UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-34838

Hutchinson Technology Incorporated

(Exact name of registrant as specified in its charter)

Minnesota		41-0901840
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
40 West Highland Park Drive N.E.
Hutchinson, Minnesota		55350
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

   Yes    þ    No    o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

   Yes    o    No    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

   Yes    o    No    þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 3, 2010, the registrant had 23,362,468 shares of Common Stock issued and outstanding.

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
(In thousands, except shares and per share data)

		June 27,				September 27,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	53,596			$	106,391
Short-term investments, including $4,172 and $3,031 restricted (Note 4)			114,336				96,316
Trade receivables, net			46,051				63,448
Other receivables			7,845				8,445
Inventories			55,620				46,878
Other current assets			2,602				4,932
Total current assets			280,050				326,410
Long-term investments (Note 4)			—				24,316
Property, plant and equipment, net			261,139				279,336
Other assets			4,635				5,425
		$	545,824			$	635,487
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Current liabilities:
Current maturities of long-term debt		$	35,224			$	102,804
Accounts payable			21,491				17,536
Accrued expenses			9,873				11,183
Accrued compensation and benefits			14,326				13,139
Total current liabilities			80,914				144,662
Convertible subordinated notes			172,755				166,464
Long-term debt, less current maturities			—				946
Other long-term liabilities			1,165				1,705
Shareholders’ investment:
Common stock, $.01 par value, 100,000,000 shares authorized, 23,362,000 and 23,359,000 issued and outstanding			234				234
Additional paid-in capital			421,638				418,572
Accumulated other comprehensive income			587				2,503
Accumulated loss			(131,469	)			(99,599	)
Total shareholders’ investment			290,990				321,710
		$	545,824			$	635,487

See accompanying notes to condensed consolidated financial statements — unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(In thousands, except per share data)

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		June 27,				June 28,				June 27,				June 28,
		2010				2009 (1)				2010				2009 (1)
						(as adjusted)								(as adjusted)
Net sales		$	77,293			$	106,105			$	273,163			$	304,780
Cost of sales (Note 9)			72,386				104,128				240,164				314,710
Gross profit (loss)			4,907				1,977				32,999				(9,930	)
Research and development expenses (Note 9)			5,553				5,723				16,136				22,060
Selling, general and administrative expenses (Note 9)			14,686				13,302				40,386				44,652
Severance and other expenses (Note 8)			—				4,894				—				29,208
Asset impairment charge (Note 9)			—				20,841				—				71,809
Loss from operations			(15,332	)			(42,783	)			(23,523	)			(177,659	)
Other income, net			437				433				1,257				1,043
Interest income			304				689				1,241				2,876
Gain on extinguishment of debt			—				1,923				6				14,098
Interest expense			(3,865	)			(5,033	)			(12,224	)			(15,109	)
Gain (loss) on short- and long-term investments			37				223				(319	)			4,133
Loss before income taxes			(18,419	)			(44,548	)		$	(33,562	)		$	(170,618	)
Provision (benefit) for income taxes			81				(215	)		$	(1,692	)		$	(154	)
Net loss		$	(18,500	)		$	(44,333	)		$	(31,870	)		$	(170,464	)
Basic loss per share		$	(0.79	)		$	(1.90	)		$	(1.36	)		$	(7.36	)
Diluted loss per share		$	(0.79	)		$	(1.90	)		$	(1.36	)		$	(7.36	)
Weighted-average common shares outstanding			23,362				23,346				23,360				23,167
Weighted-average common and diluted shares outstanding			23,362				23,346				23,360				23,167

See accompanying notes to condensed consolidated financial statements — unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)

		Thirty-Nine Weeks Ended
		June 27,				June 28,
		2010				2009(1)
						(as adjusted)
OPERATING ACTIVITIES:
Net loss		$	(31,870	)		$	(170,464	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization			41,457				61,515
Stock-based compensation			3,039				4,054
Benefit for deferred tax assets			—				(67	)
Loss (gain) on short- and long-term investments			319				(4,134	)
Loss (gain) on disposal of assets			11				(355	)
Severance and other expenses (Note 8)			—				2,155
Asset impairment charge (Note 9)			2,294				71,669
Non-cash interest expense			6,290				6,570
Gain on extinguishment of debt			(6	)			(14,098	)
Changes in operating assets and liabilities			12,696				55,339
Cash provided by operating activities			34,230				12,184
INVESTING ACTIVITIES:
Capital expenditures			(22,690	)			(18,728	)
Purchases of marketable securities			(71,739	)			(19,783	)
Sales/maturities of marketable securities			75,811				124,663
Cash (used for) provided by investing activities			(18,618	)			86,152
FINANCING ACTIVITIES:
Proceeds from issuance of common stock			27				1,458
Repayments of long-term debt			(68,513	)			(71,910	)
Repayments of capital lease			79				—
Proceeds from loan			—				59,161
Cash used for financing activities			(68,407	)			(11,291	)
Net (decrease) increase in cash and cash equivalents			(52,795	)			87,045
Cash and cash equivalents at beginning of period			106,391				62,309
Cash and cash equivalents at end of period		$	53,596			$	149,354
Supplemental cash flow disclosure:
Cash interest paid (net of amount capitalized)		$	3,794			$	5,284
Income taxes paid		$	411			$	173

See accompanying notes to condensed consolidated financial statements — unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Columnar dollar amounts in thousands, except per share amounts)

When we refer to “we,” “our,” “us,” the “company” or “HTI,” we mean Hutchinson Technology Incorporated and its subsidiaries. Unless otherwise indicated, references to “2011” mean our fiscal year ending September 25, 2011, references to “2010” mean our fiscal year ending September 26, 2010, references to “2009” mean our fiscal year ended September 27, 2009, and references to “2008” mean our fiscal year ended September 28, 2008.

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of our management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Although we believe that the disclosures are adequate to make the information presented not misleading, we suggest that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in our latest Annual Report on Form 10-K. The quarterly results are not necessarily indicative of the actual results that may occur for the entire fiscal year.

(2) ACCOUNTING PRONOUNCEMENTS

In May 2008, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidance specifies that convertible debt instruments that may be settled in cash upon conversion shall be separately accounted for by allocating a portion of the fair value of the instrument as a liability and the remainder as equity. The excess of the principal amount of the liability component over its carrying amount shall be amortized to interest cost over the effective term. The provisions of this guidance apply to our 3.25% Convertible Subordinated Notes due 2026 (the “3.25% Notes”), discussed in Note 11 below. We adopted the provisions of this guidance beginning in our first quarter of 2010. This guidance requires us to recognize additional (non-cash) interest expense based on the market rate for similar debt instruments that do not contain a comparable conversion feature. Furthermore, the guidance requires a retrospective adjustment for recognition of interest expense in prior periods. Accordingly, we have made certain adjustments to the presentation of prior periods in our consolidated financial statements. Upon adoption of this guidance we began recording additional (non-cash) interest expense, which we expect will total approximately $8,500,000 to $10,000,000 annually or $2,100,000 to $2,700,000 per quarter in 2010 through 2013.

The adoption of this guidance required us to allocate the original $225,000,000 proceeds received from the issuance of our 3.25% Notes between the applicable debt and equity components. Accordingly, we have allocated $160,584,000 of the proceeds to the debt component of our 3.25% Notes and $40,859,000, net of deferred taxes of $23,557,000, to the equity conversion feature. At September 28, 2008, a full valuation allowance was recorded against our deferred tax assets. During the fourth quarter of 2009, we repurchased $27,500,000 par value of our 3.25% Notes, leaving $197,500,000 par value outstanding. The debt component allocation was based on the estimated fair value of similar debt instruments without a conversion feature as determined by using a discount rate of 8.75%, which represents our estimated borrowing rate for such debt as of the date of our 3.25% Notes issuance. The difference between the cash proceeds associated with our 3.25% Notes and the debt component was recorded as a debt discount with a corresponding offset to additional paid-in-capital, net of applicable deferred taxes, representing the equity conversion feature. The debt discount that we recorded is being amortized over seven years, the expected term of our 3.25% Notes (January 19, 2006 through January 15, 2013), using the effective interest method resulting in additional non-cash interest expense. As of June 27, 2010, the remaining period over which the debt discount will be amortized is approximately 2.5 years.

The carrying amounts of our 3.25% Notes included in our consolidated balance sheets were as follows (in thousands):

		June 27,				September 27,
		2010				2009
Principal balance		$	197,500			$	197,500
Debt discount			(24,745	)			(31,036	)
Convertible subordinated notes, net		$	172,755			$	166,464

We have recorded the following interest expense related to our 3.25% Notes in the periods presented (in thousands):

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		June 27,				June 28,				June 27,				June 28,
		2010				2009				2010				2009
Coupon rate of interest (cash interest)		$	1,587			$	1,807			$	4,814			$	5,484
Debt discount amortization (non-cash interest)			2,119				2,214				6,291				6,571
Total interest expense for the 3.25% Notes		$	3,706			$	4,021			$	11,105			$	12,055

The following tables reflect the impact that adoption of this guidance had on our consolidated statements of operations (in thousands, except per share data) for the periods presented.

		Thirteen Weeks Ended												Thirty-Nine Weeks Ended
		June 28, 2009												June 28, 2009
						Convertible												Convertible
		As Originally				Debt								As Originally				Debt
		Reported				Adjustments				As Adjusted				Reported				Adjustments				As Adjusted
Interest expense		$	(2,819	)		$	(2,214	)		$	(5,033	)		$	(8,539	)		$	(6,570	)		$	(15,109	)
Loss before income taxes			(42,334	)			(2,214	)			(44,548	)			(164,048	)			(6,570	)			(170,618	)
Benefit for income taxes			(215	)			—				(215	)			(154	)			—				(154	)
Net loss			(42,119	)			(2,214	)			(44,333	)			(163,894	)			(6,570	)			(170,464	)
Basic and diluted loss per share			(1.80	)			(0.10	)			(1.90	)			(7.07	)			(0.29	)			(7.36	)

As of September 29, 2008, the cumulative effect of the change in accounting principle related to convertible debt on our accumulated loss and additional paid-in capital was approximately $(3,331,000) and $40,859,000, respectively. The adoption of this guidance did not impact our total cash provided by (used for) operating, investing or financing activities on the consolidated statements of cash flows for the periods presented.

(3) FAIR VALUE MEASUREMENTS

We follow fair value measurement accounting with respect to (i) nonfinancial assets and liabilities that are recognized or disclosed at fair value in our financial statements on a recurring basis, and (ii) all financial assets and liabilities.

The fair value measurement guidance defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. Under the guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability, developed based upon the best information available in the circumstances. The fair value hierarchy prescribed by the guidance is broken down into three levels as follows:

Level 1 —		Unadjusted quoted prices in an active market for the identical assets or liabilities at the measurement date.

Level 2 —		Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

	•		Quoted prices for similar assets or liabilities in active markets;
	•		Quoted prices for identical or similar assets in nonactive markets;
	•		Inputs other than quoted prices that are observable for the asset or liability; and
	•		Inputs that are derived principally from or corroborated by other observable market data.

Level 3 —		Unobservable inputs that reflect the use of significant management judgment. These values are generally determined using pricing models for which assumptions utilize management’s estimates of market participant assumptions.

The following table provides information by level for assets and liabilities that are measured at fair value on a recurring basis.

		Fair Value Measurements at
		June 27, 2010
		Level 1				Level 2				Level 3
Assets
Trading securities
Marketable securities — auction rate securities (“ARS”)		$	—			$	—			$	42,267
Available-for-sale
Marketable securities			69,786				—				—
Rights Offering (described in Note 4 below)			—				—				2,283
Total assets		$	69,786			$	—			$	44,550

The following table reconciles the September 27, 2009 beginning and June 27, 2010 ending balances for items measured at fair value on a recurring basis in the table above that used Level 3 inputs.

		ARS				Rights Offering				Total
Balances at September 27, 2009		$	86,207			$	4,037			$	90,244
Net realized gain (loss) included in other income			1,435				—				1,435
Unrealized loss included in other comprehensive income			(2,169	)			—				(2,169	)
Sales and redemptions			(43,206	)			(1,754	)			(44,960	)
Balances at June 27, 2010		$	42,267			$	2,283			$	44,550

The financial instruments that we hold are primarily of a traditional nature. For most instruments, including receivables, accounts payable and accrued expenses, we believe that the carrying amounts approximate fair value because of their short-term nature.

(4) INVESTMENTS

As of June 27, 2010, our short-term investments are comprised of ARS, corporate notes, certificates of deposit, United States government debt securities and commercial paper. We account for securities available for sale in accordance with FASB guidance regarding accounting for certain investments in debt and equity securities, which requires that available-for-sale and trading securities be carried at fair value. Unrealized gains and losses deemed to be temporary on available-for-sale securities are reported as other comprehensive income (“OCI”) within shareholders’ investment. Realized gains and losses and decline in value deemed to be other than temporary on available-for-sale securities are included in “Gain (loss) on short- and long-term investments” on our consolidated statements of operations. Trading gains and losses also

are included in “Gain (loss) on short- and long-term investments.” Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis. We classify our securities available-for-sale as short- or long-term based upon management’s intent and ability to hold these investments. In addition, throughout 2009, the FASB issued various authoritative guidance and enhanced disclosures regarding fair value measurements and impairments of securities which help in determining fair value when the volume and level of activity for the asset or liability have significantly decreased and in identifying transactions that are not orderly.

A summary of our investments as of June 27, 2010, is as follows:

		Cost				Gross Realized								Gross Unrealized								Recorded
		Basis				Gains				Losses				Gains				Losses				Basis
Available-for-sale securities
Short-term investments
Debt securities		$	69,477			$	—			$	—			$	309			$	—			$	69,786
Trading securities
Short-term investments
ARS — secured			44,550				—				2,283				—				—				42,267
Other
Rights Offering			—				2,283				—				—				—				2,283
		$	114,027			$	2,283			$	2,283			$	309			$	—			$	114,336

A summary of our investments as of September 27, 2009 is as follows:

		Cost				Gross Realized								Gross Unrealized								Recorded
		Basis				Gains				Losses				Gains				Losses				Basis
Available-for-sale securities
Short-term investments
Debt securities		$	30,320			$	—			$	—			$	68			$	—			$	30,388
Long-term investments
ARS			25,200				—				3,053				2,169				—				24,316
Total available-for-sale securities			55,520				—				3,053				2,237				—				54,704
Trading securities
Short-term investments
ARS — secured			66,125				—				4,234				—				—				61,891
Other
Rights Offering			—				4,037				—				—				—				4,037
		$	121,645			$	4,037			$	7,287			$	2,237			$	—			$	120,632

As of June 27, 2010, our short-term investments mature within one year.

Our ARS portfolio had an aggregate par value of $91,325,000 at September 27, 2009 and $44,550,000 at June 27, 2010. The reduction in par value was due to sales and redemptions of portions of the ARS portfolio that we held. We determined the estimated fair value of our ARS portfolio each quarter. At September 27, 2009, we estimated the fair value of our ARS portfolio to be $90,244,000. At June 27, 2010, we estimated the fair value of our ARS portfolio, including the Rights Offering, to be $44,550,000 which was equal to the par value of our ARS portfolio. The decrease in fair value from September 27, 2009 to June 27, 2010, was primarily due to sales and redemptions for an aggregate of $46,775,000 par value of our ARS for $43,206,000 in cash.

Prior to February 2008, the ARS market historically was highly liquid and our ARS portfolio typically traded at auctions held every 28 or 35 days. Starting in February 2008, most of the ARS auctions in the marketplace “failed,” including auctions for all of the ARS we held, meaning that there was not enough demand to sell the entire issue at auction. The immediate effect of a failed auction is that the interest rate on the security generally resets to a contractual rate and holders cannot liquidate their holdings. The contractual rate at the time of a failed auction for the majority of the ARS we held was based on a trailing twelve month ninety-one day U.S. treasury bill rate plus 1.20%.

Effective December 19, 2008, we entered into a settlement (the “UBS Settlement”) with UBS AG, UBS Financial Services Inc. and UBS Securities LLC (collectively, “UBS”) that provided liquidity for our ARS portfolio held with UBS and to resolve pending litigation between the parties. The UBS Settlement provided for certain arrangements, one of which was our acceptance of an offer by UBS to issue to us ARS rights (the “Rights Offering”), which allowed us to require UBS to repurchase at par value all of the ARS held by us in accounts with UBS at any time during the period from June 30, 2010, through July 2, 2012 (if our ARS had not previously been sold by us or by UBS on our behalf or redeemed by the respective issuers of those securities).

As part of the UBS Settlement, we also entered into a loan agreement with UBS Credit Corp. (“UBS Credit”), which provided us with a line of credit (the “UBS Credit Line”) secured only by the ARS we held in accounts with UBS. The proceeds derived from any sales of the ARS we held in accounts with UBS were to be applied to repayment of the UBS Credit Line. As of June 27, 2010, we had drawn down $33,880,000 of the UBS Credit Line available to us. The UBS Credit Line is included in “Current maturities of long-term debt” on our consolidated balance sheets.

Subsequent to the end of the third quarter of 2010, we exercised the rights issued to us in the Rights Offering for the remaining $44,550,000 of ARS held by us and subject to the Rights Offering. The remaining $33,880,000 balance of the UBS Credit Line secured by these securities was repaid, reducing both our cash and investments balance and our current debt by $33,880,000.

On March 19, 2010, we entered into a settlement agreement with Citigroup Global Markets Inc. (“CGMI”) providing for the sale of a portion of our ARS. We received approximately $19,313,000 in cash (plus accrued interest) in exchange for $22,600,000 in principal amount of our ARS. As a result, we recorded an additional realized loss on the sale of these ARS of $528,000 during the quarter ended March 28, 2010. As of December 27, 2009, we had recorded an other than temporary realized loss of $2,793,000 on these ARS. For a three-year period, the settlement agreement with CGMI provides us with the option to repurchase some or all of these ARS at the price for which we sold them, and the potential for additional recoveries in the event of issuer redemptions. As part of the settlement agreement, we agreed to dismiss with prejudice an arbitration proceeding between us and CGMI and an affiliate of CGMI relating to these ARS.

Our ARS portfolio and the Rights Offering are classified as short-term investments on our consolidated balance sheets. The ARS were classified as short-term due to the terms of the UBS Settlement, which includes the Rights Offering. Using the limited available market valuation information, we performed a discounted cash flow analysis to determine the estimated fair value of the investments and recorded an unrealized loss of $2,169,000, plus an other than temporary realized gain of $1,435,000 as of June 27, 2010. We elected the fair value option (described above) on September 29, 2008, and subsequently elected to treat the portion of our ARS portfolio subject to the Rights Offering as trading securities valued under the fair value method. Accordingly, we recorded a benefit of $8,577,000 as of December 28, 2008, which was reduced to $4,037,000 as of September 27, 2009, related to the Rights Offering in “Short-term investments” on our consolidated balance sheets and a corresponding gain in “Gain (loss) on short- and long-term investments” on our consolidated statements of operations. As of June 27, 2010, we reduced the estimated fair value of the Rights Offering to $2,283,000. The valuation models we used to estimate the fair market values included numerous assumptions such as assessments of credit quality, contractual rate, expected cash flows, discount rates, expected term and overall ARS market

liquidity. Our valuations are sensitive to market conditions and management judgment and can change significantly based on the assumptions used.

As of June 27, 2010 and September 27, 2009, we had $4,172,000 and $3,031,000, respectively, of short-term investments that are restricted in use. These amounts covered collateral for our self-insured workers compensation programs, purchases of gold and outstanding gold hedges.

(5) TRADE RECEIVABLES

We grant credit to our customers, but generally do not require collateral or any other security to support amounts due. Trade receivables of $46,051,000 at June 27, 2010, and $63,448,000 at September 27, 2009, are net of allowances of $512,000 and $499,000, respectively. As of June 27, 2010, allowances of $512,000 consisted of a $279,000 allowance for doubtful accounts and a $233,000 allowance for sales returns. As of September 27, 2009, allowances of $499,000 consisted of a $224,000 allowance for doubtful accounts and a $275,000 allowance for sales returns.

We generally warrant that the products sold by us will be free from defects in materials and workmanship for a period of one year or less following delivery to our customer. Upon determination that the products sold are defective, we typically accept the return of such products and refund the purchase price to our customer. We record a provision against revenue for estimated returns on sales of our products in the same period that the related revenues are recognized. We base the allowance on historical product returns, as well as existing product return authorizations. The following table reconciles the changes in our allowance for sales returns under warranties:

		Increases in the		Reductions in the
		Allowance		Allowance for
		Related to		Returns Under
September 27, 2009		Warranties Issued		Warranties		June 27, 2010
$275		$664		($706)		$233

(6) INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or market by analyzing market conditions, current sales prices, inventory costs and inventory balances. Inventories consisted of the following at June 27, 2010, and September 27, 2009:

		June 27,				September 27,
		2010				2009
Raw materials		$	22,681			$	21,069
Work in process			10,253				9,990
Finished goods			22,686				15,819
		$	55,620			$	46,878

(7) EARNINGS (LOSS) PER SHARE

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the year. Diluted loss per share is computed (i) using the treasury stock method for outstanding stock options and the if-converted method for the $150,000,000 aggregate principal amount of the 2.25% Convertible Subordinated Notes (the “2.25% Notes”) retired in March 2010, and (ii) for the 3.25% Notes by calculating the dilutive effect of potential common shares using net income available to common shareholders. A reconciliation of these amounts is as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		June 27,				June 28,				June 27,				June 28,
		2010				2009				2010				2009
						(as adjusted)								(as adjusted)
Net loss		$	(18,500	)		$	(44,333	)		$	(31,870	)		$	(170,464	)
Plus: interest expense on convertible subordinated notes			—				—				—				—
Less: additional profit-sharing expense and income tax provision			—				—				—				—
Net loss available to common shareholders		$	(18,500	)		$	(44,333	)		$	(31,870	)		$	(170,464	)
Weighted-average common shares outstanding			23,362				23,346				23,360				23,167
Dilutive potential common shares			—				—				—				—
Weighted-average common and diluted shares outstanding			23,362				23,346				23,360				23,167
Basic loss per share		$	(0.79	)		$	(1.90	)		$	(1.36	)		$	(7.36	)
Diluted loss per share		$	(0.79	)		$	(1.90	)		$	(1.36	)		$	(7.36	)

Diluted loss per share for the thirteen weeks and thirty-nine weeks ended June 27, 2010 excludes potential common shares of 196,000 and 236,000, respectively, using the treasury stock method and potential common shares of 0 and 540,000, respectively, using the if-converted method for the 2.25% Notes, as they are antidilutive. Diluted loss per share for the thirteen weeks and thirty-nine weeks ended June 28, 2009 excludes potential common shares of 0 and 50,000, respectively, using the treasury stock method and potential common shares of 650,000 and 2,479,000, respectively, using the if-converted method for the 2.25% Notes, as they were antidilutive.

(8) SEVERANCE AND OTHER EXPENSES

In response to weakened demand for suspension assemblies and due to changing and uncertain market and economic conditions, we took actions to reduce our cost structure in 2009. During the first quarter of 2009, we announced a restructuring plan that included eliminating positions company-wide. During January 2009, we eliminated approximately 1,380 positions. The workforce reduction resulted in a charge for severance and other expenses of $19,527,000, which was included in our financial results for the thirteen weeks ended December 28, 2008. As of June 28, 2009, the full amount of that severance had been paid.

During the second quarter of 2009, in response to further weakened demand for suspension assemblies, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We closed our Sioux Falls, South Dakota, facility at the end of June 2009 and consolidated the related suspension assembly operations into our Eau Claire, Wisconsin, and Hutchinson, Minnesota, sites. The assembly operations consolidation resulted in a net elimination of approximately 220 positions. In addition, we consolidated photoetching operations into our Hutchinson, Minnesota, site and trace operations into our Eau Claire, Wisconsin, site to achieve improvements in efficiency and facility utilization and to reduce operating costs. We also reduced the workforce in our components operation in Eau Claire, Wisconsin, by approximately 100 positions. Our total workforce reductions, including these reductions in Sioux Falls, South Dakota, and Eau Claire, Wisconsin, and the approximately 1,380 positions we eliminated

in the first quarter of 2009, total approximately 1,700 positions. The second quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,787,000, which was paid during the third and fourth quarters of 2009.

During the third quarter of 2009, we took additional actions to further restructure the company to adjust to market conditions and the expected phase out of suspension assembly shipments to our customer, Seagate Technology. The restructuring actions included eliminating approximately 300 additional positions, bringing our overall employment to about 2,500 positions at the end of the third quarter of 2009. The third quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,894,000, which was paid during the third and fourth quarters of 2009.

Subsequent to quarter end, we announced actions to reduce costs and preserve cash. We estimate our financial results for our fourth quarter of 2010 will include approximately $4,000,000 of severance charges related to these actions.

(9) ASSET IMPAIRMENT

During the first quarter of 2009, we recorded non-cash impairment charges of $32,280,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division’s assembly and component operations. The impairment review was triggered by weakened demand for suspension assemblies, uncertain future market conditions and the restructuring plan as discussed in Note 8, above. In response to these conditions, we made structural changes to consolidate some of our component and assembly manufacturing among our sites.

During the second quarter of 2009, in response to further weakened demand for suspension assemblies, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We closed our Sioux Falls, South Dakota facility at the end of June 2009 and consolidated the related suspension assembly operations into our Eau Claire, Wisconsin and Hutchinson, Minnesota sites. In addition, we consolidated our Eau Claire, Wisconsin site’s photoetching operations into our Hutchinson, Minnesota site and our Hutchinson, Minnesota site’s trace operations into our Eau Claire, Wisconsin site to achieve improvements in efficiency and facility utilization and to reduce operating costs. As a result of these restructuring actions, we recorded additional non-cash impairment charges of $18,688,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division’s assembly and component operations.

During the third quarter of 2009, we took additional actions to further restructure the company to adjust to market conditions and the expected phase out of suspension assembly shipments to our customer, Seagate Technology. We recorded additional non-cash impairment charges of $20,841,000 for the impairment of long-lived assets primarily related to assembly manufacturing equipment in our Disk Drive Components Division.

The impairment charges in 2009 were recorded on the line item “Asset impairment charge” within operating expenses due to the assets being deemed excess and no longer utilized due to the restructuring actions discussed above.

During the third quarter of 2010, we recorded non-cash impairment charges of $2,294,000 for the impairment of long-lived assets related to the manufacturing and selling of InSpectra^® StO₂ Systems in our BioMeasurement Division. The impairment review was triggered by slower than expected sales growth based on the current pace of adoption of the Inspectra StO₂ System and spending constraints in health care markets world-wide, along with our planned operating changes within the BioMeasurement Division. As we evaluated the impact of these changes on our forecast of future operating results in our BioMeasurement Division, we determined that the recorded values of many of the assets in this division were no longer deemed recoverable. Since these assets are no longer expected to generate future positive cash flows in excess of the recorded values, the assets were impaired but will continue to be used on an ongoing basis. Accordingly, for the thirteen weeks ended June 27, 2010, we recorded the impairment charges related to these assets as shown in the following line items on our consolidated statements of operations:

Cost of sales		$	1,110,000
Research and development expenses			394,000
Selling, general and administrative expenses			790,000
Total		$	2,294,000

When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate positive cash flows. Changes in any of these factors could necessitate impairment recognition in future periods for other assets held for use.

(10) INCOME TAXES

We account for income taxes in accordance with FASB guidance on accounting for income taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be realized based on future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense or a benefit within the tax provision in our consolidated statement of operations.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. At September 27, 2009, and September 28, 2008, we had valuation allowances of $147,889,000 and $85,125,000, respectively. The FASB guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company’s current or previous losses are given more weight than its future outlook. Under the guidance, our three-year historical cumulative loss was a significant negative factor. This loss, combined with uncertain near-term market and economic conditions, reduced our ability to rely on our projections of future taxable income in determining whether a valuation allowance is appropriate. Accordingly, we concluded that a full valuation allowance was appropriate. We will continue to assess the likelihood that our deferred tax assets will be realizable, and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations.

The income tax provision of $81,000 for the thirteen weeks ended June 27, 2010, consists primarily of foreign income tax expenses. The income tax benefit of $215,000 for the thirteen weeks ended June 28, 2009, was primarily due to certain provisions of the American Recovery and Reinvestment Act of 2009 (the “ARRA”) that permit certain tax credits to be converted into cash refunds in lieu of claiming bonus depreciation.

The income tax benefit for the thirty-nine weeks ended June 27, 2010 and June 28, 2009, was $1,692,000 and $154,000, respectively. The income tax benefit for the thirty-nine weeks ended June 27, 2010, was primarily due to a change in U.S. tax law that enabled us to carry back some of our operating losses to prior years and apply for a refund of taxes paid in those years. This benefit was partially offset by foreign income tax expense.

(11) SHORT- AND LONG-TERM DEBT

Short- and long-term debt consisted of the following at June 27, 2010, and September 27, 2009:

		June 27,				September 27,
		2010				2009
3.25% Notes		$	197,500			$	197,500
Debt discount			(24,745	)			(31,036	)
2.25% Notes			—				45,554
Eau Claire building mortgage			1,344				2,497
UBS Credit Line			33,880				55,699
Total debt			207,979				270,214
Less: Current maturities			(35,224	)			(102,804	)
Total long-term debt		$	172,755			$	167,410

In January 2006, we issued $225,000,000 aggregate principal amount of the 3.25% Notes, which mature in 2026. The 3.25% Notes were issued pursuant to an Indenture dated as of January 25, 2006 (the “Indenture”). Interest on the 3.25% Notes is payable on January 15 and July 15 of each year, which began on July 15, 2006. Issuance costs of $6,029,000 were capitalized and are being amortized over seven years in consideration of the holders’ ability to require us to repurchase all or a portion of the 3.25% Notes on January 15, 2013, as described below.

We have the right to redeem for cash all or a portion of the 3.25% Notes on or after January 21, 2011 at specified redemption prices, as provided in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Holders of the 3.25% Notes may require us to purchase all or a portion of their 3.25% Notes for cash on January 15, 2013, January 15, 2016 and January 15, 2021, or in the event of a fundamental change, at a purchase price equal to 100% of the principal amount of the 3.25% Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the purchase date.

Under certain circumstances, holders of the 3.25% Notes may convert their 3.25% Notes based on a conversion rate of 27.4499 shares of our common stock per $1,000 principal amount of 3.25% Notes (which is equal to an initial conversion price of approximately $36.43 per share), subject to adjustment. Upon conversion, in lieu of shares of our common stock, for each $1,000 principal amount of 3.25% Notes a holder will receive an amount in cash equal to the lesser of (i) $1,000, or (ii) the conversion value, determined in the manner set forth in the Indenture, of the number of shares of our common stock equal to the conversion rate. If the conversion value exceeds $1,000, we also will deliver, at our election, cash or common stock or a combination of cash and common stock with respect to the remaining common stock deliverable upon conversion. If a holder elects to convert such holder’s 3.25% Notes in connection with a fundamental change that occurs prior to January 21, 2011, we will pay, to the extent described in the Indenture, a make-whole premium by increasing the conversion rate applicable to such 3.25% Notes.

During September 2009, we spent $19,987,000 to repurchase $27,500,000 par value of our 3.25% Notes on the open market using our available cash and cash equivalents, at an average discount to face value of approximately 27 percent. At the time of repurchase the notes had a book value of $23,139,000, which includes the par value of the notes, offset by the remaining debt discount of $4,361,000. We have $197,500,000 par value of the 3.25% Notes outstanding. Upon completion of the repurchases, the repurchased 3.25% Notes were cancelled. The resulting gain of $2,792,000 was included in our consolidated financial statements.

In February 2003, we issued and sold $150,000,000 aggregate principal amount of the 2.25% Notes. The remaining outstanding 2.25% Notes matured and were retired on March 15, 2010.

During 2009, we spent $89,525,000 to repurchase $104,446,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents, at varying discounts to face value. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. The resulting gain of $14,461,000 was included in our consolidated financial statements.

During the first and second quarters of 2010, we spent $11,488,000 to repurchase $11,500,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. The resulting gain of $6,000 was included in our consolidated financial statements. On the maturity date of March 15, 2010, we used available cash and cash equivalents to pay par value of $34,054,000 to retire all of the remaining outstanding 2.25% Notes. None of the 2.25% Notes remain outstanding.

(12) DERIVATIVES

The purpose of our commodity hedging activities is to protect the values of our cash flows that are exposed to commodity price movement and reduce commodity price-related volatility in our consolidated statements of operations. We have established policies governing our use of derivative instruments and it is our policy to enter into derivative transactions only to the extent true exposures exist. We do not use derivative instruments for trading or speculative purposes, nor are we party to any leveraged derivative instruments or any instruments for which the fair market values are not available from independent third parties. We manage counter-party risk by entering into derivative contracts only with major financial institutions with investment grade credit ratings. The terms of certain derivative instruments contain a credit clause under which each party has a right to settle at market if the other party is downgraded below investment grade.

We evaluate hedge effectiveness at inception and on an ongoing basis, taking into account whether the derivatives used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Effectiveness for cash flow hedges is assessed based on forward rates.

We discontinue hedge accounting when (i) it is determined that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (ii) the derivative expires, is sold or terminated; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) our management determines that designating the derivative as a hedging instrument is no longer appropriate. The gain or loss on a derivative is generally reclassified to net income immediately upon discontinuation. When hedge accounting is discontinued but the derivative remains outstanding, we carry the derivative at its fair value on our balance sheet and recognize future changes in its fair value as cost of sales.

The fair values of these hedge contracts are recorded on our consolidated balance sheets in “Other current assets” or “Accrued expenses,” as appropriate. The effective portion is reflected in accumulated OCI. The amount is net of tax, with a full valuation allowance recorded against it. The gains and losses on these contracts are recorded in cost of sales as the commodity is consumed. Ineffectiveness is calculated as the amount by which the change in fair value of the derivatives exceeds the change in fair value of the anticipated commodity purchases and is recorded in cost of sales.

During 2008 and 2009, we entered into contracts to hedge gold commodity price risks through February 2010. The contracts essentially established a fixed price for the underlying commodity and were designated and qualified as effective cash flow hedges of purchases of gold. Actual amounts ultimately reclassified to net income are dependent on the average monthly London PM gold fix rates in effect when our outstanding contracts mature.

As of June 27, 2010, we did not have any outstanding derivative contracts on our consolidated balance sheets.

The following table summarizes the activity in OCI related to these contracts:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		June 27,				June 28,				June 27,				June 28,
		2010				2009				2010				2009
Beginning of period unrealized gain in accumulated OCI		$	29			$	(112	)		$	267			$	(1,037	)
Decrease in fair value of derivative instruments			—				24				(196	)			504
(Loss) gain reclassified from OCI into cost of sales			(29	)			306				(372	)			1,815
Loss on dedesignated derivative instruments reclassified from OCI into cost of sales			—				147				—				617
Settlements			—				(147	)			301				(1,681	)
End of period unrealized gain in accumulated OCI		$	—			$	218			$	—			$	218

(13) STOCK-BASED COMPENSATION

We have a stock option plan under which options have been granted to employees, including our officers, and directors at an exercise price not less than the fair market value of our common stock at the date the options are granted. Options also may be granted to certain non-employees. Options generally expire ten years from the date of grant or at an earlier date as determined by the committee of our board of directors that administers the plan. Options granted under the plan prior to November 2005 generally were exercisable one year from the date of grant. Options granted under the plan since November 2005 are exercisable two to three years from the date of grant.

We recorded stock-based compensation expense, included in selling, general and administrative expenses, of $1,035,000 and $1,189,000 for the thirteen weeks ended June 27, 2010, and June 28, 2009, respectively; and $3,039,000 and $4,054,000 for the thirty-nine weeks ended June 27, 2010 and June 28, 2009, respectively. As of June 27, 2010, $5,692,000 of unrecognized compensation expense related to unvested awards is expected to be recognized over a weighted-average period of approximately 17 months.

We use the Black-Scholes option pricing model to determine the weighted-average fair value of options. The weighted-average fair value of options granted during the thirty-nine weeks ended June 27, 2010, and June 28, 2009, were $5.48 and $1.89, respectively. The fair value of options at the date of grant and the weighted-average assumptions utilized to determine such values are indicated in the following table:

		Thirty-Nine Weeks Ended
		June 27,				June 28,
		2010				2009
Risk-free interest rate			2.7	%			1.9	%
Expected volatility			80.0	%			60.0	%
Expected life (in years)			7.4				7.7
Dividend yield			—				—

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. We considered historical data in projecting expected stock price volatility. We estimated the expected life of stock options and stock option forfeitures based on historical experience.

Option transactions during the thirty-nine weeks ended June 27, 2010, are summarized as follows:

										Weighted-Average
						Weighted-Average				Remaining				Aggregate
		Number of Shares				Exercise Price ($)				Contractual Life (yrs.)				Intrinsic Value ($)
Outstanding at September 27, 2009			3,570,323				21.08				5.5				2,601,000
Granted			1,042,211				7.36
Exercised			—				—
Expired/Canceled			(322,330	)			18.47
Outstanding at June 27, 2010			4,290,204				17.94				6.2				1,002,000
Options vested or expected to vest at June 27, 2010			4,215,319				18.13				6.1				1,008,000
Options exercisable at June 27, 2010			2,394,993				25.74				4.1				—

The following table summarizes information concerning currently outstanding and exercisable stock options:

		Options Outstanding												Options Exercisable
						Weighted-Average
						Remaining
Range of		Number				Contractual				Weighted-Average				Number				Weighted-Average
Exercise Prices ($)		Outstanding				Life (yrs.)				Exercise Price ($)				Exercisable				Exercise Price ($)
3.03-5.00			638,150				8.4				3.03				—				—
5.01-10.00			1,028,611				9.5				7.36				—				—
10.01-20.00			273,960				1.2				18.63				258,960				18.78
20.01-25.00			1,026,192				3.8				23.19				1,026,192				23.19
25.01-30.00			776,166				6.5				26.78				562,716				27.00
30.01-45.06			547,125				3.9				32.53				547,125				32.53
Total			4,290,204				6.2				17.94				2,394,993				25.74

(14) SEGMENT REPORTING

We follow the provisions of FASB guidance, which establish annual and interim reporting standards for an enterprise’s business segments and related disclosures about each segment’s products, services, geographic areas and major customers. The method for determining what information to report is based on the way management organizes the operating segments within a company for making operating decisions and assessing financial performance. Our Chief Executive Officer is considered to be our chief operating decision maker.

We have determined that we have two reportable segments: the Disk Drive Components Division and the BioMeasurement Division. The accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2009.

The following table represents net sales by product for each reportable segment and operating loss for each reportable segment.

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		June 27,				June 28,				June 27,				June 28,
		2010				2009				2010				2009
Net sales:
Disk Drive Components Division:
Suspension assemblies		$	75,113			$	103,234			$	266,057			$	296,699
Other products			1,644				2,463				5,374				6,950
Total Disk Drive Components Division			76,757				105,697				271,431				303,649
BioMeasurement Division			536				408				1,732				1,131
		$	77,293			$	106,105			$	273,163			$	304,780
Loss from operations:
Disk Drive Components Division		$	(7,559	)		$	(37,127	)		$	(5,583	)		$	(159,116	)
BioMeasurement Division			(7,773	)			(5,656	)			(17,940	)			(18,543	)
		$	(15,332	)		$	(42,783	)		$	(23,523	)		$	(177,659	)

(15) SUBSEQUENT EVENTS

Subsequent to quarter end, we exercised the rights issued to us in the Rights Offering for the remaining $44,550,000 of ARS held by us and subject to the Rights Offering. The remaining $33,880,000 balance of the UBS Credit Line secured by these securities was repaid, reducing both our cash and investments balance and our current debt by $33,880,000.

On July 27, 2010, we announced actions to reduce costs and preserve cash. We estimate our financial results for our fourth quarter of 2010 will include approximately $4,000,000 of severance charges related to these actions.

On July 29, 2010, our board of directors adopted a new share rights plan to replace a similar plan that is scheduled to expire on August 10, 2010. Our board declared a dividend of one common share purchase right for each outstanding share of common stock of the Company payable to shareholders of record at the close of business on August 10, 2010. The new plan, like the expiring plan, provides that under certain conditions, each right may be exercised to purchase one-tenth of a share of common stock at an exercise price of $3.00, subject to adjustment. The rights generally become exercisable after any person or group acquires beneficial ownership of 15% or more of our common stock. The rights under the new plan will expire on August 10, 2020. Adoption of the new share rights plan did not impact our consolidated financial statements.

We evaluated subsequent events after the balance sheet date through the date the consolidated financial statements were issued. We did not identify any additional material events or transactions occurring during this subsequent event reporting period that required further recognition or disclosure in these consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When we refer to “we,” “our,” “us,” the “company” or “HTI,” we mean Hutchinson Technology Incorporated and its subsidiaries. Unless otherwise indicated, references to “2011” mean our fiscal year ending September 25, 2011, references to “2010” mean our fiscal year ending September 26, 2010, references to “2009” mean our fiscal year ended September 27, 2009, and references to “2008” mean our fiscal year ended September 28, 2008.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended September 27, 2009.

GENERAL

We are a global technology leader committed to creating value by developing solutions to critical customer problems. Our culture of quality, continuous improvement, superior innovation and a relentless focus on the fundamentals enables us to lead in the markets we serve. We incorporated in Minnesota in 1965.

Our Disk Drive Components Division is a leading supplier of suspension assemblies for disk drives. Suspension assemblies are precise electro-mechanical components that hold a disk drive’s read/write head at microscopic distances above the drive’s disks. Our innovative product solutions help customers improve yields, increase reliability and enhance disk drive performance, thereby increasing the value they derive from our products.

Our BioMeasurement Division is focused on bringing to the market new technologies and products that provide information clinicians can use to improve the quality of health care. Late in calendar 2006, we began selling the InSpectra^® StO₂ System for perfusion status monitoring. This noninvasive device provides a continuous, real-time and direct measurement of tissue oxygen saturation (StO₂), an indicator of perfusion status. By helping clinicians instantly detect changes in a patient’s perfusion status, the InSpectra StO₂ System helps clinicians reduce risks and costs by enabling faster and more precise assessment of oxygen delivery to vital organs and tissue in critical care settings. Our BioMeasurement Division incurred an operating loss of $17,940,000 for the thirty-nine weeks ended June 27, 2010, and we expect the division to continue to incur losses in 2010 and 2011. As a result of the current pace of adoption of the InSpectra StO₂ System and spending constraints in health care markets world-wide, we now expect 2010 net sales from the BioMeasurement Division to be approximately $2,500,000.

In the fourth quarter of 2010, we are taking actions to reduce costs and preserve cash. We are targeting annualized cost reductions of approximately $25,000,000 by the end of 2010. In our BioMeasurement Division, we will reduce annualized costs by approximately $12,000,000 in light of slower than expected revenue growth and we will focus our sales and marketing activities primarily on the customers, applications and geographic markets where we have momentum. In our Disk Drive Components Division, we expect to reduce annualized costs by approximately $8,000,000, while keeping intact capabilities that are core to our competitive position, including product design, rapid prototype development, speed to volume and very low part-to-part variation in our finished product. We also expect to reduce our annualized corporate expenses by approximately $5,000,000. We estimate our financial results for our fourth quarter of 2010 will include approximately $4,000,000 of severance charges related to these actions.

Our suspension assemblies are components in disk drives which are used in computers and a variety of consumer electronics products. The demand for these products can be volatile which may affect demand for our suspension assemblies in the future. For example, in 2009, due to the weak economy, consumer spending declined and retail demand for computers and other consumer electronics as well as business demand for computer systems, decreased.

In the long-term, we believe that end user demand for storage capacity will continue to increase as evolving consumer electronics and computing applications continue to require storage devices with increased capacity and functionality, which will increase disk drive demand and, therefore, suspension assembly demand. We expect to benefit from overall demand growth. For calendar 2009, storage industry analysts estimate that disk drive shipments reached 557 million units, an increase of about 3 percent from calendar 2008 which was slowed by the global recession. For calendar 2010, we believe world-wide demand for suspension assemblies will meet or exceed the growth in world-wide shipments of disk

drives, currently estimated to be 15 to 20 percent by storage industry analysts and participants. Pricing for suspension assemblies is expected to remain competitive.

While the overall market for suspension assemblies has grown in 2010, our quarterly shipments of suspension assemblies have declined due to market share losses. In addition, a defect on some of our TSA+ product resulted in lost volume late in the third quarter of 2010 and will negatively impact volume in our fourth quarter as well. For our fourth quarter ending September 26, 2010, we expect our suspension assembly shipments to decline 5 to 10 percent compared with the third quarter of 2010 as a result of share losses with certain customers and the negative impact of the TSA+ product defect. While it will take longer than we previously expected to regain market share, we believe investments in our TSA+ process capabilities and our Thailand assembly operation will further lower our costs and strengthen our competitive position.

We believe that our vertically integrated model in our Disk Drive Components Division provides the best means to meet customers’ requirements and achieve lowest manufacturing cost. As our TSA+ suspension assembly volumes increase, and as our TSA+ flexure yields and process efficiencies continue to improve, we expect to reduce the cost burden associated with TSA+ flexure production. In addition to reducing the operating loss in our BioMeasurement Division, our return to profitability includes increasing revenue through overall suspension assembly market growth and higher market share, improving our TSA+ production efficiency and establishing operations in Thailand.

The following table sets forth our recent quarterly suspension assembly shipment quantities in millions for the periods indicated:

		Suspension Assembly Shipments by Quarter
		2009																2010
		First				Second				Third				Fourth				First				Second				Third
Suspension assembly shipment quantities			155				107				146				145				155				130				117

Our second quarter 2009 shipments decreased primarily due to lower demand for disk drives, lower disk drive production as the drive makers reduced inventory levels and a modest loss of overall market share. The share loss was primarily in the 2.5-inch ATA segment that was partially offset by share gains in the 3.5-inch ATA segment. Our third quarter 2009 shipments increased 36 percent compared with the preceding quarter as a result of stronger demand in every segment.

Our first quarter 2010 shipments increased primarily due to normal seasonal increases. In our second quarter 2010, our 16 percent sequential decline in shipments was more than the estimated decline in world-wide suspension assembly shipments. This market share loss resulted primarily from our broad implementation of a TSA+ process improvement that prevented us from meeting demand and from share shifts among disk drive manufacturers. Our third quarter 2010 shipments declined 11 percent sequentially primarily due to reductions in disk drive makers’ production plans. In addition, we lost volume late in the quarter due to a defect on some of our TSA+ product which prevented us from realizing expected share growth opportunities on certain customer programs.

Our average selling price declined to $0.65 in the third quarter of 2010, down from $0.66 in the second quarter of 2010 and $0.68 in the first quarter of 2010. Our average selling price was $0.71 in the third quarter of 2009. The decline in average selling price reflects the continuation of a competitive pricing environment. We expect continued downward pressure on our average selling price in 2010.

From the end of 2008 to the first quarter of 2010, we substantially improved our gross margin despite a decline in net sales. The improvement was the result of the actions we took in 2009 to restructure the business and reduce our costs, as well as a turnaround in demand that began in the latter half of 2009. Gross profit in the first quarter of 2010 was 19 percent, up from 17 percent in the fourth quarter of 2009, primarily due to an increase in net sales. Gross profit decreased in the second quarter of 2010, however, to $7,315,000, or 8 percent, primarily due to a 16 percent sequential quarter decline in suspension assembly shipments. Gross profit in the third quarter of 2010 decreased to $4,907,000, or 6 percent of net sales primarily due to a further decline in suspension assembly shipments, an estimated $2,000,000 of costs related

to a TSA+ product defect and $1,110,000 of asset impairments in our BioMeasurement Division, but also benefited from a build in suspension assembly inventory.

We expect the construction of our assembly facility in Thailand to be completed during our fourth quarter of 2010. The hiring and training of management and support staff have begun. Equipment is in transit to the site and will be installed as soon as the building is complete. We expect to ship products for customer qualification from our Thai operation early in 2011. We anticipate that the Thailand assembly operation will improve our ability to serve our customers’ operations in Asia and enable us to reduce our labor costs, freight costs and future income taxes. We have spent $5,653,000 on capital and expect to spend a total of approximately $9,000,000 more in 2010 for a total of approximately $15,000,000 in 2010 capital expenditures related to our Thailand assembly operation. We have spent $2,877,000 on startup expenses in 2010 and expect to spend $5,000,000 more for startup expenses in the fourth quarter of 2010 relating to our Thailand assembly operation.

We shipped approximately 33,000,000 TSA+ suspension assemblies in the third quarter of 2010, up from approximately 20,000,000 in the preceding quarter. In the third quarter of 2010, a defect on some of our TSA+ product resulted in lost volume at the end of the quarter that will negatively impact volume in the fourth quarter of 2010 as well. The measures we took to isolate and contain the product defect also reduced our yield and limited our output, which prevented us from realizing some opportunities to gain share that we had expected as the quarter began. Despite the costs associated with the defect, our TSA+ cost per part declined about 13 percent compared with the preceding quarter. As a result, we were able to reduce the cost burden related to TSA+ flexure production to $7,500,000 from $7,900,000 in the second quarter of 2010. Due to the yield setback and additional costs associated with the TSA+ product defect, the burden declined less than we expected and we are now targeting elimination of the cost burden in the first half of 2011. We may in the future experience additional process issues that impact our ability to meet customer demand and cause us to incur higher costs.

We have been actively involved with several of our customers on designs and prototypes for suspension assemblies with dual stage actuation (“DSA”). We have been selected to develop and produce DSA suspension assemblies for four disk drive programs with three customers. We also have DSA quoting and sampling activity in progress with all of the other disk drive manufacturers. The timing and volume of our customers’ DSA programs are subject to, among other things, the economics of existing and future technical alternatives that may also meet their disk drive requirements.

For 2009, our capital expenditures were $20,609,000, primarily for TSA+ suspension production capacity, new program tooling and deployment of new process technology and capability improvements. Capital spending for the thirty-nine weeks ended June 27, 2010 was $22,690,000. We expect our planned overall capital expenditures to be $40,000,000 in 2010. We continue to gain customer acceptance on new programs with our TSA+ products and expect TSA+ suspensions to grow significantly as a percentage of our product mix, as they continue to replace TSA suspensions. Capital expenditures in 2010 are primarily for additional TSA+ flexure production capacity, establishing our Thailand assembly operation and tooling and manufacturing equipment for new process technology and capability improvements.

RESULTS OF OPERATIONS

Thirteen Weeks Ended June 27, 2010 vs. Thirteen Weeks Ended June 28, 2009

Net sales for the thirteen weeks ended June 27, 2010, were $77,293,000, compared to $106,105,000 for the thirteen weeks ended June 28, 2009, a decrease of $28,812,000. Suspension assembly sales decreased $28,121,000 from the thirteen weeks ended June 28, 2009, primarily due to lower shipment volumes due to market share losses, a defect on some of our TSA+ product and a decrease in our average selling price from $0.71 to $0.65 due to a competitive pricing environment. Net sales in our BioMeasurement Division for the thirteen weeks ended June 27, 2010 were $536,000, compared to $408,000 for the thirteen weeks ended June 28, 2009.

Gross profit for the thirteen weeks ended June 27, 2010, was $4,907,000, compared to gross profit of $1,977,000 for the thirteen weeks ended June 28, 2009, an improvement of $2,930,000. Gross profit as a percent of net sales was six percent and two percent, for the thirteen weeks ended June 27, 2010 and June 28, 2009, respectively. The higher gross profit was primarily due to the benefits of our 2009 restructuring and cost reduction actions, partially offset by approximately $2,000,000 of costs related to a TSA+ product defect and $1,110,000 of asset impairments in our BioMeasurement Division.

Research and development expenses for the thirteen weeks ended June 27, 2010, were $5,553,000, compared to $5,723,000 for the thirteen weeks ended June 28, 2009, a decrease of $170,000. The decrease was primarily due to lower labor expenses and lower depreciation expenses as a result of our 2009 restructuring and cost reduction actions, partially offset by $394,000 of asset impairments in our BioMeasurement Division.

Selling, general and administrative expenses for the thirteen weeks ended June 27, 2010, were $14,686,000, compared to $13,302,000 for the thirteen weeks ended June 28, 2009, an increase of $1,384,000. The increase was primarily due to $1,660,000 of Thailand startup expenses in our Disk Drive Components Division and $790,000 of asset impairments in our BioMeasurement Division and was partially offset by the benefits of our 2009 restructuring and cost reduction actions.

During the third quarter of 2009, we took actions to reduce costs and improve cash flow. We further restructured the company to adjust to market conditions and the expected phase out of suspension assembly shipments to our customer, Seagate Technology. The restructuring actions included eliminating approximately 300 positions. The third quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,894,000.

During the third quarter of 2009, as a result of the expected phase out of suspension assembly shipments to our customer, Seagate Technology, and the restructuring actions in the third quarter discussed above, we recorded additional non-cash impairment charges of $20,841,000 for the impairment of long-lived assets primarily related to assembly manufacturing equipment in our Disk Drive Components Division.

Loss from operations for the thirteen weeks ended June 27, 2010, included a $7,773,000 loss from operations in our BioMeasurement Division, compared to a $5,656,000 loss from BioMeasurement Division operations for the thirteen weeks ended June 28, 2009. The increased loss from BioMeasurement operations was due to $2,294,000 of asset impairments in this division, as discussed above.

Interest income for the thirteen weeks ended June 27, 2010, was $304,000, compared to $689,000 for the thirteen weeks ended June 28, 2009, a decrease of $385,000. The decrease in interest income was due to a lower investments balance and lower investment yields.

During June 2009, we spent $23,000,000 to repurchase $25,000,000 par value of our 2.25% Convertible Subordinated Notes due 2010 (the “2.25% Notes”) on the open market using our available cash and cash equivalents, at an average discount to face value of approximately eight percent. Upon completion of the repurchases, the repurchased Notes were cancelled. The resulting gain of $1,923,000 is included in our consolidated financial statements.

The income tax provision of $81,000 for the thirteen weeks ended June 27, 2010, consists primarily of foreign income tax expenses. The income tax benefit of $215,000 for the thirteen weeks ended June 28, 2009, was primarily due to certain provisions of the American Recovery and Reinvestment Act of 2009 (the “ARRA”) that permit certain tax credits to be converted into cash refunds in lieu of claiming bonus depreciation.

Thirty-Nine Weeks Ended June 27, 2010 vs. Thirty-Nine Weeks Ended June 28, 2009

Net sales for the thirty-nine weeks ended June 27, 2010, were $273,163,000, compared to $304,780,000 for the thirty-nine weeks ended June 28, 2009, a decrease of $31,617,000. Suspension assembly sales decreased $30,642,000 from the thirty-nine weeks ended June 28, 2009, primarily due to market share losses and a decrease in our average selling price from $0.73 to $0.66 due to a competitive pricing environment. Net sales in our BioMeasurement Division for the thirty-nine weeks ended June 27, 2010 were $1,732,000, compared to $1,131,000 for the thirty-nine weeks ended June 28, 2009.

Gross profit for the thirty-nine weeks ended June 27, 2010, was $32,999,000, compared to gross loss of $9,930,000 for the thirty-nine weeks ended June 28, 2009, an improvement of $42,929,000. Gross profit as a percent of net sales was positive 12 percent and negative three percent for the thirty-nine weeks ended June 27, 2010, and June 28, 2009, respectively. The higher gross profit was primarily due to the benefits of our 2009 restructuring and cost reduction actions, and lower depreciation, partially offset by approximately $2,000,000 of costs related to a TSA+ product defect and $1,110,000 of asset impairments in our BioMeasurement Division.

Research and development expenses for the thirty-nine weeks ended June 27, 2010, were $16,136,000, compared to $22,060,000 for the thirty-nine weeks ended June 28, 2009, a decrease of $5,924,000. The decrease was primarily due to lower labor expenses and lower depreciation expenses as a result of our 2009 restructuring and cost reduction actions, partially offset by $394,000 of asset impairments in our BioMeasurement Division.

Selling, general and administrative expenses for the thirty-nine weeks ended June 27, 2010, were $40,386,000, compared to $44,652,000 for the thirty-nine weeks ended June 28, 2009, a decrease of $4,266,000. The decrease was primarily due to lower Disk Drive Components and BioMeasurement Division expenses as a result of our 2009 restructuring and cost reduction actions, partially offset by $2,877,000 of Thailand startup costs and $790,000 of asset impairments in our BioMeasurement Division.

In response to weakening demand for suspension assemblies and due to changing and uncertain market and economic conditions, we took actions to reduce our costs in 2009. During the first quarter of 2009, we announced a restructuring plan that included eliminating positions company-wide. During January 2009, we eliminated approximately 1,380 positions. The workforce reduction resulted in a charge for severance and other expenses of $19,527,000, which was included in our financial results for the thirteen weeks ended December 28, 2008. The workforce reductions were completed by the end of January 2009.

During the first quarter of 2009, we recorded non-cash impairment charges of $32,280,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division’s assembly and component operations. The impairment review was triggered by weakened demand for suspension assemblies and uncertain future market conditions. In response to these conditions, we made structural changes to consolidate some of our component and assembly manufacturing among our sites.

During the second quarter of 2009, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We closed our Sioux Falls, South Dakota facility at the end of June 2009 and consolidated the related suspension assembly operations into our Eau Claire, Wisconsin and Hutchinson, Minnesota sites. The assembly operations consolidation resulted in a net elimination of approximately 220 positions. In addition, we consolidated our Eau Claire, Wisconsin site’s photoetching operations into our Hutchinson, Minnesota site and our Hutchinson, Minnesota site’s trace operations into our Eau Claire, Wisconsin site to achieve improvements in efficiency and facility utilization and to reduce operating costs. We also reduced the workforce in our components operation in Eau Claire, Wisconsin by approximately 100 positions. The second quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,787,000.

In response to further weakened demand for suspension assemblies and as a result of the additional restructuring actions in the second quarter discussed above, we recorded non-cash impairment charges of $18,688,000 in the second quarter of 2009 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division’s assembly and component operations.

During the third quarter of 2009, we took actions to reduce costs and improve cash flow. We further restructured the company to adjust to market conditions and the expected phase out of suspension assembly shipments to our customer, Seagate Technology. The restructuring actions included eliminating approximately 300 additional positions. The third quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,894,000.

During the third quarter of 2009, as a result of the expected phase out of suspension assembly shipments to our customer, Seagate Technology, and the restructuring actions in the third quarter discussed above, we recorded additional non-cash impairment charges of $20,841,000 for the impairment of long-lived assets primarily related to assembly manufacturing equipment in our Disk Drive Components Division.

Loss from operations for the thirty-nine weeks ended June 27, 2010, included a $17,940,000 loss from operations in our BioMeasurement Division, compared to an $18,543,000 loss from BioMeasurement Division operations for the thirty-nine weeks ended June 28, 2009. The BioMeasurement Division’s loss for the thirty-nine weeks ended June 27, 2010 includes $2,294,000 of asset impairments in this division, as discussed above.

Interest income for the thirty-nine weeks ended June 27, 2010, was $1,241,000, compared to $2,876,000 for the thirty-nine weeks ended June 28, 2009, a decrease of $1,635,000. The decrease in interest income was due to a lower cash balance and lower investment yields.

During November 2008, we repurchased a portion of our outstanding 2.25% Notes. We spent $47,423,000 to repurchase $59,934,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents, at an average discount to face value of approximately 21 percent. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. The resulting gain of $12,175,000 was included in our consolidated financial statements.

During June 2009, we spent $23,000,000 to repurchase an additional $25,000,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents, at an average discount to face value of approximately eight percent. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. The resulting gain of $1,923,000 is included in our consolidated financial statements.

The loss on short- and long-term investments for the thirty-nine weeks ended June 27, 2010, was $319,000, compared to a gain of $4,133,000 for the thirty-nine weeks ended June 28, 2009. The gain for the thirty-nine weeks ended June 28, 2009 was primarily due to an increase of $5,439,000 from a gain in the value of the securities subject to the offer by UBS to issue to us ARS rights (the “Rights Offering”), which was offset by a $1,305,000 loss we recognized due to an impairment of our ARS held with UBS AG, UBS Financial Services Inc. and UBS Securities LLC (collectively, “UBS”).

The income tax benefit for the thirty-nine weeks ended June 27, 2010 and June 28, 2009, was $1,692,000 and $154,000, respectively. The income tax benefit for the thirty-nine weeks ended June 27, 2010, was primarily due to a change in U.S. tax law that enabled us to carry back some of our operating losses to prior years and apply for a refund of taxes paid in those years. This benefit was partially offset by foreign income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash and cash equivalents, short-term investments, cash flow from operations and additional financing capacity, if available given current credit market conditions and our operating performance. Our cash and cash equivalents decreased from $106,391,000 at September 27, 2009, to $53,596,000 at June 27, 2010. Our short- and long-term investments decreased from $120,632,000 to $114,336,000 during the same period. In total, our cash and cash equivalents and short- and long-term investments decreased by $59,091,000. This decrease was primarily due to $68,513,000 used for the repayment of short- and long-term debt and $22,690,000 for capital expenditures. This decrease was partially offset by $34,230,000 of cash generated from operations.

Our ARS portfolio had an aggregate par value of $91,325,000 at September 27, 2009 and $44,550,000 at June 27, 2010. The reduction in par value was due to sales and redemptions of portions of the ARS portfolio that we held. We determine the estimated fair value of our ARS portfolio each quarter. At September 27, 2009, we estimated the fair value of our ARS portfolio to be $90,244,000. At June 27, 2010, we estimated the fair value of our ARS portfolio, including the Rights Offering, to be $44,550,000 which was equal to the par value of our ARS portfolio. The decrease in fair value from September 27, 2009 to June 27, 2010, was primarily due to sales and redemptions for an aggregate of $46,775,000 par value of our ARS for $43,206,000 in cash.

Prior to February 2008, the ARS market historically was highly liquid and our ARS portfolio typically traded at auctions held every 28 or 35 days. Starting in February 2008, most of the ARS auctions in the marketplace “failed,” including auctions for all of the ARS we held, meaning that there was not enough demand to sell the entire issue at auction. The immediate effect of a failed auction is that the interest rate on the security generally resets to a contractual rate and holders cannot liquidate their holdings. The contractual rate at the time of a failed auction for the majority of the ARS we held was based on a trailing twelve month ninety-one day U.S. treasury bill rate plus 1.20%.

Effective December 19, 2008, we entered into the UBS Settlement with UBS which provided liquidity for our ARS portfolio held with UBS and to resolve pending litigation between the parties. The UBS Settlement provided for certain arrangements, one of which was our acceptance of the Rights Offering, that allowed us to require UBS to repurchase at par value all of the ARS held by us in accounts with UBS at any time during the period from June 30, 2010, through July 2, 2012 (if our ARS had not previously been sold by us or by UBS on our behalf or redeemed by the respective issuers of those securities).

As part of the UBS Settlement, we also entered into a loan agreement with UBS, which provided us with the UBS Credit Line secured only by the ARS we held in accounts with UBS. The proceeds derived from any sales of the ARS we held in accounts with UBS were to be applied to repayment of the UBS Credit Line. As of June 27, 2010, we had drawn down $33,880,000 of the UBS Credit Line available to us.

Our borrowing under the UBS Credit Line was treated as a “no net cost loan,” which means that the interest that we paid on the credit line would not have exceeded the interest that we received on the ARS pledged by us as security for the UBS Credit Line. The rate for the majority of the ARS we held was based on a trailing twelve month ninety-one day U.S. treasury bill rate plus 1.20%. Other contractual factors may result in rate restrictions based on the profitability of the issuer or may impose temporary rates that are significantly higher or lower. UBS Credit could have demanded payment of borrowings under the UBS Credit Line only if it provided a replacement credit facility on substantially the same terms to us that are fully advanced in the amount of the then outstanding principal of the UBS Credit Line, or if it repurchased all of the pledged ARS at par.

Subsequent to the end of the third quarter of 2010, we exercised the rights issued to us in the Rights Offering for the remaining $44,550,000 of ARS held by us and subject to the Rights Offering. The remaining $33,880,000 balance of the UBS Credit Line secured by these securities was repaid, reducing both our cash and investments balance and our current debt by $33,880,000.

On March 19, 2010, we entered into a settlement agreement with Citigroup Global Markets Inc. (“CGMI”) providing for the sale of a portion of our ARS. We received approximately $19,313,000 in cash (plus accrued interest) in exchange for $22,600,000 in principal amount of our ARS. As a result, we recorded an additional realized loss on the sale of these ARS of $528,000 during the quarter ended March 28, 2010. As of December 27, 2009, we had recorded an other than temporary realized loss of $2,793,000 on these ARS. In addition, for a three-year period, the settlement agreement provides us the option to repurchase some or all of these ARS at the price for which we sold them, and the potential for additional recoveries in the event of issuer redemptions. As part of the settlement agreement, we agreed to dismiss with prejudice an arbitration proceeding between us and CGMI and an affiliate relating to the ARS.

In January 2006, we issued $225,000,000 aggregate principal amount of the 3.25% Notes. The 3.25% Notes were issued pursuant to an Indenture dated as of January 25, 2006 (the “Indenture”). Interest on the 3.25% Notes is payable on January 15 and July 15 of each year, which began on July 15, 2006.

We have the right to redeem for cash all or a portion of the 3.25% Notes on or after January 21, 2011 at specified redemption prices, as provided in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Holders of the 3.25% Notes may require us to purchase all or a portion of their 3.25% Notes for cash on January 15, 2013, January 15, 2016, and January 15, 2021, or in the event of a fundamental change, at a purchase price equal to 100% of the principal amount of the 3.25% Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the purchase date.

Under certain circumstances, holders of the 3.25% Notes may convert their 3.25% Notes based on a conversion rate of 27.4499 shares of our common stock per $1,000 principal amount of 3.25% Notes (which is equal to an initial conversion price of approximately $36.43 per share), subject to adjustment. Upon conversion, in lieu of shares of our common stock, for each $1,000 principal amount of 3.25% Notes a holder will receive an amount in cash equal to the lesser of (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the Indenture, of the number of shares of our common stock equal to the conversion rate. If the conversion value exceeds $1,000, we also will deliver, at our election, cash or common stock or a combination of cash and common stock with respect to the remaining common stock deliverable upon conversion. If a holder elects to convert such holder’s 3.25% Notes in connection with a fundamental change that occurs

prior to January 21, 2011, we will pay, to the extent described in the Indenture, a make-whole premium by increasing the conversion rate applicable to such 3.25% Notes.

In May 2008, the Financial Accounting Standards Board issued authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidance specifies that convertible debt instruments that may be settled in cash upon conversion shall be separately accounted for by allocating a portion of the fair value of the instrument as a liability and the remainder as equity. The excess of the principal amount of the liability component over its carrying amount shall be amortized to interest cost over the effective term. The provisions of this guidance apply to our 3.25% Notes. We adopted the provisions of this guidance beginning in our first quarter of 2010 as discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements — Unaudited.

During the fourth quarter of 2009, we spent $19,987,000 to repurchase $27,500,000 par value of our 3.25% Notes on the open market using our available cash and cash equivalents, at an average discount to face value of approximately 27 percent. At the time of repurchase the notes had a book value of $23,139,000, which includes the par value of the notes, offset by the remaining debt discount of $4,361,000. We have $197,500,000 par value of the 3.25% Notes outstanding. Upon completion of the repurchases, the repurchased 3.25% Notes were cancelled. The resulting gain of $2,792,000 was included in our consolidated financial statements.

In February 2003, we issued and sold $150,000,000 aggregate principal amount of the 2.25% Notes. The remaining 2.25% Notes matured and were retired on March 15, 2010.

During 2009, we spent $89,525,000 to repurchase $104,446,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents, at varying discounts to face value. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. The resulting gain of $14,461,000 was included in our consolidated financial statements.

During the first and second quarters of 2010, we spent $11,488,000 to repurchase $11,500,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents. Upon completion of the repurchases, the repurchased 2.25% Notes were cancelled. On the maturity date of March 15, 2010, we used our available cash and cash equivalents to pay par value of $34,054,000 to retire all of the remaining outstanding 2.25% Notes. None of the 2.25% Notes remain outstanding.

A further deterioration in our business or further disruption in the global credit and financial markets and related continuing adverse economic conditions would impact our ability to obtain new financing. We may not be able to obtain new financing on terms acceptable to us, including covenants that we will be able to comply with in the short-term. If we are unable to obtain new financing, if and when necessary, our future financial results and liquidity could be materially adversely affected.

Our suspension assembly business is capital intensive. The disk drive industry experiences rapid technology changes that require us to make substantial ongoing capital expenditures in product and process improvements to maintain our competitiveness. Significant industry technology transitions often result in increasing our capital expenditures. The disk drive industry also experiences periods of increased demand and rapid growth followed by periods of oversupply and subsequent contraction, which also results in fluctuations in our capital expenditures. Cash used for capital expenditures totaled $22,690,000 for the thirty-nine weeks ended June 27, 2010. We expect our planned overall capital expenditures to be $40,000,000 in 2010. Our capital expenditures in 2010 will be primarily for additional TSA+ flexure production capacity, establishing a Thailand assembly operation and tooling and manufacturing equipment for new process technology and capability improvements. As the full transition to TSA+ suspensions takes place, over the next three to five years, our capital expenditures could increase as we add capacity as needed. Financing of these capital expenditures will be principally from operations, our current cash, cash equivalents and short-term investments or additional financing, if available given current credit market conditions.

Our capital expenditures for the Disk Drive Components Division are planned based on anticipated customer demand for our suspension assembly products, market demand for disk drives, process improvements to be incorporated in our manufacturing operations and the rate at which our customers adopt new generations of higher performance disk drives and next-generation read/write technology and head sizes, which may require new or improved process technologies, such

as additive processing to produce flexures for our TSA+ suspensions. Capital spending is also based on our ability to fund capital expenditures, as needed, with cash generated from operations, our current cash, cash equivalents, and short-term investments or additional financing, if available given current capital market conditions.

We manage our capital spending to reflect the capacity that we expect will be needed to meet disk drive industry customer forecasts. However, existing work in process with vendors and lengthy lead times sometimes prevent us from adjusting our capital expenditures to match near-term demand. This can result in underutilization of capacity, which could lower gross profit.

As we develop the market for our InSpectra StO₂ System, we will continue to spend significant amounts of money on medical device sales in our BioMeasurement Division. For the thirty-nine weeks ended June 27, 2010, our BioMeasurement Division incurred an operating loss of $17,940,000, and we expect the division to continue to incur losses in 2010 and 2011. We are taking actions expected to reduce annualized costs by approximately $12,000,000 in this division, which will reduce future operating losses. These losses, along with growing working capital needs as the business grows, will negatively affect our ability to generate cash.

In 2008, our board of directors approved a share repurchase program authorizing us to spend up to $130,000,000 to repurchase shares of our common stock from time to time in the open market or through privately negotiated transactions. The maximum dollar value of shares that may yet be purchased under the share repurchase program is $72,368,000. We have not repurchased any shares since 2008.

During 2008 and 2009, we entered into contracts to hedge gold commodity price risks through February 2010. As of June 27, 2010, we did not have any outstanding derivative contracts on our consolidated balance sheets. See Note 12 of the Notes to Condensed Consolidated Financial Statements — Unaudited for additional information on our derivative instruments.

In light of current uncertain market and economic conditions, we are aggressively managing our cost structure and cash position to ensure that we will meet our current debt obligations while preserving the ability to make investments that will enable us to respond to customer requirements and achieve long-term profitable growth. We currently believe that our cash and cash equivalents, short-term investments, cash generated from operations and additional financing, if needed and as available given current credit market conditions and our operating performance, will be sufficient to meet our forecasted operating expenses, other debt service requirements, debt and equity repurchases and capital expenditures through 2010. Holders of our $197,500,000 par value outstanding 3.25% Notes may require us to purchase all or a portion of their 3.25% Notes for cash as early as January 15, 2013. Our ability to obtain additional financing will depend upon a number of factors, including our future performance and financial results and general economic and capital market conditions. We cannot be certain that we will be able to raise additional capital on reasonable terms or at all, if needed.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2009.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 of the Notes to Condensed Consolidated Financial Statements — Unaudited, in Item 1, above, for information regarding recently adopted accounting standards or accounting standards we expect to adopt in the future.

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding the following: the demand for and shipments of disk drives, suspension assemblies and suspension assembly components, disk drive and suspension assembly technology and development, the development of and market demand for medical devices, product commercialization and adoption, production capabilities, capital expenditures and capital resources, average selling prices, product costs, inventory levels, division and company-wide revenue, gross profits and operating results, manufacturing capacity, assembly operations in Asia, cost reductions and economic and market conditions. Words such as “believe,” “anticipate,” “expect,” “intend,” “estimate,” “approximate,” “plan,” “goal” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these statements are reasonable, forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” beginning on page 10 in our most recent Annual Report on Form 10-K for the fiscal year ended September 27, 2009. This list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which the statements are made, and we undertake no obligation to update any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. You should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as noted in this Item 3, there have been no material changes in our exposure to market risk or to our quantitative and qualitative disclosures about market risk as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2009.

As of June 27, 2010, we had fixed rate debt of $198,844,000, which reflects a decrease of $46,707,000 from the end of our most recently completed fiscal year. This decrease resulted from the repayment of certain debt at maturity and from note repurchases. At June 27, 2010, our fixed rate debt had a fair market value of approximately $163,294,000.

As of June 27, 2010, we did not have any outstanding derivative contracts on our consolidated balance sheets.

Subsequent to the end of the third quarter of 2010, we exercised the rights issued to us in the Rights Offering for the remaining $44,550,000 of ARS held by us and subject to the Rights Offering. The remaining $33,880,000 balance of the UBS Credit Line secured by these securities was repaid, reducing both our cash and investments balance and our current debt by $33,880,000.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 27, 2010, to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

Except as noted below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2009.

We may be unable to achieve our financial and strategic goals in connection with investments in new manufacturing locations.

We are currently establishing an assembly operation in Thailand to manufacture our disk drive products. We may have significant unanticipated additional costs from constructing and initiating production at our new location, difficulty attracting or retaining key technical and managerial personnel for our new location, or difficulty integrating our new location operations into our existing operations. The creation and ongoing management of assembly operations in Thailand may divert management’s attention and resources from business issues related to our existing locations. We also may fail to identify significant issues in connection with our new location, such as issues related to its workforce, quality or reporting systems, local tax, legal and financial controls or contingencies. Additionally our operations in Thailand may be subject to various political, economic and other risks and uncertainties inherent in operating in foreign jurisdictions. Thailand has experienced political unrest in the past and recently experienced significant civil unrest. Continued or future civil or political unrest in Thailand could adversely affect our ability to initiate and maintain operations in Thailand. An inability to manage these risks as part of our investment in a new manufacturing location could materially adversely affect our business, financial condition and results of operations.

Healthcare reform legislation could adversely affect our revenue and financial condition.

In March 2010, significant healthcare reform legislation was adopted as law in the United States. The new law includes provisions that, among other things, reduce Medicare reimbursements, require all individuals to have health insurance (with certain limited exceptions), and impose new and increased taxes, including an excise tax on U.S. sales of most medical devices beginning in 2013. We are evaluating the impact of this legislation on our business. Other healthcare legislation has been proposed at the federal and state levels. We cannot predict which proposals, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. The implementation of the new law and the adoption of additional healthcare legislation could adversely affect the demand for and pricing of our BioMeasurement Division products and, therefore, could have an adverse effect on our results of operations.

ITEM 6. EXHIBITS

(a) Exhibits:

Unless otherwise indicated, all documents incorporated herein by reference to a document filed with the SEC pursuant to the Exchange Act, are located under SEC file number 1-34838.

3.1		Amended and Restated Articles of Incorporation of HTI (incorporated by reference to Exhibit 3.1 to HTI’s Quarterly Report on Form 10-Q for the quarter ended 12/29/02; File No. 0-14709).
3.2		Restated By-Laws of HTI, as amended December 3, 2008 (incorporated by reference to Exhibit 3.1 to HTI’s Current Report on Form 8-K filed 12/9/08; File No. 0-14709).
4.1		Rights Agreement, dated as of July 29, 2010, between Hutchinson Technology Incorporated and Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 1 to HTI’s Registration Statement on Form 8-A filed 7/30/10).
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32		Section 1350 Certifications.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEX TO EXHIBITS

Exhibit No.						Page
3.1		Amended and Restated Articles of Incorporation of HTI.				Incorporated by Reference
3.2		Restated By-Laws of HTI, as amended December 3, 2008.				Incorporated by Reference
4.1		Rights Agreement, dated as of July 29, 2010, between Hutchinson				Incorporated by Reference
		Technology Incorporated and Wells Fargo Bank, N.A., as Rights
		Agent (incorporated by reference to Exhibit 1 to HTI’s
		Registration Statement on Form 8-A filed 7/30/10).
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.				Filed Electronically
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.				Filed Electronically
32		Section 1350 Certifications.				Filed Electronically