Dolby Laboratories, Inc.; Notice of Application, 62157-62159 [2010-25292]
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Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Notices
number, or applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or
[Investment Company Act Release No.
calling (202) 551–8090.
29454; 812–13582]
Applicant’s Representations:
1. Dolby, a Delaware corporation,
Dolby Laboratories, Inc.; Notice of
directly and through its wholly-owned
Application
subsidiaries, develops and delivers
innovative products and technologies
October 1, 2010.
that are used throughout the
AGENCY: Securities and Exchange
entertainment industry to produce a
Commission (‘‘Commission’’).
more immersive and enjoyable
ACTION: Notice of application under
experience. Dolby generates revenue by
section 3(b)(2) of the Investment
licensing its technologies to
Company Act of 1940 (the ‘‘Act’’).
manufacturers of consumer electronics
products and software vendors and
Summary of Application: Dolby
selling professional products and
Laboratories, Inc. (‘‘Dolby’’) seeks an
related services to entertainment
order under section 3(b)(2) of the Act
content creators, producers and
declaring it to be primarily engaged in
distributors. Dolby works across the
a business other than that of investing,
global entertainment industry by
reinvesting, owning, holding or trading
offering products and services for
in securities. Dolby, directly and
content creators, such as studios and
through its wholly-owned subsidiaries,
broadcasters, to encode content in
develops and delivers products and
Dolby’s formats, by licensing Dolby
technologies that are used throughout
the entertainment industry to produce a technology to consumer electronics
manufacturers and software vendors so
more immersive and enjoyable
that consumers can enjoy the content
experience.
Filing Date: The application was filed that has been encoded in Dolby’s
proprietary formats, and by working
on September 26, 2008, and amended
directly with standards bodies in an
on April 7, 2009, April 22, 2010, and
effort to have Dolby’s formats adopted
September 30, 2010.
Hearing or Notification of Hearing: An in their specifications to ensure a
common standard across devices and to
order granting the requested relief will
be issued unless the Commission orders improve the overall consumer
experience.
a hearing. Interested persons may
2. Dolby states that its business is
request a hearing by writing to the
highly capital intensive, highly cyclical
Commission’s Secretary and serving
and requires research and development
applicants with a copy of the request,
of new technologies. As a result, Dolby
personally or by mail. Hearing requests
represents that it maintains a substantial
should be received by the Commission
amount of cash, and various short-term
by 5:30 p.m. on October 26, 2010, and
investment securities, to run its
should be accompanied by proof of
operations, including research and
service on applicants, in the form of an
development activities,1 and to be
affidavit or, for lawyers, a certificate of
available for strategic acquisitions.
service. Hearing requests should state
Dolby also states that it seeks to
the nature of the writer’s interest, the
preserve capital and maintain liquidity
reason for the request, and the issues
by investing in short-term fixed income
contested. Persons who wish to be
and money market investments that are
notified of a hearing may request
investment grade, liquid, and that earn
notification by writing to the
competitive market returns and provide
Commission’s Secretary.
a low level of credit risk in order to
ADDRESSES: Secretary, Securities and
conserve capital and liquidity until the
Exchange Commission, 100 F Street,
funds are used in Dolby’s primary
NE., Washington, DC 20549–1090.
business or businesses (‘‘Capital
Applicant, 100 Potrero Avenue, San
Preservation Investments’’). Dolby states
Francisco, CA 94103.
that it does not invest in securities for
FOR FURTHER INFORMATION CONTACT: Jaea
short-term speculative purposes.
F. Hahn, Senior Counsel, at (202) 551–
3. Dolby also states that a significant
6870, or Jennifer L. Sawin, Branch
portion of its assets consist of intangible
Chief, at (202) 551–6821 (Division of
assets, such as internally-generated
Investment Management, Office of
intellectual property and other
Investment Company Regulation).
1 In fiscal years 2007, 2008 and 2009, Dolby’s
SUPPLEMENTARY INFORMATION: The
research and development expenses were $44.1
following is a summary of the
million, $62.1 million and $66.7 million,
application. The complete application
respectively, and accounted for roughly 14.9%,
may be obtained via the Commission’s
17.6% and 18.7% of Dolby’s total expenses
(including the cost of revenues), respectively.
Web site by searching for the file
jdjones on DSK8KYBLC1PROD with NOTICES
SECURITIES AND EXCHANGE
COMMISSION
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intangibles that may not appear on its
balance sheet. Dolby states that because
it holds its internally-developed
intangible assets through wholly-owned
subsidiaries, the value of its investment
securities is (and likely will remain)
well below 40% of its total assets
(excluding Government securities and
cash items) on an unconsolidated basis.
Dolby states, however, that valuation of
internally-developed intangible assets is
difficult and inherently subjective, and
Dolby believes that it cannot rely on the
fact that it does not meet the definition
of investment company found in section
3(a)(1)(C) of the Act because third
parties such as underwriters will not
accept investment company status
representations based on
unconsolidated calculations that rely on
Dolby’s valuations of those assets.
Because Dolby cannot rely on the fact
that it does not meet the definition of
investment company found in section
3(a)(1)(C) in circumstances requiring an
unqualified opinion that Dolby is not an
investment company under the Act, it
seeks an order of the Commission
pursuant to section 3(b)(2) of the Act.
Applicant’s Legal Analysis:
1. Dolby seeks an order under section
3(b)(2) of the Act declaring that it is
primarily engaged in a business other
than that of investing, reinvesting,
owning, holding or trading in securities,
and therefore not an investment
company as defined in the Act.
2. Under section 3(a)(1)(C) of the Act,
an issuer is an investment company if
it is engaged or proposes to engage in
the business of investing, reinvesting,
owning, holding, or trading in
securities, and owns or proposes to
acquire investment securities having a
value in excess of 40 percent of the
value of the issuer’s total assets
(exclusive of Government securities and
cash items) on an unconsolidated basis.
Section 3(a)(2) of the Act defines
‘‘investment securities’’ to include all
securities except Government securities,
securities issued by employees’
securities companies, and securities
issued by majority-owned subsidiaries
of the owner which (a) are not
investment companies, and (b) are not
relying on the exclusions from the
definition of investment company in
section 3(c)(1) or 3(c)(7) of the Act.
Dolby states that as of June 25, 2010, the
value of its total assets on an
unconsolidated basis (exclusive of
Government securities and cash items)
was approximately $7.5 billion, the
value of Dolby’s investment securities
(as defined in section 3(a)(2) of the Act)
on an unconsolidated basis was
approximately $0 and constituted
approximately 0.0% of Dolby’s total
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Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Notices
jdjones on DSK8KYBLC1PROD with NOTICES
assets (exclusive of Government
securities and cash items).
3. Rule 3a–1 under the Act provides
an exemption from the definition of
investment company if no more than
45% of a company’s total assets consist
of, and not more than 45% of its net
income over the last four quarters is
derived from, securities other than
Government securities, securities of
majority-owned subsidiaries and
primarily controlled companies. These
percentages are determined on a
consolidated basis with the company’s
wholly-owned subsidiaries. Dolby states
that it currently relies on rule 3a–1 and
limits its investment in Capital
Preservation Investments, investing its
liquid capital more heavily in
Government securities and cash items to
ensure that its investment securities
remain within the limits of the asset
component of rule 3a–1’s 45% test.
Dolby believes that limiting its Capital
Preservation Investments to meet the
constraints of rule 3a–1 greatly
underutilizes Dolby’s cash management
potential to the detriment of Dolby and
its shareholders.2
4. Section 3(b)(2) of the Act provides
that, notwithstanding section 3(a)(1)(C)
of the Act, the Commission may issue
an order declaring an issuer to be
primarily engaged in a business or
businesses other than that of investing,
reinvesting, owning, holding, or trading
in securities either directly or through
majority-owned subsidiaries or through
controlled companies conducting
similar types of businesses. Dolby
requests an order under section 3(b)(2)
of the Act declaring that it is primarily
engaged in a business other than that of
investing, reinvesting, owning, holding
or trading in securities, and therefore
not an investment company as defined
in the Act.
5. In determining whether a company
is primarily engaged in a noninvestment company business under
section 3(b)(2), the Commission
considers: (a) The issuer’s historical
development; (b) its public
representations of policy; (c) the
activities of its officers and directors; (d)
the nature of its present assets; and (e)
the sources of its present income.3
a. Historical Development. Dolby
states that since its founding in 1965, it
2 Rule 3a–8 under the Act provides an exemption
for certain companies whose research and
development expenses are a substantial percentage
of their total expenses. Dolby does not rely on rule
3a–8 because its research and development
expenses have in recent years accounted for less
than 20 percent of its total expenses (including the
cost of revenues).
3 Tonopah Mining Company of Nevada, 26 SEC
426, 427 (1947).
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has been engaged in delivering products
and technologies that are employed
throughout the entertainment creation,
distribution and playback process to
enhance the entertainment experience.
In recent years, Dolby has expanded its
focus on developing and delivering new
audio and video technologies that
enhance the entertainment experience.
Dolby’s revenue comes almost
exclusively from its licensing, sales and
services of its technologies to
manufacturers of consumer electronics
products and software vendors.
b. Public Representations of Policy.
Dolby states that it has never
represented that it is involved in any
business other than developing and
delivering products and technologies for
the entertainment creation, distribution
and playback process. Dolby asserts that
it has consistently stated in its annual
reports, stockholder letters,
prospectuses, filings with the
Commission, press releases, marketing
materials, and website that it is engaged
in the business of developing and
delivering products and technology that
improve the entertainment experience.
Dolby states that it generally does not
make public representations regarding
its investment securities except as
required by its obligation to file periodic
reports to comply with federal securities
laws. Dolby further states that it has
emphasized operating results and has
never emphasized either its investment
income or the possibility of significant
appreciation from its cash management
investment strategies as a material factor
in its business or future growth.
c. Activities of Officers and Directors.
Dolby states that its directors spend
substantially all of their time as
directors for Dolby overseeing Dolby’s
business of developing and delivering
products and technologies for the
entertainment creation, distribution and
playback process. Dolby states that its
executive officers spend substantially
all of their time managing Dolby’s
business of developing and delivering
innovative products and technologies
that are used throughout the
entertainment industry. Dolby’s Chief
Financial Officer spends less than 5% of
his time monitoring Dolby’s cash
balances and managing short-term
investment securities in accordance
with Dolby’s investment policies. None
of Dolby’s executive officers, other than
the Chief Financial Officer, spend time
monitoring cash balances and managing
short-term investment securities.
As of September 25, 2009, Dolby had
approximately 1,135 employees in
locations throughout the world,
consisting of 388 employees in sales and
marketing, 421 employees in products
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and technology (including 345
employees in research and
development) and 326 employees in
general and administrative functions. In
addition to the Chief Financial Officer,
only three employees spend a small
portion of time on matters relating to the
management of Dolby’s investment
securities: The Vice President, Tax and
Treasury spends less than 10% of his
time on investment matters. The
Director of Treasury spends about onethird of her time on investment matters
and the Treasury Manager spends
approximately 20% of his time on
investment matters.
d. Nature of Assets. Dolby states that
as of June 25, 2010, the value of its
investment securities (as defined in
section 3(a)(2) of the Act) was
approximately $411 million, which
constituted approximately 39.2% of its
total assets on a consolidated basis
(exclusive of Government securities and
cash items) in accordance with rule 3a–
1.4 Dolby states that its investments in
‘‘investment securities’’ that are not
Capital Preservation Instruments will be
no more than 10 percent of its total
assets (other than Government securities
and cash items) on a consolidated basis.
Dolby further states that it owns,
through its wholly-owned subsidiaries,
a significant amount of intangible assets,
including internally-developed
intellectual property. Dolby states that
notwithstanding the value of its
internally-developed intellectual
property to its business, that value is not
recorded on Dolby’s consolidated
balance sheet as it is not treated as an
asset under Generally Accepted
Accounting Principles. Dolby also states
that the asset tests used in connection
with sections 3(a)(1)(C), 3(b)(1) and
3(b)(2) of the Act and rule 3a–1 under
the Act thus significantly understate the
relative value of Dolby’s internallydeveloped intellectual property assets
and significantly overstate the relative
value of investment securities.
e. Sources of Income and Revenue.
Dolby states that for the four fiscal
quarters ended June 25, 2010, most of
Dolby’s net income before taxes was
generated by its operating activities. At
the end of the third quarter of fiscal
2010, Dolby had net income of $405
million for the last four fiscal quarters
combined, of which net investment
income was $8 million or 2% of income
before taxes. Dolby states that the
overwhelming majority of its income is
4 For purposes of determining its primary
business, Dolby believes that consolidating its
financial results with those of its wholly-owned
subsidiaries presents a more accurate view of
Dolby’s business and financial position and a more
reliable basis for evaluating its assets and income.
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Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Notices
operating income generated by its
licensing and products and services
sales activities.
6. Dolby thus asserts that it satisfies
the standards for an order under section
3(b)(2) of the Act.
Applicant’s Conditions:
Dolby agrees that any order granted
pursuant to the application will be
subject to the following conditions:
1. Dolby will continue to allocate and
utilize its accumulated cash and
investment securities for bona fide
business purposes.
2. Dolby will refrain from investing or
trading in securities for short-term
speculative purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–25292 Filed 10–6–10; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–63021; File No. SR–C2–
2010–004]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Adopt Certain Rule
Language Contained in CBOE Rules
September 30, 2010.
jdjones on DSK8KYBLC1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 22, 2010, C2 Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘C2’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
certain rules in place at the Chicago
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, C2
included statements concerning the
purpose of and basis for the proposed
rule change and discussed any
comments it received on the proposed
rule change. The text of those
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1 15
Board Options Exchange, Incorporated
(‘‘CBOE’’). The text of the proposed rule
change is available on the Exchange’s
Web site (https://www.cboe.org/Legal), at
the Exchange’s Office of the Secretary,
at the Commission’s Public Reference
Room, and on the Commission’s Web
site at https://www.sec.gov.
1. Purpose
In 2009, C2 was registered as a
national securities exchange under
Section 6 of the Exchange Act.5 C2 has
yet to commence trading options,
however a launch is anticipated in
October 2010. The purpose of this filing
is to modify certain C2 rules to match
changes that have been made to
corresponding CBOE rules, and to also
adopt certain provisions from CBOE
Rules 3.1 and 8.3 regarding trading
permits and market maker
appointments, respectively.
The Exchange proposes to amend
Rule 1.1 to adopt the definitions of the
terms ‘‘Professional’’ and ‘‘Voluntary
Professional’’ in a substantially similar
manner as they have recently been
adopted for use on CBOE. Thus, C2 will
allow users that fall into the customer
range to elect to have orders treated, for
purposes of certain C2 rules, as broker
dealers. Further, when a person or
entity that is not a broker-dealer places
more than 390 orders per day on average
during a calendar month for its own
beneficial account(s), such person will
be deemed a ‘‘Professional’’ under the
Rules and will be treated in the same
manner as a broker-dealer for purposes
of certain designated C2 rules.
The Exchange proposes to amend
Rule 3.1 to allow C2 to establish
different types and terms of trading
permits, and to establish guidelines and
2 17
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17:22 Oct 06, 2010
5 See Exchange Act Release No. 61152 (Dec. 10,
2009), 74 FR 66699 (Dec. 16, 2009).
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standards governing the Exchange’s
authority regarding these trading
permits. The proposed changes merely
adopt certain language contained in
CBOE Rule 3.1.
The Exchange also proposes to amend
Interpretation .03 to Rule 3.5 to expand
the ability of the Exchange to waive the
requirement to conduct a hearing under
Rule 3.5 if the Exchange intends to grant
a Permit Holder’s application to
continue holding a Trading Permit or an
associated person’s application for
continued association with a Permit
Holder.
The Exchange also proposes to modify
Rule 6.10 regarding order types to (i)
make clear that the Exchange has the
flexibility to make order types available
on a class-by-class basis (this language
is identical to language contained in
CBOE Rule 6.53); (ii) add the
Intermarket Sweep Order (identical to
the CBOE version); add the AIM Sweep
Order (identical to the CBOE version);
add the Sweep and AIM Order
(identical to the CBOE version); and add
the C2-Only Order (identical to the
CBOE version except it is called C2Only instead of CBOE-Only).
The Exchange also proposes to amend
Rule 6.32 regarding trading pauses to
conform Rule 6.32 to comparable rules
on CBOE and other exchanges.
The Exchange also proposes to amend
Rule 8.2 to adopt language from CBOE
Rule 8.3 (Appointment of MarketMakers) to provide a structure for C2
Market-Makers to register in option
classes. As proposed, approved C2
Market-Makers will receive an option
class registration credit of 1.0. Like on
CBOE, a Market-Maker can use that
credit to register in option classes (each
class will have a designated registration
cost). For now, C2 is designating every
option traded on C2, except SPX, VIX,
OEX, DJX, and XSP, to have a
registration cost of .001 (with that cost
structure, C2 Market-Makers should be
able to register in every option class
anticipated to be listed on C2, except for
the specific classes listed above, with
the registration credit of 1.0). If C2
determines to commence trading of
SPX, VIX, OEX, DJX, and XSP options,
it will file a proposed rule change to
adopt registration costs for those
products.
Lastly, the Exchange proposes to
amend C2 Chapter 24 to clarify that
CBOE Rule 24.20 (SPX Combination
Orders) shall not apply to C2. CBOE
Rule 24.20 relates to open-outcry
trading of SPX combos on CBOE and is
therefore not applicable to C2.
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]]>Agencies
[Federal Register Volume 75, Number 194 (Thursday, October 7, 2010)]
[Notices]
[Pages 62157-62159]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25292]
[[Page 62157]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29454; 812-13582]
Dolby Laboratories, Inc.; Notice of Application
October 1, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 3(b)(2) of the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
Summary of Application: Dolby Laboratories, Inc. (``Dolby'') seeks
an order under section 3(b)(2) of the Act declaring it to be primarily
engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities. Dolby, directly and through
its wholly-owned subsidiaries, develops and delivers products and
technologies that are used throughout the entertainment industry to
produce a more immersive and enjoyable experience.
Filing Date: The application was filed on September 26, 2008, and
amended on April 7, 2009, April 22, 2010, and September 30, 2010.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 26, 2010, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicant, 100 Potrero Avenue, San
Francisco, CA 94103.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
calling (202) 551-8090.
Applicant's Representations:
1. Dolby, a Delaware corporation, directly and through its wholly-
owned subsidiaries, develops and delivers innovative products and
technologies that are used throughout the entertainment industry to
produce a more immersive and enjoyable experience. Dolby generates
revenue by licensing its technologies to manufacturers of consumer
electronics products and software vendors and selling professional
products and related services to entertainment content creators,
producers and distributors. Dolby works across the global entertainment
industry by offering products and services for content creators, such
as studios and broadcasters, to encode content in Dolby's formats, by
licensing Dolby technology to consumer electronics manufacturers and
software vendors so that consumers can enjoy the content that has been
encoded in Dolby's proprietary formats, and by working directly with
standards bodies in an effort to have Dolby's formats adopted in their
specifications to ensure a common standard across devices and to
improve the overall consumer experience.
2. Dolby states that its business is highly capital intensive,
highly cyclical and requires research and development of new
technologies. As a result, Dolby represents that it maintains a
substantial amount of cash, and various short-term investment
securities, to run its operations, including research and development
activities,\1\ and to be available for strategic acquisitions. Dolby
also states that it seeks to preserve capital and maintain liquidity by
investing in short-term fixed income and money market investments that
are investment grade, liquid, and that earn competitive market returns
and provide a low level of credit risk in order to conserve capital and
liquidity until the funds are used in Dolby's primary business or
businesses (``Capital Preservation Investments''). Dolby states that it
does not invest in securities for short-term speculative purposes.
---------------------------------------------------------------------------
\1\ In fiscal years 2007, 2008 and 2009, Dolby's research and
development expenses were $44.1 million, $62.1 million and $66.7
million, respectively, and accounted for roughly 14.9%, 17.6% and
18.7% of Dolby's total expenses (including the cost of revenues),
respectively.
---------------------------------------------------------------------------
3. Dolby also states that a significant portion of its assets
consist of intangible assets, such as internally-generated intellectual
property and other intangibles that may not appear on its balance
sheet. Dolby states that because it holds its internally-developed
intangible assets through wholly-owned subsidiaries, the value of its
investment securities is (and likely will remain) well below 40% of its
total assets (excluding Government securities and cash items) on an
unconsolidated basis. Dolby states, however, that valuation of
internally-developed intangible assets is difficult and inherently
subjective, and Dolby believes that it cannot rely on the fact that it
does not meet the definition of investment company found in section
3(a)(1)(C) of the Act because third parties such as underwriters will
not accept investment company status representations based on
unconsolidated calculations that rely on Dolby's valuations of those
assets. Because Dolby cannot rely on the fact that it does not meet the
definition of investment company found in section 3(a)(1)(C) in
circumstances requiring an unqualified opinion that Dolby is not an
investment company under the Act, it seeks an order of the Commission
pursuant to section 3(b)(2) of the Act.
Applicant's Legal Analysis:
1. Dolby seeks an order under section 3(b)(2) of the Act declaring
that it is primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities, and
therefore not an investment company as defined in the Act.
2. Under section 3(a)(1)(C) of the Act, an issuer is an investment
company if it is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding, or trading in securities, and
owns or proposes to acquire investment securities having a value in
excess of 40 percent of the value of the issuer's total assets
(exclusive of Government securities and cash items) on an
unconsolidated basis. Section 3(a)(2) of the Act defines ``investment
securities'' to include all securities except Government securities,
securities issued by employees' securities companies, and securities
issued by majority-owned subsidiaries of the owner which (a) are not
investment companies, and (b) are not relying on the exclusions from
the definition of investment company in section 3(c)(1) or 3(c)(7) of
the Act. Dolby states that as of June 25, 2010, the value of its total
assets on an unconsolidated basis (exclusive of Government securities
and cash items) was approximately $7.5 billion, the value of Dolby's
investment securities (as defined in section 3(a)(2) of the Act) on an
unconsolidated basis was approximately $0 and constituted approximately
0.0% of Dolby's total
[[Page 62158]]
assets (exclusive of Government securities and cash items).
3. Rule 3a-1 under the Act provides an exemption from the
definition of investment company if no more than 45% of a company's
total assets consist of, and not more than 45% of its net income over
the last four quarters is derived from, securities other than
Government securities, securities of majority-owned subsidiaries and
primarily controlled companies. These percentages are determined on a
consolidated basis with the company's wholly-owned subsidiaries. Dolby
states that it currently relies on rule 3a-1 and limits its investment
in Capital Preservation Investments, investing its liquid capital more
heavily in Government securities and cash items to ensure that its
investment securities remain within the limits of the asset component
of rule 3a-1's 45% test. Dolby believes that limiting its Capital
Preservation Investments to meet the constraints of rule 3a-1 greatly
underutilizes Dolby's cash management potential to the detriment of
Dolby and its shareholders.\2\
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\2\ Rule 3a-8 under the Act provides an exemption for certain
companies whose research and development expenses are a substantial
percentage of their total expenses. Dolby does not rely on rule 3a-8
because its research and development expenses have in recent years
accounted for less than 20 percent of its total expenses (including
the cost of revenues).
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4. Section 3(b)(2) of the Act provides that, notwithstanding
section 3(a)(1)(C) of the Act, the Commission may issue an order
declaring an issuer to be primarily engaged in a business or businesses
other than that of investing, reinvesting, owning, holding, or trading
in securities either directly or through majority-owned subsidiaries or
through controlled companies conducting similar types of businesses.
Dolby requests an order under section 3(b)(2) of the Act declaring that
it is primarily engaged in a business other than that of investing,
reinvesting, owning, holding or trading in securities, and therefore
not an investment company as defined in the Act.
5. In determining whether a company is primarily engaged in a non-
investment company business under section 3(b)(2), the Commission
considers: (a) The issuer's historical development; (b) its public
representations of policy; (c) the activities of its officers and
directors; (d) the nature of its present assets; and (e) the sources of
its present income.\3\
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\3\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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a. Historical Development. Dolby states that since its founding in
1965, it has been engaged in delivering products and technologies that
are employed throughout the entertainment creation, distribution and
playback process to enhance the entertainment experience. In recent
years, Dolby has expanded its focus on developing and delivering new
audio and video technologies that enhance the entertainment experience.
Dolby's revenue comes almost exclusively from its licensing, sales and
services of its technologies to manufacturers of consumer electronics
products and software vendors.
b. Public Representations of Policy. Dolby states that it has never
represented that it is involved in any business other than developing
and delivering products and technologies for the entertainment
creation, distribution and playback process. Dolby asserts that it has
consistently stated in its annual reports, stockholder letters,
prospectuses, filings with the Commission, press releases, marketing
materials, and website that it is engaged in the business of developing
and delivering products and technology that improve the entertainment
experience. Dolby states that it generally does not make public
representations regarding its investment securities except as required
by its obligation to file periodic reports to comply with federal
securities laws. Dolby further states that it has emphasized operating
results and has never emphasized either its investment income or the
possibility of significant appreciation from its cash management
investment strategies as a material factor in its business or future
growth.
c. Activities of Officers and Directors. Dolby states that its
directors spend substantially all of their time as directors for Dolby
overseeing Dolby's business of developing and delivering products and
technologies for the entertainment creation, distribution and playback
process. Dolby states that its executive officers spend substantially
all of their time managing Dolby's business of developing and
delivering innovative products and technologies that are used
throughout the entertainment industry. Dolby's Chief Financial Officer
spends less than 5% of his time monitoring Dolby's cash balances and
managing short-term investment securities in accordance with Dolby's
investment policies. None of Dolby's executive officers, other than the
Chief Financial Officer, spend time monitoring cash balances and
managing short-term investment securities.
As of September 25, 2009, Dolby had approximately 1,135 employees
in locations throughout the world, consisting of 388 employees in sales
and marketing, 421 employees in products and technology (including 345
employees in research and development) and 326 employees in general and
administrative functions. In addition to the Chief Financial Officer,
only three employees spend a small portion of time on matters relating
to the management of Dolby's investment securities: The Vice President,
Tax and Treasury spends less than 10% of his time on investment
matters. The Director of Treasury spends about one-third of her time on
investment matters and the Treasury Manager spends approximately 20% of
his time on investment matters.
d. Nature of Assets. Dolby states that as of June 25, 2010, the
value of its investment securities (as defined in section 3(a)(2) of
the Act) was approximately $411 million, which constituted
approximately 39.2% of its total assets on a consolidated basis
(exclusive of Government securities and cash items) in accordance with
rule 3a-1.\4\ Dolby states that its investments in ``investment
securities'' that are not Capital Preservation Instruments will be no
more than 10 percent of its total assets (other than Government
securities and cash items) on a consolidated basis. Dolby further
states that it owns, through its wholly-owned subsidiaries, a
significant amount of intangible assets, including internally-developed
intellectual property. Dolby states that notwithstanding the value of
its internally-developed intellectual property to its business, that
value is not recorded on Dolby's consolidated balance sheet as it is
not treated as an asset under Generally Accepted Accounting Principles.
Dolby also states that the asset tests used in connection with sections
3(a)(1)(C), 3(b)(1) and 3(b)(2) of the Act and rule 3a-1 under the Act
thus significantly understate the relative value of Dolby's internally-
developed intellectual property assets and significantly overstate the
relative value of investment securities.
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\4\ For purposes of determining its primary business, Dolby
believes that consolidating its financial results with those of its
wholly-owned subsidiaries presents a more accurate view of Dolby's
business and financial position and a more reliable basis for
evaluating its assets and income.
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e. Sources of Income and Revenue. Dolby states that for the four
fiscal quarters ended June 25, 2010, most of Dolby's net income before
taxes was generated by its operating activities. At the end of the
third quarter of fiscal 2010, Dolby had net income of $405 million for
the last four fiscal quarters combined, of which net investment income
was $8 million or 2% of income before taxes. Dolby states that the
overwhelming majority of its income is
[[Page 62159]]
operating income generated by its licensing and products and services
sales activities.
6. Dolby thus asserts that it satisfies the standards for an order
under section 3(b)(2) of the Act.
Applicant's Conditions:
Dolby agrees that any order granted pursuant to the application
will be subject to the following conditions:
1. Dolby will continue to allocate and utilize its accumulated cash
and investment securities for bona fide business purposes.
2. Dolby will refrain from investing or trading in securities for
short-term speculative purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25292 Filed 10-6-10; 8:45 am]
BILLING CODE 8011-01-P
