Hutchinson: Fiscal 3Q12 Financial Results

Hutchinson Technology Incorporated reported a net loss of $13.9 million, or $0.59 per share, on net sales of $61.0 million for its fiscal third quarter ended June 24, 2012.

The net loss for the quarter included:

• A $5.9 million gain on debt extinguishment and $0.4 million of debt refinancing costs related to the exchange offer, tender offers and private offering completed in April;
• $3.6 million of flood-related restoration and operating costs in Thailand; and
• $1.1 million of non-cash interest expense on outstanding debt.

Excluding these items, the company’s net loss for the quarter would have totaled $14.6 million or $0.62 per share.

In the preceding quarter, the company reported a net loss of $7.5 million, or $0.32 per share, on net sales of $65.5 million. Excluding certain items, the non-GAAP net loss in the preceding quarter was $11.2 million, or $0.48 per share.

As the company previously reported, demand softened in the final five weeks of the third quarter, with average weekly shipments declining by more than 15% compared with the quarter’s first eight weeks. Fiscal 2012 third quarter suspension assembly shipments totaled 100.1 million, compared with 96.9 million in the preceding quarter.

"We are continuing to carefully manage our costs and cash through the current demand softness," said Wayne M. Fortun, Hutchinson Technology’s president and CEO. "We are focusing on ramping assembly operations in Thailand, leveraging the lower costs of our TSA+ process and capturing increased volume on customers’ existing and new disk drive programs."

Average selling price in the fiscal 2012 third quarter was $0.58, down from $0.63 in the preceding quarter and from $0.59 in the fiscal 2011 third quarter. As previously disclosed, the higher average selling price in the preceding quarter was primarily due to increased volume of development products for new disk drive programs. A shift in product mix toward suspension assemblies for 3.5-inch ATA applications also contributed to the sequential quarter decline.

The company incurred a gross loss of $1.2 million, or 2% of net sales, in the fiscal 2012 third quarter, compared with a gross profit of $2.6 million, or 4% of net sales, in the preceding quarter. The slight recovery in shipment volume and a decline in variable costs were not enough to offset the sequential decline in average selling price. Lower than expected fixed cost leverage also prevented gross margin from improving.

TSA+ suspensions accounted for 70% of fiscal third quarter shipments, up from 55% in the preceding quarter. Rick Penn, president of the Disk Drive Components Division, said the company’s variable cost per part declined primarily as a result of the shift to a higher mix of TSA+ suspensions and improving TSA+ costs.

"We continue to expect that TSA+ suspensions will account for more than 80% of our shipments by the end of the current fiscal year," said Penn.

During the third quarter, the company’s assembly operation in Thailand resumed production and began shipping products for customer qualification.

"The incremental costs associated with manufacturing in the U.S. and of carrying our Thailand assembly operation through the flood recovery period will begin to abate as we enter fiscal 2013," said Penn. "Near the end of fiscal 2013, we expect to begin utilizing the full capacity at our Thailand site and realizing the cost benefits we initially expected for this operation."

Penn said the company currently expects its fiscal 2012 fourth quarter suspension assembly shipments to be about flat with the preceding quarter despite an extra week in the 14-week fourth quarter.

"Pricing will remain competitive, and we expect our fixed cost leverage to be lower sequentially due to a lower planned weekly production volume," said Penn.

Cash and investments at the end of the fiscal 2012 third quarter totaled $61.7 million, up from $56.1 million at the end of the preceding quarter. A reduction in receivables and inventories resulted in $12.1 million of cash generated from operations in the fiscal 2012 third quarter and capital expenditures were $7.7 million. For the full fiscal year, the company lowered its expected capital expenditures from $35 million to $30 million.

"We currently expect to ramp several new programs in fiscal 2013 that should improve our market share," said Fortun. "We remain optimistic about the growth opportunities for hard disk drive storage and demand for our suspension assemblies."