Hutchinson: Preliminary 1Q10 Financial Results

Hutchinson Technology Incorporated reported preliminary results for its fiscal 2010 first quarter ended December 27, 2009.

Net sales for the quarter totaled $108.3 million, compared with $103.2 million in the preceding quarter and $119.7 million in its fiscal 2009 first quarter. Gross profit increased sequentially to approximately $20 million, or 19 percent of net sales, due primarily to the increase in net sales. In the preceding quarter, gross profit totaled $17.5 million, or 17 percent of net sales.

Net income for the fiscal 2010 first quarter is expected to be modestly above breakeven. Net income will include a non-cash interest expense estimated at $2.1 million due to the company’s adoption of Financial Accounting Standards Board guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). As the company previously disclosed, the adoption of this guidance is expected to result in non-cash interest expense of approximately $8.5 million in fiscal 2010. Net income for the fiscal 2010 first quarter is also expected to include a non-recurring income tax benefit estimated at approximately $2 million, primarily due to a recent change in U.S. tax law that enabled the company to carry back some of its net operating losses to prior years and apply for a refund of taxes paid in those years.

The company shipped approximately 155 million suspension assemblies in the fiscal 2010 first quarter, up 7 percent from 145 million in the preceding quarter and about flat with the fiscal 2009 first quarter. Average selling price in the fiscal 2010 first quarter was 68 cents, compared with 70 cents in the preceding quarter and 76 cents in the fiscal 2009 first quarter. The decline in fiscal 2010 first quarter average selling price was a result of a competitive pricing environment and the mix of products shipped.

The company’s shipments of TSA+ suspension assemblies increased approximately 36 percent from 18 million in the preceding quarter to 25 million in the fiscal 2010 first quarter. The higher volume enabled the company to reduce its TSA+ cost per part by approximately 16 percent in the fiscal 2010 first quarter compared with the preceding quarter. However, the company estimates that the TSA+ cost burden increased to $7.4 million in the fiscal 2010 first quarter from $7.1 million in the preceding quarter due to lower than expected TSA+ yields. The company reiterated that continued growth in TSA+ suspension assembly volume, combined with improvements in manufacturing yields and efficiencies, is expected to ultimately result in a cost advantage for TSA+ flexures over current TSA flexures.

Net sales for the company’s BioMeasurement Division totaled $508,000 in the fiscal 2010 first quarter, compared with $624,000 in the preceding quarter and $265,000 in the fiscal 2009 first quarter. The division’s operating loss for the fiscal 2010 first quarter is estimated to be approximately $4.9 million, compared to $4.9 million in the preceding quarter and $6.6 million in the fiscal 2009 first quarter.

Cash and investments totaled $242 million at the end of the fiscal 2010 first quarter, up $15 million from the end of the preceding quarter. During the quarter, the company repurchased $4.5 million par value of its Convertible Subordinated Notes due March 2010, leaving a balance due of $41.1 million.

The company said that it currently expects a sequential decline in suspension assembly shipments and net sales during its fiscal 2010 second quarter, which is typically a seasonally weaker quarter, but is prepared for demand fluctuations in either direction.

The company plans to report its fiscal 2010 first quarter results on Tuesday, January 26, 2010, after the close of the market.