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Hutchinson: Fiscal 2Q16 Financial Results

Suspension assembly shipments decreasing 20% to 85 million

(in $ million) 2Q15 2Q16 6 mo. 15 6 mo. 16
Revenue 62.4 54.2 134.8 118.1
Growth   -13%   -12%
Net income (loss) (9.7) (9.6) (19.6) (14.9)

Hutchinson Technology Incorporated reported net sales of $54.2 million for its fiscal 2016 second quarter ended March 27, 2016.  

Suspension assembly shipments for the quarter totaled 85.4 million compared with 106.6 million in the preceding quarter.  

Rick Penn, president and CEO, said that shipments were at the low end of the company’s expectations for the March quarter, which is typically a seasonally slower period for the disk drive industry and its suppliers.

Gross profit in the fiscal 2016 second quarter totaled $5.7 million, or 10.5% of net sales, compared with $11.7 million, or 18.3% of net sales in the preceding quarter. Gross profit declined sequentially due to the decreased volume, resulting in lower leverage of the company’s capacity and fixed costs.

The company reported a fiscal 2016 second quarter net loss of $9.6 million, or $0.28 per share.

The net loss for the quarter included:

  • $900,000 of merger-related expenses;
  • $500,000 of severance costs related to a reduction of approximately 80 positions in Hutchinson, MN, due in part to the company’s ongoing transition of high-volume assembly operations to Thailand; and
  • $360,000 of non-cash interest expense, partially offset by a $700,000 foreign currency gain.

Excluding these items, the company’s net loss for the fiscal 2016 second quarter was $8.5 million, or $0.25 per share.

In the preceding quarter, the company reported a net loss of $5.3 million, or $0.16 per share.

The net loss for the quarter included:

  • $3.4 million of merger-related expenses;
  • $590,000 of tax benefits related to recently enacted federal income tax legislation;
  • $350,000 of non-cash interest expense; and a $30,000 foreign currency gain.  

Excluding these items, the company’s net loss for the fiscal 2016 first quarter was $2.1 million, or $0.06 per share.

Cash and investments at the end of the fiscal 2016 second quarter totaled $47.9 million, compared with $49.0 million at the end of the preceding quarter.

Capital spending in the quarter totaled $3.2 million and is currently expected to total approximately $10 million for the fiscal year. As in the preceding quarter, there were no outstanding borrowings under the company’s revolving line of credit at the end of the fiscal 2016 second quarter.

The company’s net cash, as defined by its November 1, 2015 merger agreement with TDK Corporation, was $51.3 million at the end of the fiscal 2016 second quarter, compared with $49.9 million at the end of the preceding quarter. The company currently expects the transactions described in the merger agreement to be completed during the second calendar quarter of 2016. Under the terms of the merger agreement, TDK will acquire all of the outstanding shares of common stock of HTI for base consideration of $3.62 per share, plus additional consideration of up to $0.38 per share, depending on the level of net cash held by HTI as of the measurement date, as defined in the merger agreement. The full amount of additional consideration would be realized if the company’s net cash equals or exceeds $35 million as of the measurement date.

For its fiscal 2016 third quarter, the company currently expects its suspension assembly shipments to range from 80 million to 90 million.

ASP in the fiscal third quarter is expected to be flat to up slightly, depending on the mix of products shipped, compared with 57 cents in the preceding quarter.  

Gross profit is expected to be about flat with the fiscal 2016 second quarter.  

With demand likely to remain soft in our third quarter, we are giving priority to containing costs and maximizing our cash balance as we work to conclude our merger with TDK,” said Penn.

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