HUTCHINSON TECHNOLOGY INC - 10-Q Quarterly Report

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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 JUNE 29, 2003
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OR

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

For the transition period from to
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Commission File Number 0-14709
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HUTCHINSON TECHNOLOGY INCORPORATED
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(Exact name of registrant as specified in its charter)

MINNESOTA 41-0901840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

40 WEST HIGHLAND PARK DRIVE N.E., HUTCHINSON, MINNESOTA 55350
- ------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)

(320) 587-3797
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(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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

As of August 8, 2003 the registrant had 25,896,514 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)

See accompanying notes to condensed consolidated financial statements -
unaudited.

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

See accompanying notes to condensed consolidated financial statements -
unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)

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" we mean Hutchinson Technology Incorporated and
its subsidiaries. Unless otherwise indicated, references to "2003" mean the
Company's fiscal year ending September 28, 2003, references to "2002" mean the
Company's fiscal year ended September 29, 2002 and references to "2001" mean the
Company'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 includes normal recurring adjustments and reflects 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
Company adopted the disclosure provisions of FAS 148 and has provided the
interim disclosures in Note 12 to its condensed consolidated financial
statements. The adoption of FAS 148 did not have a material impact on the
Company's consolidated balance sheet or results of operations.

(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:

(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
$49,923,000 at June 29, 2003 and $51,363,000 at September 29, 2002 are net of
allowances of $4,000,000 and $3,662,000, respectively. As of June 29, 2003,
allowances of $4,000,000 consisted of a $2,999,000 allowance for doubtful
accounts and a $1,001,000 allowance for sales returns. As of September 29, 2002,
allowances of $3,622,000 consisted of a $2,999,000 allowance for doubtful
accounts and a $663,000 allowance for sales returns.

On June 17, 2003, Read-Rite Corporation announced that its Board of Directors
had approved the filing of a voluntary petition for relief under Chapter 7 of
the United States Bankruptcy Code. Included in the Company's allowance for
doubtful accounts is a specific allowance for Read-Rite's outstanding trade
receivables balance of $1,969,000 at June 29, 2003.

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:

(5) INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or
market by analyzing market conditions, current sales prices, inventory costs and
inventory balances. Inventories consisted of the following at June 29, 2003 and
September 29, 2002:

(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:

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 thirty-nine weeks ended June 30,
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:

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 June 29, 2003, the
Company's deferred tax assets included $13,599,000 of unused tax credits,
$3,079,000 of which can be carried forward indefinitely and $10,520,000 of which
begin to expire at various dates beginning in 2010. At June 29, 2003, the
Company's balance sheet included $61,140,000 of deferred tax assets related to
net operating loss carryforwards that will begin to expire in 2018. As of June
29, 2003, the Company had an estimated federal net operating loss carryforward
of approximately $156,463,000 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 $53,561,000 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 June 29, 2003, the unamortized
portion of the prepayment was $21,240,000, of which $3,174,000 was included in
"Prepaid taxes and other" and $18,066,000 was included in "Other assets" on the
accompanying condensed consolidated balance sheet. The unamortized portion will
be amortized on a straightline basis over 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 net proceeds of $145,540,000
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 has incurred and capitalized debt issuance
costs of $4,460,000, 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

Capitalized interest for the thirty-nine weeks ended June 29, 2003 was $453,000
compared to $781,000 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
thirty-nine weeks ended June 29, 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:

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. 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, results of operations, and
cash flows 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 most recent Annual Report on Form 10-K.

The following table represents net sales and operating income (loss) for each
reportable segment.

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," "HTI," or the "Company," we mean Hutchinson
Technology Incorporated and its subsidiaries. Unless otherwise indicated,
references to "2004" mean HTI's fiscal year ending September 26, 2004,
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, 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 through the third quarter of 2003 were
395 million, 38% higher than our shipments through the third quarter of 2002.
This increase was due to an increase in disk drive demand and an increase in TSA
suspension consumption related to lower yields some of our customers continue to
experience as they transition to higher density recording heads. These customers
have experienced higher levels of defective recording heads, which they are
unable to detect until after they have attached the recording heads to our
suspension assemblies. In addition, overall suspension demand is benefiting from
a slowdown in the rate of improvement in data density on disk drives in mass
production. Although we continue to have limited visibility for future demand,
we expect our shipment volumes in the last quarter of 2003 to be similar to our
shipment volumes in the first three quarters of 2003, primarily due to continued
growth in worldwide suspension assembly demand and strength in our position with
our customers.

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:

o changes in demand or customer requirements

o changes in our product mix

o changes in our selling prices

o changes in the utilization of our production capacity

o changes in our infrastructure costs

o increases in production and engineering costs associated with production of
new products

o changes in our manufacturing yields

o changes in our production efficiency

o changes in the cost of raw materials

Gross margins improved in the first three quarters of 2003 primarily due to
additional shipments, increased leverage of our manufacturing support staff and
production equipment, and yield 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 3,688, at the end of our third fiscal quarter, due to
increased demand and production requirements.

RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED JUNE 29, 2003 VS. THIRTEEN WEEKS ENDED JUNE 30, 2002.

Net sales for the thirteen weeks ended June 29, 2003 were $120,127,000, an
increase of $22,771,000 or 23% from the comparable period in 2002. Suspension
assembly sales increased $21,150,000 compared to the thirteen weeks

ended June 30, 2002, as a result of a 31% increase in unit shipments.
Additionally, sales of suspension assembly components to other suspension
assembly manufacturers increased $1,093,000. Both of these increases were due to
an increase in disk drive production, an increase in our market position and an
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 6%
decline in average selling prices for our suspension assemblies.

Gross profit for the thirteen weeks ended June 29, 2003 was $38,900,000,
compared to $23,729,000 for the comparable period in 2002. The increase was
primarily due to the increase in net sales discussed above. Gross profit as a
percent of net sales increased from 24% to 32%, primarily due to increased
leverage of our manufacturing support staff and production equipment, as well as
yield and productivity improvements.

Research and development expenses for the thirteen weeks ended June 29, 2003
were $4,331,000 compared to $4,530,000 for the thirteen weeks ended June 30,
2002. As a percent of net sales, research and development expenses decreased
from 5% in the third quarter of 2002 to 4% in the third quarter of 2003.

Selling, general and administrative expenses for the thirteen weeks ended June
29, 2003 were $16,044,000, an increase of $2,187,000 or 16% from the comparable
period in 2002. The increase was due primarily to a $1,819,000 increase in
incentive compensation costs as profitability improved in the third quarter of
2003 compared to the third quarter of 2002, as well as $473,000 of expenses
related to the design of our new enterprise resource planning ("ERP") business
system. Selling, general and administrative expenses for our BioMeasurement
Division increased by $384,000 due to increasing our sales, marketing and
regulatory efforts. Expenses for our subsidiary, Hutchinson Technology Asia,
Inc., also increased by $153,000 as on-site service and engineering support to
our customers in Asia was increased. These additions were partially offset by a
reduction in our legal expenses of $771,000, primarily due to reduced patent
litigation defense costs. Overall, selling, general and administrative expenses
as a percent of net sales decreased from 14% in the third quarter of 2002 to 13%
in the third quarter of 2003.

Income from operations for the thirteen weeks ended June 29, 2003 was
$18,525,000, compared to $5,342,000 for the comparable period in 2002. The
increase was primarily due to the increase in net sales discussed above,
increased leverage of our manufacturing support staff and production equipment
and yield and productivity improvements. Income from operations for the thirteen
weeks ended June 29, 2003 included a $1,653,000 loss from operations for our
BioMeasurement Division segment, compared to a $1,161,000 loss for the
comparable period in 2002.

Interest expense for the thirteen weeks ended June 29, 2003 was $560,000, a
decrease of $2,699,000 from the comparable period in 2002, primarily due to a
lower interest rate on our refinanced convertible notes and a lower amount of
total outstanding debt. To a lesser extent, interest expense also was reduced by
the resolution of a state tax audit during the third quarter.

Interest income for the thirteen weeks ended June 29, 2003 was $1,516,000, a
decrease of $40,000 from the comparable period in 2002. This was primarily a
result of lower investment yields, offset partially by a higher average
investment balance.

Other income, net of other expenses, for the thirteen weeks ended June 29, 2003
was $774,000, an increase of $539,000 from the comparable period in 2002
primarily due to increased royalty income.

The income tax provision for the thirteen weeks ended June 29, 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 June 29, 2003 was $16,407,000 or 14% of
net sales, compared to net income of $3,291,000 or 3% of net sales for the
comparable period in 2002. Our improved profitability was primarily due to the
increase in net sales, increased leverage of our manufacturing support staff and
production equipment and yield and productivity improvements discussed above.

THIRTY-NINE WEEKS ENDED JUNE 29, 2003 VS. THIRTY-NINE WEEKS ENDED JUNE 30, 2002.

Net sales for the thirty-nine weeks ended June 29, 2003 were $377,948,000, an
increase of $96,376,000 or 34% from the comparable period in 2002. Suspension
assembly sales increased $83,910,000 compared to the thirty-nine weeks ended
June 30, 2002, as a result of a 38% increase in unit shipments. Additionally,
sales of suspension assembly components to other suspension assembly
manufacturers increased $9,945,000. Both of these increases were due to an
increase in our market position, an increase in disk drive production and an
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 thirty-nine weeks ended June 29, 2003 was $118,959,000,
compared to $63,144,000 for the comparable period in 2002. The increase was
primarily due to the increase in net sales discussed above. Gross profit as a
percent of net sales increased from 22% to 31%, primarily due to increased
leverage of our manufacturing support staff and production equipment, as well as
yield and productivity improvements.

Research and development expenses for the thirty-nine weeks ended June 29, 2003
were $10,417,000 compared to $13,315,000 for the thirty-nine weeks ended June
30, 2002. This decrease was primarily due to a $2,648,000 increase in customer
funding of certain advanced suspension assembly development costs.

Selling, general and administrative expenses for the thirty-nine weeks ended
June 29, 2003 were $44,751,000, an increase of $7,145,000 or 19% from the
comparable period in 2002. The increase was due primarily to a $5,881,000
increase in incentive compensation costs resulting from improved profitability
compared to the prior year's thirty-nine week period. Selling, general and
administrative expenses for our BioMeasurement Division also increased by
$1,030,000 due to increasing our sales, marketing and regulatory efforts.
Expenses for our subsidiary, Hutchinson Technology Asia, Inc., increased by
$822,000 as on-site service and engineering support to our customers in Asia was
increased. The thirty-nine weeks ended June 29, 2003 also included $504,000 of
expenses related to the design of our new ERP business system. These overall
increases were partially offset by a $1,823,000 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 thirty-nine weeks of 2002 to 12% in the first thirty-nine weeks 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 thirty-nine weeks ended June 29, 2003 was
$63,791,000, compared to $14,855,000 for the comparable period in 2002. The
increase was primarily due to the increase in net sales discussed above,
increased leverage of our manufacturing support staff and production equipment
and yield and productivity improvements. Income from operations for the
thirty-nine weeks ended June 29, 2003 included a $4,432,000 loss from operations
for our BioMeasurement Division segment, compared to a $3,377,000 loss for the
comparable period in 2002.

Interest expense for the thirty-nine weeks ended June 29, 2003 was $5,776,000, a
decrease of $4,604,000 from the comparable period in 2002, primarily due to a
lower amount of outstanding debt, a lower interest rate resulting from
refinancing our convertible notes and fewer capitalized leases.

Interest income for the thirty-nine weeks ended June 29, 2003 was $4,549,000, a
decrease of $803,000 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 thirty-nine weeks ended June 29,
2003 was $1,380,000, an increase of $678,000 from the comparable period in 2002,
primarily due to increased royalty income and 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 thirty-nine weeks ended June 29, 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 thirty-nine weeks ended June 29, 2003 was $49,150,000 or 13%
of net sales, compared to net income of $8,948,000 or 3% of net sales for the
comparable period in 2002. Our improved profitability was primarily due to the
increase in net sales, increased leverage of our manufacturing support staff and
production equipment and yield and productivity improvements discussed above.
Net income for the thirty-nine weeks ended June 29, 2003 included the
above-mentioned loss on debt extinguishment. Net income for the thirty-nine
weeks ended June 30, 2002 included the increase to operating income from a
reimbursement of legal expenses and insurance proceeds related to litigation
defense costs discussed above.

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 $81,426,000 at June 29, 2003. Our securities available for sale increased
from $151,257,000 to $203,176,000 during the same period. Overall, this reflects
a $75,493,000 increase in our cash and cash equivalents and securities available
for sale, primarily due to improved profitability in the first thirty-nine weeks
of 2003. We generated cash from operating activities of $107,121,000 for the
thirty-nine weeks ended June 29, 2003.

As of June 29, 2003, our $50,000,000 credit facility had a borrowing base of
$38,629,000, secured by our eligible accounts receivable and inventory. Letters
of credit and loans outstanding under this facility totaled $2,222,000 as of
such date. The amount we can borrow under this credit facility is limited by the
levels of our eligible accounts receivable and inventory balances. As of June
29, 2003, $36,407,000 of borrowing capacity remained available to us.

Cash used for capital expenditures totaled $35,974,000 for the thirty-nine weeks
ended June 29, 2003. We expect total capital expenditures of approximately
$50,000,000 during 2003, to be spent primarily for increases in TSA production
capacity, new program tooling, process technology and capability improvements
and new business systems. We anticipate that capital expenditures in 2004 will
increase due to additional spending for process technology and capability
improvements, 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 net
proceeds of $145,540,000 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 have incurred and
capitalized debt issuance costs of $4,460,000, 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 financial covenants as well
as 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 June 29, 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 2004. 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 product has been delivered 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
$53,561,000 as of June 29, 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

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 three quarters of
2003 due to an increase in disk drive production, slower growth in the rate of
data density improvements and lower production yields at some disk drive and
recording head manufacturers as they transition to higher density recording
heads. 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 has resulted in
increased shipments of our suspension assemblies in the first three quarters of
2003. As programs mature, higher customer yields decrease the demand for
suspension assemblies. The advent of new heads and new drive designs may require
rapid development and implementation of new suspension assembly types which
temporarily may reduce our manufacturing yields and efficiencies. These changes
will continue to affect us.

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.

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.
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, (iii) tax controversy
services, and (iv) advisory services related to review of certain internal
control procedures.

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 June 29, 2003, there was $14,000 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
June 29, 2003, the outstanding principal amount of the Note was $200,000 which
was subject to an interest rate of 0.95%.

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 June 29,
2003, we had fixed rate debt of $150,000,000.

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.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we
conducted an evaluation, under the supervision and with the participation of our
principal executive officer and principal financial officer, of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended). Based on this evaluation, our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us 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. There was no change in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

PART II. OTHER INFORMATION
ITEM 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), Amendment to the 1988 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 3/30/03), 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).

31.1 Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.

32 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 June 29, 2003:

1. Current Report on Form 8-K dated April 22, 2003 reporting, under Item 7
("Financial Statements and Exhibits") of Form 8-K, the Company's second
quarter earnings press release dated April 22, 2003 including a
reconciliation of Non-GAAP to GAAP financial measures.

2. Current Report on Form 8-K dated May 6, 2003 reporting, under Item 5
("Other Events") of Form 8-K, a reconciliation of Non-GAAP to GAAP
financial measures included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 29, 2002.

SIGNATURES

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

INDEX TO EXHIBITS

10.3 1988 Stock Option Plan (incorporated by reference to Filed Electronically
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), Amendment to the 1988 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to HTI's
Quarterly Report on Form 10-Q for the quarter ended
3/30/03) and Amendment to the 1988 Stock Option Plan.

10.4 Patent License Agreement, effective as of 9/1/94, between Incorporated by
HTI and International Business Machines Corporation Reference
(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, Incorporated by
dated 5/1/96 (incorporated by reference to Exhibit 10.10 Reference
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 Incorporated by
Electric Capital Corporation, as Lessor ("GE"), and HTI, as Reference
Lessee (incorporated by reference to Exhibit 10.11 to HTI's
Quarterly Report on Form 10-Q for the quarter ended
12/29/96), Amendment dated 6/30/97 to the Master Lease
Agreement between GE and HTI (incorporated by reference to
Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q for
the quarter ended 12/28/97), letter amendment dated 3/5/98
to the Master Lease Agreement between GE and HTI
(incorporated by reference to Exhibit 10.11 to HTI's
Quarterly Report on Form 10-Q for the quarter ended
3/29/98), letter amendment dated 9/25/98 to the Master
Lease Agreement between GE and HTI (incorporated by
reference to Exhibit 10.11 to HTI's Annual Report on Form
10-K for the fiscal year ended 9/27/98), letter amendment
dated 1/11/00, effective as of 12/22/99, to the Master
Lease Agreement between GE and HTI (incorporated by
reference to Exhibit 10.1 to HTI's Quarterly Report on Form
10-Q for the quarter ended 12/26/99), and letter amendment
dated 8/31/00 to the Master Lease Agreement between GE and
HTI (incorporated by reference to Exhibit 10.7 to HTI's
Annual Report on Form 10-K for the fiscal year ended
9/24/00).

10.7 Hutchinson Technology Incorporated 1996 Incentive Plan, as Incorporated by
amended (incorporated by reference to Exhibit A to HTI's Reference
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
(incorporated by reference to Exhibit 10.13 to HTI's Reference
Quarterly Report on Form 10-Q for the quarter ended
12/28/97).

10.9 Description of Fiscal Year 2003 Management Bonus Plan of Incorporated by
Hutchinson Technology by Incorporated (incorporated by Reference
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 Incorporated by
Bonus Plan of Hutchinson Technology (incorporated by Reference
reference to Exhibit 10.10 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 12/29/02).

31.1 Certification of Chief Executive Officer under Section 302 Filed Electronically
of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer under Section 302 Filed Electronically
of the Sarbanes-Oxley Act of 2002.

32 Certification under Section 906 of the Sarbanes-Oxley Act Filed Electronically
of 2002.