Percentage of
              Customer                                  Net Sales

              Western Digital Corporation                     40 %
              SAE Magnetics, Ltd./TDK Corporation             33 %
              Seagate Technology                              19 %
              Fujitsu                                          4 %
              Hitachi                                          2 %

We currently have little visibility into future demand. In the short-term, demand is likely to remain weak, as compared to 2008, and pricing will be under pressure. In addition, drive manufacturers are focusing on moving to higher areal density points and improving yields, which could lower suspension assembly demand. Based on these lower suspension demand projections and continued downward pressure on our average selling price, we expect our annual net sales to decline in 2009, which will contribute to an expected net loss for 2009. The following table sets forth our recent quarterly suspension assembly shipment quantities in millions for the periods indicated:

                                       Suspension Assembly Shipments by Quarter
                                                         2008                                              2009
                               First             Second            Third           Fourth          First         Second
Suspension assembly
shipment quantities               213               179               189            209            155            107

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. Our fourth quarter 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. Our second quarter 2009 shipments decreased primarily due to lower demand for disk drives, lower disk drive production as the drive makers reduced inventory levels and a modest loss of overall market share. The share loss was primarily in the 2.5-inch ATA segment and was partially offset by share gains in the 3.5-inch ATA segment. We expect our third quarter 2009 shipments to increase from our second quarter shipments, in contrast to the historical norm of a decrease in that quarter. As noted above, shipments to Seagate Technology are expected to decline significantly in our fourth quarter 2009, but we continue to ramp suspension assembly programs with all the other disk drive manufacturers.
Our average selling price declined to $0.71 in the second quarter of 2009, down $0.05 from the first quarter of 2009 and down $0.09 from the second quarter of 2008. The decline in average selling price for the second quarter of 2009 was primarily due to a shift in product mix as our combined shipments for the mobile and enterprise segments declined more than 50% sequentially, while shipments for the 3.5-inch ATA segment increased by approximately 15%. The year-over-year decline in average selling price was larger than our historical pricing declines for similar periods due to the shift in product mix and competitive pressures. We expect continued downward pressure on our average selling price in the second half of 2009, although not to the extent seen in the first half of 2009. Gross loss in the second quarter of 2009 was 15%, down from 0% in the first quarter of 2009, primarily due to the substantial decline in net sales, which reduced our ability to cover our fixed costs, and excess capacity. The gross loss included a $7,800,000 gross profit burden related to TSA+ flexure production. Increased TSA+ volume and further yield improvements helped reduce this burden from $9,500,000 in the first quarter of 2009. We expect our TSA+ shipments to further increase in subsequent quarters and the associated ramp of TSA+ production will continue to reduce the gross profit burden. In response to weakening demand and due to changing and uncertain market and economic conditions, we have taken actions to reduce our cost structure 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 was 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. As of March 29, 2009, $7,654,000 of that severance remains to be paid which is expected to occur during the third quarter of 2009. The workforce and pay reductions are part of our strategy to reduce our overall cost structure and strengthen our cash position.

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 weakened demand for suspension assemblies and uncertain future market conditions. In response to these conditions, we have made, and continue to make, structural changes to consolidate some of our component and assembly manufacturing among our sites. During the second quarter of 2009, in response to further weakened demand for suspension assemblies, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We will close our Sioux Falls, South Dakota, facility by the end of June 2009 and consolidate the related suspension assembly operations into our Eau Claire, Wisconsin, and Hutchinson, Minnesota, sites. The assembly operations consolidation will result in a net elimination of approximately 220 positions. In addition, we have consolidated 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 reduced the workforce in our components operation in Eau Claire, Wisconsin by approximately 100 positions. 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 the first quarter of 2009, total approximately 1,700 positions. The second quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,787,000, which is expected to be paid during the third and fourth quarters of 2009.
Other expenses include $125,000 of costs related to the Sioux Falls, South Dakota facility closure and assembly consolidation actions. We estimate our financial results for the last two quarters of 2009 will include approximately $800,000 to $1,300,000 of additional related other cash expenses. During the second quarter of 2009, in response to further weakened demand for suspension assemblies and as a result of the additional restructuring actions in the second quarter discussed above, we recorded non-cash impairment charges of $18,688,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division's assembly and component operations.
Subsequent to the end of our second quarter of 2009, we announced additional actions to reduce costs and improve cash flow will be taken that will help us to meet the current portion of our debt obligations and make strategic investments as needed. We are further restructuring the company to adjust to market conditions and the expected phase out of suspension assembly shipments to our customer, Seagate Technology, over the next 18 to 24 months. The restructuring actions include eliminating approximately 300 additional positions, bringing our overall employment to about 2,500 by the end of the third quarter of 2009. We estimate our financial results for the quarter ending June 28, 2009, will include approximately $25,000,000 of severance and asset impairment charges related to these restructuring actions.
We estimate these additional restructuring and cost reduction actions in the third quarter of 2009 will produce another $50,000,000 in annualized cost savings. Combined with actions we have already taken this year, we estimate that we have reduced our cost structure by approximately $175,000,000 on an annualized basis. The full benefit of these cost reductions will be realized in our fourth quarter of 2009. This will position the company to generate positive free cash flow (Cash provided by operating activities - Capital expenditures) at quarterly revenue of $85,000,000 to $90,000,000. 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. Our TSA+ shipments increased to about 10,000,000 in the second quarter of 2009, up from 4,500,000 in the preceding quarter, and the majority of those shipments were for one customer program. We expect our TSA+ shipments to further increase in subsequent quarters and the associated ramp of TSA+ production volume will continue to reduce the gross profit burden related to TSA+ flexure production. 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 half of 2009, we spent $16,337,000 on research and development, with $2,268,000 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 half of 2009 was $17,693,000. We expect our capital expenditures to total less than $30,000,000 in 2009, primarily for tooling and manufacturing equipment for new process technology and capability improvements.
RESULTS OF OPERATIONS
Thirteen Weeks Ended March 29, 2009, vs. Thirteen Weeks Ended March 30, 2008 Net sales for the thirteen weeks ended March 29, 2009, were $79,004,000, compared to $143,844,000 for the thirteen weeks ended March 30, 2008, a decrease of $64,840,000. Suspension assembly sales decreased $65,141,000 from the thirteen weeks ended March 30, 2008, due to decreased suspension assembly unit shipments and our average selling price decreasing from $0.80 to $0.71 during the same period due to competitive pressures and a higher mix of suspension assemblies for the 3.5-inch ATA segment, which typically has a lower average selling price. The decrease in unit shipments was primarily due to lower demand for disk drives, lower disk drive production as the drive makers reduced inventory levels and loss of market share.
Gross loss for the thirteen weeks ended March 29, 2009, was $11,774,000, compared to gross profit of $18,941,000 for the thirteen weeks ended March 30, 2008, a decrease of $30,715,000. Gross profit as a percent of net sales was negative 15% and positive 13% for the thirteen weeks ended March 29, 2009,and March 30, 2008, 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 excess capacity. Cost of sales also included higher costs associated with TSA+ flexure production, which reduced gross profit by $7,800,000 for the thirteen weeks ended March 29, 2009, compared to $8,800,000 for the thirteen weeks ended March 30, 2008.
Research and development expenses for the thirteen weeks ended March 29, 2009, were $7,454,000, compared to $10,260,000 for the thirteen weeks ended March 30, 2008, a decrease of $2,806,000. The decrease was primarily related to lower labor expenses due to reduced headcount.
Selling, general and administrative expenses for the thirteen weeks ended March 29, 2009, were $14,934,000, compared to $18,436,000 for the thirteen weeks ended March 30, 2008, a decrease of $3,502,000. The reduction was primarily due to lower expenses, including reductions in labor expenses resulting from reduced headcount, depreciation expenses, professional service expenses and recruitment and relocation expenses.
During the second quarter of 2009, in response to further weakened demand for suspension assemblies, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We will close our Sioux Falls, South Dakota, facility by the end of June 2009 and consolidate the related suspension assembly operations into our Eau Claire, Wisconsin, and Hutchinson, Minnesota, sites. The assembly operations consolidation will result in a net elimination of approximately 220 positions. In addition, we have consolidated 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 reduced the workforce in our components operation in Eau Claire, Wisconsin, by approximately 100 positions. The second quarter 2009 workforce reductions

resulted in a charge for severance and other expenses of $4,787,000, which is expected to be paid during the third and fourth quarters of 2009. During the second quarter of 2009, in response to further weakened demand for suspension assemblies and as a result of the additional restructuring actions in the second quarter discussed above, we recorded non-cash impairment charges of $18,688,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division's assembly and component operations.
Loss from operations for the thirteen weeks ended March 29, 2009, included a $6,249,000 loss from operations for our BioMeasurement Division, compared to a $5,770,000 loss from BioMeasurement operations for the thirteen weeks ended March 30, 2008. The increased loss from BioMeasurement operations was due to higher allocated expenses from corporate departments as the business has grown and severance expenses.
Interest income for the thirteen weeks ended March 29, 2009, was $928,000, compared to $3,642,000 for the thirteen weeks ended March 30, 2008, a decrease of $2,714,000. The decrease in interest income was primarily due to lower investment yields as the result of an overall low interest rate environment. Other income, net of other expenses, for the thirteen weeks ended March 29, 2009, was $1,793,000, compared to $688,000 for the thirteen weeks ended March 30, 2008, an increase of $1,105,000. The increase in other income was primarily due to an increase of $3,193,000 from a gain we recognized for our auction rate securities ("ARS") held with UBS, which was offset by a $1,687,000 loss in the value of the securities subject to the Rights Offering. See "Liquidity and Capital Resources" below for a discussion of our ARS held with UBS and the related Rights Offering.
The income tax benefit of $204,000 and $2,100,000 for the thirteen weeks ended March 29, 2009, and March 30, 2008, respectively, were based on an estimated annual effective tax rate benefit of 0.1% and 31%, respectively. The annual effective tax rate decreased compared to the thirteen weeks ended March 30, 2008, due to our projected loss for 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 March 29, 2009, relates primarily to certain provisions of the American Recovery and Reinvestment Act of 2009 (the "ARRA") that permit certain tax credits to be converted into cash refunds in lieu of claiming bonus depreciation.
Twenty-Six Weeks Ended March 29, 2009, vs. Twenty-Six Weeks Ended March 30, 2008 Net sales for the twenty-six weeks ended March 29, 2009, were $198,675,000, compared to $316,921,000 for the twenty-six weeks ended March 30, 2008, a decrease of $118,246,000. Suspension assembly sales decreased $119,438,000 from the twenty-six weeks ended March 30, 2008, due to decreased suspension assembly unit shipments and our average selling price decreasing from $0.80 to $0.74 during the same period due to competitive pressures. The decrease in unit shipments was primarily due to lower demand for disk drives, lower disk drive production as the drive makers reduced inventory levels and loss of market share.
Gross loss for the twenty-six weeks ended March 29, 2009, was $11,907,000, compared to gross profit $51,858,000 for the twenty-six weeks ended March 30, 2008, a decrease of $63,765,000. Gross profit as a percent of net sales was negative 6% and positive 16% for the twenty-six weeks ended March 29, 2009,and March 30, 2008, 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 excess capacity. Cost of sales also included higher costs associated with TSA+ flexure production, which reduced gross profit by $17,300,000 for the twenty-six weeks ended March 29, 2009, compared to $16,300,000 for the twenty-six weeks ended March 30, 2008.
Research and development expenses for the twenty-six weeks ended March 29, 2009, were $16,337,000, compared to $20,670,000 for the twenty-six weeks ended March 30, 2008, a decrease of $4,333,000. The decrease was primarily related to lower labor expenses due to reduced headcount.
Selling, general and administrative expenses for the twenty-six weeks ended March 29, 2009, were $31,350,000, compared to $36,799,000 for the twenty-six weeks ended March 30, 2008, a decrease of $5,449,000. The reduction was

primarily due to lower expenses, including reductions in labor expenses resulting from reduced headcount, depreciation expenses, professional service expenses and recruitment and relocation expenses.
In response to weakening demand and due to changing and uncertain market and economic conditions, we have taken actions to reduce our cost structure 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 was included in our financial results for the thirteen weeks ended December 28, 2008. As of March 29, 2009, $7,654,000 of that severance remains to be paid which is expected to occur during the third quarter of 2009. 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. 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 weakened demand for suspension assemblies and uncertain future market conditions. In response to these conditions, we have made, and continue to make, structural changes to consolidate some of our component and assembly manufacturing among our sites. During the second quarter of 2009, we took actions to further restructure the company and reduce our overall cost structure in our Disk Drive Components Division. We will close our Sioux Falls, South Dakota, facility by the end of June 2009 and consolidate the related suspension assembly operations into our Eau Claire, Wisconsin, and Hutchinson, Minnesota, sites. The assembly operations consolidation will result in a net elimination of approximately positions. In addition, we have consolidated 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 reduced the workforce in our components operation in Eau Claire, Wisconsin, by approximately 100 positions. The second quarter 2009 workforce reductions resulted in a charge for severance and other expenses of $4,787,000, which is expected to be paid during the third and fourth quarters of 2009.
During the second quarter of 2009, in response to further weakened demand for suspension assemblies and as a result of the additional restructuring actions in the second quarter discussed above, we recorded non-cash impairment charges of $18,688,000 for the impairment of long-lived assets related to manufacturing equipment in our Disk Drive Components Division's assembly and component operations.
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 twenty-six weeks ended March 29, 2009, included a $12,887,000 loss from operations for our BioMeasurement Division, compared to a $10,941,000 loss from BioMeasurement operations for the twenty-six weeks ended March 30, 2008. The increased loss from BioMeasurement operations was due to higher allocated expenses from corporate departments as the business has grown and severance expenses.
Interest income for the twenty-six weeks ended March 29, 2009, was $2,187,000, . . .