Document ID: SEC-2006-0122-0001
Agency: sec
Document Type: Notice
Title: Hutchinson Technology Incorporated; Notice of Application
Posted Date: 2006-02-01T05:00Z

[Federal Register: February 1, 2006 (Volume 71, Number 21)]
[Notices]               
[Page 5388-5390]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe06-160]                         

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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'').

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    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\
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    \1\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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    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