updated 4/26/2011 4:17:45 PM ET 2011-04-26T20:17:45

Actions Will Improve Cost Structure and Competitive Position

Non-GAAP Net Loss Totals $0.71 Per Share

HUTCHINSON, Minn., April 26, 2011 (GLOBE NEWSWIRE) -- Hutchinson Technology Incorporated (Nasdaq:HTCH) today reported a net loss of $20.5 million, or $0.88 per share, on net sales of $63.3 million for its fiscal second quarter ended March 27, 2011. The net loss for the quarter included:

  • Severance costs of $6.7 million and accelerated depreciation of $0.7 million related to the previously announced manufacturing consolidation and restructuring plan;
  • A gain on debt extinguishment of $5.5 million related to a tender/exchange offer that was completed in February 2011 for $75.3 million of the company's 3.25% Convertible Subordinated Notes due 2026; and
  • Non-cash interest expense of $2.0 million resulting primarily from the company's adoption, at the beginning of fiscal 2010, of Financial Accounting Standards Board guidance for accounting for convertible debt instruments.

Excluding these items, the company's net loss for its fiscal second quarter totaled $16.5 million, or $0.71 per share.

In the preceding quarter, the company reported a net loss of $17.0 million, or $0.73 per share, on net sales of $68.2 million. Excluding non-cash interest expense of $2.2 million, the company's net loss was $14.7 million, or $0.63 per share.

Wayne Fortun, Hutchinson Technology's president and chief executive officer, said that the company's overall cost position will improve as a result of its consolidation and restructuring plan. The consolidation of the company's TSA+ and photoetch operations into its Wisconsin site and the transition of assembly operations to its Thailand site will improve the utilization of its high-volume manufacturing locations and support infrastructure. As part of the restructuring plan, Fortun said the company is also taking actions to resize the company and further reduce costs in its BioMeasurement Division. As a result of the consolidation and restructuring effort that is taking place over the next 9 months, the company expects to reduce its costs by $50 million to $55 million on an annualized basis by the start of the fiscal 2012 second quarter.

"The favorable yield and output trends for our TSA+ products, steadily higher volume at our Thailand assembly operations and benefits from our consolidation and restructuring plans will improve our cost structure and competitive position," said Fortun.   "These changes will also help us become the lowest cost manufacturer of suspension assemblies and return to positive cash flow and profitability."

In line with the company's previously revised guidance, second quarter suspension assembly shipments declined 4 percent compared with the preceding quarter as a result of customers' reduced production plans. The company shipped 102.3 million suspension assemblies in the fiscal 2011 second quarter, compared with 106.5 million in the preceding quarter. Shipments of TSA+ suspension assemblies accounted for 53 percent of fiscal 2011 second quarter shipments, up from 45 percent in the preceding quarter. 

Average selling price in the fiscal 2011 second quarter was $0.60 compared with $0.62 in the preceding quarter. The sequential quarter decline in average selling price resulted from the continuation of a competitive pricing environment as well as a shift in product mix, as shipments for 3.5-inch ATA applications increased while shipments for mobile and enterprise applications decreased.  

The company's fiscal 2011 second quarter gross loss was $2.3 million, compared with a gross profit of $3.3 million in the preceding quarter. The decline resulted from the lower net sales in the quarter and the inclusion of manufacturing expenses from its Thailand assembly operations in cost of goods sold that, in previous quarters, were treated as startup costs in selling, general and administrative expenses.

TSA+ cost per part further declined as TSA+ yields and output continued to improve. "Our TSA+ process is performing well, and our overall cost per part will decrease further as our product mix continues to transition from subtractive TSA suspensions to additive TSA+ suspensions and as our TSA+ process efficiency and capacity utilization improves," said Rick Penn, president of the Disk Drive Components Division. The company currently expects TSA+ suspension assemblies to account for two-thirds or more of its shipments by the end of the fiscal year. 

In the fiscal 2011 second quarter, cash used by operations totaled $5.4 million and capital expenditures totaled $2.7 million. Cash and investments at quarter end totaled $61.7 million compared with $101.2 million at the end of the preceding quarter. The company used $31.2 million in cash and issued $40 million of 8.50% Convertible Senior Notes due 2026 to complete a tender/exchange offer for $75.3 million of the company's 3.25% Convertible Subordinated Notes due 2026. "The tender/exchange offer improved our financial flexibility by extending the first put date on a portion of our convertible debt and reduced our overall debt balance," said Dave Radloff, chief financial officer.

The company is not currently experiencing any components or materials shortages for its own operations as a result of events in Japan. However, the full impact of the Japan earthquake continues to be evaluated, and sales of hard disk drives could be affected by disruptions in the hard disk drive or PC supply chain. The company currently expects its suspension assembly shipments in the fiscal third quarter to be relatively flat compared with its second quarter. Beginning in the fiscal 2011 fourth quarter, the company expects its market share to increase modestly as a new hard disk drive program that the company is qualified on ramps to higher volume.

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 on Tuesday, April 26. 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 . 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 and the company's products, product mix, market position, production capability and costs, assembly operations in Thailand, manufacturing consolidation and restructuring, cost reductions, operating performance and financial results. Except as otherwise required by law, the company does not undertake to update its forward-looking statements for any reason. 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 ramp an assembly operation in Thailand, changes in the company's ability to consolidate operations and reduce costs and other factors described from time to time in the company's reports filed with the Securities and Exchange Commission.

[Financial Statements Follow]

Hutchinson Technology Incorporated
Condensed Consolidated Statements of Operations - Unaudited
(In thousands, except per share data)
         
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  March 27,

2011
March 28,

2010
March 27,

2011
March 28,

2010
         
         
Net sales  $ 63,281  $ 87,614  $ 131,525  $ 195,870
         
Cost of sales 65,579 80,299 130,499 167,778
         
Gross (loss) profit (2,298) 7,315 1,026 28,092
         
Research and development expenses 3,914 5,436 7,963 10,583
         
Selling, general and administrative expenses 10,507 13,199 24,141 25,700
         
Severance and other expenses  6,725  --   6,725  -- 
         
Loss from operations (23,444) (11,320) (37,803) (8,191)
         
Interest expense (3,605) (4,162) (7,449) (8,359)
         
Interest Income 42 528 97 937
         
Gain on extinguishment of debt  5,467  1  5,467  6
         
Gain (loss) on short- and long-term investments 496 (420) 860 (356)
         
Other income, net 562 262 1,393 820
         
Loss before income taxes (20,482) (15,111) (37,435) (15,143)
         
Provision (benefit) for income taxes  --  479 (3) (1,773)
         
Net loss  $ (20,482)  $ (15,590)  $ (37,432)  $ (13,370)
         
Basic loss per share  $ (0.88)  $ (0.67)  $ (1.60)  $ (0.57)
         
Diluted loss per share  $ (0.88)  $ (0.67)  $ (1.60)  $ (0.57)
         
Weighted-average common shares outstanding 23,375 23,360 23,373 23,359
         
Weighted-average common and diluted shares outstanding 23,375 23,360 23,373 23,359
 
Hutchinson Technology Incorporated
Condensed Consolidated Balance Sheets - Unaudited
(In thousands, except shares data)
     
  March 27,

2011
September 26,

2010
ASSETS    
Current assets:    
Cash and cash equivalents  $ 45,828  $ 55,639
Short-term investments 15,825 48,899
Trade receivables, net 35,781 47,629
Other receivables 7,832 7,849
Inventories 57,421 53,568
Other current assets 1,263 2,353
Total current assets 163,950 215,937
Property, plant and equipment, net 240,325 258,233
Other assets 5,892 5,542
   $ 410,167  $ 479,712
LIABILITIES AND SHAREHOLDERS' INVESTMENT    
Current liabilities:    
Current maturities of long-term debt  $ 463  $ 1,280
Accounts payable 9,313 15,788
Accrued expenses 6,869 8,593
Accrued compensation 19,949 12,911
Total current liabilities 36,594 38,572
Long-term debt, less current maturities 107 271
Convertible subordinated notes 146,470 174,920
Other long-term liabilities 1,850 1,271
Shareholders' investment:    
Common stock $.01 par value, 100,000,000 shares authorized, 23,379,000 and 23,371,000 issued and outstanding 234 234
Additional paid-in capital 420,079 422,089
Accumulated other comprehensive income 786 876
Accumulated loss (195,953) (158,521)
Total shareholders' investment 225,146 264,678
   $ 410,167  $ 479,712
 
Hutchinson Technology Incorporated
Condensed Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
     
  Twenty-Six Weeks Ended
  March 27,

2011
March 28,

2010
Operating activities:    
Net loss  $ (37,432)  $ (13,370)
Adjustments to reconcile net loss to cash (used for) provided by operating activities:    
Depreciation and amortization 24,596 28,113
Stock-based compensation 1,361 2,031
Non-cash interest expense 4,223 4,171
(Gain) loss on short- and long-term investments (860) 356
Loss on disposal of assets 384 148
Severance and other expenses  6,647  -- 
Gain on extinguishment of debt (5,467) (6)
Changes in operating assets and liabilities 2,548 9,913
Cash (used for) provided by operating activities (4,000) 31,356
     
Investing activities:    
Capital expenditures (7,393) (11,785)
Purchases of marketable securities (10,800) (23,618)
Sales / maturities of marketable securities 44,548 41,633
Cash provided by investing activities 26,355 6,230
     
Financing activities:    
Repayment of long-term debt  (30,981)  (47,477)
Debt issuance costs  (1,185)  -- 
Cash used for financing activities (32,166) (47,477)
     
Net decrease in cash and cash equivalents (9,811) (9,891)
     
Cash and cash equivalents at beginning of period 55,639 106,391
     
Cash and cash equivalents at end of period  $ 45,828  $ 96,500
 
Hutchinson Technology Incorporated
Earnings Per Share Calculation - Unaudited
(In thousands, except per share data)
         
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  March 27,

2011
March 28,

2010
March 27,

2011
March 28,

2010
         
Net loss (A)  $ (20,482)  $ (15,590)  $ (37,432)  $ (13,370)
Plus: interest expense on convertible subordinated notes  --   --   --   -- 
Less: additional profit sharing expense and income tax provision  --   --   --   -- 
Net loss available to common shareholders (B)  $ (20,482)  $ (15,590)  $ (37,432)  $ (13,370)
         
Weighted average common shares outstanding (C) 23,375 23,360 23,373 23,359
Dilutive potential common shares  --   --   --   -- 
Weighted average common and diluted shares outstanding (D) 23,375 23,360 23,373 23,359
         
Basic loss per share [(A)/(C)]  $ (0.88)  $ (0.67)  $ (1.60)  $ (0.57)
Diluted loss per share [(B)/(D)]  $ (0.88)  $ (0.67)  $ (1.60)  $ (0.57)
 
Hutchinson Technology Incorporated
Reconciliation of Non-GAAP to GAAP Financial Measures - Unaudited
(In thousands, except per share data)
       
  Thirteen Weeks Ended
  March 27,

2011
December 26,

2010
March 28,

2010
       
Net loss - GAAP  $ (20,482)  $ (16,950)  $ (15,590)
Add severance expenses  6,725  --  --
Add accelerated depreciation  724  --  --
Subtract gain on extinguishment of debt  (5,467)  --  (1)
Add non-cash interest expenses  1,985  2,238  2,120
Net loss - Adjusted  $ (16,515)  $ (14,712)  $ (13,471)
       
Net loss per common share – Adjusted:      
       
Basic loss per share  $ (0.71)  $ (0.63)  $ (0.58)
Diluted loss per share  $ (0.71)  $ (0.63)  $ (0.58)
       
Weighted average common and common equivalent shares outstanding:      
       
Basic 23,375 23,371 23,360
Diluted 23,375 23,371 23,360
       
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.
CONTACT: INVESTOR CONTACT:
         Chuck Ives
         Hutchinson Technology Inc.
         320-587-1605
         
         MEDIA CONTACT:
         Connie Pautz
         Hutchinson Technology Inc.
         320-587-1823

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