HUTCHINSON TECHNOLOGY INC - FORM 10-Q

Attached files

file	filename
EX-32 - HUTCHINSON TECHNOLOGY INC	ex32.htm
EX-31 - HUTCHINSON TECHNOLOGY INC	ex31-2.htm
EX-31 - HUTCHINSON TECHNOLOGY INC	ex31-1.htm

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 For the quarterly period ended June 28, 2015

	Or

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________

Commission File Number 001-34838

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)

(320) 587-3797

(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 ¨

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 þ No ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer þ

Non-accelerated filer ¨

Smaller reporting company ¨

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

Yes ¨ 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, 2015, the registrant had 33,526,029 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 28, 2015			September 28, 2014
ASSETS
Current assets:
Cash and cash equivalents (Note 2)	$	35,387		$	37,939
Short-term investments restricted (Note 3)		965			965
Trade receivables, net (Note 4)		21,287			23,971
Other receivables		2,021			2,894
Inventories		43,960			48,978
Other current assets		2,822			4,323
Total current assets		106,442			119,070

Property, plant and equipment, net		145,306			153,169
Other assets		4,602			2,926
Total assets	$	256,350		$	275,165

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current debt, net of discount (Note 6)	$	6,000		$	48,731
Current portion of capital lease obligation		2,434			2,109
Accounts payable		17,214			19,055
Accrued expenses		7,481			6,406
Accrued compensation		9,688			9,312
Total current liabilities		42,817			85,613

Long-term debt, net of discount (Note 6)		122,565			87,168
Capital lease obligation		5,106			4,464
Other long-term liabilities		3,916			3,092
Commitments and contingencies (Notes 6 and 7)
Shareholders’ equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 33,526,000 and 28,058,000 issued and outstanding		335			281
Additional paid-in capital		451,767			433,308
Accumulated other comprehensive loss		(2,176	)		(543	)
Accumulated loss		(367,980	)		(338,218	)
Total shareholders’ equity		81,946			94,828
Total liabilities and shareholders’ equity	$	256,350		$	275,165

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 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014

Net sales	$	54,675		$	59,772		$	189,457		$	190,783
Cost of sales		49,846			56,215			166,902			175,833
Gross profit		4,829			3,557			22,555			14,950

Research and development expenses		5,165			4,157			18,304			12,488
Selling, general and administrative expenses		5,726			5,268			17,559			17,343
Severance and site consolidation expenses (Note 10)		–			1,544			159			2,786
Asset impairment (Note 9)		–			–			–			4,470
Loss from operations		(6,062	)		(7,412	)		(13,467	)		(22,137	)

Other (expense) income, net		(1,004	)		179			(1,292	)		(2,238	)
Loss on extinguishment of long-term debt		–			–			(4,318	)		–
Interest income		7			28			26			63
Interest expense		(3,086	)		(3,987	)		(10,809	)		(11,723	)
Loss before income taxes		(10,145	)		(11,192	)		(29,860	)		(36,035	)
Provision (benefit) for income taxes (Note 12)		15			15			(98	)		(776	)
Net loss	$	(10,160	)	$	(11,207	)	$	(29,762	)	$	(35,259	)
Basic loss per share	$	(0.30	)	$	(0.40	)	$	(0.92	)	$	(1.26	)
Diluted loss per share	$	(0.30	)	$	(0.40	)	$	(0.92	)	$	(1.26	)

Weighted-average common shares outstanding		33,493			28,055			32,437			27,967
Weighted-average diluted shares outstanding		33,493			28,055			32,437			27,967

See accompanying notes to condensed consolidated financial statements – unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS – UNAUDITED

(In thousands)

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014

Net loss	$	(10,160	)	$	(11,207	)	$	(29,762	)	$	(35,259	)
Other comprehensive (loss) income
Foreign currency translation, net of income taxes of $0		(1,451	)		16			(1,633	)		(442	)
Other comprehensive (loss) income		(1,451	)		16			(1,633	)		(442	)
Total comprehensive loss	$	(11,611	)	$	(11,191	)	$	(31,395	)	$	(35,701	)

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 28, 2015			June 29, 2014
OPERATING ACTIVITIES:
Net loss	$	(29,762	)	$	(35,259	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization		24,134			28,944
Stock-based compensation		1,041			976
Loss on disposal of assets		63			80
Asset impairment charges (Note 9)		–			4,470
Non-cash interest expense		1,622			2,475
Loss on extinguishment of debt (Note 6)		4,318			–
Severance and site consolidation expenses (Note 10)		(27	)		949
Changes in operating assets and liabilities		9,463			(2,293	)
Cash provided by operating activities		10,852			342

INVESTING ACTIVITIES:
Capital expenditures		(17,344	)		(13,396	)
Proceeds from sale/leaseback of equipment		3,111			6,395
Proceeds from sale of building and related assets		–			4,364
Change in restricted cash		19			1,609
Purchases of marketable securities		(965	)		(1,195	)
Sales/maturities of marketable securities		965			1,200
Cash used for investing activities		(14,214	)		(1,023	)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock		60			26
Repayments of capital lease		(1,749	)		(1,230	)
Repayments of revolving credit line		(100,389	)		(153,950	)
Proceeds from revolving credit line		93,856			154,770
Repayments of debt		(40,572	)		–
Proceeds from private placement of debt		37,500			–
Proceeds from term loan		15,000			–
Debt refinancing costs (Note 6)		(3,175	)		–
Cash provided by (used for) financing activities		531			(384	)

Effect of exchange rate changes on cash		279			657

Net decrease in cash and cash equivalents		(2,552	)		(408	)

Cash and cash equivalents at beginning of period		37,939			39,403

Cash and cash equivalents at end of period	$	35,387		$	38,995

Supplemental cash flow disclosure:
Cash interest paid (net of amount capitalized)	$	7,267		$	5,736
Income taxes paid	$	9		$	154
Assets acquired through capital lease	$	3,051		$	4,209
Non-cash exchange of debt for equity (Note 6)	$	15,000		$	–

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 “2015” mean our fiscal year ending September 27, 2015, references to “2014” mean our fiscal year ended September 28, 2014 and references to “2013” mean our fiscal year ended September 29, 2013.

(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. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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)

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of all highly liquid investments with original maturities of three months or less.

As of June 28, 2015, and September 28, 2014, we had $2,039,000 and $2,059,000, respectively, of cash and cash equivalents that were restricted in use included in the line item “Other current assets” on our condensed consolidated balance sheets. These amounts for both periods covered outstanding letters of credit and cash received and temporarily held in our senior secured credit facility collections account.

(3)

INVESTMENTS

A summary of our investments is as follows:

	June 28, 2015		September 28, 2014
Available-for-sale securities
U.S government debt securities	$	965	$	965

Our short-term investments are comprised of United States government debt securities. Unrealized gains and losses deemed to be temporary on available-for-sale securities are reported as other comprehensive gain or loss within shareholders’ equity.

As of June 28, 2015, our short-term investments were scheduled to mature within one year.

As of June 28, 2015, and September 28, 2014, we had $965,000 and $965,000, respectively, of short-term investments that were restricted in use. The amounts are required by the State of Minnesota to be held as security for our self-insured workers compensation program.

(4)

TRADE RECEIVABLES

Early in the second quarter of 2015, we received a $15,000,000 advance payment from a customer for suspension assemblies, which were shipped to that customer and recognized as revenue during our second and third quarters of 2015. On March 29, 2015, the last day of our second quarter, $5,985,000 of the advance payment remained outstanding and was included in the line item “Accrued expenses” on our condensed consolidated balance sheet. As of June 28, 2015, the full amount of advance payment was recognized as revenue.

We grant credit to our customers, but generally do not require collateral or any other security to support amounts due. Trade receivables of $21,287,000 at June 28, 2015, and $23,971,000 at September 28, 2014, are net of allowances for sales returns of $514,000 and $497,000, respectively.

During the thirteen weeks ended June 28, 2015, we entered into multiple independent bill of exchange discounting transactions under an uncommitted facility with Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch (“HSBC”), under which our Thai subsidiary, Hutchinson Technology Operations (Thailand) Co. Ltd., sold, without recourse, an aggregate of $23,613,000 of its accounts receivable to HSBC and was paid 95% of the face value of the accounts receivable, less interest expense of LIBOR plus 1.75%. Upon full payment of the accounts receivable by its customer to HSBC, our Thai subsidiary receives from HSBC the 5% remainder due on the receivable. As of June 28, 2015, there remained $856,000 to be paid to our Thai subsidiary from HSBC, all of which was included within the line item “Other receivables” on our condensed consolidated balance sheet.

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:

September 28, 2014				Increases in the Allowance Related to Warranties Issued				Reductions in the Allowance for Returns Under Warranties				June 28, 2015
$	497			$	3,070			$	(3,053	)		$	514

(5)

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 28, 2015, and September 28, 2014:

	June 28, 2015		September 28, 2014

Raw materials	$	17,982	$	21,376
Work in process		10,636		11,860
Finished goods		15,342		15,742
	$	43,960	$	48,978

(6)

Debt

Debt consisted of the following at June 28, 2015, and September 28, 2014:

	June 28, 2015			September 28, 2014

8.50% Convertible Notes	$	–		$	39,822
8.50% Convertible Notes debt discount		–			(624	)
8.50% Secured Notes		63,931			78,931
8.50% Secured Notes debt discount		(2,043	)		(3,575	)
10.875% Notes		12,200			12,200
10.875% Notes debt discount		(273	)		(388	)
8.50% New Convertible Notes		37,500			–
PNC term loan		14,250			–
Senior secured credit facility		3,000			9,533
Total debt, net of discounts		128,565			135,899
Less: Current maturities, net of discounts		(6,000	)		(48,731	)
Total long-term debt, net of discounts	$	122,565		$	87,168

October 2014 Financing Transactions

On October 23, 2014, we issued $37,500,000 aggregate principal amount of 8.50% Convertible Senior Notes due 2019 (the “8.50% New Convertible Notes”). The 8.50% New Convertible Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on April 30 and October 31 of each year, beginning April 30, 2015. The 8.50% New Convertible Notes mature on October 31, 2019. Each $1,000 principal amount of the 8.50% New Convertible Notes is convertible into 266.6667 shares of our common stock (which is equal to an initial conversion price of approximately $3.75 per share), subject to adjustment under certain circumstances. The 8.50% New Convertible Notes rank pari passu in right of payment with all existing and future senior indebtedness of our company. Certain beneficial holders of the 8.50% New Convertible Notes had the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes was escrowed until the put right expired on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Senior Notes due 2026 (the “8.50% Convertible Notes”), plus accrued but unpaid interest thereon. We capitalized debt financing costs of $1,652,000 which are being amortized over five years or until the maturity date. The amortization expense is included in interest expense. On January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash.

On October 23, 2014, we entered into an agreement providing for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Senior Secured Second Lien Notes due 2017 (the “8.50% Secured Notes”) held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, the remaining 1,250,000 warrants were exercised, which resulted in the issuance of 1,246,428 shares of common stock and no warrants remain outstanding. The fair value of the common stock and warrants was recorded in additional paid-in capital in the amount of $17,388,000. Applying debt extinguishment accounting, we recorded a loss on extinguishment of debt of $4,318,000 in our first quarter of 2015. The loss also included $1,232,000 of broker, legal and accounting fees related to the exchange transaction.

To accommodate the October 2014 debt transactions described above, on October 20, 2014, we entered into supplemental indentures relating to our 8.50% Secured Notes and to our 10.875% Senior Secured Second Lien Notes due 2017 (the “10.875% Notes”). Additionally, on October 20, 2014, we entered into an amendment to our senior secured credit agreement, dated as of September 16, 2011, as previously amended, with PNC Bank, National Association (“PNC Bank”). Under the amendment, PNC Bank consented to the transactions contemplated by the 8.50% New Convertible Notes and the exchange transaction, referred to above.

8.50% Convertible Notes

As described previously, on January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. The 8.50% Convertible Notes were issued in February 2011 as part of a tender/exchange pursuant to an indenture dated as of February 11, 2011 and in July 2011 by exchange.

8.50% Secured Notes

We currently have outstanding $63,931,000 aggregate principal amount of 8.50% Secured Notes. The 8.50% Secured Notes were originally issued in March 2012 in the aggregate principal amount of $78,931,000. Of that total amount, $38,931,000 aggregate principal amount of 8.50% Secured Notes was issued pursuant to an effective registration statement relating to an offer to purchase for cash or exchange for new securities any and all of our outstanding 3.25% Convertible Subordinated Notes due 2026. The remaining $40,000,000 aggregate principal amount of 8.50% Secured Notes was issued in a private placement that included the issuance of warrants to purchase 3,869,000 shares of our common stock. The warrants were exercisable on a cashless basis for $.01 per share for ten years after their issuance. The total purchase price for the 8.50% Secured Notes and warrants issued in the private placement was $39,400,000. The fair value of the warrants was recorded in additional paid-in capital in the amount of $8,489,000. As of May 2013, all 3,869,000 warrants had been exercised and no warrants remain outstanding.

The 8.50% Secured Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, 2012, and mature on January 15, 2017, unless redeemed or repurchased in accordance with their terms. The 8.50% Secured Notes are secured by liens on all assets securing our existing or future senior secured credit facilities (other than certain excluded assets), which liens rank junior in priority to any liens securing our senior secured credit facilities and other permitted priority liens.

We may redeem all or part of the 8.50% Secured Notes at any time by paying 100% of the principal amount redeemed, plus a make-whole premium (and accrued and unpaid interest on the principal amount redeemed to) as of the date of redemption (subject to the rights of holders of the 8.50% Secured Notes on the relevant record date to receive interest due on the relevant interest payment date as and to the extent provided in the indenture). The indenture governing the 8.50% Secured Notes contains certain covenants that, among other things, will limit our and our restricted subsidiaries’ ability to incur additional indebtedness, pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, enter into agreements that restrict distributions from restricted subsidiaries, sell or otherwise dispose of assets, including capital stock of restricted subsidiaries, enter into transactions with affiliates, create or incur liens and enter into operating leases.

As described previously, on October 23, 2014, we entered into an agreement for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Secured Notes held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and no warrants remain outstanding.

10.875% Notes

On January 22, 2013, we issued $12,200,000 aggregate principal amount of the 10.875% Notes for a total purchase price of $11,590,000. The 10.875% Notes were issued in a private placement pursuant to an indenture dated as of January 22, 2013, and bear interest at a rate of 10.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, 2013. The 10.875% Notes are secured by liens on all assets securing our senior secured credit facilities (other than capital stock of subsidiaries of our company to the extent that inclusion of such capital stock would require the filing of separate financial statements for such subsidiaries with the SEC), which liens rank junior in priority to the liens securing our senior secured credit facilities and other permitted priority liens and on an equal and ratable basis with the liens securing our 8.50% Secured Notes. The 10.875% Notes are scheduled to mature on January 15, 2017, unless redeemed or repurchased in accordance with their terms. We may redeem all or a portion of the 10.875% Notes at any time by paying 100% of the principal amount redeemed, plus a make-whole premium as of, and accrued and unpaid interest to, the date of redemption.

To accommodate the January 2013 debt transactions, on January 22, 2013, we entered into (i) a first supplemental indenture to the indenture dated as of March 30, 2012, which governs the 8.50% Secured Notes, and (ii) a consent and third amendment to our revolving credit and security agreement.

Debt financing costs of $359,000 were capitalized and are being amortized over four years or until the maturity date. The amortization expense is included in interest expense.

Senior Secured Credit Facility

On September 22, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank. The amendment reduced the maximum principal amount of the revolving credit facility provided by the credit agreement from $35,000,000 to $20,000,000, extended the maturity date of the senior secured credit facility from October 1, 2014 to December 1, 2016, reduced the cash balance we are required to maintain in an account at PNC Bank from $15,000,000 to $2,500,000, and modified the fixed charge coverage covenant under the credit agreement by eliminating the requirement for the four fiscal quarters ending September 28, 2014 and changing the measurement periods thereafter for the fixed charge coverage covenant by excluding from such measurement periods all fiscal quarters ended on or prior to September 28, 2014.

The September 2014 amendment also required us to maintain cash on our balance sheet, including restricted cash, during the period from December 1, 2014 through January 16, 2015 (the day after the 2015 put date for our 8.50% Convertible Notes) and during the period from December 1, 2015 through January 16, 2016 the day after the 2016 put date for our 8.50% Convertible Notes) in an amount not less than the aggregate principal amount of our 8.50% Convertible Notes then outstanding, and to establish a reserve against our borrowing base during each such period in the same amount. The amendment permits us to redeem, repurchase or repay our 8.50% Convertible Notes in whole or in part at any time as long as, after giving effect to such redemption, repurchase or repayment, no default or event of default exists under the credit agreement and we have liquidity of not less than $20,000,000, and permits us to incur additional unsecured debt at any time prior to January 15, 2016 in an amount not to exceed the aggregate principal amount of our 8.50% Convertible Notes then outstanding as long as certain conditions are satisfied, including a requirement that, by the next put date for our 8.50% Convertible Notes, we reduce the aggregate principal balance of our 8.50% Convertible Notes by an amount equal to the principal amount of such additional unsecured debt then outstanding. This portion of the amendment no longer applies as we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes on January 15, 2015.

On April 30, 2015, we entered into an additional amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank to maintain compliance with a financial covenant of our credit agreement. The amendment (i) modified the fixed charge coverage covenant under our credit agreement to eliminate the requirement for our quarter ended March 29, 2015 and quarters ending June 28, 2015 and September 27, 2015 and changed the measurement periods starting with our quarter ending December 27, 2015 by excluding from such measurement periods all quarters ended on or prior to September 27, 2015, and (ii) implemented an additional earnings before interest, taxes, depreciation and amortization (“EBITDA”) covenant for our quarter ended March 29, 2015 and quarters ending June 28, 2015 and September 27, 2015.

Our credit agreement with PNC Bank and the indentures governing the 8.50% Secured Notes and the 10.875% Notes each contain certain covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur additional indebtedness; pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; enter into agreements that restrict distributions from restricted subsidiaries; sell or otherwise dispose of assets, including capital stock of restricted subsidiaries; enter into transactions with affiliates; create or incur liens; enter into operating leases; merge, consolidate or sell substantially all of our assets; make capital expenditures; change the nature of our business; and expend the assets or free cash flow of certain subsidiaries. The indentures also limit the amount of our consolidated total assets and free cash flow that can be attributable to subsidiaries that have not guaranteed the 8.50% Secured Notes or, in certain cases, have not pledged their stock to secure the 8.50% Secured Notes.

From time to time, we borrow funds under the senior secured credit facility. As of June 28, 2015, we had $3,000,000 outstanding which was repaid early in the following quarter. Our average outstanding balance in the thirty-nine weeks ended June 28, 2015 was $751,000. Amounts borrowed under the credit facility bear cash interest at a reduced rate equal to, at our election, either (i) PNC Bank’s alternate base rate plus 1.0% per annum, or (ii) LIBOR plus 3.5% per annum if no defaults or events of default exist under the credit agreement. The credit agreement contains certain financial covenants that require us to maintain a minimum fixed charge coverage ratio, minimum EBITDA and minimum liquidity. If we are unable to generate sufficient operating results in future quarters, we may not be able to comply with financial covenants in the credit agreement in future quarters. If necessary, we intend to negotiate a waiver of any noncompliance or an amendment of the financial covenant specific to the applicable period.

PNC Term Loan

On December 23, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank, as agent and lender. Pursuant to the amendment, a term loan was made to us in the amount of $15,000,000. The same covenants in our credit facility agreement with PNC Bank apply to this term loan. The term loan may consist of domestic rate loans, with a per annum interest rate equal to PNC Bank’s alternate base rate (as defined in the credit agreement) plus 2.50%, or LIBOR rate loans, with a per annum interest rate equal to 3.50% plus the greater of the LIBOR rate (as defined in the credit agreement) or 1.00%, or a combination thereof. As a result, our interest rate for the term loan has been 4.5%. The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. In the event that the senior secured credit facility is not extended beyond December 1, 2016, the balance due on the term loan also will become due on December 1, 2016. Once repaid, amounts borrowed under the term loan may not be reborrowed. As of June 28, 2015, we had an outstanding balance of $14,250,000.

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COMMITMENTS AND CONTINGENCIES

Lease Commitments

We have commitments under various capital and operating lease agreements. Assets acquired under capital leases are depreciated over the useful life of the asset.

The future minimum lease payments for all capital and operating leases as of June 28, 2015, were as follows:

	Capital Leases			Operating Leases
2015	$	741		$	237
2016		2,786			885
2017		2,583			277
2018		1,461			218
Thereafter		610			290
Total future minimum lease payments		8,181			1,907
Less: Interest		(641	)		–
Total future minimum lease payments excluding interest	$	7,540		$	1,907

Legal Proceedings

We and certain users of our products have from time to time received, and may in the future receive, communications from third parties asserting patents against us or our customers which may relate to certain of our manufacturing equipment or products or to products that include our products as a component. In addition, certain of our customers have been sued on patents having claims closely related to products sold by us. If any third party makes a valid infringement claim and a license was not available on terms acceptable to us, our operating results could be adversely affected. We expect that, as the number of patents issued continues to increase, and as we grow, the volume of intellectual property claims could increase. We may need to engage in litigation to enforce patents issued or licensed to us, protect trade secrets or know-how owned by us or determine the enforceability, scope and validity of the intellectual property rights of others. We could incur substantial costs in such litigation or other similar legal actions, which could have a material adverse effect on our results of operations.

We are a party from time to time to ordinary routine litigation incidental to our business. The outcome of such claims, if, any, is not expected to materially affect our current or future financial position or results of operations.

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ACCUMULATED OTHER COMPREHENSIVE LOSS

Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. Our other comprehensive loss is comprised of unrealized gains and losses on foreign translation adjustments.

Accumulated other comprehensive loss, net of tax (see Note 12 for a discussion of income taxes), was as follows:

	Foreign Currency Translation Adjustments
Balance as of September 28, 2014	$	(543	)
Other comprehensive loss		(1,633	)
Balance as of June 28, 2015	$	(2,176	)

Balance as of September 29, 2013	$	(148	)
Other comprehensive loss		(442	)
Balance as of June 29, 2014	$	(590	)

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ASSET IMPAIRMENT

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 or changes in our forecast model estimates could necessitate impairment recognition in future periods for other assets held for use.

In connection with the consolidation of our operations, two of our facilities were offered for sale or lease in 2013, including the Eau Claire, Wisconsin assembly building and the Development Center building on our Hutchinson, Minnesota campus. During the first quarter of 2014, we received third-party interest in purchasing the Eau Claire assembly building. Based on the discussions regarding the potential sale of this building, we modified our forecast model to increase the probability of a sale of our Eau Claire assembly building and decrease the probability of a lease. Using these new weightings for sale and lease, the carrying value of our assets exceeded the expected undiscounted cash flows indicating a trigger of potential impairment. As a result, we evaluated the recoverability of the Eau Claire assembly building based on these circumstances and recorded an impairment charge of $4,470,000 included in the line item “Asset impairment” in our condensed consolidated statement of operations. The building and related assets had remaining useful lives ranging from 15 to 30 years. We determined the long-lived assets did not meet the criteria to be classified as assets held for sale. During the second quarter of 2014, we sold the Eau Claire, Wisconsin assembly building, and related real and personal property for net proceeds of $4,364,000.

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SEVERANCE AND SITE CONSOLIDATION EXPENSES

A summary of our severance and site consolidation expenses as of June 28, 2015, is as follows:

	Severance			Site Consolidation Expenses			Total
Accrual balances, September 29, 2013	$	–		$	–		$	–
Restructuring charges		–			592			592
Cash payments		–			(592	)		(592	)
Accrual balances, December 29, 2013		–			–			–
Restructuring charges		366			284			650
Cash payments		–			(284	)		(284	)
Accrual balances, March 30, 2014		366			–			366
Restructuring charges		1,339			205			1,544
Cash payments		(756	)		(205	)		(961	)
Accrual balances, June 29, 2014		949			–			949
Restructuring charges		(328	)		268			(60	)
Cash payments		(594	)		(268	)		(862	)
Accrual balances, September 28, 2014		27			–			27
Restructuring charges		(19	)		178			159
Cash payments		(8	)		(178	)		(186	)
Accrual balances, December 28, 2014		–			–			–

All severance and benefits amounts owed have been paid in full and no additional severance or site consolidation costs have been incurred since December 28, 2014.

In recent years, we had multiple severance and manufacturing consolidation and restructuring plans in place to support efforts to improve operating results and liquidity through improved utilization of our facilities in both the U.S. and Thailand.

During the second quarter of 2014, as part of shutting down our Eau Claire, Wisconsin assembly operations and our continued consolidation efforts, we identified approximately 70 positions to be eliminated. This resulted in $366,000 of severance expense in the second quarter of 2014.

During the third quarter of 2014, we identified approximately 100 additional positions to be eliminated at our Eau Claire, Wisconsin and Hutchinson, Minnesota sites to further reduce costs. This resulted in $1,339,000 of severance expense in the third quarter of 2014.

During the fourth quarter of 2014, we retained approximately 40 of the previously identified positions for manufacturing of our shape memory alloy optical image stabilization product.

In connection with the consolidation of our operations, we recorded site consolidation expenses of $178,000 during the thirty-nine weeks ended June 28, 2015 and $1,081,000 during the thirty-nine weeks ended June 29, 2014. The site consolidation expenses consisted primarily of internal labor and contractors.

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OTHER EXPENSE

Transaction gains and losses that arise from the exchange rate changes on transactions denominated in a currency other than the local currency are included in “Other income (expense), net” in our condensed consolidated statements of operations. For the thirteen and thirty-nine weeks ended June 28, 2015, we recognized foreign currency losses of $1,093,000 and $1,594,000, respectively. For the thirteen and thirty-nine weeks ended June 29, 2014, we recognized a foreign currency gain of $123,000 and a foreign currency loss of $2,471,000, respectively. These were primarily related to U.S. dollar-denominated inter-company liabilities owed to us by our Thai subsidiary.

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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 statements 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 28, 2014, we had a valuation allowance of $227,219,000. We assess whether valuation allowances should be established against our 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. Our current or previous losses are given more weight than our future outlook. 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 was 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 benefit for the thirty-nine weeks ended June 28, 2015, was $98,000, compared to the income tax benefit of $776,000 for the thirty-nine weeks ended June 29, 2014. For the thirty-nine weeks ended June 28, 2015, the net benefit of $98,000 is made up of a credit for the refund of previously paid U.S. Federal Alternative Minimum Tax, offset primarily by various foreign withholding and income taxes we incur. For the thirty-nine weeks ended June 29, 2014, we recognized an $859,000 benefit due to reserves for certain tax refunds that were released due to the expiration of the applicable statute of limitations.

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STOCK-BASED COMPENSATION

Our 2011 Equity Incentive Plan has been approved by shareholders and authorizes the issuance of 1,200,000 shares of our common stock (plus any shares that remained available on that date for future grants under our 1996 Incentive Plan) for equity-based awards (no further awards will be made under our 1996 Incentive Plan). Under the equity incentive plans, stock options have been granted to employees, including our officers, and to our directors, at an exercise price not less than the fair market value of our common stock at the date the options are granted. The options granted 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 plans. Options granted under the plans prior to November 2005 generally were exercisable one year from the date of grant. Options granted under the plans from November 2005 to October 2011 are exercisable two to three years from the date of grant. Options granted under the plans since November 2011 are exercisable one to three years from the date of grant.

Under our equity incentive plan, we also have issued restricted stock units (“RSUs”) to employees, including our officers. RSUs generally vest over three years in annual installments commencing one year after the date of grant. We recognize compensation expense for the RSUs over the service period equal to the fair market value of the RSUs on the date of issuance. Upon vesting, RSUs convert to shares in accordance with the terms of the equity incentive plan under which they were issued.

We recorded stock-based compensation expense related to our stock options, RSUs and common stock, included in selling, general and administrative expenses, of $1,041,000 and $976,000 for the thirty-nine weeks ended June 28, 2015, and June 29, 2014, respectively. As of June 28, 2015, $2,491,000 of unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted-average period of approximately 20 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 28, 2015, and June 29, 2014, was $2.42 and $2.34, 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 28, 2015			June 29, 2014
Risk-free interest rate		2.0	%		2.3	%
Expected volatility		70.0	%		80.0	%
Expected life (in years)		8.0			8.0
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 28, 2015, are summarized as follows:

	Number of Shares			Weighted-Average Exercise Price ($)		Weighted-Average Remaining Contractual Life (yrs.)
Outstanding at September 28, 2014		3,134,042			9.80	5.3
Granted		370,000			3.44
Exercised		(2,500	)		3.03
Expired/Canceled		(162,825	)		29.22
Outstanding at June 28, 2015		3,338,717			8.15	5.3
Options exercisable at June 28, 2015		2,632,697			9.52	4.4

The aggregate intrinsic value at June 28, 2015, of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) outstanding was $111,000. The aggregate intrinsic value of our stock options exercisable at June 28, 2015, was $87,000.

The following table summarizes the status of options that remain subject to vesting:

	Number of Shares			Weighted- Average Grant Date Fair Value ($)		Weighted- Average Remaining Contractual Life (yrs.)
Non-vested at September 28, 2014		625,565			1.86	8.6
Granted		370,000			2.61
Vested		(289,545	)		1.70
Canceled		–			–
Non-vested at June 28, 2015		706,020			2.32	8.8

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

	Options Outstanding					Options Exercisable
Range of Exercise Prices ($)	Number Outstanding		Weighted-Average Remaining Contractual Life (yrs.)	Weighted-Average Price ($)		Number Exercisable		Weighted-Average Exercise Price ($)
1.45 - 3.00		912,387	7.6		2.12		596,367		1.90
3.01 - 5.00		1,207,322	6.3		3.18		817,322		3.05
5.01 - 10.00		514,383	4.4		7.33		514,383		7.33
10.01 - 37.95		704,625	1.5		25.08		704,625		25.08
Total		3,338,717	5.3		8.15		2,632,697		9.52

RSU transactions during the thirty-nine weeks ended June 28, 2015, are summarized as follows:

	Number of RSUs			Weighted- Average Grant Date Fair Value ($)
Non-vested at September 28, 2014		782,091			2.17
Granted		361,850			3.43
Vested		(422,845	)		2.02
Canceled		(23,198	)		2.67
Non-vested at June 28, 2015		697,898			2.90

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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 identifies the dilutive effect of potential common shares using net loss available to common shareholders and is computed using the treasury stock method for outstanding stock options and the if-converted method for the 8.50% Convertible Notes and the 8.50% New Convertible Notes.

A reconciliation of these amounts is as follows:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Net loss	$	(10,160	)	$	(11,207	)	$	(29,762	)	$	(35,259	)

Weighted-average common shares outstanding		33,493			28,055			32,437			27,967
Dilutive potential common shares		–			–			–			–
Weighted-average common and diluted shares outstanding		33,493			28,055			32,437			27,967

Basic loss per share	$	(0.30	)	$	(0.40	)	$	(0.92	)	$	(1.26	)

Diluted loss per share	$	(0.30	)	$	(0.40	)	$	(0.92	)	$	(1.26	)

Diluted loss per share for the thirteen weeks ended June 28, 2015, excludes potential common shares of 141,000 using the treasury stock method, and 10,000,000 using the if-converted method for the 8.50% Convertible Notes and the 8.50% New Convertible Notes, as they were anti-dilutive. Diluted loss per share for the thirteen weeks ended June 29, 2014, excludes potential common shares and warrants of 217,000 using the treasury stock method, and 4,630,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive. Diluted loss per share for the thirty-nine weeks ended June 28, 2015, excludes potential common shares of 238,000 using the treasury stock method, and 10,953,000 using the if-converted method for the 8.50% Convertible Notes and the 8.50% New Convertible Notes, as they were anti-dilutive. Diluted loss per share for the thirty-nine weeks ended June 29, 2014, excludes potential common shares and warrants of 338,000 using the treasury stock method, and 4,630,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive.

As discussed in Note 6, on October 23, 2014, we issued 2,500,000 shares of common stock and warrants to purchase 2,500,000 shares of our common stock as part of an exchange transaction. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and no warrants remain outstanding.

As discussed in Note 6, in March 2012, we issued warrants to purchase 3,869,000 shares of our common stock in a private placement. As of May 2013, all 3,869,000 warrants had been exercised and no warrants remain outstanding.

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FAIR VALUE MEASUREMENTS

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:

Level 1 –	Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 –	Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or

Level 3 –	Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets or liabilities.

The following tables present our assets that are measured at fair value on a recurring basis at June 28, 2015, and September 28, 2014:

	Fair Value Measurements at June 28, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	965	$	–	$	–	$	965

	Fair Value Measurements at September 28, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	965	$	–	$	–	$	965

Available-for-Sale Securities

Our available-for-sale securities are comprised of United States government debt securities. The fair value is based on quoted market prices in active markets.

Debt

The fair values of our 8.50% Convertible Notes and 8.50% Secured Notes were determined based on the closing market price of the respective Notes as of the end of the fiscal quarter. The fair values of the 8.50% Convertible Notes and 8.50% Secured Notes were classified in Level 2 of the fair value hierarchy due to minimal trading activity.

Our 10.875% Notes have not experienced trading activity; therefore the fair value estimate was based on the closing market prices of comparable debt as of the end of the fiscal quarter. Our 8.50% New Convertible Notes have not experienced trading activity; therefore the fair value estimate was based on market variables combined with variables specific to our notes to determine the theoretical value. The fair values of the 10.875% Notes and the 8.50% New Convertible Notes were classified in Level 2 of the fair value hierarchy.

The fair values of the PNC Bank credit facility and term loan’s carrying values are a reasonable estimate of fair value because of their short-term nature. The fair value measurement for the credit facility and term loan was classified in Level 2 of the fair value hierarchy.

The estimated fair values of our debt were as follows on each of the indicated dates:

	June 28, 2015				September 28, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
8.50% Convertible Notes	$	–	$	–	$	39,822	$	39,125
8.50% Secured Notes		63,931		63,611		78,931		79,720
10.875% Notes		12,200		12,972		12,200		13,025
8.50% New Convertible Notes		37,500		35,591		–		–
PNC term loan		14,250		14,250		–		–
Credit facility		3,000		3,000		9,533		9,533

Other

Our financial instruments other than those presented in the disclosures above, include accounts receivable, accounts payable, and other payables. The carrying value of accounts receivable, accounts payable, and other payables approximate fair value because of the short-term nature of these instruments. The fair values of these instruments were classified in Level 1 of the fair value hierarchy.

Nonrecurring Fair Value Measurements

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These include certain long-lived assets that are written down to fair value when they are determined to be impaired. In the first quarter of 2014, we recognized an impairment of $4,470,000 related to our Eau Claire assembly building using a valuation methodology based on Level 3 inputs. See Note 9 to the consolidated financial statements for additional details regarding this impairment.

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SUBSEQUENT EVENTS

We evaluated subsequent events after the balance sheet date through the date the condensed 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 condensed 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 “2015” mean our fiscal year ending September 27, 2015, references to “2014” mean our fiscal year ended September 28, 2014, and references to “2013” mean our fiscal year ended September 29, 2013.

This 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 28, 2014.

GENERAL

Our Company

We are a global supplier of critical precision component technologies. As a key supplier of suspension assemblies for disk drives, we help customers improve overall disk drive performance and meet the demands of an ever-expanding digital universe. Through our new business development initiatives, we focus on leveraging our unique precision manufacturing capabilities in new markets to improve product performance, reduce size, lower cost and reduce time to market.

General Business

The majority of our revenue is derived from the sale of suspension assemblies to a small number of manufacturers. Suspension assemblies are precise electro-mechanical components that hold a disk drive’s read/write head at microscopic distances above the drive’s disks.

Sales to our three largest customers constituted 96% of net sales for the thirty-nine weeks ended June 28, 2015, as shown in the following table.

Customer	Percentage of Sales
Western Digital Corporation		52	%
Seagate Technology, LLC		26	%
SAE Magnetics, Ltd/TDK Corporation		18	%

Significant portions of our revenue may be indirectly attributable to large manufacturers of disk drives, such as Western Digital Corporation, Seagate Technology, LLC and Toshiba Corporation, which may purchase read/write head assemblies that utilize our suspension assemblies from SAE Magnetics, Ltd/TDK Corporation. We expect to continue to depend on a limited number of customers for our sales, given the small number of disk drive manufacturers and head-gimbal assemblers. Our results of operations could be adversely affected by reduced demand from any one disk drive industry customer.

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

	Suspension Assembly Shipments by Quarter
	2014								2015
	First		Second		Third		Fourth		First		Second		Third
Suspension assembly shipment quantities		116		102		98		116		122		101		87

Our suspension assembly shipments totaled 122 million in the first quarter of 2015, up 5% compared with 116 million in the fourth quarter of 2014. The increase was primarily due to increased participation on customers’ disk drive programs and growth in the suspension assembly market. In the second quarter of 2015, suspension assembly shipments decreased 17% to 101 million. The decrease was primarily due to a seasonal decline and weakness in the personal computing (“PC”) market. In the third quarter of 2015, suspension assembly shipments decreased 14% to 87 million. The decline in shipments resulted from the seasonal slowdown in disk drive demand, weakness in PC demand and inventory reductions in the PC supply chain. Demand for suspension assemblies typically strengthens in the second half of the calendar year and we expect our shipments to increase in our fourth quarter of 2015.

Average selling price was $0.59 for the second and third quarters of 2015, compared with $0.58 for the first quarter of 2015 and the fourth quarter of 2014. The increase in 2015 resulted from a mix of products shipped that included more dual-stage actuated (“DSA”) suspension assemblies that carried higher pricing.

Gross profit in the third quarter of 2015 was $4,829,000, or 9% of net sales, compared with $6,262,000 in the second quarter of 2015, or 10% of net sales, and $11,464,000, or 16% of net sales, in the first quarter of 2015. Gross profit in the first quarter of 2015 benefited from the higher volume in that quarter, improved operating performance and the benefits of cost reductions achieved through our restructuring and site consolidation actions. Gross profit in the second and third quarters of 2015 declined as a result of lower volume in those quarters. We have been managing our costs to mitigate the impact of lower suspension assembly volume on gross profit and operating income. We intend to continue improving our vertically integrated cost model while leveraging our capacity and technology investments in the U.S. and Thailand. Our Thailand assembly operation accounted for 89% of our assembly production during the third quarter of 2015, up from 85% in the second quarter of 2015 and 77% in the first quarter of 2015.

As part of our new business development efforts, we have been developing an optical image stabilization (“OIS”) actuator for a smartphone camera. Our OIS actuator is based on shape memory alloy (“SMA”) technology that improves picture and video quality, particularly in low-light conditions, and offers performance and size advantages over current OIS solutions. We are bringing this product to market with our partner, Cambridge Mechatronics Ltd., a high technology design and engineering company based in Cambridge, England. Late in 2014, our first SMA OIS production line was installed. The first smartphone incorporating our SMA OIS actuator was introduced in January 2015 for the Taiwan market. It was a low volume offering which allowed us to promote our SMA OIS product and its performance and reliability. On July 30, 2015, we introduced a new SMA OIS actuator that is 70% thinner than our original product and that significantly lowers our capital investment and production costs. We believe this new design has fundamental advantages that bring superior value and capability to the marketplace and that the product is well aligned with the needs of camera module and smartphone manufacturers. We are focused on introducing our new offering to the market, earning positions on new smartphone programs, and optimizing our manufacturing processes for the new design. We expect our SMA OIS products will generate minimal revenue during 2015. While we are still in the early stages with this product and volumes initially are low, we are encouraged by the interest our SMA OIS actuators are attracting and the significant opportunity that the smartphone camera market may provide. During the first three quarters of 2015, all of the costs of our SMA OIS initiative were classified as research and development expenses.

Outlook

We expect our suspension assembly shipments to increase due to typical seasonal strengthening of disk drive demand, our high level of development activity with customers and our expanding program wins across the disk drive segments. We expect suspension assembly shipments in our fourth quarter of 2015 to increase 10% to 20% compared with our third quarter of 2015. Our average selling price is expected to range from $0.57 to $0.58, depending on product mix. With the higher shipment volume, our gross profit should improve. We expect research and development expenses to be less than $5,000,000 in the fourth quarter of 2015, down from $5,165,000 in the third quarter of 2015, as we continue the development of our SMA OIS product and processes.

RESULTS OF OPERATIONS

Thirteen Weeks Ended June 28, 2015 vs. Thirteen Weeks Ended June 29, 2014

Net sales for the thirteen weeks ended June 28, 2015, were $54,675,000, compared to $59,772,000 for the thirteen weeks ended June 29, 2014, a decrease of $5,097,000. The decrease was primarily due to an 11% decrease in shipments of suspension assemblies, partially offset by a slight increase in our average selling price. The increase in our average selling price was due to the mix of products shipped that included more DSA suspension assemblies that carried higher pricing.

Gross profit for the thirteen weeks ended June 28, 2015, was $4,829,000, compared to gross profit of $3,557,000 for the thirteen weeks ended June 29, 2014, an increase of $1,272,000. Gross profit was 9% of net sales for the thirteen weeks ended June 28, 2015 and 6% of net sales for the thirteen weeks ended June 29, 2014. The increase in gross profit was primarily due to benefits of the cost reductions achieved through our restructuring and site consolidation actions and improved operating performance, partially offset by decreased net sales.

Research and development expenses for the thirteen weeks ended June 28, 2015, were $5,165,000, compared to $4,157,000 for the thirteen weeks ended June 29, 2014, an increase of $1,008,000. The increase was primarily due to higher development costs for our SMA OIS actuators for smartphone cameras.

During the thirteen weeks ended June 29, 2014, we identified approximately 100 positions to be eliminated as part of our continued focus on overall cost reductions. This and our site consolidation activities resulted in $1,544,000 of severance and site consolidation expenses. The site consolidation expenses were primarily contractors and internal labor related to the consolidation. All severance and benefits amounts owed have been paid in full.

Other (expense) income, net, for the thirteen weeks ended June 28, 2015, included a foreign currency loss of $1,093,000, compared to a foreign currency gain of $123,000 for the thirteen weeks ended June 29, 2014. The gain and loss was primarily related to U.S. dollar-denominated inter-company liabilities owed to us by our Thai subsidiary.

Interest expense for the thirteen weeks ended June 28, 2015, was $3,086,000, compared to $3,987,000 for the thirteen weeks ended June 29, 2014, a decrease of $901,000. The decrease in interest expense was primarily due to a reduction in our outstanding debt amounts.

Thirty-Nine Weeks Ended June 28, 2015 vs. Thirty-Nine Weeks Ended June 29, 2014

Net sales for the thirty-nine weeks ended June 28, 2015, were $189,457,000, compared to $190,783,000 for the thirty-nine weeks ended June 29, 2014, a decrease of $1,326,000. The decrease was primarily due to decreased shipments of suspension assemblies, partially offset by a slight increase in our average selling price. The increase in our average selling price was due to the mix of products shipped that included more DSA suspension assemblies that carried higher pricing.

Gross profit for the thirty-nine weeks ended June 28, 2015, was $22,555,000, compared to gross profit of $14,950,000 for the thirty-nine weeks ended June 29, 2014, an increase of $7,605,000. Gross profit as a percent of net sales was 12% and 8% for the thirty-nine weeks ended June 28, 2015, and June 29, 2014, respectively. The increase in gross profit was primarily due to benefits of the cost reductions achieved through our restructuring and site consolidation actions and improved operating performance, partially offset by decreased net sales.

Research and development expenses for the thirty-nine weeks ended June 28, 2015, were $18,304,000, compared to $12,488,000 for the thirty-nine weeks ended June 29, 2014, an increase of $5,816,000. The increase was primarily due to higher development costs for our SMA OIS actuators for smartphone cameras.

For the thirty-nine weeks ended June 29, 2014, we identified approximately 170 positions to be eliminated as part of our continued consolidation effort and our continued focus on overall cost reductions. This and our site consolidation activities resulted in $2,786,000 of severance and site consolidation expenses. The site consolidation expenses were primarily internal labor and contractors related to the consolidation. All severance and benefits amounts owed have been paid in full.

The thirty-nine weeks ended June 29, 2014, included an asset impairment charge of $4,470,000 on our Eau Claire, Wisconsin assembly building and related assets.

Other income (expense), net, for the thirty-nine weeks ended June 28, 2015, included a foreign currency loss of $1,594,000, compared to a foreign currency loss of $2,471,000 for the thirty-nine weeks ended June 29, 2014. These losses were primarily related to U.S. dollar-denominated inter-company liabilities owed to us by our Thai subsidiary.

On October 23, 2014, we entered into an agreement providing for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Senior Secured Second Lien Notes due 2017 (the “8.50% Secured Notes”) held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. The fair value of the common stock and warrants was recorded in additional paid-in capital in the amount of $17,388,000. Applying debt extinguishment accounting, we recorded a loss on extinguishment of debt of $4,318,000 in our first quarter of 2015. The loss also included $1,232,000 of broker, legal and accounting fees related to the exchange transaction.

Liquidity and Capital Resources

We continue to incur net losses which have dampened our ability to generate cash from operations. We currently believe that our cash and cash equivalents, restricted cash, short-term investments, cash flow from operations, credit facility, leasing, bill of exchange transactions, and additional financing, if needed and as available given contractual restrictions, current credit market conditions and our operating performance, will be sufficient to meet our forecasted operating expenses, debt service and capital expenditures through 2016. As of June 28, 2015, we had outstanding $63,931,000 aggregate principal amount of our 8.50% Secured Notes, $12,200,000 aggregate principal amount of our 10.875% Senior Secured Second Lien Notes due 2017 (the “10.875% Notes”), and $37,500,000 of our 8.50% Convertible Senior Notes due 2019 (the “8.50% New Convertible Notes”). Our 8.50% Secured Notes and our 10.875% Notes mature on January 15, 2017 and our 8.50% New Convertible Notes mature on October 31, 2019.

During the first quarter of 2015, we obtained a $15,000,000 term loan from PNC Bank, National Association (“PNC Bank”). The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. As of June 28, 2015, we had $14,250,000 outstanding. See below for additional details.

In October 2014, we completed a debt offering that provided for the sale of $37,500,000 aggregate principal amount of 8.50% New Convertible Notes. We also completed an exchange of $15,000,000 aggregate principal amount of 8.50% Secured Notes for 2,500,000 shares of common stock and warrants to purchase an additional 2,500,000 shares of which 1,250,000 were exercised in November 2014 and the remaining 1,250,000 were exercised in January 2015. Certain beneficial holders of the 8.50% New Convertible Notes had the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes was escrowed until this put right expired on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Senior Notes due 2026 (the “8.50% Convertible Notes”), plus accrued but unpaid interest thereon. On January 15, 2015, we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash. Details of this debt offering and exchange are discussed below.

On April 30, 2015, we entered into an amendment to our existing senior secured credit facility with PNC Bank that modifies a certain covenant and adds an additional EBITDA requirement as discussed in more detail below.

We may from time to time seek to prepay or retire our outstanding debt through cash purchases in open market or privately negotiated transactions or otherwise. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Our ability to obtain additional financing will depend upon a number of factors, including our future and historical performance and financial results, contractual restrictions and general economic and capital market conditions. We cannot be certain that we will be able to raise additional financing on terms acceptable to us, including covenants that we will be able to comply with in the short term, or at all, if needed. We sold a portion of one of our facilities in the second quarter of 2014 and have a facility in Hutchinson, Minnesota currently offered for sale or lease, which may provide an additional source of cash.

Our principal sources of liquidity are cash and cash equivalents, short-term investments, cash flow from operations, our credit facility, leasing, bill of exchange transactions, and additional financing capacity, if available given contractual restrictions, current credit market conditions and our operating performance. Our cash and cash equivalents decreased from $37,939,000 at September 28, 2014, to $35,387,000 at June 28, 2015. Our short-term investments remained at $965,000 and are restricted in use. In total, our cash and cash equivalents and short-term investments decreased by $2,552,000.

Cash Provided by Operating Activities

Cash provided by operating activities for the thirty-nine weeks ended June 28, 2015, was $10,852,000, compared to cash provided by operating activities of $342,000 for the thirty-nine weeks ended June 29, 2014. The increase in operating cash flows was primarily due to changes in working capital related to inventory and receivables.

Cash Used for Investing Activities

For the thirty-nine weeks ended June 28, 2015, cash used for investing activities was $14,214,000, compared to cash used for investing activities of $1,023,000 for the thirty-nine weeks ended June 29, 2014. The cash used for the thirty-nine weeks ended June 28, 2015, was primarily due to $17,344,000 of capital expenditures for manufacturing equipment for new process technology and capability improvements and product tooling, partially offset by $3,111,000 of equipment sale/leaseback transactions in Thailand. The cash used for the thirty-nine weeks ended June 29, 2014, was primarily due to $13,396,000 of capital expenditures for manufacturing equipment for new process technology and capability improvements and product tooling, offset by $6,395,000 of equipment sale/leaseback transactions in Thailand, $4,364,000 of proceeds from the sale of our Eau Claire, Wisconsin building and the release of $1,609,000 or restricted cash that was temporarily held in our senior secured credit facility collections account.

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. We anticipate capital expenditures will total approximately $20,000,000 in 2015, primarily for product tooling and manufacturing equipment for new process technology and capability improvements for products such as DSA suspension assemblies and SMA OIS actuators. Financing of these capital expenditures will be principally from operations, our current cash, cash equivalents, our senior secured credit facility, leasing, bills of exchange or additional financing, if available given contractual restrictions, current credit market conditions and our financial performance.

Cash Provided by (Used for) Financing Activities

Cash provided by financing activities for the thirty-nine weeks ended June 28, 2015, was $531,000, compared to cash used for financing activities of $384,000 for the thirty-nine weeks ended June 29, 2014. The cash provided by financing activities for the thirty-nine weeks ended June 28, 2015, was primarily due to $37,500,000 in proceeds from the private placement of our 8.50% New Convertible Notes and $15,000,000 in proceeds from the PNC term loan, partially offset by the redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes, $7,283,000 in repayments of our senior secured credit facility, $3,175,000 of debt refinancing costs, $1,749,000 of capital lease payments and $750,000 in repayment of our term loan. The cash used in the thirty-nine weeks ended June 29, 2014, was primarily due to $1,230,000 of capital lease payments, partially offset by an $820,000 increase in borrowings from our senior secured credit facility.

Bill of Exchange Transactions

During the thirteen weeks ended June 28, 2015, we entered into multiple independent bill of exchange discounting transactions under an uncommitted facility with Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch (“HSBC”), under which our Thai subsidiary sold, without recourse, an aggregate of $23,613,000 of its accounts receivable to HSBC and was paid 95% of the face value of the receivable, less interest expense of LIBOR plus 1.75%. Upon full payment of the receivable by its customer to HSBC, our Thai subsidiary receives from HSBC the 5% remainder due on the receivable. As of June 28, 2015, there remained $856,000 to be paid to our Thai subsidiary from HSBC, all of which was included within the line item “Other receivables” on our condensed consolidated balance sheet.

Debt

October 2014 Financing Transactions - On October 23, 2014, we issued $37,500,000 aggregate principal amount of 8.50% New Convertible Notes. The 8.50% New Convertible Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on April 30 and October 31 of each year, beginning April 30, 2015. The 8.50% New Convertible Notes mature on October 31, 2019. Each $1,000 principal amount of the 8.50% New Convertible Notes is convertible into 266.6667 shares of our common stock (which is equal to an initial conversion price of approximately $3.75 per share), subject to adjustment under certain circumstances. The 8.50% New Convertible Notes rank pari passu in right of payment with all existing and future senior indebtedness of our company. Certain beneficial holders of the 8.50% New Convertible Notes had the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes was escrowed until the put right expired on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Notes, plus accrued but unpaid interest thereon. We capitalized debt financing costs of $1,652,000 which are being amortized over five years or until the maturity date. The amortization expense is included in interest expense. On January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash.

On October 23, 2014, we entered into an agreement providing for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Secured Notes held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and no warrants remain outstanding. The fair value of the common stock and warrants was recorded in additional paid-in capital in the amount of $17,388,000. Applying debt extinguishment accounting, we recorded a loss on extinguishment of debt of $4,318,000 in our first quarter of 2015. The loss also included $1,232,000 of broker, legal and accounting fees related to the exchange transaction.

To accommodate the October 2014 debt transactions described above, on October 20, 2014, we entered into supplemental indentures relating to our 8.50% Secured Notes and to our 10.875% Notes. Additionally, on October 20, 2014, we entered into an amendment to our senior secured credit agreement, dated as of September 16, 2011, as previously amended, with PNC Bank. Under the amendment, PNC Bank consented to the transactions contemplated by the 8.50% New Convertible Notes and the exchange transaction, referred to above.

Senior Secured Credit Facility - On September 22, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank. The amendment reduced the maximum principal amount of the revolving credit facility provided by the credit agreement from $35,000,000 to $20,000,000, extended the maturity date of the senior secured credit facility from October 1, 2014 to December 1, 2016, reduced the cash balance we are required to maintain in an account at PNC Bank from $15,000,000 to $2,500,000, and modified the fixed charge coverage covenant under the credit agreement by eliminating the requirement for the four fiscal quarters ending September 28, 2014 and changing the measurement periods thereafter for the fixed charge coverage covenant by excluding from such measurement periods all fiscal quarters ended on or prior to September 28, 2014.

The September 2014 amendment also required us to maintain cash on our balance sheet, including restricted cash, during the period from December 1, 2014 through January 16, 2015 (the day after the 2015 put date for our 8.50% Convertible Notes) and during the period from December 1, 2015 through January 16, 2016 (the day after the 2016 put date for our 8.50% Convertible Notes) in an amount not less than the aggregate principal amount of our 8.50% Convertible Notes then outstanding, and to establish a reserve against our borrowing base during each such period in the same amount. The amendment permits us to redeem, repurchase or repay our 8.50% Convertible Notes in whole or in part at any time as long as, after giving effect to such redemption, repurchase or repayment, no default or event of default exists under the credit agreement and we have liquidity of not less than $20,000,000, and permits us to incur additional unsecured debt at any time prior to January 15, 2016 in an amount not to exceed the aggregate principal amount of our 8.50% Convertible Notes then outstanding as long as certain conditions are satisfied, including a requirement that, by the next put date for our 8.50% Convertible Notes, we reduce the aggregate principal balance of our 8.50% Convertible Notes by an amount equal to the principal amount of such additional unsecured debt then outstanding. This portion of the amendment no longer applies as we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes on January 15, 2015.

On April 30, 2015, we entered into an additional amendment to our existing senior secured credit agreement dated as of September 16, 2011, as previously amended, with PNC Bank to maintain compliance with a financial covenant of our credit facility. The amendment (i) modified the fixed charge coverage covenant under our credit agreement to eliminate the requirement for our quarter ended March 29, 2015 and quarters ending June 28, 2015 and September 27, 2015 and change the measurement periods starting with our quarter ending December 27, 2015 by excluding from such measurement periods all quarters ended on or prior to September 27, 2015, and (ii) implemented an additional earnings before interest, taxes, depreciation and amortization (EBITDA) covenant for our quarter ended March 29, 2015 and quarters ending June 28, 2015 and September 27, 2015.

From time to time, we borrow funds under the senior secured credit facility. As of June 28, 2015, we had $3,000,000 outstanding, which was repaid early in the following quarter. Our average outstanding balance in the thirty-nine weeks ended June 28, 2015 was $751,000. Amounts borrowed under the credit facility bear cash interest at a reduced rate equal to, at our election, either (i) PNC Bank’s alternate base rate plus 1.0% per annum, or (ii) LIBOR plus 3.5% per annum if no defaults or events of default exist under the credit agreement. The credit agreement contains certain financial covenants that require us to maintain a minimum fixed charge coverage ratio, minimum EBITDA and minimum liquidity. If we are unable to generate sufficient operating results in future quarters, we may not be able to comply with financial covenants in the credit agreement in future quarters. If necessary, we intend to negotiate a waiver of any noncompliance or an amendment of the financial covenant specific to the applicable period.

PNC Term Loan - On December 23, 2014, we entered into an amendment to our existing Revolving Credit and Security Agreement dated as of September 16, 2011, as previously amended, with PNC Bank, as agent and lender. Pursuant to the amendment, a term loan was made to us in the amount of $15,000,000. The same covenants in our credit facility agreement with PNC Bank apply to this term loan. The term loan may consist of domestic rate loans, with a per annum interest rate equal to PNC Bank’s alternate base rate (as defined in the credit agreement) plus 2.50%, or LIBOR rate loans, with a per annum interest rate equal to 3.50% plus the greater of the LIBOR rate (as defined in the credit agreement) or 1.00%, or a combination thereof. As a result, our interest rate for the term loan has been 4.5%. The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. In the event that the Revolving Credit and Security Agreement is not extended beyond December 1, 2016, the balance due on the term loan will also become due on December 1, 2016. Once repaid, amounts borrowed under the term loan may not be reborrowed. As of June 28, 2015, we had $14,250,000 outstanding.

Capital Leases – As of June 28, 2015, we had remaining capital lease payment obligations of $7,539,000. We may enter into more leasing transactions in the remainder of 2015.

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 28, 2014.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued authoritative guidance related to revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB confirmed a one year deferral of the effective date of the new revenue standard and allows early adoption as of the original effective date. The updated guidance will be effective for our first quarter of 2019. We are in the process of assessing the impact, if any, this guidance will have on our consolidated financial statements.

In April 2015, the FASB issued authoritative guidance related to simplifying the presentation of debt issuance costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard is effective for our first quarter of 2017. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. We are in the process of assessing the impact this guidance will have on our consolidated financial statements.

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, 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: demand for and shipments of our products, our market position, program ramps, product mix and adoption, production capabilities and volumes, our operations in Thailand and the United States, market adoption and our production of SMA OIS actuators, capital spending, operating expenses, average selling prices, product costs, operating performance, technology, development, data density trends and storage capacity requirements, customer yields, inventory levels, company-wide financial performance, our business model, 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” in our most recent Annual Report on Form 10-K for the fiscal year ended September 28, 2014. 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. Except as otherwise required by law, we undertake no obligation to update any forward-looking statement for any reason. You should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with 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 28, 2014.

As of June 28, 2015, we had $113,631,000 carrying value of fixed rate debt which had a fair market value of approximately $112,175,000. We used trading activity to determine the fair market value of the 8.50% Secured Notes. The 10.875% Notes have not had trading activity, therefore the fair market value estimate for those notes was based on the closing market price of comparable debt as of the end of the fiscal quarter. Our 8.50% New Convertible Notes have not had trading activity; therefore the fair value estimate for those notes was based on market variables combined with variables specific to our notes to determine the theoretical value. The fair value of our senior secured credit facility and term loan’s carrying value is a reasonable estimate of fair market value.

Our investing activities are guided by an investment policy, which is reviewed at least annually by our board of directors, and whose objectives are preservation and safety of capital, maintenance of necessary liquidity and maximizing of the rate of return within the stated guidelines. Our policy provides guidelines as to the maturity, concentration limits and credit quality of our investments, as well as guidelines for communication, authorized securities and other policies and procedures in connection with our investing activities.

We are exposed to various market risks and potential loss arising from changes in interest rates and foreign currency exchange rates in connection with our cash, cash equivalents and marketable securities held in investment accounts.

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.

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

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

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 001-34838.

3.1		Amended and Restated Articles of Incorporation of HTI (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended 12/29/2002; File No. 0-14709).
3.2		Restated By-Laws of HTI, as amended December 16, 2013 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed 12/18/2013).
10.1		Amendment No. 8 to Revolving Credit and Security Agreement, dated as of April 30, 2015, between Hutchinson Technology Incorporated and PNC Bank, National Association, as Agent and Lender (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed April 30, 2015).
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.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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.

			HUTCHINSON TECHNOLOGY INCORPORATED

Date:	August 5, 2015	By	/s/ Richard J. Penn
			Richard J. Penn
			President and Chief Executive Officer

Date:	August 5, 2015	By	/s/ David P. Radloff
			David P. Radloff
			Vice President and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Description	Method of Filing
3.1	Amended and Restated Articles of Incorporation of HTI	Incorporated by Reference
3.2	Restated By-Laws of HTI, as amended December 16, 2013	Incorporated by Reference
10.1	Amendment No. 8 to Revolving Credit and Security Agreement, dated as of April 30, 2015, between Hutchinson Technology Incorporated and PNC Bank, National Association, as Agent and Lender	Incorporated by Reference
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
101.INS	XBRL Instance Document	Filed Electronically
101.SCH	XBRL Taxonomy Extension Schema	Filed Electronically
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed Electronically
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed Electronically
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed Electronically
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed Electronically

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