Hutchinson: Fiscal 1Q12 Financial Results

Hutchinson Technology Incorporated reported a net loss of $12.5 million, or $0.53 per share, on net sales of $58.5 million for its fiscal first quarter ended December 25, 2011.

The results for the quarter included:

• Flood-related costs of $13.7 million, including $8.3 million of impairment charges for damaged property, plant and equipment, $2.8 million of inventory write-downs and $2.6 million of Thailand operating and site restoration costs;
• Flood insurance recoveries of $13.7 million, including $9 million of cash proceeds and $4.7 million of accrued proceeds;
• Non-cash interest expense of $1.7 million resulting from the accounting for convertible debt instruments; and
• A $0.9 million reversal of previously accrued severance expenses, partially offset by $0.2 million of other costs related to manufacturing consolidation.

Excluding these items, the company’s net loss for its fiscal 2012 first quarter totaled $11.5 million, or $0.49 per share.

In the preceding quarter, the company reported a net loss of $7.2 million, or $0.31 per share, on net sales of $74.4 million. Results for the preceding quarter included a gain on debt extinguishment of $2.9 million, non-cash interest expense of $1.7 million, consolidation expenses of $0.4 million and accelerated depreciation of $0.2 million. Excluding these items, the company’s fiscal 2011 fourth quarter net loss totaled $7.9 million, or $0.34 per share.

Thailand Operations Update
Repair and restoration activities are proceeding as planned at the company’s Thailand assembly operation. "After review of the flood mitigation plans of the Thai government and those of the industrial park where our plant is located, we are proceeding with plans to restore our Thai operation and expect to resume production by the end of June," said Wayne M. Fortun, Hutchinson Technology’s president and chief executive officer. "We will closely monitor the implementation of the planned flood mitigation measures as we fully ramp the production capacity of our facility in Thailand." Fortun said the company expects it will take until the middle of fiscal 2013 to return the operation to pre-flood output levels.

The company estimates that it will spend $25 million to $30 million in fiscal 2012 and an additional $5 million in fiscal 2013 to restore its assembly operation in Thailand and bring it back to pre-flood capacity levels and to cover the incremental costs of manufacturing in the U.S. These costs will be partially offset by $25 million in insurance proceeds, $9 million of which the company received in its fiscal first quarter and $16 million that has been received in its fiscal second quarter.

The effects of the flooding in Thailand continue to constrain overall capacity in the disk drive supply chain, significant portions of which are still in recovery mode. The company expects its fiscal 2012 second quarter suspension assembly shipments will total 90 million to 100 million, compared with 89.3 million in the first quarter. The company expects its shipments to further increase in its fiscal third and fourth quarters as the disk drive supply chain continues to recover.

Fiscal 2012 First Quarter Review
The company’s fiscal 2012 first quarter shipments of 89.3 million declined 30% compared to the preceding quarter. "The volume decline was in line with our expectations and resulted from the flood-related capacity constraints at our customers," said Rick Penn, president of the Disk Drive Components Division. "We estimate that we maintained our overall market share compared with the preceding quarter as we leveraged our vertically integrated U.S. operations to meet customers’ needs. Furthermore, we are well positioned to respond to increased demand as the industry recovers."

Average selling price in the fiscal 2012 first quarter was $0.60, up from $0.58 in the preceding quarter primarily because of a change in the product mix resulting from the flood-related capacity constraints at our customers. Suspension assemblies for 3.5" ATA applications decreased sequentially, while shipments for mobile applications increased compared with the preceding quarter.

Gross profit in the fiscal 2012 first quarter was $2.3 million, or 4 percent of net sales, compared with $5.1 million, or 7 percent of net sales, in the preceding quarter. The decline resulted primarily from the lower volume in the quarter and a lower mix of TSA+ product.

TSA+ suspension assemblies accounted for 52% of fiscal 2012 first quarter shipments, down from 60% in the preceding quarter because of shifts in product mix resulting from flood-related capacity constraints among the disk drive manufacturers. "Despite the decline in TSA+ shipments, we further reduced our TSA+ variable and fixed costs per part. We expect to realize significant cost savings as the transition of our volume to TSA+ resumes," said Penn.

Cash and investments at the end of the 2012 first quarter totaled $55.8 million compared with $59.2 million at the end of the preceding quarter. During the quarter, the company repaid $10.4 million of borrowings on its revolving line of credit. Cash generated from operations totaled $12.5 million in the first quarter, including $9 million of insurance proceeds received, and capital expenditures totaled $5.4 million.