Applied Materials, Inc.; Notice of Application, 55180-55182 [05-18614]
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55180
Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices
the Exchange Act,7 the Commission may
summarily abrogate the change in the
rules of the self-regulatory organization
and require that the proposed rule
change be re-filed in accordance with
the provisions of Section 19(b)(1) of the
Exchange Act 8 and reviewed in
accordance with Section 19(b)(2) of the
Exchange Act,9 if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors
or otherwise in furtherance of the
purposes of the Exchange Act.
The Commission has received three
comment letters in response to the
proposed rule change.10 The substance
of the comment letters calls into
question the ‘‘non-controversial’’
designation of the proposal.
Accordingly, the Commission believes
that the procedures provided by Section
19(b)(2) of the Exchange Act 11 will
provide a more appropriate mechanism
for determining whether the proposed
rule change is consistent with the
Exchange Act. Therefore, the
Commission finds that it is appropriate
in the public interest, for the protection
of investors, and otherwise in
furtherance of the purposes of the
Exchange Act, to abrogate the proposed
rule change.
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Exchange
Act,12 that File No. SR–NASD–2005–
093 be, and it hereby is, summarily
abrogated. If the NASD chooses to re-file
the proposed rule change, it must do so
pursuant to Sections 19(b)(1) 13 and
19(b)(2) of the Exchange Act.14
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Jonathan G. Katz,
Secretary.
[FR Doc. 05–18667 Filed 9–19–05; 8:45 am]
BILLING CODE 8010–01–P
7 15
U.S.C. 78s(b)(1).
8 Id.
9 15
U.S.C. 78s(b)(2).
letter from Ira D. Hammerman, Senior Vice
President and General Counsel, Securities Industry
Association, to Jonathan G. Katz, Secretary,
Commission, dated Aug. 24, 2005; letter from Julian
Rainero, Bingham McCutchen LLP, to Jonathan G.
Katz, Secretary, Commission, dated Aug. 24, 2005;
letter from Shane E. Swanson, General Counsel,
Automated Trading Desk, LLC, to Jonathan Katz,
Secretary, Commission, dated Aug. 24, 2005.
11 Id.
12 15 U.S.C. 78s(b)(3)(C).
13 15 U.S.C. 78s(b)(1).
14 15 U.S.C. 78s(b)(2).
15 17 CFR 200.30–3(a)(58).
10 See
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SECURITIES AND EXCHANGE
COMMISSION
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
[Investment Company Act Release No.
27064; 812–12868]
Applicant’s Representations
1. Applied, a Delaware corporation, is
in the business of developing,
manufacturing, marketing and servicing
integrated circuit fabrication equipment.
Customers for Applied’s products
include semiconductor wafer
manufacturers and semiconductor
integrated circuit, or ‘‘chip’’
manufacturers such as Intel, Texas
Instruments and IBM. Applied
represents that these chips are key
components in most advanced
electronic devices and that the push to
make these devices more powerful,
portable and affordable spurs a rapid
pace of technological change in the
semiconductor industry. Applied states
that in the past 23 years, it has
introduced over 100 major products.
2. Applied states that it requires
substantial liquid capital to fund its
global infrastructure, manufacturing and
service activities, and to continue its
research, development and engineering
programs. Applied also intends to use
its liquid capital to support other
business and strategic objectives by
acquiring and investing in businesses
with complementary products, services
and/or technologies. In addition to
being capital intensive, Applied states
that the integrated circuit fabrication
equipment industry is subject to volatile
business cycles due to the rapid pace of
technological developments and
changes in global and regional economic
conditions. Applied 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’’). Applied’s board of
directors oversees Applied’s investment
practices and defines the parameters for
investment activities. Applied states
that it does not invest in securities for
short-term speculative purposes.
Applied Materials, Inc.; Notice of
Application
September 13, 2005.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application under
section 3(b)(2) of the Investment
Company Act of 1940 (the ‘‘Act’’).
AGENCY:
Applied
Materials, Inc. (‘‘Applied’’) 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. Applied, directly and
through its wholly-owned subsidiaries,
develops, manufactures, markets and
services integrated circuit fabrication
equipment.
FILING DATES: The application was filed
on August 14, 2002, and amended on
February 28, 2005, May 31, 2005 and
September 6, 2005.
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 11, 2005, 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 20549–9303.
Applicant, 3050 Bowers Ave., P.O. Box
58039, Santa Clara, CA 95054.
FOR FURTHER INFORMATION CONTACT: Julia
Kim Gilmer, Senior Counsel, at (202)
551–6871, or Janet M. Grossnickle,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
SUMMARY OF APPLICATION:
The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Desk,
SUPPLEMENTARY INFORMATION:
PO 00000
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Applicant’s Legal Analysis
1. Applied 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
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Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices
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.
Applied states that as of January 30,
2005, approximately 50% 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. Applied states that it cannot
rely upon rule 3a–1 under the Act
because as of January 30, 2005, such
other securities exceeded 45% of its
total assets. Applied 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
semiconductor industry. The cyclical
nature of the industry, rather than any
change in Applied’s business or
financial management policies, has led
to significant variations in the ratio of
Applied’s income from investment
securities relative to net operating
income.
4. Rule 3a–8 under the Act provides
an exemption from the definition of
investment company if, among other
factors, a company’s research and
development expenses are a substantial
percentage of its total expenses for the
last four fiscal quarters combined. While
Applied believes it could satisfy the
other factors in the rule, Applied’s
research and development expenses
have fluctuated from year to year due to
the cyclical nature of the industry.
During the 2000 through 2004 fiscal
years, Applied’s research and
development expenses have varied,
ranging from approximately 16% to
22% of its total expenses, including cost
of goods sold. Applied’s ratio of
research and development expenses to
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total expenses thus may be deemed a
‘‘substantial percentage’’ in certain
years, but not others. Applied presently
cannot rely on rule 3a–8 because its
research and development expenses for
the last four fiscal quarters ended on
January 30, 2005 represented
approximately 16% of its total expenses,
including cost of goods sold.
5. 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, through
majority-owned subsidiaries. Applied
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.
6. 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.1
a. Historical Development. Applied
states that since its inception in 1967 it
has, directly and through its whollyowned subsidiaries, developed into the
largest supplier of products and services
to the global semiconductor industry.
Applied states that it currently
manufactures systems that perform a
majority of the steps in the
semiconductor integrated circuit
fabrication process and also provides
products and services that enhance
manufacturing yields. Customers for
Applied’s products include
semiconductor wafer manufacturers and
semiconductor integrated circuit, or
‘‘chip’’ manufacturers such as Intel,
Texas Instruments and IBM. Applied
further states that in the past 23 years,
it has introduced over 100 major
products. Applied states that it has not
sold any of its subsidiaries in over 20
years and that these sales were
conducted for reasons related to its
business as a supplier of integrated
circuit fabrication equipment and
services.
b. Public Representations of Policy.
Applied states that it has never
represented that it is involved in any
business other than developing,
1 Tonopah Mining Company of Nevada, 26 SEC
426, 427 (1947).
PO 00000
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55181
manufacturing, marketing and servicing
integrated circuit fabrication equipment.
Applied asserts that it has consistently
stated in its annual reports, stockholder
letter, prospectuses, filings with the
Commission, press releases, marketing
materials and website that it is the
largest supplier of products and services
to the global semiconductor industry.
Applied 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. Applied 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.
Applied states that its directors and
officers spend substantially all of their
time managing Applied’s business of
developing, manufacturing, marketing
and servicing integrated circuit
fabrication equipment. Nine out of
Applied’s ten directors have extensive
experience in the semiconductor or
electronics industries. The remaining
director is experienced in government
and academia. Applied’s directors
spend less than 1% of their time on
investment-related matters. Applied’s
chief financial officer spends less than
10% of her time monitoring Applied’s
cash balances and managing short-term
investment securities in accordance
with Applied’s investment policies. Out
of Applied’s approximately thirty senior
officers, only two (other than the chief
financial officer) spend time monitoring
cash balances and managing short-term
investment securities; the treasurer
spends less than 30% of his time and
the corporate controller spends less than
5% of her time on such activities.
Applied has approximately 13,000 fulltime employees in approximately 80
locations throughout the world. In
addition to the officers discussed above,
only three other employees spend their
time on matters relating to the
management of Applied’s investment
securities; the rest of Applied’s
employees are involved in product
design and engineering, manufacturing,
customer technical support, supplier
and materials management, sales and
marketing, finance and corporate
services, human resources,
environmental, health and safety issues,
global security, information technology,
transactional and corporate legal
services and protection and enforcement
of intellectual property rights.
d. Nature of Assets. Applied states
that as of January 30, 2005 its
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Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices
investment securities (as defined in
Section 3(a)(2) of the Act) of $5.1 billion
constituted approximately 48% of
Applied’s total assets (excluding
Government securities and cash items),
consolidated with its wholly-owned
subsidiaries.2 More than 99% of
Applied’s investment securities
consisted of Capital Preservation
Investments. Applied’s remaining
investment securities consisted of
investments in businesses with
complementary products, services and/
or technologies and an interest in a
limited partnership that invests in earlystage companies involving
nanotechnology and/or communications
technology. Applied anticipates that its
investment securities other than Capital
Preservation Investments will not
exceed 10% of Applied’s total
consolidated assets (excluding
Government securities and cash items)
in the future. Applied further states that
a significant portion of its assets consist
of intangible assets such as internallydeveloped intellectual property that are
not included in the value of Applied’s
total assets for purposes of determining
Applied’s status under the Act. Applied
states that the asset tests used in
connection with sections 3(a)(1)(c) and
3(b) of the Act therefore significantly
understate the relative value of
Applied’s non-investment security
assets.
e. Sources of Income and Revenue.
Applied states that for the four quarters
ended January 30, 2005, its operating
activities produced 94% of its net
income after taxes, while its investment
securities produced 6% of its net
income on a tax-equivalent basis.
However, for the fiscal year ended
October 26, 2003, Applied had
operating losses while deriving net
income from its investment securities.
Applied states that its net income does
not always accurately reflect its
operating activities since its net income
fluctuates unpredictably with the cycles
of the semiconductor industry. Applied
thus believes that its activities as an
2 Applied states that consolidation provides a
more accurate picture of its primary business of
developing, manufacturing, marketing and servicing
integrated circuit fabrication equipment because
Applied does not have any independent business
operations separate from the activities of its whollyowned subsidiaries. Applied has not sold any
subsidiaries in over 20 years, and those sales were
related to its business as a supplier of integrated
circuit fabrication equipment and services. Since
the subsidiaries being consolidated are all whollyowned, consolidation will not result in the type of
distortions that could result from consolidating
other types of subsidiaries. Applied also has a 50%
owned subsidiary that is dormant, has no
operations and has not been consolidated for
purposes of determining Applied’s status under the
Act.
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operating company are more
appropriately analyzed by looking at its
revenues. Applied states that, for the
four quarters ending January 30, 2005,
its revenues from operations 3
represented approximately 99% of its
total revenues, and its revenues from
investments, or net investment income,
represented approximately 1% of its
total revenues. Applied expects that as
its business continues in the future, the
percentage of its total revenues derived
from operating activities will ordinarily
be over 90% and the percentage derived
from investments will ordinarily be
under 10%.
7. Applied thus asserts that it satisfies
the standards for an order under section
3(b)(2) of the Act.
Applicant’s Conditions
1. Applied will continue to allocate
and use its accumulated cash and
investment securities for bona fide
business purposes.
2. Applied 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–18614 Filed 9–19–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27066; 813–357]
Peter Kiewit Sons’, Inc. and Kiewit
Investment Fund LLLP; Notice of
Application
September 14, 2005.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(b) of the
Investment Company Act of 1940 (the
‘‘Act’’) granting an exemption from
section 15(a) of the Act and the rules
and regulations thereunder.
AGENCY:
Applicants request an order to permit
the board of directors of an ‘‘employees’’
securities company’’ as defined in
section 2(a)(13) of the Act to enter into
and materially amend investment
3 For the reasons stated above, revenues of
Applied’s wholly-owned subsidiaries were
consolidated for purposes of this discussion.
Applied consolidates its wholly-owned subsidiaries
when preparing its financial statements in
accordance with Generally Accepted Accounting
Principles.
Frm 00083
Fmt 4703
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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).
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
SUMMARY OF THE APPLICATION:
PO 00000
advisory contracts without the approval
of holders of the company’s outstanding
voting securities.
APPLICANTS: Peter Kiewit Sons’’, Inc.
(‘‘Kiewit’’) and Kiewit Investment Fund
LLLP (the ‘‘Fund’’).
FILING DATES: The application was filed
on July 25, 2005 and amended on
August 29, 2005 and September 13,
2005.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application 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 11, 2005, 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. Applicants, Tobin A. Schropp,
Peter Kiewit Sons’, Inc., Kiewit Plaza,
Omaha, Nebraska, 68131 and Robert A.
Giles, Jr., Kiewit Investment Fund LLLP,
73 Tremont Street, Boston
Massachusetts 02108.
FOR FURTHER INFORMATION CONTACT:
Shannon Conaty, Senior Counsel, at
(202) 551–6827 or Janet M. Grossnickle,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
1. Kiewit, a Delaware corporation, is
a large construction contractor operating
primarily in the North American
market. Through various subsidiaries,
joint ventures and partnerships, Kiewit
provides construction services to a
broad range of public and private
customers. It also owns and operates
several coal mining operations.
Pursuant to the terms of its
organizational documents, Kiewit’s
common stock (‘‘Kiewit Stock’’)
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]]>Agencies
[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Notices]
[Pages 55180-55182]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18614]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27064; 812-12868]
Applied Materials, Inc.; Notice of Application
September 13, 2005.
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: Applied Materials, Inc. (``Applied'') 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. Applied, directly and through
its wholly-owned subsidiaries, develops, manufactures, markets and
services integrated circuit fabrication equipment.
Filing Dates: The application was filed on August 14, 2002, and amended
on February 28, 2005, May 31, 2005 and September 6, 2005.
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 11, 2005, 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 20549-9303. Applicant, 3050 Bowers Ave., P.O. Box
58039, Santa Clara, CA 95054.
FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at
(202) 551-6871, or Janet M. Grossnickle, 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 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. Applied, a Delaware corporation, is in the business of
developing, manufacturing, marketing and servicing integrated circuit
fabrication equipment. Customers for Applied's products include
semiconductor wafer manufacturers and semiconductor integrated circuit,
or ``chip'' manufacturers such as Intel, Texas Instruments and IBM.
Applied represents that these chips are key components in most advanced
electronic devices and that the push to make these devices more
powerful, portable and affordable spurs a rapid pace of technological
change in the semiconductor industry. Applied states that in the past
23 years, it has introduced over 100 major products.
2. Applied states that it requires substantial liquid capital to
fund its global infrastructure, manufacturing and service activities,
and to continue its research, development and engineering programs.
Applied also intends to use its liquid capital to support other
business and strategic objectives by acquiring and investing in
businesses with complementary products, services and/or technologies.
In addition to being capital intensive, Applied states that the
integrated circuit fabrication equipment industry is subject to
volatile business cycles due to the rapid pace of technological
developments and changes in global and regional economic conditions.
Applied 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''). Applied's board of directors oversees Applied's
investment practices and defines the parameters for investment
activities. Applied states that it does not invest in securities for
short-term speculative purposes.
Applicant's Legal Analysis
1. Applied 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
[[Page 55181]]
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. Applied states that as of January 30, 2005, approximately 50%
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. Applied states that it cannot rely upon rule 3a-1 under the
Act because as of January 30, 2005, such other securities exceeded 45%
of its total assets. Applied 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
semiconductor industry. The cyclical nature of the industry, rather
than any change in Applied's business or financial management policies,
has led to significant variations in the ratio of Applied's income from
investment securities relative to net operating income.
4. Rule 3a-8 under the Act provides an exemption from the
definition of investment company if, among other factors, a company's
research and development expenses are a substantial percentage of its
total expenses for the last four fiscal quarters combined. While
Applied believes it could satisfy the other factors in the rule,
Applied's research and development expenses have fluctuated from year
to year due to the cyclical nature of the industry. During the 2000
through 2004 fiscal years, Applied's research and development expenses
have varied, ranging from approximately 16% to 22% of its total
expenses, including cost of goods sold. Applied's ratio of research and
development expenses to total expenses thus may be deemed a
``substantial percentage'' in certain years, but not others. Applied
presently cannot rely on rule 3a-8 because its research and development
expenses for the last four fiscal quarters ended on January 30, 2005
represented approximately 16% of its total expenses, including cost of
goods sold.
5. 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, through majority-owned subsidiaries.
Applied 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.
6. 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. Applied states that since its inception
in 1967 it has, directly and through its wholly-owned subsidiaries,
developed into the largest supplier of products and services to the
global semiconductor industry. Applied states that it currently
manufactures systems that perform a majority of the steps in the
semiconductor integrated circuit fabrication process and also provides
products and services that enhance manufacturing yields. Customers for
Applied's products include semiconductor wafer manufacturers and
semiconductor integrated circuit, or ``chip'' manufacturers such as
Intel, Texas Instruments and IBM. Applied further states that in the
past 23 years, it has introduced over 100 major products. Applied
states that it has not sold any of its subsidiaries in over 20 years
and that these sales were conducted for reasons related to its business
as a supplier of integrated circuit fabrication equipment and services.
b. Public Representations of Policy. Applied states that it has
never represented that it is involved in any business other than
developing, manufacturing, marketing and servicing integrated circuit
fabrication equipment. Applied asserts that it has consistently stated
in its annual reports, stockholder letter, prospectuses, filings with
the Commission, press releases, marketing materials and website that it
is the largest supplier of products and services to the global
semiconductor industry. Applied 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. Applied 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. Applied states that its
directors and officers spend substantially all of their time managing
Applied's business of developing, manufacturing, marketing and
servicing integrated circuit fabrication equipment. Nine out of
Applied's ten directors have extensive experience in the semiconductor
or electronics industries. The remaining director is experienced in
government and academia. Applied's directors spend less than 1% of
their time on investment-related matters. Applied's chief financial
officer spends less than 10% of her time monitoring Applied's cash
balances and managing short-term investment securities in accordance
with Applied's investment policies. Out of Applied's approximately
thirty senior officers, only two (other than the chief financial
officer) spend time monitoring cash balances and managing short-term
investment securities; the treasurer spends less than 30% of his time
and the corporate controller spends less than 5% of her time on such
activities. Applied has approximately 13,000 full-time employees in
approximately 80 locations throughout the world. In addition to the
officers discussed above, only three other employees spend their time
on matters relating to the management of Applied's investment
securities; the rest of Applied's employees are involved in product
design and engineering, manufacturing, customer technical support,
supplier and materials management, sales and marketing, finance and
corporate services, human resources, environmental, health and safety
issues, global security, information technology, transactional and
corporate legal services and protection and enforcement of intellectual
property rights.
d. Nature of Assets. Applied states that as of January 30, 2005 its
[[Page 55182]]
investment securities (as defined in Section 3(a)(2) of the Act) of
$5.1 billion constituted approximately 48% of Applied's total assets
(excluding Government securities and cash items), consolidated with its
wholly-owned subsidiaries.\2\ More than 99% of Applied's investment
securities consisted of Capital Preservation Investments. Applied's
remaining investment securities consisted of investments in businesses
with complementary products, services and/or technologies and an
interest in a limited partnership that invests in early-stage companies
involving nanotechnology and/or communications technology. Applied
anticipates that its investment securities other than Capital
Preservation Investments will not exceed 10% of Applied's total
consolidated assets (excluding Government securities and cash items) in
the future. Applied further states that a significant portion of its
assets consist of intangible assets such as internally-developed
intellectual property that are not included in the value of Applied's
total assets for purposes of determining Applied's status under the
Act. Applied states that the asset tests used in connection with
sections 3(a)(1)(c) and 3(b) of the Act therefore significantly
understate the relative value of Applied's non-investment security
assets.
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\2\ Applied states that consolidation provides a more accurate
picture of its primary business of developing, manufacturing,
marketing and servicing integrated circuit fabrication equipment
because Applied does not have any independent business operations
separate from the activities of its wholly-owned subsidiaries.
Applied has not sold any subsidiaries in over 20 years, and those
sales were related to its business as a supplier of integrated
circuit fabrication equipment and services. Since the subsidiaries
being consolidated are all wholly-owned, consolidation will not
result in the type of distortions that could result from
consolidating other types of subsidiaries. Applied also has a 50%
owned subsidiary that is dormant, has no operations and has not been
consolidated for purposes of determining Applied's status under the
Act.
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e. Sources of Income and Revenue. Applied states that for the four
quarters ended January 30, 2005, its operating activities produced 94%
of its net income after taxes, while its investment securities produced
6% of its net income on a tax-equivalent basis. However, for the fiscal
year ended October 26, 2003, Applied had operating losses while
deriving net income from its investment securities. Applied states that
its net income does not always accurately reflect its operating
activities since its net income fluctuates unpredictably with the
cycles of the semiconductor industry. Applied thus believes that its
activities as an operating company are more appropriately analyzed by
looking at its revenues. Applied states that, for the four quarters
ending January 30, 2005, its revenues from operations \3\ represented
approximately 99% of its total revenues, and its revenues from
investments, or net investment income, represented approximately 1% of
its total revenues. Applied expects that as its business continues in
the future, the percentage of its total revenues derived from operating
activities will ordinarily be over 90% and the percentage derived from
investments will ordinarily be under 10%.
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\3\ For the reasons stated above, revenues of Applied's wholly-
owned subsidiaries were consolidated for purposes of this
discussion. Applied consolidates its wholly-owned subsidiaries when
preparing its financial statements in accordance with Generally
Accepted Accounting Principles.
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7. Applied thus asserts that it satisfies the standards for an
order under section 3(b)(2) of the Act.
Applicant's Conditions
1. Applied will continue to allocate and use its accumulated cash
and investment securities for bona fide business purposes.
2. Applied 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 05-18614 Filed 9-19-05; 8:45 am]
BILLING CODE 8010-01-P
