ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
90-0199783
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
100 Potrero Avenue
San Francisco, CA
|
94103-4813
|
(415) 558-0200
|
(Address of principal executive offices)
|
(Zip Code)
|
(Registrant’s telephone number, including area code)
|
Large accelerated filer
ý
|
|
Accelerated filer
¨
|
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
¨
|
|
|
|
|
|
|
Item 1.
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 3.
|
||
|
|
|
Item 4.
|
||
|
|
|
|
|
|
|
|
|
Item 1.
|
||
|
|
|
Item 1A.
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 6.
|
||
|
|
|
|
|
December 27,
2013 |
September 27,
2013 |
||||
ASSETS
|
(unaudited)
|
|
||||
Current assets:
|
|
|
||||
Cash and cash equivalents
|
$
|
484,640
|
|
$
|
454,397
|
|
Restricted cash
|
3,349
|
|
3,175
|
|
||
Short-term investments
|
179,406
|
|
140,267
|
|
||
Accounts receivable, net of allowance of $901 at December 27, 2013 and $514 at September 27, 2013
|
75,949
|
|
97,460
|
|
||
Inventories
|
8,253
|
|
10,093
|
|
||
Deferred taxes
|
81,630
|
|
84,238
|
|
||
Prepaid expenses and other current assets
|
25,584
|
|
28,949
|
|
||
Total current assets
|
858,811
|
|
818,579
|
|
||
Long-term investments
|
293,719
|
|
306,338
|
|
||
Property, plant and equipment, net
|
243,712
|
|
242,917
|
|
||
Intangible assets, net
|
37,996
|
|
41,315
|
|
||
Goodwill
|
279,059
|
|
279,724
|
|
||
Deferred taxes
|
41,265
|
|
37,434
|
|
||
Other non-current assets
|
11,063
|
|
11,638
|
|
||
Total assets
|
$
|
1,765,625
|
|
$
|
1,737,945
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
||||
Current liabilities:
|
|
|
||||
Accounts payable
|
$
|
7,490
|
|
$
|
10,695
|
|
Accrued liabilities
|
124,964
|
|
137,795
|
|
||
Income taxes payable
|
2,412
|
|
3,394
|
|
||
Deferred revenue
|
15,165
|
|
20,931
|
|
||
Total current liabilities
|
150,031
|
|
172,815
|
|
||
Long-term deferred revenue
|
19,532
|
|
19,663
|
|
||
Other non-current liabilities
|
46,292
|
|
45,441
|
|
||
Total liabilities
|
215,855
|
|
237,919
|
|
||
|
|
|
||||
Stockholders’ equity:
|
|
|
||||
Class A common stock, $0.001 par value, one vote per share, 500,000,000 shares authorized: 48,060,689 shares issued and outstanding at December 27, 2013 and 46,862,893 at September 27, 2013
|
49
|
|
47
|
|
||
Class B common stock, $0.001 par value, ten votes per share, 500,000,000 shares authorized: 53,969,786 shares issued and outstanding at December 27, 2013 and 54,876,494 at September 27, 2013
|
54
|
|
55
|
|
||
Additional paid-in capital
|
23,594
|
|
18,812
|
|
||
Retained earnings
|
1,498,897
|
|
1,454,382
|
|
||
Accumulated other comprehensive income
|
7,385
|
|
7,814
|
|
||
Total stockholders’ equity – Dolby Laboratories, Inc.
|
1,529,979
|
|
1,481,110
|
|
||
Controlling interest
|
19,791
|
|
18,916
|
|
||
Total stockholders’ equity
|
1,549,770
|
|
1,500,026
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,765,625
|
|
$
|
1,737,945
|
|
|
Fiscal Quarter Ended
|
|||||
|
December 27,
2013 |
December 28,
2012 |
||||
Revenue:
|
|
|
||||
Licensing
|
$
|
205,660
|
|
$
|
204,876
|
|
Products
|
18,104
|
|
25,498
|
|
||
Services
|
7,513
|
|
6,228
|
|
||
Total revenue
|
231,277
|
|
236,602
|
|
||
|
|
|
||||
Cost of revenue:
|
|
|
||||
Cost of licensing
|
4,001
|
|
3,080
|
|
||
Cost of products
|
13,788
|
|
18,489
|
|
||
Cost of services
|
3,593
|
|
4,036
|
|
||
Total cost of revenue
|
21,382
|
|
25,605
|
|
||
|
|
|
||||
Gross margin
|
209,895
|
|
210,997
|
|
||
|
|
|
||||
Operating expenses:
|
|
|
||||
Research and development
|
44,463
|
|
42,436
|
|
||
Sales and marketing
|
60,379
|
|
58,421
|
|
||
General and administrative
|
41,908
|
|
43,108
|
|
||
Restructuring charges
|
3,215
|
|
—
|
|
||
Total operating expenses
|
149,965
|
|
143,965
|
|
||
|
|
|
||||
Operating income
|
59,930
|
|
67,032
|
|
||
|
|
|
||||
Interest income
|
654
|
|
1,339
|
|
||
Interest expense
|
(112
|
)
|
(25
|
)
|
||
Other income, net
|
229
|
|
713
|
|
||
Income before income taxes
|
60,701
|
|
69,059
|
|
||
Provision for income taxes
|
(15,455
|
)
|
(17,582
|
)
|
||
Net income including controlling interest
|
45,246
|
|
51,477
|
|
||
Less: net (income) attributable to controlling interest
|
(731
|
)
|
(128
|
)
|
||
Net income attributable to Dolby Laboratories, Inc.
|
$
|
44,515
|
|
$
|
51,349
|
|
|
|
|
||||
Net income per share:
|
|
|
||||
Basic
|
$
|
0.44
|
|
$
|
0.50
|
|
Diluted
|
$
|
0.43
|
|
$
|
0.50
|
|
Weighted-average shares outstanding:
|
|
|
||||
Basic
|
101,750
|
|
102,361
|
|
||
Diluted
|
103,192
|
|
103,523
|
|
||
|
|
|
||||
Related party rent expense:
|
|
|
||||
Included in operating expenses
|
$
|
346
|
|
$
|
343
|
|
Included in net income attributable to controlling interest
|
$
|
1,255
|
|
$
|
732
|
|
|
Fiscal Quarter Ended
|
|||||
|
December 27,
2013 |
December 28,
2012 |
||||
Net income including controlling interest
|
$
|
45,246
|
|
$
|
51,477
|
|
Other comprehensive income/(loss):
|
|
|
||||
Foreign currency translation adjustments, net of tax
|
(390
|
)
|
1,234
|
|
||
Unrealized gains/(losses) on available-for-sale securities, net of tax
|
105
|
|
(737
|
)
|
||
Comprehensive income
|
44,961
|
|
51,974
|
|
||
Less: comprehensive (income) attributable to controlling interest
|
(875
|
)
|
(98
|
)
|
||
Comprehensive income attributable to Dolby Laboratories, Inc.
|
$
|
44,086
|
|
$
|
51,876
|
|
|
Dolby Laboratories, Inc.
|
|
|
||||||||||||||||||
|
Common Stock
|
Additional
paid-in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
income
|
Total Dolby
Laboratories,
Inc.
|
Controlling
Interest
|
Total
|
||||||||||||||
Balance at September 27, 2013
|
$
|
102
|
|
$
|
18,812
|
|
$
|
1,454,382
|
|
$
|
7,814
|
|
$
|
1,481,110
|
|
$
|
18,916
|
|
$
|
1,500,026
|
|
Net income
|
—
|
|
—
|
|
44,515
|
|
—
|
|
44,515
|
|
731
|
|
45,246
|
|
|||||||
Translation adjustments, net of tax of $(61)
|
—
|
|
—
|
|
—
|
|
(534
|
)
|
(534
|
)
|
144
|
|
(390
|
)
|
|||||||
Unrealized losses on available-for-sale securities, net of tax of $(58)
|
—
|
|
—
|
|
—
|
|
105
|
|
105
|
|
—
|
|
105
|
|
|||||||
Stock-based compensation expense
|
—
|
|
15,054
|
|
—
|
|
—
|
|
15,054
|
|
—
|
|
15,054
|
|
|||||||
Repurchase of common stock
|
—
|
|
(11,660
|
)
|
—
|
|
—
|
|
(11,660
|
)
|
—
|
|
(11,660
|
)
|
|||||||
Tax benefit/(deficiency) from stock incentive plans
|
—
|
|
(11
|
)
|
—
|
|
—
|
|
(11
|
)
|
—
|
|
(11
|
)
|
|||||||
Class A common stock issued under employee stock plans
|
1
|
|
8,088
|
|
—
|
|
—
|
|
8,089
|
|
—
|
|
8,089
|
|
|||||||
Shares repurchased for tax withholdings on vesting of restricted stock
|
—
|
|
(6,727
|
)
|
—
|
|
—
|
|
(6,727
|
)
|
—
|
|
(6,727
|
)
|
|||||||
Exercise of Class B stock options
|
—
|
|
38
|
|
—
|
|
—
|
|
38
|
|
—
|
|
38
|
|
|||||||
Balance at December 27, 2013
|
$
|
103
|
|
$
|
23,594
|
|
$
|
1,498,897
|
|
$
|
7,385
|
|
$
|
1,529,979
|
|
$
|
19,791
|
|
$
|
1,549,770
|
|
|
Dolby Laboratories, Inc.
|
|
|
||||||||||||||||||
|
Common Stock
|
Additional
paid-in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
income
|
Total Dolby
Laboratories,
Inc.
|
Controlling
Interest
|
Total
|
||||||||||||||
Balance at September 28, 2012
|
$
|
103
|
|
$
|
—
|
|
$
|
1,709,479
|
|
$
|
10,687
|
|
$
|
1,720,269
|
|
$
|
22,964
|
|
$
|
1,743,233
|
|
Net income
|
—
|
|
—
|
|
51,349
|
|
—
|
|
51,349
|
|
128
|
|
51,477
|
|
|||||||
Translation adjustments, net of tax of $328
|
—
|
|
—
|
|
—
|
|
1,264
|
|
1,264
|
|
(30
|
)
|
1,234
|
|
|||||||
Unrealized losses on available-for-sale securities, net of tax of $414
|
—
|
|
—
|
|
—
|
|
(737
|
)
|
(737
|
)
|
—
|
|
(737
|
)
|
|||||||
Distributions to controlling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,039
|
)
|
(5,039
|
)
|
|||||||
Stock-based compensation expense
|
—
|
|
17,704
|
|
—
|
|
—
|
|
17,704
|
|
—
|
|
17,704
|
|
|||||||
Repurchase of common stock
|
(1
|
)
|
(17,794
|
)
|
(36,161
|
)
|
—
|
|
(53,956
|
)
|
—
|
|
(53,956
|
)
|
|||||||
Cash dividends declared and paid on common stock
|
—
|
|
—
|
|
(408,206
|
)
|
—
|
|
(408,206
|
)
|
—
|
|
(408,206
|
)
|
|||||||
Tax benefit/(deficiency) from stock incentive plans
|
—
|
|
(776
|
)
|
—
|
|
—
|
|
(776
|
)
|
—
|
|
(776
|
)
|
|||||||
Class A common stock issued under employee stock plans
|
—
|
|
4,360
|
|
—
|
|
—
|
|
4,360
|
|
—
|
|
4,360
|
|
|||||||
Shares repurchased for tax withholdings on vesting of restricted stock
|
—
|
|
(3,636
|
)
|
—
|
|
—
|
|
(3,636
|
)
|
—
|
|
(3,636
|
)
|
|||||||
Exercise of Class B stock options
|
—
|
|
142
|
|
—
|
|
—
|
|
142
|
|
—
|
|
142
|
|
|||||||
Balance at December 28, 2012
|
$
|
102
|
|
$
|
—
|
|
$
|
1,316,461
|
|
$
|
11,214
|
|
$
|
1,327,777
|
|
$
|
18,023
|
|
$
|
1,345,800
|
|
|
Fiscal Quarter Ended
|
|||||
|
December 27,
2013 |
December 28,
2012 |
||||
Operating activities:
|
|
|
||||
Net income including controlling interest
|
$
|
45,246
|
|
$
|
51,477
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
||||
Depreciation and amortization
|
12,409
|
|
13,129
|
|
||
Stock-based compensation
|
15,054
|
|
17,704
|
|
||
Amortization of premium on investments
|
2,266
|
|
3,794
|
|
||
Excess tax benefit from exercise of stock options
|
(1,010
|
)
|
(469
|
)
|
||
Provision for doubtful accounts
|
374
|
|
(179
|
)
|
||
Deferred income taxes
|
(1,322
|
)
|
(2,627
|
)
|
||
Other non-cash items affecting net income
|
105
|
|
(691
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
||||
Accounts receivable
|
21,148
|
|
(8,064
|
)
|
||
Inventories
|
2,225
|
|
(6,173
|
)
|
||
Prepaid expenses and other assets
|
(1,631
|
)
|
8,916
|
|
||
Accounts payable and other liabilities
|
(16,696
|
)
|
(19,898
|
)
|
||
Income taxes, net
|
4,795
|
|
9,512
|
|
||
Deferred revenue
|
(5,897
|
)
|
(143
|
)
|
||
Other non-current liabilities
|
216
|
|
1,012
|
|
||
Net cash provided by operating activities
|
77,282
|
|
67,300
|
|
||
Investing activities:
|
|
|
||||
Purchases of available-for-sale securities
|
(102,717
|
)
|
(204,135
|
)
|
||
Proceeds from sales of available-for-sale securities
|
27,426
|
|
389,068
|
|
||
Proceeds from maturities of available-for-sale securities
|
46,739
|
|
51,325
|
|
||
Purchases of property, plant and equipment
|
(8,967
|
)
|
(6,717
|
)
|
||
Other investments
|
—
|
|
(3,000
|
)
|
||
Purchases of intangible assets
|
—
|
|
(4,048
|
)
|
||
Proceeds from sale of property, plant and equipment and assets held for sale
|
42
|
|
19
|
|
||
Change in restricted cash
|
(174
|
)
|
(291
|
)
|
||
Net cash provided by/(used in) investing activities
|
(37,651
|
)
|
222,221
|
|
||
Financing activities:
|
|
|
||||
Proceeds from issuance of common stock
|
8,127
|
|
4,502
|
|
||
Repurchase of common stock
|
(11,660
|
)
|
(53,956
|
)
|
||
Payment of cash dividend
|
—
|
|
(408,206
|
)
|
||
Distribution to controlling interest
|
—
|
|
(5,039
|
)
|
||
Excess tax benefit from the exercise of stock options
|
1,010
|
|
469
|
|
||
Shares repurchased for tax withholdings on vesting of restricted stock
|
(6,727
|
)
|
(3,636
|
)
|
||
Net cash used in financing activities
|
(9,250
|
)
|
(465,866
|
)
|
||
Effect of foreign exchange rate changes on cash and cash equivalents
|
(138
|
)
|
(62
|
)
|
||
Net increase/(decrease) in cash and cash equivalents
|
30,243
|
|
(176,407
|
)
|
||
Cash and cash equivalents at beginning of period
|
454,397
|
|
492,600
|
|
||
Cash and cash equivalents at end of period
|
$
|
484,640
|
|
$
|
316,193
|
|
|
|
|
||||
Supplemental disclosure:
|
|
|
||||
Cash paid for income taxes, net of refunds received
|
$
|
11,593
|
|
$
|
11,734
|
|
Cash paid for interest
|
$
|
1
|
|
$
|
1
|
|
|
December 27,
2013 |
September 27,
2013 |
Cash and cash equivalents:
|
|
|
Cash
|
$475,927
|
$420,069
|
Cash equivalents:
|
|
|
Money market funds
|
2,813
|
16,193
|
U.S. agency securities
|
5,200
|
13,135
|
Commercial paper
|
700
|
5,000
|
Total cash and cash equivalents
|
484,640
|
454,397
|
Short-term investments:
|
|
|
U.S. agency securities
|
31,414
|
6,007
|
Commercial paper
|
14,947
|
5,991
|
Corporate bonds
|
32,686
|
43,847
|
Municipal debt securities
|
100,359
|
84,422
|
Total short-term investments
|
179,406
|
140,267
|
Long-term investments
(1)
:
|
|
|
U.S. agency securities
|
21,433
|
40,924
|
Commercial paper
|
4,971
|
—
|
Corporate bonds
|
91,267
|
90,391
|
Municipal debt securities
|
173,048
|
172,023
|
Other long-term investments
(2)
|
3,000
|
3,000
|
Total long-term investments
|
293,719
|
306,338
|
Total cash, cash equivalents and investments (3)
|
$957,765
|
$901,002
|
(1)
|
Our long-term investments have maturities that range from
one
to
three
years.
|
(2)
|
Other long-term investments include a cost method investment for which no other-than-temporary impairment exists as of
December 27, 2013
.
|
(3)
|
Total cash, cash equivalents, and investments exclude
$3.3 million
and
$3.2 million
of restricted cash as of
December 27, 2013
and
September 27, 2013
.
|
(1)
|
Other long-term investments include a cost method investment of
$3.0 million
for no other-than-temporary impairment exists as of
December 27, 2013
.
|
|
December 27, 2013
|
|||||||
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
|||
|
Fair Value
|
Gross Unrealized Losses
|
|
Fair Value
|
Gross Unrealized Losses
|
|
Fair Value
|
Gross Unrealized Losses
|
U.S. agency securities
|
$26,930
|
$(52)
|
|
$—
|
$—
|
|
$26,930
|
$(52)
|
Corporate bonds
|
50,145
|
(158)
|
|
—
|
—
|
|
50,145
|
(158)
|
Municipal debt securities
|
66,214
|
(111)
|
|
—
|
—
|
|
66,214
|
(111)
|
Total
|
$143,289
|
$(321)
|
|
$—
|
$—
|
|
$143,289
|
$(321)
|
|
September 27, 2013
|
|||||||
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
|||
|
Fair Value
|
Gross Unrealized
Losses
|
|
Fair Value
|
Gross Unrealized
Losses
|
|
Fair Value
|
Gross Unrealized
Losses
|
U.S. agency securities
|
$21,407
|
$(76)
|
|
$—
|
$—
|
|
$21,407
|
$(76)
|
Corporate bonds
|
53,350
|
(174)
|
|
—
|
—
|
|
53,350
|
(174)
|
Municipal debt securities
|
72,485
|
(157)
|
|
—
|
—
|
|
72,485
|
(157)
|
Total
|
$147,242
|
$(407)
|
|
$—
|
$—
|
|
$147,242
|
$(407)
|
|
December 27,
2013 |
September 27,
2013 |
Trade accounts receivable
|
$72,660
|
$86,823
|
Accounts receivable related to patent administration program
|
4,190
|
11,151
|
Accounts receivable, gross
|
76,850
|
97,974
|
Less: allowance for doubtful accounts
|
(901)
|
(514)
|
Accounts receivable, net
|
$75,949
|
$97,460
|
|
December 27,
2013 |
September 27,
2013 |
Raw materials
|
$2,081
|
$2,050
|
Finished goods
|
6,172
|
8,043
|
Inventories
|
$8,253
|
$10,093
|
|
December 27,
2013 |
September 27,
2013 |
Prepaid expenses
|
$12,064
|
$10,195
|
Other current assets
|
10,835
|
10,863
|
Income tax receivable
|
2,685
|
7,891
|
Prepaid expenses and other current assets
|
$25,584
|
$28,949
|
|
December 27,
2013 |
September 27,
2013 |
Land
|
$46,155
|
$46,049
|
Buildings
|
32,394
|
32,305
|
Leasehold improvements
|
66,949
|
64,991
|
Machinery and equipment
|
40,944
|
38,408
|
Computer systems and software
|
95,497
|
91,939
|
Furniture and fixtures
|
13,397
|
13,490
|
Construction in progress
|
90,554
|
88,872
|
|
385,890
|
376,054
|
Less: accumulated depreciation
|
(142,178)
|
(133,137)
|
Property, plant and equipment, net
|
$243,712
|
$242,917
|
|
Goodwill
|
Balance at September 27, 2013
|
$279,724
|
Translation adjustments
|
(665)
|
Balance at December 27, 2013
|
$279,059
|
|
December 27, 2013
|
|
September 27, 2013
|
||||
|
Cost
|
Accumulated
Amortization
|
Net
|
|
Cost
|
Accumulated
Amortization
|
Net
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
Acquired patents and technology
|
$80,106
|
$(53,693)
|
$26,413
|
|
$79,925
|
$(51,267)
|
$28,658
|
Customer relationships
|
30,724
|
(20,394)
|
10,330
|
|
30,723
|
(19,592)
|
11,131
|
Other intangibles
|
21,018
|
(19,765)
|
1,253
|
|
20,992
|
(19,466)
|
1,526
|
Intangible assets, net
|
$131,848
|
$(93,852)
|
$37,996
|
|
$131,640
|
$(90,325)
|
$41,315
|
Fiscal Year
|
Amortization Expense
|
Remainder of Fiscal 2014
|
$10,315
|
2015
|
11,312
|
2016
|
9,130
|
2017
|
6,010
|
2018
|
758
|
Thereafter
|
471
|
Total
|
$37,996
|
|
December 27,
2013 |
September 27,
2013 |
Accrued royalties
|
$7,897
|
$6,075
|
Amounts payable to joint licensing program partners
|
42,241
|
40,091
|
Accrued compensation and benefits
|
37,887
|
54,423
|
Accrued professional fees
|
5,219
|
4,402
|
Other accrued liabilities
|
31,720
|
32,804
|
Accrued liabilities
|
$124,964
|
$137,795
|
|
December 27,
2013 |
September 27,
2013 |
Supplemental retirement plan obligations
|
$2,218
|
$2,144
|
Non-current tax liabilities
|
31,580
|
30,986
|
Other liabilities
|
12,494
|
12,311
|
Other non-current liabilities
|
$46,292
|
$45,441
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Numerator:
|
|
|
Net income attributable to Dolby Laboratories, Inc.
|
$44,515
|
$51,349
|
|
|
|
Denominator:
|
|
|
Weighted-average shares outstanding—basic
|
101,750
|
102,361
|
Potential common shares from options to purchase Class A and Class B common stock
|
328
|
326
|
Potential common shares from restricted stock units
|
1,114
|
836
|
Weighted-average shares outstanding—diluted
|
103,192
|
103,523
|
|
|
|
Net income per share attributable to Dolby Laboratories, Inc.:
|
|
|
Basic
|
$0.44
|
$0.50
|
Diluted
|
$0.43
|
$0.50
|
|
|
|
Antidilutive awards excluded from calculation:
|
|
|
Stock options
|
6,791
|
5,178
|
Restricted stock units
|
1,038
|
1,327
|
|
December 27, 2013
|
|||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Assets:
|
|
|
|
|
Investments held in supplemental retirement plan
(1)
|
$2,316
|
$—
|
$—
|
$2,316
|
Money market funds
(2)
|
2,813
|
—
|
—
|
2,813
|
U.S. agency securities
(2)
,
(3)
,
(4)
|
58,047
|
—
|
—
|
58,047
|
Commercial paper
(2), (3), (4)
|
—
|
20,618
|
—
|
20,618
|
Corporate bonds
(3)
,
(4)
|
—
|
123,953
|
—
|
123,953
|
Municipal debt securities
(3)
,
(4)
|
—
|
273,407
|
—
|
273,407
|
Total
|
$63,176
|
$417,978
|
$—
|
$481,154
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Investments held in supplemental retirement plan
(5)
|
$2,316
|
$—
|
$—
|
$2,316
|
Total
|
$2,316
|
$—
|
$—
|
$2,316
|
|
September 27, 2013
|
|||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Assets:
|
|
|
|
|
Investments held in supplemental retirement plan
(1)
|
$2,242
|
$—
|
$—
|
$2,242
|
Money market funds
(2)
|
16,193
|
—
|
—
|
16,193
|
U.S. agency securities
(2)
,
(3)
,
(4)
|
60,066
|
—
|
—
|
60,066
|
Commercial paper
(2)
,
(3)
|
—
|
10,991
|
—
|
10,991
|
Corporate bonds
(3)
,
(4)
|
—
|
134,238
|
—
|
134,238
|
Municipal debt securities
(3)
,
(4)
|
—
|
256,445
|
—
|
256,445
|
Total
|
$78,501
|
$401,674
|
$—
|
$480,175
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Investments held in supplemental retirement plan
(5)
|
$2,242
|
$—
|
$—
|
$2,242
|
Total
|
$2,242
|
$—
|
$—
|
$2,242
|
(1)
|
These assets are included within prepaid expenses and other current assets and within other non-current assets.
|
(2)
|
These assets are included within cash and cash equivalents.
|
(3)
|
These assets are included within short-term investments.
|
(4)
|
These assets are included within long-term investments.
|
(5)
|
These liabilities are included within accrued liabilities and within other non-current liabilities.
|
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual Life
|
Aggregate
Intrinsic
Value
(1)
|
|
(in thousands)
|
|
(in years)
|
(in thousands)
|
Options outstanding at September 27, 2013
|
6,385
|
$29.82
|
|
|
Grants
|
2,075
|
37.33
|
|
|
Exercises
|
(178)
|
26.56
|
|
|
Forfeitures and cancellations
|
(37)
|
32.58
|
|
|
Options outstanding at December 27, 2013
|
8,245
|
31.77
|
7.9
|
$56,745
|
Options vested and expected to vest at December 27, 2013
|
8,031
|
31.80
|
7.9
|
54,999
|
Options exercisable at December 27, 2013
|
3,177
|
29.20
|
5.9
|
31,049
|
(1)
|
Aggregate intrinsic value is based on the closing price of our common stock on
December 27, 2013
of
$38.38
and excludes the impact of options that were not in-the-money.
|
|
Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
(in thousands)
|
|
Non-vested at September 27, 2013
|
2,853
|
$34.66
|
Granted
|
953
|
37.24
|
Vested
|
(495)
|
35.26
|
Forfeitures
|
(45)
|
34.99
|
Non-vested at December 27, 2013
|
3,266
|
35.32
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Expected term (in years)
|
4.57
|
4.37
|
Risk-free interest rate
|
1.4%
|
0.5%
|
Expected stock price volatility
|
31.9%
|
40.6%
|
Dividend yield
|
—
|
—
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Stock-based compensation:
|
|
|
Stock options
|
$3,870
|
$8,309
|
Restricted stock units
|
10,257
|
8,340
|
Employee stock purchase plan
|
927
|
1,055
|
Total stock-based compensation
|
15,054
|
17,704
|
Benefit from income taxes
|
(4,396)
|
(5,413)
|
Total stock-based compensation, net of tax
|
$10,658
|
$12,291
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Stock-based compensation expense was classified as follows:
|
|
|
Cost of products
|
$190
|
$248
|
Cost of services
|
87
|
151
|
Research and development
|
4,307
|
4,887
|
Sales and marketing
|
5,025
|
5,991
|
General and administrative
|
5,445
|
6,427
|
Total stock-based compensation expense
|
$15,054
|
$17,704
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Tax Benefit - stock option exercises & shares issued under ESPP
|
$175
|
$96
|
Quarterly Repurchase Activity
|
Shares
Repurchased
|
Cost
(1)
|
Average Price Paid per Share
(2)
|
|
|
(in thousands)
|
|
Q1 - Quarter ended December 27, 2013
|
330,000
|
$11,660
|
$35.32
|
Total
|
330,000
|
$11,660
|
|
(1)
|
Cost of share repurchases includes the price paid per share and applicable commissions.
|
(2)
|
Average price paid per share excludes commission costs.
|
|
Severance and associated costs
|
Restructuring charges
|
$3,215
|
Cash payments
|
(892)
|
Non-cash restructuring charges
|
(10)
|
Balance at December 27, 2013
|
$2,313
|
|
Unrealized Gains/Losses On Available-For-Sale Securities
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
Balance at September 27, 2013
|
$203
|
|
$7,611
|
|
$7,814
|
Other Comprehensive Income/(Loss) - Before Reclassifications:
|
|
|
|
|
|
Unrealized Gain/(Loss) On Available-For-Sale Securities
|
235
|
|
|
|
235
|
Foreign Currency Translation Gains/(Losses) (1)
|
|
|
(473)
|
|
(473)
|
Income Tax Effect - Benefit/(Expense) (2)
|
(84)
|
|
(61)
|
|
(145)
|
Net Of Tax
|
151
|
|
(534)
|
|
(383)
|
Amounts Reclassified From AOCI Into Earnings:
|
|
|
|
|
|
Realized Gain/(Loss) On Sale Of Available-For-Sale Securities (1)
|
(72)
|
|
|
|
(72)
|
Income Tax Effect - Benefit/(Expense) (2)
|
26
|
|
|
|
26
|
Net Of Tax
|
105
|
|
(534)
|
|
(429)
|
Balance at December 27, 2013
|
$308
|
|
$7,077
|
|
$7,385
|
(1)
|
Realized gains/(losses) on our available-for-sale securities and the gains/(losses) on foreign currency translation adjustments are included within other income/(expense), net in our consolidated statements of operations.
|
(2)
|
The income tax benefit/(expense) is included within provision for income taxes in our consolidated statements of operations.
|
|
Payments Due By Fiscal Period
|
||||||
|
Remainder of Fiscal 2014
|
Fiscal
2015 |
Fiscal
2016 |
Fiscal
2017 |
Fiscal
2018 |
Thereafter
|
Total
|
Naming rights
|
$3,670
|
$7,432
|
$7,525
|
$7,619
|
$7,715
|
$118,699
|
$152,660
|
Operating leases
|
13,065
|
9,755
|
6,375
|
4,517
|
2,919
|
3,096
|
39,727
|
Purchase obligations
|
6,058
|
2,266
|
1,014
|
56
|
—
|
—
|
9,394
|
Total
|
$22,793
|
$19,453
|
$14,914
|
$12,192
|
$10,634
|
$121,795
|
$201,781
|
|
Fiscal Quarter Ended
|
|
Revenue By Geographic Location
|
December 27,
2013 |
December 28,
2012 |
United States
|
25%
|
32%
|
International
|
75%
|
68%
|
Goodwill, Intangible Assets, and Long-Lived Assets
|
|
Description
|
We test goodwill for impairment annually during our third fiscal quarter and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Intangible assets with definite lives are amortized over their estimated useful lives. Our intangible assets principally consist of acquired technology, patents, trademarks, customer relationships and contracts, which are amortized on a straight-line basis over their useful lives ranging from three to seventeen years.
We review long-lived assets, including intangible assets, for impairment whenever events or a change in circumstances indicate that an asset’s carrying value may not be recoverable. Recoverability of an asset is measured by comparing its carrying value to the total future undiscounted cash flows that the asset is expected to generate. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value.
|
Judgments And Uncertainties
|
Beginning in the third quarter of fiscal 2012, we adopted the provisions of the FASB's recently issued accounting standard (ASU 2011-08) which permits the execution of a qualitative assessment as a determinant for whether the two-step annual goodwill impairment test should be performed. In performing our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill test. In performing the qualitative assessment, we consider events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit's net assets and changes in the price of our common stock. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then the two-step goodwill impairment test is not performed.
If the two-step goodwill test is performed, we evaluate and test our goodwill for impairment at a reporting-unit level using expected future cash flows to be generated by the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the calculated fair value of the goodwill. A reporting unit is an operating segment or one level below. |
Revenue Recognition
|
|
Description
|
We enter into revenue arrangements with our customers to license technologies, trademarks and know-how and to sell products and services. We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been completed, the seller's price to the buyer is fixed or determinable and collectibility is probable.
|
Multiple-Element Arrangements
. Some of our revenue arrangements include multiple elements (“MEs”), such as hardware, software, maintenance and other services. We evaluate each element in a multiple element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when it has standalone value and delivery of an undelivered element is both probable and within our control. When these criteria are not met, the delivered and undelivered elements are combined and the arrangement fees are allocated to this combined single unit. If the unit separation criteria are met, we account for each element within a ME arrangement (such as hardware, software, maintenance and other services) separately, whereby the total arrangement fees are allocated to each element based on its relative selling price, which we establish using a selling price hierarchy. We determine the selling price of each element based on its vendor specific objective evidence (“VSOE”), if available, third party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available.
|
|
For some arrangements, customers receive certain elements over a period of time, after delivery of the initial product. These elements may include support and maintenance and/or the right to receive upgrades. Revenue allocated to the undelivered element is recognized either over its estimated service period or when the upgrade is delivered. We do not recognize revenue that is contingent upon the future delivery of products or services or upon future performance obligations. We recognize revenue for delivered elements only when we have completed all contractual obligations.
|
|
We determine our ESP for an individual element within a ME revenue arrangement using the same methods used to determine the selling price of an element sold on a standalone basis. If we sell the element on a standalone basis, we estimate the selling price by considering actual sales prices. Otherwise, we estimate the selling price by considering internal factors such as pricing practices and margin objectives. Consideration is also given to market conditions such as competitor pricing.
|
|
We account for the majority of our digital cinema server and processor sales as ME arrangements that may include up to four separate units, or elements, of accounting.
1. The first element consists of our digital cinema server hardware and the accompanying software, which is essential to the functionality of the hardware. This element is typically delivered at the time of sale. 2. The second element is the right to receive support and maintenance, which is included with the purchase of the hardware element and is typically delivered over a service period subsequent to the initial sale. 3. The third element is the right to receive specified upgrades, which is included with the purchase of the hardware element and is typically delivered when a specified upgrade is available, subsequent to the initial sale. Under revenue recognition accounting standards, sales of our digital cinema servers typically result in the allocation of a substantial majority of the arrangement fees to the delivered hardware element based on its ESP, which we recognize as revenue at the time of sale once delivery has occurred. A small portion of the arrangement fees are allocated to the undelivered support and maintenance element, and in some cases to the undelivered specified upgrade element, based on the VSOE or ESP of each element. The portion of the arrangement fees allocated to the support and maintenance element are recognized as revenue ratably over the estimated service period, and the portion of the arrangement fees allocated to specified upgrades are recognized as revenue upon delivery of the upgrade. 4. The fourth element is the right to receive commissioning services performed solely in connection with our digital servers necessary for the installation of Dolby Atmos-enabled theatres. These services consist of the review of venue designs specifying proposed speaker placement, as well as calibration services performed for installed speakers to ensure optimal playback. A small portion of the arrangement fee is allocated to these services based on their ESP which we recognize as revenue once the services have been completed. |
|
Software Arrangements
. Revenue recognition for transactions that involve software, such as fees we earn from certain system licensees, may include multiple elements. For some of our ME arrangements, customers receive certain elements over a period of time or after delivery of the initial software. These elements may include support and maintenance. The fair values of these elements are recognized over the estimated period for which these elements will be delivered, which is sometimes the estimated life of the software. If we do not have VSOE of fair value for any undelivered element included in these ME arrangements for software, we defer revenue until all elements are delivered and/or services have been performed, or until we have VSOE of fair value for all remaining undelivered elements. If the undelivered element is support and we do not have fair value for the support element, revenue for the entire arrangement is bundled and recognized ratably over the support period.
In certain cases, our arrangements require the licensee to pay a fixed fee for units they may distribute in the future. These fees are generally recognized upon contract execution, unless the arrangement includes contingency terms or is considered a ME arrangement.
|
|
Judgments And Uncertainties
|
Revenue recognition for transactions that may include multiple elements, such as fees we earn from certain system licensees, requires judgment in several possible areas including the following:
• Identifying the significant deliverables within the arrangements and determining whether the significant deliverables constitute separate units of accounting; • Timing of delivery or performance of service for the significant deliverables; • The assumptions and inputs used to determine selling price (whether vendor-specific objective evidence, third-party evidence, or estimated selling price) for the significant deliverables; • To the extent that customers receive certain elements of the arrangement over a period of time following initial delivery, as necessary, we estimate the period of time over which revenue is recognized; and • Whether collectibility is probable. We determine collectibility based on an evaluation of our customer's recent payment history, the existence of a standby letter of credit between the customer's financial institution and our financial institution, and other factors. |
Income Taxes
|
|
Description
|
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 net operating loss carryforwards and tax credits 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.
Our policy is to recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position is sustainable upon examination by tax authorities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is additionally dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. We record a valuation allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists. We include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes. 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. |
Judgments And Uncertainties
|
We make estimates and judgments that affect our accounting for income taxes. This includes estimating actual tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences, including the timing of the recognition of stock-based compensation expense, result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that we believe that recovery is not likely, we establish a valuation allowance.
Significant judgment is required in determining the provision for income taxes, the deferred tax asset and liability balances, the valuation allowance against our deferred tax assets and the reserve resulting from uncertainties in income tax positions. Our financial position and results of operations may be materially affected if actual results differ significantly from these estimates or if the estimates are adjusted in future periods. |
Investments
|
|
Description
|
Valuation
. Our investments are recorded at fair value in our consolidated balance sheets. Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. 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. The degree to which estimates and judgment are used in determining fair value is generally dependent upon the market pricing information available for the investments, the availability of observable inputs and input from independent third parties, the frequency of trading in the investments, and the investment’s complexity. If different judgments regarding inputs were made, we could potentially reach different conclusions regarding the fair value of our investments.
Classification
. All of our investments are classified as available-for-sale securities, with the exception of our investments held in our supplemental retirement plan, which are classified as trading 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.
We classify our financial assets and liabilities measured at fair value using a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that reflect the assumptions market participants would use in pricing the investment that are based on market data obtained from sources independent of the reporting entity, such as market quoted prices.
|
Judgments And Uncertainties
|
The degree to which estimates and judgment are used in determining fair value, is generally dependent upon the market pricing information available for the investments, the availability of observable inputs, the frequency of trading in the investments and the investment’s complexity. If different judgments regarding inputs were made, we could potentially reach different conclusions regarding the fair value of our investments.
GAAP establishes a three-level hierarchy prioritizing the observable inputs used in measuring the fair value of financial assets and liabilities as follows: the fair value hierarchy gives the highest priority to quoted prices in active markets that are accessible by us at the measurement date for identical investments, described as Level 1, and the lowest priority to valuation techniques using unobservable inputs, described as Level 3. We obtain the fair value of our Level 2 financial instruments from a professional pricing service, which may use quoted market prices for identical or comparable instruments. Fair value from this professional pricing source can also be based on pricing models whereby all significant inputs, including maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and other market related data, are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset. |
Stock-Based Compensation
|
|
Description
|
We determine the expense for all employee stock-based compensation awards by estimating their fair value and recognizing that value as an expense, on a ratable basis, in our consolidated financial statements over the requisite service period in which our employees earn the awards. We use the Black-Scholes option pricing model to determine the fair value of employee stock options at the date of the grant.
|
Judgments And Uncertainties
|
To determine the fair value of a stock-based award using the Black-Scholes option pricing model, we make assumptions regarding the expected term of the award, the expected future volatility of our stock price over the expected term of the award, and the risk-free interest rate over the expected term of the award. We estimate the expected term of our stock-based awards by evaluating historical exercise patterns of our employees. We use a blend of the historical volatility of our common stock and the implied volatility of our traded options as an estimate of the expected volatility of our stock price over the expected term of the awards. We use an average interest rate based on U.S. Treasury instruments with terms consistent with the expected term of our awards to estimate the risk-free interest rate. We reduce the stock-based compensation expense for estimated forfeitures based on our historical experience. We are required to estimate forfeitures at the time of the grant and revise our estimate, if necessary, in subsequent periods if actual forfeitures differ from our estimate.
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
Licensing
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Revenue
|
$205,660
|
$204,876
|
|
$784
|
—%
|
Percentage Of Total Revenue
|
89%
|
86%
|
|
|
|
Cost Of Licensing
|
4,001
|
3,080
|
|
921
|
30%
|
Gross Margin
|
201,659
|
201,796
|
|
(137)
|
—%
|
Gross Margin Percentage
|
98%
|
98%
|
|
|
|
Key Drivers
|
Revenue
|
Gross Margin
|
||
Mobile
|
á
|
Driven by higher unit shipments of smartphones and tablets that incorporate our technologies
|
Although licensing gross margin percentage remained consistent at 98% from the first quarter of fiscal 2013 to the first quarter of fiscal 2014, cost of licensing increased over the comparative period, primarily due to an increase in fees payable to a third party
|
|
Broadcast
|
á
|
Driven by an increase in net back royalties and settlements and higher shipments of set-top boxes using our technologies which was partially offset by lower shipments of TV units
|
||
CE
|
á
|
Attributable to increases in net back royalties and settlement revenue from DVD and Blu-ray Disc devices
|
||
PC
|
â
|
Driven primarily by market declines of shipments as well as our transition to the Windows 8 business model
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
Products
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Revenue
|
$18,104
|
$25,498
|
|
$(7,394)
|
(29)%
|
Percentage Of Total Revenue
|
8%
|
11%
|
|
|
|
Cost Of Products
|
13,788
|
18,489
|
|
(4,701)
|
(25)%
|
Gross Margin
|
4,316
|
7,009
|
|
(2,693)
|
(38)%
|
Gross Margin Percentage
|
24%
|
27%
|
|
|
|
Key Drivers
|
Revenue
|
Gross Margin
|
||
Digital Cinema (Video)
|
â
|
Driven by lower average selling prices and lower unit shipments
|
â
|
Driven by lower average selling prices, partially offset by lower unit standard costs
|
3D Cinema
|
â
|
Driven by lower shipments of glasses and kits
|
â
|
Driven by lower average selling prices and higher unit costs
|
Film-Based Cinema
|
â
|
Driven by lower shipments resulting from the industry transition to digital cinema
|
á
|
Driven by lower unit standard costs in addition to higher average selling prices
|
Broadcast
|
â
|
Driven by lower shipments as our customers transition to software licensing solutions
|
á
|
Driven by higher average selling prices, partially offset by net higher unit standard costs
|
Atmos
|
á
|
Driven by worldwide installations of the Dolby Atmos processors for which we had not started shipping in the first quarter of fiscal 2013
|
á
|
Driven by higher margins realized on installations of Dolby Atmos processors
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
Services
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Revenue
|
$7,513
|
$6,228
|
|
$1,285
|
21%
|
Percentage Of Total Revenue
|
3%
|
3%
|
|
|
|
Cost Of Services
|
3,593
|
4,036
|
|
(443)
|
(11)%
|
Gross Margin
|
3,920
|
2,192
|
|
1,728
|
79%
|
Gross Margin Percentage
|
52%
|
35%
|
|
|
|
Key Drivers
|
Revenue
|
Gross Margin
|
||
Film-based production services
|
á
|
Driven by the release of deferred revenue, partially offset by declines in film-based production services consistent with the industry transition to digital cinema
|
á
|
Driven by lower labor and other related costs
|
Other
|
á
|
Driven by an increase in Atmos commissioning services that did not occur in the prior year fiscal quarter as well as an increase in revenue from maintenance and support services.
|
á
|
The first quarter of fiscal 2013 reflected relatively higher costs associated with early Atmos installations
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Research and Development
|
$44,463
|
$42,436
|
|
$2,027
|
5%
|
Percentage of total revenue
|
19%
|
18%
|
|
|
|
Expense Category
|
Key Drivers
|
|
Compensation and benefits
|
á
|
Driven by increased headcount aimed at developing new product offerings and technology solutions
|
Stock-based compensation
|
â
|
Decreased primarily due to nonrecurring incremental expense related to equity award modifications that occurred in connection with the special dividend made in the first quarter of fiscal 2013 (refer to footnote 6 for additional information), partially offset by expense related to increased headcount
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Sales and Marketing
|
$60,379
|
$58,421
|
|
$1,958
|
3%
|
Percentage of total revenue
|
26%
|
25%
|
|
|
|
Expense Category
|
Key Drivers
|
|
Consulting and external labor costs
|
á
|
Driven by higher consulting expenses associated with expanded sales and marketing efforts across our target markets and related geographic locations
|
Stock-based compensation
|
â
|
Decreased primarily due to nonrecurring incremental expense related to equity award modifications that occurred in connection with the special dividend made in the first quarter of fiscal 2013 (refer to footnote 6 for additional information), partially offset by expense related to increased headcount
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
General and Administrative
|
$41,908
|
$43,108
|
|
$(1,200)
|
(3)%
|
Percentage of total revenue
|
18%
|
18%
|
|
|
|
Expense Category
|
Key Drivers
|
|
Legal and professional fees
|
â
|
Decreased as the first quarter of fiscal 2013 included higher external legal expenses, partially offset by higher costs in the current quarter attributed to patent filings and other legal activities
|
Stock-based compensation
|
â
|
Decreased primarily due to nonrecurring incremental expense related to equity award modifications that occurred in connection with the special dividend made in the first quarter of fiscal 2013 (refer to footnote 6 for additional information), partially offset by expense related to increased headcount
|
Compensation and benefits
|
á
|
Driven by increased headcount
|
Bad debt expense
|
á
|
Driven by an increase in our allowance for doubtful accounts as larger outstanding balances due from certain licensing customers remained uncollected as of the current quarter-end
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Restructuring
|
$3,215
|
$—
|
|
$3,215
|
100%
|
Percentage of total revenue
|
1%
|
—%
|
|
|
|
|
Fiscal Quarter Ended
|
|
Q1 '14 vs. Q1 '13
|
||
Other Income/(Expense)
|
December 27,
2013 |
December 28,
2012 |
|
$
|
%
|
Interest income
|
$654
|
$1,339
|
|
$(685)
|
(51)%
|
Interest expense
|
(112)
|
(25)
|
|
(87)
|
348%
|
Other income, net
|
229
|
713
|
|
(484)
|
(68)%
|
Total other income, net
|
$771
|
$2,027
|
|
$(1,256)
|
(62)%
|
Expense Category
|
Key Drivers
|
|
Interest income
|
â
|
Attributed to lower average portfolio balances during the current fiscal quarter as compared to the first quarter of fiscal 2013 when interest was earned for nearly the entire quarter on a higher average portfolio balance before payment of a special dividend
|
Other income/(expense)
|
â
|
Primarily attributed to lower realized gains on the sale of marketable securities as compared to higher gains realized in the first quarter of fiscal 2013 when we sold significant holdings to fund the special dividend
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
Provision for income taxes
|
$(15,455)
|
$(17,582)
|
Effective tax rate
|
25%
|
25%
|
Factor
|
Impact On Effective Tax Rate
|
|
Foreign Operations
|
â
|
In the current fiscal quarter, our estimated fiscal year 2014 tax provision reflects additional benefits from our election to indefinitely reinvest a portion of our undistributed earnings in a foreign subsidiary
|
Uncertain Tax Positions
|
á
|
In the current fiscal quarter, our effective tax rate does not include the recognition of tax benefits from expired statute of limitations on some uncertain tax positions as it did in the first quarter of fiscal 2013
|
|
December 27,
2013 |
September 27,
2013 |
|
(in thousands)
|
|
Cash and cash equivalents
|
$484,640
|
$454,397
|
Short-term investments
|
179,406
|
140,267
|
Long-term investments
|
293,719
|
306,338
|
Accounts receivable, net
|
75,949
|
97,460
|
Accounts payable and accrued liabilities
|
132,454
|
148,490
|
Working capital
(1)
|
708,780
|
645,764
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
December 27,
2013 |
December 28,
2012 |
|
(in thousands)
|
|
Net cash provided by operating activities
|
$77,282
|
$67,300
|
Capital expenditures
|
(8,967)
|
(6,717)
|
Repurchase of common stock
|
(11,660)
|
(53,956)
|
Net cash provided by/(used in) investing activities
|
(37,651)
|
222,221
|
Net cash used in financing activities
|
(9,250)
|
(465,866)
|
(1)
|
Working capital consists of total current assets less total current liabilities.
|
Factor
|
Impact On Cash Flows
|
|
Changes in operating assets and liabilities
|
á
|
Due largely to higher cash collections of accounts receivable, current assets decreased by a greater margin than the decrease in accrued liabilities due to cash payments
|
Net Income
|
â
|
Due largely to an increase in operating expenses
|
Factor
|
Impact On Cash Flows
|
|
Proceeds from sale of marketable securities
|
â
|
A decrease in proceeds received from the sale of available-for-sale securities as we sold significant holdings from our investment portfolio to fund the special dividend payment made in the first quarter of fiscal 2013
|
Purchases of marketable securities
|
á
|
Increased as we purchased less available-for-sale securities in the first quarter of fiscal 2014
|
Factor
|
Impact On Cash Flows
|
|
Dividend
|
â
|
Due to the payment of a special dividend to holders of our Class A and Class B common stock in the first quarter of fiscal 2013 and absence of such a transaction in the current fiscal quarter
|
Share repurchases
|
â
|
Fewer share repurchases of our Class A common stock in the first quarter of fiscal 2014 compared to the first quarter of fiscal 2013
|
Distributions
|
â
|
Due to a distribution made to our controlling interest in the first quarter of fiscal 2013 and absence of such a transaction in the current fiscal quarter
|
•
|
Purchasing trends away from traditional PCs and toward computing devices without optical disc drives, such as ultrabooks and tablets;
|
•
|
PC software that includes our technologies on an unauthorized and infringing basis, for which we receive no royalty payments; and
|
•
|
Continued decreasing inclusion of independent software vendor media applications by PC OEMs.
|
•
|
Exhibitors may choose competing products with different features or lower prices;
|
•
|
Some of our competitors have a significantly greater installed base of digital cinema servers than we do, which may limit our share of the market, particularly in the U.S.; and
|
•
|
Pricing and other competitive pressures have caused us to implement pricing strategies which have adversely affected gross margins of our cinema products.
|
•
|
Exclusive licensing arrangements between our competitors and exhibitors;
|
•
|
Future demand for new 3D enabled screens; and
|
•
|
Decreases in the number of 3D cinema releases and the commercial success of those releases.
|
•
|
Timing of royalty reports from our licensees and meeting revenue recognition criteria;
|
•
|
Royalty reports including positive or negative corrective adjustments;
|
•
|
Retroactive royalties that cover extended periods of time; and
|
•
|
The recognition of unusually large amounts of revenue in any given quarter because not all of our revenue recognition criteria were met in prior periods.
|
•
|
Rapid technological change;
|
•
|
New and improved technology and frequent product introductions;
|
•
|
Changing consumer and licensee demands;
|
•
|
Evolving industry standards; and
|
•
|
Technology and product obsolescence.
|
•
|
Possibility that some of these innovations may not be protectable;
|
•
|
Failure to protect innovations that later turn out to be important;
|
•
|
Insufficient patent protection to prevent third parties from designing around our patent claims; and
|
•
|
Possibility that an issued patent may later be found to be invalid or unenforceable.
|
•
|
Our ability to enforce our contractual and intellectual property rights, especially in countries that do not recognize and enforce intellectual property rights to the same extent as the U.S., Japan, Korea, and European countries do, which increases the risk of unauthorized use of our technologies;
|
•
|
Limited or no patent protection for our Dolby Digital technologies in countries such as China, Taiwan, and India, which may require us to obtain patent rights for new and existing technologies in order to grow or maintain our revenue; and
|
•
|
Because of limitations in the legal systems in many countries, our ability to obtain and enforce patents in many countries is uncertain, and we must strengthen and develop relationships with entertainment industry participants worldwide to increase our ability to enforce our intellectual property and contractual rights without relying solely on the legal systems in the countries in which we operate.
|
•
|
Content creators, such as film directors, studios, music producers and mobile and online content producers;
|
•
|
Content distributors, such as film exhibitors, broadcasters, operators, and over-the-top ("OTT") video service providers and video game publishers; and
|
•
|
Device manufacturers.
|
•
|
Diversion of management time and focus from operating our business to acquisition integration challenges;
|
•
|
Cultural and logistical challenges associated with integrating employees from acquired businesses into our organization;
|
•
|
Retaining employees, suppliers and customers from businesses we acquire;
|
•
|
The need to implement or improve internal controls, procedures, and policies appropriate for a public company at businesses that prior to the acquisition may have lacked effective controls, procedures, and policies;
|
•
|
Possible write-offs or impairment charges resulting from acquisitions;
|
•
|
Unanticipated or unknown liabilities relating to acquired businesses; and
|
•
|
The need to integrate acquired businesses’ accounting, management information, manufacturing, human resources, and other administrative systems to permit effective management.
|
•
|
U.S. and foreign government trade restrictions, including those which may impose restrictions on importation of programming, technology, or components to or from the U.S.;
|
•
|
Compliance with applicable international laws and regulations that may differ or conflict with laws in other countries where we conduct business, or are otherwise not harmonized with one another;
|
•
|
Foreign government taxes, regulations, and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the U.S., and other laws limiting our ability to repatriate funds to the U.S.;
|
•
|
Changes in diplomatic and trade relationships;
|
•
|
Difficulty in establishing, staffing, and managing foreign operations;
|
•
|
Adverse fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;
|
•
|
Political or social instability, natural disasters, war or events of terrorism; and
|
•
|
The strength of international economies.
|
•
|
Earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;
|
•
|
Changes in the valuation of our deferred tax assets and liabilities;
|
•
|
Expiration of or lapses in the research and development ("R&D") tax credit laws;
|
•
|
Fluctuations in tax exempt interest income;
|
•
|
Transfer pricing adjustments;
|
•
|
Tax effects of nondeductible compensation;
|
•
|
Tax costs related to intercompany realignments;
|
•
|
Any obligations or decisions to repatriate earnings from abroad earlier than anticipated;
|
•
|
Changes in accounting principles; or
|
•
|
Changes in tax laws and regulations in the countries in which we operate including possible U.S. changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, or the foreign tax credit rules.
|
|
Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program
|
Average Price
Paid per Share (1) |
Total Shares
Repurchased
|
Approximate Dollar Value of Remaining Authorized Share Repurchases
(2)
|
September 28, 2013 - October 25, 2013
|
—
|
$—
|
—
|
$116.1 million
|
October 26, 2013 - November 22, 2013
|
290,025
|
35.29
|
290,025
|
$105.8 million
|
November 23, 2013 - December 27, 2013
|
39,975
|
35.52
|
39,975
|
$104.4 million
|
Total
|
330,000
|
|
330,000
|
|
(1)
|
Average price paid per share excludes commission costs.
|
(2)
|
Amounts represent the approximate dollar value of the maximum remaining number of shares that may yet be purchased under the stock repurchase program.
|
*
|
Denotes a management contract or compensatory plan or arrangement.
|
‡
|
Furnished herewith.
|
DOLBY LABORATORIES, INC.
|
|
By:
|
/
S
/ LEWIS CHEW
|
|
Lewis Chew
|
|
Executive Vice President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
1.
|
That you execute a Confidential Information and Invention Assignment Agreement upon acceptance of our offer of employment.
|
2.
|
That you sign the Acknowledgement of Receipt Form to acknowledge that you have received and read the following:
|
a.
|
Dolby Laboratories, Inc. Code of Business Conduct and Ethics (the “Code”);
|
b.
|
Dolby Laboratories, Inc. Insider Trading Compliance Program (the “Insider Trading Policy”);
|
c.
|
Dolby Laboratories, Inc. Anticorruption Policy (the “Anticorruption Policy”); and
|
d.
|
Dolby Laboratories, Inc. Policy Regarding Reporting of Financial and Accounting Concerns (the “Policy Regarding Reporting of Financial and Accounting Concerns”).
|
3.
|
That on your first day of employment, you produce documentation that verifies your eligibility to be legally employed in the United States. This documentation generally consists of any combination of documents listed on the enclosed Employment Eligibility Verification (I-9) Form. This documentation must be presented to us on your first working day. As needed, Dolby will sponsor non-immigrant visas for you and your dependents to the extent of your eligibility.
|
4.
|
That a pre-employment background and reference check is completed to our satisfaction.
|
1.
|
I have reviewed this
Quarterly
Report on Form
10-Q
of Dolby Laboratories, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ KEVIN J. YEAMAN
|
Kevin J. Yeaman
|
President and Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this
Quarterly
Report on Form
10-Q
of Dolby Laboratories, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ LEWIS CHEW
|
Lewis Chew
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
•
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
•
|
The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ KEVIN J. YEAMAN
|
Kevin J. Yeaman
President and Chief Executive Officer
(Principal Executive Officer)
|
|
/s/ LEWIS CHEW
|
Lewis Chew
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|