[Federal Register Volume 71, Number 21 (Wednesday, February 1, 2006)]
[Notices]
[Pages 5388-5390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1226]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27215; 812-13008]
Hutchinson Technology Incorporated; Notice of Application
January 25, 2006.
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: Hutchinson Technology Incorporated
(``HTI'') 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. HTI, directly
and through its wholly-owned subsidiaries, develops, manufactures,
markets and services suspension assemblies for hard disk drives.
Filing Dates: The application was filed on August 18, 2003, and
amended on October 23, 2003 and January 23, 2006.
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 February 21, 2006, 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, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-9303. Applicant, c/o John A.
Ingleman, Vice President and Chief Financial Officer, 40 W. Highland
Park Dr. NE., Hutchinson, Minnesota 55350.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)
551-6813, or Nadya B. Roytblat, Assistant Director, 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 for a fee at the
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicant's Representations
1. HTI, a Minnesota corporation, is in the business of developing,
manufacturing, marketing and servicing suspension assemblies for hard
disk drives. HTI estimates that it produces a majority of all
suspension assemblies sold to disk drive manufacturers and their
suppliers, including recording head manufacturers, worldwide. HTI
represents that suspension assemblies are critical components of disk
drives that hold the recording heads in position above the spinning
magnetic disks. In addition to HTI's suspension assembly products, HTI
has developed a medical device that uses an optical technology to
measure local oxygen saturation of hemoglobin in tissue.
2. HTI states that it requires substantial liquid capital to fund
its global operations, including research and development activities
and capital expenditures. HTI states that the disk drive industry is
subject to rapid technological change, and HTI's ability to remain
competitive depends on, among other things, its ability to anticipate
and respond to these changes. As a result, HTI has devoted and will
continue to devote substantial resources to product development and
process engineering efforts. HTI also requires substantial liquid
capital for capital expenditures. HTI expects that it will need to make
substantial capital expenditures over the next several years to remain
at the forefront of industry technology transitions. In particular,
technology transitions in the disk drive industry require HTI to
dramatically increase its level of capital expenditures. HTI also
states that demand for disk drives is subject to rapid or unforeseen
changes resulting from, among other things, changes in disk drive
inventory levels, technological advances, responses to competitive
price changes and unpredicted high or low market
[[Page 5389]]
acceptance of new drive models. HTI seeks to preserve its capital and
maintain liquidity, pending the use of such capital for its current and
future operations, by investing in short-term investment grade and
liquid fixed income and money market investments that earn competitive
market returns and provide a low level of credit risk (``Capital
Preservation Investments''). HTI's board of directors (``Board of
Directors'') oversees HTI's investment practices and defines the
parameters for investment activities. HTI states that it does not
invest in securities for short-term speculative purposes.
Applicant's Legal Analysis
1. HTI 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. HTI states that as of September 25, 2005, approximately 15.8%
of its total assets (exclusive of government securities and cash
items), on an unconsolidated basis, consisted of investment securities
as defined in section 3(a)(2) of the Act.
3. Rule 3a-1 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. HTI states that it cannot rely upon rule 3a-1 under the Act
because such other securities frequently exceed 45% of its total
assets. For example, in the second and third quarters of fiscal 2004,
had all HTI's available liquid capital other than cash required for
immediate use been invested in such other securities, the percentage of
HTI's total assets represented by such securities would have been 46.3%
and 46.6%, respectively. HTI further states that it cannot rely on rule
3a-1 because the percentage of its net income derived from investment
securities fluctuates unpredictably with the cycles of the disk drive
industry. HTI states that the cyclical nature of the industry, rather
than any change in HTI's business or financial management policies, has
led to significant variations in the ratio of HTI's income from
investment securities relative to net operating income.
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.
HTI 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.\1\
---------------------------------------------------------------------------
\1\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
---------------------------------------------------------------------------
a. Historical Development. HTI was incorporated in 1965 in
Minnesota, and conducted its initial public offering in 1985. Until
1976, HTI derived a substantial portion of its revenues from
photoetching and from laminating precision components primarily for use
by original equipment manufacturers in the computer peripheral
industry. In 1976, HTI began adding laser welding steps to the
production of some components, and by 1979 had developed significant
abilities in precision forming as well. In 1982, HTI began to use its
forming and welding processes, in combination with proprietary cleaning
processes, to manufacture suspension assemblies for both Winchester and
the newer Thin-Film technology disk drives. In the late 1980s, HTI's
revenue began to come almost exclusively from the sale of suspension
assemblies, and HTI has continued to focus on suspension assembly sales
and development ever since.
b. Public Representations of Policy. HTI states that it has
consistently represented itself as a company that manufactures and
sells products for the disk drive industry, rather than a company
focused on investments.
c. Activities of Officers and Directors. HTI states that its Board
of Directors has eight members who focus on maintaining HTI's position
as a leading supplier of suspension assemblies. HTI's Investment Goals
and Guidelines require the Board of Directors to review them at least
annually. Historically, the Board has approved the guidelines on an
annual basis. Aside from these activities, none of HTI's directors is
involved with HTI's investments for any significant amount of time.
HTI's treasurer and chief financial officer are the only officers who
devote time to HTI's investments. An estimated 5% of the treasurer's
time and 1% of the chief financial officer's time is spent on
investment-related work, and HTI expects that this will continue to be
the case if the requested order is granted. HTI currently has
approximately 5,300 regular employees working in its four domestic
manufacturing plants and overseas.
d. Nature of Assets. As of September 25, 2005, approximately 15.8%
of the value (as defined in section 2(a)(41)(A) of the Act) of HTI's
total assets (excluding government securities and cash items), on an
unconsolidated basis consisted of investment securities.
e. Sources of Income and Revenue. Applicant states that since the
late 1980s, it has derived virtually all of its revenue, and net income
after taxes, from the sale of suspension assemblies. For fiscal 2005,
net income after taxes from investments was 10.3% of HTI's total net
income after taxes. Net income after taxes from investments (including
government securities, money market fund shares and interest on cash
balances) was 9.5%, 6.8% and 35.4% of HTI's total net income after
taxes in fiscal 2004, 2003 and 2002, respectively. In addition, for
fiscal 2005, revenue from investments was only 1.2% of HTI's total
revenue. In fiscal 2004, 2003 and 2002, revenue from investments was
only 1.0%, 1.2%, and 1.8% of total revenue. HTI submits that an
analysis of the sources of its revenue (especially in periods where HTI
reported net losses) provides a more meaningful, and even more
compelling, picture of the nature and extent of HTI's primary business
operations. In the future, HTI expects substantially all of its
revenues to come
[[Page 5390]]
from operations and less than 2% from investment securities.
6. HTI thus asserts that it satisfies the standards for an order
under section 3(b)(2) of the Act.
Applicant's Conditions
1. HTI will continue to allocate and utilize its accumulated cash
and investments for bona fide business purposes.
2. HTI 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.
Nancy M. Morris,
Secretary.
[FR Doc. E6-1226 Filed 1-31-06; 8:45 am]
BILLING CODE 8010-01-P