UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 28, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              To             

Commission File Number: 001-32431

DOLBY LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesýNo¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesýNo¨

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerý	Accelerated filer¨
Non-accelerated filer¨(Do not check if a smaller reporting company)	Smaller reporting company¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨Noý

On April 18, 2014 the registrant had 49,655,391 shares of Class A common stock, par value $0.001 per share, and 52,904,342 shares of Class B common stock, par value $0.001 per share, outstanding.

DOLBY LABORATORIES, INC.

FORM 10-Q

For the Fiscal Quarter Ended March 28, 2014

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
Item 1.	Unaudited Interim Condensed Consolidated Financial Statements	3
	Unaudited Interim Condensed Consolidated Balance Sheets	3
	Unaudited Interim Condensed Consolidated Statements of Operations	4
	Unaudited Interim Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity	6
	Unaudited Interim Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	55
Signatures

2

PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 28, 2014		September 27, 2013
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	568,899	$	454,397
Restricted cash	3,344		3,175
Short-term investments	169,082		140,267
Accounts receivable, net of allowance for doubtful accounts of $1,008 and $514	109,143		97,460
Inventories	9,569		10,093
Deferred taxes	82,980		84,238
Prepaid expenses and other current assets	24,377		28,949
Total current assets	967,394		818,579
Long-term investments	304,376		306,338
Property, plant and equipment, net	242,970		242,917
Intangible assets, net	46,772		41,315
Goodwill	279,871		279,724
Deferred taxes	44,877		37,434
Other non-current assets	10,295		11,638
Total assets	$	1,896,555	$	1,737,945
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,312	$	10,695
Accrued liabilities	144,382		137,795
Income taxes payable	9,148		3,394
Deferred revenue	12,640		20,931
Total current liabilities	176,482		172,815
Long-term deferred revenue	20,178		19,663
Other non-current liabilities	46,713		45,441
Total liabilities	243,373		237,919
Stockholders’ equity:
Class A common stock, $0.001 par value, one vote per share, 500,000,000 shares authorized: 49,624,206 shares issued and outstanding at March 28, 2014 and 46,862,893 at September 27, 2013	50		47
Class B common stock, $0.001 par value, ten votes per share, 500,000,000 shares authorized: 52,896,981 shares issued and outstanding at March 28, 2014 and 54,876,494 at September 27, 2013	53		55
Additional paid-in capital	49,074		18,812
Retained earnings	1,574,765		1,454,382
Accumulated other comprehensive income	8,694		7,814
Total stockholders’ equity – Dolby Laboratories, Inc.	1,632,636		1,481,110
Controlling interest	20,546		18,916
Total stockholders’ equity	1,653,182		1,500,026
Total liabilities and stockholders’ equity	$	1,896,555	$	1,737,945

See accompanying notes to unaudited interim condensed consolidated financial statements

3

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Fiscal Quarter Ended						Fiscal Year-To-Date Ended
	March 28, 2014			March 29, 2013			March 28, 2014			March 29, 2013
Revenue:
Licensing	$	258,616		$	226,455		$	464,276		$	431,331
Products	14,563			17,726			32,667			43,224
Services	5,413			5,165			12,926			11,393
Total revenue	278,592			249,346			509,869			485,948
Cost of revenue:
Cost of licensing	3,742			6,409			7,743			9,489
Cost of products	10,293			13,206			24,081			31,695
Cost of services	3,470			3,668			7,063			7,704
Total cost of revenue	17,505			23,283			38,887			48,888
Gross margin	261,087			226,063			470,982			437,060
Operating expenses:
Research and development	44,798			41,948			89,261			84,384
Sales and marketing	64,828			58,130			125,207			116,551
General and administrative	46,457			41,803			88,365			84,911
Restructuring charges	86			—			3,301			—
Total operating expenses	156,169			141,881			306,134			285,846
Operating income	104,918			84,182			164,848			151,214
Other income/expense:
Interest income	920			904			1,574			2,243
Interest expense	(93		)	(402		)	(205		)	(427		)
Other income/(expense), net	(2,823		)	188			(2,594		)	901
Total other income/expense	(1,996		)	690			(1,225		)	2,717
Income before income taxes	102,922			84,872			163,623			153,931
Provision for income taxes	(26,373		)	(22,633		)	(41,828		)	(40,215		)
Net income including controlling interest	76,549			62,239			121,795			113,716
Less: net (income) attributable to controlling interest	(681		)	(328		)	(1,412		)	(456		)
Net income attributable to Dolby Laboratories, Inc.	$	75,868		$	61,911		$	120,383		$	113,260
Net Income Per Share:
Basic	$	0.74		$	0.61		$	1.18		$	1.11
Diluted	$	0.73		$	0.60		$	1.16		$	1.10
Weighted-Average Shares Outstanding:
Basic	102,291			101,638			102,021			102,000
Diluted	103,934			102,680			103,460			102,980
Related party rent expense:
Included in operating expenses	$	346		$	343		$	692		$	686
Included in net income attributable to controlling interest	$	1,250		$	904		$	2,505		$	1,636

See accompanying notes to unaudited interim condensed consolidated financial statements

4

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Fiscal Quarter Ended						Fiscal Year-To-Date Ended
	March 28, 2014			March 29, 2013			March 28, 2014			March 29, 2013
Net income including controlling interest	$	76,549		$	62,239		$	121,795		$	113,716
Other comprehensive income/(loss):
Foreign currency translation adjustments, net of tax	1,311			(3,105		)	921			(1,872		)
Unrealized gains/(losses) on available-for-sale securities, net of tax	72			176			177			(561		)
Comprehensive income	77,932			59,310			122,893			111,283
Less: comprehensive (income)/loss attributable to controlling interest	(755		)	160			(1,630		)	62
Comprehensive income attributable to Dolby Laboratories, Inc.	$	77,177		$	59,470		$	121,263		$	111,345

See accompanying notes to unaudited interim condensed consolidated financial statements

5

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	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	—		—			120,383		—		120,383			1,412		121,795
Translation adjustments, net of tax of $(64)	—		—			—		703		703			218		921
Unrealized gains on available-for-sale securities, net of tax of $(98)	—		—			—		177		177			—		177
Stock-based compensation expense	—		32,807			—		—		32,807			—		32,807
Repurchase of common stock	—		(11,660		)	—		—		(11,660		)	—		(11,660		)
Tax benefit from stock incentive plans	—		10			—		—		10			—		10
Class A common stock issued under employee stock plans	1		17,308			—		—		17,309			—		17,309
Shares repurchased for tax withholdings on vesting of restricted stock	—		(8,358		)	—		—		(8,358		)	—		(8,358		)
Exercise of Class B stock options	—		155			—		—		155			—		155
Balance at March 28, 2014	$	103	$	49,074		$	1,574,765	$	8,694	$	1,632,636		$	20,546	$	1,653,182

	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	—			—			113,260			—			113,260			456			113,716
Translation adjustments, net of tax of $535	—			—			—			(1,354		)	(1,354		)	(518		)	(1,872		)
Unrealized losses on available-for-sale securities, net of tax of $315	—			—			—			(561		)	(561		)	—			(561		)
Distributions to controlling interest	—			—			—			—			—			(5,039		)	(5,039		)
Stock-based compensation expense	—			32,649			—			—			32,649			—			32,649
Repurchase of common stock	(1		)	(29,270		)	(36,162		)	—			(65,433		)	—			(65,433		)
Cash dividends declared and paid on common stock	—			—			(408,206		)	—			(408,206		)	—			(408,206		)
Tax (deficiency) from stock incentive plans	—			(2,024		)	—			—			(2,024		)	—			(2,024		)
Class A common stock issued under employee stock plans	—			6,909			—			—			6,909			—			6,909
Shares repurchased for tax withholdings on vesting of restricted stock	—			(5,132		)	—			—			(5,132		)	—			(5,132		)
Exercise of Class B stock options	—			293			—			—			293			—			293
Balance at March 29, 2013	$	102		$	3,425		$	1,378,371		$	8,772		$	1,390,670		$	17,863		$	1,408,533

See accompanying notes to unaudited interim condensed consolidated financial statements

6

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Fiscal Year-To-Date Ended
	March 28, 2014			March 29, 2013
Operating activities:
Net income including controlling interest	$	121,795		$	113,716
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,114			26,420
Stock-based compensation	32,807			32,649
Amortization of premium on investments	4,594			5,953
Excess tax benefit from exercise of stock options	(1,562		)	(649		)
Provision for doubtful accounts	507			270
Deferred income taxes	(6,302		)	(10,577		)
Other non-cash items affecting net income	2,943			(872		)
Changes in operating assets and liabilities:
Accounts receivable	(12,186		)	(47,948		)
Inventories	1,640			(754		)
Prepaid expenses and other assets	(1,139		)	4,129
Accounts payable and other liabilities	5,337			(2,142		)
Income taxes, net	13,386			4,422
Deferred revenue	(7,776		)	(1,989		)
Other non-current liabilities	262			1,428
Net cash provided by operating activities	179,420			124,056
Investing activities:
Purchase of investments	(178,830		)	(325,997		)
Proceeds from sales of investment securities	63,424			467,105
Proceeds from maturities of investment securities	81,402			64,950
Purchases of property, plant and equipment	(17,872		)	(12,164		)
Purchases of intangible assets	(12,400		)	(4,050		)
Proceeds from sale of property, plant and equipment and assets held for sale	42			376
Change in restricted cash	(169		)	(1,228		)
Net cash provided by/(used in) investing activities	(64,403		)	188,992
Financing activities:
Proceeds from issuance of common stock	17,464			7,202
Repurchase of common stock	(11,660		)	(65,433		)
Payment of cash dividend	—			(408,206		)
Distribution to controlling interest	—			(5,039		)
Excess tax benefit from the exercise of stock options	1,562			649
Shares repurchased for tax withholdings on vesting of restricted stock	(8,358		)	(5,132		)
Net cash used in financing activities	(992		)	(475,959		)
Effect of foreign exchange rate changes on cash and cash equivalents	477			(1,181		)
Net increase/(decrease) in cash and cash equivalents	114,502			(164,092		)
Cash and cash equivalents at beginning of period	454,397			492,600
Cash and cash equivalents at end of period	$	568,899		$	328,508
Supplemental disclosure:
Cash paid for income taxes, net of refunds received	$	34,092		$	47,033
Cash paid for interest	$	1		$	54

See accompanying notes to unaudited interim condensed consolidated financial statements

7

DOLBY LABORATORIES, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”), and with Securities and Exchange Commission (“SEC”) rules and regulations, which allow for certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with GAAP to be condensed or omitted. In our opinion, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended September 27, 2013 and include all adjustments necessary for fair presentation. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the fiscal year ended September 27, 2013, which are included in our Annual Report on Form 10-K filed with the SEC.

The results for the fiscal quarter ended March 28, 2014 are not necessarily indicative of the results to be expected for any subsequent quarterly or annual financial period, including the fiscal year ending September 26, 2014.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of Dolby Laboratories and our wholly owned subsidiaries. In addition, we have consolidated the financial results of jointly owned affiliated companies in which our principal stockholder has a controlling interest. We report these controlling interests as a separate line in our consolidated statements of operations as net income attributable to controlling interest and in our consolidated balance sheets as a controlling interest. We eliminate all intercompany accounts and transactions upon consolidation.

Operating Segments

We operate as a single reporting segment, and thus all required financial segment information is included in our unaudited interim condensed consolidated financial statements. This determination reflects the fact that our chief operating decision-maker ("CODM"), our Chief Executive Officer, evaluates our financial information and resources, and assesses the performance of these resources on a consolidated basis.

Use of Estimates

The preparation of our financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the amounts reported and disclosed in our unaudited interim condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include estimated selling prices for elements sold in multiple-element revenue arrangements; valuation allowances for accounts receivable; carrying values of inventories and certain property, plant, and equipment, goodwill and intangible assets; fair values of investments, accrued liabilities including liabilities for unrecognized tax benefits, deferred income tax assets and stock-based compensation. Actual results could differ from our estimates.

Fiscal Year

Our fiscal year is a 52 or 53 week period ending on the last Friday in September. The fiscal periods presented herein include the 13 and 26 week periods ended March 28, 2014 and March 29, 2013. Our fiscal year ending September 26, 2014 (fiscal 2014) and our fiscal year ended September 27, 2013 (fiscal 2013) both consist of 52 weeks.

Reclassifications

We have reclassified certain prior period amounts within our unaudited interim condensed consolidated financial statements and accompanying notes to conform to our current period presentation. These reclassifications did not affect total revenue, operating income or net income.

8

2. Summary of Significant Accounting Policies

We continually assess any new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") to determine their applicability and impact on us. Where it is determined that a new accounting pronouncement will result in a change to our financial reporting, we take the appropriate steps to ensure that such changes are properly reflected on our consolidated financial statements or notes thereto.

Recently Issued Accounting Standards

Adopted Standards

Accumulated Other Comprehensive Income. In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This new standard, which we adopted in the first quarter of fiscal 2014, adds enhanced disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income ("AOCI") with the intent of helping entities improve the transparency of changes in Other Comprehensive Income ("OCI") and items reclassified out of AOCI in their financial statements. The standard is to be applied on a prospective basis, and requires registrants to disclose either in a single note, or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of AOCI based on its source and the income statement line items affected by the reclassification. Since this new standard only results in changes to our financial statement presentation and does not amend any existing requirements for reporting net income or OCI in the financial statements, adoption of this standard does not impact our financial position or results of operations.

The adoption of new accounting pronouncements has not had a significant impact on our unaudited interim condensed consolidated financial statements or notes thereto, and has not resulted in a change to our significant accounting policies. Furthermore, there have not been any changes to our significant accounting policies from those that were described in our Form 10-K for the prior fiscal year ended September 27, 2013.

3. Composition of Certain Financial Statement Captions

The following tables present detailed information from our consolidated balance sheets as of March 28, 2014 and September 27, 2013 (in thousands, except as otherwise noted).

Cash, Cash Equivalents, and Investments

	March 28, 2014		September 27, 2013
Cash and cash equivalents:
Cash	$562,321		$420,069
Cash equivalents:
Money market funds	6,578		16,193
U.S. agency securities	—		13,135
Commercial paper	—		5,000
Total cash and cash equivalents	568,899		454,397
Short-term investments:
U.S. agency securities	32,801		6,007
Commercial paper	5,978		5,991
Corporate bonds	31,660		43,847
Municipal debt securities	98,643		84,422
Total short-term investments	169,082		140,267
Long-term investments:
U.S. agency securities	25,942		40,924
Corporate bonds	103,562		90,391
Municipal debt securities	174,372		172,023
Other long-term investments	500	(2)	3,000	(3)
Total long-term investments	304,376		306,338
Total cash, cash equivalents and investments (1)	$1,042,357		$901,002

(1) Total cash, cash equivalents, and investments exclude $3.3 million and $3.2 million of restricted cash as of March 28, 2014 and September 27, 2013.

(2) Other long-term investments include a cost method investment of $0.5 million made during the second quarter of fiscal 2014.

(3) Other long-term investments include a cost method investment of $3.0 million as of September 27, 2013. During the second quarter of fiscal 2014, we recorded a write-off charge to reduce the carrying value to zero in recognition of an other-than-temporary impairment.

9

Our investment portfolio, which is recorded as cash equivalents and both short-term and long-term investments, consists of the following:

	March 28, 2014
	Cost	Unrealized Gains	Unrealized Losses	Estimated Fair Value
Money market funds	$6,578	$—	$—	$6,578
U.S. agency securities	58,784	2	(43)	58,743
Commercial paper	5,978	—	—	5,978
Corporate bonds	134,971	309	(58)	135,222
Municipal debt securities	272,642	512	(139)	273,015
Cash equivalents and investments	$478,953	$823	$(240)	$479,536

	September 27, 2013
	Cost	Unrealized Gains	Unrealized Losses	Estimated Fair Value
Money market funds	$16,193	$—	$—	$16,193
U.S. agency securities	60,126	16	(76)	60,066
Commercial paper	10,991	—	—	10,991
Corporate bonds	134,097	315	(174)	134,238
Municipal debt securities	256,218	384	(157)	256,445
Cash equivalents and investments	$477,625	$715	$(407)	$477,933

The following tables show the gross unrealized losses and the fair value for those available-for-sale securities that were in an unrealized loss position:

	March 28, 2014
	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	$38,941	$(43)	$—	$—	$38,941	$(43)
Corporate bonds	42,232	(58)	—	—	42,232	(58)
Municipal debt securities	44,570	(139)	—	—	44,570	(139)
Total	$125,743	$(240)	$—	$—	$125,743	$(240)

	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)

The unrealized losses on our available-for-sale securities were primarily as a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. Although we had certain securities that were in an unrealized loss position as of March 28, 2014, we expect to recover the full carrying value of these securities as we do not intend to, nor do we currently anticipate a need to sell these securities prior to recovering the associated unrealized losses. As a result, we do not consider any portion of the unrealized losses at March 28, 2014 or September 27, 2013 to be an other-than-temporary impairment, nor do we consider any of the unrealized losses to be credit losses.

The following table summarizes the amortized cost and estimated fair value of the available-for-sale securities within our investment portfolio based on stated maturities as of March 28, 2014 and September 27, 2013, which are recorded within cash equivalents and both short and long-term investments in our consolidated balance sheets:

	March 28, 2014		September 27, 2013
	Amortized Cost	Fair Value	Amortized Cost	Fair Value
Due within 1 year	$169,032	$169,082	$158,275	$158,402
Due in 1 to 2 years	166,309	164,805	172,993	173,373
Due in 2 to 3 years	137,035	139,071	130,164	129,965
Total	$472,376	$472,958	$461,432	$461,740

10

Accounts Receivable

Accounts Receivable, Net	March 28, 2014	September 27, 2013
Trade accounts receivable	$105,263	$86,823
Accounts receivable related to patent administration program	4,888	11,151
Accounts Receivable, Gross	110,151	97,974
Less: allowance for doubtful accounts	(1,008)	(514)
Accounts Receivable, Net	$109,143	$97,460

Inventories

Inventory	March 28, 2014	September 27, 2013
Raw materials	$2,188	$2,050
Work in process	49	—
Finished goods	7,332	8,043
Total	$9,569	$10,093

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our consolidated balance sheets. We have included $2.9 million and $4.0 million of raw materials inventory within other non-current assets in our consolidated balance sheets as of March 28, 2014 and September 27, 2013, respectively. The majority of the inventory included in non-current assets was purchased in bulk in fiscal 2012 to obtain a significant volume discount, and is expected to be consumed over a period that exceeds twelve months. Based on anticipated inventory consumption rates, and aside from existing write-downs due to excess inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.

Prepaid Expenses and Other Current Assets

Prepaid Expenses And Other Current Assets	March 28, 2014	September 27, 2013
Prepaid expenses	$12,719	$10,195
Other current assets	9,927	10,863
Income tax receivable	1,731	7,891
Total	$24,377	$28,949

As of March 28, 2014, other current assets include the carrying value of $3.8 million of land and building

that is classified as held for sale. Management had previously committed to a plan to sell the property, and an agreement was finalized to sell a portion of the property held for sale subsequent to the current fiscal quarter-end. Refer to Note 13 “Subsequent Events” for additional information.

Property, Plant and Equipment

Property, Plant And Equipment	March 28, 2014	September 27, 2013
Land	$46,169	$46,049
Buildings	32,465	32,305
Leasehold improvements	66,669	64,991
Machinery and equipment	42,580	38,408
Computer systems and software	98,542	91,939
Furniture and fixtures	13,532	13,490
Construction in progress	94,787	88,872
Property, Plant And Equipment, Gross	394,744	376,054
Less: accumulated depreciation	(151,774)	(133,137)
Property, Plant And Equipment, Net	$242,970	$242,917

Property, plant and equipment are recorded at cost, with depreciation expense included in cost of products, cost of services, research and development expenses, sales and marketing expenses and general and administrative expenses in our consolidated statements of operations.

During fiscal 2012, we purchased commercial office property in San Francisco, California for approximately $109.8 million. Based on a fair value analysis, we allocated $35.5 million of the property's purchase price to land and $74.3 million to building. We are currently in the process of making substantial improvements to the property in

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order to prepare the building for its intended use as our new worldwide headquarters. As such, construction in progress as of the end of both fiscal periods presented above include the book value of the building and related costs of construction.

Goodwill and Intangible Assets

The following table outlines changes to the carrying amount of goodwill:

	Goodwill
Balance at September 27, 2013	$279,724
Translation adjustments	147
Balance at March 28, 2014	$279,871

Intangible assets subject to amortization consist of the following:

	March 28, 2014			September 27, 2013
Intangible Assets, Net	Cost	Accumulated Amortization	Net	Cost	Accumulated Amortization	Net
Acquired patents and technology	$92,588	$(56,343)	$36,245	$79,925	$(51,267)	$28,658
Customer relationships	30,725	(21,193)	9,532	30,723	(19,592)	11,131
Other intangibles	21,051	(20,056)	995	20,992	(19,466)	1,526
Total	$144,364	$(97,592)	$46,772	$131,640	$(90,325)	$41,315

Amortization expense for our intangible assets is included in cost of licensing, cost of products, research and development and sales and marketing expenses in our consolidated statements of operations. As of March 28, 2014, expected amortization expense of our intangible assets in future periods is as follows:

Fiscal Year	Amortization Expense
Remainder of Fiscal 2014	$7,596
2015	12,759
2016	10,575
2017	7,428
2018	2,184
Thereafter	6,230
Total	$46,772

Accrued Liabilities

Accrued Liabilities	March 28, 2014	September 27, 2013
Accrued royalties	$8,482	$6,075
Amounts payable to joint licensing program partners	44,977	40,091
Accrued compensation and benefits	49,568	54,423
Accrued professional fees	6,817	4,402
Other accrued liabilities	34,538	32,804
Total	$144,382	$137,795

Other Non-Current Liabilities

Other Non-Current Liabilities	March 28, 2014	September 27, 2013
Supplemental retirement plan obligations	$2,294	$2,144
Non-current tax liabilities	32,419	30,986
Other liabilities	12,000	12,311
Total	$46,713	$45,441

4. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income attributable to Dolby Laboratories, Inc. by the number of weighted-average shares of Class A and Class B common stock outstanding during the period. Through application of the treasury stock method, diluted EPS is computed in the same manner, except that the number of weighted-average shares outstanding is increased by the number of potentially dilutive shares from employee incentive plans during the period. Potentially dilutive shares include the hypothetical number of shares

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issued under the assumed exercise of outstanding stock options, vesting of outstanding restricted stock units, and shares issued under our employee stock purchase plan.

Basic and diluted EPS are computed independently for each fiscal quarter and year-to-date period presented, which involves the use of different weighted-average share count figures relating to quarterly and annual periods. As a result, and after factoring the effect of rounding to the nearest cent per share, the sum of all four quarter-to-date EPS figures may not equal year-to-date EPS.

The following table sets forth the computation of basic and diluted EPS attributable to Dolby Laboratories, Inc. (in thousands, except per share amounts):

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Numerator:
Net income attributable to Dolby Laboratories, Inc.	$75,868	$61,911	$120,383	$113,260
Denominator:
Weighted-average shares outstanding—basic	102,291	101,638	102,021	102,000
Potential common shares from options to purchase common stock	637	286	445	235
Potential common shares from restricted stock units	1,006	756	994	745
Weighted-average shares outstanding—diluted	103,934	102,680	103,460	102,980
Net income per share attributable to Dolby Laboratories, Inc.:
Basic	$0.74	$0.61	$1.18	$1.11
Diluted	$0.73	$0.60	$1.16	$1.10
Antidilutive awards excluded from calculation:
Stock options	3,597	5,156	4,075	5,245
Restricted stock units	290	384	1,170	1,583

5. Fair Value Measurements

Under our investment management strategy, we use cash holdings to purchase investment grade securities that are diversified among security types, industries and issuers. Each of the investments within our investment portfolio is measured at fair value, and is recorded within cash equivalents and both short and long-term investments in our consolidated balance sheets. With the exception of our mutual fund investments held in our supplemental retirement plan which are classified as trading securities, all of our investments are classified as available-for-sale securities. Our investments primarily consist of municipal debt securities, commercial paper, corporate bonds and United States agency securities. In addition to the security types noted above, our cash and cash equivalents also consist of highly-liquid money market funds. Consistent with our investment policy, none of the municipal debt investments that we hold are supported by letters of credit or standby purchase agreements.

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 minimize the use of unobservable inputs and use observable market data, if available, when determining fair value. We classify our inputs to measure fair value using the following three-level hierarchy:

Level 1: Quoted prices in active markets at the measurement date for identical assets and liabilities.

Level 2: Prices may be based upon quoted prices in active markets or inputs not quoted on active markets but are corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

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The following tables present information about the fair value of our financial assets and liabilities measured on a recurring basis, and indicates the classification within the fair value hierarchy of the valuation inputs utilized to determine fair value (in thousands):

	March 28, 2014
	Level 1	Level 2	Level 3	Total
Assets:
Investments held in supplemental retirement plan (1)	$2,392	$—	$—	$2,392
Money market funds (2)	6,578	—	—	6,578
U.S. agency securities (3), (4)	58,743	—	—	58,743
Commercial paper (3)	—	5,978	—	5,978
Corporate bonds (3), (4)	—	135,222	—	135,222
Municipal debt securities (3), (4)	—	273,015	—	273,015
Total	$67,713	$414,215	$—	$481,928
Liabilities:
Investments held in supplemental retirement plan (5)	$2,392	$—	$—	$2,392
Total	$2,392	$—	$—	$2,392

	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.

We base the fair value of our Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

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, or model driven valuations using observable market data or inputs corroborated by observable market data. To validate the fair value determination provided by our primary pricing service, we perform quality controls over values received, which include comparing our pricing service provider’s assessment of the fair values of our investment securities against the fair values of our investment securities obtained from another independent source, reviewing the pricing movement in the context of overall market trends, and reviewing trading information from our investment managers. In addition, we assess the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

We did not own any Level 3 financial assets or liabilities as of March 28, 2014 or September 27, 2013.

6. Stockholders’ Equity and Stock-Based Compensation

We provide stock-based awards as a form of compensation for employees, officers and directors. We have issued stock-based awards in the form of stock options, restricted stock units ("RSUs") and stock appreciation rights ("SARs") under our equity incentive plans, as well as shares under our Employee Stock Purchase Plan (“ESPP”).

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Common Stock - Class A and Class B

Our Board of Directors has authorized two classes of common stock, Class A and Class B. At March 28, 2014, we had authorized 500,000,000 Class A shares and 500,000,000 Class B shares. At March 28, 2014, we had 49,624,206 shares of Class A common stock and 52,896,981 shares of Class B common stock issued and outstanding. Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share. Shares of Class B common stock can be converted to shares of Class A common stock at any time at the option of the stockholder and automatically convert upon sale or transfer, except for certain transfers specified in our amended and restated certificate of incorporation.

Stock Incentive Plans

2000 Stock Incentive Plan.    Effective October 2000, we adopted the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan, as amended, provides for the issuance of incentive and non-qualified stock options to our employees, directors, and consultants to purchase up to 15.1 million shares of Class B common stock. Under the terms of this plan, options became exercisable as established by the Board of Directors (ratably over four years), and expire ten years after the date of the grant. Options issued under the plan were made at their grant-date fair market value. Subsequent to fiscal 2005, no further options were granted under this plan. The 2000 Stock Incentive Plan terminated on October 1, 2010 and no shares of our common stock remained available for future issuance under that plan other than pursuant to outstanding options. As of March 28, 2014, there were options outstanding to purchase 0.1 million shares of Class B common stock, all of which were vested and exercisable, with a remaining weighted-average contractual life of 0.4 years.

2005 Stock Plan.    In January 2005, our stockholders approved our 2005 Stock Plan, which our Board of Directors adopted in November 2004. The 2005 Stock Plan became effective on February 16, 2005, the day prior to the completion of our initial public offering. Our 2005 Stock Plan, as amended and restated, provides for the ability to grant incentive stock options ("ISOs"), nonstatutory stock options ("NQs"), restricted stock, RSUs, SARs, deferred stock units, performance units, performance bonus awards and performance shares. A total of 29.0 million shares of our Class A common stock is authorized for issuance under the 2005 Stock Plan. For awards granted prior to February 2011, any shares subject to an award with a per share price less than the fair market value of our Class A common stock on the date of grant and any shares subject to an outstanding RSU award will be counted against the authorized share reserve as two shares for every one share subject to the award, and if returned to the 2005 Stock Plan, such shares will be counted as two shares for every one share returned. For those awards granted from February 2011 onward, any shares subject to an award with a per share price less than the fair market value of our Class A common stock on the date of grant and any shares subject to an outstanding RSU award will be counted against the authorized share reserve as 1.6 shares for every one share subject to the award, and if returned to the 2005 Stock Plan, such shares will be counted as 1.6 shares for every one share returned.

As of March 28, 2014, there were options outstanding to purchase 8.1 million shares of Class A common stock, of which 3.1 million were vested and exercisable. The options outstanding have a remaining weighted-average contractual life of 7.7 years.

Stock Options.    Stock options are generally granted at fair market value on the date of grant. Options granted to employees and officers prior to June 2008 generally vest over four years, with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or 3 months after termination of service. Options granted to employees and officers from June 2008 onward generally vest over four years, with 25% of the shares subject to the option becoming exercisable on the one-year anniversary of the date of grant and the balance of the shares vesting in equal monthly installments over the following 36 months. These options expire on the earlier of 10 years after the date of grant or 3 months after termination of service. All options granted vest over the requisite service period and upon the exercise of stock options, we issue new shares of Class A common stock under the 2005 Stock Plan and new shares of Class B common stock under the 2000 Stock Incentive Plan. Our 2005 Stock Plan also allows us to grant stock awards which vest based on the satisfaction of specific performance criteria.

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The following table summarizes information about stock options issued under our 2000 Stock Incentive Plan and 2005 Stock Plan:

	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	2,372	37.85
Exercises	(521)	26.99
Forfeitures and cancellations	(68)	33.12
Options outstanding at March 28, 2014	8,168	32.31	7.8	$99,404
Options vested and expected to vest at March 28, 2014	7,867	32.24	7.8	96,259
Options exercisable at March 28, 2014	3,162	29.55	5.9	47,539

(1) Aggregate intrinsic value is based on the closing price of our common stock on March 28, 2014 of $44.39 and excludes the impact of options that were not in-the-money.

Restricted Stock Units.    Beginning in fiscal 2008, we began granting RSUs to certain directors, officers and employees under our 2005 Stock Plan. Awards granted to employees and officers generally vest over four years, with equal annual cliff-vesting. Awards granted to directors prior to November 2010 generally vest over three years, with equal annual cliff-vesting. Awards granted after November 2010 and prior to fiscal 2014 to new directors vest over approximately two years, with 50% vesting per year, while awards granted from November 2010 onward to ongoing directors generally vest over approximately one year. Awards granted to new directors from fiscal 2014 onward vest on the earlier of the first anniversary of the award’s date of grant, or the day immediately preceding the date of the next annual meeting of stockholders that occurs after the award’s date of grant. Our 2005 Stock Plan also allows us to grant RSUs which vest based on the satisfaction of specific performance criteria, although no such awards have been granted as of March 28, 2014. At each vesting date, the holder of the award is issued shares of our Class A common stock. Compensation expense from these awards is equal to the fair market value of our common stock on the date of grant and is recognized on a straight-line basis over the requisite service period.

The following table summarizes information about RSUs issued under our 2005 Stock Plan:

	Shares	Weighted-Average Grant Date Fair Value
	(in thousands)
Non-vested at September 27, 2013	2,853	$34.66
Granted	1,136	37.91
Vested	(682)	36.19
Forfeitures	(82)	34.90
Non-vested at March 28, 2014	3,225	35.48

Stock Appreciation Rights.    We have previously granted stock appreciation rights to certain of our foreign employees. These awards are settled in cash rather than stock, and are classified as liability awards.

Employee Stock Purchase Plan.   Our plan allows eligible employees to have up to 10 percent of their eligible compensation withheld and used to purchase Class A common stock, subject to a maximum of $25,000 worth of stock purchased in a calendar year or no more than 1,000 shares in an offering period, whichever is less. An offering period consists of successive six-month purchase periods, with a look back feature to our stock price at the commencement of a one-year offering period. The plan provides for a discount equal to 15 percent of the closing price of our common stock on the New York Stock Exchange on the last day of the purchase period and for overlapping one-year offering periods. The plan also includes an automatic reset feature that provides for an offering period to be reset and recommenced to a new lower-priced offering if the offering price of a new offering period is less than that of the immediately preceding offering period.

Stock Option Valuation Assumptions

We use the Black-Scholes option pricing model to determine the estimated fair value of employee stock options at the date of the grant. The Black-Scholes model includes inputs that require us to make certain estimates and assumptions regarding the expected term of the award, as well as the future risk-free interest rate and volatility of our stock price over this expected term of the award.

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Expected Term.    The expected term of an award represents the estimated period of time that options granted will remain outstanding, and is measured from the grant date to the date at which the option is either exercised or canceled. Our determination of the expected term involves an evaluation of historical terms and other factors such as the exercise and termination patterns of our employees who hold options to acquire our common stock, and is based on certain assumptions made regarding the future exercise and termination behavior.

Risk-Free Interest Rate.    The risk-free interest rate is based on the yield curve of United States Treasury instruments in effect on the date of grant. In determining an estimate for the risk-free interest rate, we use average interest rates based on these instruments’ constant maturities with a term that approximates and corresponds with the expected term of our awards.

Expected Stock Price Volatility.    The expected volatility represents the estimated volatility in the price of our common stock over a time period that approximates the expected term of the awards, and is determined using a blended combination of historical and implied volatility. Historical volatility is representative of the historical trends in our stock price for periods preceding the measurement date since our initial public offering. Implied volatility is based upon externally traded option contracts of our common stock.

Dividend Yield.    The dividend yield is based on our anticipated dividend payout over the expected term of our option awards. As we do not currently intend to pay dividends, the expected dividend yield is zero for all equity awards granted.

The weighted-average assumptions used in the determination of the fair value of our stock options were as follows:

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Expected term (in years)	4.58	4.37	4.58	4.37
Risk-free interest rate	1.5%	0.5%	1.4%	0.5%
Expected stock price volatility	32.4%	37.3%	32.0%	40.5%
Dividend yield	—	—	—	—

Compensation Expense

Stock-based compensation expense for equity awards granted to employees is determined by estimating their fair value on the date of grant, and recognizing that value as an expense on a straight-line basis over the requisite service period in which our employees earn the awards. Compensation expense related to these equity awards is recognized net of estimated forfeitures, which reduce the expense recorded in the consolidated statements of operations. We determine our estimated forfeiture rate based on an evaluation of historical forfeitures and revise our estimate, if necessary, in subsequent periods if actual forfeitures differ from our estimate.

The two tables shown below separately present stock-based compensation expense both by award type and classification in our consolidated statements of operations (in thousands). No compensation cost was capitalized in either the fiscal quarter or year-to-date periods ended March 28, 2014 or March 29, 2013.

Compensation Expense - By Award Type

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Compensation Expense - By Type
Stock options	$5,387	$3,690	$9,257	$11,999
Restricted stock units	11,565	10,519	21,822	18,859
Employee stock purchase plan	801	736	1,728	1,791
Total stock-based compensation	17,753	14,945	32,807	32,649
Benefit from income taxes	(5,290)	(4,497)	(9,686)	(9,910)
Total stock-based compensation, net of tax	$12,463	$10,448	$23,121	$22,739

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Compensation Expense - By Income Statement Line Item Classification

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Compensation Expense - By Classification
Cost of products	$217	$150	$407	$398
Cost of services	113	73	200	224
Research and development	4,889	4,013	9,196	8,900
Sales and marketing	6,332	5,176	11,357	11,167
General and administrative	6,202	5,533	11,647	11,960
Total stock-based compensation expense	$17,753	$14,945	$32,807	$32,649

The tax benefit that we recognize from certain exercises of ISOs and shares issued under our ESPP are excluded from the tables above. This benefit was as follows (in thousands):

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Tax benefit - stock option exercises & shares issued under ESPP	$135	$44	$310	$140

Unrecognized Compensation Expense.    At March 28, 2014, total unrecorded compensation expense associated with employee stock options expected to vest was approximately $53.8 million, which is expected to be recognized over a weighted-average period of 2.9 years. At March 28, 2014, total unrecorded compensation expense associated with RSUs expected to vest was approximately $90.4 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Special Dividend and Equity Award Modification

On December 11, 2012, our Board of Directors declared a special dividend ("dividend") in the amount of $4.00 per share on our Class A and Class B common stock. Payment of the dividend was made on December 27, 2012 to all stockholders of record as of the close of business on December 21, 2012 ("Record Date"). Based on the 102,051,386 shares of Class A and Class B common stock outstanding as of the record date, the total dividend payment was $408.2 million.

In connection with the declaration of this dividend in the first quarter of fiscal 2013, we adjusted the number and exercise price of certain eligible outstanding stock options and SARs granted under our 2005 Stock Plan and 2000 Stock Incentive Plan in a manner intended to preserve the pre-cash dividend economic value of these awards. Eligible awards include stock options and SARs that were granted prior to December 2012 and were outstanding as of the day following the record date, with the exception of stock options held by employees in Australia that were not adjusted due to tax considerations. The modification of these existing awards at the dividend declaration date resulted in a total net incremental compensation cost of approximately $7.9 million. Of this amount, approximately $0.7 million and $3.9 million was recognized in the fiscal year-to-date period ended March 28, 2014 and March 29, 2013, respectively. This incremental charge is being recognized over the vesting periods of the original awards, determined on a grant-by-grant basis, based on the extent to which the awards were vested as of the date of modification. The incremental charge related to all fully-vested awards as of the modification date was recognized in the first quarter of fiscal 2013. The vesting period for those awards not fully-vested at the time of modification range from one to four years.

Additionally, all outstanding RSUs under the 2005 Stock Plan that were unvested on the day following the record date, including RSUs that were granted on the record date, were modified to allow for the granting of a dividend equivalent (as such term is defined in the 2005 Stock Plan) with respect to each share of our Class A common stock underlying the unvested RSU. The dividend equivalent is payable in cash in a per share amount equal to the per share cash dividend on the same date that the related underlying RSU shares vest. The granting of the dividend equivalent for all outstanding RSUs resulted in a total net incremental compensation cost of approximately $11.9 million. Of this amount, approximately $1.7 million and $2.3 million was recognized in the fiscal year-to-date period ended March 28, 2014 and March 29, 2013, respectively. This incremental charge is being recognized over the remaining vesting periods of the RSUs at the date of modification, determined on a grant-by-grant basis. These vesting periods range from one to four years beginning on the first anniversary of the grant.

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Common Stock Repurchase Program

In November 2009, we announced a stock repurchase program ("program"), providing for the repurchase of up to $250.0 million of our Class A common stock. The following table summarizes the initial amount of authorized repurchases as well as additional repurchases approved by our Board of Directors (in thousands):

Authorization Period	Authorization Amount
Fiscal 2010: November 2009	$250,000
Fiscal 2010: July 2010	300,000
Fiscal 2011: July 2011	250,000
Fiscal 2012: February 2012	100,000
Total	$900,000

Stock repurchases under the program may be made through open market transactions, negotiated purchases, or otherwise, at times and in amounts that we consider appropriate. The timing of repurchases and the number of shares repurchased depend upon a variety of factors, including price, regulatory requirements, the rate of dilution from our equity compensation plans and other market conditions. The program does not have a specified expiration date, and can be limited, suspended or terminated at our discretion at any time without prior notice. Shares repurchased under the program will be returned to the status of authorized but unissued shares of Class A common stock. As of March 28, 2014, the remaining authorization to purchase additional shares is $104.4 million.

The following table provides information regarding share repurchase activity under the program during fiscal 2014:

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
Q2 - Quarter ended March 28, 2014	—	—	—
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.

7. Restructuring

Fiscal 2014 Restructuring Plan.    In October 2013, we implemented a plan to reorganize and consolidate certain activities and positions within our global business infrastructure. As a result, we recorded $3.3 million in restructuring costs during the fiscal year-to-date period ended March 28, 2014, representing severance and other related benefits offered to approximately 50 employees that were affected as a result of this action. Changes in restructuring accruals under this restructuring plan were as follows (in thousands):

	Severance and associated costs
Restructuring charges	$3,301
Cash payments	(2,689)
Non-cash items	(12)
Balance at March 28, 2014	$600

Accruals for restructuring charges are included within accrued liabilities in the accompanying consolidated balance sheets while restructuring charges are included within restructuring charges in the accompanying consolidated statements of operations.

8. Income Taxes

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

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Unrecognized Tax Benefit

Our gross unrecognized tax benefit is reduced by a liability recorded so that our unrecognized tax benefit represents the amount that we ultimately expect to be realized. As of March 28, 2014, the total amount of gross unrecognized tax benefits was $33.4 million, of which $21.6 million, if recognized, would reduce our effective tax rate. Our net liability for unrecognized tax benefits is classified within other non-current liabilities in our consolidated balance sheets.

Withholding Taxes

We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a related foreign tax credit in our income tax provision. The foreign current tax includes this withholding tax expense while the appropriate foreign tax credit benefit is included in current federal and foreign taxes. Withholding taxes were as follows (in thousands):

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Withholding Taxes	$12,673	$11,878	$23,098	$21,291

Effective Tax Rate

Each period, the combination of multiple different factors can impact our effective tax rate. These factors include both recurring items such as tax rates and the relative amount of income earned in foreign jurisdictions, as well as discrete items that may occur in, but are not necessarily consistent between periods.

Our effective tax rate decreased from 27% in the second quarter of fiscal 2013 to 26% in the second quarter of fiscal 2014, which reflects a higher proportion of our overall earnings being attributable to lower tax-rate jurisdictions during the current quarter. On a year-to-date basis, our effective tax rate remained unchanged as it was 26% in the fiscal year-to-date period ended March 28, 2014 and 26% in the fiscal year-to-date period ended March 29, 2013. During the current year-to-date period, the benefit to our tax rate for a higher proportion of overall earnings being attributable to lower tax-rate jurisdictions was offset by reduced benefits from federal R&D credits that were retroactively reinstated in January 2013 and which expired in December 2013.

9. Accumulated Other Comprehensive Income

Other comprehensive income ("OCI") consists of two components: unrealized gains or losses on our available-for-sale marketable investment securities and the gain or loss from foreign currency translation adjustments. Until realized and reported as a component of net income, these comprehensive income items accumulate and are included within accumulated other comprehensive income ("AOCI"), a subsection within stockholders’ equity on our consolidated balance sheet. Unrealized gains and losses on our investment securities are reclassified from AOCI into earnings when realized upon sale, and are determined based on specific identification of securities sold. Gains and losses from the translation of assets and liabilities denominated in non-U.S. dollar functional currencies are included in AOCI.

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The following table summarizes the changes in the accumulated balances during the period, and includes information regarding the manner in which the reclassifications out of AOCI into earnings affect our consolidated statements of operations (in thousands):

	Fiscal Quarter Ended March 28, 2014			Fiscal Year-To-Date Ended March 28, 2014
	Unrealized Gain/Loss - Investment Securities	Foreign Currency Translation Adjustments	Total	Unrealized Gain/Loss - Investment Securities	Foreign Currency Translation Adjustments	Total
Balance, Beginning Of Period	$308	$7,077	$7,385	$203	$7,611	$7,814
Other Comprehensive Income Before Reclassifications:
Unrealized Gains - Investment Securities	336		336	571		571
Foreign Currency Translation Gains (1)		1,240	1,240		767	767
Income Tax Effect - Benefit/(Expense) (2)	(120)	(3)	(123)	(204)	(64)	(268)
Net Of Tax	216	1,237	1,453	367	703	1,070
Amounts Reclassified From AOCI Into Earnings:
Realized (Gains) - Investment Securities (1)	(224)		(224)	(296)		(296)
Income Tax Effect - (Benefit)/Expense (2)	80		80	106		106
Net Of Tax	72	1,237	1,309	177	703	880
Balance, End Of Period	$380	$8,314	$8,694	$380	$8,314	$8,694

(1) Realized gains or losses from the sale of our available-for-sale investment securities or from foreign currency translation adjustments are included within other income/expense, net in our consolidated statements of operations.

(2) The income tax benefit or expense is included within provision for income taxes in our consolidated statements of operations.

10. Commitments and Contingencies

In the ordinary course of business, we enter into contractual agreements with third parties that include non-cancelable payment obligations, for which we are liable in future periods. These arrangements can include terms binding us to minimum payments and/or penalties if we terminate the agreement for any reason other than an event of default as described by the agreement. The following table presents a summary of our contractual obligations and commitments as of March 28, 2014 (in thousands):

	Payments Due By Fiscal Period
	Remainder Of Fiscal 2014	Fiscal 2015	Fiscal 2016	Fiscal 2017	Fiscal 2018	Thereafter	Total
Naming rights	$—	$7,432	$7,525	$7,619	$7,715	$118,699	$148,990
Operating leases	9,293	11,280	6,797	4,883	3,289	3,277	38,819
Purchase obligations	4,717	3,042	1,346	61	—	—	9,166
Total	$14,010	$21,754	$15,668	$12,563	$11,004	$121,976	$196,975

Naming Rights.     In fiscal 2012, we entered into an agreement for naming rights and related benefits with respect to the Dolby Theatre in Hollywood, California, the location of the Academy Awards®. The term of the agreement is 20 years, over which we will make payments on a semi-annual basis. Our payment obligations are conditioned in part on the Academy Awards® being held and broadcast from the Dolby Theatre.

Operating Lease Payments.     Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for office space, including those payable to our principal stockholder and portions attributable to the controlling interests in our wholly owned subsidiaries.

Purchase Obligations.     Purchase obligations primarily consist of our commitments made under agreements to purchase goods and services for purposes that include IT and telecommunications, marketing and professional services, and manufacturing and other research and development activities.

Indemnification Clauses.     On a limited basis, our contractual agreements will contain a clause under which we have agreed to provide indemnification to the counterparty, most commonly to licensees in connection with licensing arrangements that include our intellectual property. Additionally, and although not a contractual requirement, we have at times elected to defend our licensees from third party intellectual property infringement claims. Since the terms and conditions of the indemnification clauses vary in scope and duration, we are unable to make a reasonable estimate of the maximum amount of exposure that we could potentially have for such clauses. Furthermore, we have not historically made any payments in connection with any such obligation and believe there to be a remote likelihood that any potential exposure in future periods would be of a material amount. As a result, no amounts have been accrued in our unaudited interim condensed consolidated financial statements with respect to the contingent aspect of these indemnities.

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11. Legal Proceedings

In December 2013, the Korean Fair Trade Commission (“KFTC”) initiated a review of the company under Korean competition law.  In March 2014, the National Development and Reform Commission of China (“NDRC”)  initiated a review under the Chinese competition laws.  The KFTC and NDRC have requested information relating to our business practices in Korea and China, respectively. The KFTC and NDRC have not informed us of any specific allegations under investigation. We are cooperating with the KFTC and NDRC as they conduct their reviews.

We are involved in various legal proceedings that occasionally arise in the normal course of business. These can include claims of alleged infringement of intellectual property rights, commercial, employment and other matters. In our opinion, resolution of these proceedings is not expected to have a material adverse impact on our operating results or financial condition. Given the unpredictable nature of legal proceedings, it is possible that an unfavorable resolution of one or more such proceedings could materially affect our future operating results or financial condition in a particular period; however, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our unaudited interim condensed financial statements, any such amount is either immaterial, or it is not possible to provide an estimated amount of any such potential loss.

12. Acquisitions

On February 23, 2014, we entered into a definitive agreement to acquire Doremi Labs, a privately held company for $92.5 million in cash and up to an additional $20.0 million in contingent consideration that may be earned over a four-year period. Headquartered in Burbank, California, Doremi is a leading developer and manufacturer of digital cinema servers and format converters for the broadcast, postproduction, and professional audio/visual markets and is a world leader in digital cinema technology. Since the acquisition is subject to customary closing conditions, including review by United States and international regulators, it is anticipated to close by the end of 2014. The impact of the acquisition on fiscal year 2014 revenue and non-GAAP results is not expected to be material.

13. Subsequent Events

Sale Of Property In Wootton Bassett, U.K.    On April 8, 2014, we finalized an agreement to sell the land and building from one of our properties located in Wootton Bassett, U.K for $3.3 million. Since this sale price exceeded the combined carrying value of the land and building of $2.8 million on the date of sale, we will recognize a gain of $0.5 million in other income during the third quarter of fiscal 2014. In the fourth quarter of fiscal 2013, management committed to a plan to sell the land and building included in this sale as well as a parcel of adjacent land. Although not included as part of the sale, management still intends to sell the remaining parcel of land within the next twelve months, the carrying value of which was $1.0 million as of March 28, 2014, and which will therefore remain classified as held for sale for the foreseeable future.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. These discussions contain forward-looking statements reflecting our current expectations and 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; market growth opportunities and trends; our plans, strategies and expected opportunities; and future competition. Use of words such as “may,”“will,”“should,”“expect,”“plan,”“anticipate,”“believe,”“estimate,”“predict,”“potential,”“continue” or similar expressions indicates a forward-looking statement. 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 are under no 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 new developments or actual results.

OVERVIEW

Dolby Laboratories creates audio, video, and voice technologies that transform entertainment and communications at the cinema, at home, at work and on mobile devices. Founded in 1965, our core strengths stem from expertise in digital signal processing and 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 multichannel sound for cinema, digital television transmissions and devices, and DVD and Blu-ray discs and devices. More recently, our technologies have played a prominent role in development of the next generation of audio technologies for the cinema, home entertainment, mobile and gaming experiences. Our continued development of new commercial applications for our technologies include those aimed at enhancing voice conferencing communications and the overall user vision experience. Today, we derive the majority of our revenue from licensing our audio technologies.

We have extended our expertise into imaging technologies through digital cinema products, our professional monitor, Dolby glasses-free consumer 3-D technology, as well as Dolby Vision, a new technology that offers more realistic distinctions in color, brighter highlights and improved shadow details that is expected to be incorporated in televisions by the end of 2014.We also provide products and services that enable entertainment content creators and distributors to produce, encode, transmit and playback content for superior consumer experiences.

Revenue Generation

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

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
Revenue	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Licensing	93%	91%	91%	89%
Products	5%	7%	6%	9%
Services	2%	2%	3%	2%
Total	100%	100%	100%	100%

We license our technologies in 48 countries, and our licensees distribute products that incorporate our technologies throughout the world. We sell our products and services in over 80 countries. As shown in the table below, we generate a significant portion of our revenue from outside the United States. Geographic data for our licensing revenue is based on the location of our licensees’ headquarters. Products revenue is based on the destination to which we ship our products, while services revenue is based on the location where services are performed.

	Fiscal Year-To-Date Ended
Revenue By Geographic Location	March 28, 2014	March 29, 2013
United States	30%	31%
International	70%	69%

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Licensing

We license our technologies to various third parties who incorporate them into their products to enable and enhance audio and video capabilities. These products cover a wide range of end-user experiences whether it be at Home, at Work, in the Cinema or on-the-go with a Mobile Device:

At Home: Software vendors and OEMs of devices such as digital televisions, set-top boxes ("STBs"), home-theater-in-a-box systems ("HTIBs"), audio/video receivers ("AVRs"), DVD and Blu-ray devices, and gaming consoles;

At Work: OEMs of PCs as well as an audio and video conference service provider that incorporates specified digital audio technologies into their solutions for superior spatial perception and voice clarity;

At the Cinema: Movie theatres that use our digital audio technology to provide enhanced sound; and

On Mobile Devices: Software vendors and OEMs of devices such as smartphones, tablets, automotive entertainment systems, and portable PCs.

We have three primary licensing models: a two-tier model, an integrated licensing model, and a patent licensing model.

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 a semiconductor manufacturer. The manufacturer then incorporates our technologies in integrated circuits (“ICs”). Licensed semiconductor manufacturers, whom we refer to as “implementation licensees,” sell their ICs to OEMs of consumer entertainment products, which we refer to as “system licensees.” System licensees separately obtain licenses from us that allow them to make and sell finished end-user products that incorporate our technologies in ICs purchased from our implementation licensees.

Implementation licensees pay us a one-time, up-front fee per license. In exchange, the licensee receives a licensing package which includes information useful in implementing our technologies into their chipsets. Once implemented, the licensee will send us a sample chipset for quality control evaluation and if after we validate the design, the licensee is permitted to sell the chipset for use solely by our system licensees.

System licensees are required to provide us with prototypes of products that incorporate our technologies for which they are licensed for quality control evaluation, or under certain circumstances, with self-test results for our review. If the prototype or test results are approved, the licensee is permitted to buy ICs from any Dolby implementation licensee with a license for the same Dolby technology, and to 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 from a system licensee on a particular product depends on a number of factors including the mix of Dolby technologies used, the nature of the implementations, and the volume of products incorporating our technologies that are shipped by the system licensee.

Integrated Licensing Model.    We also license our technologies to software operating system vendors and independent software vendors ("ISVs"), 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 incorporating our technologies that are shipped, and is subject to the same quality control evaluation process.

Patent Licensing.    We license our patents directly to manufacturers that use our intellectual property in their products. We also license our patents indirectly through patent pools, arrangements between multiple patent owners to jointly offer and license pooled patents to licensees. Finally, we generate service fees for managing patent pools on behalf of third party patent owners through our wholly owned subsidiary, Via Licensing Corporation. The Via Licensing patent pools enable product manufacturers to efficiently secure patent licenses for audio coding, interactive television, digital radio and wireless technologies.

We have active licensing arrangements with over 560 electronics product OEMs and software developer licensees, with corporate headquarters located in 48 countries.

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As of March 28, 2014, we had over 3,900 issued patents relating to technologies from which we derive a significant portion of our licensing revenue. We have approximately 900 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.

Products

We design and manufacture audio and video products for the film production, cinema, and television broadcast industries. Distributed in over 70countries, these products are used in content creation, distribution, and playback to enhance image and sound quality, and improve transmission and playback. Revenue from our cinema products tends to fluctuate based on the underlying trends in the cinema industry, including technology adoption and replacement cycles.

Services

We offer a variety of services to support film production, television broadcast, and music production. Our engineers assist in the use of our products and technologies to create and reproduce content. Such assistance can involve equipment calibration, mixing room alignment, and equalization. To ensure movie playback with optimal quality, our engineers also provide equipment training, system and venue design consultation, as well as on-site technical expertise to cinema operators throughout the world.

OPPORTUNITIES, CHALLENGES, AND RISKS

Today, content is captured, delivered, and played back in more ways than ever before. Consumers access content at will and on the go through multiple channels, including cinema, optical disc, digital broadcast, wired internet, and cellular networks. As consumers are presented with more options for receiving content, competition across delivery channels has intensified. As such, our licensing and product markets are characterized by rapid technological changes, new product introductions, changing customer and licensee demands and evolving industry standards that present a high risk of obsolescence.

Licensing

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

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
Market	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013	Main Products Incorporating Our Technologies
Broadcast	46%	38%	42%	36%	Televisions & STBs
PC	16%	26%	18%	27%	Windows operating systems & DVD software players
Consumer Electronics	14%	15%	16%	16%	DVD and Blu-ray Disc devices, AVRs, & HTIBs
Mobile	12%	10%	14%	11%	Smartphones, tablets & other mobile devices
Other	12%	11%	10%	10%	Video game consoles & Automotive (DVD players)
Total	100%	100%	100%	100%

Content creators and distributors are increasingly focused on delivering content for online consumption across a multitude of media and devices with varying bandwidth and performance capabilities, including PCs, connected TVs, STBs, gaming consoles, connected Blu-ray Disc players, and various mobile devices. Many mobile devices now designed for enhanced capture and playback present a challenge for content creators and device manufacturers seeking consistent audio quality. We believe this challenge provides opportunities whereby we can provide solutions designed to optimize the audio experience across the online and portable device markets.

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With the continued evolution of consumer entertainment choices and our efforts to provide competitive audio and video technologies for a wide variety of devices, the composition of our optical and non-optical based licensing revenue has shifted over time. Our optical disc-based revenue is generated from the licensing of technologies that enable DVD or Blu-ray Disc playback, including those incorporated in the Microsoft Windows 7 and 8 operating systems, independent PC DVD software players, and consumer DVD and Blu-ray Disc players. Non-optical disc based licensing revenue includes revenue derived from products such as TVs, set-top boxes, and mobile phones, as well as our post-processing technologies on a range of devices. The portion of our total licensing revenue comprised of our non-optical disc based licensing has increased over time, as shown in the following table:

	Fiscal Year-To-Date Ended
Licensing Revenue	March 28, 2014	March 29, 2013
Non-Optical	72%	62%
Optical	28%	38%

Broadcast Market

In our broadcast market we derive the majority of our revenue from licensing our technologies to OEMs of televisions and set-top boxes. The efficiency and quality of our multichannel technologies are well suited to digital broadcast bandwidth requirements and to delivering content for an enhanced experience. A high percentage of global sales of TV and STBs are shipped with our technologies, especially in North America and Europe.

As countries within emerging markets convert to digital television, we are well positioned to benefit from this transition, and our growth in this market is dependent in part upon continued adoption of our technologies. Broadcast services that operate under bandwidth constraints, such as terrestrial broadcast or Internet protocol television (“IPTV”) services, benefit from Dolby technologies, which enable the delivery of high quality audio content at reduced bit rates, thereby conserving bandwidth.

PC Market

Our technologies are included in the majority of PCs sold today due to their incorporation in Microsoft Windows 8 for disc and online content playback and, for versions prior to Windows 8, primarily because of their inclusion in DVD and Blu-ray Disc playback functionality. Under the Windows 8 arrangement, we are now paid a royalty by PC OEMs, which differs from the prior Windows 7 arrangement under which we were paid a royalty by Microsoft and PC licensees for the use of our decoder.

Historically, we have licensed our technologies to a range of PC licensees, including ISVs, PC OEMs, and operating system providers. The release of new versions of major PC operating systems has sometimes resulted in changes in the mix of our PC licensees. In recent quarters, revenue from our PC licensees has declined much faster than the decline in the overall PC market due in part to our transition to the Windows 8 business model since its launch. We expect that trends in our PC revenue will become much closer to the overall market trend after the second quarter of fiscal 2014.

Consumer Electronics ("CE") Market

Our CE market is primarily driven by revenue attributable to HTIBs, AVRs, DVD and Blu-ray Disc players and recorders. Sales of DVD players are declining as a result of the maturity of the DVD platform and a shift to Blu-ray players and other connected devices capable of delivering content. The decline in DVD revenue is only partially offset by revenue from Blu-ray players which have not reached the annual volumes generated by DVD players in prior periods. This is partially due to the large number of competing products and services that currently deliver content over the Internet.

Mobile Market

Our mobile market is largely driven by sales of smartphones, tablets and other mobile devices that incorporate our technologies. Our growth in this market is dependent on several factors, including the performance of the mobile device market as a whole, our success in collaborating with manufacturers of mobile devices to incorporate our technologies, and the development of the ecosystem, which includes availability of content in Dolby formats being streamed to mobile devices. Currently, Dolby sound is featured on various Android and Windows 8 smartphones and tablets and on all Amazon Kindle tablets. Historically, our growth in smartphones has stemmed primarily from high-end models. We are focused on the adoption of our technology into a broader range of models.

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At the same time, the rate of new product development in this sector continues to be rapid and can result in dramatic swings in consumer trends. In the current mobile market, we see smartphone manufacturers reducing feature sets in order to reduce costs and achieve profitability, even in high-end devices. Recently, Samsung informed us that Dolby's technology was one of several third party features that would not be included in its Galaxy line of smartphones and tablets. As a result, we expect our Mobile revenue to decline as a percentage of our licensing revenue from 14% in the first half of fiscal 2014 to about 10% in the second half of fiscal 2014.

Other Markets

Revenue generated from our other markets typically stems from gaming devices and peripherals, automotive and licensing services. Revenue attributable to gaming and automotive is primarily driven by sales of video game consoles and in-car entertainment systems that incorporate our audio and video technologies. Licensing services revenue, from the administration of our patent pools through our wholly-owned subsidiary Via Licensing Corporation, is primarily driven by demand for standards-based audio compression technologies for broadcast, CE, and mobile products, as well as voice technologies.

Products

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

	Fiscal Quarter Ended		Fiscal Year-To-Date Ended
Market	March 28, 2014	March 29, 2013	March 28, 2014	March 29, 2013
Cinema	84%	86%	85%	87%
Broadcast	10%	11%	10%	9%
Other	6%	3%	5%	4%
Total	100%	100%	100%	100%

Digital Cinema Products

Digital cinema is based on open standards that, unlike standards for film-based cinema, do not include our proprietary audio technologies. Our cinema products include our digital audio processors that provide multichannel surround playback for our digital cinema servers, and central library server for the storage and playback of digital content, as well as our Dolby Digital Cinema Integrated Media Block (“IMB”), which performs audio and video decoding and playback. As the market for digital cinema servers and related equipment has become increasingly competitive and the industry's transition from film to digital nears completion, revenue from our cinema products will likely further decline until the industry’s replacement cycle reverses this trend. We are actively managing our product portfolio through this cycle while also striving to provide improved technological solutions for the cinema.

Our Dolby Atmos object-oriented sound platform enhances the cinema experience and provides more flexibility and control for sound designers and mixers to deliver more natural and realistic sound. To date, no standards exist for object-oriented audio playback in cinema. However, both the North American Theatre Owners ("NATO") and Digital Cinema Initiative ("DCI"), a group representing the top Hollywood studios, have encouraged the development of an industry standard for object-oriented audio. We will continue to collaborate with these industry participants since the outcome may impact future adoption of our products.

Digital Cinema 3D Products

Our digital cinema 3D products provide 3D image capabilities when combined with a digital cinema projector and server. Our revenue in this area has been negatively impacted by declines in unit shipments and lower selling prices for 3D products, as the market for 3D cinema equipment has become increasingly competitive and the adoption rate of new 3D screens has slowed considerably.

Broadcast Products

Our broadcast products are used to encode, transmit, and decode multiple channels of high quality audio content for DTV and HDTV program production and broadcast distribution and to measure the subjective loudness of audio content within broadcast programming. Since our broadcast products support the use of our encoding technologies, revenue from these products will be affected by the level of adoption of our encoding technologies especially in new and emerging markets.

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Film-Based Cinema Products

Our film-based cinema products are used primarily to read, decode, and play back film soundtracks, to calibrate cinema sound systems, and to enable soundtracks encoded in digital audio to be played back on analog cinema audio systems. As the cinema industry has increasingly adopted digital-based formats, revenue from our film cinema products has declined, and we anticipate this trend to continue.

Services

Services revenue is primarily tied to activity in the cinema industry, and has been adversely impacted by the industry's transition from film to digital-based production. Services are also dependent upon the volume of film production by studios and independent filmmakers. Several factors influence the number of movies produced in a given fiscal period, including strikes and work stoppages within the cinema industry and budgetary constraints and changes in cinema industry business models. Our services revenue continues to face significant competition from full-service post-production companies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. The preparation of these financial statements requires us to establish accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements, and the reported amounts of revenue and expenses during a fiscal period. The SEC considers an accounting policy and estimate to be critical if it is both important to a company’s financial condition and/or results of operations and requires significant judgment on the part of management in its application. On a regular basis, we evaluate our assumptions, judgment, and estimates. We have discussed the selection and development of the critical accounting policies and estimates with the Audit Committee of our Board of Directors. The Audit Committee has reviewed our related disclosures in our Annual Report on Form 10-K for the fiscal year ended September 27, 2013. Although we believe that our judgments and estimates are appropriate and correct, actual results may differ from these estimates.

We consider the following accounting policies and estimates listed below to be the most critical due to both their importance on our financial condition and results of operations and the level of management judgment required. If actual results or events differ materially, our reported financial condition and results of operation for future periods could be materially affected. Historically, our estimates and assumptions have not significantly differed from actual results. The estimates and/or assumptions relevant to these critical policies have not significantly changed in recent years, nor do we anticipate them to significantly change in the future. For additional information describing all of our significant accounting policies and methods used in the preparation of our financial statements, refer to our Annual Report on Form 10-K for the fiscal year ended September 27, 2013 in addition to Note 2, “Summary of Significant Accounting Policies” of the Notes to the Unaudited Interim Condensed Consolidated Financial Statements in Part I, Item 1. Further information regarding the potential risks to our future results of operations are included within “Risk Factors” in Part II, Item 1A of this Form 10-Q.

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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.

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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.

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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.

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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.

Recently Issued Accounting Standards

There have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our unaudited interim condensed consolidated financial statements.

RESULTS OF OPERATIONS

For each line item included on our consolidated statement of operations, we have provided both quarter and year-to-date comparative analysis within this section. The "Quarter-To-Date: Q2'14 vs. Q2'13" analysis compares results from the fiscal quarter ended March 28, 2014 with those of the fiscal quarter ended March 29, 2013, while the "Year-To-Date: Q2'14 vs. Q2'13" analysis compares results from the fiscal year-to-date period ended March 28, 2014 with those from the fiscal year-to-date period ended March 29, 2013. The significant factors identified as the leading drivers contributing to the fluctuation are presented in descending order according to the magnitude of their impact on the overall change.

Revenue and Gross Margin

Licensing

Licensing revenue consists of fees earned from licensing our technologies to customers who incorporate them into their products to enable and enhance audio and video capabilities. The technologies that we license are either internally developed, acquired, or licensed from third parties. Our cost of licensing consists mainly of amortization of purchased intangible assets and intangible assets acquired in business combinations as well as third party royalty obligations paid to license intellectual property that we then sublicense to our customers.

	Fiscal Quarter Ended				Fiscal Year-To-Date Ended
Licensing	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
Revenue	$258,616	$226,455	$32,161	14%	$464,276	$431,331	$32,945	8%
Percentage Of Total Revenue	93%	91%			91%	89%
Cost Of Licensing	3,742	6,409	(2,667)	(42)%	7,743	9,489	(1,746)	(18)%
Gross Margin	254,874	220,046	34,828	16%	456,533	421,842	34,691	8%
Gross Margin Percentage	99%	97%			98%	98%

Quarter-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Broadcast	á	Increase in net back payments received for royalties and settlements including an individual item totaling $24.7 million from a large licensee, and higher volumes of TV and STB shipments that incorporate our technologies.	á	Decrease in cost of licensing is attributed to lower charges related to certain revenue-sharing agreements.
PC	â	Attributed to the transition to the Windows 8 business model and lower unit shipments from continued declines in the underlying PC market.
Mobile	á	Increase in net back payments received for royalties and settlements and higher shipment volumes of mobile devices that incorporate our technologies.
Other	á	Higher revenues from our gaming market largely attributable to the new PlayStation 4 and Xbox One video game consoles that were launched in late 2013.
CE	á	Increase in net back payments received for royalties and settlements.

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Year-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Broadcast	á	Increase in net back payments received for royalties and settlements including an individual item totaling $24.7 million from a large licensee, and higher volumes of TV and STB shipments that incorporate our technologies.	ßà	Despite the decrease in cost of licensing attributed to lower charges related to certain revenue-sharing agreements, gross margin remained unchanged.
PC	â	Attributed to the transition to the Windows 8 business model and lower unit shipments from continued declines in the underlying PC market.
Mobile	á	Increase in shipment volumes of mobile devices that incorporate our technologies and higher net back payments received for royalties and settlements.
CE	á	Increase in net back payments received for royalties and settlements.
Other	á	Higher revenues from our gaming market largely attributable to the new PlayStation 4 and Xbox One video game consoles that were launched in late 2013.

Products

Products revenue is generated from the sale of audio and video products for the film production, cinema, and television broadcast industries. Cost of products consists primarily of the cost of materials related to products sold, applied labor and manufacturing overhead, and, to a lesser extent, amortization of certain intangible assets. Our cost of products also includes third party royalty obligations paid to license intellectual property that we include in our products.

	Fiscal Quarter Ended				Fiscal Year-To-Date Ended
Products	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
Revenue	$14,563	$17,726	$(3,163)	(18)%	$32,667	$43,224	$(10,557)	(24)%
Percentage Of Total Revenue	5%	7%			6%	9%
Cost Of Products	10,293	13,206	(2,913)	(22)%	24,081	31,695	(7,614)	(24)%
Gross Margin	4,270	4,520	(250)	(6)%	8,586	11,529	(2,943)	(26)%
Gross Margin Percentage	29%	25%			26%	27%

Quarter-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Digital Cinema - Video	â	Lower unit shipments and lower average selling prices.	á	Recognition of previously deferred revenue in current fiscal period which had only minimal associated deferred costs and lower unit standard costs.
Digital Cinema - Audio	â	Lower unit shipments and lower average selling prices on digital cinema audio processors.	á	Improved product mix including an increased volume of higher margin Atmos equipment.
	á	Exhibitor theater installations of Atmos processor equipment, which have steadily increased since shipments began in the third quarter of fiscal 2013 and recognition of previously deferred revenue as third party server OEMs achieved necessary milestones in the current fiscal period.
Film-Based Cinema	â	Lower unit shipments resulting from the industry transition to digital cinema.	â	Higher unit standard costs, partially offset by higher average selling prices.
Other	No material fluctuations.		â	Higher overhead cost variances and warranty charges, partially offset by lower excess manufacturing capacity.

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Year-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Digital Cinema - Video	â	Lower unit shipments and lower average selling prices.	ßà	Recognition of previously deferred revenue in current fiscal period which had only minimal associated deferred costs and lower unit standard costs.
Digital Cinema - Audio	á	Exhibitor theater installations of Atmos processor equipment, which have steadily increased since shipments began in the third quarter of fiscal 2013 and recognition of previously deferred revenue as third party server OEMs achieved necessary milestones in the current fiscal period.	á	Improved product mix including an increased volume of higher margin Atmos equipment.
	â	Lower unit shipments and lower average selling prices on digital cinema audio processors.
3D Cinema	â	Lower shipments of glasses and kits and lower average selling prices for kits as the adoption rate of new 3D screens has slowed considerably and competition for the remaining screens increases, partially offset by the recognition of previously deferred revenue in the current fiscal period.	á	Higher average selling prices and lower unit standard costs for 3D glasses.
			â	Higher unit standard costs for 3D kits.
Film-Based Cinema	â	Lower unit shipments resulting from the industry transition to digital cinema.	â	Higher unit standard costs, partially offset by higher average selling prices.
Other	No material fluctuations.		â	Higher overhead cost variances, partially offset by lower excess manufacturing capacity.

Services

Services revenues consists of fees for consulting, commissioning and training services in support of film production, television broadcast, and music production. Cost of services primarily consists of personnel and personnel-related costs for employees performing our professional services, the cost of outside consultants, and other direct expenses incurred on behalf of customers.

	Fiscal Quarter Ended				Fiscal Year-To-Date Ended
Services	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
Revenue	$5,413	$5,165	$248	5%	$12,926	$11,393	$1,533	13%
Percentage Of Total Revenue	2%	2%			3%	2%
Cost Of Services	3,470	3,668	(198)	(5)%	7,063	7,704	(641)	(8)%
Gross Margin	1,943	1,497	446	30%	5,863	3,689	2,174	59%
Gross Margin Percentage	36%	29%			45%	32%

Quarter-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Other	á	An increase in Atmos commissioning services.	á	Lower costs due to nonrecurring activities in advance of the Atmos processor product launch in the second quarter of fiscal 2013.

Year-To-Date: Q2'14 vs. Q2'13

Factor	Revenue		Gross Margin
Film-based production services	á	Driven by the release of deferred revenue, partially offset by declines in film-based production services.	á	Lower labor and other related costs.
Other	á	Increase in Atmos commissioning services and maintenance and support services.	á	Decreased installation expenses as the prior comparative period reflected higher labor costs to prepare exhibitor facilities for Atmos-enabled equipment.

Operating Expenses

Research & Development

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 services, and information technology expenses.

	Fiscal Quarter Ended				Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
Research and Development	$44,798	$41,948	$2,850	7%	$89,261	$84,384	$4,877	6%
Percentage of total revenue	16%	17%			18%	17%

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Quarter-To-Date: Q2'14 vs. Q2'13

Category	Key Drivers
Compensation & Benefits	á	An increase in employee headcount aimed at developing new product and technology market offerings, in addition to the impact of merit increases across the existing employee base and higher variable compensation costs.

Year-To-Date: Q2'14 vs. Q2'13

Category	Key Drivers
Compensation & Benefits	á	An increase in employee headcount aimed at developing new product and technology market offerings, in addition to the impact of merit increases across the existing employee base and higher variable compensation costs.

Sales & Marketing

Sales and Marketing ("S&M") expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, marketing and promotional expenses particularly for events such as trade shows and conferences, travel-related expenses for our sales and marketing personnel, consulting fees, facilities costs, depreciation and amortization, and information technology expenses.

	Fiscal Quarter Ended				Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
Sales and Marketing	$64,828	$58,130	$6,698	12%	$125,207	$116,551	$8,656	7%
Percentage of total revenue	23%	23%			25%	24%

Quarter-To-Date: Q2'14 vs. Q2'13

Category	Key Drivers
Marketing Programs	á	Higher consulting and other costs associated with expanded marketing programs for numerous initiatives such as Dolby Atmos.
	á	Higher costs associated with industry trade shows and other marketing events.
Legal & Professional Fees	á	An increase in professional fees for intellectual property protection.

Year-To-Date: Q2'14 vs. Q2'13

Category	Key Drivers
Marketing Programs	á	Higher consulting and other costs associated with expanded marketing programs for numerous initiatives such as Dolby Atmos.
	á	Higher costs associated with industry trade shows and other marketing events.
Legal & Professional Fees	á	An increase in professional fees for intellectual property protection.

General & Administrative

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				Fiscal Year-To-Date Ended
	March 28, 2014	March 29, 2013	$	%	March 28, 2014	March 29, 2013	$	%
General and Administrative	$46,457	$41,803	$4,654	11%	$88,365	$84,911	$3,454	4%
Percentage of total revenue	17%	17%			17%	17%

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Quarter-To-Date: Q2'14 vs. Q2'13

Category	Key Drivers
Legal & Professional Fees	á	Driven by costs incurred in connection with our pending acquisition of Doremi Labs (refer to footnote 12 for additional information).
Compensation & Benefits	á	Increased as a result of the impact of merit increases across the existing employee base and an increase in variable compensation costs.
Consulting & External Labor