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Stockholders' Equity And Stock-Based Compensation | 3 Months Ended
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Dec. 29, 2023
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 issue stock-based awards in the form of stock options and RSUs under our equity incentive plans, as well as shares under our ESPP. Common Stock - Class A and Class B Our Board of Directors has authorized two classes of common stock, Class A and Class B. As of December 29, 2023, we had authorized 500,000,000 Class A shares and 500,000,000 Class B shares. As of December 29, 2023, we had 59,765,465 shares of Class A common stock and 36,085,779 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 Our 2020 Stock Plan originally was adopted by our Board of Directors and shareholders in 2005 (when the 2020 Stock Plan was called the 2005 Stock Plan). Our stockholders last approved amendments to the 2020 Stock Plan at our 2023 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 64.0 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. 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 generally vest over four years, with 25% of the options becoming exercisable on the one-year anniversary of the date of grant and the balance of the shares vesting in equal monthly installments over the following 36 months. These options expire on the earlier of ten years after the date of grant or three months after termination of service. 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. From fiscal 2016 through fiscal 2019, we granted PSOs to certain officers with shares of our Class A common stock underlying such options. The contractual term for the PSOs was seven years, with vesting contingent upon market-based performance conditions, representing the achievement of specified Dolby annualized TSR targets at the end of a three-year measurement period following the date of grant. Anywhere from 0% to 125% of the shares subject to a PSO vested based on achievement of the performance conditions at the end of the three-year performance period. In valuing the PSOs, which are 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. As of December 29, 2023, an aggregate of 249,228 shares of PSOs were exercisable and outstanding. The following table summarizes information about stock options, including PSOs, issued under our 2020 Stock Plan:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value (1)
| (in thousands) |  | (in years) | (in thousands)
Options outstanding as of September 29, 2023 | 3,720 |  | $ | 66.13 |  |  |
Grants | 271 |  | 87.49 |  |  |
Exercises | (203) |  | 52.25 |  |  |
Forfeitures and cancellations | (1) |  | 53.72 |  |  |
Options outstanding as of December 29, 2023 | 3,787 |  | 68.45 |  | 5.29 | $ | 70,079 |
Options vested and expected to vest as of December 29, 2023 | 3,625 |  | 68.11 |  | 5.20 | 69,672 |
Options exercisable as of December 29, 2023 | 2,913 |  | $ | 64.43 |  | 4.44 | 65,763 |
(1)Aggregate intrinsic value is based on the closing stock price of our Class A common stock on December 29, 2023 of $86.18 and excludes the impact of options that were not in-the-money. Restricted Stock Units. In fiscal 2008, we began granting RSUs to certain directors, officers and employees. RSU awards granted to employees and officers generally vest over four years, with cliff-vesting. Awards granted to ongoing non-employee directors generally vest over approximately one year. Awards granted to new non-employee 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. 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. Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors. Our 2020 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria. Performance-Based Restricted Stock Units. In fiscal 2020, we began granting PSUs to certain 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 certain 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. The value of the PSUs, which is recognized as compensation cost, is calculated using a Monte Carlo valuation model. Compensation cost is being amortized on a straight-line basis over the requisite service period. Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors. The following table summarizes information on PSUs granted to our officers that have not vested as of December 29, 2023:
| Aggregate Shares Granted |  | Potential Shares at Vest Date (at 200% of Target) |
December 15, 2021 | 60,301 |  |  | 120,602 |  |
December 15, 2022 | 90,613 |  |  | 181,226 |  |
December 15, 2023 | 77,283 |  |  | 154,566 |  |
On December 16, 2019, we granted PSUs to our executive officers for an aggregate of 62,000 shares, which vested in December 2022 at 81% of the target award amount. On December 15, 2020, we granted PSUs to our executive officers for an aggregate of 66,138 shares, which vested in December 2023 at 80% of the target award amount. As of December 29, 2023, PSUs which would vest for an aggregate of 228,197 shares at the target award amount (456,394 shares at 200% of the target award amount) were outstanding. The following table summarizes information about RSUs, including PSUs, issued under our 2020 Stock Plan:
| Shares | Weighted-Average Grant Date Fair Value
| (in thousands) |
Non-vested as of September 29, 2023 | 3,747 |  | $ | 78.62 |
Granted | 1,590 |  | 84.24 |
Vested | (1,120) |  | 78.58 |
Forfeitures | (190) |  | 81.37 |
Non-vested as of December 29, 2023 | 4,027 |  | $ | 80.72 |
Employee Stock Purchase Plan. Our ESPP originally was adopted by our Board of Directors and shareholders in 2005. Our stockholders last approved amendments to the ESPP at our 2023 annual meeting of stockholders. The ESPP 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 NYSE on the first day of the offering period and the last day of the purchase period. 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. A total of 5.5 million shares of our Class A common stock have been authorized for issuance under the ESPP since inception of the plan. 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 U.S. 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. The expected volatility has historically been determined using a blended combination of historical and implied volatility, but is currently being determined using historical volatility only. 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 Ended |  |  |
| December 29, 2023 | December 30, 2022 |  |  |  |
Expected term (in years) | 4.86 | 4.82 |  |  |  |
Risk-free interest rate | 3.9 | % | 3.6 | % |  |  |  |
Expected stock price volatility | 29.4 | % | 29.4 | % |  |  |  |
Dividend yield | 1.4 | % | 1.6 | % |  |  |  |
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 unaudited interim condensed 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 unaudited interim condensed consolidated statements of operations (in thousands): Expense - By Award Type
| Fiscal Quarter Ended |  |
| December 29, 2023 | December 30, 2022 |  |  |  |
Compensation expense |  |  |  |  |  |
Stock options | $ | 2,125 |  | $ | 2,405 |  |  |  |  |
Restricted stock units (1) (2) | 29,016 |  | 27,552 |  |  |  |  |
Employee stock purchase plan | 753 |  | 1,283 |  |  |  |  |
Total stock-based compensation | 31,894 |  | 31,240 |  |  |  |  |
Estimated benefit from income taxes | (4,999) |  | (4,702) |  |  |  |  |
Total stock-based compensation, net of tax | $ | 26,895 |  | $ | 26,538 |  |  |  |  |
(1)Stock-based compensation expense incurred by restricted stock units includes expense from PSUs. (2)Excludes $0.1 million and $0.3 million of capitalized stock-based compensation related to internal-use software in the first quarter of fiscal 2024 and in the first quarter of fiscal 2023, respectively. Expense - By Income Statement Line Item Classification
| Fiscal Quarter Ended |  |
| December 29, 2023 | December 30, 2022 |  |  |  |
Compensation expense |  |  |  |  |
Cost of products and services | $ | 410 |  | $ | 503 |  |  |  |  |
Research and development | 10,106 |  | 10,676 |  |  |  |  |
Sales and marketing | 10,481 |  | 10,727 |  |  |  |  |
General and administrative | 10,897 |  | 9,334 |  |  |  |  |
Total stock-based compensation | 31,894 |  | 31,240 |  |  |  |  |
Estimated benefit from income taxes | (4,999) |  | (4,702) |  |  |  |  |
Total stock-based compensation, net of tax | $ | 26,895 |  | $ | 26,538 |  |  |  |  |
The tax benefit that we recognize from shares issued under our ESPP is excluded from the tables above. The tax benefit recognized was not material in the first quarters of fiscal 2024 and fiscal 2023.
Unrecognized Compensation Expense. As of December 29, 2023, total unrecognized compensation expense associated with employee stock options expected to vest was approximately $15.1 million, which is expected to be recognized over a weighted-average period of 2.9 years. As of December 29, 2023, total unrecognized compensation expense associated with RSUs expected to vest was approximately $263.7 million, which is expected to be recognized over a weighted-average period of 2.9 years. Common Stock Repurchase Program In November 2009, we announced a stock repurchase program, providing for the repurchase of our Class A common stock. The following table summarizes the initial amount of authorized repurchases as well as additional repurchases approved by our Board of Directors as of December 29, 2023 (in thousands):
Date of Authorization | 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 |
Fiscal 2015: October 2014 | 200,000 |
Fiscal 2017: January 2017 | 200,000 |
Fiscal 2018: July 2018 | 350,000 |
Fiscal 2019: July 2019 | 350,000 |
Fiscal 2021: July 2021 | 350,000 |
Fiscal 2022: February 2022 | 250,000 |
Fiscal 2022: August 2022 | 350,000 |
Total | $ | 2,950,000 |
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 December 29, 2023, the remaining authorization to purchase additional shares was $131.6 million. The following table provides information regarding share repurchase activity under the program during fiscal 2024:
Quarterly Repurchase Activity | Shares Repurchased | Cost (1) | Average Price Paid Per Share (2)
|  | (in thousands) |
Q1 - Quarter ended December 29, 2023 | 967,789 |  | $ | 80,002 |  | $ | 82.66 |
Total | 967,789 |  | $ | 80,002 |  |
(1)Cost of share repurchases includes the price paid per share, and excludes commission costs. (2)Average price paid per share excludes commission costs. Dividend Program The following table summarizes dividends declared under the program during fiscal 2024:
Fiscal Period | Announcement Date | Record Date | Payment Date | Cash Dividend Per Common Share | Dividend Payment |  |
Q1 - Quarter ended December 29, 2023 | February 1, 2024 | February 13, 2024 | February 22, 2024 | $ | 0.30 |  | $28.8 million | (1) |
(1)The dividend payment amount for the dividend declared in the first quarter of fiscal 2024 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.

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