8,395 1% 5% 36,491 2% 4%
2,092,731

2016 1,658,439 70.10% 12.26% 502,441 30% 12% 498,404 30% 12% 433,571 26% 13% 224,023 14% 12% 669,498 28.30% 16% 629,223 94% 16% 31,460 5% 12% 8,814 1% 5% 37,950 2% 4%
2,365,886

2017 1,851,738 70.13% 11.66% 552,685 30% 10% 558,213 30% 12% 489,936 26% 13% 250,905 14% 12% 749,220 28.37% 12% 704,730 94% 12% 35,235 5% 12% 9,255 1% 5% 39,468 1% 4%
2,640,427

2018 2,046,711 69.94% 10.53% 607,953 30% 10% 614,034 30% 10% 548,728 27% 12% 275,996 13% 10% 838,479 28.65% 12% 789,298 94% 12% 39,463 5% 12% 9,718 1% 5% 41,047 1% 4%
2,926,237

2019 2,262,356 69.75% 10.54% 668,748 30% 10% 675,437 30% 10% 614,575 27% 12% 303,596 13% 10% 938,416 28.93% 12% 884,013 94% 12% 44,199 5% 12% 10,204 1% 5% 42,689 1% 4%
3,243,461

2020 2,494,812 69.52% 10.27% 735,623 29% 10% 742,981 30% 10% 688,324 28% 12% 327,883 13% 8% 1,049,428 29.24% 12% 990,095 94% 12% 48,619 5% 10% 10,714 1% 5% 44,396 1% 4%
3,588,636

% Growth

32.82%

12.38%

22.93%

23.03%

22.15%

17.96%

16.49%

14.58%

13.05%

11.60%

10.82%

10.84%

10.64%

APPENDIX 6 SOURCES Dolby 10-Ks and 10-Qs www.dolby.com www.sec.gov Yahoo! Finance Google Finance www.investopedia.com www.ibisworld.com FactSet

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