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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 MARCH 30, 2003
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 0-14709
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HUTCHINSON TECHNOLOGY INCORPORATED
----------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0901840
------------------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK, HUTCHINSON, MINNESOTA 55350
-------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(320) 587-3797
--------------
(Registrant's telephone number, including area code)
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 7, 2003 the registrant had 25,571,376 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 and per share data)
March 30,
2003 September 29,
(Unaudited) 2002
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 66,809 $ 57,852
Securities available for sale 196,789 151,257
Trade receivables, net 51,581 51,363
Other receivables 5,274 4,590
Inventories 26,991 27,110
Prepaid taxes and other (Note 8) 11,388 12,376
--------- ---------
Total current assets 358,832 304,548
Property, plant and equipment, net 176,334 181,494
Deferred tax assets 40,914 46,883
Other assets (Note 8) 27,642 29,176
--------- ---------
$ 603,722 $ 562,101
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $ 255 $ 253
Capital lease obligation 3,513 7,250
Accounts payable 23,019 17,793
Accrued expenses 11,807 12,942
Accrued compensation 20,898 21,580
--------- ---------
Total current liabilities 59,492 59,818
Long-term debt, less current maturities 316 371
Convertible subordinated notes 150,000 143,500
Other long-term liabilities 1,117 1,451
Shareholders' investment:
Common stock, $.01 par value, 100,000,000 shares authorized,
25,521,000 and 25,355,000 issued and outstanding 255 254
Additional paid-in capital 372,298 369,641
Accumulated other comprehensive income 1,075 640
Accumulated earnings (deficit) 19,169 (13,574)
--------- ---------
Total shareholders' investment 392,797 356,961
--------- ---------
$ 603,722 $ 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 Twenty-Six Weeks Ended
------------------------- --------------------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
------------------------- --------------------------
Net sales $ 124,959 $ 91,499 $ 257,821 $ 184,216
Cost of sales 86,328 73,304 177,762 144,801
------------------------ --------------------------
Gross profit 38,631 18,195 80,059 39,415
Research and development expenses 2,638 4,254 6,086 8,785
Selling, general and administrative expenses 13,663 11,453 28,707 23,749
Litigation settlement (Note 11) -- -- -- (2,632)
------------------------ --------------------------
Income from operations 22,330 2,488 45,266 9,513
Interest expense (2,981) (3,517) (5,216) (7,121)
Interest income 1,610 1,751 3,033 3,796
Loss on debt extinguishment (Note 9) (3,486) -- (3,265) --
Other income, net 309 298 606 467
------------------------ --------------------------
Income before income taxes 17,782 1,020 40,424 6,655
Provision for income taxes 3,379 153 7,681 998
------------------------ --------------------------
Net income $ 14,403 $ 867 $ 32,743 $ 5,657
======================== ==========================
Basic earnings per share $ 0.56 $ 0.03 $ 1.29 $ 0.22
Diluted earnings per share $ 0.50 $ 0.03 $ 1.15 $ 0.22
Weighted average common shares outstanding 25,509 25,304 25,462 25,263
Weighted average common and diluted shares
outstanding 32,262 25,667 31,357 25,594
See accompanying notes to condensed consolidated financial statements -
unaudited.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
Twenty-Six Weeks Ended
--------------------------------
March 30, March 31,
2003 2002
--------- ---------
Operating activities:
Net income $ 32,743 $ 5,657
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 28,410 29,957
Write-off of unamortized debt issuance costs 1,346 --
Deferred taxes 6,842 (197)
Changes in operating assets and liabilities (Note 10) 4,209 (26,464)
--------- ---------
Cash provided by operating activities 73,550 8,953
--------- ---------
Investing activities:
Capital expenditures (20,808) (16,347)
Purchases of marketable securities (104,748) (157,969)
Sales of marketable securities 59,969 156,201
--------- ---------
Cash used for investing activities (65,587) (18,115)
--------- ---------
Financing activities:
Repayments of long-term debt (143,553) (8,977)
Repayments of capital lease obligation (3,737) (3,751)
Net proceeds from issuance of convertible subordinated notes 145,626 --
Net proceeds from issuance of common stock 2,658 2,340
--------- ---------
Cash provided by (used for) financing activities 994 (10,388)
--------- ---------
Net increase (decrease) in cash and cash equivalents 8,957 (19,550)
Cash and cash equivalents at beginning of period 57,852 113,313
--------- ---------
Cash and cash equivalents at end of period $ 66,809 $ 93,763
========= =========
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 ("APB") 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 adopted
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 on 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 adopted FAS 146 on January 1, 2003. The
adoption of FAS 146 did not have a material impact on the Company's consolidated
balance sheet or results of operations.
In September 2002, the EITF of the 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 debt holder. The EITF
concluded that this guidance should be followed for transactions completed after
September 12, 2002. The Company adopted EITF Issue No. 02-15 on September 13,
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 Company adopted the recognition and measurement
provisions of FIN 45 on January 1, 2003 and adopted the disclosure provisions of
FIN 45 effective for the quarter ended December 29, 2002. The Company has
provided the interim disclosures required by FIN 45 in Note 4 to its condensed
consolidated financial statements. The adoption of the recognition and
measurement provisions 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 did not have a material impact on the Company's consolidated
balance sheet or results of operations. The Company adopted the disclosure
provisions of FAS 148 and has provided the interim disclosures in Note 12 to its
condensed consolidated financial statements.
(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 from these products during 2003.
A breakdown of customer sales is as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------- --------------------------
March 30, March 31, March 30, March 31,
Percentage of Net Sales 2003 2002 2003 2002
----------------------- --------- --------- --------- ---------
Five Largest Customers 81% 83% 81% 78%
Alps Electric Co., Ltd. 28 22 27 15
SAE Magnetics, Ltd./TDK 25 26 24 24
Seagate Technology LLC 14 13 17 12
Hitachi Global Storage Technologies
(formerly IBM's hard disk drive
division) and affiliates 7 14 7 15
K.R. Precision Co. 7 4 6 5
Read-Rite Corporation 1 8 2 12
(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
$51,581,000 at March 30, 2003 and $51,363,000 at September 29, 2002 are net of
allowances of $4,541,000 and $3,662,000, respectively. As of March 30, 2003,
allowances of $4,541,000 consisted of a $2,999,000 allowance for doubtful
accounts and a $1,542,000 allowance for sales returns.
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 authorizations. 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 returns March 30,
2002 warranties issued under warranties 2003
------------- -------------------- --------------------- --------------
$663,000 $4,049,000 $(3,170,000) $1,542,000
(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 March 30, 2003 and
September 29, 2002:
March 30, September 29,
2003 2002
------------- -------------
Raw materials $ 6,293 $ 6,240
Work in process 6,987 6,123
Finished goods 13,711 14,747
------------- -------------
$26,991 $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
for stock options and the if-converted method for convertible debt and is
calculated to compute the dilutive effect of potential common shares. A
reconciliation of these amounts is as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------- -------------------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
-------- -------- -------- --------
Net income (A) $ 14,403 $ 867 $ 32,743 $ 5,657
Plus: interest expense on convertible subordinated 2,405 -- 4,554 --
notes
Less: additional profit-sharing expense and income tax 652 -- 1,234 --
provision
-------- -------- -------- --------
Net income available to common shareholders (B) $ 16,156 $ 867 $ 36,063 $ 5,657
======== ======== ======== ========
Weighted average common shares outstanding (C) 25,509 25,304 25,462 25,263
Dilutive potential common shares 6,753 363 5,895 331
-------- -------- -------- --------
Weighted average common and diluted shares outstanding (D) 32,262 25,667 31,357 25,594
======== ======== ======== ========
Basic earnings per share [(A)/(C)] $ 0.56 $ 0.03 $ 1.29 $ 0.22
Diluted earnings per share [(B)/(D)] $ 0.50 $ 0.03 $ 1.15 $ 0.22
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 and twenty-six weeks ended March 31,
2002, 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:
March 30, September 29,
2003 2002
------------- -------------
Current deferred tax assets:
Receivable allowance $ 1,660 $ 1,327
Inventories 3,984 4,596
Accruals and other reserves 4,642 6,125
Valuation allowance (4,204) (4,777)
------------ -------------
Total current deferred tax assets 6,082 7,271
------------ -------------
Long-term deferred tax assets:
Property, plant and equipment 13,854 15,654
Tax credits 13,470 12,386
Net operating loss carryforwards 63,710 71,801
Valuation allowance (50,120) (52,958)
------------ -------------
Total long-term deferred tax assets 40,914 46,883
------------ -------------
Total deferred tax assets $ 46,996 $ 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 March 30, 2003, the
Company's deferred tax assets included $13,470,000 of unused tax credits,
$3,079,000 of which can be carried forward indefinitely and $10,391,000 of which
begin to expire at various dates beginning in 2010. At March 30, 2003, the
Company's balance sheet included $63,710,000 of deferred tax assets related to
net operating loss carryforwards that will begin to expire in 2018. As of March
30, 2003, the Company had an estimated federal net operating loss carryforward
of approximately $163,805,000 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 $54,324,000 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 before they expire.
(8) OTHER ASSETS
During the second quarter of 2002, the Company prepaid $26,000,000 related to a
technology and development agreement. As of March 30, 2003, the unamortized
portion of the prepayment was $22,033,000, of which $3,174,000 was included in
"Prepaid taxes and other" and $18,859,000 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) LOSS ON DEBT EXTINGUISHMENT
During the first quarter of 2003, the Company repurchased $10,971,000 of its 6%
Convertible Subordinated Notes due 2005 (the "6% Convertible Notes") at a
pre-tax gain of $221,000. On March 26, 2003, the Company redeemed the remaining
$132,529,000 of its 6% Convertible Notes at a pre-tax loss of $3,486,000. The
pre-tax loss consisted of a $2,266,000 redemption premium paid by the Company
and a $1,220,000 write-off of unamortized debt issuance costs associated with
the 6% Convertible Notes. These notes had a maturity date of March 15, 2005.
Prior to the redemption of the Company's 6% Convertible Notes, in February 2003,
the Company issued and sold $150,000,000 aggregate principal amount of 2.25%
Convertible Subordinated Notes due 2010 (the "2.25% Convertible Notes") to
Salomon Smith Barney Inc. and Needham & Company, Inc., which resold the 2.25%
Convertible Notes to qualified institutional buyers, and outside the United
States in accordance with Regulation S under the Securities Act of 1933, as
amended (the "Securities Act"). The Company used the net proceeds of
$145,626,000 from the issuance and sale of the 2.25% Convertible Notes primarily
to redeem its 6% Convertible Notes, with the remaining proceeds intended to be
used for general corporate purposes. In connection with the issuance and sale of
the 2.25% Convertible Notes, the Company incurred and capitalized debt issuance
costs of $4,374,000, which will be amortized over the term of the notes.
Beginning in the third quarter of 2003, the redemption of the 6% Convertible
Notes, combined with the issuance and sale of the 2.25% Convertible Notes, will
reduce the Company's interest expense by $1,140,000 per quarter.
(10) SUPPLEMENTARY CASH FLOW INFORMATION
Twenty-Six Weeks Ended
-----------------------------
March 30, March 31,
2003 2002
-------- --------
Changes in operating assets and liabilities:
Receivables, net $ (902) $ 2,699
Inventories 119 (5,263)
Prepaid and other assets 3,972 (25,675)
Accounts payable and accrued expenses 1,594 2,747
Other non-current liabilities (574) (972)
-------- --------
$ 4,209 $(26,464)
======== ========
Cash paid (refunded) for:
Interest (net of amount capitalized) $ 5,164 $ 6,702
Income taxes $ 8 $ (425)
Capitalized interest for the twenty-six weeks ended March 30, 2003 was $357,000
compared to $507,000 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
twenty-six weeks ended March 30, 2003 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) STOCK-BASED COMPENSATION
The Company has two stock option plans under which options may be granted to any
employee, including officers and directors of the Company, at a price not less
than the fair market value of the Company's common stock at the date the options
are granted. Under one of the plans, options may be granted to certain
non-employees, at a price not less than the fair market value of the Company's
common stock at the date the options are granted. Options generally expire ten
years from the date of grant or at an earlier date as determined by the
committee of the Board of Directors that administers the plans. Options granted
under the plans generally are exercisable one year from the date of grant.
The Company has an employee stock purchase plan that provides for the sale of
the Company's common stock at discounted purchase prices. The cost per share
under this plan is 85 percent of the lesser of the fair market value of the
Company's common stock on the first or last day of the purchase period, as
defined.
The Company accounts for stock-based compensation under the provisions of APB
25, "Accounting for Stock Issued to Employees," under which no compensation
expense is recognized when stock options are granted at fair market value. Had
compensation expense been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), the Company's pro forma net income (loss) and pro forma earnings (loss)
per share would have been as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ -------------------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
------------------------ -------------------------
Net income, as reported $ 14,403 $ 867 $ 32,743 $ 5,657
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (1,489) (1,758) (3,075) (3,449)
------------------------ -------------------------
Pro forma net income (loss) $ 12,914 $ (891) $ 29,668 $ 2,208
======================== =========================
Earnings (loss) per share:
Basic - as reported $ 0.56 $ 0.03 $ 1.29 $ 0.22
Basic - pro forma $ 0.51 $ (0.04) $ 1.17 $ 0.09
Diluted - as reported $ 0.50 $ 0.03 $ 1.15 $ 0.22
Diluted - pro forma $ 0.45 $ (0.04) $ 1.05 $ 0.09
In determining compensation cost pursuant to FAS 123, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model. The following weighted average assumptions were used for various
grants in 2003: risk-free interest rate of 3.4%; expected life of six years; and
expected volatility of 61%. The following weighted average assumptions were used
for various grants in 2002: risk-free interest rate of 4.6%; expected life of
six years; and expected volatility of 85%. The following weighted average
assumptions were used for various grants in 2001: risk-free interest rate of
5.8%; expected life of six years; and expected volatility of 86%.
(13) 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, the Company and
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
financial position, 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.
(14) OTHER MATTERS
Over the course of the last three 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 FSC Repeal and
Extraterritorial Income Exclusion Act of 2000 ("ETI"), are prohibited export
subsidies under the rules of the WTO. Federal legislation introduced in both
2002 and 2003 has proposed the repeal of ETI, most recently in The Job
Protection Act of 2003. Until such legislation is signed into law, the Company
expects to earn a net benefit under the ETI provisions similar to that
previously earned under the FSC provisions of the IRC. If such legislation is
signed into law, the Company's effective tax rate could increase significantly
and its business, financial condition and results of operations could be
materially adversely affected.
(15) 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 Twenty-Six Weeks Ended
------------------------ -------------------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
------------------------ -------------------------
Net sales:
Disk Drive Division $ 124,934 $ 91,489 $ 257,725 $ 184,204
BioMeasurement Division 25 10 96 12
------------------------ -------------------------
$ 124,959 $ 91,499 $ 257,821 $ 184,216
======================== =========================
Income (loss) from operations:
Disk Drive Division $ 23,807 $ 3,584 $ 48,045 $ 11,729
BioMeasurement Division (1,477) (1,096) (2,779) (2,216)
------------------------ -------------------------
$ 22,330 $ 2,488 $ 45,266 $ 9,513
======================== =========================
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," or the "Company," 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 hard disk drive division),
Innovex, Kaifa, K.R. 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. The average number
of suspension assemblies required per drive decreased from approximately 4.5 in
1999 to approximately 3.3 in 2000, approximately 2.8 in 2001 and approximately
2.4 in 2002. 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 also decreased demand for our products in
2001 and 2002. 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
increased shipments of our products during the latter part of 2002.
Our shipments of suspension assemblies for the first half of 2003 were 265
million, 26% higher than our shipments in the second half of 2002. This increase
was due to an increase in disk drive production, an increase in our market
share, 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, and slower growth in data density improvements. These customers
are currently experiencing higher levels of defective recording heads, which
they are unable to detect until after they have attached the recording heads to
our suspension assemblies. Although we continue to have limited visibility for
future demand, we now expect our shipment volumes in the second half of 2003 to
be similar to our shipment volumes in the first half of 2003, primarily due to
the lower production yields some of our customers continue to experience as they
transition to higher density recording heads.
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 and decreasing prices as
it matures. 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
- - 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 half of 2003 primarily due to increased
shipments, higher utilization of our production capacity, and productivity
improvements.
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. In 2003, however, we have increased our overall
employment level to 3,583, at the end of our second fiscal quarter, due to
increased demand and production requirements.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 2003 VS. THIRTEEN WEEKS ENDED MARCH 31, 2002.
Net sales for the thirteen weeks ended March 30, 2003 were $124,959,000, an
increase of $33,460,000 or 37% from the comparable period in 2002. Suspension
assembly sales increased $26,595,000 compared to the thirteen weeks ended March
31, 2002, as a result of a 37% increase in shipments. Additionally, sales of
suspension assembly components to other suspension assembly manufacturers
increased $5,686,000. Both of these increases were due to an increase in disk
drive production, an increase in our market share and a temporary increase in
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 5% decline in average selling prices
for our suspension assemblies.
Gross profit for the thirteen weeks ended March 30, 2003 was $38,631,000,
compared to $18,195,000 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 20% to 31%, primarily due to higher
utilization of our production capacity and productivity improvements.
Research and development expenses for the thirteen weeks ended March 30, 2003
were $2,638,000 compared to $4,254,000 for the thirteen weeks ended March 31,
2002. The decrease was due to a $2,215,000 increase in customer funding of
certain advanced suspension assembly development costs.
Selling, general and administrative expenses for the thirteen weeks ended March
30, 2003 were $13,663,000, an increase of $2,210,000 or 19% from the comparable
period in 2002. The increase was due primarily to a $1,183,000 increase in
incentive compensation costs as profitability improved in the second quarter of
2003 compared to the second quarter of 2002. Selling, general and administrative
expenses for our BioMeasurement Division increased by $344,000 due to increasing
our sales, marketing and regulatory efforts. Expenses for our subsidiary,
Hutchinson Technology Asia, Inc., also increased by $327,000 as on-site service
and engineering support to our customers in Asia was increased. Selling, general
and administrative expenses as a percent of net sales decreased from 13% in the
second quarter of 2002 to 11% in the second quarter of 2003.
Income from operations for the thirteen weeks ended March 30, 2003 was
$22,330,000, compared to $2,488,000 for the comparable period in 2002. The
increase was primarily due to the increase in net sales mentioned above, higher
utilization of our production capacity and productivity improvements. Income
from operations for the thirteen weeks ended March 30, 2003 included a
$1,477,000 loss from operations for our BioMeasurement Division segment,
compared to a $1,096,000 loss for the comparable period in 2002.
Interest expense for the thirteen weeks ended March 30, 2003 was $2,981,000, a
decrease of $536,000 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 March 30, 2003 was $1,610,000, a
decrease of $141,000 from the comparable period in 2002. This was primarily a
result of lower investment yields, offset partially by a higher average
investment balance.
During the second quarter of 2003, we retired $132,529,000 of our 6% Convertible
Notes before their maturity. In connection with this transaction, we recorded a
$3,486,000 pre-tax loss on debt extinguishment. See Note 9, "Loss on Debt
Extinguishment," in the notes to the condensed consolidated financial
statements.
Other income, net of other expenses, for the thirteen weeks ended March 30, 2003
was $309,000, an increase of $11,000 from the comparable period in 2002.
The income tax provision for the thirteen weeks ended March 30, 2003 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 March 30, 2003 was $14,403,000 or 12% of
net sales, compared to net income of $867,000 or 1% of net sales for the
comparable period in 2002. Our improved profitability was primarily due to the
above-mentioned increase in net sales, higher utilization of our production
capacity and productivity improvements. Net income for the second quarter of
2003 included the above-mentioned loss on debt extinguishment.
TWENTY-SIX WEEKS ENDED MARCH 30, 2003 VS. TWENTY-SIX WEEKS ENDED MARCH 31, 2002.
Net sales for the twenty-six weeks ended March 30, 2003 were $257,821,000, an
increase of $73,605,000 or 40% from the comparable period in 2002. Suspension
assembly sales increased $62,760,000 compared to the twenty-six weeks ended
March 31, 2002, as a result of a 42% increase in shipments. Additionally, sales
of suspension assembly components to other suspension assembly manufacturers
increased $8,852,000. Both of these increases were due to an increase in our
market share, an increase in disk drive production and a temporary increase in
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 3% decline in
average selling prices for our suspension assemblies.
Gross profit for the twenty-six weeks ended March 30, 2003 was $80,059,000,
compared to $39,415,000 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 21% to 31%, primarily due to higher
utilization of our production capacity and productivity improvements.
Research and development expenses for the twenty-six weeks ended March 30, 2003
were $6,086,000 compared to $8,785,000 for the twenty-six weeks ended March 31,
2002. The majority of the decrease was due to a $3,141,000 increase in customer
funding of certain advanced suspension assembly development costs.
Selling, general and administrative expenses for the twenty-six weeks ended
March 30, 2003 were $28,707,000, an increase of $4,958,000 or 21% from the
comparable period in 2002. The increase was due primarily to a $4,233,000
increase in incentive compensation costs as profitability improved in the first
half of 2003 compared to the first half of 2002. Expenses for our subsidiary,
Hutchinson Technology Asia, Inc., increased by $668,000 as on-site service and
engineering support to our customers in Asia was increased. Selling, general and
administrative expenses for our BioMeasurement Division also increased by
$646,000 due to increasing our sales, marketing and regulatory efforts. These
overall increases were partially offset by a $1,052,000 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 half of 2002 to 11% in the first half 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 twenty-six weeks ended March 30, 2003 was
$45,266,000, compared to $9,513,000 for the comparable period in 2002. The
increase was primarily due to the increase in net sales mentioned above, higher
utilization of our production capacity and productivity improvements. Income
from operations for the twenty-six weeks ended March 30, 2003 included a
$2,779,000 loss from operations for our BioMeasurement Division segment,
compared to a $2,216,000 loss for the comparable period in 2002.
Interest expense for the twenty-six weeks ended March 30, 2003 was $5,216,000, a
decrease of $1,905,000 from the comparable period in 2002, primarily due to a
lower amount of outstanding debt and fewer capitalized leases.
Interest income for the twenty-six weeks ended March 30, 2003 was $3,033,000, a
decrease of $763,000 from the comparable period in 2002. This was primarily a
result of lower investment yields, offset partially by a higher average
investment balance.
During the first and second quarters of 2003, we retired $143,500,000 of our 6%
Convertible Notes before their maturity. In connection with these transactions,
we recorded a $3,265,000 pre-tax loss on debt extinguishment. See Note 9, "Loss
on Debt Extinguishment," in the notes to the condensed consolidated financial
statements.
Other income, net of other expenses, for the twenty-six weeks ended March 30,
2003 was $606,000, an increase of $139,000 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 twenty-six weeks ended March 30, 2003 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 twenty-six weeks ended March 30, 2003 was $32,743,000 or 13%
of net sales, compared to net income of $5,657,000 or 3% of net sales for the
comparable period in 2002. Our improved profitability was primarily due to the
above-mentioned increase in net sales, higher utilization of our production
capacity and productivity improvements. Net income for the first half of 2003
included the above-mentioned loss on debt extinguishment. Net income for the
first half of 2002 included the above-mentioned increase to operating income
from the litigation settlement.
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 $66,809,000 at March 30, 2003. Our securities available for sale increased
from $151,257,000 to $196,789,000 during the same period. Overall, this reflects
a $54,489,000 increase in our cash and cash equivalents and securities available
for sale, primarily due to improved profitability in the first half of 2003. We
generated cash from operating activities of $73,550,000 for the twenty-six weeks
ended March 30, 2003.
As of March 30, 2003, our $50,000,000 credit facility had a borrowing base of
$36,890,000, secured by our eligible accounts receivable and inventory. Letters
of credit and loans outstanding under this facility totaled $3,192,000 as of
such date, including $1,370,000 issued in connection with obligations under
equipment leases. The amount we can borrow under this credit facility is limited
by the levels of our eligible accounts receivable and inventory balances. As of
March 30, 2003, $33,698,000 of borrowing capacity remained available to us.
Cash used for capital expenditures totaled $20,808,000 for the twenty-six weeks
ended March 30, 2003. 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 Notes at a pre-tax gain of $221,000. On March 26, 2003, we redeemed
the remaining $132,529,000 of our 6% Convertible Notes at a pre-tax loss of
$3,486,000. The pre-tax loss consisted of a $2,266,000 redemption premium that
we paid and a $1,220,000 write-off of unamortized debt issuance costs associated
with the 6% Convertible Notes. These notes had a maturity date of March 15,
2005. Prior to the redemption of our 6% Convertible Notes, in February 2003, we
issued and sold $150,000,000 aggregate principal amount of 2.25% Convertible
Subordinated Notes due 2010 (the "2.25% Convertible Notes") to Salomon Smith
Barney Inc. and Needham & Company, Inc., which resold the 2.25% Convertible
Notes to qualified institutional buyers, and outside the United States in
accordance with Regulation S under the Securities Act.
We used the net proceeds of $145,626,000 from the issuance and sale of the 2.25%
Convertible Notes primarily to redeem our 6% Convertible Notes, with the
remaining proceeds intended to be used for general corporate purposes. In
connection with the issuance and sale of the 2.25% Convertible Notes, we
incurred and capitalized debt issuance costs of $4,374,000, which will be
amortized over the term of the notes. Beginning in the third quarter of 2003,
the redemption of the 6% Convertible Notes, combined with the issuance and sale
of the 2.25% Convertible Notes, will reduce our interest expense by $1,140,000
per quarter.
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 March 30,
2003, 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 our 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
authorizations.
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
$54,324,000 as of March 30, 2003, 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.
Worldwide suspension assembly shipments increased in the first half of 2003 due
to an increase in disk drive production, slower growth in data density
improvements and temporary lower production yields at some disk drive and
recording head manufacturers as they transition to higher density recording
heads. We expect the continued transition to higher density recording heads to
result in data density improvements in the second half of 2003, which could
reduce worldwide suspension assembly shipments for the second half of 2003.
Beyond 2003, we believe that worldwide suspension assembly shipments may
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 gigabyte 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 suspension assemblies,
such as dampers, extended arms, headlifts, limiters and static dissipative
coatings. Our suspension assemblies 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, our suspension
assemblies 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 half 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 de-
velopment 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, we and 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
financial position, 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 three 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 FSC Repeal and Extraterritorial Income Exclusion Act of 2000
("ETI"), are prohibited export subsidies under the rules of the WTO. Federal
legislation introduced in both 2002 and 2003 has proposed the repeal of ETI,
most recently in The Job Protection Act of 2003. Until such legislation is
signed into law, we expect to earn a net benefit under the ETI provisions
similar to that previously earned under the FSC provisions of the IRC. If such
legislation is signed into law, our effective tax rate could increase
significantly and our business, financial condition and results of operations
could be materially adversely affected.
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 2003 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 expected tax benefits 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 and
other technological advances 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, changes in tax laws 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 March 30, 2003, there was $16,000 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
March 30, 2003, the outstanding principal amount of the Note was $400,000 which
was subject to an interest rate of 1.20%.
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 March
30, 2003, we had fixed rate debt of $150,171,000.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In February 2003, we issued and sold $150,000,000 aggregate principal amount of
2.25% Convertible Subordinated Notes due 2010 (the "2.25% Convertible Notes") to
Salomon Smith Barney Inc. and Needham & Company, Inc. (the "Initial Purchasers")
in a transaction exempt from the registration provisions of the Securities Act,
pursuant to Section 4(2) of the Securities Act. The discount to the Initial
Purchasers was 2.75%, or $4,125,000, resulting in net proceeds to us of
$145,875,000 (before deducting offering expenses payable by us). The Initial
Purchasers resold the 2.25% Convertible Notes, in transactions not requiring
registration under the Securities Act, to persons the Initial Purchasers
reasonably believed to be qualified institutional buyers in reliance on Rule
144A under the Securities Act, and outside the United States in accordance with
Regulation S under the Securities Act. The 2.25% Convertible Notes are
convertible, at the option of the holder of such 2.25% Convertible Notes, into
Common Stock of the Company at any time prior to their stated maturity, unless
previously redeemed or repurchased, at an initial conversion price of $29.84 per
share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At our 37th Annual Meeting of Shareholders held on January 29, 2003, our
shareholders approved the following:
(a) the election of directors to serve until their successors are duly
elected. Each nominated director was elected as follows:
Director Votes For Votes Withheld
----------------------- ---------- --------------
W. Thomas Brunberg 23,674,840 1,051,856
Archibald Cox, Jr. 22,210,601 2,516,095
Wayne M. Fortun 18,743,201 5,983,495
Jeffrey W. Green 23,642,025 1,084,671
Russell Huffer 23,676,464 1,050,232
R. Frederick McCoy, Jr. 22,211,861 2,514,835
William T. Monahan 22,210,029 2,516,667
Richard B. Solum 23,675,357 1,051,339
(b) a proposal to approve an amendment and restatement of the Company's
1996 Incentive Plan to increase the aggregate number of shares of
Common Stock authorized for issuance thereunder from 3,000,000 shares
to 3,750,000 shares. The proposal received 18,824,204 votes for, and
5,851,202 votes against, approval. There were 51,290 abstentions and no
broker non-votes.
(c) a proposal to approve an amendment to the Company's Restated
Articles of Incorporation to increase the total number of authorized
shares of Common Stock from 45,000,000 shares to 100,000,000 shares.
The proposal received 20,293,798 votes for, and 4,405,541 votes
against, approval. There were 27,357 abstentions and no broker
non-votes.
(d) a proposal to ratify the appointment of Deloitte & Touche LLP to
serve as independent public accountants of the Company for the fiscal
year ending September 28, 2003. The proposal received 24,245,676 votes
for, and 376,042 votes against, ratification. There were 104,978
abstentions and no broker non-votes.
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 (incorporated by
reference to Exhibit 3.1 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/29/02).
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit 4.2 to
HTI's Registration Statement on Form S-3, Registration No. 333-104074).
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 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).
4.3 Indenture dated as of 2/24/03 between HTI and LaSalle Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.5 to
HTI's Registration Statement on Form S-3, Registration No. 333-104074).
4.4 Purchase Agreement dated 2/18/03 by and among HTI, Salomon Smith Barney
Inc. and Needham & Company, Inc. (incorporated by reference to Exhibit
4.6 to HTI's Registration Statement on Form S-3, Registration No.
333-104074).
4.5 Registration Rights Agreement dated as of 2/24/03 by and among HTI,
Salomon Smith Barney Inc. and Needham & Company, Inc. (incorporated by
reference to Exhibit 4.7 to HTI's Registration Statement on Form S-3,
Registration No. 333-104074).
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), 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), and Amendment to the 1988 Stock Option
Plan.
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 (incorporated by reference to Exhibit 10.9 to
HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/02).
#10.10 Description of Fiscal Year 2003 BioMeasurement Division Bonus Plan of
Hutchinson Technology Incorporated (incorporated by reference to
Exhibit 10.10 to HTI's Quarterly Report on Form 10-Q for the quarter
ended 12/29/02).
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:
We filed the following Current Reports on Form 8-K during the thirteen weeks
ended March 30, 2003:
1. Current Report on Form 8-K dated February 18, 2003 reporting, under Item 5
("Other Events") of Form 8-K, the offering of $130 million aggregate
principal amount of Convertible Subordinated Notes due 2010.
2. Current Report on Form 8-K dated February 26, 2003 reporting, under Item 5
("Other Events") of Form 8-K, the completion of our offering of $150 million
aggregate principal amount of 2.25% Convertible Subordinated Notes due 2010.
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: May 12, 2003 By /s/ Wayne M. Fortun
-------------------------------------
Wayne M. Fortun
President and Chief Executive Officer
Date: May 12, 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: May 12, 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: May 12, 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 (incorporated by Incorporated by
reference to Exhibit 3.1 to HTI's Quarterly Report on Form 10-Q for the Reference
quarter ended 12/29/02).
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit 4.2 to Incorporated by
HTI's Registration Statement on Form S-3, Registration No. 333-104074). Reference
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 Share Rights Agreement dated as of 7/19/00, between HTI and Wells Fargo Incorporated by
Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Reference
Exhibit 1 to HTI's Registration Statement on Form 8-A, dated 7/24/00).
4.3 Indenture dated as of 2/24/03 between HTI and LaSalle Bank National Incorporated by
Association, as Trustee (incorporated by reference to Exhibit 4.5 to Reference
HTI's Registration Statement on Form S-3, Registration No. 333-104074).
4.4 Purchase Agreement dated 2/18/03 by and among HTI, Salomon Smith Barney Incorporated by
Inc. and Needham & Company, Inc. (incorporated by reference to Exhibit Reference
4.6 to HTI's Registration Statement on Form S-3, Registration No.
333-104074).
4.5 Registration Rights Agreement dated as of 2/24/03 by and among HTI, Incorporated by
Salomon Smith Barney Inc. and Needham & Company, Inc. (incorporated by Reference
reference to Exhibit 4.7 to HTI's Registration Statement on Form S-3,
Registration No. 333-104074).
10.1 Office/Warehouse Lease between OPUS Corporation, Lessor, and HTI, Incorporated by
Lessee, dated 12/29/95 (incorporated by reference to Exhibit 10.2 to Reference
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 Incorporated by
reference to Exhibit 10.12 to HTI's Annual Report on Form 10-K for the Reference
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 Filed Electronically
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), 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), and Amendment to the 1988 Stock Option
Plan.
10.4 Patent License Agreement, effective as of 9/1/94, between HTI and Incorporated by
International Business Machines Corporation (incorporated by reference 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
(incorporated by reference to Exhibit 10.10 to HTI's Quarterly Report Reference
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 Incorporated by
Capital Corporation, as Lessor ("GE"), and HTI, as Lessee (incorporated Reference
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
(incorporated by reference to Exhibit A to HTI's Definitive Proxy Reference
Statement on Schedule 14A for the Annual Meeting of Shareholders held
on 1/29/03).
10.8 Hutchinson Technology Incorporated Incentive Bonus Plan (incorporated Incorporated by
by reference to Exhibit 10.13 to HTI's Quarterly Report on Form 10-Q Reference
for the quarter ended 12/28/97).
10.9 Description of Fiscal Year 2003 Management Bonus Plan of Hutchinson Incorporated by
Technology Incorporated (incorporated by reference to Exhibit 10.9 to Reference
HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/02).
10.10 Description of Fiscal Year 2003 BioMeasurement Division Bonus Plan of Incorporated by
Hutchinson Technology (incorporated by reference to Exhibit 10.10 to Reference
HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/02).
99 Certification under Section 906 of the Sarbanes-Oxley Act of 2002. Filed Electronically