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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 29, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14709
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HUTCHINSON TECHNOLOGY INCORPORATED
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0901840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK, HUTCHINSON, MINNESOTA 55350
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(Address of principal executive offices) (Zip code)
(320) 587-3797
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(Registrant's telephone number, including area code)
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(Former name, address or 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 X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of February 3, 2003 the registrant had 25,513,786 shares of Common Stock
issued and outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares data)
December 29,
2002 September 29,
(Unaudited) 2002
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 65,386 $ 57,852
Securities available for sale 164,144 151,257
Trade receivables, net 53,975 51,363
Other receivables 4,114 4,590
Inventories 23,834 27,110
Prepaid taxes and other (Note 8) 11,243 12,376
------------ -------------
Total current assets 322,696 304,548
Property, plant and equipment, net 178,292 181,494
Deferred tax assets 44,251 46,883
Other assets (Note 8) 25,745 29,176
------------ -------------
$ 570,984 $ 562,101
============ =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $ 253 $ 253
Capital lease obligation 4,457 7,250
Accounts payable 19,321 17,793
Accrued expenses 16,031 12,942
Accrued compensation 19,497 21,580
------------ -------------
Total current liabilities 59,559 59,818
Long-term debt, less current maturities 371 371
Convertible subordinated notes 132,529 143,500
Other long-term liabilities 1,213 1,451
Shareholders' investment:
Common stock, $.01 par value, 45,000,000 shares authorized,
25,458,000 and 25,355,000 issued and outstanding 255 254
Additional paid-in capital 371,406 369,641
Accumulated other comprehensive income 885 640
Accumulated earnings (deficit) 4,766 (13,574)
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Total shareholders' investment 377,312 356,961
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$ 570,984 $ 562,101
============ =============
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
--------------------------------------
December 29, December 30,
2002 2001
------------ ------------
Net sales $ 132,862 $ 92,717
Cost of sales 91,434 71,497
------------ ------------
Gross profit 41,428 21,220
Research and development expenses 3,448 4,531
Selling, general and administrative expenses 15,044 12,296
Litigation settlement (Note 11) -- (2,632)
------------ ------------
Income from operations 22,936 7,025
Interest expense (2,235) (3,604)
Interest income 1,423 2,045
Gain on debt extinguishment (Note 9) 221 --
Other income, net 297 169
------------ ------------
Income before income taxes 22,642 5,635
Provision for income taxes 4,302 845
------------ ------------
Net income $ 18,340 $ 4,790
============ ============
Basic earnings per share $ 0.72 $ 0.19
Diluted earnings per share $ 0.65 $ 0.19
Weighted average common shares outstanding 25,414 25,222
Weighted average common and diluted shares outstanding 30,455 25,520
See accompanying notes to condensed consolidated financial statements -
unaudited.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
Thirteen Weeks Ended
--------------------------------------
December 29, December 30,
2002 2001
------------ ------------
Operating activities:
Net income $ 18,340 $ 4,790
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 13,814 14,163
Deferred taxes 3,012 96
Changes in operating assets and liabilities (Note 10) 7,198 (2,357)
------------ ------------
Cash provided by operating activities 42,364 16,692
------------ ------------
Investing activities:
Capital expenditures (10,453) (6,802)
Purchases of marketable securities (58,023) (86,534)
Sales of marketable securities 45,644 143,536
------------ ------------
Cash provided by (used for) investing activities (22,832) 50,200
------------ ------------
Financing activities:
Repayments of long-term debt (10,971) (4,150)
Repayments of capital lease obligation (2,793) (1,939)
Net proceeds from issuance of common stock 1,766 1,509
------------ ------------
Cash used for financing activities (11,998) (4,580)
------------ ------------
Net increase in cash and cash equivalents 7,534 62,312
Cash and cash equivalents at beginning of period 57,852 113,313
------------ ------------
Cash and cash equivalents at end of period $ 65,386 $ 175,625
============ ============
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 the "Company" or "HTI," we mean Hutchinson Technology
Incorporated and its subsidiaries. Unless otherwise indicated, references to
"2003" mean HTI's fiscal year ending September 28, 2003, references to "2002"
mean HTI's fiscal year ended September 29, 2002 and references to "2001" mean
HTI's fiscal year ended September 30, 2001.
(1) ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished in the condensed consolidated
financial statements include normal recurring adjustments and reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K.
The quarterly results are not necessarily indicative of the actual results that
may occur for the entire fiscal year.
(2) ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which supersedes
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121") and amends Accounting Principles Board Opinion No. 30, "Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." FAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less costs to sell. FAS 144 retains the fundamental
provisions of FAS 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used, and (b) measurement of long-lived assets
to be disposed of by sale. The Company was required to adopt FAS 144 on
September 30, 2002. The adoption of FAS 144 did not have a material impact on
the Company's consolidated balance sheet or results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," which required all gains and losses from
extinguishment of debt to be classified as an extraordinary item. FAS 145 is
effective for fiscal years beginning after May 15, 2002, with early adoption
encouraged. The Company adopted FAS 145 as of July 1, 2002, at which time it
began classifying gains and losses resulting from the extinguishment of debt as
a separate component in income from continuing operations. The adoption of FAS
145 did not have a material impact on the Company's consolidated balance sheet
or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS
146"). FAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3. The Company will be required to adopt FAS 146 effective
for any exit or disposal activities that are initiated after December 31, 2002.
The adoption of FAS 146 is not expected to have a material impact on the
Company's consolidated balance sheet or results of operations.
In September 2002, the EITF of FASB reached a consensus on Issue No. 02-15,
"Determining Whether Certain Conversions of Convertible Debt to Equity
Securities are Within the Scope of FASB Statement No. 84, Induced Conversions of
Convertible Debt." The EITF deliberated this issue because of diversity in
practice in the accounting for conversions of convertible debt to equity
initiated by the debt holder. The EITF concluded that FASB Statement No. 84
applies to conversions of convertible debt when the offer for consideration in
excess of the original conversion terms is made by the bondholder. The EITF
concluded that this guidance should be followed for transactions completed after
September 12, 2002. The adoption of EITF Issue No. 02-15 did not have a material
impact on the Company's consolidated balance sheet or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the
requirements for a guarantor's accounting for and disclosure of certain issued
and outstanding guarantees. The initial recognition and initial measurement
provisions of FIN 45 are applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 did not have a material impact on the Company's
consolidated balance sheet or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure"
("FAS 148"), which amends Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). FAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, FAS 148
amends the disclosure requirements of FAS 123 to require more prominent and more
frequent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of FAS
148 are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
adoption of FAS 148 is not expected to have a material impact on the Company's
consolidated balance sheet or results of operations. The Company will provide
the interim disclosures required by FAS 148 beginning in the second quarter of
2003.
(3) BUSINESS AND CUSTOMERS
The Company is the world's leading supplier of suspension assemblies for hard
disk drives. Suspension assemblies hold the recording heads in position above
the spinning magnetic disks in the drive and are critical to maintaining the
necessary microscopic clearance between the head and disk. The Company developed
its leadership position in suspension assemblies through research, development
and design activities coupled with a substantial investment in manufacturing
technologies and equipment. The Company is focused on continuing to develop
suspension assemblies which address the rapidly changing requirements of the
hard disk drive industry. The Company also is engaged in the development and
production of products for the medical device market, but does not expect to
generate significant revenue during 2003.
A breakdown of customer sales is as follows:
Thirteen Weeks Ended
--------------------------------
December 29, December 30,
Percentage of Net Sales 2002 2001
- ----------------------- ------------ ------------
Five Largest Customers 86% 73%
Alps Electric Co., Ltd. 27 9
SAE Magnetics, Ltd./TDK 23 23
Seagate Technology LLC 21 10
IBM and affiliates 9 15
K.R. Precision Co. 6 5
Read-Rite Corporation 2 16
(4) TRADE RECEIVABLES
The Company grants credit to customers, but generally does not require
collateral or any other security to support amounts due. Trade receivables of
$53,975,000 at December 29, 2002 and $51,363,000 at September 29, 2002 are net
of allowances of $4,366,000 and $3,662,000, respectively. As of December 29,
2002, allowances of $4,366,000 consisted of $2,999,000 in allowance for doubtful
accounts and $1,367,000 in reserve for sales returns and allowances.
The Company warrants that the goods sold by it will be free from defects in
materials and workmanship for a period of 60 days following delivery to the
customer. Upon determination that the goods sold are defective, the Company
typically accepts the return of such goods and refunds the purchase price to the
customer. The Company records a provision against revenue for estimated returns
on sales of its products in the same period that the related revenues are
recognized. The Company bases the allowance on historical product returns, as
well as existing product return notifications. The following table reconciles
the changes in the Company's allowance for sales returns under warranties:
Changes in the Reductions in the
September 29, allowance related to allowance for December 29,
2002 warranties issued returns under warranties 2002
------------- -------------------- ------------------------ ------------
$663,000 $1,727,000 $(1,023,000) $1,367,000
(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 December 29, 2002
and September 29, 2002:
December 29, September 29,
2002 2002
------------ -------------
Raw materials $ 8,601 $ 6,240
Work in process 5,159 6,123
Finished goods 10,074 14,747
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$ 23,834 $ 27,110
============ =============
(6) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed under the treasury stock method
and is calculated to compute the dilutive effect of potential common shares. A
reconciliation of these amounts is as follows:
Thirteen Weeks Ended
-------------------------------------
December 29, December 30,
2002 2001
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Net income (A) $ 18,340 $ 4,790
Plus: interest expense on convertible subordinated notes 2,150 --
Less: additional profit-sharing expense and income tax provision 583 --
------------ ------------
Net income available to common shareholders (B) $ 19,907 $ 4,790
============ ============
Weighted average common shares outstanding (C) 25,414 25,222
Dilutive potential common shares 5,041 298
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Weighted average common and diluted shares outstanding (D) 30,455 25,520
============ ============
Basic earnings per share [(A)/(C)] $ 0.72 $ 0.19
Diluted earnings per share [(B)/(D)] $ 0.65 $ 0.19
Potential common shares of 5,291,000, relating to the Company's outstanding
convertible subordinated notes, were excluded from the computation of diluted
earnings per share for the thirteen weeks ended December 30, 2001, as inclusion
of these shares would have been antidilutive.
(7) INCOME TAXES
The following table details the significant components of the Company's deferred
tax assets:
December 29, September 29,
2002 2002
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Current deferred tax assets:
Receivable allowance $ 1,594 $ 1,327
Inventories 4,185 4,596
Accruals and other reserves 5,379 6,125
Valuation allowance (4,529) (4,777)
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Total current deferred tax assets 6,629 7,271
------------ -------------
Long-term deferred tax assets:
Property, plant and equipment 14,576 15,654
Tax credits 13,319 12,386
Net operating loss carryforwards 68,099 71,801
Valuation allowance (51,743) (52,958)
------------ -------------
Total long-term deferred tax assets 44,251 46,883
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Total deferred tax assets $ 50,880 $ 54,154
============ =============
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 29, 2002, the
Company's deferred tax assets included $13,319,000 of unused tax credits,
$3,079,000 of which can be carried forward indefinitely and $10,240,000 of which
begin to expire at various dates beginning in 2010. At December 29, 2002, the
Company's balance sheet included $68,099,000 of deferred tax assets related to
net operating loss carryforwards that will begin to expire in 2018. As of
December 29, 2002, the Company had an estimated federal net operating loss
carryforward of approximately $176,344,000 for United States federal tax return
purposes. A portion of the credits and net operating loss carryforwards are
subject to an annual limitation under United States Internal Revenue Code
("IRC") Section 382. A valuation allowance of $56,272,000 has been recognized to
offset the related deferred tax assets due to the uncertainty of realizing the
benefits of certain tax credits and net operating loss carryforwards.
(8) OTHER ASSETS
During the second quarter of 2002, the Company prepaid $26,000,000 related to a
technology and development agreement. As of December 29, 2002, the unamortized
portion of the prepayment was $22,826,000, of which $3,174,000 was included in
"Prepaid taxes and other" and $19,652,000 was included in "Other assets" on the
accompanying condensed consolidated balance sheet. The unamortized portion will
be amortized on a straightline basis through the remaining term of the agreement
which ends in 2010.
(9) GAIN ON DEBT EXTINGUISHMENT
During the first quarter of 2003, the Company repurchased $10,971,000 of its 6%
Convertible Subordinated Notes at a pre-tax gain of $221,000. These notes had a
maturity date of March 15, 2005. This extinguishment of debt will reduce the
Company's interest expense in 2003 by approximately $648,000.
(10) SUPPLEMENTARY CASH FLOW INFORMATION
Thirteen Weeks Ended
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December 29, December 30,
2002 2001
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Changes in operating assets and liabilities:
Receivables, net $ (2,136) $ (4,555)
Inventories 3,276 (3,557)
Prepaid and other assets 3,627 (690)
Accounts payable and accrued expenses 2,669 6,941
Other non-current liabilities (238) (496)
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$ 7,198 $ (2,357)
============ ============
Cash paid (refunded) for:
Interest (net of amount capitalized) $ 188 $ 1,120
Income taxes $ 7 $ (425)
Capitalized interest for the thirteen weeks ended December 29, 2002 was $180,000
compared to $251,000 for the comparable period in 2002. Interest is capitalized,
using an overall borrowing rate, for assets that are being constructed or
otherwise produced for the Company's own use. Interest capitalized during the
thirteen weeks ended December 29, 2002 was related primarily to new program
tooling and process technology and capability improvements.
(11) LITIGATION SETTLEMENT
During the first quarter of 2002, the Company recorded an increase to operating
income of $2,632,000 as a result of a reimbursement of legal expenses from
another party and insurance proceeds related to litigation defense costs. The
reimbursement of legal expenses is to be paid in installments through 2006 and
is recorded at the net present value of the remaining payments.
(12) LEGAL CONTINGENCIES
The Company and certain users of the Company's products have from time-to-time
received, and may in the future receive, communications from third parties
asserting patents against the Company or its customers which may relate to
certain of the Company's manufacturing equipment or products or to products that
include the Company's products as a component. In addition, certain of the
Company's customers have been sued on patents having claims closely related to
products sold by the Company. If any third party makes a valid infringement
claim and a license is not available on terms acceptable to the Company, the
Company's operating results could be adversely affected. The Company expects
that, as the number of patents issued continues to increase, and as the Company
grows, the volume of intellectual property claims could increase. The Company
may need to engage in litigation to enforce patents issued or licensed to it,
protect trade secrets or know-how owned by it or determine the enforceability,
scope and validity of the intellectual property rights of others. The Company
could incur substantial costs in such litigation or other similar legal actions,
which could have a material adverse effect on its results of operations or cash
flows.
The Company is a party to certain claims arising in the ordinary course of
business. In the opinion of management, the outcome of such claims will not
materially affect the Company's current or future financial position, results of
operations or cash flows.
(13) OTHER MATTERS
Over the course of the last two years, the World Trade Organization ("WTO") has
ruled that the Foreign Sales Corporation ("FSC") provisions of the IRC, and the
FSC's replacement provisions contained in the Extraterritorial Income Exclusion
Act of 2002 ("ETI"), are prohibited export subsidies under the rules of the WTO.
Federal legislation was proposed in 2002 that included a provision to repeal the
ETI. Until the ETI provisions of the IRC are repealed, the Company expects to
earn a net benefit under the ETI provisions similar to that previously earned
under the FSC provisions of the IRC.
(14) SEGMENT REPORTING
The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 131 establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers. The method for
determining what information to report is based upon the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance. The Company considers its chief
operating decision-maker to be the Chief Executive Officer.
The Company has determined that it has two reportable segments: the Disk Drive
Division and the BioMeasurement Division. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in the Company's latest Annual Report on Form 10-K.
The following table represents net sales and operating income (loss) for each
reportable segment.
Thirteen Weeks Ended
---------------------------------
December 29, December 30,
2002 2001
------------ ------------
Net sales:
Disk Drive Division $ 132,791 $ 92,716
BioMeasurement Division 71 1
------------ ------------
$ 132,862 $ 92,717
============ ============
Operating income (loss):
Disk Drive Division $ 24,238 $ 8,145
BioMeasurement Division (1,302) (1,120)
------------ ------------
$ 22,936 $ 7,025
============ ============
Assets of the BioMeasurement Division are not relevant for management of the
BioMeasurement Division segment or significant for disclosure.
HUTCHINSON TECHNOLOGY INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
When we refer to "we," "us," the "Company" or "HTI," we mean Hutchinson
Technology Incorporated and its subsidiaries. Unless otherwise indicated,
references to "2003" mean HTI's fiscal year ending September 28, 2003,
references to "2002" mean HTI's fiscal year ended September 29, 2002, references
to "2001" mean HTI's fiscal year ended September 30, 2001, references to "2000"
mean HTI's fiscal year ended September 24, 2000, and references to "1999" mean
HTI's fiscal year ended September 26, 1999.
GENERAL
Since the late 1980's, we have derived virtually all of our revenue from the
sale of suspension assemblies to a small number of customers. We currently
supply a variety of suspension assemblies and suspension assembly components
based on several standard designs to manufacturers of hard disk drives ("disk
drives") and manufacturers of disk drive components (including Alps, Fujitsu,
Hitachi Global Storage Technologies (formerly IBM's Storage Technology
Division), Innovex, Kaifa, KR Precision, Maxtor, Read-Rite, SAE Magnetics/TDK,
Samsung, Seagate, Toshiba and Western Digital). Suspension assemblies
are a critical component of disk drives and our results of operations are
highly dependent on the disk drive industry. The disk drive industry
is intensely competitive, and demand for disk drive components fluctuates.
Our results of operations have been adversely affected from time to time
due to disk drive industry slowdowns, technological changes that impact
suspension assembly demand, shifts in our market share and
our customers' market share, our customers' production yields and our own
product transitions.
Since 1999, improvements in data density, the amount of data that can be stored
on magnetic disks, have outpaced disk drive storage capacity requirements. This
enabled disk drive manufacturers to reduce their costs by using fewer
components, including suspension assemblies, in each drive. Shifts in our
position in the marketplace had also, to a lesser extent, decreased demand for
our products. Slower growth of disk drive storage demand and a weaker global
economy have also decreased demand for our products since 2001. Consequently,
our shipments declined from 583 million in 1999 to 398 million in 2002. While
improvements in data density continued to reduce demand for disk drive
components in 2002, improvements in our market position have increased shipments
of our products since the latter part of 2002.
Our shipments of suspension assemblies for the first quarter of 2003 were 135
million, 22% higher than our shipments in the fourth quarter of 2002. This
increase was due to an increase in disk drive production, an increase in our
market share and a temporary increase in TSA suspension consumption resulting
from lower production yields at some of our customers as they transition to
higher density recording heads. Although we continue to have limited visibility
for future demand, we expect our shipment volumes in the second quarter of 2003
to be similar to our shipment volumes in the first quarter of 2003. We also
expect suspension assembly shipments for the second half of 2003 to range from
240 to 250 million, assuming that recent levels of demand and market share
continue and that our customers improve their production yields from current
rates.
Our selling prices are subject to pricing pressure from our customers and market
pressure from our competitors. Our selling prices also are affected by changes
in overall demand for our products, changes in the specific products our
customers buy and a product's life cycle. A typical life cycle for our products
begins with higher pricing when a product is introduced, decreasing prices when
it is mature, and slightly increasing pricing as it is phased out. To offset
price decreases during a product's life, we rely primarily on higher sales
volume and improving our manufacturing yield and production efficiency to reduce
its cost. If we cannot reduce our manufacturing costs as prices decline during
our products' life cycles, our business, financial condition and results of
operations could be materially adversely affected.
We typically allow customers to change or cancel orders on short notice. We plan
our production and inventory based primarily on forecasts of customer demand,
including forecasts of customer pulls of product out of our "just-in-time"
inventory hubs. Customers typically prefer a dual source supply and, therefore,
they allocate their demand among suppliers. Both customer demand and the
resulting forecasts often fluctuate substantially. These factors, among others,
create an environment where scheduled production and capacity utilization can
vary significantly from week to week, leading to variability in gross margins
and difficulty in estimating our position in the marketplace.
Our gross margins have fluctuated and will continue to fluctuate based upon a
variety of factors, such as:
- - changes in demand or customer requirements
- - changes in our product mix
- - changes in our selling prices
- - changes in the utilization of our production capacity
- - changes in our infrastructure costs, and how we control them
- - increases in production and engineering costs associated with production of
new products
- - changes in our manufacturing yields
- - changes in our production efficiency
- - changes in the cost of raw materials
Gross margins improved in the first quarter of 2003 primarily due to increased
shipments, which resulted in higher utilization of our production capacity, and
productivity improvements made during the quarter.
The disk drive industry is intensely competitive, and our customers' operating
results are dependent on being first-to-market and first-to-volume with new
products at a low cost. Our ability to respond to our customers' needs for new
products and product features on a timely basis is an important factor in our
success. Our dedicated Development Center enables us to shorten development
cycles and achieve high volume output per manufacturing unit more quickly.
New suspension assembly types have lower manufacturing yields and are produced
in smaller quantities than more mature products. Manufacturing yields generally
improve as the product matures and production volumes increase. Manufacturing
yields also vary depending on the complexity and uniqueness of product
specifications. Small variations in manufacturing yields generally have a
significant impact on gross margins. Because our business is capital intensive
and requires a high level of fixed costs, gross margins are also extremely
sensitive to changes in volume and capacity utilization.
In addition to increases in suspension assembly demand, improvements to our
operating margins depend, in part, on the successful management of our corporate
infrastructure, our suspension assembly production capacity and our workforce.
As part of our efforts to improve our operating margins through reduced costs
and improved efficiency, we reduced our overall employment level, through
workforce reductions and managed attrition, from 7,701 at the end of 1999 to
3,336 at the end of 2002. Due to increased production requirements, however, our
overall employment level had increased to 3,416 by the end of the first quarter
of 2003.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 29, 2002 VS. THIRTEEN WEEKS ENDED DECEMBER 30,
2001.
Net sales for the thirteen weeks ended December 29, 2002 were $132,862,000, an
increase of $40,145,000 or 43% from the comparable period in 2002. Suspension
assembly sales increased $36,165,000 compared to the thirteen weeks ended
December 30, 2001, as a result of a 48% increase in shipments. Additionally,
sales of suspension assembly components, primarily to our competitors, increased
$3,166,000. Both of these increases were due to an increase in disk drive
production, an increase in our market share and a temporary increase in TSA
suspension consumption resulting from lower production yields at some of our
customers related to their transition to higher density recording heads. The
increase in suspension assembly volume was partially offset by a 2% decline in
average selling prices for our suspension assemblies.
Gross profit for the thirteen weeks ended December 29, 2002 was $41,428,000,
compared to $21,220,000 for the comparable period in 2002. The increase was
primarily due to the increase in net sales mentioned above. Gross profit as a
percent of net sales increased from 23% to 31%, primarily due to higher
utilization of our production capacity and productivity improvements.
Research and development expenses for the thirteen weeks ended December 29, 2002
were $3,448,000 compared to $4,531,000 for the thirteen weeks ended December 30,
2001. The majority of the decrease was due to a $926,000 increase in customer
funding of advanced suspension assembly development costs. As a percent of net
sales, research and development expenses decreased from 5% in the first quarter
of 2002 to 3% in the first quarter of 2003.
Selling, general and administrative expenses for the thirteen weeks ended
December 29, 2002 were $15,044,000, an increase of $2,748,000 or 22% from the
comparable period in 2002. The increase was due primarily to a $3,050,000
increase in incentive compensation costs as profitability improved in the first
quarter of 2003 compared to the first quarter of 2002. Expenses for our
subsidiary, Hutchinson Technology Asia, Inc., also increased by $341,000 as
on-site service and engineering support to our customers in Asia was increased.
These increases were partially offset by a $814,000 reduction in legal fees,
primarily due to reduced patent litigation defense costs. Selling, general and
administrative expenses as a percent of net sales decreased from 13% in the
first quarter of 2002 to 11% in the first quarter of 2003.
During the first quarter of 2002, we recorded an increase to operating income of
$2,632,000 as a result of a reimbursement of legal expenses from another party
and insurance proceeds related to litigation defense costs.
Income from operations for the thirteen weeks ended December 29, 2002 was
$22,936,000, compared to $7,025,000 for the comparable period in 2002. The
increase was primarily due to the increase in net sales mentioned above, which
resulted in higher utilization of our production capacity, and productivity
improvements made during the quarter. Income from operations for the thirteen
weeks ended December 29, 2002 included a $1,302,000 loss from operations for our
BioMeasurement Division segment, compared to a $1,120,000 loss for the
comparable period in 2002.
Interest expense for the thirteen weeks ended December 29, 2002 was $2,235,000,
a decrease of $1,369,000 from the comparable period in 2002, primarily due to a
lower amount of outstanding debt and fewer capitalized leases.
Interest income for the thirteen weeks ended December 29, 2002 was $1,423,000, a
decrease of $622,000 from the comparable period in 2002, primarily as a result
of lower investment yields.
During the first quarter of 2003, we repurchased $10,971,000 of our 6%
Convertible Subordinated Notes before their maturity. In connection with these
transactions, we recorded a $221,000 pre-tax gain on debt extinguishment.
Other income, net of other expenses, for the thirteen weeks ended December 29,
2002 was $297,000, an increase of $128,000 from the comparable period in 2002,
primarily due to increased rental income from leasing portions of our facilities
that we do not intend to utilize for the foreseeable future.
The income tax provision for the thirteen weeks ended December 29, 2002 was
based on an estimated effective tax rate for the fiscal year of 19%, which is
below the statutory federal rate primarily due to our estimate of the benefit
derived from the ETI provisions related to export of U.S. products and our
estimate of our utilization of net operating loss carryforwards. The increase in
our effective tax rate, from 15% in 2002 to 19% in 2003, is primarily due to
lower growth in the estimated benefit that we may derive from the ETI provisions
in proportion to the estimated growth in our pre-tax income.
Net income for the thirteen weeks ended December 29, 2002 was $18,340,000,
compared to net income of $4,790,000 for the comparable period in 2002. Our
improved profitability was primarily due to the above-mentioned increase in net
sales, which resulted in higher utilization of our production capacity, and
productivity improvements made during the quarter. Net income for the first
quarter of 2002 included the above-mentioned increase to operating income from
the litigation settlement. Excluding this item, net income as a percent of net
sales increased from 5% for the thirteen weeks ended December 30, 2001 to 14%
for the thirteen weeks ended December 29, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash and cash equivalents, securities
available for sale, cash flow from operations and additional financing capacity.
Our cash and cash equivalents increased from $57,852,000 at September 29, 2002
to $65,386,000 at December 29, 2002. Our securities available for sale increased
from $151,257,000 to $164,144,000 during the same period. Overall, this reflects
a $20,421,000 increase in our cash and cash equivalents and securities available
for sale, primarily due to improved profitability in the first quarter of 2003.
We generated cash from operating activities of $42,364,000 for the thirteen
weeks ended December 29, 2002.
As of December 29, 2002, our $50,000,000 credit facility had a borrowing base of
$44,334,000, secured by our accounts receivable and inventory. Letters of credit
and loans outstanding under this facility totaled $5,004,000 as of such date,
including $2,809,000 issued in connection with obligations under equipment
leases. The amount we can borrow under this credit facility is limited by the
levels of our accounts receivable and inventory balances. As of December 29,
2002, $39,330,000 of borrowing capacity remained available to us.
Cash used for capital expenditures totaled $10,453,000 for the thirteen weeks
ended December 29, 2002. We expect total capital expenditures to be
approximately $50,000,000 during 2003, to be spent primarily for new program
tooling, process technology and capability improvements, increases in TSA
production capacity and new business systems. Financing of these capital
expenditures will be principally from internally generated funds, cash and cash
equivalents and securities available for sale.
During the first quarter of 2003, we repurchased $10,971,000 of our 6%
Convertible Subordinated Notes at a pre-tax gain of $221,000. These notes had a
maturity date of March 15, 2005. This extinguishment of debt will reduce our
interest expense in 2003 by approximately $648,000. Our debt-to-equity ratio
improved from 42 percent at the end of 2002 to 36 percent at the end of the
first quarter of 2003.
Certain of our existing financing agreements contain covenants which, among
other things, restrict our ability to pay dividends to our shareholders and may
restrict our ability to enter into certain types of financing. As of December
29, 2002, we were in compliance with all such covenants. If, however, we are not
in compliance with the covenants in our financing agreements at the end of any
future quarter and cannot obtain amendments on terms acceptable to us, our
future financial results and liquidity could be materially adversely affected.
We currently believe that our cash and cash equivalents, securities available
for sale, cash generated from operations and credit facility will be sufficient
to meet our operating expenses, debt service requirements and capital
expenditures through 2003. Our ability to obtain additional financing, if
needed, will depend upon a number of factors, including our future performance
and financial results and general economic and capital market conditions. We
cannot be sure that we will be able to raise additional capital on reasonable
terms or at all, if needed.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires estimation
and judgment that affect the reported amounts of revenues, expenses, assets and
liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Following are our most critical accounting policies that affect significant
areas and involve judgment and estimates. If these estimates differ materially
from actual results, the impact to the consolidated financial statements may be
material.
Revenue Recognition
In recognizing revenue in any period, we apply the provisions of SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition." We recognize revenue from
the sale of our products when persuasive evidence of an arrangement exists, the
product has been delivered, the fee is fixed and determinable and collection of
the resulting receivable is reasonably assured. Amounts billed to customers for
shipping and handling costs associated with products sold are classified as
revenue.
For all sales, we use a binding purchase order as evidence of an arrangement.
Delivery generally occurs when product is delivered to a common carrier. Certain
of our products are delivered on an FOB destination basis. We defer our revenue
associated with these transactions until the delivery has occurred to the
customers' premises.
We also store inventory in warehouses (JIT hubs) that are located close to the
customer's manufacturing facilities. Revenue is recognized on sales from JIT
hubs upon the transfer of title and risk of loss, following the customer's
acknowledgement of the receipt of the goods.
We also enter into arrangements with customers that provide us with
reimbursement for guaranteed capacity. We recognize the associated revenue over
the estimated life of the program for which the capacity is guaranteed.
Accounts Receivable
We are dependent on a limited number of customers, and as a result, our trade
accounts receivable is highly concentrated. We establish an allowance for
doubtful accounts by analyzing specific customer accounts and assessing the risk
of uncollectability based on past transaction history with the customer and the
customer's financial condition. While we perform ongoing credit reviews of our
customers and have established an allowance for doubtful accounts, a significant
deterioration in the financial condition of any significant customer may result
in additional charges to increase the allowance for doubtful accounts or to
write off certain accounts.
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 returns as well as existing product return
notifications.
Inventory Valuation
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.
We are dependent on a limited number of customers and a limited number of
product programs for each customer. Because our products are custom-built, we
typically cannot shift work-in-process or finished goods from customer to
customer, or from one program to another for a particular customer. We evaluate
inventory balances for excess quantities and obsolescence on a regular basis by
analyzing backlog, estimated demand, inventory on hand, sales levels and other
information. We write down excess and obsolete inventory to the lower of cost or
market based on the analysis.
Long-Lived Assets
We evaluate the carrying value of long-lived assets, consisting primarily of
property, plant and equipment, whenever certain events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. Such events or circumstances include, but are not limited to, a
prolonged industry downturn or significant reductions in projected future cash
flows. In assessing the recoverability of long-lived assets, we compare the
carrying value to the undiscounted future cash flows the assets are expected to
generate. If the total of the undiscounted future cash flows is less than the
carrying amount of the assets, the assets will be written down based on the
excess of the carrying amount over the fair value of the assets. Fair value
would generally be determined by calculating the discounted future cash flows
using a discount rate based upon our weighted average cost of capital.
Significant judgments and assumptions are required in the forecast of future
operating results used in the preparation of the estimated future cash flows.
Changes in these estimates could have a material effect on the assessment of
long-lived assets.
Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As part of the process of
preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. This process
involves estimating our current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from 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 statement of operations.
Significant judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our deferred tax assets. We have recorded a valuation allowance of
$56,272,000 as of December 29, 2002, due to the uncertainty of realizing the
benefits of certain tax credits and net operating loss carryforwards before they
expire. The valuation allowance is based on our estimates of taxable income by
each jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may need to adjust
the valuation allowance, which could materially impact our financial position
and results of operations.
MARKET TRENDS AND CERTAIN CONTINGENCIES
(a) MARKET TRENDS
We expect that the expanding use of enterprise computing and storage, personal
computers, increasingly complex software and the emergence of new applications
for disk storage, such as digital video recording, gaming consoles, digital
cameras and other consumer applications, will increase disk drive demand and,
therefore, suspension assembly demand in the future. We also believe demand for
disk drives will continue to be subject, as it has in the past, to rapid or
unforeseen changes resulting from, among other things, changes in disk drive
inventory levels, technological advances, responses to competitive price changes
and unpredicted high or low market acceptance of new drive models. Improvements
in data density of disk drives, extending from the desktop market to server
drives, have reduced unit shipments of suspension assemblies since the third
quarter of 1999. However, data density improvements have grown at a slower rate
in the past year, and we believe they will continue to grow at a slower rate in
the upcoming year.
World-wide suspension assembly shipments increased in the first quarter of 2003
due to an increase in disk drive production and temporary lower production
yields at some disk drive and recording head manufacturers as they transition to
higher density recording heads. Unless disk drive and recording head
manufacturers can substantially improve their production yields, we expect
world-wide suspension assembly shipment volumes in the second quarter of 2003 to
be similar to the shipment volumes in the first quarter of 2003. We also expect
world-wide suspension assembly shipments for the second half of 2003 to decrease
as disk drive and recording head manufacturers improve their production yields
from current rates. Beyond 2003, we believe that world-wide suspension assembly
shipments will gradually increase as average suspension assembly counts within
disk drives stabilize and overall disk drive demand growth increases. We
continue to have limited visibility for future demand.
As in past years, disk drives continue to be the storage device of choice for
applications requiring low access times and higher capacities because of their
speed and low cost per megabyte of stored data. The cost of storing data on disk
drives continues to decrease primarily due to increasing data density, thereby
increasing storage capacity in disk drives or reducing the number of components,
including suspension assemblies, required in a disk drive.
The continual pursuit of increasing data density and lower storage costs are
leading to further adoption of value-added features for TSA suspensions, such as
extended arms, headlifts, limiters, static dissipative coatings and switch
shunts. TSA suspensions also allow for dual stage actuation, which incorporates
a second stage actuator on the suspension to improve head positioning over
increasingly tighter data tracks. Additionally, TSA suspensions can be
configured to allow for attachment of preamplifiers near the head to improve
data transfer signals.
The introduction of new types or sizes of read/write heads and new disk drive
designs tends to initially decrease customers' yields with the result that we
may experience temporary elevations of demand for some types of suspension
assemblies. We believe that reduced production yields at some of our customers
due to their transition to higher density recording heads resulted in increased
shipments of our suspension assemblies in the first quarter of 2003. As programs
mature, higher customer yields decrease the demand for suspension assemblies.
The advent of new heads and new drive designs may require rapid development and
implementation of new suspension assembly types which temporarily may reduce our
manufacturing yields and efficiencies. These changes will continue to affect us.
(b) CONTINGENCIES
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 is 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 or cash flows.
We are a party to certain claims arising in the ordinary course of business. In
the opinion of management, the outcome of such claims will not materially affect
our current or future financial position, results of operations or cash flows.
(c) OTHER MATTERS
Over the course of the last two years, the World Trade Organization ("WTO") has
ruled that the Foreign Sales Corporation ("FSC") provisions of the United States
Internal Revenue Code ("IRC"), and the FSC's replacement provisions contained in
the Extraterritorial Income Exclusion Act of 2002 ("ETI") are prohibited export
subsidies under the rules of the WTO. Federal legislation was proposed in 2002
that included a provision to repeal the ETI. Until the ETI provisions of the IRC
are repealed, we expect to earn a net benefit under the ETI provisions similar
to that previously earned under the FSC provisions of the IRC.
In accordance with Section 10A of the Securities Exchange Act of 1934, as
amended by Section 202 of the Sarbanes-Oxley Act of 2002, non-audit services
approved in the first quarter by the Audit Committee of our Board of Directors
and to be performed by Deloitte & Touche LLP, our independent auditors, are as
follows: (i) tax compliance services, (ii) tax planning services, and (iii) tax
controversy services.
FORWARD-LOOKING STATEMENTS
The statements above under the headings "General" and "Market Trends and Certain
Contingencies" about demand for and shipments of disk drives and suspension
assemblies, including TSA suspensions, the statements above under the heading
"Market Trends and Certain Contingencies" about data density improvements in
disk drives and the statements above, under the heading "Liquidity and Capital
Resources," about capital expenditures and capital resources, are
forward-looking statements based on current expectations. These statements are
subject to risks and uncertainties, including slower or faster customer
acceptance and adoption of new product features, fluctuating order rates, faster
or slower improvements in disk drive data densities which affect suspension
assembly and component demand, changes in market consumption of disk drives or
suspension assemblies, difficulties in producing our TSA suspensions,
difficulties in managing capacity, changes in manufacturing efficiencies and the
other risks and uncertainties discussed above. These factors may cause our
actual future results to differ materially from historical earnings and from the
financial performance we presently anticipate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our credit facility with The CIT Group/Business Credit, Inc. carries interest
rate risk, in connection with certain borrowings under the working capital line
it provides, that is generally related to either LIBOR or the prime rate. If
either of these rates were to change while we had such borrowings outstanding
under the working capital line provided by the credit facility, interest expense
would increase or decrease accordingly. At December 29, 2002, there was $17,000
in outstanding borrowings under the working capital line provided by the credit
facility. Our variable rate demand note ("Note") also carries interest rate risk
that is generally related to the 91-day U.S. treasury bill interest rate. At
December 29, 2002, the outstanding principal amount of the Note was $400,000
which was subject to an interest rate of 1.65%.
We have no earnings or cash flow exposure due to market risk on our other debt
obligations which are subject to fixed interest rates. Interest rate changes,
however, would affect the fair market value of this fixed rate debt. At December
29, 2002, we had fixed rate debt of $132,753,000.
We do not enter into derivative or other financial instruments or hedging
transactions for trading or speculative purposes. All of our sales transactions
in our Disk Drive Division are denominated in United States dollars and thus are
not subject to risk due to currency exchange fluctuations. Certain sales
transactions in our BioMeasurement Division may be denominated in foreign
currencies.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
as of a date within 90 days of the filing date of this Quarterly Report on Form
10-Q, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
were effective as of the date of such evaluation to ensure that information we
are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in our internal controls. As a
result, no corrective actions were required or undertaken.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
--------
Unless otherwise indicated, all documents incorporated herein by reference to a
document filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, are located under SEC file number
0-14709.
3.1 Amended and Restated Articles of Incorporation of HTI.
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit 3.2
to HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/96)
and Amendments to Restated By-Laws of HTI dated 7/19/00 (incorporated
by reference to Exhibit 3.2 to HTI's Quarterly Report on Form 10-Q for
the quarter ended 6/25/00).
4.1 Instruments defining the rights of security holders, including an
indenture. The Registrant agrees to furnish the Securities and Exchange
Commission upon request copies of instruments with respect to long-term
debt.
4.2 Indenture dated as of 3/18/98 between HTI and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.6 to
HTI's Registration Statement on Form S-3, Registration No. 333-50143).
4.3 Purchase Agreement dated 3/12/98 by and among HTI, NationsBanc
Montgomery Securities LLC and First Chicago Capital Markets, Inc.
(incorporated by reference to Exhibit 4.7 to HTI's Registration
Statement on Form S-3, Registration No. 333-50143).
4.4 Shelf Registration Agreement dated as of 3/18/98 by and among HTI,
NationsBanc Montgomery Securities LLC and First Chicago Capital Markets,
Inc. (incorporated by reference to Exhibit 4.8 to HTI's Registration
Statement on Form S-3, Registration No. 333-50143).
4.5 Share Rights Agreement dated as of 7/19/00, between HTI and Wells Fargo
Bank Minnesota, N.A., as Rights Agent (incorporated by reference to
Exhibit 1 to HTI's Registration Statement on Form 8-A, dated 7/24/00).
10.1 Office/Warehouse Lease between OPUS Corporation, Lessor, and HTI,
Lessee, dated 12/29/95 (incorporated by reference to Exhibit 10.2 to
HTI's Quarterly Report on Form 10-Q for the quarter ended 3/24/96), and
First Amendment to Office/Warehouse Lease dated 4/30/96 (incorporated by
reference to Exhibit 10.2 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 6/23/96).
#10.2 Directors' Retirement Plan effective as of 1/1/92 (incorporated by
reference to Exhibit 10.12 to HTI's Annual Report on Form 10-K for the
fiscal year ended 9/27/92) and Amendment effective as of 11/19/97
(incorporated by reference to Exhibit 10.5 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 12/28/97).
#10.3 1988 Stock Option Plan (incorporated by reference to Exhibit 10.8 to
HTI's Annual Report on Form 10-K for the fiscal year ended 9/25/88),
Amendment to the 1988 Stock Option Plan (incorporated by reference to
Exhibit 10.5 to HTI's Annual Report on Form 10-K for the fiscal year
ended 9/26/93), and Amendment to the 1988 Stock Option Plan
(incorporated by reference to Exhibit 10.5 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 3/26/95).
10.4 Patent License Agreement, effective as of 9/1/94, between HTI and
International Business Machines Corporation (incorporated by reference
to Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q/A for the
quarter ended 6/25/95).
10.5 Lease Agreement between Meridian Eau Claire LLC and HTI, dated 5/1/96
(incorporated by reference to Exhibit 10.10 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 6/23/96) and First Amendment to Lease
(incorporated by reference to Exhibit 10.6 to HTI's Annual Report on
Form 10-K for the fiscal year ended 9/24/00).
10.6 Master Lease Agreement dated as of 12/19/96 between General Electric
Capital Corporation, as Lessor ("GE"), and HTI, as Lessee (incorporated
by reference to Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q for
the quarter ended 12/29/96), Amendment dated 6/30/97 to the Master Lease
Agreement between GE and HTI (incorporated by reference to Exhibit 10.11
to HTI's Quarterly Report on Form 10-Q for the quarter ended 12/28/97),
letter amendment dated 3/5/98 to the Master Lease Agreement between GE
and HTI (incorporated by reference to Exhibit 10.11 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 3/29/98), letter amendment
dated 9/25/98 to the Master Lease Agreement between GE and HTI
(incorporated by reference to Exhibit 10.11 to HTI's Annual Report on
Form 10-K for the fiscal year ended 9/27/98), letter amendment dated
1/11/00, effective as of 12/22/99, to the Master Lease Agreement between
GE and HTI (incorporated by reference to Exhibit 10.1 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 12/26/99), and letter
amendment dated 8/31/00 to the Master Lease Agreement between GE and HTI
(incorporated by reference to Exhibit 10.7 to HTI's Annual Report on
Form 10-K for the fiscal year ended 9/24/00).
#10.7 Hutchinson Technology Incorporated 1996 Incentive Plan, as amended
(incorporated by reference to Exhibit A to HTI's Definitive Proxy
Statement on Schedule 14A for the Annual Meeting of Shareholders held on
1/29/03).
#10.8 Hutchinson Technology Incorporated Incentive Bonus Plan (incorporated by
reference to Exhibit 10.13 to HTI's Quarterly Report on Form 10-Q for
the quarter ended 12/28/97).
#10.9 Description of Fiscal Year 2003 Management Bonus Plan of Hutchinson
Technology Incorporated.
#10.10 Description of Fiscal Year 2003 BioMeasurement Division Bonus Plan of
Hutchinson Technology Incorporated.
99 Certification under Section 906 of the Sarbanes-Oxley Act of 2002.
# Management contract, compensatory plan or arrangement required to be filed
as an exhibit to this Quarterly Report on Form 10-Q.
(B) REPORTS ON FORM 8-K:
--------------------
No Current Reports on Form 8-K were filed by the Company during the thirteen
weeks ended December 29, 2002.
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: February 5, 2003 By /s/Wayne M. Fortun
------------------- --------------------------------
Wayne M. Fortun
President and Chief Executive Officer
Date: February 5, 2003 By /s/John A. Ingleman
------------------- --------------------------------
John A. Ingleman
Vice President, Chief Financial Officer
and Secretary
CERTIFICATIONS
I, Wayne M. Fortun, Chief Executive Officer of Hutchinson Technology
Incorporated, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hutchinson
Technology Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934,
as amended) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 5, 2003
/s/ Wayne M. Fortun
----------------------------------------
Wayne M. Fortun
President and Chief Executive Officer
CERTIFICATIONS
I, John A. Ingleman, Chief Financial Officer of Hutchinson Technology
Incorporated, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hutchinson
Technology Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934,
as amended) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 5, 2003
/s/ John A. Ingleman
------------------------------------------
John A. Ingleman
Vice President and Chief Financial Officer
INDEX TO EXHIBITS
Exhibit
No. Page
--- ----
3.1 Amended and Restated Articles of Incorporation of HTI. Filed
Electronically
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit Incorporated
3.2 to HTI's Quarterly Report on Form 10-Q for the quarter ended by Reference
12/29/96) and Amendments to Restated By-Laws of HTI dated
7/19/00 (incorporated by reference to Exhibit 3.2 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 6/25/00).
4.1 Instruments defining the rights of security holders, including
an indenture. The Registrant agrees to furnish the Securities
and Exchange Commission upon request copies of instruments with
respect to long-term debt.
4.2 Indenture dated as of 3/18/98 between HTI and U.S. Bank National Incorporated
Association, as Trustee (incorporated by reference to Exhibit by Reference
4.6 to HTI's Registration Statement on Form S-3, Registration
No. 333-50143).
4.3 Purchase Agreement dated 3/12/98 by and among HTI, NationsBanc Incorporated
Montgomery Securities LLC and First Chicago Capital Markets, by Reference
Inc. (incorporated by reference to Exhibit 4.7 to HTI's
Registration Statement on Form S-3, Registration No. 333-50143).
4.4 Shelf Registration Agreement dated as of 3/18/98 by and among Incorporated
HTI, NationsBanc Montgomery Securities LLC and First Chicago by Reference
Capital Markets, Inc. (incorporated by reference to Exhibit 4.8
to HTI's Registration Statement on Form S-3, Registration No.
333-50143).
4.5 Share Rights Agreement dated as of 7/19/00, Incorporated between Incorporated
HTI and Wells Fargo Bank Minnesota, N.A., by Reference as Rights by Reference
Agent (incorporated by reference to Exhibit 1 to HTI's
Registration Statement on Form 8-A, dated 7/24/00).
10.1 Office/Warehouse Lease between OPUS Corporation, Lessor, and Incorporated
HTI, Lessee, dated 12/29/95 (incorporated by reference to by Reference
Exhibit 10.2 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 3/24/96), and First Amendment to Office/Warehouse
Lease dated 4/30/96 (incorporated by reference to Exhibit 10.2
to HTI's Quarterly Report on Form 10-Q for the quarter ended
6/23/96).
10.2 Directors' Retirement Plan effective as of 1/1/92 (incorporated Incorporated
by reference to Exhibit 10.12 to HTI's Annual Report on Form by Reference
10-K for the fiscal year ended 9/27/92) and Amendment effective
as of 11/19/97 (incorporated by reference to Exhibit 10.5 to
HTI's Quarterly Report on Form 10-Q for the quarter ended
12/28/97).
10.3 1988 Stock Option Plan (incorporated by reference Incorporated Incorporated
to Exhibit 10.8 to HTI's Annual Report on Form by Reference 10-K by Reference
for the fiscal year ended 9/25/88), Amendment to the 1988 Stock
Option Plan (incorporated by reference to Exhibit 10.5 to HTI's
Annual Report on Form 10-K for the fiscal year ended 9/26/93),
and Amendment to the 1988 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to HTI's Quarterly Report on Form 10-Q
for the quarter ended 3/26/95).
10.4 Patent License Agreement, effective as of 9/1/94, Incorporated Incorporated
between HTI and International Business Machines by Reference by Reference
Corporation (incorporated by reference to Exhibit 10.11 to HTI's
Quarterly Report on Form 10-Q/A for the quarter ended 6/25/95).
10.5 Lease Agreement between Meridian Eau Claire LLC and HTI, dated Incorporated
5/1/96 (incorporated by reference to Exhibit 10.10 to HTI's by Reference
Quarterly Report on Form 10-Q for the quarter ended 6/23/96) and
First Amendment to Lease (incorporated by reference to Exhibit
10.6 to HTI's Annual Report on Form 10-K for the fiscal year
ended 9/24/00).
10.6 Master Lease Agreement dated as of 12/19/96 between General Incorporated
Electric Capital Corporation, as Lessor ("GE"), and HTI, as by Reference
Lessee (incorporated by reference to Exhibit 10.11 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 12/29/96),
Amendment dated 6/30/97 to the Master Lease Agreement between GE
and HTI (incorporated by reference to Exhibit 10.11 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 12/28/97),
letter amendment dated 3/5/98 to the Master Lease Agreement
between GE and HTI (incorporated by reference to Exhibit 10.11
to HTI's Quarterly Report on Form 10-Q for the quarter ended
3/29/98), letter amendment dated 9/25/98 to the Master Lease
Agreement between GE and HTI (incorporated by reference to
Exhibit 10.11 to HTI's Annual Report on Form 10-K for the fiscal
year ended 9/27/98), letter amendment dated 1/11/00, effective
as of 12/22/99, to the Master Lease Agreement between GE and HTI
(incorporated by reference to Exhibit 10.1 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 12/26/99), and letter
amendment dated 8/31/00 to the Master Lease Agreement between GE
and HTI (incorporated by reference to Exhibit 10.7 to HTI's
Annual Report on Form 10-K for the fiscal year ended 9/24/00).
10.7 Hutchinson Technology Incorporated 1996 Incentive Incorporated Incorporated
Plan, as amended (incorporated by reference to by Reference by Reference
Exhibit A to HTI's Definitive Proxy Statement on Schedule 14A
for the Annual Meeting of Shareholders held on 1/29/03).
10.8 Hutchinson Technology Incorporated Incentive Bonus Incorporated Incorporated
Plan (incorporated by reference to Exhibit 10.13 by Reference to by Reference
HTI's Quarterly Report on Form 10-Q for the quarter ended
12/28/97).
10.9 Description of Fiscal Year 2003 Management Bonus Plan of Filed
Hutchinson Technology Incorporated. Electronically
10.10 Description of Fiscal Year 2003 BioMeasurement Division Bonus Filed
Plan of Hutchinson Technology. Electronically
99 Certification under Section 906 of the Sarbanes-Oxley Act of Filed
2002. Electronically