What changed in this filing

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Item 1. Business

2020-11-16 compared with 2019-11-25 · 60 added, 59 removed, 151 unchanged (44% of the section changed)

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Founded in 1965, our strengths stem from expertise in analog and digital signal processing and digital compression technologies that have transformed the ability of artists to convey entertainment experiences to their audiences through recorded media.

Such technologies led to the development of our noise-reduction systems for analog tape recordings, and have since evolved into multiple offerings that enable more immersive sound for cinema, digital television transmissions and devices, mobile devices, OTT video services, DVD and Blu-ray Discs, speaker products, PCs, and gaming consoles.

Such technologies led to the development of our noise-reduction systems for analog tape recordings, and have since evolved into multiple offerings that enable more immersive sound for cinema, digital television transmissions and devices, mobile devices, OTT video and music services, and home entertainment devices.

Today, we derive the majority of our revenue from licensing our audio technologies.

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Finally, we provide products and services for a variety of applications in the cinema, broadcast, communications, and home entertainment markets.

Please refer to the Executive Summary section of Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations" for information concerning the continuing effect of COVID-19 on our business.

Key elements of our strategy include:

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Providing Creative Solutions.

We promote the use of our solutions as creative tools, and provide our products, services, and technologies to filmmakers, sound mixers, and other content creators and providers.

We promote the use of our solutions as creative tools, and provide our products, services, and technologies to filmmakers, musical artists, sound mixers, and other content creators and providers.

Our tools help showcase the quality and impact of their efforts and intent, which in turn may generate market demand.

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Fiscal Year Ended

September 27,

Revenue September 25,

2020 September 27,

2019 September 28,

Licensing 93% 89% 89%

Products and services 7% 11% 11%

Total 100% 100% 100%

We generate revenue from licensing arrangements with over 500 electronics product OEM and software developer licensees.

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As it relates to AAC, HE-AAC, AVC, and HEVC, we jointly participate in patent licensing programs with other patent owners.

An advanced digital audio codec solution with higher bandwidth efficiency used for a wide range of media applications.

A digital video codec with high bandwidth efficiency used in a wide range of media devices.

A next-generation digital audio coding technology that increases transmission efficiency while delivering new audio experiences, including Dolby Atmos, to a wide range of playback devices.

An object-oriented audio technology for cinema and a wide range of media devices that allows sound to be precisely placed and moved anywhere in the listening environment including the overhead dimension.

Technology Description

AAC & HE-AAC An advanced digital audio codec solution with higher bandwidth efficiency used for a wide range of media applications.

AVC A digital video codec with high bandwidth efficiency used in a wide range of media devices.

Dolby® AC-4 A next-generation digital audio coding technology that increases transmission efficiency while delivering new audio experiences, including Dolby Atmos, to a wide range of playback devices.

Dolby Atmos® An object-oriented audio technology for cinema and a wide range of media devices that allows sound to be precisely placed and moved anywhere in the listening environment including the overhead dimension.

Dolby Atmos is an immersive experience that can be provided via multiple Dolby audio coding technologies.

Dolby Digital®

A digital audio coding technology that provides multichannel sound to a variety of media applications.

Dolby Digital Plus™

An advanced digital audio coding technology that offers more efficient audio transmission for a wide range of media applications and devices.

Dolby® TrueHD

A digital audio coding technology providing lossless encoding for premium quality media applications.

Dolby Vision®

An imaging technology combining high dynamic range and dynamic metadata to deliver higher color contrast, brighter contrast, and improved details for cinema and a wide range of media devices.

An audio conferencing technology with superior spatial perception, voice clarity, and background noise reduction that emulates the in-person meeting experience.

A next-generation digital video codec with high bandwidth efficiency to support ultra-high definition experiences for a wide range of media devices.

Dolby Digital® A digital audio coding technology that provides multichannel sound to a variety of media applications.

Dolby Digital Plus™ An advanced digital audio coding technology that offers more efficient audio transmission for a wide range of media applications and devices.

Dolby® TrueHD A digital audio coding technology providing lossless encoding for premium quality media applications.

Dolby Vision® An imaging technology combining high dynamic range and dynamic metadata to deliver higher color contrast, brighter contrast, and improved details for cinema and a wide range of media devices.

Dolby Voice® An audio communications technology with superior spatial perception, voice clarity, and background noise reduction that emulates the in-person meeting experience.

HEVC A next-generation digital video codec with high bandwidth efficiency to support ultra-high definition experiences for a wide range of media devices.

The following table presents the composition of our licensing business and revenues for all periods presented:

Fiscal Year Ended

September 27,

Market September 25,

2020 September 27,

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2018 Main Offerings Incorporating Our Technologies

STBs & Televisions

Smartphones & Tablets

DMAs, Blu-ray Disc devices, AVRs, Soundbars, DVDs, & HTIBs

Windows and macOS operating systems

Gaming consoles, Auto DVD, Dolby Cinema, & Dolby Voice

Broadcast 41% 43% 41% Televisions & STBs

Mobile 21% 17% 16% Smartphones & Tablets

CE 14% 14% 15% DMAs, Blu-ray Disc devices, AVRs, Soundbars, DVDs, & HTIBs

PC 12% 10% 11% Windows and macOS operating systems

Other 12% 16% 17% Gaming consoles, Auto DVD, Dolby Cinema, & Dolby Voice

Total 100% 100% 100%

We have various licensing models:

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These licensees incorporate our technologies in their software used on PCs, in mobile applications, or in ICs they manufacture and incorporate into their products.

As with the two-tier licensing model, the combined implementation and system licensee pays us an initial licensing fee in addition to royalties as determined by the mix of Dolby technologies used, the nature of the implementations, and the volume of products using our technologies that are shipped, and is subject to the same quality control evaluation process.

implementations, and the volume of products using our technologies that are shipped, and is subject to the same quality control evaluation process.

Patent Licensing Model.

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The Via Licensing patent pools enable product manufacturers to efficiently and transparently secure patent licenses for audio coding, interactive television, digital radio, and wireless technologies.

We offer our patents related to AAC, AVC, HE-AAC, HEVC, and other IP through patent licensing.

Licensing revenue recognized in any given quarter may include previous quarters' revenue from licensees and or settlements with third parties.

Within the Results of Operations section of Item 7 " Management’s Discussion and Analysis of Financial Condition and Results of Operations, " previous quarters' revenue and settlements are collectively referred to as "recoveries." Such recoveries have become a recurring element of our business and are particularly subject to fluctuation and unpredictability.

We offer our patents related to AAC, AVC, HE-AAC, HEVC, and other IP through a combination of patent pools and licensing directly to OEMs.

Licensing revenue recognized in any given period may include revenue from licensees and/or settlements with third parties where the use of our technology occurred in previous periods.

Within the Results of Operations section of Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations, " revenue attributable to previous periods' usage including settlements are collectively referred to as "recoveries." Such recoveries have become a recurring element of our business and are particularly subject to fluctuation and unpredictability.

Collaboration Arrangements.

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We partner with exhibitors to deliver a premium cinema offering with Dolby Vision and Dolby Atmos at new and pre-existing venues.

We receive a share of revenue at Dolby Cinema sites through box office receipts at the installed theaters, which is recognized as licensing revenue.

In some instances, we also receive fixed or minimum amounts upfront, which are accounted for in our products and services revenue.

We receive revenue at Dolby Cinema sites through a share of box office receipts, which is recognized as licensing revenue.

We enter into arrangements with audio and video conferencing providers where, in return for licensing our IP and know-how, we earn revenue based on access to our technology and services.

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Distributed in over 90 countries, these products are used in content creation, distribution, and playback to enhance image and sound quality, and improve transmission and playback.

We also sell and/or lease hardware that facilitates the Dolby conferencing experience, including the Dolby Conference Phone for audio use only, and the Dolby Voice Room, our integrated solution that provides a video camera and a control hub integrated with the Dolby Conference Phone.

Additionally, some of our Dolby Cinema arrangements involve fixed or minimum amounts, which are typically included in products sales.

We offer various services to support theatrical and television production for cinema exhibition, broadcast, and home entertainment, including equipment training and maintenance, mixing room alignment, equalization, as well as audio, color, and light image calibration.

We had also sold or leased hardware that facilitates the Dolby conferencing experience.

As of the first quarter of fiscal 2021, we are winding down our conferencing hardware business and will focus our efforts towards software-based solutions, including through our developer platform.

Key products from which we generate products revenue are summarized in the table below:

Product Description

Cinema Cinema Imaging Products Digital Cinema Servers used to load, store, decrypt, decode, watermark, and playback digital film files for presentation on digital cinema projectors and software used to encrypt, encode, and package digital media files for distribution.

Cinema Audio Products Cinema Processors, amplifiers, and loudspeakers used to decode, render, and optimally playback digital cinema soundtracks including those using Dolby Atmos.

Other Dolby Conference Phone An integral hardware component of the Dolby Voice conferencing solution that enhances full-room voice capture, spatial voice separation, and playback.

Dolby Voice Room Video conferencing solution for huddle rooms and conference rooms that combines a camera product with the Dolby Conference Phone and Dolby Voice technology.

Other Products 3-D glasses and kits, broadcast hardware and software used to encode, transmit, and decode multiple channels of high-quality audio for DTV and HDTV distribution, monitors, and accessibility solutions for hearing and visually impaired consumers.

In addition, we offer various services to support theatrical and television production for cinema exhibition, broadcast, and home entertainment, including equipment training and maintenance, mixing room alignment, equalization, as well as audio, color, and light image calibration.

We also provide PCS for products sold and equipment installed at Dolby Cinema theaters operated by exhibitor partners and support the implementation of our technologies into products manufactured by our licensees.

Products and services revenue is derived primarily from sales of the following:

Cinema Imaging Products

Digital Cinema Servers used to load, store, decrypt, decode, watermark, and playback digital film files for presentation on digital cinema projectors and software used to encrypt, encode, and package digital media files for distribution.

Cinema Audio Products

Cinema Processors, amplifiers, and loudspeakers used to decode, render, and optimally playback digital cinema soundtracks including those using Dolby Atmos.

Dolby Conference Phone

An integral hardware component of the Dolby Voice conferencing solution that enhances full-room voice capture, spatial voice separation, and playback.

Dolby Voice Room

Video conferencing solution for huddle rooms and small conference rooms that combines a camera product with the Dolby Conference Phone and Dolby Voice technology.

Other Products

3-D glasses and kits, broadcast hardware and software used to encode, transmit, and decode multiple channels of high quality audio for DTV and HDTV distribution, monitors, and accessibility solutions for hearing and visually impaired consumers.

INTELLECTUAL PROPERTY

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As of September 25, 2020, we had approximately 13,200 issued patents and approximately 4,100 pending patent applications in more than 100 jurisdictions throughout the world.

Our currently issued patents expire at various times through August 2045 .

Our currently issued patents expire at various times through May 2045.

Some of our patents relating to DD technologies have expired, and others will expire over the next several years.

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Several Dolby technologies have been adopted as the explicit or de facto industry standard for broadcast, discrete media, and online delivery in various markets worldwide.

Explicit industry standards are adopted through a standardization process whereby government entities, industry standards-setting bodies, trade associations, and others evaluate and then prescribe the use of a

For example, as global broadcast standards for digital, HD, and UHD television have developed, Dolby audio technologies have been adopted or mandated in various regions of the world, highlights of which are as follows:

• DD+ and HE-AAC are mandated for use in terrestrial broadcast across many countries including France, Italy, the United Kingdom, Sweden, Germany, Poland, Turkey, and Russia.

In addition, DD+ and HE-AAC are included in the digital terrestrial television specifications of emerging digital TV markets in Africa, South-East Asia, and India while operators in China have selected DD and DD+ as optional technologies for transmissions using the country’s digital terrestrial television specification.

In addition, DD+ and HE-AAC are included in the digital terrestrial television specifications of emerging digital TV markets in Africa, Brazil, South-East Asia, and India while operators in China have selected DD and DD+ as optional technologies for transmissions using the country’s digital terrestrial television specification.

In mobile devices, HE-AAC is specified for various applications in the 3GPP suite of standards, and is a de facto audio standard in entertainment services.

• DD+ is the de facto technology used by a wide range of pay-TV operators and streaming services worldwide and is included in popular operating systems such as iOS and Windows.

It is also widely used by major OTT services such as Apple TV, Netflix, and Amazon, and is included in the specifications of these services.

It is also widely used by major OTT services such as Apple TV+, Disney+, Netflix, and Amazon, and is included in the specifications of these services.

• DD is mandated for HD broadcast in multiple regions including North America and South Korea, and for DVD players on a global basis.

• AC-4 is Dolby’s next generation of audio coding technology that has been adopted for implementation in certain regions by worldwide standards organizations including the DVB and ATSC.

AC-4 has also been adopted or proposed in forthcoming regional and country standards in North America and Europe.

AC-4 has also been adopted or proposed in forthcoming regional and country standards in North America, Europe, and Latin America.

The transition for AC-4 continues to gain momentum, and is already being supported in a number of TVs that are available worldwide from major manufacturers.

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This IP generates licensing revenue that enables us to fund and pursue further innovation.

For much of the Company's history, we focused the majority of our R&D resources on developing leading audio technologies for consumer entertainment that today comprises most of our revenue.

In recent years, we have expanded our efforts to identify and develop new technologies to include audio conferencing and imaging technologies.

The majority of our R&D resources are focused on developing leading audio and imaging technologies for consumer entertainment.

Each of these technologies can support many offerings, and we anticipate bringing new innovations to market in the future.

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however, we rely on sole source suppliers for certain components used to manufacture our products.

We source components and fabricated parts both locally and globally.

We source components and fabricated parts both domestically and internationally.

SALES AND MARKETING

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Users of our professional products and services include film studios, content creators, post-production facilities, cinema operators, broadcasters, and video game designers.

In fiscal 2019 , 2018 , and 2017 , we did not have any individual customers that accounted for more than 10% of our total revenue.

The entertainment and communications industries are highly competitive, and we face aggressive competition in all areas of our business.

Some of our current and future competitors may have significantly greater financial, technical, marketing, and other resources than we do, or may have more experience or advantages in the markets in which they compete.

For example, some of our current or potential competitors may have an advantage over us based on greater experience in certain technology markets.

In addition, some of our current or potential competitors may be able to offer integrated systems in certain markets for entertainment technologies, including audio, imaging, and digital rights management technologies, which could make competing technologies that we develop or acquire obsolete.

In addition, some of our current or potential competitors may be able to offer integrated systems in certain markets for entertainment technologies, including audio and imaging, which could make competing technologies that we develop or acquire obsolete.

By offering an integrated system solution, these potential competitors may also be able to offer competing technologies at lower prices than we can, which could adversely affect our operating results.

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• Quality and reliability of products and services;

Relationships with producers, directors, and distributors in the film industry, with television broadcast industry leaders, with OTT industry leaders, and with the management of semiconductor and consumer electronics OEMs;

• Relationships with producers, directors, and distributors in the film and television industry, with television broadcast industry leaders, with OTT industry leaders, and with the management of semiconductor and consumer electronics OEMs;

• Availability of compatible high quality audio and video content;

Certain foreign governments, particularly in China, have advanced arguments under their competition laws that exert downward pressure on royalties for IP, which can result in a competitive disadvantage.

Certain foreign governments, particularly in China, have advanced arguments under their competition laws that exert downward pressure on royalties for IP, which can impact the licensing fees that we are able to collect.

The regulatory enforcement activities in such jurisdictions can be unpredictable, in some cases because these jurisdictions have only recently implemented competition laws.

Our technologies, products, and services span the audio and imaging sectors of several distinct and diverse industries, including the broadcasting, mobile, consumer entertainment, personal computer, gaming, cinema, and communications industries.

The lack of a clear definition of the markets in which our products, services, and

technologies are sold or licensed, the nature of our technologies, their potential use for various commercial applications, and the diverse nature of and lack of detailed reporting by our competitors, make it impracticable to quantify our position.

As of September 27, 2019 , we had 2,193 employees worldwide, of which 964 employees were based outside of the U.S.

The lack of a clear definition of the markets in which our products, services, and technologies are sold or licensed, the nature of our technologies, their potential use for various commercial applications, and the diverse nature of and lack of detailed reporting by our competitors, make it impracticable to quantify our position.

HUMAN CAPITAL RESOURCES

As of September 25, 2020, we had 2,289 employees worldwide, of whom 1,037 employees were based outside of the U.S.

None of our employees are subject to a collective bargaining agreement.

Through our long operating history and experience with technological innovation, we appreciate the importance of retention, growth and development of our employees.

We believe we offer competitive compensation (including salary, incentive bonus, and equity) and benefits packages in each of our locations around the globe.

Further, from professional development opportunities to leadership training, we have development programs and on-demand opportunities to cultivate talent throughout the Company.

We are also focused on understanding our diversity and inclusion strengths and opportunities and executing on a strategy to support further progress.

We have created Employee Networks that are aligned around dimensions of diversity, such as gender, ethnicity, sexual orientation or other shared attributes, which we believe help build community and enable opportunities for development.

We continue to focus on building a pipeline for talent to create more opportunities for workplace diversity and to support greater representation within the Company.

CORPORATE AND AVAILABLE INFORMATION

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We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our SEC reports can be accessed through the Investor Relations section of our Internet website.

SEC reports can be accessed through the Investor Relations section of our Internet website.

The information found on our Internet website is not part of this or any other report we file with or furnish to the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business