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OFFON

DOLBY LABORATORIES, INC.

(DLB)
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DOLBY LABORATORIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/29/2021 | 05:10pm EDT
The following discussion and analysis should be read in conjunction with our
unaudited interim condensed consolidated financial statements and the related
notes that appear elsewhere in this Quarterly Report on Form 10-Q. This
discussion contains forward-looking statements reflecting our current
expectations that are subject to risks and uncertainties, including, but not
limited to statements regarding: operating results and underlying measures;
demand and acceptance for our technologies and products; the effect of COVID-19
on our business; market growth opportunities and trends; our ability to maintain
key partnership relationships; our plans, strategies and expected opportunities;
future competition; our stock repurchase plan; and our dividend policy. Use of
words such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," "continue" or similar expressions
indicates a forward-looking statement. Actual results may differ materially from
those discussed in these forward-looking statements due to a number of factors,
including the risks set forth in Part II, Item 1A, "Risk Factors." Such
forward-looking statements are based on management's reasonable current
assumptions and expectations. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We disclaim any
duty to update any of the forward-looking statements after the date of this
Quarterly Report on Form 10-Q to conform our prior statements to actual results.
Investors and others should note that we disseminate information to the public
about our company, our products, services and other matters through various
channels, including our website (www.dolby.com), our investor relations website
(http://investor.dolby.com), SEC filings, press releases, public conference
calls, and webcasts, in order to achieve broad, non-exclusionary distribution of
information to the public. We encourage investors and others to review the
information we make public through these channels, as such information could be
deemed to be material information.
OVERVIEW
Dolby Laboratories creates audio and imaging technologies that transform
entertainment and communications at the cinema, at home, at work, and on mobile
devices. Founded in 1965, our strengths stem from expertise in analog and
digital signal processing and digital compression technologies that have
transformed the ability of artists to convey entertainment experiences to their
audiences through recorded media. Such technologies led to the development of
our noise-reduction systems for analog tape recordings, and have since evolved
into multiple offerings that enable more immersive sound for cinema, digital
television transmissions and devices, mobile devices, OTT video and music
services, and home entertainment devices. Today, we derive the majority of our
revenue from licensing our audio technologies. We also derive revenue from
licensing our consumer imaging and communication technologies, as well as audio
and imaging technologies for premium cinema offerings in collaboration with
exhibitors. In addition, we provide products and services for a variety of
applications in the cinema, broadcast, and communications markets, and offer
media processing and interactivity APIs through our developer platform,
Dolby.io.
COVID-19
Please refer to the Executive Summary section of Part I, Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations for
information concerning the continuing effect of COVID-19 on our business.
OUR STRATEGY
Key elements of our strategy include:
Advancing the Science of Sight and Sound. We apply our understanding of the
human senses, audio, and imaging engineering to develop technologies aimed at
improving how people experience and interact with their entertainment and
communications content.
Providing Creative Solutions. We promote the use of our solutions as creative
tools, and provide our products, services, and technologies to filmmakers,
musical artists, sound mixers, and other content creators and providers. Our
tools help showcase the quality and impact of their efforts and intent, which in
turn may generate market demand.
Delivering Superior Experiences. Our technologies and solutions optimize
playback and communications so that users may enjoy richer, clearer, and more
immersive sound and sight experiences.
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REVENUE GENERATION
We have active licensing arrangements with over 500 electronics product OEMs and
software developers. As of June 25, 2021, we had approximately 14,900 issued
patents relating to technologies from which we derive a significant portion of
our licensing revenue. We have approximately 1,400 trademark registrations
throughout the world for a variety of wordmarks, logos, and slogans. These
trademarks are an integral part of our technology licensing program as licensees
typically place them on their products which incorporate our technologies to
inform consumers that they have met our quality specifications.
Licensing
We license our technologies to a range of customers who incorporate them into
their products for enhanced audio and imaging functionality whether it be at
home, at work, on mobile devices, or at the cinema. Our key technologies are
summarized in the table below. As it relates to AAC, HE-AAC, AVC, and HEVC, we
jointly participate in patent licensing programs with other patent owners.
Technology                                                  Description
AAC & HE-AAC               An advanced digital audio codec solution with 

higher bandwidth efficiency

                           used for a wide range of media applications.
AVC                        A digital video codec with high bandwidth 

efficiency used in a wide range of

                           media devices.
                           A next-generation digital audio coding technology that increases transmission
Dolby® AC-4                efficiency while delivering new audio 

experiences, including Dolby Atmos, to

                           a wide range of playback devices.
                           An object-oriented audio technology for cinema 

and a wide range of media

                           devices that allows sound to be precisely placed and moved anywhere in the
Dolby Atmos®               listening environment including the overhead 

dimension. Dolby Atmos is an

                           immersive experience that can be provided via 

multiple Dolby audio coding

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

Dolby Digital Plus™ An advanced digital audio coding technology that offers more efficient audio

                           transmission for a wide range of media applications and devices.
Dolby® TrueHD              A digital audio coding technology providing 

lossless encoding for premium

                           quality media applications.
                           An imaging technology combining high dynamic range and dynamic metadata to
Dolby Vision®              deliver higher color contrast, brighter 

contrast, and improved details for

                           cinema and a wide range of media devices.
                           An audio communications technology with superior spatial perception, voice
Dolby Voice®               clarity, and background noise reduction that 

emulates the in-person meeting

                           experience.
HEVC                       A next-generation digital video codec with high 

bandwidth efficiency to

                           support ultra-high definition experiences for a 

wide range of media devices.

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

                      Fiscal Quarter Ended                  Fiscal Year-To-Date Ended
                    June 25,         June 26,               June 25,           June 26,
Market                2021             2020                   2021               2020       Main Offerings Incorporating Our Technologies
Broadcast              46%             38%                     39%               39%        Televisions and STBs
Mobile                 18%             33%                     23%               23%        Smartphones and Tablets
                                                                                            DMAs, Blu-ray Disc devices, AVRs, Soundbars,
CE                     14%              9%                     15%               14%        DVDs, and HTIBs
PC                     9%              10%                     11%               12%        Windows and macOS operating systems
Other                  13%             10%                     12%               12%        Gaming consoles, Auto DVD, and Dolby Cinema
Total                 100%             100%                   100%               100%


We have various licensing models: a two-tier model, an integrated licensing
model, a patent licensing model, and collaboration arrangements.
Two-Tier Licensing Model.   Most of our consumer entertainment licensing
business consists of a two-tier licensing model whereby our decoding
technologies, included in reference software and firmware code, are first
provided under license to semiconductor manufacturers whom we refer to as
"implementation licensees." Implementation licensees incorporate our
technologies in ICs which they sell to OEMs of consumer entertainment products,
whom we refer to as "system licensees." System licensees separately obtain
licenses from us that allow them to make and sell end-user products using ICs
that incorporate our technologies.
Implementation licensees incorporate our technologies into their chipsets that,
once approved by Dolby, are available for purchase from implementation licensees
by OEMs for use in end-user products. Implementation licensees only pay us a
nominal initial fee on contract execution as consideration for the ongoing
services that we provide to assist in their implementation process. Revenue from
these initial fees is recognized ratably over the contractual term as a
component of licensing revenue.
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System licensees provide us with prototypes of products, or self-test results of
products that incorporate our technologies. Upon our confirmation that our
technologies are optimally and consistently incorporated, the system licensee
may buy ICs under a license for the same Dolby technology from our network of
implementation licensees, and may further sell approved products to retailers,
distributors, and consumers. For the use of our technologies, our system
licensees pay an initial licensing fee as well as royalties, which represent the
majority of the revenue recognized from these arrangements. The amount of
royalties we collect on a particular product depends on several factors
including the nature of the implementations, the mix of Dolby technologies used,
and the volume of products using our technologies that are shipped by the system
licensee.
Integrated Licensing Model.   We also license our technologies to software
operating system vendors and to certain other OEMs that act as combined
implementation and system licensees. These licensees incorporate our
technologies in their software used on PCs, in mobile applications, or in ICs
they manufacture and incorporate into their products. As with the two-tier
licensing model, the combined implementation and system licensee pays us an
initial licensing fee in addition to royalties as determined by the mix of Dolby
technologies used, the nature of the implementations, and the volume of products
using our technologies that are shipped, and is subject to the same quality
control evaluation process.
Patent Licensing Model.   We license our patents through patent pools which are
arrangements between multiple patent owners to jointly offer and license pooled
patents to licensees. We also license our patents directly to manufacturers that
use our IP in their products. Finally, we generate service fees for managing
patent pools on behalf of third party patent owners through our wholly-owned
subsidiary, Via Licensing Corporation. By aggregating and offering pooled IP,
patent pools deliver efficiencies that reduce transactional costs for both IP
owners and licensees. The Via Licensing patent pools enable product
manufacturers to efficiently and transparently secure patent licenses for audio
coding, interactive television, digital radio, and wireless technologies. We
offer our patents related to AAC, AVC, HE-AAC, HEVC, and other IP through a
combination of patent pools and licensing directly to OEMs.
Recoveries.   Licensing revenue recognized in any given period may include
revenue from licensees and/or settlements with third parties where the use of
our technology occurred in previous periods. Within the Results of Operations
section of Part I, Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations," revenue attributable to previous periods'
usage including settlements are collectively referred to as "recoveries." Such
recoveries have become a recurring element of our business and are particularly
subject to fluctuation and unpredictability.
Collaboration Arrangements.
Dolby Cinema: We partner with exhibitors to deliver a premium cinema offering
with Dolby Vision and Dolby Atmos at new and pre-existing venues. We receive
revenue at Dolby Cinema sites through a share of box office receipts, which is
recognized as licensing revenue.
Dolby Voice: Historically, we have entered into arrangements with audio and
video conferencing providers where, in return for licensing our IP and know-how,
we earned revenue based on access to our technology and services. During the
first quarter of fiscal 2021, we decided to exit our conferencing hardware
business and shifted our focus towards expanding the availability of Dolby Voice
technology through software solutions and services.
Products and Services
We design and manufacture audio and imaging products for the cinema, television,
broadcast, and entertainment industries. Distributed in approximately 90
countries, these products are used in content creation, distribution, and
playback to enhance image and sound quality, and improve transmission and
playback. Additionally, some of our Dolby Cinema arrangements involve fixed or
minimum amounts, which are typically included in products sales. We also sell
and lease hardware that facilitate the Dolby conferencing experience, though at
reduced levels since we decided to exit our conferencing hardware business in
the first quarter of fiscal 2021.
Recently, we launched a developer platform, Dolby.io, that enables developers to
access our technologies through APIs. These offerings currently include media
processing APIs for analyzing and improving the sound of recorded audio files,
and interactivity APIs for enabling developers to embed enhanced communications
experiences within their applications. Over time, Dolby.io is intended to
significantly expand the amount and types of content that can be enhanced
through our technologies and capabilities.
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Key products from which we generate products revenue are summarized in the table
below:
Product                                                            Description
                                      Digital Cinema Servers used to load, store, decrypt, decode,
           Cinema Imaging Products    watermark, and playback digital film 

files for presentation on

                                      digital cinema projectors and software used to encrypt, encode, and
Cinema                                package digital media files for 

distribution.

                                      Cinema Processors, amplifiers, and 

loudspeakers used to decode,

           Cinema Audio Products      render, and optimally playback

digital cinema soundtracks including

                                      those using Dolby Atmos.
                                      An integral hardware component of the 

Dolby Voice conferencing

           Dolby Conference Phone     solution that enhances full-room

voice capture, spatial voice

                                      separation, and playback.
                                      Video conferencing solution for 

huddle rooms and conference rooms

           Dolby Voice Room           that combines a camera product with the Dolby Conference Phone and
Other                                 Dolby Voice technology.


                                      3-D glasses and kits, broadcast 

hardware and software used to encode,

           Other Products             transmit, and decode multiple 

channels of high quality audio for DTV

                                      and HDTV distribution, monitors, 

accessibility solutions for hearing

                                      and visually impaired consumers, and 

Dolby.io



In addition, we offer various services to support theatrical and television
production for cinema exhibition, broadcast, and home entertainment, including
equipment training and maintenance, mixing room alignment, equalization, as well
as audio, color, and light image calibration. We also provide PCS for products
sold and equipment installed at Dolby Cinema theaters operated by exhibitor
partners and support the implementation of our technologies into products
manufactured by our licensees.
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                               EXECUTIVE SUMMARY

COVID-19

The COVID-19 pandemic has triggered worldwide shutdowns, job losses, and other
disruptions which in turn have negatively affected the global economy, including
consumer purchasing activity. Because Dolby technologies are featured in a wide
array of electronic products that are primarily purchased by consumers, our
revenue for certain consumer products has been negatively affected by COVID-19,
although we have experienced heightened demand for certain consumer products
that feature our technologies, including TVs and PCs, during the pandemic. It is
unclear how demand for these consumer products may change relative to demand
levels experienced during the pandemic. The issues and circumstances relating to
COVID-19 continue to change rapidly and are difficult to predict. We continue to
monitor the evolving situation and the impact on our business.
The outbreak of COVID-19 has also affected many of our partners, resulting in
the disruption of consumer products' supply chains, shortages of certain
semiconductor components, and delays in shipments, product development, and
product launches. Consumer demand for products that include our technologies may
continue to be negatively impacted due to economic uncertainty resulting from
COVID-19. These factors have impacted revenue pertaining to royalties on
consumer devices and may cause delays in the adoption of our technologies by
partners.
The overall cinema market has been adversely impacted by COVID-19
shelter-in-place and social distancing mandates. At various times, our
exhibition partners and customers have had to either partially or fully
discontinue operations. This has resulted in a significant reduction in box
office receipts at Dolby Cinema sites and lower demand for our cinema products
and services. It remains uncertain when and where the cinemas will be able to
operate at full capacity. Most cinema locations have been permitted to resume
operations, but many such locations are operating under restricted capacity.
At Dolby, we implemented work-from-home policies within all our offices in
locations with ongoing outbreaks and put in place additional safety measures and
global travel restrictions to ensure the well-being of our employees. We have
enabled our employees with the tools and infrastructure they need to carry on
our critical operations and progress the business forward in this remote working
environment. Select Dolby offices in certain locations have resumed in-office
work at less than full capacity, dependent on local progress against COVID-19
and applicable rules and regulations in those jurisdictions, as well as the
readiness of our facilities to accommodate appropriate safety measures for our
employees.
We expect COVID-19 will continue to have an impact for the foreseeable future,
with varying degrees of impact depending on geographic location. The degree of
impact on our business will depend on several factors, such as the full duration
and the extent of the pandemic, the actions taken by governments, businesses and
consumers in response to the pandemic, and the rate and extent of vaccine
distributions to the general population, all of which continue to evolve and
remain uncertain at this time.
Further discussion of the potential impacts of COVID-19 on our business can be
found in Part II, Item 1A "Risk Factors."
EXPANDING OUR LEADERSHIP IN AUDIO AND IMAGING EXPERIENCES
We are focused on expanding our leadership in audio and imaging solutions for
premium entertainment content by increasing the number of Dolby experiences that
people can enjoy, which will drive revenue growth across the markets we serve.
We can increase our value proposition and create opportunities by broadening
Dolby technologies into new types of content, such as music and gaming. We are
also beginning to leverage our audio and imaging expertise to expand the reach
of our technologies to address content beyond premium entertainment that can
create new revenue generating opportunities. Following is a discussion of the
key markets that we address and the various Dolby technologies and solutions
that serve these markets.
LICENSING
The majority of our licensing revenue is derived from the licensing of audio and
imaging technologies for premium entertainment playback. Our audio technologies
are primarily comprised of DD+, Dolby Atmos, AC-4, and our AAC and HE-AAC
technologies. Our imaging technologies are primarily comprised of Dolby Vision
and our AVC and HEVC technologies.
The availability of content in Dolby formats is an important part of creating
the ecosystems that drive adoption of our technologies within a wide range of
devices. Our audio and imaging technologies have a strong presence within
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movie and episodic content through adoption across content creators and
streaming services. The availability of content on these platforms has driven
strong adoption in devices such as TVs, STBs, speaker devices, and playback
devices. Our core Dolby audio technologies have also been broadly adopted
through many forms of content, including broadcast TV, streaming, and optical
disc playback.
Major streaming partners and services such as Netflix, Disney+, Apple TV+,
Amazon, and HBO Max continue to enable more content in Dolby Vision and Dolby
Atmos. For example, in the third quarter of fiscal 2021, there was an increase
in the global adoption of our technologies, where streaming services Netflix,
Disney+, Apple TV+, Hotstar, and iQiyi are launching local content in Dolby
formats in countries such as Korea, India, Thailand, and Singapore.
Recently, TV network operators have begun to broadcast live events in Dolby
Vision and Dolby Atmos. For example, Comcast is enabling Dolby Vision and Dolby
Atmos for the Tokyo 2020 Olympics. Also, in the third quarter of fiscal 2021,
several international TV stations broadcast the Euro 2020 football championship
in Dolby Atmos. We believe broadcast experiences such as these help drive
further adoption of our technologies in devices such as TVs and smartphones.
We have also enabled a broader range of content, such as music, gaming, and
user-generated content. We believe enabling our technologies in these forms of
content create additional value for adoption of Dolby within devices like
mobile, PC, gaming consoles, and automotive. In the third quarter of fiscal
2021, Apple launched Dolby Atmos in their Apple Music service. Additionally,
Naver Vibe, a music streaming service in Korea, launched music in Dolby Atmos
Music for the first time. Also recently, DistroKid, the world's leading
distributor of independent music, announced plans to deliver songs in Dolby
Atmos to Apple Music and Tidal.
The following are highlights from our third quarter of fiscal 2021 and key
challenges related to audio and imaging licensing, by market.
Broadcast
Highlights: We have an established global presence with respect to our DD+ and
HE-AAC audio technologies in broadcast services and devices. In recent years, we
have expanded our offerings in the broadcast market through the introduction of
newer technologies, including our Dolby Atmos and AC-4 audio technologies, Dolby
Vision, as well as AVC and HEVC imaging technologies which we license through
patent pools.
We partner with many TV OEMs to enable Dolby Vision and Dolby Atmos experiences
within their TV lineups. Many such partners have continued to expand their
support of the combined Dolby Vision and Dolby Atmos experience. For example,
Skyworth recently launched its latest smart TV model that supports Dolby Vision
and Dolby Atmos. In addition, LG recently announced that it plans to initiate a
firmware update to its OLED TVs that can optimize the game play experience for
Dolby Vision enabled games. Xiaomi in China recently announced new TV models
that support Dolby Vision, Dolby Vision IQ, and Dolby Atmos. Also, in the third
quarter of fiscal 2021, Japan-based Regza launched its adoption of Dolby Vision
IQ in their TVs. Dolby Vision IQ creates an enhanced viewing experience by
automatically adjusting the TV picture according to the surrounding light and
the type of content being viewed.
Key Challenges: Our pursuit of growth and further adoption of our technologies
may be impacted by a number of factors. We must continue to present compelling
reasons for consumers to demand our audio and imaging technologies, including
ensuring that there is a breadth of available content in our formats and such
content is being widely distributed. To the extent that OEMs do not incorporate
our technologies in current and future products, our revenue could be impacted.
Further, in certain countries, such as China, we face difficulties enforcing our
contractual and IP rights, including instances in which our licensees fail to
accurately report the shipment of products using our technologies.
Additionally, in the broadcast market, as well as other markets, we face
geopolitical challenges including changes in diplomatic and trade relationships,
trade protection measures, and import or export licensing requirements. Further,
COVID-19 continues to cause uncertainty about consumer demand for devices and
services in the broadcast market, the ability of our partners to manufacture
such devices due to supply chain disruption, timing of the adoption of our
technologies into new products by partners and licensees, and the timing of
launches for new products.
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Mobile

Highlights: We continue to focus on adoption of our technologies across major
mobile ecosystems, including Apple and Android. HE-AAC and HEVC are widely
adopted audio and video technologies across mobile devices, and we offer these
technologies through our patent licensing programs. We also continue to focus on
expanding adoption of our DD+, AC-4, Dolby Atmos, and Dolby Vision technologies
in the mobile market.
The breadth of mobile devices supporting Dolby technologies continues to
increase globally. In the third quarter of fiscal 2021, OPPO launched its latest
mobile phone model K9 which supports Dolby Atmos, and India-based Realme
recently announced that its latest model will support Dolby Atmos.
Key Challenges: Growth in this market is dependent on several factors. Due to
short product life cycles, mobile device OEMs can readily add or remove certain
of our technologies from their devices. Our success depends on our ability to
address the rapid pace of change in mobile devices, and we must continuously
collaborate with mobile device OEMs to incorporate our technologies. We rely on
a small number of partnerships with key participants in the mobile market. If we
are unable to maintain these key relationships, we may experience a decline in
mobile devices incorporating our technologies. To the extent that OEMs do not
incorporate our technologies in current and future products, our revenue could
be impacted. Additionally, we must continue to support the development and
distribution of Dolby-enabled content via various ecosystems. Further, COVID-19
continues to cause uncertainty about consumer demand for devices in the mobile
market, the ability of our partners to manufacture such devices due to supply
chain disruption, timing of the adoption of our technologies into new products
by partners and licensees, and the timing of launches for new products.
Consumer Electronics
Highlights: We have an established presence in the home entertainment market
across devices such as AVRs, soundbars, smart speakers, DMAs, and Blu-Ray
players, through the inclusion of our DD+ technology, and increasingly through
the inclusion of our Dolby Atmos technology. AAC and HE-AAC technologies also
have broad adoption through our patent licensing programs.
Key Challenges: We must continue to present compelling reasons for consumers to
demand our technologies wherever they enjoy entertainment content, while
promoting creation and broad availability of content in our formats. To the
extent that OEMs do not incorporate our technologies in current and future
products, our revenue could be impacted. Further, COVID-19 continues to cause
uncertainty about consumer demand for devices in the home entertainment market,
the ability of our partners to manufacture such devices due to supply chain
disruption, timing of the adoption of our technologies into new products by
partners and licensees, and the timing of launches for new products.
Personal Computers
Highlights: DD+ continues to enhance audio playback in both Mac and Windows
operating systems, including native support in their respective Safari and
Microsoft Edge browsers. Dolby's presence in these browsers enables us to reach
more users through various types of content, including streaming video
entertainment. A number of PCs from partners such as Apple, Lenovo, Dell,
Samsung and ASUS also support Dolby Vision and/or Dolby Atmos, with continued
expansion of applications through music, streaming, and gaming. In the third
quarter of fiscal 2021, Samsung launched their new Galaxy Book model supporting
Dolby Atmos.
Key Challenges: PC revenue from core audio technologies such as DD+ has been
impacted by a decline in the portion of PCs that have optical disc functionality
in recent years, which has resulted in a decline in our ASPs, and we expect this
decline in ASPs to continue. We must continuously collaborate and maintain our
key partnership relationships with PC manufacturers to incorporate our
technologies, and we must continue to support the development and distribution
of Dolby content via various ecosystems. Demand in the PC market has been
positively impacted in recent quarters by work-from-remote policies due to
COVID-19. It is unclear whether this heightened demand will be sustained.
COVID-19 continues to cause uncertainty about the ability of our partners to
manufacture such devices due to supply chain disruption, timing of the adoption
of our technologies into new products by partners and licensees, and the timing
of launches for new products.
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Other Markets
Highlights: DD+ is incorporated in the Xbox and PlayStation gaming consoles that
support gaming content and streaming for movie and television content. The most
recently launched Xbox gaming console supports Dolby Vision and Dolby Atmos for
streaming and gaming content. We also generate revenue from the automotive
industry primarily through disc playback devices as well as other elements of
the entertainment system, including in the future, enabling the playback of
Dolby Atmos music.
Key Challenges: Consumer demand for devices in the gaming industry is impacted
by anticipation of console refresh cycles. In addition, the gaming console
market has competition from mobile devices and gaming PCs, which have faster
refresh cycles and appeal to a broader consumer base. Also, automotive revenue
has been negatively impacted by a decline in the portion of cars that have
optical disc playback in recent years. These factors may impact our future
revenue. If OEMs do not incorporate our technologies in current and future
products, our revenue will face downward pressure. Further, COVID-19 continues
to cause uncertainty about consumer demand for devices in the gaming industry,
the ability of our partners to manufacture such devices due to supply chain
disruption, timing of the adoption of our technologies into new products by
partners and licensees, and the timing of launches for new products.
In addition to licensing revenue derived from the licensing of audio and imaging
technologies into the markets discussed above, we offer our audio and imaging
technologies to create Dolby experiences through Dolby Cinema.
Dolby Cinema
Highlights: We continue to expand our global presence for Dolby Cinema. As of
the end of the third quarter of fiscal 2021, we have over 260 Dolby Cinema
locations established across 14 countries, with about 95% of those sites
reopened to limited capacity. The breadth of motion pictures for Dolby Cinema
continues to grow with over 350 theatrical titles in Dolby Vision and Dolby
Atmos having been announced or released from all of the major studios.
Key Challenges: Although the premium large format market for the cinema industry
has been growing, Dolby Cinema competes with other existing offerings. Our
success depends on our partners and their success, and our ability to
differentiate our offering, deploy new sites in accordance with plans, and
attract and retain a global viewing audience. In addition, the success of our
Dolby Cinema offering will be tied to global box office performance generally.
COVID-19 has had a significant effect on theatrical exhibition, which could
impact the financial viability of our key partners. The response to COVID-19
including the closure of cinemas, shelter-in-place mandates and
government-imposed social-distancing restrictions has had a negative impact on
our cinema-related revenue and consumer demand, although consumer demand for the
cinema has improved recently. Further, certain studios have delayed the release
of a number of new movie titles and/or are shifting towards a
direct-to-streaming model, which as a result, has negatively impacted the rate
of new Dolby Cinema content. It is uncertain whether consumer demand for the
cinema and other forms of indoor recreation will return to previous levels.
PRODUCTS AND SERVICES
A majority of our products and services revenue is derived from the sale of
audio and imaging products for the cinema, television, broadcast, communication,
and entertainment industries. Revenue from the sale of Dolby Conference Phones
and Dolby Voice Room, a business which we are exiting, is included in products
and services. Revenue from our recently launched developer platform, Dolby.io,
is also included in products and services.
Cinema Products and Services
Highlights: To help enable the playback of content in Dolby formats, we offer a
range of servers and audio processors to cinema exhibitors globally. Dolby Atmos
has been adopted broadly across studios, content creators, post-production
facilities, and exhibitors. As of the third quarter of fiscal 2021, there are
over 6,000 Dolby Atmos screens installed or committed and over 2,000 Dolby Atmos
theatrical titles have been announced or released.
We also offer a variety of other cinema products, which include the IMS3000, an
integrated imaging and audio server with Dolby Atmos, the Dolby Multichannel
Amplifier, and our high-power flexible line of speakers. These products allow us
to offer exhibitors a more complete Dolby Atmos solution that is often more cost
effective than what was previously available to them.
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Key Challenges: Demand for our cinema products is dependent upon our partners
and their success in the market, industry and economic cycles, box office
performance, and our ability to develop and introduce new technologies, further
our relationships with content creators, and promote new cinematic audio and
imaging experiences. A significant portion of our growth opportunity lies in
international markets, such as China, which are subject to economic risks as
well as geo-political risks. We may also be faced with pricing pressures or
competing technologies, which would affect our revenue.
Additionally, the effects of COVID-19 such as the closure of cinemas, social
distancing requirements, and shelter-in-place mandates have had a negative
impact on demand for cinema products and services, and it remains uncertain
whether it will continue to have a negative impact on the demand for these
products and services. COVID-19 has also negatively impacted the financial
health of our cinema customers and partners. If cinemas permanently close, our
equipment may be available for resale on the secondary market, and erode the
demand for new products. These conditions are likely to continue as
government-imposed restrictions continue to lift in certain locations.
Dolby Voice
Highlights: Historically, we sold hardware products such as the Dolby Conference
Phone and the Dolby Voice Room, that included our Dolby Voice technology.
However, in the first quarter of fiscal 2021, we decided to exit our conference
hardware business and focus instead on expanding the availability of Dolby Voice
technology through software solutions and services.
Key Challenges: As we shift away from hardware solutions, we may face challenges
in how we expand our technologies to new offerings and solutions. Our success
will depend on our ability to attract a robust developer community and new
industry relationships as we to bring our services and technologies to market.
Developer Platform Services
Highlights: We are focused on bringing our expertise in media and communications
to a broader range of content and digital experiences. For example, we are
increasing our engagement with new customers across different industries through
our developer platform, Dolby.io, that enables developers to access our
technologies through APIs. The initial offerings include media processing APIs
for analyzing and improving the sound of recorded audio files, for example, and
interactivity APIs for enabling developers to embed enhanced communications
experiences within their applications.
Following the initial launch of Dolby.io, we have seen growing developer
engagement with our media and interactivity APIs for use cases such as
entertainment, online education and collaboration tools. Also, in the third
quarter of fiscal 2021, we completed an integration with Box by using embedded
Dolby media processing APIs, that allows Box customers to enable their users to
easily enhance the quality of their audio files.
Key Challenges: Dolby.io is still considered in its initial stages of product
launch, and it is uncertain when and if it will be a material revenue driver for
the Company. Our success in this market will depend on the number of developers
we are able to attract and maintain, the volume of usage of the service, and our
ability to monetize our services. In addition, the development and maintenance
needed to provide a reliable and scalable platform may require us to internally
develop new skills for our current employees or hire external specialized
talent. Although the market for online experiences has been growing, Dolby's
interactivity API technologies compete with other offerings.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the critical accounting policies from
those included in our fiscal 2020 Annual Report on Form 10-K filed with the SEC,
as per Management's Discussion and Analysis of Financial Condition and Results
of Operations-Critical Accounting Policies and Estimates included therein.
RESULTS OF OPERATIONS
For each line item included on our interim condensed consolidated statements of
operations described and analyzed below, the significant factors identified as
the leading drivers contributing to the overall fluctuation are presented in
descending order of their impact on the overall change (from an absolute value
perspective). This discussion and analysis highlights comparisons of material
changes in the condensed consolidated financial statements for the quarters
ended June 25, 2021 and June 26, 2020. Note that adjustments related to
previously under-reported sales-based royalties as well as unlicensed settlement
activity, are collectively referred to as "recoveries." Amounts displayed,
except percentages, are in thousands.
Revenue and Gross Margin
Licensing
Licensing revenue consists of fees earned from licensing our technologies to
customers who incorporate them into their products and services to enable and
enhance audio and imaging capabilities. The technologies that we license are
either internally developed, acquired, or licensed from third parties. A
significant portion of our licensing revenue pertains to customer-shipment
royalties that we recognize based on estimates of our licensees' shipments. To
the extent that shipment data reported by licensees differs from estimates we
made and recorded, we recognize an adjustment to revenue for such difference in
the period we receive the reported shipment data.
Our cost of licensing consists mainly of amortization of certain purchased
intangible assets and intangible assets acquired in business combinations,
depreciation, third party royalty obligations, and patent pool fees.
                                      Fiscal Quarter Ended                Change                   Fiscal Year-To-Date Ended                    Change
                                   June 25,         June 26,                                        June 25,         June 26,
Licensing                            2021             2020             $          %                   2021             2020                   $           %
Revenue                            $271,569         $235,125        $36,444      15%                $948,159         $821,673             $126,486       15%
Percentage of total revenue          95%               95%                                            95%               92%
Cost of licensing                   12,480           12,572          (92)        (1)%                41,486           38,157                3,329        9%
Gross margin                       259,089           222,553        36,536       16%                906,673           783,516              123,157       16%
Gross margin percentage              95%               95%                                            96%               95%


                                                         Fiscal Quarter Ended                                               Fiscal Year-To-Date Ended
Market                                      June 25, 2021                     June 26, 2020                      June 25, 2021                       June 26, 2020
Broadcast                            $     123,955         46  %       $      88,824         38  %       $    368,068             39  %       $     319,634         39  %
Mobile                                      49,861         18  %              77,641         33  %            221,157             23  %             187,819         23  %
CE                                          37,805         14  %              20,365          9  %            138,010             15  %             118,409         14  %
PC                                          24,870          9  %              23,537         10  %            108,709             11  %             101,171         12  %
Other                                       35,078         13  %              24,758         10  %            112,215             12  %              94,640         12  %
Total licensing revenue              $     271,569        100  %       $     235,125        100  %       $    948,159            100  %       $     821,673        100  %


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Current Quarter: Q3 2021 vs. Q3 2020
Factor                                           Revenue                                                 Gross Margin
                         Higher revenue due to higher TV unit shipments in North America
Broadcast          á     and Europe, higher STB unit shipments, higher revenue from
                         recoveries, and higher adoption of our technologies
                         Lower revenue from our patent licensing technologies, primarily
Mobile             â     due to lower recoveries in the current year, 

partially offset by

                         higher revenue from higher unit shipments
CE                 á     Higher revenues from higher shipments of DMAs and soundbars, and     ßà      No significant fluctuations
                         increased adoption of our patent licensing technologies
                         Higher gaming revenue primarily from gaming consoles and gaming
Other              á     headsets, higher patent administration fees from Via Licensing,
                         and higher revenues from Dolby Cinema due to increased movie
                         theater attendance
PC                 á     Higher unit shipments due to demand from working from home
                         conditions of COVID-19, partially offset by lower recoveries


Year-To-Date: Q3 2021 vs. Q3 2020
Factor                                           Revenue                                                 Gross Margin
                         Higher revenue from higher unit shipments in North America and
Broadcast          á     Europe, increased adoption of our technologies, and higher
                         revenue from our patent licensing technologies, partially offset
                         by lower recoveries
Mobile             á     Higher revenue from recoveries, as well as higher revenue from
                         our patent licensing technologies and higher unit shipments
                         Higher revenue from higher unit shipments, increased adoption of
CE                 á     our Dolby Atmos and Dolby Vision technologies,

and higher revenue ßà No significant fluctuations

                         from recoveries
                         Higher gaming revenue primarily from gaming consoles and higher
Other              á     patent administration fees from Via Licensing, partially offset
                         by lower automotive recoveries
                         Higher unit shipments due to demand from working from home
PC                 á     conditions of COVID-19, and higher adoption of our Dolby Atmos
                         and Dolby Vision technologies, partially offset by lower
                         recoveries


Products and Services
Products revenue is generated from the sale of audio, imaging, and voice
products for the cinema, television broadcast, and communications. Also included
in products revenue are amounts relating to certain Dolby Cinema arrangements
that are considered sales-type leases that involve fixed or minimum fees. Cost
of products includes materials, labor, manufacturing overhead, amortization of
certain intangible assets, and certain third party royalty obligations.
Services revenue consists of fees charged to support theatrical and television
production for cinema exhibition, broadcast, and home entertainment, including
equipment training and maintenance, mixing room alignment, equalization, as well
as audio, color, and light image calibration. Services revenue also includes PCS
for products sold and equipment installed at Dolby Cinema theaters operated by
exhibitor partners and support for the implementation of our technologies into
products manufactured by our licensees. Also included in services revenue are
amounts generated through our Dolby.io developer platform. Cost of services
consists of personnel and personnel-related costs for providing our professional
services, software maintenance and support, external consultants, and other
direct expenses incurred on behalf of customers.
                                     Fiscal Quarter Ended                   Change                   Fiscal Year-To-Date Ended                     Change
                                   June 25,         June 26,                                          June 25,         June 26,
Products and Services                2021             2020               $          %                   2021             2020                   $            %
Revenue                            $15,230          $11,784           $3,446       29%                $48,072           $68,928             $(20,856)      (30)%
Percentage of total revenue           5%               5%                                                5%               8%
Cost of products and services       19,164           17,316            1,848       11%                 57,840           65,876               (8,036)       (12)%
Gross margin                       (3,934)          (5,532)            1,598      (29)%               (9,768)            3,052              (12,820)      (420)%
Gross margin percentage             (26)%            (47)%                                             (20)%              4%


Current Quarter: Q3 2021 vs. Q3 2020
Factor                                  Revenue                                          Gross Margin
                          Higher sales of cinema equipment due to
                          gradual recovery from COVID-19, partially             Higher gross margin primarily due to
Products            á     offset by lower units of conferencing           

á higher products and services revenue

                          hardware products as a result of winding
                          down that business
Services            ßà    No significant fluctuations                     

ßà No significant fluctuations

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Year-To-Date: Q3 2021 vs. Q3 2020
Factor                                  Revenue                                           Gross Margin
                                                                                Lower revenue from Dolby Cinema and Dolby
                          Lower sales of cinema equipment attributable          Voice hardware sales, lower absorption of
                          to COVID-19, and lower units of conferencing          manufacturing overhead, and higher scrap
Products            â     hardware products as a result of winding        â     from exiting our conference hardware
                          down that business                                    business, partially offset by lower
                                                                                variable COGS due to lower volume and
                                                                                lower excess and obsolescence charges
                                                                                Higher costs related to Dolby Cinema
Services            ßà    No significant fluctuations                     â     services, higher depreciation expense,
                                                                                and higher systems expenses to support
                                                                                the developer platform


Operating Expenses
Research and Development
R&D expenses consist primarily of employee compensation and benefits expenses,
stock-based compensation, consulting and contract labor costs, depreciation and
amortization, facilities costs, costs for outside materials, and information
technology expenses.
                                      Fiscal Quarter Ended                  Change                   Fiscal Year-To-Date Ended                   Change
                                    June 25,         June 26,                                         June 25,         June 26,
                                      2021             2020               $          %                  2021             2020                  $          %
Research and development            $62,094          $59,583           $2,511       4%                $191,674         $177,319             $14,355      8%
Percentage of total revenue           22%              24%                                              19%               20%


Current Quarter: Q3 2021 vs. Q3 2020
Category                                                             Key 

Drivers


Compensation & Benefits                 á     Higher costs of $2.3 million 

due to higher salaries expense



Year-To-Date: Q3 2021 vs. Q3 2020
Category                                                               Key 

Drivers

                                              Higher costs of $5.6 million due to higher incentive compensation and
Compensation & Benefits                 á     higher costs of $4.7 million 

due to higher salaries expense, due to

                                              increased headcount

Stock-based Compensation                á     Higher costs of $3.1 million 

due to increased fair value of RSUs

Sales and Marketing

  S&M expenses consist primarily of employee compensation and benefits expenses,
stock-based compensation, marketing and promotional expenses for events such as
trade shows and conferences, marketing campaigns, travel-related expenses,
consulting fees, facilities costs, depreciation and amortization, information
technology expenses, and legal costs associated with the protection of our IP.
                                     Fiscal Quarter Ended                  Change                   Fiscal Year-To-Date Ended                     Change
                                   June 25,         June 26,                                         June 25,         June 26,
                                     2021             2020               $          %                  2021             2020                   $           %
Sales and marketing                $80,714          $70,934           $9,780       14%               $234,205         $254,537             $(20,332)      (8)%
Percentage of total revenue          28%              29%                                              24%               29%


Current Quarter: Q3 2021 vs. Q3 2020
Category                                                           Key 

Drivers


Marketing Programs                  á     Higher costs of $6.2 million 

primarily due to marketing efforts for

                                          company growth initiatives and 

branding activities



Year-To-Date: Q3 2021 vs. Q3 2020
Category                                                                Key 

Drivers


                                              Lower costs of $22.7 million primarily related to marketing programs
Marketing Programs                      â     that were higher in the 

prior year due to the timing of execution, and

                                              lower spending due to 

COVID-19

Travel                                  â     Lower costs of $7.6 million 

for company travel due to COVID-19 travel

                                              restrictions
Compensation & Benefits                 á     Higher costs of $5.2 million 

primarily due to higher incentive

                                              compensation in the current 

year

Stock-based Compensation                á     Higher costs of $4.4 million 

due to increased fair value of RSUs

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General and Administrative
G&A expenses consist primarily of employee compensation and benefits expenses,
stock-based compensation, depreciation, facilities and information technology
costs, as well as professional fees and other costs associated with external
consulting and contract labor.
                                         Fiscal Quarter Ended                  Change                   Fiscal Year-To-Date Ended                   Change
                                       June 25,         June 26,                                         June 25,         June 26,
                                         2021             2020               $          %                  2021             2020                  $          %
General and administrative             $56,116          $50,843           $5,273       10%               $169,968         $164,172             $5,796       4%
Percentage of total revenue              20%              21%                                              17%               18%


Current Quarter: Q3 2021 vs. Q3 2020
Category                                                       Key Drivers
Bad Debt Expense                â     Lower costs of $3.5 million 

primarily due to higher charges recorded in

                                      the prior year attributable to the onset of COVID-19
Legal, Professional, &          á     Higher costs of $3.2 million primarily due to higher legal expenses
Consulting
Compensation & Benefits         á     Higher costs of $1.1 million due to higher salaries expense
Stock-based Compensation        á     Higher costs of $1.1 million due to increased fair value of RSUs


Year-To-Date: Q3 2021 vs. Q3 2020
Category                                                         Key 

Drivers

                                      Lower costs of $6.5 million primarily due to net increase in collections
Bad Debt Expense                â     in the current year, and higher 

charges recorded in the prior year

                                      attributable to the onset of COVID-19

Legal, Professional, & á Higher costs of $5.1 million primarily due to higher legal expenses Consulting


Taxes and Insurance             á     Higher costs of $4.2 million 

primarily due to a property tax credit

                                      recorded in the prior year that did 

not repeat in the current period Compensation & Benefits á Higher costs of $4.0 million due to higher incentive compensation in the

                                      current year


Gain on Sale of Assets
                                                                      Fiscal Year-To-Date Ended                 Change
                                                                                                        June 25,        June 26,
                                                                                                          2021            2020             $               %
Gain on sale of assets                                                                                 $(13,871)           $-          $(13,871)        (100)%
Percentage of total revenue                                                                               (1)%             -%


Year-To-Date: Q3 2021 vs. Q3 2020
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 had a carrying
value of $2.2 million as of September 25, 2020. In the first quarter of fiscal
2021, we finalized the sale of 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
condensed consolidated statements of operations. Refer to "Net (Income)/Loss
Attributable to Controlling Interest" section below for more information.
Restructuring Charges
Restructuring charges recorded as operating expenses in our condensed
consolidated statement of operations represent costs associated with separate
individual restructuring plans implemented in various fiscal periods. The extent
of our costs arising as a result of these actions, including fluctuations in
related balances between fiscal periods, is based on the nature of activities
under the various plans.
                                            Fiscal Quarter Ended                   Change                    Fiscal Year-To-Date Ended                    Change
                                          June 25,        June 26,                                            June 25,         June 26,
                                            2021            2020                $           %                   2021             2020                  $          %
Restructuring charges                       $140           $1,522           $(1,382)      (91)%               $10,904           $1,866              $9,038       484%
Percentage of total revenue                  -%              1%                                                  1%               -%

Year-To-Date: Q3 2021 vs. Q3 2020

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Restructuring charges recorded in the year-to-date period ended June 25, 2021 of
$9.6 million were incurred in relation to our fiscal 2021 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. These costs represented severance and
related benefits that were offered to approximately 100 employees that were
impacted by this action. For additional information on our Restructuring
programs, see Note 13 "Restructuring" to our unaudited interim condensed
consolidated financial statements.
Other Income/Expense
Other income/expense primarily consists of interest income earned on cash and
investments and the net gains or losses from foreign currency transactions,
derivative instruments, and sales of marketable securities from our investment
portfolio.
                                     Fiscal Quarter Ended                   Change                    Fiscal Year-To-Date Ended                     Change
                                   June 25,        June 26,                                            June 25,         June 26,
                                     2021            2020                $           %                   2021             2020                   $           %
Other income                        $3,034          $5,851           $(2,817)      (48)%                $7,429           $16,549             $(9,120)      (55)%
Percentage of total revenue           1%              2%                                                  1%               2%


Current Quarter: Q3 2021 vs. Q3 2020
Category                                                        Key Drivers
Interest Income                   â     Lower yields of $1.8 million on 

current year investment balances due

                                        to decreased interest rates


Year-To-Date: Q3 2021 vs. Q3 2020
Category                                                        Key Drivers
Interest Income                   â     Lower yields of $9.6 million on 

current year investment balances due

                                        to decreased interest rates


Income Taxes
Our effective tax rate is based on our annual fiscal year results and is
affected each period-end by several factors. These factors include changes in
our projected fiscal year results, recurring items such as tax rates and
relative income earned in foreign jurisdictions, as well as discrete items such
as changes to our unrecognized tax benefits that may occur in, but are not
necessarily consistent between, periods. For additional information related to
effective tax rates, see Note 12 "Income Taxes" to our unaudited interim
condensed consolidated financial statements.
                                                       Fiscal Quarter Ended                        Fiscal Year-To-Date Ended
                                                   June 25,            June 26,                   June 25,             June 26,
                                                     2021                2020                       2021                 2020
(Provision for)/benefit from income taxes          $(4,565)             $27,388                   $(37,859)             $(580)
Effective tax rate                                   7.7%               (68.5)%                     12.2%                0.3%


Current Quarter: Q3 2021 vs. Q3 2020
Factor                                                            Impact On 

Effective Tax Rate


                                                         Lower expense in prior period due to a discrete benefit
Unrecognized Tax Benefits                      á         associated with 

the release of liabilities related to

                                                         unrecognized tax 

benefits



Year-To-Date: Q3 2021 vs. Q3 2020
Factor                                                            Impact On 

Effective Tax Rate


                                                         Lower expense in prior period due to a discrete benefit
Unrecognized Tax Benefits                      á         associated with 

the release of liabilities related to

                                                         unrecognized tax 

benefits

Net (Income)/Loss Attributable to Controlling Interest

                                       Fiscal Quarter Ended                  Change                   Fiscal Year-To-Date Ended                     Change
                                      June 25,        June 26,                                         June 25,         June 26,
                                        2021            2020             $           %                   2021             2020                   $            %
Net (income)/loss attributable to
controlling interest                    $61            $(93)            $154      (166)%               $(7,559)          $(109)              $(7,450)      6,835%
Percentage of total revenue              -%              -%                                              (1)%              -%


Year-To-Date: Q3 2021 vs. Q3 2020

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In the first quarter of fiscal 2021, we finalized the sale of a property, which
included land and building, and as a result, we recognized a gain of
$13.9 million from this transaction, which was recorded to gain on sale of
assets on the condensed consolidated statements of operations. The property was
51% owned by the controlling interest, and therefore 51% of the gain on sale of
assets has been attributed to the controlling interest.
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LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Our principal sources of liquidity are cash, cash equivalents, and investments,
as well as cash flows from operations. We believe that these sources will be
sufficient to satisfy our currently anticipated cash requirements through at
least the next twelve months.
As of June 25, 2021, we had cash and cash equivalents of $1,219.6 million, which
mainly consisted of cash and highly-liquid money market funds. In addition, we
had short and long-term investments of $102.4 million, which consisted primarily
of municipal debt securities, certificates of deposit, government bonds,
commercial paper, corporate bonds, and U.S. agency securities.
The following table presents selected financial information as of June 25, 2021
and September 25, 2020 (in thousands):
                                               June 25,        September 25,
                                                 2021               2020
Cash and cash equivalents                    $ 1,219,648      $    1,071,876
Short-term investments                            48,277              46,948
Long-term investments                             54,155              52,149
Accounts receivable, net                         275,080             180,340
Accounts payable and accrued liabilities         267,220             232,591
Working capital                                1,463,911           1,280,087


Capital Expenditures and Uses of Capital
Our capital expenditures consist of purchases of land, building, building
fixtures, laboratory equipment, office equipment, computer hardware and
software, leasehold improvements, and production and test equipment. Included in
capital expenditures are amounts associated with Dolby Cinema locations. We
continue to invest in S&M and R&D to promote the overall growth of our business
and technological innovation.
We retain sufficient cash holdings to support our operations and we also
purchase investment grade securities diversified among security types,
industries, and issuers. We have used cash generated from our operations to fund
a variety of activities related to our business in addition to our ongoing
operations, including business expansion and growth, acquisitions, and
repurchases of our Class A common stock. We have historically generated
significant cash from operations. However, these cash flows and the value of our
investment portfolio could be affected by various risks and uncertainties, as
described in Part II, Item 1A "Risk Factors."
Shareholder Return
We have returned cash to stockholders through both repurchases of Class A common
stock under our repurchase program initiated in fiscal 2010 and our quarterly
dividend program initiated in fiscal 2015. Refer to Note 9 "Stockholders' Equity
and Stock-Based Compensation" to our unaudited interim condensed consolidated
financial statements for a summary of dividend payments made under the program
during fiscal 2021 and additional information regarding our stock repurchase
program.
Stock Repurchase Program. Our stock repurchase program was approved in fiscal
2010, and since then we have completed approximately $2.0 billion of stock
repurchases under the program.
Quarterly Dividend Program. During fiscal 2015, we initiated a recurring
quarterly cash dividend program for our stockholders. For fiscal 2021, quarterly
dividends of $0.22 per share were paid on our Class A and Class B common stock
to eligible stockholders of record.
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Cash Flows Analysis
For the following comparative analysis performed for each of the sections of the
condensed consolidated statement of cash flows, the significant factors
identified as the leading drivers contributing to the fluctuation are presented
in descending order of their impact relative to the overall change (amounts
displayed in thousands).
Operating Activities
                                                   Fiscal Year-to-Date Ended
                                                    June 25,             June 26,
                                                      2021                 2020
Net cash provided by operating activities    $      337,980             $ 

231,187



Net cash provided by operating activities increased $106.8 million in the fiscal
year-to-date period ended June 25, 2021 as compared to the fiscal year-to-date
period ended June 26, 2020, primarily due to the following:
Factor                                                      Impact On Cash 

Flows

Working Capital                     â        Higher inflows due to 

decrease in accounts payable and accrued

                                             liabilities, partially offset 

by increased contract assets

                                             Higher revenue and lower S&M expenses, partially offset by higher
Net Income                          á        tax expense due to a discrete 

benefit associated with the release

                                             of liabilities related to 

unrecognized tax benefits in the prior

                                             year

Gain on Sale of Assets              â        Non-cash adjustment for the 

gain recognized on the sale of

                                             property that was 51% owned by the controlling interest


Investing Activities
                                                Fiscal Year-to-Date Ended
                                                 June 25,             June 26,
                                                   2021                 2020
Net cash used in investing activities     $      (29,948)            $ 

(20,261)

Net cash used in investing activities was $9.7 million higher in the fiscal year-to-date period ended June 25, 2021 as compared to the fiscal year-to-date period ended June 26, 2020, primarily due to the following: Factor

                                                               Impact 

On Cash Flows

                                             â        Lower inflows from the sale and maturity of marketable investment
Proceeds from Investments                             securities
                                             á        Lower outflows for the purchase of marketable investment
Purchase of Investments                               securities

                                             á        Higher inflows for the sale of property that was 51% owned by the
Sale of Assets                                        controlling interest
Capital Expenditures                         á        Lower expenditures 

for PP&E due to reduced Dolby Cinema spending


Financing Activities
                                                Fiscal Year-to-Date Ended
                                                June 25,             June 26,
                                                  2021                 2020

Net cash used in financing activities $ (165,650) $ (153,917)



Net cash used in financing activities was $11.7 million higher in the fiscal
year-to-date period ended June 25, 2021 as compared to the fiscal year-to-date
period ended June 26, 2020, primarily due to the following:
Factor                                                      Impact On Cash 

Flows

                                   â        Higher outflows for common stock repurchases as part of our stock
Share Repurchases                           repurchase program
Common Stock Issuance              á        Higher inflows from employee stock option exercises
Shares Repurchased for Tax         â        Higher outflows due to increased number of RSUs that vested,
Withholdings                                resulting in more shares withheld for taxes
Distribution to Controlling        â        Higher outflows for distributions to controlling interest due to
Interest                                    the sale of property that was 

51% owned by the controlling interest



Contractual Obligations and Commitments
Since the end of our most recent fiscal year ended September 25, 2020, there
have been no material changes in either our off-balance sheet financing
arrangements or contractual obligations outside the ordinary course of business.
For additional details regarding our contractual obligations, see Note 7
"Leases" and Note 15 "Commitments and Contingencies" to our unaudited interim
condensed consolidated financial statements.
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In the third quarter of fiscal 2021, we did not enter into any off-balance sheet
arrangements that are expected to have a material effect on Dolby's liquidity or
the availability of capital resources.
Indemnification Clauses
We are party to certain contractual agreements under which we have agreed to
provide indemnification of varying scope and duration to the other party
relating to our licensed IP. Historically, we have not made any payments for
these indemnification obligations and no amounts have been accrued in our
condensed consolidated financial statements with respect to these obligations.
Since the terms and conditions of the indemnification clauses do not explicitly
specify our obligations, we are unable to reasonably estimate the maximum
potential exposure for which we could be liable. In addition, we have entered
into indemnification agreements with our officers, directors, and certain
employees, and our certificate of incorporation and bylaws contain similar
indemnification obligations. For additional details regarding indemnification
clauses within our contractual agreements, see Note 15 "Commitments and
Contingencies" to our unaudited interim condensed consolidated financial
statements.
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09/12DOLBY LABORATORIES : Teams up with The Weeknd to Explore How He Creates Worlds with Music
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09/10DOLBY LABORATORIES : and J Balvin Team Up to Explore How Music Can Elevate Joy
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09/10Vimeo, Dolby Team Up to Enable Dolby Vision Video Playback on Apple Devices
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09/10VIMEO : And Dolby To Bring Premier Quality Video Experience To Millions Of Apple Users
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