Hutchinson: Fiscal 1Q13 Financial Results

Hutchinson Technology Incorporated reported a net loss of $6.5 million, or $0.27 per share, on net sales of $63.7 million for its fiscal 2013 first quarter ended December 30, 2012.

Results for the quarter included $1.0 million of severance costs and $1.0 million of non-cash interest expense. Excluding these items, the company’s first quarter net loss was $4.5 million, or $0.19 per share.

In the preceding quarter, the company reported a net loss of $14.7 million, or $0.62 per share, on net sales of $63.6 million. Excluding certain items, the non-GAAP net loss in the preceding quarter was $13.0 million, or $0.54 per share. A detailed reconciliation of GAAP to non-GAAP results is provided in the accompanying financial statements.

The company’s suspension assembly shipments totaled 103.6 million in the 13-week fiscal 2013 first quarter, up 6% on a weekly shipment basis compared with 105.2 million in the 14-week fiscal 2012 fourth quarter.

"As in the preceding quarter, our shipments benefited from our market share positions on both existing and new customer programs even as worldwide disk drive and suspension assembly demand remained soft," said Rick Penn, Hutchinson Technology’s president and CEO.

Average selling price in the fiscal 2013 first quarter was $0.60, up from $0.58 in the preceding quarter, due to a higher mix of both development and high volume dual-stage actuated (DSA) suspensions and suspensions for enterprise applications. DSA suspensions, which carry a higher selling price and cost more to manufacture, increased to 9% of the company’s first quarter product mix from 5% in the preceding quarter. The company expects its product mix to continue to shift toward DSA suspensions throughout fiscal 2013.

Gross profit in the fiscal 2013 first quarter was $7.4 million, or 11.6% of net sales, compared with a gross loss of $0.2 million in the preceding quarter. Compared with the fiscal 2012 fourth quarter, gross profit benefited from improved absorption of fixed costs due to higher weekly volume, continued efforts to reduce costs, increased shipments of higher-priced development products and increased scrap recoveries.

TSA+ suspensions accounted for 85% of first quarter shipments, unchanged from the preceding quarter.

"We are very pleased with the levels of quality and output we are realizing from our existing TSA+ and DSA capacity," said Penn. "Our manufacturing proficiency is enabling us to meet increasing customer demand for DSA suspensions."

Penn said that the company’s operation in Thailand accounted for 18% of assembly production in the fiscal first quarter.

"We have qualified additional products at our Thailand site and remain on track to have about one-half of our total assembly output produced there by the end of our fiscal 2013 third quarter," said Penn.

Cash and investments at the end of the 2013 first quarter totaled $57.5 million, up $2.6 million compared with the preceding quarter. Cash used by operations totaled $1.6 million in the fiscal 2013 first quarter, while capital spending totaled $5.1 million. Outstanding borrowings on the company’s revolving line of credit totaled $4.1 million at the end of the fiscal 2013 first quarter compared with none at the end of the preceding quarter.

After the end of the fiscal 2013 first quarter, as previously announced, the company issued $12.2 million of 10.875% Senior Secured Second Lien Notes due 2017 and used the proceeds to repurchase $18.7 million of its 8.50% Convertible Senior Notes. This reduced the company’s outstanding debt with a first put date in 2015 from $58.5 million to $39.8 million. Combined with the planned redemption in the fiscal 2013 second quarter of the remaining $11.9 million of its 3.25% Convertible Subordinated Notes, the total principal amount of the company’s outstanding long-term debt will be reduced to $131.0 million from $149.3 million.

Regarding the company’s outlook, Penn said the company expects its fiscal 2013 second quarter suspension assembly shipments to range from 95 million to 105 million, anticipating slightly lower demand for disk drives and a delay in some program ramps to the second half of fiscal 2013. Gross profit is expected to decline on the lower volume in the second quarter and on lower shipments of development products.

"Looking beyond the second quarter," said Penn, "we expect our financial results to benefit from higher volume and improved fixed cost leverage, increased adoption of our DSA suspensions, the cost benefits of our TSA+ process, further cost reductions as we transition more assembly volume to Thailand and continued consolidation and streamlining of our U.S. operations."