Workforce Reduction of 20-25% by Hutchinson

Hutchinson Technology Incorporated announced a restructuring plan that includes a 20-25% reduction of its workforce, which totaled approximately 4,500 at the end of November. The company estimates that its financial results for its fiscal 2009 first quarter ending December 28, 2008 will include a charge of $12 million to $16 million related to severance costs. In addition, the company will be implementing a 5% pay reduction for all employees not affected by the workforce reduction. The workforce and pay reductions are expected to be complete by the end of January 2009 and are part of the company’s strategy to manage its cash and balance sheet and reduce its overall cost structure by approximately $65 million to $80 million on an annualized basis. The company’s plans also include reducing its fiscal year 2009 capital spending from $60 million to $40 million.

Wayne M. Fortun, Hutchinson Technology’s president and chief executive officer, said the restructuring is necessary due to the changing and uncertain market and economic conditions. "Over the last month, the suspension assembly demand outlook for fiscal year 2009 has weakened significantly," said Fortun, noting that the company now expects its fiscal first quarter shipments of suspension assemblies to decline more than 20% sequentially. "In response, we are restructuring our business in order to reduce our expected loss in fiscal year 2009, preserve cash and position ourselves for improved financial results when suspension assembly demand improves."

The company has already taken a number of steps to lower its operational expenses in response to lower demand in its fiscal first quarter, including use of mandatory time off and implementing a two-week shutdown during the upcoming holidays. The shutdown will occur over the last week of the company’s fiscal first quarter and the first week of the company’s fiscal second quarter.

The company also announced that it has repurchased, on the open market, approximately $60 million par value of its 2.25% Convertible Subordinated Notes due 2010 for approximately $48 million in cash, including accrued interest. "The repurchase of our notes reduced our debt on terms that we believe are favorable to our shareholders while maintaining an adequate level of cash," said John A. Ingleman, the company’s chief financial officer. "As a result of this transaction, we will recognize a gain of approximately $12 million in our fiscal 2009 first quarter."

Fortun said that the company is confident in its ability to address the current economic challenges. "We are aggressively managing our cost structure and cash position to ensure that we will meet our debt obligations while preserving the ability to make investments that will enable the company to respond to customer requirements and achieve long-term profitable growth."’