Hutchinson: Fiscal 3Q11 Financial Results

Hutchinson Technology Incorporated reported a net loss of $10.9 million, or $0.47 per share, on net sales of $72.2 million for its fiscal third quarter ended June 26, 2011.

The results for the quarter included:

• Accelerated depreciation of $2.4 million related to the company’s previously announced manufacturing consolidation and restructuring plan;
• Non-cash interest expense of $1.7 million resulting from the accounting for convertible debt instruments; and
• A $0.6 million reduction of previously estimated severance costs, partially offset by $0.3 million of other costs related to manufacturing consolidation.

Excluding these items, the company’s net loss for its fiscal 2011 third quarter totaled $7.2 million, or $0.31 per share.

In the preceding quarter, the company reported a net loss of $20.5 million, or $0.88 per share, on net sales of $63.3 million. The preceding quarter’s net loss included severance costs of $6.7 million, a gain on debt extinguishment of $5.5 million, non-cash interest expense of $2.0 million and accelerated depreciation of $0.7 million. Excluding these items, the company’s net loss in the fiscal 2011 second quarter totaled $16.5 million, or $0.71 per share.

Wayne M. Fortun, Hutchinson Technology’s president and chief executive officer, said the lower sequential quarter loss resulted from growth in volume and lower costs realized on improved production efficiency and the consolidation and restructuring of the company’s manufacturing operations. "Our third quarter results demonstrate the progress we’re making toward being the industry’s lowest cost producer of suspension assemblies and strengthening our competitive position," said Fortun. "Shipments to all of our customers increased in the third quarter compared with the preceding quarter. We estimate we gained a modest amount of market share in all disk drive segments as a result of share shifts among our customers and improvements in our share positions on some existing programs."

Compared with the preceding quarter, the company’s suspension assembly shipments increased 15 percent to 117.9 million. Shipments of TSA+ suspension assemblies increased 11 percent sequentially to 60 million. Average selling price in the fiscal 2011 third quarter was $0.59 compared with $0.60 in the preceding quarter. The sequential quarter decline in average selling price was somewhat mitigated by favorable shifts in product mix as suspension assemblies for mobile and enterprise applications accounted for higher percentages of the quarter’s total shipments.

The company’s fiscal 2011 third quarter gross profit totaled $4.2 million, or 6 percent of sales, compared with a gross loss of $2.3 million in the preceding quarter. The sequential quarter improvement in gross profit was primarily the result of increased volume and the lower costs previously mentioned. Third quarter gross profit was dampened by the previously mentioned accelerated depreciation of $2.4 million.

"We expect to realize additional cost savings as more of our volume shifts to TSA+ products, as output at our Thailand assembly operation grows and as we complete our consolidation and restructuring efforts," said Rick Penn, president of the Disk Drive Components Division. Penn added that the startup of the company’s photoetching processes at its Eau Claire site and the transition of TSA+ equipment from Hutchinson to Eau Claire under the company’s manufacturing consolidation plan are both on track. The company’s Hutchinson site will continue to include its corporate headquarters, its center for research and development, the BioMeasurement Division and manufacturing of precision components for other markets.

Cash used by operations in the fiscal 2011 third quarter totaled $3.9 million, including $3.6 million of severance payments. Capital expenditures for the quarter totaled $2.1 million. Cash and investments at the end of the fiscal 2011 third quarter totaled $54.9 million, down from $61.7 million in the preceding quarter.

Subsequent to the end of its third quarter, the company issued $45.2 million of 8.50% Convertible Senior Notes, with a first put date of January 2015, and used $3.1 million in cash to complete an exchange offer for $46.0 million of its 3.25% Convertible Subordinated Notes. "In the last six months, we’ve reduced the outstanding principal amount of our 3.25% Convertible Subordinated Notes, with a first put date of January 2013, from $197.5 million to $76.2 million," said Dave Radloff, chief financial officer.

Regarding its outlook, the company expects fiscal 2011 fourth quarter suspension assembly shipments to increase 5 to 10 percent compared with the third quarter. With respect to the estimated annualized cost savings of $50 million to $55 million resulting from its manufacturing consolidation and restructuring actions, the company said that it expects approximately 60 percent of the quarterly savings to be realized in its fourth quarter. The full benefit is expected to be realized by the start of its fiscal 2012 second quarter.