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DTS, INC. FORM 10-Q/A TABLE OF CONTENTS

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q/A
Amendment No. 1

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

For the Quarterly Period Ended March 31, 2014

Commission File Number 000-50335

LOGO

DTS, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  77-0467655
(I.R.S. Employer
Identification No.)

5220 Las Virgenes Road
Calabasas, California 91302
(Address of principal executive
offices and zip code)

 

(818) 436-1000
(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. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). Yes ý    No o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         As of May 5, 2014 a total of 16,968,350 shares of the Registrant's Common Stock, $0.0001 par value, were outstanding.

   


Table of Contents


EXPLANATORY NOTE

        As used in this Amendment No. 1 to Form 10-Q for the quarter ended March 31, 2014 (the "Form 10-Q/A"), the terms "Company," "our," "us" or "we" refer to DTS, Inc. and its consolidated subsidiaries.

        This Form 10-Q/A amends our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, as originally filed with the Securities and Exchange Commission (the "SEC") on May 12, 2014 (the "Original Filing"). This Form 10-Q/A is being filed to restate our unaudited condensed consolidated financial statements as of and for the quarter ended March 31, 2014 and to make corresponding revisions to certain disclosures in the Original Filing.

        The restatement is the result of an understatement of income tax benefit due to the inadvertent omission of certain foreign tax credits in the provision (benefit) for income taxes in the unaudited financial statements, relating to the Company's special one-time transfer of certain Japan and Taiwan intellectual property (IP) licensing rights to the US on January 1, 2014. This transaction was initiated to improve US profitability and cash flow, and reduce the future consolidated effective tax rate excluding discrete items, in part by optimizing the use of certain foreign withholding taxes as credits. Due to the complexity of this transaction, the Company engaged teams of accounting, tax and legal professionals with relevant expertise in global IP, legal and tax structures. In particular, a leading global accounting firm was selected for its expertise in specific areas of international taxation to assist in the planning and execution of the transaction, as well as the review of the quarterly and annual income tax provisions for 2014. During the audit of the Company's income tax provision for the year ended December 31, 2014, it was discovered that certain foreign tax credits available to the Company as a result of the special one-time transfer had been inadvertently excluded from the first quarter income tax provision.

        The correction of this misstatement as of and for the three months ended March 31, 2014 is an $8.7 million increase in the benefit for income taxes, a $1.5 million increase in income taxes receivable, a $9.6 million increase in current deferred income tax assets, a $1.5 million decrease in non-current deferred income tax assets, and a $0.9 million increase in other long-term liabilities. The impacts of this correction are reflected within this Form 10-Q/A and are further described in Note 11, "Restatement."

        This Form 10-Q/A amends and restates in its entirety each section of the Original Filing impacted as a result of the restatement, but each section that has been restated has been updated solely to reflect the changes described in Note 11 and any corresponding disclosures. This Form 10-Q/A has not been updated to reflect events occurring after May 12, 2014, the date of the Original Filing. Therefore, this Form 10-Q/A should be read in conjunction with filings we have made with the SEC subsequent to May 12, 2014.


Table of Contents


DTS, INC.
FORM 10-Q/A
TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION     1  

Item 1.

 

Condensed Consolidated Financial Statements (unaudited):

 

 

1

 


 

Condensed Consolidated Balance Sheets (As Restated)

 

 

1

 


 

Condensed Consolidated Statements of Operations (As Restated)

 

 

2

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (As Restated)

 

 

3

 

 

 

Condensed Consolidated Statements of Cash Flows (As Restated)

 

 

4

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

5

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

15

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

20

 

Item 4.

 

Controls and Procedures

 

 

21

 

PART II.

 

OTHER INFORMATION

 

 

24

 

Item 1.

 

Legal Proceedings

 

 

24

 

Item 1A.

 

Risk Factors

 

 

24

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

41

 

Item 3.

 

Defaults Upon Senior Securities

 

 

41

 

Item 4.

 

Mine Safety Disclosures

 

 

41

 

Item 5.

 

Other Information

 

 

42

 

Item 6.

 

Exhibits

 

 

42

 

SIGNATURES

 

 

43

 

Table of Contents


DTS, INC.
PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements


DTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except per share data)

 
  As of
March 31,
2014
(As Restated)
  As of
December 31,
2013
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 57,809   $ 66,025  

Short-term investments

    5,007     5,004  

Accounts receivable, net of allowance for doubtful accounts of $1,445 and $1,388 at March 31, 2014 and December 31, 2013, respectively

    16,875     11,637  

Deferred income taxes

    15,339     5,787  

Prepaid expenses and other current assets

    3,782     5,480  

Income taxes receivable

    3,743     2,826  

Total current assets

    102,555     96,759  

Property and equipment, net

    29,121     30,116  

Intangible assets, net

    48,180     50,225  

Goodwill

    48,418     48,418  

Deferred income taxes

    17,683     11,667  

Other long-term assets

    4,568     4,613  

Total assets

  $ 250,525   $ 241,798  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 2,928   $ 2,802  

Accrued expenses

    10,659     12,142  

Deferred revenue

    7,966     10,262  

Total current liabilities

    21,553     25,206  

Long-term debt

    30,000     30,000  

Other long-term liabilities

    7,282     3,480  

Commitments and contingencies (Note 6)

             

Stockholders' equity:

             

Preferred stock—$0.0001 par value, 5,000 shares authorized at March 31, 2014 and December 31, 2013; no shares issued and outstanding

         

Common stock—$0.0001 par value, 70,000 shares authorized at March 31, 2014 and December 31, 2013; 21,035 and 20,972 shares issued at March 31, 2014 and December 31, 2013, respectively; 16,968 and 17,279 shares outstanding at March 31, 2014 and December 31, 2013, respectively

    3     3  

Additional paid-in capital

    226,691     224,971  

Treasury stock, at cost—4,067 and 3,693 shares at March 31, 2014 and December 31, 2013, respectively

    (92,184 )   (84,689 )

Accumulated other comprehensive income

    789     747  

Retained earnings

    56,391     42,080  

Total stockholders' equity

    191,690     183,112  

Total liabilities and stockholders' equity

  $ 250,525   $ 241,798  

   

See accompanying notes to condensed consolidated financial statements.

1


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DTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)

 
  For the Three Months
Ended March 31,
 
 
  2014
(As Restated)
  2013  

Revenue

  $ 36,835   $ 32,728  

Cost of revenue

    2,331     2,322  

Gross profit

    34,504     30,406  

Operating expenses:

             

Selling, general and administrative

    22,605     21,690  

Research and development

    8,823     7,679  

Total operating expenses

    31,428     29,369  

Operating income

    3,076     1,037  

Interest and other income (expense), net

    (214 )   (245 )

Income before income taxes

    2,862     792  

Provision (benefit) for income taxes

    (11,449 )   2,324  

Net income (loss)

  $ 14,311   $ (1,532 )

Net income (loss) per common share:

             

Basic

  $ 0.83   $ (0.08 )

Diluted:

  $ 0.81   $ (0.08 )

Weighted average shares outstanding:

             

Basic

    17,284     18,218  

Diluted

    17,571     18,218  

   

See accompanying notes to condensed consolidated financial statements.

2


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DTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Amounts in thousands)

 
  For the
Three Months
Ended March 31,
 
 
  2014
(As Restated)
  2013  

Net income (loss)

  $ 14,311   $ (1,532 )

Other comprehensive income, net of tax:

             

Foreign currency translation adjustments

        26  

Other

    42     1  

Total comprehensive income (loss)

  $ 14,353   $ (1,505 )

   

See accompanying notes to condensed consolidated financial statements.

3


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DTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 
  For the Three Months
Ended March 31,
 
 
  2014
(As Restated)
  2013  

Cash flows from operating activities:

             

Net income (loss)

  $ 14,311   $ (1,532 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

             

Depreciation and amortization

    3,633     3,837  

Stock-based compensation charges

    2,469     3,013  

Deferred income taxes

    (13,779 )   362  

Tax benefits (shortfalls) from stock-based awards

    (269 )   (319 )

Excess tax (benefits) shortfalls from stock-based awards

    (2 )   3  

Other

    149     31  

Changes in operating assets and liabilities:

             

Accounts receivable

    (5,300 )   (731 )

Prepaid expenses and other assets

    1,619     929  

Accounts payable, accrued expenses and other liabilities

    (465 )   (4,257 )

Deferred revenue

    (2,296 )   (621 )

Income taxes receivable

    38     574  

Net cash provided by operating activities

    108     1,289  

Cash flows from investing activities:

             

Purchases of available-for-sale investments

    (3 )   (5,059 )

Maturities of available-for-sale investments

        7,749  

Purchases of property and equipment

    (200 )   (773 )

Purchases of intangible assets

    (148 )   (260 )

Net cash provided by (used in) investing activities

    (351 )   1,657  

Cash flows from financing activities:

             

Proceeds from the issuance of common stock under stock-based compensation plans

    186     97  

Repurchases and retirement of common stock for restricted stock tax withholdings          

    (666 )   (767 )

Excess tax benefits (shortfalls) from stock-based awards

    2     (3 )

Purchases of treasury stock

    (7,495 )    

Net cash used in financing activities

    (7,973 )   (673 )

Net change in cash and cash equivalents

    (8,216 )   2,273  

Cash and cash equivalents, beginning of period

    66,025     57,831  

Cash and cash equivalents, end of period

  $ 57,809   $ 60,104  

   

See accompanying notes to condensed consolidated financial statements.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except per share data)

Note 1—Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements of DTS, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the Company's financial position at March 31, 2014, and the results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The information included in this Form 10-Q/A should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 20, 2014.

        The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Note 2—Recent Accounting Pronouncement

        In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU provides guidance regarding when an unrecognized tax benefit should be classified as a reduction to a deferred tax asset or when it should be classified as a liability. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. As of March 31, 2014, the Company has fully adopted this ASU and has presented $5,243 of unrecognized tax benefits as a reduction to deferred tax assets on the condensed consolidated balance sheet.

5


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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 3—Cash, Cash Equivalents and Investments

        Cash, cash equivalents and investments, classified as available-for-sale, consist of the following:

 
  As of
March 31,
2014
  As of
December 31,
2013
 

Cash and cash equivalents:

             

Cash

  $ 20,224   $ 26,374  

Money market accounts

    37,585     39,651  

Total cash and cash equivalents

  $ 57,809   $ 66,025  

Short-term investments:

             

U.S. government and agency securities

  $ 5,007   $ 5,004  

Total short-term investments

  $ 5,007   $ 5,004  

        The Company had no material gross realized or unrealized holding gains or losses from its investments for the periods presented within this quarterly report. The contractual maturities of investments as of March 31, 2014 were all due within one year.

Note 4—Fair Value Measurements

        The Company's investments are required to be measured and recorded at fair value on a recurring basis. The Company's contingent consideration related to its acquisition of assets from Phorus, Inc. and Phorus, LLC (collectively "Phorus") is also measured and recorded at fair value on a recurring basis until it can be determined whether or not any future payments will be made. Increases or decreases in the fair value of contingent consideration can result from accretion of the liability due to the passage of time, changes in the timing and amount of revenue estimates, changes in discount rates, or payments.

        The Company obtained the fair value of its available-for-sale securities, which are not in active markets, from a third-party professional pricing service using quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The Company's professional pricing service gathers observable inputs for all of its fixed income securities from a variety of industry data providers (e.g., large custodial institutions) and other third-party sources. Once the observable inputs are gathered, all data points are considered and the fair value is determined. The Company validates the quoted market prices provided by its primary pricing service by comparing their assessment of the fair values against the fair values provided by its investment managers. The Company's investment managers use similar techniques to its professional pricing service to derive pricing as described above. As all significant inputs were observable, derived from observable information in the marketplace or supported by observable levels at which transactions are executed in the marketplace, the Company has classified its available-for-sale securities within Level 2 of the fair value hierarchy.

        The Company classifies the fair value of the contingent consideration liability within Level 3 of the fair value hierarchy, as the fair value is based upon unobservable inputs supported by little or no market activity. As of March 31, 2014, the Company measured the fair value of contingent

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 4—Fair Value Measurements (Continued)

consideration using an income approach, based on an analysis of projected cash flows in a non-risk neutral scenario, which utilized a discount rate of 17%. The analysis did not result in a change to the fair value of contingent consideration from December 31, 2013. Considerable judgment is required in the assumptions used in fair value measurements. Accordingly, use of different assumptions, such as significant increases or decreases in estimated revenues, cash flows or the discount rate, could result in materially different fair value estimates. For additional information, refer to Note 6 "Commitments and Contingencies".

        The Company's financial assets and liabilities, measured at fair value on a recurring basis, were as follows:

 
   
  Fair Value Measurements  
Assets (Liabilities)
  Total   Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

As of March 31, 2014

                         

U.S. government and agency securities

  $ 5,007   $   $ 5,007   $  

Contingent consideration(1)

  $ (1,000 ) $   $   $ (1,000 )

As of December 31, 2013

   
 
   
 
   
 
   
 
 

U.S. government and agency securities

  $ 5,004   $   $ 5,004   $  

Contingent consideration(1)

  $ (1,000 ) $   $   $ (1,000 )

(1)
As of March 31, 2014 and December 31, 2013, $400 and $600 were classified in accrued expenses and other long-term liabilities, respectively, on the consolidated balance sheets.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 5—Intangibles

        The following table summarizes the Company's intangible assets:

 
   
  As of March 31, 2014   As of December 31, 2013  
 
  Weighted
Average
Life
(Years)
 
 
  Gross
Amount(1)
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Amount(1)
  Accumulated
Amortization
  Net
Carrying
Amount
 

Existing technology

    6   $ 16,763   $ (8,744 ) $ 8,019   $ 16,763   $ (8,193 ) $ 8,570  

Customer relationships

    8     45,590     (10,221 )   35,369     45,590     (8,792 )   36,798  

Non-compete

    2     384     (367 )   17     384     (350 )   34  

Tradename

    5     3,000     (1,142 )   1,858     3,000     (1,002 )   1,998  

Patents

    5     3,140     (999 )   2,141     3,036     (953 )   2,083  

Trademarks

    10     713     (307 )   406     669     (297 )   372  

Total amortizable intangible assets

          69,590     (21,780 )   47,810     69,442     (19,587 )   49,855  

IPR&D

          370         370     370         370  

Total intangible assets

        $ 69,960   $ (21,780 ) $ 48,180   $ 69,812   $ (19,587 ) $ 50,225  

(1)
Includes write-downs of $2,304 for existing technology, $156 for non-compete, and $360 for IPR&D, which were included in the consolidated statement of operations for the year ended December 31, 2013.

        The following table summarizes amortization of intangibles included in the Company's condensed consolidated statements of operations:

 
  For the Three
Months Ended
March 31,
 
 
  2014   2013  

Cost of revenue(1)

  $ 2,143   $ 2,203  

Operating expenses

    214     250  

Total amortization of intangible assets

  $ 2,357   $ 2,453  

(1)
Includes amortization of $164 and $129 for the three months ended March 31, 2014 and 2013, respectively, associated with certain contractual service arrangements classified as other assets on the condensed consolidated balance sheets.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 5—Intangibles (Continued)

        The Company expects the future amortization of intangible assets held at March 31, 2014 to be as follows:

Years Ending December 31,
  Estimated
Amortization
Expense
 

2014 (remaining 9 months)

  $ 6,794  

2015

    9,021  

2016

    8,318  

2017

    7,958  

2018

    6,831  

2019 and thereafter

    8,888  

Total

  $ 47,810  

Note 6—Commitments and Contingencies

        In the normal course of business, the Company makes certain indemnities, commitments and guarantees under which the Company may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property indemnities to customers in connection with the sale of products and licensing of technologies, indemnities for liabilities associated with the infringement of other parties' technology based upon the Company's products and technologies, guarantees of timely performance of the Company's obligations, and indemnities to the Company's directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. The Company has not recorded a liability for these indemnities, commitments or guarantees in the accompanying condensed consolidated balance sheets, as future payment is currently not probable.

        Under certain existing contractual service arrangements, the Company may be obligated to pay up to approximately $7,500 over an estimated period of three years if certain milestones are achieved.

        In connection with the acquisition of Phorus, contingent consideration of up to $500 could be due and payable at the end of 2014, and up to $1,000 could be due and payable at the end of 2015.

        In the first quarter of 2014, the Company implemented certain staffing changes to allow the Company to facilitate further investments in growth markets. In connection with these changes, the Company recorded severance and related costs of $1,118, of which $225 was paid as of March 31, 2014. The unpaid amounts are expected to be paid during the remainder of 2014.

Note 7—Income Taxes

        The Company's provision (benefit) for income taxes was $(11,449) and $2,324 for the three months ended March 31, 2014 and 2013, respectively.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 7—Income Taxes (Continued)

        For the three months ended March 31, 2014, the Company's effective tax rate was approximately (400.0)%. This effective tax rate differed from the US statutory rate of 35% primarily due to a net tax benefit of $12,246 associated with a special one-time transfer of certain Japan and Taiwan intellectual property (IP) licensing rights to the US on January 1, 2014. The transfer resulted in the ability to utilize certain foreign taxes paid as credits in the US, as well as the Company's ability to amortize its basis in the IP over 15 years for tax purposes.

        As of March 31, 2014 and December 31, 2013, the Company's uncertain tax positions were $10,733 and $9,701, respectively, of which $5,490 and $1,713, respectively, were recorded in other long-term liabilities. The net increase of $1,032 was primarily due to uncertain tax positions relating to the Company's foreign tax credits, transfer pricing with one of its foreign subsidiaries, state research and development tax credits, and the California income apportionment methodology. The Company does not expect, or cannot quantify with any practicable certainty, any material increase or decrease to its unrecognized tax benefits within the next twelve months. Any settlement may impact the Company's effective tax rate. To the extent that any of the Company's uncertain tax positions are not able to be resolved in a favorable manner, it may have a negative impact on the effective tax rate. In addition, the Company believes its accruals for uncertain tax positions are adequate for all open years, based on the assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Inherent uncertainties exist in estimating accruals for uncertain tax positions due to the progress of income tax audits and changes in tax law, both legislated and concluded through the various jurisdictions' tax court systems.

        The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company's financial statements. Interest expense and penalties related to income taxes are included in income tax expense.

        The Company, or one of its subsidiaries, files income tax returns in the US and other foreign jurisdictions. With few exceptions, the Company is no longer subject to US federal income tax examinations by tax authorities for years prior to 2009. The Internal Revenue Service (IRS) is examining the Company's 2009 to 2011 federal income tax returns, including certain prior period carryforwards. In addition, the California Franchise Tax Board (FTB) is conducting a state tax examination for the years 2009 and 2010. Significant judgment is required in determining the consolidated provision (benefit) for income taxes as the Company considers its worldwide taxable earnings and the impact of the audit process conducted by various tax authorities. The final outcome of tax audits by any foreign jurisdictions, the IRS, the FTB, and various state governments could differ materially from that which is reflected in the condensed consolidated financial statements.

        Licensing revenue is recognized gross of withholding taxes that are remitted by the Company's licensees directly to their local tax authorities. For the three months ended March 31, 2014 and 2013, withholding taxes were $1,533 and $1,251, respectively.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 8—Stock-Based Compensation

        On March 13, 2014, the Compensation Committee of the Company's Board of Directors granted 134 performance-based restricted stock units (PSUs) to certain employees under the DTS, Inc. 2012 Equity Incentive Plan. The PSUs will vest in two equal installments upon achievement of certain performance goals, with one-half of the PSUs vesting on February 15, 2016 and the remaining PSUs vesting on February 15, 2017, in each case assuming the specified performance goals are achieved and so long as the employee has met the service conditions through such dates. Achievement of the performance goals will be measured as of December 31, 2015. Each PSU represents the contingent right to receive between zero and two shares of the Company's common stock upon vesting, subject to the level of achievement of the specified performance goals. Any portion of the PSUs that do not vest due to performance below the minimum required level for vesting will be forfeited.

        The PSUs had a grant-date fair value of $20.37, which is equal to the market value of the Company's common stock on the date of grant. The related compensation expense is calculated using the grant-date fair value and the number of shares of the Company's common stock expected to vest based on the probable level of achievement of the performance goals, subject to reduction for estimated forfeitures based on historical experience. Such compensation expense is recognized over the corresponding requisite service period, and will be adjusted in subsequent reporting periods if the Company's assessment of the probable level of achievement of the performance goals changes.

Note 9—Net Income (Loss) Per Common Share

        Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares outstanding plus the dilutive effect of any unvested restricted stock, outstanding stock options, any unvested PSUs for which the performance conditions have been satisfied at the reporting date, and the Company's employee stock purchase plan (ESPP) using the treasury stock method. Due to the net loss for the three months ended March 31, 2013, all potential common shares were excluded from the diluted shares outstanding for this period.

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 9—Net Income (Loss) Per Common Share (Continued)

        The following table sets forth the computation of basic and diluted net income (loss) per common share:

 
  For the Three
Months Ended
March 31,
 
 
  2014   2013  

Numerator:

             

Net income (loss)

  $ 14,311   $ (1,532 )

Denominator:

             

Weighted average shares outstanding

    17,284     18,218  

Effect of dilutive securities:

             

Common stock options

    184      

Restricted stock

    79      

ESPP

    24      

Weighted average diluted shares outstanding

    17,571     18,218  

Basic net income (loss) per common share

  $ 0.83   $ (0.08 )

Diluted net income (loss) per common share

  $ 0.81   $ (0.08 )

Anti-dilutive shares excluded from the determination of diluted net income (loss) per share

    2,607     3,529  

Note 10—Common Stock Repurchases

        In February 2014, the Company's Board of Directors authorized, subject to certain business and market conditions, the purchase of up to 2,000 shares of the Company's common stock in the open market or in privately negotiated transactions. As of March 31, 2014, the Company had repurchased 374 shares of common stock under this authorization for an aggregate of $7,495. All shares repurchased under this authorization were accounted for as treasury stock.

Note 11—Restatement

        Subsequent to the filing of the condensed consolidated financial statements for the period ended March 31, 2014, the Company determined that it had incorrectly accounted for certain foreign tax credits relating to the special one-time transfer of certain Japan and Taiwan intellectual property licensing rights to the US on January 1, 2014. As a result, the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2014 have been

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 11—Restatement (Continued)

restated from amounts previously reported, to correct this error in income taxes. The following tables reflect the effects of the restatement:

Condensed Consolidated Balance Sheet

 
  As of March 31, 2014  
 
  As Previously
Reported
  Restatement
Adjustments
  Restated  

Deferred income taxes

  $ 5,727   $ 9,612   $ 15,339  

Income taxes receivable

    2,263     1,480     3,743  

Total current assets

    91,463     11,092     102,555  

Deferred income taxes

    19,163     (1,480 )   17,683  

Total assets

  $ 240,913   $ 9,612   $ 250,525  

Other long-term liabilities

  $ 6,406   $ 876   $ 7,282  

Retained earnings

    47,655     8,736     56,391  

Total stockholders' equity

    182,954     8,736     191,690  

Total liabilities and stockholders' equity

  $ 240,913   $ 9,612   $ 250,525  

Condensed Consolidated Statement of Operations

 
  For the Three Months Ended
March 31, 2014
 
 
  As Previously
Reported
  Restatement
Adjustments
  Restated  

Income before income taxes

  $ 2,862   $   $ 2,862  

Provision (benefit) for income taxes

    (2,713 )   (8,736 )   (11,449 )

Net income

  $ 5,575   $ 8,736   $ 14,311  

Net income per common share:

                   

Basic

  $ 0.32   $ 0.51   $ 0.83  

Diluted

  $ 0.32   $ 0.49   $ 0.81  

Condensed Consolidated Statement of Comprehensive Income

 
  For the Three Months Ended
March 31, 2014
 
 
  As Previously
Reported
  Restatement
Adjustments
  Restated  

Net income

  $ 5,575   $ 8,736   $ 14,311  

Total comprehensive income

  $ 5,617   $ 8,736   $ 14,353  

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DTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Amounts in thousands, except per share data)

Note 11—Restatement (Continued)

Condensed Consolidated Statement of Cash Flows

 
  For the Three Months Ended
March 31, 2014
 
 
  As Previously
Reported
  Restatement
Adjustments
  Restated  

Cash flows from operating activities:

                   

Net income

  $ 5,575   $ 8,736   $ 14,311  

Deferred income taxes

    (3,575 )   (10,204 )   (13,779 )

Adjustments to reconcile net income to net cash provided by operating activities:

                   

Accounts payable, accrued expenses and other liabilities

    (2,458 )   1,993     (465 )

Income taxes receivable

    563     (525 )   38  

Net cash provided by operating activities

  $ 108   $   $ 108  

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements May Prove Inaccurate

        This quarterly report on Form 10-Q/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "believes," "anticipates," "estimates," "expects," "intends," "projections," "may," "can," "will," "should," "potential," "plan," "continue" and similar expressions are intended to identify those assertions as forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding our future financial performance or position, future economic conditions, our business strategy, plans or expectations, our future effective tax rates, and our objectives for future operations, including relating to our products and services. Although forward-looking statements in this report reflect our good faith judgment, such statements are based on facts and factors currently known by us. We caution readers that forward-looking statements are not guarantees of future performance and our actual results and outcomes may be materially different from those expressed or implied by the forward-looking statements. Important factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed under "Risk Factors" contained in Part II, Item 1A in this quarterly report on Form 10-Q/A and in other documents we file with the Securities and Exchange Commission ("SEC"). Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise or update these forward-looking statements to reflect future events or circumstances, unless otherwise required by law.

        In Management's Discussion and Analysis of Financial Condition and Results of Operations, "we," "us" and "our" refer to DTS, Inc. and its consolidated subsidiaries. References to "Notes" are Notes included in our Notes to Condensed Consolidated Financial Statements.

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q/A, as well as the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 20, 2014.

        Management's discussion and analysis has been revised solely to reflect the effects of the restatement. Refer to Note 11, "Restatement" for further information.

Overview

        We are a premier audio solutions provider for high-definition entertainment experiences—anytime, anywhere, on any device. We exist to make the world sound better. Our audio solutions are designed to enable recording, delivery and playback of simple, personalized, and immersive high-definition audio which are incorporated by hundreds of licensee customers around the world, into an array of consumer electronics devices, including televisions (TVs), personal computers (PCs), smartphones, tablets, digital media players, video game consoles, Blu-ray Disc players, audio/video receivers, soundbars, DVD based products, automotive audio systems, set-top-boxes, and home theater systems.

        We derive revenues from licensing our audio technologies, copyrights, trademarks, and know-how under agreements with substantially all of the major consumer audio electronics manufacturers. Our business model typically provides for these manufacturers to pay us royalties for DTS-enabled products that they manufacture.

        We actively engage in intellectual property compliance and enforcement activities focused on identifying third parties who have either incorporated our technologies, copyrights, trademarks or

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know-how without a license or who have under-reported the amount of royalties owed under license agreements with us. We continue to invest in our compliance and enforcement infrastructure to support the value of our intellectual property to us and our licensees and to improve the long-term realization of revenues from our intellectual property. As a result of these activities, from time to time, we recognize royalty revenues that relate to consumer electronics manufacturing activities from prior periods. These royalty recoveries may cause revenues to be higher than expected during a particular reporting period and may not occur in subsequent periods. While we consider such revenues to be a part of our normal operations, we cannot predict such recoveries or the amount or timing of such revenues.

        Our cost of revenues consists primarily of amortization of acquired intangibles, and also includes costs for products and materials, and payments to third parties for copyrighted material.

        Our selling, general and administrative expenses consist primarily of salaries and related benefits and expenses for personnel engaged in sales and licensee support, as well as costs associated with promotional and other selling and licensing activities. Selling, general and administrative expenses also include professional fees, facility-related expenses and other general corporate expenses, including salaries and related benefits and expenses for personnel engaged in corporate administration, finance, human resources, information systems and legal.

        Our research and development costs consist primarily of salaries and related benefits and expenses for research and development personnel, engineering consulting expenses associated with new product and technology development and quality assurance and testing costs. Research and development costs are expensed as incurred.

Executive Summary

Financial Highlights

    Revenues increased $4.1 million for the three months ended March 31, 2014, compared to the same prior year period.

    Royalty recoveries from intellectual property compliance and enforcement activities increased $3.7 million for the three months ended March 31, 2014, compared to the same prior year period.

Trends, Opportunities, and Challenges

        Historically, our revenue was primarily dependent upon the DVD and Blu-ray Disc based home theater markets. Because we are a mandatory technology in the Blu-ray standard, our revenue stream from this market is closely tracking the sales trend of Blu-ray equipped players, game consoles and PCs. However, the market for optical disc based media players, in general, has slowed in favor of a growing trend toward network-based delivery of entertainment content to network-connected devices—what we call the network-connected markets. In response to this shift in entertainment delivery and consumption over the past several years, we have transitioned our primary focus to providing end- to-end audio solutions to the network-connected markets, and we believe that our mandatory position in the Blu-ray standard has given us the ability to extend the reach of our audio into the growing network-connected markets.

        We have signed agreements with a number of network-connected digital TV, mobile device and PC manufacturers to incorporate DTS audio solutions into their products. We have also pursued partnerships to expand the integration of our premium audio technologies into streaming and downloadable content. To date, our technologies have been integrated into thousands of titles, and we continue to work with numerous partners in this area, including Deluxe Digital Distribution, CinemaNow, Paramount Pictures, Elemental Technologies, castLabs and Digital Rapids.

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        One of the largest challenges we face is the growing consumer trend toward open platform, on-line entertainment consumption and the need to constantly and rapidly evolve our technologies to address the emerging consumer electronics markets. We believe that although the trend has begun, any transition to such open platform, on-line entertainment will take many years. Further, we believe that this trend demands that playback devices be capable of processing content originating in any form, whether optical disc based or on-line, which creates a substantial opportunity for our technologies to extend into network-connected products that may not have an optical disc drive. During the transition period, we expect that optical disc based media will continue to contribute meaningfully to our revenues, while on-line entertainment formats will continue to grow and thrive.

Critical Accounting Policies and Estimates

        Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, and pursuant to the rules and regulations of the SEC. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an ongoing basis, estimates and judgments are evaluated, including those related to revenue recognition; valuations of goodwill, other intangible assets and long-lived assets; fair value of contingent consideration; stock-based compensation; and income taxes. These estimates and judgments are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ materially from these estimates. There has been no material change to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K filed with the SEC on March 20, 2014. For information relating to accounting for performance-based restricted stock units, refer to Note 8, "Stock-Based Compensation".

Results of Operations

    Revenues

 
   
   
  Change  
 
  2014   2013   $   %  
 
  ($ in thousands)
 

Three months ended March 31,

  $ 36,835   $ 32,728   $ 4,107     13 %

        Revenues included an increase of $3.7 million in royalties recovered through intellectual property compliance and enforcement activities, which we characterize as "royalty recoveries." Royalty recoveries may cause revenues to be higher than expected during a particular period and may not occur in subsequent periods. Therefore, unless otherwise noted, the impact of royalty recoveries has been excluded from our revenue discussions in order to provide a more meaningful and comparable analysis.

        Excluding royalty recoveries, the increase in revenues was primarily attributable to increased royalties from the Blu-ray market, largely due to timing of production relating to the latest gaming cycle. In dollar terms, these royalties were up 27% compared to the same prior year period. Blu-ray related royalties comprised over 25% and 20% of revenues for the three months ended March 31, 2014 and 2013, respectively. These increases were partially offset by a slight decline in the network-connected markets, due in part to delays in renewing certain licensing agreements. In dollar terms, these royalties were down 7% compared to the same prior year period. Network-connected markets represented more than 40% and 45% of revenues for the three months ended March 31, 2014 and

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2013, respectively. However, we expect to see continued growth from the network-connected markets, as we expand our footprint in terms of both products and geographies served.

    Gross Profit

 
  2014   %   2013   %   Percentage point change
in gross profit margin
 
  ($ in thousands)
   

Three months ended March 31,

  $ 34,504   94%   $ 30,406   93%   1%

        Our gross profit percentage was higher due to cost of sales, which consists primarily of amortization of acquired intangibles, remaining consistent.

    Selling, General and Administrative (SG&A)

 
   
   
  Change  
 
  2014   2013   $   %  
 
  ($ in thousands)
 

Three months ended March 31,

  $ 22,605   $ 21,690   $ 915     4 %

% of Revenue

    61%     66%              

        The dollar increase in SG&A was primarily due to employee related costs relating to severance, advertising and related activities for brand marketing, promotion and tradeshows, and professional service fees.

    Research and Development (R&D)

 
   
   
  Change  
 
  2014   2013   $   %  
 
  ($ in thousands)
 

Three months ended March 31,

  $ 8,823   $ 7,679   $ 1,144     15 %

% of Revenue

    24%     23%              

        The dollar increase in R&D was primarily due to employee related costs, including severance costs, and consultant expenses to support our new programs and initiatives.

    Interest and Other Expense, Net

 
   
   
  Change  
 
  2014   2013   $   %  
 
  ($ in thousands)
 

Three months ended March 31,

  $ 214   $ 245   $ (31 )   (13 )%

        Interest and other expense, net, is comprised mostly of interest expense associated with our debt and the effects of translation of certain foreign subsidiaries to the US dollar or functional currency, partially offset by interest income.

    Income Taxes

 
  2014   2013
 
  ($ in thousands)

Three months ended March 31,

  $ (11,449)   $ 2,324

Effective tax rate

    (400)%     293%

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        Our effective quarterly tax rates are based in part upon projections of our annual pre-tax results. Our effective tax rate for the three months ended March 31, 2014 was significantly lower than the US statutory rate of 35% primarily due to a net tax benefit associated with a special one-time transfer of certain Japan and Taiwan intellectual property licensing rights to the US on January 1, 2014. The tax rates for both periods also differed from the US statutory rate due to varying foreign income tax rates and foreign withholding taxes, non-deductible stock-based compensation, and state research and development tax credits. Our effective tax rate for the three months ended March 31, 2013 was also significantly higher than the US statutory rate due to the change in the valuation allowance for US federal deferred taxes, as realization of the deferred tax asset was deemed uncertain.

Liquidity and Capital Resources

        At March 31, 2014, we had cash, cash equivalents and short-term investments of $62.8 million, compared to $71.0 million at December 31, 2013. At March 31, 2014, $57.6 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries. If these funds are needed for our operations in the US, they would be subject to US federal and state income taxes, less applicable foreign tax credits. However, our intent is to permanently reinvest funds outside of the US and our current plans do not demonstrate a need to repatriate them to fund our US operations.

        Net cash provided by operating activities was $0.1 million and $1.3 million for the three months ended March 31, 2014 and 2013, respectively. Cash flows from operating activities during the three months ended March 31, 2014 and 2013 were primarily impacted by net income (loss) adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and the effect of changes in working capital and other operating activities. The operating cash flows during the three months ended March 31, 2014 were also impacted by the timing of cash receipts for certain receivables.

        We typically use cash in investing activities primarily to purchase office equipment, fixtures, computer hardware and software, and engineering and certification equipment, for securing patent and trademark protection for our proprietary technology and brand name, and to purchase investments such as US government and agency securities. Net cash used in investing activities totaled $0.4 million for the three months ended March 31, 2014. These cash flows were primarily impacted by purchases of property and equipment and intangible assets. Net cash provided by investing activities totaled $1.7 million for the three months ended March 31, 2013, and were primarily impacted by investment maturities, partially offset by investment purchases.

        Net cash used in financing activities totaled $8.0 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. Net cash used in financing activities for the three months ended March 31, 2014 was primarily the result of purchases of treasury stock. Net cash used in financing activities for the three months ended March 31, 2013 was primarily the result of amounts used to satisfy statutory withholding requirements upon the vesting of restricted stock.

    Credit Facility

        In connection with our acquisition of SRS Labs, Inc. (SRS), we entered into a Loan Agreement, dated as of July 18, 2012 (the "Loan Agreement"), between us and Union Bank, N.A., together with the other lenders thereunder from time to time. The Loan Agreement provides us with a $30.0 million revolving line of credit (the "Revolver"), with a five million sublimit for the issuance of standby and commercial letters of credit, to use to finance permitted acquisitions and for working capital and general corporate purposes. We may increase the Revolver by up to $20.0 million subject to certain conditions. All advances under the Revolver will become due and payable on July 18, 2015, or earlier in the event of a default. We anticipate that repayment of the Revolver will be satisfied with our future available cash and cash equivalents and operating cash flows or by renewal of the credit facility. As of

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and for the three months ended March 31, 2014, the Company was in compliance with all loan covenants.

    Common Stock Repurchases

        In February 2014, our Board of Directors authorized, subject to certain business and market conditions, the purchase of up to 2.0 million shares of the our common stock in the open market or in privately negotiated transactions. As of March 31, 2014, we had repurchased 0.4 million shares of common stock under this authorization for an aggregate of $7.5 million. All shares repurchased under this authorization were accounted for as treasury stock.

    Contingent Consideration

        In connection with the contingent consideration arrangement related to Phorus, we may be required to pay up to an additional $1.5 million in consideration subject to the achievement of certain revenue milestones. For additional information, refer to Note 4 and 6, "Fair Value Measurements" and "Commitments and Contingencies", respectively.

    Contractual Obligations

        With the exception of the increased obligations associated with our gross unrecognized tax benefits, there have been no material changes to our contractual obligations since December 31, 2013. As of March 31, 2014, our total amount of unrecognized tax benefits was $10.7 million. We are currently unable to make reasonably reliable estimates of the periods of cash settlements associated with these obligations. We believe that it is not estimable with any practicable degree of certainty that our unrecognized tax benefits will increase or decrease.

        Further, under certain existing contractual service arrangements, we may be obligated to pay up to approximately $7.5 million over an estimated period of three years if certain milestones are achieved.

    Working Capital and Capital Expenditure Requirements

        We believe that our cash, cash equivalents, short-term investments, cash flows from operations and our credit facility will be sufficient to satisfy our working capital and capital expenditure requirements for at least the next twelve months. Changes in our operating plans, including lower than anticipated revenues, increased expenses, acquisitions of businesses, products or technologies or other events, including those described in "Risk Factors" included elsewhere herein and in other filings, may cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, particularly given current economic conditions, including lack of confidence in the financial markets and limited availability of capital and demand for debt and equity securities. Our failure to raise capital when needed could negatively impact our growth plans and our financial condition and results of operations. Additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, and may involve significant cash payment obligations and financial or operational covenants that restrict our ability to operate our business.

Recently Issued Accounting Standards

        Refer to Note 2, "Recent Accounting Pronouncement".

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        Market risk represents the risk of loss arising from adverse changes in market rates and foreign exchange rates.

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        Our interest rate risk relates primarily to interest income from investments and interest expense on our debt. Our interest income is sensitive to changes in the general level of US interest rates, particularly since a significant portion of our investments were and may in the future be in short-term and long-term marketable securities, US government securities and corporate bonds. Due to the nature and maturity of our short-term investments, we have concluded that there is no material market risk exposure to our principal at March 31, 2014. The average maturity of our investment portfolio is less than one year. As of March 31, 2014, a one percentage point change in interest rates on our cash and investments throughout a one-year period would have an annual effect of approximately $0.6 million on our income before income taxes. As of March 31, 2014, a one percentage point change in interest rates on our debt throughout a one-year period would have an immaterial annual effect on our condensed consolidated statement of operations.

        During the three months ended March 31, 2014, we derived over 85% of our revenues from sales outside the United States, and maintain international research, sales, marketing and business development offices. Therefore, our results could be negatively affected by such factors as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns and changes in regional or worldwide economic or political conditions. The risks of our international operations are mitigated in part by the extent to which our revenues are denominated in US dollars and, accordingly, we are not exposed to significant foreign currency risk on these items. We do have foreign currency risk on certain revenues and operating expenses such as salaries and overhead costs of our foreign operations and cash maintained by these operations. Revenues denominated in foreign currencies accounted for approximately 1% of total revenues during the three months ended March 31, 2014. Operating expenses, including cost of sales, of our foreign subsidiaries that are predominantly denominated in a currency other than the US dollar were approximately $6.3 million for the three months ended March 31, 2014. Based upon the expenses for the three months ended March 31, 2014, a 10% or greater change in foreign currency rates throughout a one-year period could have a material impact on our operating income.

        Our international business is subject to risks, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility when compared to the US dollar. Accordingly, our future results could be materially impacted by changes in these or other factors.

        We are also affected by exchange rate fluctuations as the financial statements of our foreign subsidiaries are translated into the US dollar in consolidation. As exchange rates fluctuate, these results, when translated, may vary from expectations and could adversely or positively impact overall profitability. During the three months ended March 31, 2014, the impact of foreign exchange rate fluctuations related to translation of our foreign subsidiaries' financial statements was immaterial to our condensed consolidated financial statements.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

        We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure

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controls and procedures as of the end of the period covered by this report. Based on such evaluation, as reassessed for the income tax matter described further below, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report as a result of un-remediated material weaknesses related to internal controls over the accounting for revenue under license agreements with non-standard financial terms and the accounting for income taxes as further described below.

Changes in Internal Control over Financial Reporting

        As described in Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2013, we identified a material weakness in internal control over financial reporting related to the inadequate design of internal controls over the accounting for revenue. Specifically, the Company's controls over the evaluation of non-standard financial terms and conditions contained in certain of the Company's license agreements were not effective to ensure that revenue under these agreements was sufficiently identified, analyzed and recorded. Although this deficiency did not lead to material adjustments to revenue, management determined that deficiencies in the control processes in its accounting for revenue under such license agreements, in the aggregate, constituted a material weakness because this control deficiency could have resulted in a material misstatement of revenue. As discussed in our Form 10-K for the year ended December 31, 2013, we have taken steps to remediate this material weakness by enhancing our control procedures with respect to identification and review of revenue under license agreements with non-standard financial terms including additional analysis of our license agreements to evaluate the non-standard financial terms, performance of additional accounting research and detailed checklists to ensure that all agreements with non-standard financial terms are sufficiently identified and evaluated, and revenue is properly recognized. Our remediation efforts with respect to this material weakness, including design, implementation and testing, have continued during 2014. The material weakness will not be considered remediated until our controls are operational for a sufficient period of time, tested, and management concludes that these controls are operating effectively.

        As described in Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2013, we had previously identified a material weakness in our internal control over financial reporting related to the inadequate design of internal controls over the accounting for income taxes. Specifically, our controls had not been effectively designed as they relate to our preparation and review of the income tax provision and the related deferred tax assets and liabilities, including those arising from our 2012 acquisition of SRS Labs, Inc. and withholding taxes on certain undistributed earnings from China. As also discussed in our Form 10-K for the year ended December 31, 2013, during 2013 we took steps to remediate this material weakness by enhancing our control procedures with respect to the preparation and review of the income tax provision and the related deferred tax assets and liabilities, including increasing the use of third party advisors with appropriate expertise to assist with the preparation and review of the quarterly and annual income tax provision. During 2014, we continued to utilize third party advisors with significant experience in domestic and multinational income taxes to assist with the preparation and review of the income tax provision.

        In our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 12, 2014, we did not disclose a material weakness in internal controls over financial reporting related to the accounting for income taxes. We subsequently determined that certain income tax benefits were understated in the first quarter income tax provision. This was a result of a special one-time transfer of certain Japan and Taiwan intellectual property (IP) licensing rights to the US on January 1, 2014. Due to the complexity of this transaction, we engaged a team of accounting, tax and legal professionals with relevant expertise in global IP, legal and tax structures. In particular, a leading global accounting firm was selected for its expertise in specific areas of international taxation to assist

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in the planning and execution of the transaction, as well as review of the quarterly and annual income tax provisions for 2014. However, during the audit of our income tax provision for the year ended December 31, 2014, it was discovered that certain foreign tax credits available to us had been inadvertently excluded from the first quarter income tax provision. This error resulted in a restatement of our interim 2014 financial statements for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014.

        Primarily as a result of this error and restatement of our interim condensed consolidated financial statements, we reassessed our evaluation of internal control over financial reporting and concluded that as of March 31, 2014, our internal controls over financial reporting related to the accounting for income taxes, specifically around the review and monitoring of work performed by third party tax advisors, were not designed properly, resulting in a material weakness.

    Remediation Plan

        In connection with, and as a result of, the restatement, we have initiated a plan to enhance our control procedures over the accounting for income taxes. Specifically, we will enhance our review and monitoring procedures when interacting with third party tax advisors that are assisting us in reviewing key elements of our income tax provision. This will include expanding our assessment of the adequacy of the scope of procedures performed by third party tax advisors and enhancing our review of significant assumptions used by the third party tax advisors.

        Other than as described above, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        In the ordinary course of our business, we actively pursue legal remedies to enforce our intellectual property rights and to stop unauthorized use of our technologies and trademarks.

        We are not currently a party to any material legal proceedings. We may, however, become subject to lawsuits from time to time in the course of our business.

Item 1A.    Risk Factors

        Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements we make. If any of the following risks actually occurs, our business, financial condition, or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks included in Part I, Item 1A. "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2013.

Risks Related to Our Business

    A continued decline in optical disc based media consumption and our inability to further penetrate the on-line and mobile content delivery markets and adapt our technologies for those markets could adversely impact our revenues and ability to grow.

        Movie and music content has historically been purchased and consumed primarily via optical disc based media, such as Blu-ray Disc, DVD, and CD. However, the growth of the internet and home computer usage, connected TVs, set-top boxes, tablets, smartphones, and other devices, along with the rapid advancement of on-line and mobile content delivery has resulted in the recent trend to entertainment download and streaming services becoming mainstream with consumers in various parts of the world. We expect the shift away from optical disc based media to on-line and mobile media content consumption to continue, which may result in further declines in revenue from DVD and Blu-ray Disc players that incorporate our technologies.

        Also, the services that provide movie content from the cloud are not generally governed by international or national standards and are thus free to choose any media format(s) in order to deliver their products and services. This freedom of choice on the part of on-line and mobile media content providers could limit our ability to grow if such content providers do not incorporate our technologies into their services, which could affect demand for our technologies.

        Furthermore, our inclusion in mobile devices may be less profitable for us than DVD and Blu-ray Disc players. The on-line and mobile markets are characterized by intense competition, evolving industry standards and business and distribution models, disruptive software and hardware technology developments, frequent new product and service introductions, short product and service life cycles, and price sensitivity on the part of consumers, all of which may result in downward pressure on pricing. Any of the foregoing could adversely affect our business and operating results.

    We may not be able to evolve our technologies, products, and services or develop new technology, products, and services that are acceptable to our customers or the changing market.

        The market for our technologies, products, and services is characterized by:

    rapid technological change and product obsolescence;

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    new and improved product introductions;

    changing customer demands;

    increasingly competitive product landscape; and

    evolving industry standards.

        Our future success depends upon our ability to enhance our existing technologies, products, and services and to develop acceptable new technologies, products, and services on a timely basis. The development of enhanced and new technologies, products, and services is a complex and uncertain process requiring high levels of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market trends. We may not be able to identify, develop, market, or support new or enhanced technologies, products, or services on a timely basis, if at all. Furthermore, our new technologies, products, and services may never gain market acceptance, and we may not be able to respond effectively to evolving consumer demands, technological changes, product announcements by competitors, or emerging industry standards. Any failure to respond to these changes or concerns would likely prevent our technologies, products, and services from gaining market acceptance or maintaining market share and could lead to our technologies, products and services becoming obsolete.

    Our ability to develop proprietary technology in markets in which "open standards" are adopted may be limited, which could adversely affect our ability to generate revenue.

        Standards-setting bodies may require the use of open standards, meaning that the technologies necessary to meet those standards are publicly available, free of charge and often on an "open source" basis. These standards are a relatively recent and limited occurrence and have primarily been focused on markets and regions traditionally adverse to the notion of intellectual property ownership and the associated royalties. If the concept of open standards gains industry momentum in the future, the use of open standards may reduce our opportunity to generate revenue, as open standards technologies are based upon non- proprietary technology platforms in which no one company maintains ownership over the dominant technologies.

    A loss of one or more of our key customers or licensees in any of our markets could adversely affect our business.

        From time to time, one or a small number of our customers or licensees may represent a significant percentage of our revenue. While our business is not substantially dependent on any single customer agreement, we have entered into several license agreements with the various divisions and/or companies that comprise Samsung Electronics Co., Ltd. and Sony Corporation, which relate to various types of consumer electronics devices. Each of these significant customers, in the aggregate, accounted for more than 10% of total revenues for the year ended December 31, 2013. For additional information, refer to "Concentration of Business and Credit Risk" in Note 2 of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 20, 2014. Although we have agreements with many of our customers, many of these agreements do not require any material minimum purchases or minimum royalty fees and typically do not prohibit customers from purchasing products and services from competitors. A decision by any of our major customers or licensees not to use our technologies, or their failure or inability to pay amounts owed to us in a timely manner, or at all, could have a significant adverse effect on our business.

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    We face intense competition. Certain of our competitors have greater resources than we do.

        The digital audio, consumer electronics and entertainment markets are intensely competitive, subject to rapid change, and significantly affected by new product introductions and other market activities of industry participants. Our principal competitor is Dolby Laboratories, Inc., who competes with us in most of our markets. We also compete with other companies offering digital audio technology incorporated into consumer electronics product and entertainment mediums, such as Fraunhofer Institut Integrierte Schaltungen and Koninklijke Philips Electronics N.V. (Philips).

        Certain of our current and potential competitors may enjoy substantial competitive advantages, including:

    greater name recognition;

    a longer operating history;

    more developed distribution channels and deeper relationships with our common customer base;

    a more extensive customer base;

    digital technologies that provide features that ours do not;

    broader product and service offerings;

    greater resources for competitive activities, such as research and development, strategic acquisitions, alliances, joint ventures, sales and marketing, subsidies and lobbying industry and government standards;

    more technicians and engineers;

    greater technical support;

    open source or free codecs; and

    greater inclusion in government or industry standards.

        As a result, these current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements.

        In addition to the competitive advantages described above, Dolby also enjoys other unique competitive strengths relative to us. For example, it introduced multi-channel audio technology before we did. It has also achieved mandatory standard status in product categories that we have not, including terrestrial digital TV broadcasts in the US. As a result of these factors, Dolby has a competitive advantage in selling its digital multi-channel audio technology to consumer electronics products manufacturers.

    Our customers who are also our current or potential competitors may choose to use their own or competing technologies rather than ours.

        We face competitive risks in situations where our customers are also current or potential competitors. For example, certain of our licensee customers maintain in-house audio engineering teams. To the extent that our customers choose to use technologies they have developed or in which they have an interest, rather than use our technologies, our business and operating results could be adversely affected.

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    Our business and prospects depend upon the strength of our brand, and if we do not maintain and strengthen our brand, our business will be materially harmed.

        Establishing, maintaining and strengthening our "DTS" brand is critical to our success. Our brand identity is key to maintaining and expanding our business and entering new markets. Our success depends in large part on our reputation for providing high-quality products, services and technologies to the consumer electronics and entertainment industries. If we fail to promote and maintain our brand successfully, our business and prospects may suffer. Moreover, we believe that the likelihood that our technologies will be adopted in industry standards depends, in part, upon the strength of our brand, because professional organizations and industry participants are more likely to incorporate technologies developed by a well-respected and well-known brand into standards.

    We expect our operating expenses to increase in the future, which may impact profitability.

        We expect our operating expenses to increase as we, among other things:

    expand our sales and marketing activities, including the continued development of our international operations and increased advertising;

    adopt a more customer-focused business model which is expected to entail additional hiring;

    acquire businesses or technologies and integrate them into our existing organization;

    increase our research and development efforts to advance our existing technologies, products, and services and develop new technologies, products, and services;

    hire additional personnel, including engineers and other technical staff;

    expand and defend our intellectual property portfolio; and

    upgrade our operational and financial systems, procedures, and controls.

        As a result, we will need to grow our revenues and manage our costs in order to positively impact profitability. In addition, we may fail to accurately estimate and assess our increased operating expenses as we grow.

    We may have difficulty managing any growth that we might experience.

        As a result of a combination of organic growth and growth through acquisitions, such as our 2012 acquisitions of SRS and Phorus, we expect to continue to experience growth in the scope of our operations and the number of our employees. If our growth continues, it may place a significant strain on our management team and on our operational and financial systems, procedures, and controls. Our future success will depend in part upon the ability of our management team to manage any growth effectively. This will require our management to:

    hire and train additional personnel;

    implement and improve our operational and financial systems, procedures, and controls;

    maintain our cost structure at an appropriate level based on the revenues we generate;

    manage multiple concurrent development projects; and

    manage operations in multiple time zones with different cultures and languages.

        Any failure to successfully manage our growth could distract management's attention, and result in our failure to execute our business plan.

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    We may not successfully address problems encountered in connection with acquisitions or strategic investments.

        We consider opportunities to acquire or make investments in other technologies, products, and businesses that could enhance our technical capabilities, complement our current products and services, or expand the breadth of our markets. While we have acquired a number of businesses in the past, our history of acquiring and integrating businesses is limited, and there can be no assurance that we will be successful in realizing the expected benefits from an acquisition. Future success depends, in part, upon our ability to manage an expanded business, which could pose substantial challenges for management. Acquisitions and strategic investments involve numerous risks and potential difficulties, including:

    problems assimilating the purchased technologies, products, or business operations;

    significant future charges relating to in-process research and development and the amortization of intangible assets;

    significant amount of goodwill and intangible assets that are not amortizable and are subject to annual impairment review and potential impairment losses;

    problems maintaining and enforcing uniform standards, procedures, controls, policies and information systems;

    unanticipated costs, including accounting and legal fees, capital expenditures, and transaction expenses;

    diversion of management's attention from our core business;

    adverse effects on existing business relationships with suppliers and customers;

    risks associated with entering markets in which we have no or limited experience;

    unanticipated or unknown liabilities relating to the acquired businesses;

    the need to integrate accounting, management information, manufacturing, human resources and other administrative systems and personnel to permit effective management; and

    potential loss of key employees of acquired organizations.

        If we fail to properly evaluate and execute acquisitions and strategic investments, our management team may be distracted from our day-to-day operations, our business may be disrupted, and our operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders would be diluted. Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different geographies, cultures and languages, currency risks and risks associated with the particular economic, political and regulatory environment in specific countries. Also, the anticipated benefit of our acquisitions and investments may not materialize, whether because of failure to obtain stockholder approval or otherwise. Future acquisitions and investments could result in potentially dilutive issuances of our equity securities, the incurrence of debt or contingent liabilities, amortization expenses, or impairment losses on goodwill and intangible assets, any of which could harm our operating results or financial condition. Future acquisitions may also require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.

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    If we are unable to maintain a sufficient amount of entertainment content released with DTS audio soundtracks, demand for the technologies, products, and services that we offer to consumer electronics products manufacturers may significantly decline, which would adversely impact our business and prospects.

        We expect to derive a significant percentage of our revenues from the technologies, products, and services that we offer to manufacturers of consumer electronics products. We believe that demand for our DTS audio technologies in growing markets for multi-channel audio, including automobiles, video game consoles, soundbars, TVs, tablets and mobile phones will be based on the number, quality, and popularity of the movies, music, and video games either released with DTS audio soundtracks or capable of being coded and played in DTS format. Although we have existing relationships with many leading providers of movie, music, computer, and video game content, we generally do not have contracts that require these parties to develop and release content with DTS audio soundtracks. Accordingly, our revenue could decline if these parties elect not to incorporate DTS audio into their content or if they sell less content that incorporates DTS audio.

        In addition, we may not be successful in maintaining existing relationships or developing new relationships with other existing or new content providers. As a result, we cannot assure you that a sufficient amount of content will be released in a DTS audio format to ensure that manufacturers continue offering DTS decoders in the consumer electronics products that they sell.

    Declining retail prices for consumer electronics products could force us to lower the license or other fees we charge our customers or prompt our customers to exclude our audio technologies from their products altogether, which would adversely affect our business and operating results.

        The market for consumer electronics products is intensely competitive and price sensitive. Retail prices for consumer electronics products that include our audio technologies have decreased significantly and we expect prices to continue to decrease for the foreseeable future. Declining prices for consumer electronics products could create downward pressure on the licensing fees we currently charge our customers who integrate our technologies into the consumer electronics products that they sell and distribute. As a result of pricing pressure, consumer electronics products manufacturers who produce products in which our audio technologies are not a mandatory standard could decide to exclude our audio technologies from their products altogether.

    Our revenue is dependent upon our customers and licensees incorporating our technologies into their products, and we have limited control over existing and potential customers' and licensees' decisions to include our technologies in their product offerings.

        Except for Blu-ray products, where our technology is mandatory, we are dependent upon our customers and licensees—including consumer electronics products manufacturers, semiconductor manufacturers, producers and distributors of content for movies, TV shows, music, and games—to incorporate our technologies into their products, purchase our products and services, or release their content in our proprietary DTS audio format. Although we have contracts and license agreements with many of these companies, generally, these agreements do not require any minimum purchase commitments, are on a non-exclusive basis, and do not require incorporation or use of our technologies, trademarks or services. Furthermore, the decision by a party dominant in the entertainment value chain to provide audio technology at very low or no cost could impact a licensee's decision to use our technology. Our customers, licensees and other manufacturers might not utilize our technologies or services in the future. Accordingly, our revenue will decline if our customers and licensees choose not to incorporate our technologies in their products, or if they sell fewer products incorporating our technologies.

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    Our licensing revenue depends in large part upon semiconductor manufacturers incorporating our technologies into integrated circuit (ICs), for sale to our consumer electronics product licensees and if, for any reason, our technologies are not incorporated in these ICs or fewer ICs are sold that incorporate our technologies, our operating results would be adversely affected.

        Our licensing revenue from consumer electronics products manufacturers depends in large part upon the availability of ICs that implement our technologies. IC manufacturers incorporate our technologies into these ICs, which are then incorporated into consumer electronics products. We do not manufacture these ICs, but rather depend upon IC manufacturers to develop, produce and then sell them to licensed consumer electronics products manufacturers. We do not control the IC manufacturers' decisions whether or not to incorporate our technologies into their ICs, and we do not control their product development or commercialization efforts. If these IC manufacturers are unable or unwilling, for any reason, to implement our technologies into their ICs, or if, for any reason, they sell fewer ICs incorporating our technologies, our operating results will be adversely affected.

    The licensing of patents constitutes a significant source of our revenue. If we do not replace expiring patents with new patents or proprietary technologies, our revenue could decline.

        We hold patents covering much of the technologies that we license, and our licensing revenue is tied in large part to the life of those patents. Our right to receive royalties related to our patents terminates with the expiration of the last patent covering the relevant technologies. Accordingly, to the extent that we do not replace licensing revenue from technologies covered by expiring patents with licensing revenue based on new patents and proprietary technologies, our revenue could decline.

    Our business is partially dependent upon the sales of Blu-ray Disc products, and to the extent that consumer use of Blu-ray Disc products declines, our business may be adversely affected.

        Past growth in our business has been largely due to the rapid growth in sales of DVD based products and home theater systems incorporating our technologies. More recently, our mandatory inclusion in the Blu-ray standard represented a significant opportunity. We expect markets for optical disc based products to mature and eventually decline in favor of an expanding market for network-based entertainment delivery. If the pace of our participation in network-based entertainment lags the eventual decline in our optical disc based media business, our operating results and prospects could be adversely affected.

    Our technologies and products are complex and may contain errors that could cause us to lose customers, damage our reputation, or incur substantial costs.

        Our technologies or products could contain errors that could cause our technologies or products to operate improperly and could cause unintended consequences. If our technologies or products contain errors, we could be required to replace them, and if any such errors cause unintended consequences, we could face claims for product liability. Although we generally attempt to contractually limit our exposure to incidental and consequential damages, as well as provide insurance coverage for such events, if these contract provisions are not enforced or are unenforceable for any reason, if liabilities arise that are not effectively limited, or if our insurance coverage is inadequate to satisfy the liability, we could incur substantial costs in defending or settling product liability claims.

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    We are dependent upon certain key employees.

        Our success depends, in part, upon the continued availability and contributions of our management team and engineering and technical personnel because of the complexity of our products and services. Important factors that could cause the loss of key personnel include:

    our existing employment agreements with the members of our management team allow such persons to terminate their employment with us at any time;

    we do not have employment agreements with a majority of our key engineering and technical personnel;

    not maintaining a competitive compensation package, including cash and equity compensation;

    significant portions of the equity awards held by the members of our management team are vested; and

    equity awards held by some of our executive officers provide for accelerated vesting in the event of a sale or change of control of our company.

        The loss of key personnel or an inability to attract qualified personnel in a timely manner could slow our technology and product development and harm our ability to execute our business plan.

    Economic downturns could disrupt and materially harm our business.

        Negative trends in the general economy could cause a downturn in the market for our technologies, products and services, as many of the products in which our technologies are incorporated are discretionary goods, including TVs, PCs, and mobile devices. Continued weakness in the global financial markets has resulted in a tightening in the credit markets, a low level of liquidity in many financial markets and volatility in credit and equity markets. This continued weakness may adversely affect our operating results if it results, for example, in the insolvency of a key licensee or other customer, the inability of our licensees or other customers to obtain credit to finance their operations, including financing the manufacture of products containing our technologies, and delays in reporting or payments from our licensees. Tight credit markets could also delay or prevent us from acquiring or making investments in other technologies, products or businesses that could enhance our technical capabilities, complement our current products and services, or expand the breadth of our markets. If we are unable to execute such acquisitions or strategic investments, our operating results and business prospects may suffer.

        In addition, global economic conditions, including increased cost of commodities, widespread employee layoffs, actual or threatened military action by the US and the continued threat of terrorism, have resulted in decreased consumer confidence, disposable income and spending. Continuation of or any further reduction in consumer confidence or disposable income may negatively affect the demand for consumer electronics products that incorporate our technologies.

        We cannot predict other negative events that may have adverse effects on the global economy in general and the consumer electronics industry specifically. However, the factors described above and such unforeseen events could negatively affect our revenues and operating results.

    We may experience fluctuations in our operating results.

        We have historically experienced moderate seasonality in our business due to our business mix and the nature of our products. Consumer electronics manufacturing activities are generally lowest in the first calendar quarter of each year, and increase progressively throughout the remainder of the year. Manufacturing output is generally strongest in the third and fourth quarters as our technology licensees increase manufacturing to prepare for the holiday buying season. Since recognition of revenues

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generally lags manufacturing activity by one quarter, our revenues and earnings are generally lowest in the second quarter. The introduction of new products and inclusion of our technologies in new and rapidly growing markets can distort and amplify the seasonality described above. Our revenues may continue to be subject to fluctuations, seasonal or otherwise, in the future. Unanticipated fluctuations, whether due to seasonality, economic downturns, product cycles, or otherwise, could cause us to miss our earnings projections, or could lead to higher than normal variation in short-term earnings, either of which could cause our stock price to decline.

        In addition, we actively engage in intellectual property compliance and enforcement activities focused on identifying third parties who have either incorporated our technologies, trademarks, or know-how without a license or who have underreported to us the amount of royalties owed under license agreements with us. As a result of these activities, from time to time, we may recognize royalty revenues that relate to manufacturing activities from prior periods, and we may incur expenditures related to enforcement activity. These royalty recoveries and expenditures, as applicable, may cause revenues to be higher than expected, or results to be lower than expected, during a particular reporting period and may not recur in future reporting periods. Such fluctuations in our revenues and operating results may cause declines in our stock price.

    We rely on the accuracy of our customers' manufacturing reports for reporting and collecting our revenues, and if these reports are untimely or incorrect, our revenues could be delayed or inaccurately reported.

        Most of our revenues are generated from consumer electronics products manufacturers who license and incorporate our technology in their consumer electronics products. Under our existing agreements, these customers pay us per-unit licensing fees based on the number of consumer electronics products manufactured that incorporate our technology. We rely on our customers to accurately report the number of units manufactured in collecting our license fees, preparing our financial reports, projections, budgets, and directing our sales and product development efforts. Most of our license agreements permit us to audit our customers, but audits are generally expensive, time consuming, difficult to manage effectively, dependent in large part upon the cooperation of our licensees and the quality of the records they keep, and could harm our customer relationships. If any of our customer reports understate the number of products they manufacture, we may not collect and recognize revenues to which we are entitled, or may endure significant expense to obtain compliance.

    If we fail to protect our intellectual property rights, our ability to compete could be harmed.

        Protection of our intellectual property is critical to our success. Copyright, trademark, patent, and trade secret laws and confidentiality and other contractual provisions afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We face numerous risks in protecting our intellectual property rights, including the following:

    our competitors may produce competitive products or services that do not unlawfully infringe upon our intellectual property rights;

    the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the US, and mechanisms for enforcement of intellectual property rights may be inadequate in foreign countries;

    we may be unable to successfully identify or prosecute unauthorized uses of our technologies;

    efforts to identify and prosecute unauthorized uses of our technologies are time consuming, expensive, and divert resources from the operation of our business;

    our patents may be challenged, found unenforceable or invalidated by our competitors;

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    our pending patent applications may not issue, or if issued, may not provide meaningful protection for related products or proprietary rights;

    we may not be able to practice our trade secrets as a result of patent protection afforded a third-party for such product, technique or process; and

    we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees, consultants, and advisors.

        As a result, our means of protecting our intellectual property rights and brands may prove inadequate. Furthermore, despite our efforts, third parties may violate, or attempt to violate, our intellectual property rights. Enforcement, including infringement claims and lawsuits would likely be expensive to resolve and would require management's time and resources. In addition, we have not sought, and do not intend to seek, patent and other intellectual property protections in all foreign countries. In countries where we do not have such protection, products incorporating our technology may be lawfully produced and sold without a license.

    We may be sued by third parties for alleged infringement of their proprietary rights, and we may be subject to litigation proceedings that could harm our business.

        Companies that participate in the digital audio, consumer electronics, and entertainment industries hold a large number of patents, trademarks, and copyrights, and are frequently involved in litigation based on allegations of patent infringement or other violations of intellectual property rights. Intellectual property disputes frequently involve highly complex and costly scientific matters, and each party generally has the right to seek a trial by jury which adds additional costs and uncertainty. Accordingly, intellectual property disputes, with or without merit, could be costly and time consuming to litigate or settle, and could divert management's attention from executing our business plan. In addition, our technologies and products may not be able to withstand any third-party claims or rights against their use. If we were unable to obtain any necessary license following a determination of infringement or an adverse determination in litigation or in interference or other administrative proceedings, we may need to redesign some of our products to avoid infringing a third party's rights and could be required to temporarily or permanently discontinue licensing our products.

        In the past, we have been a party to litigation related to protection and enforcement of our intellectual property, and we may be a party to additional litigation in the future. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages (including treble damages under the Clayton Act) and an injunction prohibiting us from licensing our technologies in particular ways or at all. If an unfavorable ruling occurred, our business and operating results could be materially harmed. In addition, any protracted litigation could divert management's attention from our day-to-day operations, disrupt our business and cause our operating results to suffer.

    We have in the past and may in the future have disputes with our licensees regarding our licensing arrangements.

        At times, we are engaged in disputes regarding the licensing of our intellectual property rights, including matters related to our royalty rates and other terms of our licensing arrangements. These types of disputes can be asserted by our customers or prospective customers or by other third parties as part of negotiations with us or in private actions seeking monetary damages or injunctive relief, or in regulatory actions. In the past, licensees have threatened to initiate litigation against us regarding our licensing royalty rate practices including our adherence to licensing on fair, reasonable, and non-discriminatory terms and potential antitrust claims. Damages and requests for injunctive relief asserted in claims like these could be material, and could be disruptive to our business. Any disputes

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with our customers or potential customers or other third parties could adversely affect our business, results of operations, and prospects.

    We are subject to additional risks associated with our international operations.

        We market and sell our products and services outside the US. We currently have employees located in several countries throughout Europe and Asia, and most of our customers and licensees are located outside the US. As a key component of our business strategy, we intend to expand our international sales and customer support. During the quarter ended March 31, 2014, over 85% of our revenues were derived internationally. We face numerous risks in doing business outside the US, including:

    unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements;

    tariffs, trade protection measures, import or export licensing requirements, trade embargos, and other trade barriers;

    difficulties in attracting and retaining qualified personnel and managing foreign operations;

    competition from foreign companies;

    dependence upon foreign distributors and their sales channels;

    longer accounts receivable collection cycles and difficulties in collecting accounts receivable;

    less effective and less predictable protection and enforcement of our intellectual property;

    changes in the political or economic condition of a specific country or region, particularly in emerging markets;

    fluctuations in the value of foreign currency versus the US dollar and the cost of currency exchange;

    potentially adverse tax consequences; and

    cultural differences in the conduct of business.

        Such factors could cause our future international sales to decline.

        Our business practices in international markets are also subject to the requirements of the Foreign Corrupt Practices Act. If any of our employees are found to have violated these requirements, we and our employees could be subject to significant fines, criminal sanctions and other penalties.

        Our international revenue is mostly denominated in US dollars. As a result, fluctuations in the value of the US dollar and foreign currencies may make our technology, products, and services more expensive for international customers, which could cause them to decrease their royalty obligations to us. Expenses for our subsidiaries are denominated in their respective local currencies. As a result, if the US dollar weakens against the local currency, the translation of our foreign-currency-denominated expenses will result in higher operating expense without a corresponding increase in revenue. Significant fluctuations in the value of the US dollar and foreign currencies could have a material impact on our consolidated financial statements. The main foreign currencies we encounter in our operations are the JPY, EUR, RMB, KRW, HKD, TWD, SGD and GBP. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

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    * We have identified material weaknesses in our internal control over financial reporting, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

        We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting.

        Our management concluded that our internal control over financial reporting was ineffective as of March 31, 2014, December 31, 2013 and 2012, because material weaknesses existed in our internal control over financial reporting related to the inadequate design of internal controls over the accounting for income taxes and for revenue under license agreements with non-standard financial terms.

        In order to remediate the material weakness in our internal control over financial reporting related to the accounting for income taxes, we implemented a plan to enhance our control procedures with respect to the preparation and review of the income tax provision and the related deferred tax assets and liabilities, including increasing the use of third party advisors with appropriate expertise to assist with the preparation and review of the quarterly and annual income tax provision. Additionally, we have initiated a plan to enhance our review and monitoring procedures when interacting with third party tax advisors that are assisting us in reviewing key elements of our income tax provision. This will include expanding our assessment of the adequacy of the scope of procedures performed by third party tax advisors and enhancing our review of significant assumptions used by the third party tax advisors.

        In order to remediate the material weakness in our internal control over financial reporting related to the accounting for revenue under license agreements with non-standard financial terms, we implemented a plan to enhance our control procedures with respect to the identification and review of revenue under agreements with non-standard financial terms, including performing additional analysis of our license agreements to evaluate the non-standard financial terms and additional accounting research and preparing detailed checklists to ensure that all agreements with non-standard financial terms are sufficiently identified and evaluated, and revenue is properly recognized.

        If we are unable to effectively remediate the material weaknesses related to the accounting for income taxes or for revenue under license agreements with non-standard financial terms in a timely manner, or if we identify one or more additional material weaknesses in the future, investors could lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock.

        Our multi-national legal structure is complex, which increases the risk of errors in financial reporting related to our accounting for income taxes. We may find additional errors in our accounting for income taxes or discover new facts that cause us to reach different conclusions. In addition, given the complexity of certain of the Company's license agreements and the accounting standards governing revenue recognition related thereto, we may find additional errors in our accounting for revenue under license agreements with non-standard financial terms or discover new facts that cause us to reach different conclusions. This could result in adjustments that could have an adverse effect on our consolidated financial statements and the price of our common stock.

    Compliance with changing securities laws, regulations and financial reporting standards will increase our costs and pose challenges for our management team.

        Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act

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of 2002, and the rules and regulations promulgated thereunder have created uncertainty for public companies and significantly increased the costs and risks associated with operating as a publicly traded company in the US. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. Furthermore, with such uncertainties, we cannot assure you that our system of internal control will be effective or satisfactory to our independent registered public accounting firm. As a result, our financial reporting may not be timely or accurate and we may be issued an adverse or qualified opinion by our independent registered public accounting firm. If reporting delays or material errors actually occur, we could be subject to sanctions or investigation by regulatory authorities, such as the SEC, which could adversely affect our financial results or result in a loss of investor confidence in the reliability of our financial information, which could materially and adversely affect the market price of our common stock.

        Further, the SEC has passed, promulgated and proposed new rules on a variety of subjects including the possibility that we would be required to adopt International Financial Reporting Standards (IFRS). In order to comply with IFRS requirements, we may have to add additional accounting staff, engage consultants or change our internal practices, standards and policies which could significantly increase our costs.

        We believe that these new and proposed laws and regulations could make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee, and qualified executive officers.

    Current and future governmental and industry standards may significantly limit our business opportunities.

        Technology standards are important in the audio and video industry as they help to assure compatibility across a system or series of products. Generally, standards adoption occurs on either a mandatory basis, requiring a particular technology to be available in a particular product or medium, or an optional basis, meaning that a particular technology may be, but is not required to be, utilized. For example, both our digital multi-channel audio technology and Dolby's have optional status in Blu-ray, while both our two-channel output and Dolby's technologies have been selected as mandatory standards in Blu-ray. However, if either or both of these standards are re-examined or a new standard is developed, we may not be included as mandatory in any such new or revised standard which would cause revenue growth in that area of our business to be significantly lower than expected and could have a material adverse effect on our business.

        Various national governments have adopted or are in the process of adopting standards for all digital TV broadcasts, including cable, satellite, and terrestrial. In the US, Dolby's audio technology has been selected as the sole, mandatory audio standard for terrestrial digital TV broadcasts. As a result, the audio for all digital terrestrial TV broadcasts in the US must include Dolby's technology and must exclude any other format, including ours. We do not know whether this standard will be reopened or amended. If it is not, our audio technology may never be included in that standard. Certain large and developing markets, such as China, have not fully developed their digital TV standards. Our technology may or may not ultimately be included in these standards.

        As new technologies and entertainment media emerge, new standards relating to these technologies or media may develop. New standards may also emerge in existing markets that are currently characterized by competing formats, such as the market for PCs. We may not be successful in our efforts to include our technology in any such standards.

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    Our licensing of industry standard technologies can be subject to limitations that could adversely affect our business and prospects.

        When a standards-setting body adopts our technologies as explicit industry standards, we generally must agree to license such technologies on a fair, reasonable and non-discriminatory basis, which we believe means that we treat similarly situated licensees similarly. In these situations, we may be required to limit the royalty rates we charge for these technologies, which could adversely affect our business. Furthermore, we may have limited control over whom we license such technologies to, and may be unable to restrict many terms of the license. From time to time, we may be subject to claims that our licenses of our industry standard technologies may not conform to the requirements of the standards-setting body. Claimants in such cases could seek to restrict or change our licensing practices or our ability to license our technologies in ways that could injure our reputation and otherwise materially and adversely affect our business, operating results and prospects.

    We have a limited operating history in certain new and evolving consumer electronics markets.

        Our technologies have only recently been incorporated into certain markets, such as TVs, PCs, and mobile products. We do not have the same experience in these markets as in our traditional consumer electronics business, nor do we have as much operating history as other companies, such as Dolby Laboratories, Inc. As a result, the demand for our technologies, products, and services and the income potential of these businesses is unproven. In addition, because our participation in these markets is relatively new and rapidly evolving, we may have limited insight into trends that may emerge and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our business. Before investing in our common stock, you should consider the risks, uncertainties, and difficulties frequently encountered by companies in new and rapidly evolving markets such as ours. We may not be able to successfully address any or all of these risks.

    Unanticipated changes in our tax provisions or adverse outcomes resulting from examination of our income tax returns could adversely affect our net income.

        We are subject to income taxes in both the US and foreign jurisdictions. Our effective income tax rates could in the future be adversely affected by changes in tax laws or interpretations of those tax laws, by changes in the mix of earnings in countries with differing statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We may come under audit by tax authorities. For instance, the Internal Revenue Service (IRS) is examining our 2009 to 2011 federal income tax returns. The California Franchise Tax Board (FTB) is examining our 2009 and 2010 corporate tax returns. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. Based on the results of an audit or litigation, a material effect on our income tax provision, net income or cash flows in the period or periods for which that determination is made could result. In addition, changes in tax rules may adversely affect our future reported financial results or the way we conduct our business. We earn a significant amount of our operating income from outside the US, and any repatriation of funds currently held in foreign jurisdictions may result in additional tax expense. In addition, there have been proposals to change US tax laws that would significantly impact how US multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation will pass, if enacted, it could have a material adverse impact on our tax expense and cash flows.

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    We incurred a significant amount of indebtedness in connection with the SRS acquisition. Our level of indebtedness, and covenant restrictions under such indebtedness, could adversely affect our operations and liquidity.

        We entered into a credit facility in July 2012. This credit facility provides us with a $30.0 million revolving line of credit, with a five million sublimit for the issuance of standby and commercial letters of credit, to use to finance permitted acquisitions and for working capital and general corporate purposes.

        Our indebtedness could adversely affect our operations and liquidity, by, among other things:

    making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make our scheduled debt payments;

    causing us to use a larger portion of our cash flows to fund interest and principal payments, reducing the availability of cash to fund working capital and capital expenditures and other business activities;

    making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and

    limiting our ability to borrow additional monies in the future to fund working capital, capital expenditures and other general corporate purposes.

        The terms of our indebtedness include certain reporting and financial covenants, as well as other covenants, that, among other things, restrict our ability to: (i) dispose of assets, (ii) incur additional indebtedness, (iii) incur guarantee obligations, (iv) prepay certain other indebtedness or amend other financing arrangements, (v) pay dividends, (vi) create liens on assets, (vii) enter into sale and leaseback transactions, (viii) make investments, loans or advances, (ix) make acquisitions, (x) engage in mergers or consolidations, (xi) change the business conducted and (xii) engage in certain transactions with affiliates. If we fail to comply with any of these covenants or restrictions, such failure may result in an event of default, which if not cured or waived, could result in the lenders increasing the interest rate as of the date of default or accelerating the maturity of our indebtedness. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and such acceleration would adversely affect our business and financial condition. In addition, the indebtedness under our credit facility is secured by a security interest in substantially all of our tangible and intangible assets and therefore, if we are unable to repay such indebtedness, the lenders could foreclose on these assets, which would adversely affect our ability to operate our business.

    Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable terms or at all.

        Our capital requirements will depend upon many factors, including:

    acceptance of, and demand for, our technologies, products and services;

    the costs of developing new technologies or products;

    the extent to which we invest in new technologies and research and development projects;

    the number and timing of acquisitions and other strategic transactions;

    the costs associated with our expansion, if any; and

    the costs of litigation and enforcement activities to defend our intellectual property.

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        In the future, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all, particularly given the continuing credit crisis and downturn in the overall global economy. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we cannot raise funds on acceptable terms, or at all, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. This may materially harm our business, results of operations, and financial condition.

    Natural or other disasters could disrupt our business and negatively impact our operating results and financial condition.

        Natural or other disasters such as earthquakes, hurricanes, tsunamis or other adverse weather and climate conditions, whether occurring in the US or abroad, and the consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations, or the operations of our business partners and customers, or result in economic instability that may negatively impact our operating results and financial condition. Our corporate headquarters and many of our operations are located in California, a seismically active region, potentially exposing us to greater risk of natural disasters.

    Our business and operations could suffer in the event of security breaches.

        Attempts by others to gain unauthorized access to information technology systems, including systems designed and managed by third parties, are becoming more sophisticated and successful. These attempts can include introducing malware to computers and networks, impersonating authorized users, overloading systems and servers and data theft. While we seek to detect and investigate any security issue, in some cases, we might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any security breach results in inappropriate disclosure of our customers' or licensees' confidential information, we may incur liability as a result. Further, disruptions to certain of our information technology systems could have severe consequences to our business operations, including financial loss and reputational damage.

Risks Related to Our Common Stock

    We expect that the price of our common stock will fluctuate substantially.

        The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

    actual or anticipated fluctuations in our results of operations;

    market perception of our progress toward announced objectives;

    announcements of technological innovations by us or our competitors or technology standards;

    announcements of significant contracts by us or our competitors;

    changes in our pricing policies or the pricing policies of our competitors;

    developments with respect to intellectual property rights;

    the introduction of new products or product enhancements by us or our competitors;

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    the commencement of or our involvement in litigation;

    resolution of significant litigation in a manner adverse to our business;

    our sale or purchase of common stock or other securities in the future;

    conditions and trends in technology industries;

    changes in market valuation or earnings of our competitors;

    the trading volume of our common stock;

    announcements of potential acquisitions;

    the adoption rate of new products incorporating our or our competitors' technologies, including Blu-ray Disc players;

    changes in the estimation of the future size and growth rate of our markets; and

    general economic conditions.

        In addition, the stock market in general, and the NASDAQ Global Select Market and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities of technology companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources.

    Shares of our common stock are relatively illiquid.

        As a result of our relatively small public float, our common stock may be less liquid than the common stock of companies with broader public ownership. Among other things, trading of a relatively small volume of our common shares may have a greater impact on the trading price for our shares than would be the case if our public float were larger.

    Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock.

        Our Restated Certificate of Incorporation and Restated Bylaws contain provisions that could delay or prevent a change of control of our company or changes in our Board of Directors that our stockholders might consider favorable. Some of these provisions:

    authorize the issuance of preferred stock which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of the common stock;

    provide for a classified Board of Directors, with each director serving a staggered three-year term;

    prohibit stockholders from filling Board vacancies, calling special stockholder meetings, or taking action by written consent; and

    require advance written notice of stockholder proposals and director nominations.

        In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our Restated Certificate of Incorporation,

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Restated Bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by the then-current Board, and could delay or impede a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our Board could cause the market price of our common stock to decline.

    If securities or industry analysts publish inaccurate or unfavorable research about our business or if our operating results do not meet or exceed their projections, our stock price could decline.

        The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us or our industry downgrade our stock or the stock of other companies in our industry, or publish inaccurate or unfavorable research about our business or industry, or if our operating results do not meet or exceed their projections, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

(c)   Purchases of Equity Securities by the Issuer and Affiliated Purchasers

        Stock repurchase activity during the quarter ended March 31, 2014 was as follows:

Period
  Total
Number
of Shares
Purchased(1)
  Average
Price Paid
per Share
  Total Number
of Shares
Purchased as
Part of Publicly
Announced Plan
  Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan(2)
 

January 1, 2014 through

                         

January 31, 2014

                 

February 1, 2014 through

                         

February 28, 2014

    33,254   $ 19.79         2,000,000  

March 1, 2014 through

                         

March 31, 2014

    374,586   $ 20.03     374,200     1,625,800  

Total

    407,840   $ 20.01 (3)   374,200     1,625,800  

(1)
Consists of (i) shares repurchased under our share repurchase program described in (2) below, and (ii) shares repurchased from employees and effectively retired to satisfy statutory withholding requirements upon the vesting of restricted stock.

(2)
On March 17, 2014, we announced a share repurchase program that was authorized by the Board of Directors in February 2014, for us to repurchase up to two million shares of our common stock in the open market or in privately negotiated transactions, depending upon market conditions and other factors. This share repurchase program does not have an expiration date.

(3)
Represents weighted average price paid per share during the quarter ended March 31, 2014.

Item 3.    Defaults Upon Senior Securities

        None.

Item 4.    Mine Safety Disclosures

        Not applicable.

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Item 5.    Other Information

        None.

Item 6.    Exhibits

        Refer to the Exhibit Index immediately following the signature page, which is incorporated herein by reference.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    DTS, Inc.

Date: March 9, 2015

 

by:

 

/s/ JON E. KIRCHNER

Jon E. Kirchner
Chairman and Chief Executive Officer
(Duly Authorized Officer)

Date: March 9, 2015

 

by:

 

/s/ MELVIN L. FLANIGAN

Melvin L. Flanigan
Executive Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

 
   
   
  Incorporated by Reference
Exhibit
Number
   
  Filed with
this
Form 10-Q/A
  Exhibit Title   Form   File No.   Date Filed
  3.1   Composite Certificate of Incorporation       10-K   000-50335-13698275   3/18/2013
  3.2   Amended and Restated Bylaws       8-K   000-50335-14704082   3/19/2014
  10.1*   Form of 2014 Executive Incentive Compensation Plan       10-K   000-50335-14705471   3/20/2014
  10.2*   Amendment to Employment Agreement, dated March 13, 2014, between DTS, Inc. and Brian D. Towne       10-Q   000-50335-14833723   05/12/2014
  10.3*   Employment Agreement, dated January 20, 2014, between DTS, Inc. and Kevin Doohan       10-Q   000-50335-14833723   05/12/2014
  31.1   Certification of Chief Executive Officer pursuant to Rule 13a- 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended   X            
  31.2   Certification of Chief Financial Officer pursuant to Rule 13a- 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended   X            
  32.1‡   Certification of the Chief Executive Officer pursuant to Rule 13a- 14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. section 1350   X            
  32.2‡   Certification of the Chief Financial Officer pursuant to Rule 13a- 14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. section 1350   X            
  101.INS   XBRL Instance Document   X            
  101.SCH   XBRL Taxonomy Extension Schema Document   X            
  101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document   X            
  101.DEF   XBRL Extension Definition   X            
  101.LAB   XBRL Taxonomy Extension Label Linkbase Document   X            
  101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document   X            

*
Indicates management contract, arrangement or compensatory plan.

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.