Hutchinson: Fiscal 2Q12 Financial Results

Hutchinson Technology Incorporated reported a net loss of $7.5 million, or $0.32 per share, on net sales of $65.5 million for its fiscal second quarter ended March 25, 2012.

The net loss for the quarter included:

• $11.3 million of flood insurance recoveries, offset by $2.4 million of flood-related restoration and operating costs in Thailand;
• $3.5 million of debt refinancing costs; and
• $1.7 million of non-cash interest expense resulting from the accounting for convertible debt instruments.

Excluding these items, the company’s non-GAAP net loss for its fiscal second quarter totaled $11.2 million, or $0.48 per share.

In the preceding quarter, the company reported a net loss of $12.5 million, or $0.53 per share, on net sales of $58.5 million. Excluding certain items, the non-GAAP net loss in the preceding quarter totaled $11.5 million or $0.49 per share.

As a result of debt refinancing that the company completed after the close of the fiscal 2012 second quarter, the principal amount of its outstanding debt with a first put date in January 2013 was reduced from $76.2 million to $11.9 million. David Radloff, Hutchinson Technology’s CFO, said the refinancing improves the company’s financial position by extending the maturities on a significant portion of its debt and reducing its overall debt balance from $161.4 million to $149.3 million while maintaining its cash levels.

The company’s fiscal 2012 second quarter suspension assembly shipments totaled 96.9 million, up 9% compared with the first quarter and in line with its expectations.

“Suspension assembly demand is increasing as the disk drive supply chain recovers from the October 2011 Thailand flood,” said Wayne Fortun, president and CEO. “With our vertically integrated U.S. operations, we are meeting customers’ requirements and responding to increasing demand.”

Shipments increased sequentially in all disk drive segments, with the largest percentage increase in shipments for enterprise applications. The company estimates that it maintained its overall suspension assembly market share compared with the preceding quarter.

The company’s assembly operation in Thailand is on schedule to resume production by the end of June and return to pre-flood capacity by the middle of fiscal 2013. The company estimates it will spend approximately $30 million in the current fiscal year and an additional $5 million in fiscal 2013 to restore its Thai assembly operation to pre-flood capacity levels and to cover the incremental costs of manufacturing in the U.S. during the recovery period. These costs will be partially offset by $25 million of insurance proceeds. Through the fiscal 2012 second quarter, approximately $15 million has been spent and all of the insurance proceeds have been received.

Average selling price in the fiscal 2012 second quarter was $0.63 compared with $0.60 in the first quarter, primarily due to increased volume of development products for new disk drive programs. Rick Penn, president of the Disk Drive Components Division, said the average selling price would have been relatively flat without the high level of development activity.

Gross profit in the fiscal 2012 second quarter was $2.6 million, or 4% of net sales, compared with $2.3 million, or 4% of net sales, in the preceding quarter. Radloff said second quarter gross profit included approximately $3 million of incremental costs to manufacture in the U.S. rather than Thailand. Gross profit also was dampened by lower fixed cost leverage as the company built less component inventory than in the preceding quarter.

TSA+ suspensions accounted for 55% of second quarter shipment volume, up from 52% in the preceding quarter, but down from 60% in the fiscal 2011 fourth quarter, before flood-related supply chain disruptions. The company expects TSA+ suspensions to account for more than 80% of volume by the end of the current fiscal year. “We expect gross profit to improve in future quarters as higher volume improves our fixed cost leverage and as our product mix continues shifting toward TSA+ suspension assemblies,” said Radloff.

For the fiscal 2012 third quarter, Penn said the company currently expects its suspension assembly shipments to total 105 million to 115 million while pricing will remain competitive. “We expect further volume growth in our fiscal fourth quarter as the disk drive supply chain continues to recover, and we are pleased with our progress on new customer programs,” said Penn.

Cash and investments at the end of the fiscal 2012 second quarter totaled $56.1 million compared with $55.8 million at the end of the preceding quarter. Cash generated from operations totaled $11.0 million in the fiscal 2012 second quarter and included $16 million of insurance proceeds received. Capital expenditures were $8.5 million in the second quarter, during which the company also paid $1.4 million of debt refinancing costs.

To read the earnings call transcript