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Stockholders' Equity And Stock-Based Compensation
 6 Months Ended
Mar. 26, 2021
Stockholders' Equity And Stock-Based Compensation [Abstract]  
Stockholders' Equity And Stock-Based Compensation 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 and RSUs under our equity incentive plans, as well as shares under our ESPP.
Common Stock - Class A and Class B
Our Board of Directors has authorized two classes of common stock, Class A and Class B. As of March 26, 2021, we had authorized 500,000,000 Class A shares and 500,000,000 Class B shares. As of March 26, 2021, we had 65,206,586 shares of Class A common stock and 36,107,779 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
Following shareholder approval in January 2005, our 2005 Stock Plan was adopted by our Board of Directors on February 16, 2005. In February 2020, our stockholders approved the name change of our 2005 Stock Plan to the 2020 Stock Plan and certain other changes described in our proxy statement for our 2020 annual meeting of stockholders. Our 2020 Stock Plan, as amended and restated, provides for the ability to grant incentive stock options, non-qualified stock options, restricted stock, RSUs, stock appreciation rights, deferred stock units, performance units, performance bonus awards, and performance shares. A total of 55.0 million shares of our Class A common stock have been authorized for issuance under the 2020 Stock Plan in total since inception of the 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 2020 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 2020 Stock Plan, such shares will be counted as 1.6 shares for every one share returned.
Stock Options.    Stock options are 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 ten years after the date of grant or three months after termination of service. Options granted to employees and officers from June 2008 onwards 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 ten years after the date of grant or three 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 2020 Stock Plan. Our 2020 Stock Plan also allows us to grant stock awards which vest based on the satisfaction of specific performance criteria.
Performance-Based Stock Options.    In fiscal 2016, we began granting PSOs to our executive officers with shares of our Class A common stock underlying such options. The contractual term for the PSOs is seven years, with vesting contingent upon market-based performance conditions, representing the achievement of specified Dolby annualized TSR targets at the end of a three-year measurement period following the date of grant. If the minimum conditions are met, the PSOs earned will cliff vest on the third anniversary of the grant date, upon certification of achievement of the performance conditions by our Compensation Committee. Anywhere from 0% to 125% of the shares subject to a PSO may vest based on achievement of the performance conditions at the end of the three-year performance period.
In valuing the PSOs which will be recognized as compensation cost, we used a Monte Carlo valuation model. Aside from the use of an expected term for the PSOs commensurate with their shorter contractual term, the nature of the valuation inputs used in the Monte Carlo valuation model were consistent with those used to value our non-performance based options granted under the 2020 Stock Plan. Compensation cost is being amortized on a straight-line basis over the requisite service period.
The following table summarizes information about PSOs granted to our executive officers that have vested:
Grant DateAggregate Shares Granted at Target Award
Aggregate Shares Exercisable at Vest Date (1)
Percentage Vested of Target AwardVested Date
December 15, 2015419,623 334,623 125 %December 2018
December 15, 2016276,199 240,539 95 %December 2019
December 15, 2017264,000 253,440 96 %December 2020
(1)Aggregate shares exercisable at vest date does not include any shares that were cancelled before the vest date after they were granted.
On December 15, 2018, we granted PSOs to our executive officers exercisable for an aggregate of 241,100 shares at the target award amount, which would be exercisable up to an aggregate of 301,375 shares at 125% of the target award amount. As of March 26, 2021, PSOs which would be exercisable for an aggregate of 755,687 shares at the target award amount (815,962 shares at up to 125% of the target award amount) were outstanding.
The following table summarizes information about stock options issued under our 2020 Stock Plan:
SharesWeighted-Average
Exercise Price		Weighted-Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value (1)
 (in thousands) (in years)(in thousands)
Options outstanding at September 25, 20206,599 $53.30 
Grants283 92.08 
Exercises(1,371)46.19 
Forfeitures and cancellations(9)62.36 
Options outstanding at March 26, 20215,502 57.05 6.12$225,563 
Options vested and expected to vest at March 26, 20215,313 56.51 6.04221,624 
Options exercisable at March 26, 20213,572 $50.31 5.12$171,130 
(1)Aggregate intrinsic value is based on the closing stock price of our Class A common stock on March 26, 2021 of $98.22 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. 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 2020 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of our Class A common stock. Compensation expense from these awards is equal to the adjusted fair market value of our Class A common stock on the date of grant, discounted to account for dividend payments forgone during the vesting period, and is recognized on a straight-line basis over the requisite service period.
Performance-Based Restricted Stock Units (PSUs).    In the first quarter of fiscal 2020, we began granting PSUs to our executive officers with shares of our Class A common stock underlying such awards. The terms of the PSU Agreement adopted in the first quarter fiscal 2020 provide for the grant of PSUs to our executive officers contingent on Dolby's achievement of annualized TSR targets measured against a comparator index over a three-year performance period following the date of grant. Anywhere from 0% to 200% of eligible restricted stock units may vest based on achievement of the performance conditions at the end of the three-year performance period.
In valuing the PSUs which will be recognized as compensation cost, we used a Monte Carlo valuation model. Compensation cost is being amortized on a straight-line basis over the requisite service period.
On December 15, 2020, we granted PSUs to our executive officers vesting for an aggregate of 66,138 shares at the target amount, which would vest at 132,276 shares at 200% of the target award amount. On December 16, 2019, we granted PSUs to our executive officers vesting for an aggregate of 62,000 shares at the target amount, which would vest at 124,000 shares at 200% of the target award amount.
The following table summarizes information about RSUs issued under our 2020 Stock Plan:
SharesWeighted-Average
Grant Date
Fair Value 
 (in thousands)
Non-vested at September 25, 20202,979 $62.70 
Granted1,383 89.75 
Vested(1,012)60.18 
Forfeitures(90)65.54 
Non-vested at March 26, 20213,260 $74.88 
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 lower of the closing price of our Class A common stock on the New York Stock Exchange on the first and last day of the 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 the volatility of our stock price over the expected term of the award.
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 Class A 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 Class A 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 for a period that is commensurate with the expected term. Implied volatility is based upon externally traded option contracts of our Class A common stock.
Dividend Yield.    The dividend yield is based on our anticipated dividend payout over the expected term of our option awards. Dividend declarations and the establishment of future record and payment dates are subject to the Board of Directors’ continuing determination that the dividend policy is in the best interests of our stockholders. The dividend policy may be changed or canceled at the discretion of the Board of Directors at any time.
The weighted-average assumptions used in the determination of the fair value of our stock options were as follows:
 Fiscal Quarter EndedFiscal Year-To-Date Ended
 March 27,
2020		March 26,
2021		March 27,
2020
Expected term (in years)4.914.884.91
Risk-free interest rate0.6 %0.4 %1.7 %
Expected stock price volatility25.8 %28.7 %24.0 %
Dividend yield1.3 %1.1 %1.3 %
There were no stock options granted during the second quarter of fiscal 2021.
Stock-Based 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. The selection of applicable estimated forfeiture rates is based on an evaluation of trends in our historical forfeiture data with consideration for other potential driving factors. If in subsequent periods actual forfeitures significantly differ from our initial estimates, we will revise such estimates accordingly.
The following two tables separately present stock-based compensation expense both by award type and classification in our condensed consolidated statements of operations (in thousands):
Expense - By Award Type
 Fiscal Quarter EndedFiscal Year-To-Date Ended
 March 26,
2021		March 27,
2020		March 26,
2021		March 27,
2020
Compensation expense
Stock options$3,224 $3,974 $7,710 $8,520 
Restricted stock units19,853 15,850 40,246 32,817 
Employee stock purchase plan1,336 1,127 2,770 2,228 
Total stock-based compensation24,413 20,951 50,726 43,565 
Benefit from income taxes(3,859)(3,521)(8,071)(7,115)
Total stock-based compensation, net of tax$20,554 $17,430 $42,655 $36,450 

Expense - By Income Statement Line Item Classification
 Fiscal Quarter EndedFiscal Year-To-Date Ended
 March 26,
2021		March 27,
2020		March 26,
2021		March 27,
2020
Compensation expense
Cost of products and services$489 $507 $1,123 $1,050 
Research and development7,190 6,179 15,123 13,166 
Sales and marketing9,110 7,702 $18,906 $15,876 
General and administrative7,624 6,563 15,574 13,473 
Total stock-based compensation expense24,413 20,951 50,726 43,565 
Benefit from income taxes(3,859)(3,521)(8,071)(7,115)
Total stock-based compensation, net of tax$20,554 $17,430 $42,655 $36,450 
The tax benefit that we recognize from shares issued under our ESPP is excluded from the tables above, and was not material for the periods presented.
Unrecognized Compensation Expense.    As of March 26, 2021, total unrecognized compensation expense associated with employee stock options expected to vest was approximately $22.5 million, which is expected to be recognized over a weighted-average period of 2.2 years. As of March 26, 2021, total unrecognized compensation expense associated with RSUs expected to vest was approximately $187.1 million, which is expected to be recognized over a weighted-average period of 2.8 years.
Common Stock Repurchase Program
In November 2009, we announced a stock repurchase program ("program"), providing for the repurchase of our Class A common stock. The following table summarizes the initial amount of authorized repurchases as well as additional repurchases approved by our Board of Directors as of March 26, 2021 (in thousands):
Authorization PeriodAuthorization Amount
Fiscal 2010: November 2009$250,000 
Fiscal 2010: July 2010300,000 
Fiscal 2011: July 2011250,000 
Fiscal 2012: February 2012100,000 
Fiscal 2015: October 2014200,000 
Fiscal 2017: January 2017200,000 
Fiscal 2018: July 2018350,000 
Fiscal 2019: July 2019350,000 
Total$2,000,000 
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 26, 2021, the remaining authorization to purchase additional shares is approximately $76.4 million.
The following table provides information regarding share repurchase activity under the program during fiscal 2021:
Quarterly Repurchase ActivityShares
Repurchased
Cost in thousands (1)
Average Price Paid Per Share (2)
Q1 - Quarter ended December 25, 2020450,399 $39,985 $88.78 
Q2 - Quarter ended March 26, 2021757,019 70,790 93.51 
Total1,207,418 $110,775 
(1)Cost of share repurchases includes the price paid per share and applicable commissions.
(2)Average price paid per share excludes commission costs.
Dividend Program
The following table summarizes dividends declared under the program during fiscal 2021:
Fiscal PeriodAnnouncement DateRecord DatePayment DateCash Dividend Per Common Share
Estimated
Dividend Payment(1)
Fiscal 2021
Q1 - Quarter ended December 25, 2020January 28, 2021February 9, 2021February 19, 2021$0.22 $22.4 million
Q2 - Quarter ended March 26, 2021May 4, 2021May 17, 2021May 25, 2021$0.22 $22.3 million
(1)The dividend payment amount is estimated based on the number of shares of our Class A and Class B common stock that we estimate will be outstanding as of the Record Date.