HUTCHINSON, Minn., July 27, 2010 (GLOBE NEWSWIRE) -- Hutchinson Technology Incorporated (Nasdaq:HTCH) today reported a net loss of $18.5 million, or $0.79 per share, on net sales of $77.3 million for its fiscal third quarter ended June 27, 2010. In the preceding quarter, the company reported a net loss of $15.6 million, or $0.67 per share, on net sales of $87.6 million. Gross profit in the quarter was $4.9 million, or 6 percent of net sales, compared with $7.3 million, or 8 percent of net sales, in the preceding quarter. Results for the fiscal 2010 third quarter included $2.3 million of non-recurring asset write-downs in the BioMeasurement Division. Results for both the fiscal 2010 third quarter and the preceding quarter included non-cash interest expense of $2.1 million resulting from the company's adoption, at the beginning of fiscal 2010, of Financial Accounting Standards Board guidance for accounting for convertible debt instruments.

Wayne M. Fortun, Hutchinson Technology's president and chief executive officer, said that the company's shipments declined 11 percent sequentially primarily due to reductions in disk drive makers' production plans. In addition, the company lost volume due to a defect on some of its TSA+ product. "The defect that we encountered late in the quarter prevented share gains we expected to achieve," said Fortun. "We have now contained the defect and identified the cause, and we are implementing and validating the solutions. Our TSA+ production process is complex and requires persistent focus on improving reliability and yields. We acted quickly to address this latest challenge, and we continue to ship TSA+ suspensions in volume."

Fortun said the company is taking actions to further reduce costs and preserve cash, targeting annualized cost reductions of approximately $25 million by the end of fiscal 2010. "In our BioMeasurement Division, we will reduce costs by approximately $12 million in light of slower than expected revenue growth," said Fortun. "In our Disk Drive Components Division, we will reduce costs by approximately $8 million, while keeping intact capabilities that are core to our competitive position. We will also reduce our corporate expenses by approximately $5 million." The company estimates that its financial results for its fiscal 2010 fourth quarter will include approximately $4 million of severance charges related to these actions.

Fortun said that in addition to reducing the operating loss in the BioMeasurement Division, the company's path to profitability includes increasing revenue through overall suspension assembly market growth and higher market share, improving TSA+ production efficiency and establishing operations in Thailand.

Cash flow from operations in the fiscal 2010 third quarter totaled $2.9 million and capital expenditures totaled $10.9 million. The company has reduced its capital spending plans for fiscal 2010 from $50 million to $40 million. During the quarter, the company sold $20.5 million of auction rate securities at par value, and the full proceeds were applied to the loan that was previously obtained against these securities. The company's cash and investments balance at the end of the quarter totaled $168 million.

Subsequent to the end of the fiscal 2010 third quarter, the remaining $44.6 million of auction rate securities held by the company were put back to UBS at par value, under the terms of a previous agreement. The remaining $34 million balance on the loan obtained against these securities was repaid, reducing both the company's cash and investments balance and its current debt by $34 million.

Disk Drive Components Division

The company shipped approximately 117 million suspension assemblies in the fiscal 2010 third quarter, down from 130 million in the preceding quarter and 146 million in the fiscal 2009 third quarter. Shipments of suspension assemblies for 3.5-inch ATA applications increased slightly while shipments for the enterprise and mobile segments declined compared with the preceding quarter. The pricing environment continues to be competitive, and the company's average selling price declined one cent from the preceding quarter to 65 cents. Average selling price in the fiscal 2009 third quarter was 71 cents.

The company shipped approximately 33 million TSA+ suspension assemblies in the fiscal 2010 third quarter, up from 20 million in the preceding quarter and 10 million in last year's third quarter. Kathleen Skarvan, president of the Disk Drive Components Division, said that a defect on some of its TSA+ product resulted in lost volume at the end of the fiscal 2010 third quarter and will negatively impact volume in the company's fourth quarter as well. The company reduced the cost burden of TSA+ flexure production from $7.9 million in the preceding quarter to $7.5 million in the fiscal 2010 third quarter as cost per part declined by approximately 13 percent. Skarvan said that TSA+ suspension assemblies will continue to grow as a percentage of the company's product mix. However, due to a yield setback associated with the TSA+ product defect, the company is now targeting elimination of the TSA+ cost burden in the first half of fiscal 2011.

Construction of the company's assembly facility in Thailand is scheduled to be complete in August and equipment installation will begin thereafter. "We expect to ship products for customer qualification from our Thailand facility early in fiscal 2011," said Skarvan.

Regarding the outlook for suspension assembly demand, Skarvan said the company currently expects its fiscal 2010 fourth quarter shipments to decline 5 to 10 percent compared with the third quarter as a result of share losses with certain customers. "While it will take longer than we previously expected to regain market share, we believe that our strategic investments in our TSA+ process capabilities and our assembly operation in Thailand will further lower our costs and strengthen our competitive position," said Skarvan.

BioMeasurement Division

Net sales for the BioMeasurement Division in the fiscal 2010 third quarter totaled $536,000 compared with $687,000 in the preceding quarter and $408,000 in last year's third quarter. Monitor sales were relatively flat on both a year-over-year and a sequential basis. Sensor sales nearly doubled year-over-year, but declined on a sequential basis in the company's third quarter. The installed base of monitors now totals more than 300 across 131 customers compared with 280 at 120 customers at the end of the preceding quarter. The company now expects fiscal 2010 BioMeasurement Division sales to reach about $2.5 million compared with $1.8 million in fiscal 2009.

"In light of slower sales growth, we are significantly reducing the division's cost structure," said Rick Penn, president of the BioMeasurement Division. "We will focus primarily on the customers, applications and geographic markets where we have the most momentum, which will enable us to reduce our sales force and our spending in other areas."

"We have proven that measurement of StO2 can identify problems that other vital signs cannot, and we are making progress in expanding use of our InSpectra(TM) StO2 system in the trauma and emergency departments and surgical intensive care unit," said Penn. "We believe that the potential for the InSpectra StO2 system merits our continued investment."

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, July 27. Individual investors and news media may participate in the conference call live via the webcast. The webcast 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 leading worldwide supplier of suspension assemblies for disk drives. The company's BioMeasurement Division is focused on bringing to the market new technologies and products 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 regarding demand for and shipments of the company's products, production capability and costs, assembly operations in Thailand, product commercialization and adoption, capital expenditures, cost reductions, operating performance and financial results. 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, 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 establish an assembly operation in Asia, 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 27, June 28, June 27, June 28,
  2010 2009 2010 2009
         
Net sales  $ 77,293  $ 106,105  $ 273,163  $ 304,780
         
Cost of sales 72,386 104,128 240,164 314,710
         
Gross profit (loss) 4,907 1,977 32,999 (9,930)
         
Research and development expenses 5,553 5,723 16,136 22,060
         
Selling, general and administrative expenses 14,686 13,302 40,386 44,652
         
Severance and other expenses  --  4,894  --  29,208
         
Asset impairment charge  --   20,841  --   71,809
         
Loss from operations (15,332) (42,783) (23,523) (177,659)
         
Interest expense (3,865) (5,033) (12,224) (15,109)
         
Interest Income 304 689 1,241 2,876
         
Gain on debt extinguishment  --   1,923  6  14,098
         
Gain (loss) on short- and long-term investments 37 224 (319) 4,134
         
Other income, net 437 432 1,257 1,042
         
Loss before income taxes (18,419) (44,548) (33,562) (170,618)
         
Provision (benefit) for income taxes 81 (215) (1,692) (154)
         
Net loss  $ (18,500)  $ (44,333)  $ (31,870)  $ (170,464)
         
Basic loss per share  $ (0.79)  $ (1.90)  $ (1.36)  $ (7.36)
         
Diluted loss per share  $ (0.79)  $ (1.90)  $ (1.36)  $ (7.36)
         
Weighted-average common shares outstanding 23,362 23,346 23,360 23,167
         
Weighted-average common and diluted shares outstanding 23,362 23,346 23,360 23,167
     
Hutchinson Technology Incorporated
Condensed Consolidated Balance Sheets - Unaudited
(In thousands, except shares data)
    June 27,   September 27,
ASSETS 2010 2009
Current assets:    
Cash and cash equivalents  $ 53,596  $ 106,391
Short-term investments 114,336 96,316
Trade receivables, net 46,051 63,448
Other receivables 7,845 8,445
Inventories 55,620 46,878
Other current assets 2,602 4,932
Total current assets 280,050 326,410
Long-term investments  --   24,316
Property, plant and equipment, net 261,139 279,336
Other assets 4,635 5,425
   $ 545,824  $ 635,487
     
LIABILITIES AND SHAREHOLDERS' INVESTMENT    
Current liabilities:    
Current maturities of long-term debt  $ 35,224  $ 102,804
Accounts payable 21,491 17,536
Accrued expenses 9,873 11,183
Accrued compensation 14,326 13,139
Total current liabilities 80,914 144,662
Long-term debt, less current maturities  --  946
Convertible subordinated notes 172,755 166,464
Other long-term liabilities 1,165 1,705
Shareholders' investment:    
Common stock $.01 par value, 100,000,000 shares authorized, 23,362,000 and 23,359,000 issued and outstanding 234 234
Additional paid-in capital 421,638 418,572
Accumulated other comprehensive income 587 2,503
Accumulated loss (131,469) (99,599)
Total shareholders' investment 290,990 321,710
   $ 545,824  $ 635,487
 
Hutchinson Technology Incorporated
Condensed Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
     
  Thirty-Nine Weeks Ended
  June 27, June 28,
  2010 2009
Operating activities:    
Net loss  $ (31,870)  $ (170,464)
Adjustments to reconcile net loss to cash provided by operating activities:    
Depreciation and amortization 41,457 61,515
Stock-based compensation 3,039 4,054
Benefit for deferred taxes  --  (67)
Non-cash interest expense 6,290 6,570
Loss (gain) on short- and long-term investments 319 (4,134)
Impairment of assets  2,294 71,669
Loss (gain) on disposal of assets 11 (355)
Severance and other expenses  --  2,155
Gain on extinguishment of debt (6) (14,098)
Changes in operating assets and liabilities 12,696 55,339
 Cash provided by operating activities 34,230 12,184
     
Investing activities:    
Capital expenditures (22,690) (18,728)
Purchases of marketable securities (71,739) (19,783)
Sales/maturities of marketable securities 75,811 124,663
 Cash (used for) provided by investing activities (18,618) 86,152
     
Financing activities:    
Repayment of long-term debt  (68,513)  (71,910)
Repayment of capital lease  79  -- 
Net proceeds from issuance of common stock  27 1,458
Net proceeds from loan  --  59,161
 Cash used for financing activities (68,407) (11,291)
     
Net (decrease) increase in cash and cash equivalents (52,795) 87,045
     
Cash and cash equivalents at beginning of period 106,391 62,309
     
Cash and cash equivalents at end of period  $ 53,596  $ 149,354
 
Hutchinson Technology Incorporated
Earnings Per Share Calculation - Unaudited
(In thousands, except per share data)
         
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  June 27, June 28, June 27, June 28,
  2010 2009 2010 2009
         
Net loss (A)  $ (18,500)  $ (44,333)  $ (31,870)  $ (170,464)
Plus: interest expense on convertible subordinated notes  --   --   --   -- 
Less: additional profit sharing expense and income tax provision  --   --   --   -- 
Net loss available to common shareholders (B)  $ (18,500)  $ (44,333)  $ (31,870)  $ (170,464)
         
Weighted average common shares outstanding (C) 23,362 23,346 23,360 23,167
Dilutive potential common shares  --   --   --   -- 
Weighted average common and diluted shares outstanding (D) 23,362 23,346 23,360 23,167
         
Basic loss per share [(A)/(C)]  $ (0.79)  $ (1.90)  $ (1.36)  $ (7.36)
Diluted loss per share [(B)/(D)]  $ (0.79)  $ (1.90)  $ (1.36)  $ (7.36)
CONTACT:  Hutchinson Technology Inc.          INVESTOR CONTACT:          Chuck Ives            320-587-1605          MEDIA CONTACT:          Connie Pautz            320-587-1823

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