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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-11-18 compared with 2021-11-17 · 230 added, 192 removed, 1302 unchanged (24% of the section changed)

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Interest Rate Sensitivity

As of September 24, 2021, we had cash and cash equivalents of $1,225.4 million, which consisted of cash and highly liquid money market funds.

As of September 30, 2022, we had cash and cash equivalents of $620.1 million, which consisted of cash and highly liquid money market funds and U.S.

agency securities.

In addition, we had both short and long-term investments of $291.7 million, which consisted primarily of corporate bonds, municipal debt securities, government bonds, commercial paper, U.S.

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Under the policy, we invest in highly rated securities with a minimum credit rating of A- while limiting the amount of credit exposure to any one issuer other than the U.S.

As of September 24, 2021, the weighted-average credit quality of our investment portfolio was AA, with a weighted-average maturity of approximately fourteen months.

As of September 30, 2022, the weighted-average credit quality of our investment portfolio was AA+, with a weighted-average maturity of approximately ten months.

We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments.

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dollar strengthens against the local currency.

Additionally, foreign exchange rate fluctuations on transactions denominated in currencies other than the functional currency result in gains or losses that are reflected in our consolidated statements of operations.

Additionally, foreign exchange rate fluctuations on transactions denominated in currencies

other than the functional currency result in gains or losses that are reflected in our consolidated statements of operations.

Our foreign operations are subject to the same risks present when conducting business internationally, including, but not limited to, changes in economic conditions and geopolitical climate, differing tax structures, foreign exchange rate volatility and other regulations and restrictions.

We also enter into forward currency contracts exclusively designated as cash flow hedges, which have a maturity of thirteen months or less, to reduce the impact of currency volatility on U.S.

dollar operating expenses and margins.

dollar operating expenses.

The gains and losses from the effective portions of cash flow hedges are recorded at fair value as a component of AOCI, until the hedged item is subsequently reclassified into earnings in the same period in which the hedged transaction affects earnings, with the corresponding hedged item.

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The pre-tax loss attributed to the effective portion of cash flow hedges recognized in AOCI was $2.6 million in fiscal 2022.

The pre-tax gain attributed to the effective portion of cash flow hedges recognized in AOCI was $5.3 million in fiscal 2020.

The pre-tax effective portion of the gain reclassified to the consolidated statements of operations was $9.0 million in fiscal 2021, and the pre-tax effective portion of the loss reclassified to the consolidated statements of operations was $0.9 million in fiscal 2020.

The pre-tax loss attributed to the effective portion of cash flow hedges recognized in AOCI was $12.7 million in fiscal 2021.

The pre-tax effective portion of the loss reclassified to the consolidated statements of operations was $2.1 million in fiscal 2022, and the pre-tax effective portion of the gain reclassified to the consolidated statements of operations was $9.0 million in fiscal 2021.

We also enter into foreign currency forward contracts to hedge against assets and liabilities for which we have foreign currency exchange rate exposure and selected anticipated expenses.

The contracts hedging receivables and payables are carried at fair value with changes in the fair value recorded to other income, net, in our consolidated statements of operations.

The contracts hedging receivables and payables are carried at fair value with changes in the fair value recorded to other income/(expense), net, in our consolidated statements of operations.

The contracts hedging foreign currency denominated operating expenses are carried at fair value with changes in the fair value recorded to other comprehensive income until the hedged expenses are reported in our consolidated statements of operations.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Net income including controlling interest 183,898 317,823 231,619

net income attributable to controlling interest ( 7,596 ) ( 256 ) ( 354 )

net (income)/loss attributable to controlling interest 189 ( 7,596 ) ( 256 )

Net income attributable to Dolby Laboratories, Inc.

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Diluted 101,983 104,622 102,944

Related party rent expense and restructuring charges:

Related party rent expense:

Included in operating expenses $ — $ ( 392 ) $ 126

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Other comprehensive income:

Currency translation adjustments, net of tax benefit/(expense) of ($ 501 ), $ 22 , and ($ 439 )

Currency translation adjustments gains/(losses), net of tax benefit/(expense) of ($ 245 ), ($ 501 ), and $ 22

( 31,586 ) 5,510 7,552

Unrealized gains/(losses) on investments, net of tax benefit/(expense) of $ 108 , ($ 926 ), and $ 58

Unrealized losses on investments, net of tax benefit/(expense) of $ 50 , $ 108 , and ($ 926 )

( 6,206 ) ( 598 ) ( 1,380 )

Unrealized gains/(losses) on cash flow hedges, net of tax expense of ($ 419 ), ($ 407 ), and $ 0

Unrealized gains/(losses) on cash flow hedges, net of tax benefit/(expense) of $ 324 , ($ 419 ), and ($ 407 )

( 4,361 ) ( 4,091 ) 3,969

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Total comprehensive income 141,745 318,644 241,760

comprehensive income attributable to controlling interest ( 7,853 ) ( 366 ) ( 127 )

comprehensive (income)/loss attributable to controlling interest 731 ( 7,853 ) ( 366 )

Comprehensive income attributable to Dolby Laboratories, Inc.

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Net income — — — — — 231,363 — 231,363 256 231,619

Other comprehensive loss, net of tax — — — — — — ( 4,793 ) ( 4,793 ) ( 227 ) ( 5,020 )

Other comprehensive income, net of tax — — — — — — 10,031 10,031 110 10,141

Distributions to controlling interest — — — — — — — — ( 283 ) ( 283 )

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Net income — — — — — 184,087 — 184,087 ( 189 ) 183,898

Other comprehensive income, net of tax — — — — — — 564 564 257 821

Other comprehensive loss, net of tax — — — — — — ( 41,611 ) ( 41,611 ) ( 542 ) ( 42,153 )

Distributions to controlling interest — — — — — — — — ( 1,435 ) ( 1,435 )

Stock-based compensation expense — — — — 114,925 — — 114,925 — 114,925

Capitalized stock-based compensation expense — — — — 746 — — 746 — 746

Repurchase of common stock ( 7,003 ) ( 7 ) — — ( 137,100 ) ( 393,379 ) — ( 530,486 ) — ( 530,486 )

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Common stock transfers - Class B to Class A 1 — ( 1 ) — — — — — — —

Deconsolidation of subsidiary — — — — — ( 820 ) — ( 820 ) 750 ( 70 )

Balance at September 24, 2021 59,799 $ 53 36,086 $ 41 $ — $ 2,297,730 $ ( 51,641 ) $ 2,246,183 $ 4,837 $ 2,251,020

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Accounts receivable, net ( 14,314 ) ( 49,034 ) 1,251

Contract assets ( 21,154 ) 34,297 ( 29,708 )

Contract assets, net 6,300 ( 21,154 ) 34,297

Inventories ( 11,759 ) 17,154 ( 11,784 )

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Investing activities:

Purchases of investment securities ( 67,101 ) ( 287,777 ) ( 265,361 )

Proceeds from sales of investment securities 10,892 244,517 200,636

Proceeds from maturities of investment securities 53,893 246,621 136,951

Purchases of marketable securities ( 311,313 ) ( 67,101 ) ( 287,777 )

Proceeds from sales of marketable securities 9,459 10,892 244,517

Proceeds from maturities of marketable securities 108,546 53,893 246,621

Purchases of property, plant, and equipment ( 47,928 ) ( 54,454 ) ( 66,347 )

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Payments for business combinations, net of cash acquired ( 38,171 ) ( 4,500 ) —

Purchase of intangible assets — ( 2,640 ) ( 17,255 )

Purchases of intangible assets ( 11,528 ) — ( 2,640 )

Purchases of other investments ( 5,000 ) — —

Net cash provided by/(used in) investing activities ( 295,935 ) ( 44,905 ) 134,374

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These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices.

Our estimates of royalty-based revenue also take into consideration the macroeconomic effect of global events, such as the COVID-19 pandemic or other natural disasters which may impact our licensees' supply chain activities as well as demand for shipments.

Our estimates of royalty-based revenue also take into consideration the macroeconomic effect of global events that may impact our licensees' supply chain activities as well as demand for shipments.

Additional significant items subject to such estimates and assumptions include ESPs for performance obligations within revenue arrangements;

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fair values of investments;

accrued liabilities including liabilities for unrecognized tax benefits, deferred income tax assets and liabilities, and stock-based compensation.

accrued liabilities including unrecognized tax benefits, deferred income tax assets and liabilities, and contingent liabilities:

and stock-based compensation.

Actual results could differ from our estimates.

Our fiscal year is a 52 or 53 week period ending on the last Friday in September.

The fiscal years presented herein include the 52 week periods ended September 24, 2021 (fiscal 2021), September 25, 2020 (fiscal 2020), and September 27, 2019 (fiscal 2019).

The fiscal years presented herein include the 53 week period ended September 30, 2022 (fiscal 2022), and the 52 week periods ended September 24, 2021 (fiscal 2021) and September 25, 2020 (fiscal 2020).

Our fiscal year ending September 29, 2023 (fiscal 2023) will consist of 52 weeks.

Reclassifications

We have reclassified certain prior period amounts within our consolidated financial statements and accompanying notes to conform to our current period presentation.

These reclassifications did not affect total revenue, operating income, operating cash flows or net income.

Summary of Significant Accounting Policies

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We manage this risk by performing regular evaluations of the creditworthiness of our licensing customers.

In fiscal 2021, 2020, and 2019, we did not have any individual customers whose revenue exceeded 10% of our total revenue.

In fiscal 2022, revenue from one individual customer accounted for 10% of our total revenue.

For fiscal 2021 and 2020, we did not have any individual customers whose revenue exceeded 10% of our total revenue.

Cash and Cash Equivalents

We consider all short-term highly liquid investments with original maturities of 90 days or less from the date of purchase to be cash equivalents.

Cash and cash equivalents primarily consist of funds held in general checking accounts, money market accounts, commercial paper, and government bonds.

Cash and cash equivalents primarily consist of funds held in general checking accounts, money market accounts, and U.S.

agency securities.

Restricted Cash

Restricted cash on our consolidated balance sheets consists of cash contributed by Dolby and third-party licensors to Via, our wholly-owned subsidiary, that may only be used for licensor enforcement actions or licensee compliance activities related to certain Via-administered patent pools, as well as to disperse costs associated with any audit of Via for the Wideband Code Division Multiple Access (W-CDMA) patent pool .

All of our investments are classified as AFS, with the exception of our mutual fund investments held in our supplemental executive retirement plan, which are classified as trading securities.

All of our investments are classified as AFS, with the exception of our mutual fund investments held in our SERP, which are classified as trading securities, and our equity securities.

Investments that have an original maturity of 91 days or more at the date of purchase and a current maturity of less than one year are classified as short-term investments, while investments with a current maturity of more than one year are classified as long-term investments.

Our investments are recorded at fair value in our consolidated balance sheets.

Unrealized gains and losses on our AFS securities are reported as a component of AOCI, while realized gains and losses, other-than-temporary impairments, and credit losses are reported as a component of net income.

Our AFS securities and trading securities are recorded at fair value in our consolidated balance sheets.

Unrealized gains and losses on our AFS securities are reported as a component of AOCI, while realized gains and losses and credit losses are reported as a component of net income.

Upon sale, gains and losses are reclassified from AOCI into earnings, and are determined based on specific identification of securities sold.

We evaluate our investment portfolio for credit losses and other-than-temporary impairments by comparing the fair value with the cost basis for each of our investment securities.

An investment is impaired if the fair value is less than its cost basis.

If any portion of the impairment is deemed to be the result of a credit loss, the credit loss portion of the impairment is included as a component of net income.

If we deem it probable that we will not recover the full cost basis of the security, the security is other-than-temporarily impaired, and the impairment loss is recognized as a component of net income.

We evaluate our investment portfolio for impairment by comparing the fair value with the cost basis for each of our investment securities.

If the fair value of our AFS securities is less than amortized cost, such securities are considered impaired.

If we have the intent to sell the debt security, or if it is more likely than not that we will be required to sell the debt security before recovery of its amortized cost, the difference between the amortized cost (net of allowance, if any) and the fair value of the securities is reported as an impairment loss in net income.

Impaired AFS securities that we intend to hold are evaluated to determine whether we need to recognize an allowance for credit losses, limited to the difference between the fair value and amortized cost of the security.

Equity Securities

Equity securities for which we possess the ability to exercise significant influence, but not control, over operating and financing decisions are accounted for under the equity method.

In applying the equity method, we record the investment at cost and subsequently increase or decrease the carrying amount by our proportionate share of the investee's net earnings or losses.

We record dividends or other equity distributions as reductions in the carrying value of the investment.

Our share of the equity method investee's net income or loss is included in other income/(expense), net in the consolidated statements of operations, and was $ 5.0 million, $ 4.7 million, and $ 2.4 million in fiscal 2022, fiscal 2021, and fiscal 2020, respectively.

Our equity method investment is included within long-term investments in our consolidated balance sheets.

We also hold an investment in an equity security of a privately-held company without a readily determinable fair value.

We elected to account for this investment using the measurement alternative, which is cost, less any impairment, adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer.

We perform a qualitative assessment at each reporting date to determine whether there are triggering events for impairment.

This equity security is included within long-term investments in our consolidated balance sheets.

Allowance for Credit Losses

We maintain a provision for estimated credit losses on receivables resulting from our customers' inability to make required payments.

In determining the provision, we pool receivables with similar risk characteristics to evaluate the collectability of our accounts receivable.

Risk characteristics considered in creating these risk pools include assessing historical or expected loss patterns, credit ratings, current economic conditions that could impact collectability of cash flows (such as the macroeconomic effects of COVID-19), and structure of customer agreements.

In determining the provision, we pool receivables with similar risk characteristics to evaluate the collectability of our receivables.

Risk characteristics considered in creating these risk pools include assessing historical or expected loss patterns, credit ratings, current macroeconomic conditions that could impact collectability of cash flows, and structure of customer agreements.

In cases where circumstances have changed such that specific customers no longer share similar risk characteristics, customers are excluded from their current pool and their risk profiles are evaluated separately.

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Our evaluation includes the analysis of future sales demand by product within specific time horizons.

Inventories in excess of projected future demand are written down to their net realizable value.

Inventories in excess

of projected future demand are written down to their net realizable value.

In addition, we assess the impact of changing technology on our inventory balances and write-off inventories that are considered obsolete.

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Buildings and building improvements 20 to 40 years

We may encounter scenarios where assets we acquire may deviate from the established standard useful life provided above.

Such occurrences are evaluated on a case by case basis, and are assigned a useful life commensurate with the facts and circumstances associated with the specific PP&E being acquired.

We capitalize certain costs incurred during the construction phase of a project or asset into construction-in-progress until the construction process is complete.

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Equipment Provided Under Operating Leases.

In arrangements that we assess as operating leases, we recognize our cinema equipment installed at third-party sites as a fixed asset and depreciate the asset on a straight-line basis.

In arrangements that we assess as operating leases, we recognize our equipment installed at third-party sites as a fixed asset and depreciate the asset on a straight-line basis.

Internal Use Software.

We account for the costs of computer software developed for internal use by capitalizing costs of materials and external consultants.

These costs are included in PP&E, net of accumulated amortization in our consolidated balance sheets.

Our capitalized internal use software costs are typically amortized on a straight-line basis over estimated useful lives of three to five years .

We capitalize qualifying internal-use software development costs, consisting primarily of external and internal labor, including stock based compensation, incurred during the application development stage.

Costs incurred during the preliminary project and post-implementation stages are charged to expense.

Capitalized costs are included in PP&E, net of accumulated amortization in our consolidated balance sheets.

Our capitalized internal use software costs are amortized on a straight-line basis over estimated useful lives of three years, unless another systematic and rational basis is more representative of the software’s useful life.

Goodwill, Intangible Assets, and Long-Lived Assets

We perform an assessment of goodwill for potential impairment annually during our third fiscal quarter and whenever events or changes in circumstances indicate that the carrying amount may be impaired.

We perform a qualitative assessment as a determinant for whether the annual goodwill impairment test should be performed.

For fiscal 2021, we completed our annual goodwill impairment assessment in the fiscal quarter ended June 25, 2021.

We determined in our qualitative review that it is more likely than not that the fair value of our reporting unit is substantially in excess of the respective carrying amount.

Accordingly, there was no impairment, and the goodwill impairment test was not required.

We perform an assessment of goodwill for potential impairment annually during our third fiscal quarter or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

For our annual goodwill test as of the fiscal quarter ended July 1, 2022, a qualitative assessment was performed and we concluded that it was more likely than not that its fair value was in excess of its carrying amount.

Accordingly, no quantitative assessment was performed and no impairment was recorded.

We did not incur any goodwill impairment losses in any of the periods presented.

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As of September 30, 2022 and September 24, 2021, the outstanding derivative instruments had maturities of equal to or less than 31 days and 38 days, respectively, and the total notional amounts of outstanding contracts were $ 56.6 million and $ 35.3 million, respectively.

The fair values of these contracts are included within prepaid expenses and other current assets and within accrued liabilities in our consolidated balance sheets.

The fair values of these contracts

are included within prepaid expenses and other current assets and within accrued liabilities in our consolidated balance sheets.

Cash Flow Hedges.

We also enter into forward currency contracts exclusively designated as cash flow hedges, which have a maturity of thirteen months or less, to reduce the impact of currency volatility on U.S.

dollar operating expenses and margins.

dollar operating expenses.

As of September 30, 2022 and September 24, 2021, the outstanding derivative instruments had maturities of equal to or less than 12 months and 3 months, respectively, and the total notional amounts of outstanding contracts were $ 74.1 million and $ 15.7 million, respectively.

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The pre-tax loss attributed to the effective portion of cash flow hedges recognized in AOCI was $ 2.6 million in fiscal 2022.

The pre-tax gain attributed to the effective portion of cash flow hedges recognized in AOCI was $ 5.3 million in fiscal 2020.

The pre-tax effective portion of the gain reclassified to the consolidated statements of operations was $ 9.0 million in fiscal 2021, and the pre-tax effective portion of the loss reclassified to the consolidated statements of operations was $ 0.9 million in fiscal 2020.

The pre-tax loss attributed to the effective portion of cash flow hedges recognized in AOCI was $ 12.7 million in fiscal 2021.

The pre-tax effective portion of the loss reclassified to the consolidated statements of operations was $ 2.1 million in fiscal 2022, and the pre-tax effective portion of the gain reclassified to the consolidated statements of operations was $ 9.0 million in fiscal 2021.

We use the asset and liability method, under which deferred income tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax bases of assets and liabilities, and NOL carryforwards are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed.

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The Tax Act provides an exemption from federal income taxes for distributions by foreign subsidiaries made after December 31, 2017 that were not subject to the Transition Tax.

Therefore, we have provided for U.S.

state income taxes and foreign withholding taxes on undistributed earnings of certain foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries.

We consider the earnings of certain foreign subsidiaries to be indefinitely reinvested outside the U.S.

state income taxes and foreign withholding taxes on undistributed earnings of certain foreign subsidiaries, that are no longer considered to be indefinitely reinvested, are not material.

We consider the earnings of certain other foreign subsidiaries to be indefinitely reinvested outside the U.S.

on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs, and our specific plans for reinvestment of those subsidiary earnings.

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Adopted Standards

Collaborative Arrangements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 , which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer.

In addition, ASU 2018-18 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction.

We adopted this standard in the first quarter of fiscal 2021 and it did not have a material impact on our consolidated financial statements.

Financial Instruments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326):

Measurement of Credit Losses on Financial Instruments , which modifies the measurement of expected credit losses of certain financial instruments, including trade receivables, contract assets, and lease receivables.

provides guidance regarding methodologies and disclosures for expected credit losses on financial instruments, resulting in immediate recognition of estimated credit losses over the remaining life of financial assets at initiation or purchase date.

We adopted this standard in the first quarter of fiscal 2021, using the modified retrospective method.

The adoption of this standard did not have a material impact on our consolidated financial statements.

Standards Not Yet Adopted

Income Taxes.

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Simplifying the Accounting for Income Taxes , which modifies and eliminates certain exceptions to the general principles of ASC 740, Income Taxes.

This standard is effective for Dolby beginning September 25, 2021.

We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

We adopted this standard in the first quarter of fiscal 2022, and it did not have a material impact on our consolidated financial statements.

Standards Not Yet Adopted

Business Combinations.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

A ccounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by an acquirer in accordance with ASC 606, Revenue from Contracts with Customers .

Currently, we recognize acquired contract assets and contract liabilities at fair value as of the acquisition date, in accordance with ASC 805.

This standard will be effective for Dolby beginning September 30, 2023 on a prospective basis, but early adoption is permitted.

We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.

Revenue Recognition

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

We also offer a developer platform, Dolby.io, that enables developers to access our technologies through audio and video APIs for building high-quality communications, media, and streaming solutions.

We provide PCS for products sold and for equipment leased, and we support the implementation of our licensing technologies in our licensees’ products.

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The majority of our arrangements with multiple performance obligations pertain to our digital cinema server and processor sales that include the following distinct performance obligations to which we allocate portions of the transaction price based on their stand-alone selling price:

• Digital cinema server hardware and embedded software, which is highly dependent on and highly interrelated with the hardware.

• Digital cinema server hardware and embedded software, which is dependent on and interrelated with the hardware.

Accordingly, the hardware and embedded software represent a single performance obligation.

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We apply the royalty exception, which requires that we recognize sales-based royalties when the sales occur based on our estimates.

These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the

percentage of markets using our technologies, and average sale prices.

Generally, our estimates represent the current period’s shipments to which we expect our licensees to submit royalty statements in the following quarter.

Upon receipt of royalty statements from the licensees with the actual reporting of sales-based royalties that we estimated previously, we record a favorable or unfavorable adjustment based on the difference, if any, between estimated and actual sales.

In the first quarter of fiscal 2021, we recorded a favorable adjustment of approximately $ 21 million, which was primarily related to shipments that occurred in our fourth quarter of fiscal 2020 (July through September) and largely based on actual royalty statements received from licensees.

In the second, third, and fourth quarters of fiscal 2021, we recorded favorable adjustments of $ 16 million, $ 14 million, and $ 3 million, respectively, each primarily related to shipments that occurred in the preceding fiscal quarter, and largely based on actual royalty statements received from licensees.

estimated and actual sales.

In the first quarter of fiscal 2022, we recorded an unfavorable adjustment of approximately $ 6 million, which was primarily related to shipments that occurred in our fourth quarter of fiscal 2021 (July through September) and largely based on actual royalty statements received from licensees.

In the second quarter of fiscal 2022, we recorded an unfavorable adjustment of $ 3 million, and in the third and fourth quarter of fiscal 2022, we recorded a favorable adjustment of $ 3 million and $ 3 million, respectively, each primarily related to shipments that occurred in the preceding fiscal quarter, and largely based on actual royalty statements received from licensees.

Fixed and guaranteed licensing fees.

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Cloud Services.

We provide access to media processing and interactivity APIs through our developer platform as well as cloud encoding services, generally, on either a consumption or subscription basis.

We provide access to audio and video APIs through our developer platform as well as cloud encoding services, generally, on either a consumption or subscription basis.

Revenue related to cloud services provided on a consumption basis is recognized when the customer utilizes the services, based on the quantity of services consumed.

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The use of our product solution meets the definition of a lease, and for the related portion of Dolby's share of revenue, we apply ASC 842, Leases , and recognize revenue based on monthly box office reports from exhibitors.

Our revenue share is recognized as licensing revenue in our

consolidated statements of operations.

Our revenue share is recognized as licensing revenue in our consolidated statements of operations.

In addition, we also enter into hybrid agreements where a portion of our revenue share involves guaranteed payments, which in some cases result in classifying the arrangement as a sales-type lease.

In such arrangements, we consider control to transfer at the point in time to which we have installed and tested the equipment, at which point we record such guaranteed payments as product revenue.

In such arrangements, we

consider control to transfer at the point in time to which we have installed and tested the equipment, at which point we record such guaranteed payments as product revenue.

Via Administration Fee.

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Disaggregation of revenue

The following table presents a summary of the composition of our revenue for all periods presented:

The following table presents a summary of the composition of our revenue for all periods presented (in thousands, except percentage amounts):

Fiscal Year Ended

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Total revenue $ 1,253,793 100 % $ 1,281,256 100 % $ 1,161,792 100 %

The following table presents the composition of our licensing revenue for all periods presented:

The following table presents the composition of our licensing revenue for all periods presented (in thousands, except percentage amounts):

Fiscal Year Ended

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We license our technologies in approximately 70 countries, and our licensees distribute products that incorporate our technologies throughout the world.

As shown in the table below, we generate the majority of our revenue from outside the U.S.

We generate the majority of our revenue from outside the U.S.

Geographic data for our licensing revenue is based on the location of our licensees’ headquarters, products revenue is based on the destination to which we ship our products, and services revenue is based on the location where services are performed.

The following table presents the composition of our revenue by geographic location for all periods presented (in thousands, except percentage amounts):

Fiscal Year Ended

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These estimates reflect our best judgment at that time, and are developed using a number of inputs, including historical data, industry estimates of expected shipments, anticipated sales price and performance, and third-party data supporting the percentage of markets using our technologies.

In the event that our estimates differ from actual amounts reported, we record an

adjustment in the quarter in which the royalty statement is received which is typically the quarter following our estimate.

In the event that our estimates differ from actual amounts reported, we record an adjustment in the quarter in which the royalty statement is received, which is typically the quarter following our

Actual amounts reported are typically paid within 60 days following the end of the quarter of shipment.

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We present the net contract asset or liability when we have both contract assets and contract liabilities for a single contract.

In fiscal year 2021, we recognized $ 14.0 million from prior period deferred revenue.

The following table presents a summary of the balances to which contract assets and liabilities related to revenue are recorded for all periods presented:

In fiscal 2022, we recognized $ 16.8 million from prior period deferred revenue.

The following table presents a summary of the balances to which contract assets and liabilities related to revenue are recorded for all periods presented (in thousands, except percentage amounts):

September 30, 2022 September 24, 2021 Change ($) Change (%)

Accounts receivable, net $ 243,593 $ 232,609 $ 10,984 5 %

Contract assets 182,316 161,357 20,959 13 %

Contract assets, net 176,093 182,316 ( 6,223 ) ( 3 ) %

Contract liabilities - current 18,588 18,473 115 1 %

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Composition of Certain Financial Statement Captions

The following tables present detailed information from our consolidated balance sheets as of September 24, 2021 and September 25, 2020 (amounts displayed in thousands).

The following tables present detailed information from our consolidated balance sheets as of September 30, 2022 and September 24, 2021 (in thousands).

Accounts Receivable and Contract Assets

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Contract assets 176,218 182,524

Accounts receivable, gross and contract assets, gross 423,877 357,605

allowance for credit losses ( 8,952 ) ( 15,908 )

Accounts receivable and contract assets, gross 431,645 423,877

allowance for credit losses on accounts receivable and contract assets ( 11,959 ) ( 8,952 )

Total accounts receivable and contract assets, net $ 419,686 $ 414,925

Accounts receivable, gross includes unbilled accounts receivable balances of $ 97.5 million and $ 62.1 million as of September 24, 2021 and September 25, 2020, respectively, related to amounts that are contractually owed.

Trade accounts receivable of $ 162.5 million includes unbilled accounts receivable balances of $ 106.9 million and $ 97.5 million as of September 30, 2022 and September 24, 2021, respectively, related to amounts that are contractually owed.

The unbilled balance represents our unconditional right to consideration related to fixed fee contracts which we are entitled to as a result of satisfying, or partially satisfying, performance obligations, as well as Via's unconditional right to consideration related to their patent administration programs.

Allowance for Credit Losses Beginning Balance Charges/(Credits)

to G&A Deductions Ending Balance

to S&M and G&A Additions/(Deductions) Ending Balance

For fiscal year ended:

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September 30, 2022 8,952 5,460 ( 7 ) 14,405

Allowance for credit losses includes the provision for estimated credit losses on our sales-type leases, which was not material as of September 30, 2022 and as of September 24, 2021.

September 30,

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Inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our consolidated balance sheets.

We have included $ 1.9 million and $ 2.6 million of raw materials inventory within non-current assets as of September 24, 2021 and September 25, 2020, respectively.

Based on anticipated inventory consumption rates, and

aside from existing write-downs due to excess inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.

We have included $ 2.8 million and $ 1.9 million of raw materials inventory within non-current assets as of

September 30, 2022 and September 24, 2021, respectively.

Based on anticipated inventory consumption rates, and aside from existing write-downs due to excess inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.

Prepaid Expenses And Other Current Assets

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Total prepaid expenses and other current assets $ 50,075 $ 62,737

In fiscal year 2019, management committed to a plan to sell a property, which included land and a building , after the lease on the property expired and we re-assessed the real estate needs of our business .

This property was previously classified as held for sale and was included in other current assets on the consolidated balance sheets, with a carrying value of $ 2.2 million as of September 25, 2020.

In the first quarter of fiscal 2021, we finalized the sale on this property, and as a result, we realized a gain of $ 13.9 million, which was recorded to gain on sale of assets on the consolidated statements of operations.

The property was 51% owned by the controlling interest, therefore 51% of the gain realized in gain on sale of assets has been attributed to the controlling interest.

Accrued Liabilities

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We use cash holdings to purchase investment grade securities diversified among security types, industries, and issuers.

All of our investment securities are measured at fair value, and are recorded within cash equivalents and both short-term and long-term investments in our consolidated balance sheets.

With the exception of our mutual fund investments held in our SERP and classified as trading securities, all of our investments are classified as AFS securities.

Derivative contracts are used to hedge currency risk, these are carried at fair value and classified as other assets and other liabilities.

Our investment securities primarily consist of corporate bonds, municipal debt securities, government bonds, commercial paper, U.S.

agency securities, and certificates of deposit.

In addition, our cash and cash equivalents also consist of highly-liquid money market funds.

All of our investments in debt securities are measured at fair value, and are recorded within cash equivalents and both short-term and long-term investments in our consolidated balance sheets.

With the exception of our mutual fund investments held in our SERP and classified as trading securities and our other long-term investments, all of our investments are classified as AFS securities.

Derivative contracts are used to hedge currency risk, and these are carried at fair value and classified as other assets and other liabilities.

Our investment in debt securities primarily consist of corporate bonds, government bonds, municipal debt securities, certificates of deposit, commercial paper, and U.S.

agency securities.

In addition, our cash and cash equivalents also consist of highly-liquid money market funds and U.S.

agency securities.

Consistent with our investment policy, none of our municipal debt investments are supported by letters of credit or standby purchase agreements.

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Money market funds 134,987 — — 134,987 134,987 — —

agency securities 10,328 — (1) 10,327 — 10,327 —

Cash and cash equivalents 620,128 — ( 1 ) 620,127 609,800 10,327 —

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Municipal debt securities 21,483 — ( 626 ) 20,857 — 20,857 —

Other long-term investments (1) 6,456 — — 6,456 — — —

Other investments (1)

10,902 — — 10,902 — — —

Long-term investments 106,746 4 ( 4,236 ) 102,514 38,055 53,557 —

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Currency derivatives as hedge instruments:

Included in other current assets $ — $ 689 $ — $ 689 $ — $ 689 $ —

Included in other accrued liabilities $ — $ — $ ( 4,882 ) $ ( 4,882 ) $ — $ ( 4,882 ) $ —

(1) Other long-term investments as of September 24, 2021 is comprised of one equity method investment which is not carried at fair value of $ 6.5 million.

Included in other non-current liabilities — — ( 420 ) ( 420 ) — ( 420 ) —

(1) Other investments as of September 30, 2022 is comprised of an equity method investment of $ 5.9 million and an equity security without a readily determinable fair value of $ 5.0 million.

September 24, 2021

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Cash equivalents:

Commercial paper 900 — — 900 — 900 —

Money market funds 235,198 — — 235,198 235,198 — —

Government bonds 125 — — 125 125 — —

Cash and cash equivalents 1,225,380 — — 1,225,380 1,225,380 — —

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Municipal debt securities 10,080 58 ( 8 ) 10,130 — 10,130 —

Other long-term investments (1) 4,176 — — 4,176 — — —

Other investments (1)

6,456 — — 6,456 — — —

Long-term investments 62,700 170 ( 51 ) 62,819 4,966 51,397 —

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Included in other current assets $ — $ 689 $ — $ 689 $ — $ 689 $ —

included in other non-current assets — 369 — 369 — 369 —

Included in other accrued liabilities — — ( 197 ) ( 197 ) — ( 197 ) —

(1) Other long-term investments as of September 25, 2020 is comprised of one equity method investment which is not carried at fair value of $ 4.7 million.

(1) Other investments as of September 24, 2021 is comprised of one equity method investment.

Fair Value Hierarchy.

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To validate the fair value determination provided by our primary pricing service, we perform quality controls over values received which include comparing our pricing service provider’s assessment of the fair values of our investment securities against the fair values of our investment securities obtained from another independent source, reviewing the pricing movement in the context of overall market trends, and reviewing trading information from our investment managers.

In addition, we assess the inputs and methods used in determining the fair value in order to determine the classification of securities

in the fair value hierarchy.

In addition, we assess the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The fair value of the currency derivatives are calculated from market spot rates, forward rates, interest rates, and credit ratings at the end of the period.

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Securities In Gross Unrealized Loss Position.

We periodically evaluate our investments for other-than-temporary declines in fair value.

We periodically evaluate our investments for impairment by comparing the fair value with the cost basis for each of our investment securities.

The unrealized losses on our AFS securities were primarily the result of unfavorable changes in interest rates subsequent to the initial purchase of these securities.

The following table presents the gross unrealized losses and fair value for those AFS securities that were in an unrealized loss position for less than twelve months as of September 24, 2021 and September 25, 2020 (in thousands):

The following table presents the gross unrealized losses and fair value for those AFS securities that were in an unrealized loss position for less than twelve months and for greater than twelve months as of September 30, 2022 and September 24, 2021 (in thousands):

September 30, 2022 September 24, 2021

Less Than 12 Months Less Than 12 Months

Investment Type Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

Less Than 12 Months Greater Than 12 Months Less Than 12 Months

Investment Type Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

Certificate of deposit $ 10,352 $ ( 47 ) $ — $ — $ 600 $ —

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Government bonds 89,741 ( 2,593 ) 8,566 ( 332 ) 8,940 ( 16 )

Commercial paper 5,770 ( 15 ) — — — —

Corporate bonds 81,044 ( 1,523 ) 18,306 ( 561 ) 22,964 ( 25 )

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Total $ 240,170 $ ( 4,895 ) $ 31,603 $ ( 1,104 ) $ 40,984 $ ( 52 )

As of September 24, 2021 and September 25, 2020, there were no gross unrealized losses and no AFS securities that were in an unrealized loss position for twelve months or greater.

Although we had certain securities that were in an unrealized loss position for less than twelve months as of September 24, 2021, we expect to recover the full carrying value of these securities.

As of September 24, 2021, there were no AFS securities that were in an unrealized loss position for twelve months or greater.

Although we had certain securities that were in an unrealized loss position as of September 30, 2022 and September 24, 2021, we expect to recover the full carrying value of these securities.

Investment Maturities.

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2022 September 24,

2021 September 25,

Operating lease cost $ 17,260 $ 19,261 $ 23,570

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Total lease cost $ 18,820 $ 20,016 $ 24,745

Total rent expense incurred under operating leases, including the portion of total rent expense which is payable to our principal stockholder, was $ 20.6 million in fiscal 2019.

Supplemental cash flow information related to leases was as follows (in thousands):

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2022 September 24,

2021 September 25,

Other information

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Total lease liabilities $ 50,942

As a lessor, we lease our Dolby Cinema product solution to exhibitors, Dolby Voice equipment to cloud conferencing service providers, and lease or sublease real estate properties.

As a lessor, we lease our Dolby Cinema product solution to exhibitors and Dolby Voice equipment to cloud conferencing service providers.

The terms of these leases vary from 4 to 10 years.

Lease components consist of fixed payments and/or variable lease payments based on contracted percentages of revenue.

Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term, with the exception of certain leases of Dolby Voice equipment for which the customer has the option to purchase the equipment at fair value.

Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term.

Dolby Cinema lease arrangements have options to extend the lease term at expiration by increments ranging from 1 to 5 years.

Assets provided under an operating lease are carried at cost within property, plant and equipment, net on the consolidated balance sheets, and depreciated over the useful life of the asset using the straight-line method.

Fixed operating lease payments are recognized on a straight-line basis over the lease term to other income for our real estate property and to revenue for all other leases.

Fixed operating lease payments are recognized on a straight-line basis over the lease term to revenue.

Variable lease payments received under our Dolby Cinema operating leases are computed as shares of lessees' box office revenue and recognized to revenue in the period that box office sales occur.

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2022 September 24,

2021 September 25,

Operating Lease Income

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The unguaranteed residual value of sales-type leases was $ 1.1 million and $ 0.8 million as of September 30, 2022 and September 24, 2021, respectively.

Selling profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis.

Over the term of the lease, we recognize interest income on the net investment in the lease.

We also recognize variable lease payments, if any, which are not material and not included in the net investment in the lease.

profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis.

Over the term of the lease, we recognize interest income on the net investment in the lease, and variable lease payments, which are not included in the net investment in the lease.

The variable lease payments are not material.

The following table presents the maturity analysis of fixed lease payments due to Dolby (in thousands):

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Balance at September 25, 2020 $ 336,945

Acquired goodwill 3,345

Translation adjustments 404

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Translation adjustments ( 7,185 )

Measurement period adjustments ( 57 )

Balance at September 30, 2022 $ 365,147

(1) Refer to Note 15 " Business Combination " for additional information related to our acquired goodwill

Intangible Assets

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These intangible assets facilitate our R&D efforts, technologies, and potential product offerings.

In addition, we acquired intangible assets in connection with a business combination completed in fiscal 2022.

Refer to Note 15 "Business Combination" for additional information.

Amortization expense for our intangible assets is included in cost of licensing, cost of products and services, R&D, S&M, and G&A expenses in our consolidated statements of operations.

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We provide stock-based awards as a form of compensation for employees, officers and directors.

We have issued stock-based awards in the form of stock options and RSUs under our equity incentive plans, as well as shares under our ESPP.

We issue stock-based awards in the form of stock options and RSUs under our equity incentive plans, as well as shares under our ESPP.

Common Stock - Class A and Class B

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Stock options are granted at fair market value on the date of grant.

Options granted to employees and officers generally vest over four years , with 25 % of the shares subject to the option becoming exercisable on the one-year anniversary of the date of grant and the balance of the shares vesting in equal monthly installments over the following 36 months.

Options granted to employees and officers generally vest over four years , with 25 % of the options becoming exercisable on the one-year anniversary of the date of grant and the balance of the shares vesting in equal monthly installments over the following 36 months.

These options expire on the earlier of ten years after the date of grant or three months after termination of service.

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Performance-Based Stock Options.

In fiscal 2016, we began granting PSOs to our executive officers with shares of our Class A common stock underlying such options.

The contractual term for the PSOs is seven years, with vesting contingent upon market-based performance conditions, representing the achievement of specified Dolby annualized TSR targets at the end of a three-year measurement period following the date of grant.

If the minimum

conditions are met, the PSOs earned will cliff vest on the third anniversary of the grant date, upon certification of achievement of the performance conditions by our Compensation Committee.

Anywhere from 0 % to 125 % of the shares subject to a PSO may vest based on achievement of the performance conditions at the end of the three-year performance period.

From fiscal 2016 through fiscal 2019, we granted PSOs to our executive officers with shares of our Class A common stock underlying such options.

The contractual term for the PSOs was seven years, with vesting contingent upon market-based performance conditions, representing the achievement of specified Dolby annualized TSR targets at the end of a three-year measurement period following the date of grant.

Anywhere from 0 % to 125 % of the shares subject to a PSO vested based on achievement of the performance conditions at the end of the three-year performance period.

In valuing the PSOs, which will be recognized as compensation cost, we used a Monte Carlo valuation model.

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Compensation cost is being amortized on a straight-line basis over the requisite service period.

The following table summarizes information about PSOs granted to our executive officers that have vested:

The following table summarizes information about PSOs granted to our executive officers that have vested during the periods presented:

Grant Date Aggregate Shares Granted at Target Award Aggregate Shares Exercisable at Vest Date (1)

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(1) Aggregate shares exercisable at vest date does not include any shares that were cancelled before the vest date after they were granted.

On December 15, 2018, we granted PSOs to our executive officers exercisable for an aggregate of 241,100 shares at the target award amount, which would be exercisable up to an aggregate of 301,375 shares at 125 % of the target award amount.

As of September 24, 2021, PSOs which would be exercisable for an aggregate of 604,737 shares at the target award amount ( 657,637 shares at up to 125 % of the target award amount) were outstanding.

The following table summarizes information about stock options issued under our 2020 Stock Plan:

As of September 30, 2022, an aggregate of 424,249 shares of PSOs were exercisable and outstanding.

The following table summarizes information about stock options, including PSOs, issued under our 2020 Stock Plan:

Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life Aggregate Intrinsic

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Restricted Stock Units.

Beginning in fiscal 2008, we began granting RSUs to certain directors, officers and employees.

In fiscal 2008, we began granting RSUs to certain directors, officers and employees.

Awards granted to employees and officers generally vest over four years , with equal annual cliff-vesting.

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Awards granted to new directors from fiscal 2014 onward vest on the earlier of the first anniversary of the award’s date of grant, or the day immediately preceding the date of the next annual meeting of stockholders that occurs after the award’s date of grant.

Our 2020 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria.

At each vesting date, the holder of the award is issued shares of our Class A common stock.

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Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors.

Our 2020 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria.

Performance-Based Restricted Stock Units.

In the first quarter of fiscal 2020, we began granting PSUs to our executive officers with shares of our Class A common stock underlying such awards.

In fiscal 2020, we began granting PSUs to our executive officers with shares of our Class A common stock underlying such awards.

The terms of the PSU Agreement adopted in the first quarter fiscal 2020 provide for the grant of PSUs to our executive officers contingent on Dolby's achievement of annualized TSR targets measured against a comparator index over a three-year performance period following the date of grant.

Anywhere from 0 % to 200 % of eligible restricted stock units may vest based on achievement of the performance conditions at the end of the three-year performance period.

In valuing the PSUs which will be recognized as compensation cost, we used a Monte Carlo valuation model.

Compensation cost is being

amortized on a straight-line basis over the requisite service period.

The value of the PSUs, which is recognized as compensation cost, is calculated using a Monte Carlo valuation model.

Compensation cost is being amortized on a straight-line basis over the requisite service period.

Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors.

On December 15, 2021, we granted PSUs to our executive officers vesting for an aggregate of 60,301 shares at the target award amount, which would vest at 120,602 shares at 200% of the target award amount.

On December 15,

2020, we granted PSUs to our executive officers vesting for an aggregate of 66,138 shares at the target award amount, which would vest at 132,276 shares at 200 % of the target award amount.

On December 16, 2019, we granted PSUs to our executive officers vesting for an aggregate of 62,000 shares at the target award amount, which would vest at 124,000 shares at 200 % of the target award amount.

As of September 30, 2022, PSUs which would vest for an aggregate of 162,846 shares at the target award amount ( 325,692 shares at 200 % of the target award amount) were outstanding.

The following table summarizes information about RSUs issued under our 2020 Stock Plan:

The following table summarizes information about RSUs, including PSUs, issued under our 2020 Stock Plan:

Shares Weighted-Average

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2021 September 25,

Compensation expense

Stock options $ 10,244 $ 13,724 $ 16,718

Restricted stock units (1) (2)

98,433 80,705 65,235

Employee stock purchase plan 6,248 5,269 4,675

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Total stock-based compensation, net of tax $ 97,344 $ 83,908 $ 72,538

Expense - By Income Statement Classification

(1) Stock-based compensation expense incurred by restricted stock units includes expense from PSUs.

(2) Excludes $ 0.7 million of capitalized stock-based compensation related to internal use software in fiscal 2022.

Expense - By Income Statement Line Item Classification

Fiscal Year Ended

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2021 September 25,

Compensation expense

Cost of products and services $ 1,819 $ 2,033 $ 2,072

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The tax benefit that we recognize from shares issued under our ESPP is excluded from the tables above.

The tax benefit recognized was $ 1.2 million in fiscal 2021, and was not material in fiscal 2020 and fiscal 2019.

The tax benefit recognized was no t material in fiscal 2022 and fiscal 2020, and was $ 1.2 million in fiscal 2021.

Unrecognized Compensation Expense.

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Common Stock Repurchase Program

In November 2009, we announced a stock repurchase program ("program"), providing for the repurchase of our Class A common stock.

In November 2009, we announced a stock repurchase program, providing for the repurchase of our Class A common stock.

The following table summarizes the initial amount of authorized repurchases as well as additional repurchases approved by our Board of Directors as of September 30, 2022 (in thousands):

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July 2021 350,000

February 2022 250,000

August 2022 350,000

Total $ 2,950,000

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Q1 - Quarter ended December 31, 2021 408,508 $ 35,573 $ 87.08

Q2 - Quarter ended March 26, 2021 757,019 70,790 93.51

Q3 - Quarter ended June 25, 2021 404,232 38,989 96.45

Q2 - Quarter ended April 1, 2022 1,116,032 84,913 76.08

Q3 - Quarter ended July 1, 2022 2,549,474 190,000 74.53

Q4 - Quarter ended September 30, 2022 2,928,536 220,000 75.12

Total 7,002,550 $ 530,486

(1) Cost of share repurchases includes the price paid per share and applicable commissions.

(1) Cost of share repurchases includes the price paid per share, and excludes commission costs.

(2) Average price paid per share excludes commission costs.

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The following table summarizes dividends declared under the program during fiscal 2022:

Fiscal Period Announcement Date Record Date Payment Date Cash Dividend Per Common Share Estimated Dividend Payment (1)

Q1 - Quarter ended December 25, 2020 January 28, 2021 February 9, 2021 February 19, 2021 $ 0.22 $ 22.4 million

Q2 - Quarter ended March 26, 2021 May 4, 2021 May 17, 2021 May 25, 2021 $ 0.22 $ 22.3 million

Q3 - Quarter ended June 25, 2021 July 29, 2021 August 11, 2021 August 19, 2021 $ 0.22 $ 22.3 million

Fiscal Period Announcement Date Record Date Payment Date Cash Dividend Per Common Share Dividend Payment

Q1 - Quarter ended December 31, 2021 February 3, 2022 February 16, 2022 February 23, 2022 $ 0.25 $ 25.3 million

Q2 - Quarter ended April 1, 2022 May 5, 2022 May 17, 2022 May 25, 2022 $ 0.25 $ 25.1 million

Q3 - Quarter ended July 1, 2022 August 9, 2022 August 23, 2022 August 31, 2022 $ 0.25 $ 24.3 million

Q4 - Quarter ended September 30, 2022 November 17, 2022 November 30, 2022 December 8, 2022 $ 0.27 $ 25.9 million (1)

(1) The dividend payment amount is estimated based on the number of shares of our Class A and Class B common stock that we estimate will be outstanding as of the Record Date.

(1) The dividend payment amount for the dividend declared in the fourth quarter of fiscal 2022 is estimated based on the number of shares of our Class A and Class B common stock that we estimate will be outstanding as of the Record Date.

Accumulated Other Comprehensive Loss

Other comprehensive income consists of three components:

Other comprehensive income/loss consists of three components:

unrealized gains or losses on our AFS marketable investment securities, gains and losses on derivatives in cash flow hedge relationships not yet recognized in earnings, and the gains and losses from the translation of assets and liabilities denominated in non-U.S.

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Unrealized gains/(losses) ( 6,783 ) ( 2,588 ) — ( 9,371 ) ( 917 ) ( 12,704 ) — ( 13,621 )

Foreign currency translation gains (1)

Foreign currency translation gains/(losses) (1)

— — ( 30,799 ) ( 30,799 ) — — 5,754 5,754

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Ending Balance $ ( 5,986 ) $ ( 4,483 ) $ ( 41,172 ) $ ( 51,641 ) $ 220 $ ( 122 ) $ ( 10,128 ) $ ( 10,030 )

(1) The foreign currency translation losses during fiscal 2022 were primarily due the strengthening of the U.S.

dollar compared to other foreign currencies.

(2) Realized gains or losses, if any, from the sale of our AFS investment securities or from foreign currency translation adjustments are included within other income/(expense), net in our consolidated statements of operations .

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse.

A summary of the tax effects of the temporary differences were as follows (in thousands):

A summary of the tax effects of the

temporary differences were as follows (in thousands):

Fiscal Year Ended

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Increase (decrease) unrecognized tax benefit 2.8 2.0 ( 12.9 )

Tax Act — — ( 7.6 )

Change in Valuation Allowance — — 1.5

Other ( 2.0 ) ( 0.4 ) 1.2

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Our effective tax rate was 14.6 % in fiscal 2022, compared with our federal statutory rate of 21.0 %, and with our effective tax rate in fiscal 2021 of 10.3 %.

The increase in our effective tax rate was primarily due to a shift in the mix of earnings to jurisdictions with higher tax rates and lower tax benefits related to settlement of stock-based awards partially offset by benefit from additional research and development tax credits.

Our effective tax rate was 10.3% in fiscal 2021, compared with our effective tax rate in fiscal 2020 of 3.4%.

The increase in our effective tax rate is primarily related to a benefit in fiscal 2020 from reversals of unrecognized tax benefits that did not recur in fiscal 2021 partially offset by higher benefits in fiscal 2021 related to changes in jurisdictional mix of income and settlement of stock-based awards.

Our effective tax rate in fiscal 2020 decreased as compared to the effective tax rate in fiscal 2019 of 9.5 % due to reversals of unrecognized tax benefits in fiscal 2020.

The effective tax rate in fiscal 2019 also included a benefit from updated calculations related to the Tax Act.

Uncertain Tax Positions

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To the extent accrued interest and penalties do not ultimately become payable, amounts accrued are reduced in the period that such determination is made and are reflected as a reduction of the overall income tax provision.

In fiscal year 2021, our current tax provision was increased by interest expense of $ 1.0 million, while in fiscal year 2020, our current tax provision was decreased by interest expense of $ 6.3 million.

In fiscal year 2022, our current tax provision was increased by interest expense of $ 1.7 million, while in fiscal year 2021, our current tax provision was increased by interest expense of $ 1.0 million.

Accrued interest and penalties are included within the related tax liability line item in our consolidated balance sheets.

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federal, states, and foreign jurisdictions.

The material income tax jurisdictions are the U.S.

Our major tax jurisdictions are the U.S.

federal, California, New York, and the Netherlands.

We are currently under audit by the state of Oregon for fiscal years 2016 through 2018, state of New York for fiscal years 2017 through 2019, and Spain for fiscal years 2014 through 2016.

In addition, our fiscal 2014 amended U.S.

federal tax return is currently under review.

Aside from the years still under audit noted above, the statute remains open for fiscal years 2017 and onward for U.S.

federal, state, and foreign purposes.

Therefore, these periods may be subject to examination by the tax authorities.

Management does not believe that the outcome of any ongoing examination will have a material impact on our consolidated financial statements.

Our operations in certain jurisdictions remain subject to examination for fiscal 2015 to 2021, some of which are currently under audit or review.

The resolution of each of these audits is not expected to be material to our consolidated financial statements.

We believe that an adequate provision has been made for any adjustments that may result from tax examinations.

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If resolution of any tax issues addressed in our current audits are inconsistent with management’s expectations, we may be required to adjust our tax provision for income taxes in the period such resolution occurs.

Provisions enacted in the Tax Act related to the capitalization of research and development expenditures are effective beginning with our fiscal 2023 for U.S.

income tax purposes.

In addition, the final U.S.

foreign tax credit regulations introduced significant changes to foreign tax credit utilization.

These provisions are expected to have a material adverse effect on our fiscal 2023 and future tax provisions unless postponed or modified.

Restructuring

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Fiscal 2022 Restructuring Events.

In October 2020, we implemented a plan to reduce certain activities, such as exiting our conferencing hardware business, in order to focus our efforts on higher priority investment areas, and reduce the cost structure of our manufacturing operations.

As a result, we recorded $ 9.5 million in restructuring costs in fiscal 2021, primarily representing severance and other related benefits offered to approximately 100 employees that were impacted by this action.

Actions related to this plan have substantially completed as of the end of fiscal 2021.

In January 2022, we implemented a restructuring plan within our entertainment organization to align resources with a revised business strategy and outlook, and to support our higher priority focus areas.

As a result, we recorded $ 8.9 million in restructuring costs in the fiscal 2022, primarily representing severance and other related benefits offered to over 120 employees that were impacted by this action.

Actions related to this plan are expected to be completed by the end of fiscal 2023.

The table presented below summarizes the changes in our restructuring accruals (in thousands):

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Restructuring charges 9,522 718 10,240

Cash payments ( 75 ) ( 22,119 ) ( 22,194 )

Non-cash and other adjustments ( 53 ) 4,575 4,522

Cash payments and adjustments ( 9,359 ) ( 714 ) ( 10,073 )

Balance at September 24, 2021 $ 163 $ 4 $ 167

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Balance at September 30, 2022 $ 5,781 $ — $ 5,781

The activities during fiscal 2020 reflects the impact of our early exit of a leased facility and related strategic reorganization of our marketing function as a part of the fiscal 2019 restructuring plan.

Accruals for restructuring charges incurred for the restructuring plan described above are included within accrued liabilities in our consolidated balance sheets, while restructuring charges are included within restructuring charges in our consolidated statements of operations.

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Payments Due By Fiscal Period

Fiscal 2023 Fiscal

2027 Thereafter Total

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Naming Rights.

We are party to an agreement for naming rights and related benefits with respect to the Dolby Theatre in Hollywood, California, the location of the Academy Awards®.

The term of the agreement is 20 years, over which we will make payments on a semi-annual basis until fiscal 2032.

We are party to agreements for naming rights of certain facilities, most significantly for naming rights and related benefits with respect to the Dolby Theatre in Hollywood, California, the location of the Academy Awards®.

The term of this agreement is 20 years, over which we will make payments on a semi-annual basis until fiscal 2032.

Our ongoing annual payment obligations are conditioned in part on the Academy Awards being held and broadcast from the Dolby Theatre.

Our payment obligations may be suspended or reduced in certain circumstances, including protracted closure of the Dolby Theatre.

Our payment obligations may be suspended or reduced in certain circumstances, including the protracted closure of the Dolby Theatre.

Purchase Obligations.

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Since the terms and conditions of our contractual indemnification clauses do not explicitly specify our obligations, we are unable to reasonably estimate the maximum potential exposure for which we could be liable.

Furthermore, we have not historically made any payments in connection with any such obligation and believe there to be a remote likelihood that any potential exposure in future periods would be of a material amount.

As a result, no amounts have been accrued in our consolidated financial statements with respect to the contingent aspect of these indemnities.

On August 7, 2019, Intertrust filed complaints against each of our customers AMC Entertainment Holdings, Inc., Cinemark Holdings, Inc., and Regal Entertainment Group in the U.S.

District Court for the Eastern District of Texas, alleging that the use of systems including certain cinema products, which were supplied under commercial agreements that we acquired as a part of an acquisition in 2014, infringed various Intertrust patents, and seeking damages based on the revenues of the defendants.

Some of our customers asserted that we are obligated to defend and indemnify them under the agreements.

As of September 30, 2022 we recorded $34.4 million within G&A expenses in our consolidated statements of operations, reflecting a settlement payment and an immaterial accrual.

We believe that these amounts fully resolve all claims relating to Intertrust’s patent assertions.

With the exception of this settlement, we have not made any payments to date in connection with any of our contractual indemnification obligations, and we believe the risk of material financial exposure in future periods from these indemnification obligations is remote.

Business Combination

On January 31, 2022, we completed the acquisition of all outstanding interests of Millicast, a privately held company.

Following the acquisition, Millicast is expected to enable developers to take the interactive events they build

with Dolby.io, and stream them from the presenter to large audiences.

We have included the financial results of Millicast in our consolidated financial statements from the date of acquisition, and these results were not material.

Additionally, the transaction costs associated with the acquisition were not material.

The total purchase consideration of the acquisition was $ 38.8 million.

We allocated $ 8.7 million in purchase consideration to identifiable intangible assets, which primarily consisted of developed technology, with estimated useful lives of 1.5 years to 8 years.

We also recorded $ 31.7 million of goodwill, which is representative of our expectation of benefits and synergies from the integration of Millicast technology with our existing technology and the assembled workforce of Millicast.

The fair values assigned to assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized, including potential changes to income tax-related accounts.

We expect to finalize the valuation within the one year measurement period.

Operating Segments and Geographic Information

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In our opinion, resolution of these proceedings is not expected to have a material adverse impact on our operating results or financial condition.

On a quarterly basis, we evaluate based on the known facts and circumstances whether a potential loss or range of losses is considered probable and reasonably estimable in accordance with U.S.

We record a provision for a liability relating to these legal proceedings when a loss is both probable and the amount of the loss can be reasonably estimated.

Legal costs associated with these legal proceedings are expensed as incurred.

Given the unpredictable nature of legal proceedings, it is possible that an unfavorable resolution of one or more such proceedings could materially affect our future operating results or financial condition in a particular period, including as a result of required changes to our licensing terms, monetary penalties, and other potential consequences.

However, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our consolidated financial statements, any such amounts are either immaterial, or it is not feasible to provide an estimate of any such potential losses.

However, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our consolidated financial statements, other than the impact of the litigation matter discussed in Note 14, any such amounts are either immaterial, or it is not probable that a potential loss has been incurred or the amount of loss cannot be reasonably estimated.

Related Parties

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Dolby Properties Burbank, LLC 49.0 % Burbank, California

Dolby Properties, LP 10.0 % Wootton Bassett, England

We also own 10.0 % minority ownership interest in Dolby Properties, LP, which owns a facility in Wootton Bassett, England.

As of September 30, 2022, we are no longer leasing the Wootton Bassett facility.

The property leased to Dolby Laboratories through Dolby Properties Brisbane, LLC, located in Brisbane, California, was sold during fiscal 2021.

We maintain a 49.0 % minority ownership interest in the affiliated entity.

Refer to Note 4 to the consolidated financial statements for more information.

We lease from our principal stockholder a commercial office building located at 100 Potrero Avenue in San Francisco, California under a term that expires on October 31, 2024.

In fiscal 2019, we ceased occupancy of the facility, and as a result, we incurred $ 33.5 million in restructuring charges recorded as operating expenses in our consolidated statements of operations.

Related party rent expense and restructuring charges included in operating expenses in our consolidated statements of operations were as follows (in thousands):

We also lease from our principal stockholder a commercial office building located at 100 Potrero Avenue in San Francisco, California under a term that expires on October 31, 2024.

Related party rent expense included in operating expenses in our consolidated statements of operations were as follows (in thousands):

Fiscal Year Ended

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2021 September 25,

Related party rent expense and restructuring charges included in operating expenses $ ( 392 ) $ 126 $ 16,360

Related party rent expense included in operating expenses $ — $ ( 392 ) $ 126

Distributions.

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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 7A. Quantitative and Qualitative Disclosures About Market Risk