Securities and Exchange Commission (“Commission”).
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.
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.Start Further Info
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).End Further Info End Preamble Start Supplemental 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).
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 Start Printed Page 5389acceptance 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.
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 Start Printed Page 5390from 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.
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.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Nancy M. Morris,
1. Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).Back to Citation
[FR Doc. E6-1226 Filed 1-31-06; 8:45 am]
BILLING CODE 8010-01-P