Volume Recovery and Fixed Cost Leverage Below Expectations
Production Ramping at Thailand Assembly Operation
HUTCHINSON, Minn., July 26, 2012 (GLOBE NEWSWIRE) -- Hutchinson Technology Incorporated (Nasdaq:HTCH) today 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 percent 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 chief executive officer. "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 percent of net sales, in the fiscal 2012 third quarter, compared with a gross profit of $2.6 million, or 4 percent 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 percent of fiscal third quarter shipments, up from 55 percent 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 percent 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."
Hutchinson Technology to Host Conference Call
The company will conduct a conference call and webcast for investors beginning at 4:00 p.m. Central Time today. Individual investors and news media may participate in the conference call live via the webcast, which will be available through the Investor Relations page on Hutchinson Technology's web site at www.htch.com/investors. Webcast participants will need to complete a brief registration form and should allow extra time before the webcast begins to register and, if necessary, download and install audio software.
About Hutchinson Technology
Hutchinson Technology is a global technology leader committed to creating value by developing solutions to critical customer problems. The company's Disk Drive Components Division is a key worldwide supplier of suspension assemblies for disk drives. The company's BioMeasurement Division is focused on bringing new technologies and products to the market that provide information clinicians can use to improve the quality of health care and reduce costs.
Cautionary Note Regarding Forward-Looking Statements
This announcement contains forward-looking statements, including statements regarding demand for and shipments of disk drives, disk drive components and the company's products, ramping new programs, pricing, production capability and costs, capital expenditures, operating performance and assembly operations in Thailand. The company does not undertake to update its forward-looking statements. These statements involve risks and uncertainties. The company's actual results could differ materially from those anticipated in these forward-looking statements as a result of changes in market demand and market consumption of disk drives or suspension assemblies, changes in demand for our products, market acceptance of new products, the company's ability to produce suspension assemblies at levels of precision, quality, volume and cost its customers require, changes in product mix, changes in customers yields, changes in storage capacity requirements, changes in expected data density, changes in the company's ability to operate its assembly operation in Thailand, changes in the company's ability to reduce costs and other factors described from time to time in the company's reports filed with the Securities and Exchange Commission.
| Hutchinson Technology Incorporated | ||||
| Condensed Consolidated Statements of Operations - Unaudited | ||||
| (In thousands, except per share data) | ||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||
| June 24, | June 26, | June 24, | June 26, | |
| 2012 | 2011 | 2012 | 2011 | |
| Net sales | $ 61,005 | $ 72,180 | $ 184,963 | $ 203,705 |
| Cost of sales | 62,192 | 67,990 | 181,201 | 198,490 |
| Gross (loss) profit | (1,187) | 4,190 | 3,762 | 5,215 |
| Research and development expenses | 4,159 | 3,522 | 12,386 | 11,485 |
| Selling, general and administrative expenses | 6,509 | 8,772 | 21,532 | 32,913 |
| Severance and other expenses | -- | (332) | (711) | 6,393 |
| Debt refinancing costs | 426 | -- | 3,926 | -- |
| Flood-related costs (net of insurance recoveries) | 3,647 | -- | (5,186) | -- |
| Loss from operations | (15,928) | (7,772) | (28,185) | (45,576) |
| Other (expense) income, net | (453) | 263 | 373 | 1,657 |
| Gain on extinguishment of long-term debt | 5,897 | -- | 5,897 | 5,467 |
| Interest Income | 28 | 17 | 92 | 114 |
| Interest expense | (3,970) | (3,562) | (12,535) | (11,011) |
| Gain on short- and long-term investments | 537 | 118 | 567 | 978 |
| Loss before income taxes | (13,889) | (10,936) | (33,791) | (48,371) |
| Provision for income taxes | 1 | 4 | 120 | 1 |
| Net loss | $ (13,890) | $ (10,940) | $ (33,911) | $ (48,372) |
| Basic loss per share | $ (0.59) | $ (0.47) | $ (1.45) | $ (2.07) |
| Diluted loss per share | $ (0.59) | $ (0.47) | $ (1.45) | $ (2.07) |
| Weighted-average common shares outstanding | 23,575 | 23,379 | 23,460 | 23,375 |
| Weighted-average diluted shares outstanding | 23,575 | 23,379 | 23,460 | 23,375 |
| Hutchinson Technology Incorporated | ||
| Condensed Consolidated Balance Sheets - Unaudited | ||
| (In thousands, except shares data) | ||
| June 24, | September 25, | |
| 2012 | 2011 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 60,458 | $ 57,554 |
| Short-term investments - restricted | 1,200 | 1,612 |
| Trade receivables, net | 23,544 | 44,998 |
| Other receivables | 7,146 | 7,064 |
| Inventories | 45,127 | 55,018 |
| Other current assets | 3,288 | 4,312 |
| Total current assets | 140,763 | 170,558 |
| Property, plant and equipment, net | 208,413 | 223,134 |
| Other assets | 5,344 | 7,313 |
| $ 354,520 | $ 401,005 | |
| LIABILITIES AND SHAREHOLDERS' INVESTMENT | ||
| Current liabilities: | ||
| Current maturities of long-term debt | $ 11,548 | $ 10,681 |
| Accounts payable | 16,104 | 18,373 |
| Accrued expenses | 7,806 | 7,759 |
| Accrued compensation | 11,449 | 12,431 |
| Total current liabilities | 46,907 | 49,244 |
| Convertible notes, net of discount | 124,419 | 144,159 |
| Other long-term liabilities | 1,275 | 1,280 |
| Shareholders' investment: | ||
| Common stock $.01 par value, 100,000,000 shares authorized, 23,868,000 and 23,387,000 issued and outstanding | 239 | 234 |
| Additional paid-in capital | 429,959 | 419,984 |
| Accumulated other comprehensive (loss) income | (282) | 190 |
| Accumulated loss | (247,997) | (214,086) |
| Total shareholders' investment | 181,919 | 206,322 |
| $ 354,520 | $ 401,005 | |
| Hutchinson Technology Incorporated | ||
| Condensed Consolidated Statements of Cash Flows - Unaudited | ||
| (Dollars in thousands) | ||
| Thirty-Nine Weeks Ended | ||
| June 24, | June 26, | |
| 2012 | 2011 | |
| Operating activities: | ||
| Net loss | $ (33,911) | $ (48,372) |
| Adjustments to reconcile net loss to cash provided by (used for) operating activities: | ||
| Depreciation and amortization | 29,378 | 37,658 |
| Stock-based compensation | 1,492 | 1,946 |
| Gain on short- and long-term investments | (567) | (978) |
| Loss on disposal of assets | 388 | 788 |
| Asset impairment charge | 8,451 | -- |
| Non-cash interest expense | 4,485 | 5,891 |
| Gain on extinguishment of debt | (5,897) | (5,467) |
| Severance and other expenses | (1,741) | 2,420 |
| Changes in operating assets and liabilities | 33,531 | (1,811) |
| Cash provided by (used for) operating activities | 35,609 | (7,925) |
| Investing activities: | ||
| Capital expenditures | (21,595) | (9,542) |
| Change in restricted cash | (16) | -- |
| Purchases of marketable securities | (2,813) | (12,412) |
| Sales / maturities of marketable securities | 3,791 | 60,468 |
| Cash (used for) provided by investing activities | (20,633) | 38,514 |
| Financing activities: | ||
| Repayments of revolving credit line | (225,745) | -- |
| Proceeds from revolving credit line | 215,336 | -- |
| Repayments of debt | (37,137) | (31,194) |
| Proceeds from private placement of debt | 39,400 | -- |
| Debt refinancing costs | (3,926) | (1,721) |
| Cash used for financing activities | (12,072) | (32,915) |
| Net increase (decrease) in cash and cash equivalents | 2,904 | (2,326) |
| Cash and cash equivalents at beginning of period | 57,554 | 55,639 |
| Cash and cash equivalents at end of period | $ 60,458 | $ 53,313 |
| Hutchinson Technology Incorporated | ||||
| Earnings Per Share Calculation - Unaudited | ||||
| (In thousands, except per share data) | ||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||
| June 24, | June 26, | June 24, | June 26, | |
| 2012 | 2011 | 2012 | 2011 | |
| Net loss (A) | $ (13,890) | $ (10,940) | $ (33,911) | $ (48,372) |
| Weighted average common shares outstanding (B) | 23,575 | 23,379 | 23,460 | 23,375 |
| Dilutive potential common shares | -- | -- | -- | -- |
| Weighted average common and diluted shares outstanding (C) | 23,575 | 23,379 | 23,460 | 23,375 |
| Basic loss per share [(A)/(B)] | $ (0.59) | $ (0.47) | $ (1.45) | $ (2.07) |
| Diluted loss per share [(A)/(C)] | $ (0.59) | $ (0.47) | $ (1.45) | $ (2.07) |
| Hutchinson Technology Incorporated | |||
| Reconciliation of Non-GAAP to GAAP Financial Measures - Unaudited | |||
| (In thousands, except per share data) | |||
| Thirteen Weeks Ended | |||
| June 24, | March 25, | June 26, | |
| 2012 | 2012 | 2011 | |
| Net loss - GAAP | $ (13,890) | $ (7,545) | $ (10,940) |
| Add flood-related costs | 3,647 | 2,440 | -- |
| Subtract flood insurance recoveries | -- | (11,273) | -- |
| Subtract severance and other expenses | -- | -- | (332) |
| Add debt refinancing costs | 426 | 3,500 | -- |
| Subtract gain on extinguishment of debt | (5,897) | -- | -- |
| Add accelerated depreciation | -- | -- | 2,376 |
| Add non-cash interest expenses | 1,095 | 1,718 | 1,668 |
| Net loss - Adjusted | $ (14,619) | $ (11,160) | $ (7,228) |
| Net loss per common share – GAAP: | |||
| Basic loss per share | $ (0.59) | $ (0.32) | $ (0.47) |
| Diluted loss per share | $ (0.59) | $ (0.32) | $ (0.47) |
| Net loss per common share – Adjusted: | |||
| Basic loss per share | $ (0.62) | $ (0.48) | $ (0.31) |
| Diluted loss per share | $ (0.62) | $ (0.48) | $ (0.31) |
| Weighted average common and common equivalent shares outstanding: | |||
| Basic | 23,575 | 23,402 | 23,379 |
| Diluted | 23,575 | 23,402 | 23,379 |
| Net income per common share basic and diluted, is calculated by dividing net income by weighted average common and common equivalent shares outstanding basic and diluted, respectively. | |||