Hutchinson: Fiscal 4Q11 Financial Results

Hutchinson Technology Incorporated reported a net loss of $7.2 million, or $0.31 per share, on net sales of $74.4 million for its fiscal fourth quarter ended September 25, 2011.

The results for the quarter included:

• A gain on debt extinguishment of $2.9 million related to the previously announced exchange offer that was completed in July 2011 for $46.0 million of its 3.25% Convertible Subordinated Notes;
• Non-cash interest expense of $1.7 million resulting from the accounting for convertible debt instruments; and
• Consolidation expenses of $0.4 million and accelerated depreciation of $0.2 million related to the company’s previously announced manufacturing consolidation and restructuring plan.

Excluding these items, the company’s net loss for its fiscal 2011 fourth quarter totaled $7.9 million, or $0.34 per share.

In the preceding quarter, the company reported a net loss of $10.9 million, or $0.47 per share, on net sales of $72.2 million. Results for the quarter included accelerated depreciation of $2.4 million, non-cash interest expense of $1.7 million, a $0.6 million reduction of previously estimated severance costs and $0.3 million of consolidation expenses. Excluding these items, the company’s net loss in its fiscal 2011 third quarter totaled $7.2 million, or $0.31 per share.

Thailand Operations Update
As previously announced, severe flooding in Thailand required the company to suspend assembly operations at its Thailand facility in early October. "Our sympathies are with our employees in Thailand, whose lives have been deeply impacted by this disaster," said Wayne M. Fortun, Hutchinson Technology’s president and chief executive officer. "Although we believe it will take multiple quarters, we fully intend to resume operations in Thailand. Our operation in Thailand was meeting or exceeding our expectations for volume, quality and costs and remains integral to enabling us to become the industry’s lowest cost producer of suspension assemblies."

Fortun said that the company is leveraging its U.S. assembly operations to offset the temporary loss of capacity in Thailand. "Our available assembly capacity and vertically integrated components operations in the U.S. are enabling us to meet current levels of customer demand and should provide us with the flexibility to respond to increases in demand as the supply chain recovers," said Fortun. "We are very grateful to our employees in Thailand and the U.S. for their extraordinary efforts to help us respond to the unprecedented flooding."

The company stated that it needs the floodwaters to recede before it can fully evaluate the damage to its assembly operations in Thailand and the financial impact of its recovery effort and insurance proceeds. In addition to the impact on the company’s operations, the flooding in Thailand is constraining the overall capacity of the hard disk drive supply chain. The resulting reduction in disk drive production is expected to result in a material decrease in demand for suspension assemblies in the company’s fiscal 2012 first quarter, and the company estimates that its first quarter shipments will be 80 million to 100 million.

Fiscal 2011 Fourth Quarter Review
In the company’s fiscal 2011 fourth quarter, its shipments of suspension assemblies increased 8% sequentially to 127.4 million. "The increase was primarily due to an increase in shipments of suspension assemblies for mobile applications," said Rick Penn, president of the Disk Drive Components Division.

Average selling price in the fiscal 2011 fourth quarter was $0.58, compared with $0.59 in the preceding quarter. Gross profit in the fiscal 2011 fourth quarter totaled $5.1 million, or 7% of sales, compared to $4.2 million, or 6% of sales in the preceding quarter.

Penn said the consolidation of the company’s TSA+ equipment into its Eau Claire site was successfully completed in the fourth quarter and is already helping reduce its cost per part. "We expect to realize significant cost savings as more of our volume shifts to TSA+ suspensions and as we further improve our TSA+ output and efficiency," said Penn. Shipments of TSA+ suspensions accounted for 60% of fourth quarter shipments, up from 51% in the preceding quarter.

Cash and investments at the end of the 2011 fourth quarter totaled $61.8 million, an increase of $6.9 million compared with the preceding quarter. Borrowings totaled $10.4 million at the end of the quarter on a new revolving line of credit of up to $35 million. The company used $3.1 million in cash during the quarter as part of the previously announced debt exchange and paid $1.8 million in debt issuance costs for the newly issued 8.50% Convertible Senior Notes and the new revolving line of credit. Cash generated by operations in the fiscal 2011 fourth quarter was $5.4 million, and capital expenditures totaled $4.0 million.