Suspension Assembly Shipments by Quarter
                                                                   2008                                    2009
                                         First             Second            Third           Fourth        First

Suspension assembly shipment
quantities                                  213               179               189            209          155

The decrease in the second quarter of 2008 was primarily the result of our customers' lower build plans during the seasonally slower quarter, our market share losses in the 3.5-inch ATA segment and share shifts among our customers in the 2.5-inch mobile segment. Our third quarter 2008 shipments increased primarily due to gains in the 2.5-inch mobile segment and we maintained our market-leading position in the enterprise segment. Our fourth quarter of 2008 shipments increased due to seasonally stronger demand for disk drives. The first quarter 2009 shipments decreased significantly due to a decline in world-wide disk drive shipments and a reduction of inventories in the supply chain. Despite the decline in overall quarterly volume, we estimate that our market share was about flat compared to the preceding quarter. Based on our current assessment of demand trends and our position on particular customer programs, we expect to add market share in the 3.5-inch ATA segment over the course of 2009 but lose some share in the mobile and enterprise segments.
Our average selling price declined to $0.76 in the first quarter of 2009, down $0.02 from the fourth quarter of 2008 and down $0.04 from the first quarter of 2008. This year-over-year decline in average selling price was larger than our historical pricing declines for similar periods due to competitive pressures. We expect continued downward pressure on our average selling price in 2009. Gross profit in the first quarter of 2009 was 0%, down from 10% in the fourth quarter of 2008, primarily due to the substantial decline in net sales, which reduced our ability to cover our fixed costs. In addition, we continue to incur high costs related to our TSA+ processes. Due to continued yield improvements and reductions in unit costs, the gross profit burden of ramping TSA+ flexure production declined to $9,500,000 in the 2009 first quarter compared with $11,000,000 in the preceding quarter. Although the initiation of TSA+ volume production has dampened our gross profit, we expect this burden to diminish as we achieve further improvements in process efficiencies that are expected over the next year.
In response to weakening demand and due to changing and uncertain market and economic conditions, we took actions to reduce our expected loss in 2009. During the first quarter of 2009, we announced a restructuring plan that included eliminating positions company-wide. During January 2009, we eliminated approximately 1,380 positions. The workforce reduction resulted in a charge for severance and other expenses of $19,527,000, which were included in our financial results for the thirteen weeks ending December 28, 2008. In addition, we implemented a 5% pay reduction for all employees not affected by the workforce reduction. The workforce and pay reductions were completed by the end of January 2009 and are part of our strategy to reduce our overall cost structure and strengthen our cash position. The severance and other expenses are expected to be paid during the second and third quarters of 2009. During the first quarter of 2009, we recorded non-cash impairment charges of $32,280,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division's assembly and component operations. The impairment review was triggered by recent weakened demand for suspension assemblies and uncertain future market conditions.
Subsequent to quarter end, we announced plans to further restructure the company and reduce our overall cost structure. We will close our Sioux Falls, South Dakota, facility over the next three months and will consolidate the related suspension assembly operations into our Eau Claire, Wisconsin, and Hutchinson, Minnesota, sites. In addition, in our Disk Drive Components Division, we are consolidating photoetching operations into our Hutchinson, Minnesota, site and trace operations into our Eau Claire, Wisconsin, site to achieve improvements in efficiency and facility utilization and to reduce operating costs. We also will reduce the workforce in our components operation in Eau Claire, Wisconsin, by approximately 100 employees. Our total workforce reductions, including these reductions in Sioux Falls, South Dakota, and Eau Claire, Wisconsin, and the approximately 1,380 positions we eliminated in January 2009, will total approximately 1,800 positions. We estimate our financial results for the quarter ending March 29, 2009, will include $10,000,000 to $18,000,000 of asset impairment charges, severance charges and other associated costs related to these restructuring actions.
Overall, we expect the restructuring of our operations will reduce our production costs and improve our overall operating efficiency without compromising our ability to respond quickly to customer requirements. The asset impairment, workforce reductions, facility closing and other related actions should result in $110,000,000 to $125,000,000 in annualized cost savings, of which approximately 10% are non-cash expenses, and reduce our expected loss in 2009. We believe we are well positioned to further improve financial results when demand growth resumes. A deterioration in our business, however, or further disruption in the global credit and financial markets and related continuing adverse economic conditions, could further adversely affect our results of operations and financial condition.

During the first quarter of 2009, we increased our production of TSA+ suspension assemblies compared with the preceding quarter due to the improved reliability, yields and output of our TSA+ volume production line. Our continuous focus on process optimization resulted in improved efficiency which has begun to reduce the financial burden of ramping this process. As a result of weakened demand, our TSA+ shipments declined to about 4,500,000 in the first quarter of 2009 from 5,000,000 in the preceding quarter, and the majority of those shipments were for one customer program. The weakened demand outlook also caused this customer to delay a second TSA+ program that we were in the process of qualifying. At currently anticipated levels of demand, our existing TSA+ volume line should provide sufficient capacity for our customer's needs in 2009. We expect the full transition to TSA+ suspensions to take place over the next five to seven years, with the pace of transition determined primarily by our capacity levels and the pace at which disk drive makers introduce and ramp programs requiring additive processing. In order to meet customer requirements, we expect to produce an increasing amount of our suspension assemblies using purchased additive flexures.
We spent $39,711,000 on research and development in 2008 compared to $55,245,000 in 2007. In 2007, we continued development of the additive processes required for our TSA+ suspension assemblies and development of new process technologies for next-generation suspension assembly products and equipment. The decrease in 2008 was primarily attributable to $11,018,000 of lower expenses primarily related to the classification of the costs of running the TSA+ manufacturing lines as cost of sales beginning in the fourth quarter of 2007. Research and development spending specific to our BioMeasurement Division was $4,767,000 in 2008 and $4,207,000 in 2007. During the first quarter of 2009, we spent $8,883,000 on research and development, with $1,055,000 specific to our BioMeasurement Division. We expect our research and development spending in 2009 will be approximately $30,000,000.
For 2008, our capital expenditures were $65,603,000, primarily for TSA+ suspension production capacity, new program tooling and deployment of new process technology and capability improvements. Capital spending for the first quarter of 2009 was $11,846,000. We expect our capital expenditures to total approximately $40,000,000 in 2009, primarily for tooling and manufacturing equipment for new process technology and capability improvements.
RESULTS OF OPERATIONS
Thirteen Weeks Ended December 28, 2008, vs. Thirteen Weeks Ended December 30, 2007
Net sales for the thirteen weeks ended December 28, 2008, were $119,671,000, compared to $173,077,000 for the thirteen weeks ended December 30, 2007, a decrease of $53,406,000. Suspension assembly sales decreased $54,297,000 from the thirteen weeks ended December 30, 2007, due to decreased suspension assembly unit shipments and our average selling price decreasing from $0.80 to $0.76 during the same period due to competitive pressures. The decrease in unit shipments was primarily due to a decline in world-wide disk drive shipments and a reduction of inventories in the supply chain.
Gross loss for the thirteen weeks ended December 28, 2008, was $133,000, compared to gross profit $32,917,000 for the thirteen weeks ended December 30, 2007, a decrease of $33,050,000. Gross profit as a percent of net sales was 0% and 19%, respectively. The lower gross profit was primarily due to the substantial decline in net sales, which reduced our ability to cover our fixed costs, and higher costs associated with the initiation of volume production of TSA+ suspension assemblies, which reduced gross profit by $9,500,000 for the thirteen weeks ended December 28, 2008, compared to $7,500,000 for the thirteen weeks ended December 30, 2007.
Research and development expenses for the thirteen weeks ended December 28, 2008, were $8,883,000, compared to $10,410,000 for the thirteen weeks ended December 30, 2007, a decrease of $1,527,000. The decrease was attributable to lower expenses primarily related to lower labor expenses and lower supplies expenses.
Selling, general and administrative expenses for the thirteen weeks ended December 28, 2008, were $16,416,000, compared to $18,363,000 for the thirteen weeks ended December 30, 2007, a decrease of $1,947,000. The reduction was due to $1,854,000 of lower Disk Drive Components Division expenses primarily due to lower incentive compensation, professional services, and recruitment and relocation expenses. These decreases were partially offset by $307,000 of increased BioMeasurement Division expenses primarily due to an increase in sales personnel.

In response to weakening demand and due to changing and uncertain market and economic conditions, we took actions to reduce our expected loss in 2009. During the first quarter of 2009, we announced a restructuring plan that included eliminating positions company-wide. During January 2009, we eliminated approximately 1,380 positions. The workforce reduction resulted in a charge for severance and other expenses of $19,527,000, which were included in our financial results for the thirteen weeks ended December 28, 2008. In addition, we implemented a 5% pay reduction for all employees not affected by the workforce reduction. The workforce and pay reductions were completed by the end of January 2009 and are part of our strategy to reduce our overall cost structure and strengthen our cash position. The severance and other expenses are expected to be paid during the second and third quarters of 2009.
During the first quarter of 2008, we recorded a litigation charge of $2,494,000, which was reduced in our fourth quarter of 2008 to $2,003,000, related to the settlement of a class action lawsuit. The lawsuit challenged our pay practices pertaining to the time certain production employees spend gowning and ungowning at the beginning and end of their shifts and meal breaks. The charge was comprised of settlement payments to these employees and payment of their attorney's fees and expenses.
Loss from operations for the thirteen weeks ended December 28, 2008, included a $5,580,000 loss from operations for our BioMeasurement Division, compared to a $5,171,000 loss from BioMeasurement operations for the thirteen weeks ended December 30, 2007.
Interest income for the thirteen weeks ended December 28, 2008, was $1,259,000, compared to $4,273,000 for the thirteen weeks ended December 30, 2007, a decrease of $3,014,000. The decrease in interest income was primarily due to lower investment yields as the result of a change in our investment portfolio to U.S. Treasury investments.
Other income, net of other expenses, for the thirteen weeks ended December 28, 2008, was $2,727,000, compared to $641,000 for the thirteen weeks ended December 30, 2007, an increase of $2,086,000. The increase in other income was primarily due to an increase of $8,577,000 related to the UBS rights offering offset by an additional $6,173,000 impairment of our ARS holdings.
The income tax provision of $265,000 and $1,314,000 for the thirteen weeks ended December 28, 2008, and December 30, 2007, respectively, were based on an estimated annual effective tax rate of 0.4% and 36%, respectively. The annual effective tax rate decreased compared to the thirteen weeks ended December 30, 2007, due to the projected loss in 2009 and the effect of a full valuation allowance being applied to our deferred tax assets. The income tax provision for the thirteen weeks ended December 28, 2008, consists primarily of foreign income tax expenses.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash and cash equivalents, short- and long-term investments, cash flow from operations and additional financing capacity, if available given current credit market conditions. Our cash and cash equivalents increased from $62,309,000 at September 28, 2008, to $176,216,000 at December 28, 2008. Our short- and long-term investments decreased from $201,110,000 to $123,221,000 during the same period. In total, our cash and cash equivalents and short- and long-term investments increased by $36,018,000. This increase is primarily due to $59,532,000 of net proceeds from the UBS Credit Line, $33,631,000 of cash generated from operations, $8,577,000 of fair value related to the rights offering as discussed below and $541,000 in net proceeds from issuances of our common stock from our employee stock purchase plan during the first quarter of 2009. These increases were partially offset by $48,100,000 for the repayment of long-term debt and $11,846,000 for capital expenditures. We also recognized a charge of $6,173,000 for additional other-than-temporary impairment of our ARS holdings.
As of December 28, 2008, our ARS portfolio had an aggregate par value of $100,650,000. We determine the estimated fair value of our ARS portfolio each quarter. At September 28, 2008, we estimated the fair value of our ARS portfolio to be $92,166,000. As of December 28, 2008, we further reduced the estimated fair value of our ARS portfolio to $85,993,000. Our ARS portfolio consists primarily of AAA/Aaa-rated securities that are collateralized by student loans that are primarily 97% guaranteed by the U.S. government under the Federal Family Education Loan Program. None of our ARS portfolio consists of mortgage-backed obligations.

Prior to February 2008, the ARS market historically was highly liquid and our ARS portfolio typically traded at auctions held every 28 or 35 days. Starting in February 2008, most of the ARS auctions in the marketplace have "failed," including auctions for all of the ARS we hold, meaning that there was not enough demand to sell the entire issue at auction. The immediate effect of a failed auction is that the interest rate on the security generally resets to a contractual rate and holders cannot liquidate their holdings. The contractual rate at the time of a failed auction for the majority of the ARS we hold is based on a trailing twelve month ninety-one day U.S. treasury bill rate plus 1.20% or a one-month LIBOR rate plus 1.50%. Other contractual factors can result in rate restrictions based on the profitability of the issuer or can impose temporary rates that are significantly higher or lower. We continue to earn and receive interest at these contractual rates on our ARS portfolio. Our ARS portfolio will continue to be offered for auction until the auction succeeds, the issuer calls the security, or the security matures (after a term of up to 39 years), pursuant to the ARS rights discussed below or, in light of recent uncertainties in the global credit and financial markets, we may decide not to hold to final maturity if the opportunity arises to sell these securities on reasonable. There is no assurance that future auctions of securities in our ARS portfolio will be successful. As a result, our ability to voluntarily liquidate and recover the carrying value of some or our entire ARS portfolio may be limited for an indefinite period of time (up to a maximum of each security's final maturity date). This limitation could negatively affect our overall liquidity.
Effective December 19, 2008, we entered into a settlement (the "UBS Settlement") with UBS AG, UBS Financial Services Inc. and UBS Securities LLC (collectively, "UBS") to provide liquidity for our ARS portfolio held with UBS and to resolve pending litigation between the parties. The UBS Settlement provides for certain arrangements, one of which is our acceptance of an offer by UBS to issue to us ARS rights (the "Rights Offering"), which allow us to require UBS to repurchase at par value all of the ARS held by us in accounts with UBS at any time during the period from June 30, 2010, through July 2, 2012, (if our ARS have not previously been sold by us or by UBS on our behalf or redeemed by the respective issuers of those securities). In addition, UBS has the right to sell the ARS it holds on our behalf at any time on or before July 2, 2012, as long as we are paid the par value of the securities upon their disposition.
As part of the UBS Settlement, we also entered into a loan agreement with UBS Credit Corp. ("UBS Credit"), which provides us with a line of credit (the "UBS Credit Line") of approximately $59,500,000 secured only by the ARS we hold in accounts with UBS. As of December 28, 2008, we have drawn down the full amount of the UBS Credit Line. The proceeds derived from any sales of the ARS we hold in accounts with UBS will be applied to repayment of the UBS Credit Line. Our borrowing under the UBS Credit Line is treated as a "no net cost loan," which means that the interest that we pay on the credit line will not exceed the interest that we receive on the ARS pledged by us as security for the UBS Credit Line. The rate for the majority of the ARS we hold is based on a trailing twelve month ninety-one day U.S. treasury bill rate plus 1.20%. Other contractual factors can result in rate restrictions based on the profitability of the issuer or can impose temporary rates that are significantly higher or lower. UBS Credit may demand payment of borrowings under the UBS Credit Line only if it provides a replacement credit facility on substantially the same terms to us that is fully advanced in the amount of the then outstanding principal of the UBS Credit Line, or if it repurchases all of the pledged ARS at par.
We are assessing the impact that the current illiquidity of a portion of these ARS will have on our ability to execute our current business plan. Our current business plan, however, is subject to change depending on, among other things, deterioration in our business, further disruption in the global credit and financial markets and related continuing adverse economic conditions, and our ability to execute our current business plan may in the future be impacted by the continued illiquidity of our ARS investments.
During November 2008 we repurchased a portion of our outstanding 2.25% Notes (the "Note Repurchase"). We spent $47,423,000 to repurchase $59,934,000 par value of our 2.25% Notes on the open market using our available cash and cash equivalents, at an average discount to face value of approximately 21 percent. The repurchases leave $90,066,000 par value of the 2.25% Notes outstanding. Upon completion of the repurchases, the repurchased Notes were cancelled. The resulting gain of $12,175,000 is included in our condensed consolidated financial statements for the first quarter of 2009. We may from time to time seek to prepay or retire our outstanding debt through cash purchases in open market or privately negotiated transactions or otherwise. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

On November 5, 2008, we and our wholly-owned subsidiary Hutchinson Technology Asia, Inc. ("HTA"), amended our second amended and restated loan agreement (the "Amendment") relating to our credit facility (the "Credit Facility") with Bank of America N.A. ("BofA"). The Amendment reduces the credit commitment from $50,000,000 to $25,000,000 within 90 days of entering into the Amendment or the first date on which we sign an agreement, note or similar document with respect to a loan secured by our ARS as permitted by the Credit Facility, adjusts the Credit Facility's maturity date to December 1, 2009, provides for a blanket lien on substantially all of our and HTA's non-real estate assets, increases the maximum allowable debt to total capital ratio to 0.60 to 1.00, increases the Credit Facility's pricing to LIBOR plus 2% or Prime plus 2% and increases to 0.5% the fee to be paid on the unused amount of the Credit Facility. On December 19, 2008, the credit commitment was reduced to $25,000,000 as we entered into a loan agreement with UBS Credit secured by the ARS we hold in accounts with UBS. As of December 28, 2008, we had no outstanding loans under the Credit Facility. Letters of credit outstanding under the Credit Facility totaled $1,250,000 as of such date, resulting in $23,750,000 of remaining availability under the facility.
Our suspension assembly business is capital intensive. The disk drive industry experiences rapid technology changes that require us to make substantial ongoing capital expenditures in product and process improvements to maintain our competitiveness. Significant industry technology transitions often result in increasing our capital expenditures. The disk drive industry also experiences periods of increased demand and rapid growth followed by periods of oversupply and subsequent contraction, which also results in fluctuations in our capital expenditures. Cash used for capital expenditures totaled $11,846,000 for the thirteen weeks ended December 28, 2008, compared to $18,417,000 for the thirteen weeks ended December 30, 2007, a decrease of $6,571,000. We currently anticipate capital expenditures to be approximately $40,000,000 in 2009, primarily for tooling and manufacturing equipment for new process technology and capability improvements. This anticipated reduction in our capital expenditures from $65,603,000 in 2008 is due to the weakened demand in 2009 and our actions to reduce our overall cost structure and strengthen our cash position. Financing of these capital expenditures will be principally from operations, our current cash, cash equivalents and short- and long-term investments, the Credit Facility, the UBS Credit Line or additional financing, if available given current credit market conditions.
The financial covenants to which we were subject as of December 28, 2008, are contained in the Credit Facility loan agreement, as amended. The covenants include shareholder distribution limitations, debt-related ratios and cash and earnings coverage tests. We had no outstanding loans under the Credit Facility at any time during 2008 or the first quarter of 2009. As of December 28, 2008, we were in compliance with all financial covenants in the Credit Facility loan . . .