<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____ to _____
COMMISSION FILE NUMBER:
HMT TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3084354
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1055 PAGE AVENUE, FREMONT, CA 94538
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (510) 490-3100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
___ ___
As of June 30, 1996, 40,297,929 shares of the registrant's common stock, par
value $0.001 per share, which is the only class of common stock of the
registrant, were outstanding.
1
<PAGE> 2
HMT TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 and March 31, 1996............ 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1995........................................ 4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1996 and 1995........................................ 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations.............................................. 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 10
Signatures.......................................................................... 11
</TABLE>
2
<PAGE> 3
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
-------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 43,175 $ 35,843
Receivables, net ........................................... 40,638 31,427
Inventories ................................................ 11,016 7,129
Deposits, prepaid expenses and other assets ................ 835 879
Deferred income taxes ...................................... 5,028 5,028
-------- --------
Total current assets ............................... 100,692 80,306
Property, plant and equipment, net ........................... 93,483 79,128
Other assets ................................................. 1,355 1,415
Deferred income taxes ........................................ 4,937 4,937
-------- --------
Total assets ....................................... $200,467 $165,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 12,900 $ 13,911
Accrued liabilities ........................................ $ 24,415 $ 16,682
Obligations under capital leases -- current portion ........ 3,385 3,814
-------- --------
Total current liabilities .......................... 40,700 34,407
Subordinated promissory notes payable to stockholders ........ 47,000 47,000
Obligations under capital leases, net of current portion ..... 4,114 4,698
Long-term notes payable, net of current portion -- --
-------- --------
Total liabilities .................................. 91,814 86,105
Commitments
Mandatorily Redeemable Series A Preferred Stock .............. 61,040 60,157
Common Stock ................................................. 41 39
Additional paid-in capital ................................... 90,105 77,913
Retained earnings ............................................ 34,116 18,221
Distribution in excess of basis .............................. (76,649) (76,649)
-------- --------
Total stockholders' equity .............................. 47,613 19,524
-------- --------
Total liabilities and stockholders' equity ......... $200,467 $165,786
======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- ------
(Unaudited)
<S> <C> <C>
Net sales................................................................. $76,420 $28,589
Cost of sales............................................................. 44,014 21,971
------- ------
Gross profit............................................................ 32,406 6,618
Operating expenses:
Research and development................................................ 1,260 788
Selling, general and administrative..................................... 3,036 1,401
------- ------
Total operating expenses............................................. 4,296 2,189
------- ------
Operating income................................................ 28,110 4,429
Interest expense and other, net........................................... 1,048 1,739
------- ------
Income before income tax provision....................................... 27,062 2,690
Income tax provision, net................................................. 10,284 123
------- ------
Net income........................................................... $16,778 $2,567
Accretion for dividends on Mandatorily Redeemable Series A
Preferred Stock......................................................... (883) --
------- ------
Net income available for common stockholders.............................. $15,895 $2,567
------- ------
Net income available for common
stockholders per share................................................... $0.36 $0.07
------- ------
Shares used in computing per share amounts................................ 44,015 34,822
------- ------
</TABLE>
See accompanying notes
4
<PAGE> 5
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 16,778 $ 2,567
Adjustments to reconcile net income to net
cash used in operations:
Depreciation and amortization ................ 4,411 3,749
Loss on disposal of assets ................... 2,988 --
Changes in operating assets and liabilities:
Receivables ................................ (9,211) (9,028)
Inventories ................................ (3,887) 1,225
Deposits, prepaid expenses and other assets 44 1,208
Accounts payable ........................... (1,011) 1,083
Accrued liabilities ........................ 7,733 1,513
-------- -------
Net cash provided by operating
activities ............................ 17,845 2,317
-------- -------
Cash flows from investing activities:
Expenditures for property, plant and equipment .. (21,741) (3,893)
Decrease (increase) in other assets ............. 47 (47)
-------- -------
Net cash used in investing activities ...... (21,694) (3,940)
-------- -------
Cash flows from financing activities:
Principal payments on obligations under capital
leases ....................................... (1,013) (2,483)
Net proceeds from short-term
borrowings ................................... -- 4,200
Proceeds from issuance of Common Stock .......... 12,194 --
-------- -------
Net cash provided by financing
activities ............................ 11,181 1,717
-------- -------
Net increase in cash and cash equivalents ......... 7,332 94
Cash and cash equivalents at beginning of period .. 35,843 878
-------- -------
Cash and cash equivalents at end of period ........ $ 43,175 $ 972
-------- -------
Supplemental disclosure of cash flow information:
Cash paid for interest during the period ........ $ 1,564 $ 1,887
Cash paid for income taxes during the period .... $ 5,000 $ --
Supplemental disclosure of noncash investing and
financing activities:
Accretion for dividends on mandatorily redeemable
Series A Preferred Stock ..................... $ 883 $ --
</TABLE>
See accompanying notes
5
<PAGE> 6
HMT TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company without audit in accordance with generally accepted accounting
principles for interim financial information and pursuant to rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair representation have been included. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
Operating results for the quarter ended June 30, 1996 may not necessarily be
indicative of the results to be expected for any other interim period or for the
full year.
Fiscal Year
The Company uses a 52-week fiscal year ending on March 31 and thirteen- to
fourteen-week quarters that end on the Sunday closest to the calendar quarter
end.
Stock Split
The Company's Board of Directors effected a 31-for-1 stock split on March
13, 1996. All shares and per share data in the accompanying financial statements
have been retroactively restated to reflect the stock split.
Inventories
Inventories are stated at the lower of cost or market, and are reported net
of reserves. Cost is determined using the first-in, first-out basis.
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------- ---------
1996 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................................... $4,915 $1,284
Work-in-process............................................................. 4,097 5,123
Finished goods.............................................................. 2,004 722
------- ------
$11,016 $7,129
======= ======
</TABLE>
6
<PAGE> 7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Discussion contains forward looking statements, which are subject to
certain risks and uncertainties, including without limitation those described in
the Company's Annual Report on Form 10-K, which has been filed with the
Securities and Exchange Commission. Actual results may differ materially
OVERVIEW
HMT Technology Corporation is an independent supplier of high-performance
thin film disks for high-end, high-capacity hard disk drives, which in turn are
used in high-end PCs, network servers and workstations. HMT was incorporated in
1988 as a subsidiary of Hitachi Metals for the purpose of acquiring certain
assets and certain liabilities of the thin film division of Xidex Corporation,
which had been producing thin film disks since 1983. Since completing the
acquisition, the Company has continued to supply thin film disks to
manufacturers of hard disk drives. On November 30, 1995, the Company effected
the Leveraged Recapitalization pursuant to which the Company repurchased from
Hitachi Metals all of the outstanding shares of Common Stock of the Company, and
certain investment funds, members of management and Hitachi Metals purchased
Common Stock, Series A Preferred Stock and Subordinated Notes. During March and
April 1996, the Company sold 9,660,000 shares of Common Stock at $10.00 per
share (including exercise of the underwriters' over-allotment option) through
its initial public offering. The net proceeds (after underwriter's discounts and
commissions and other costs associated with the initial public offering) totaled
$88.7 million.
The Company has recently begun construction on a new production facility at
its Fremont, California site. In addition, the Company recently acquired an
aluminum substrate manufacturing facility and related equipment located in
Eugene, Oregon, and has begun expansion of that facility.
The Company derives substantially all of its sales from the sale of thin
film disks to a small number of customers. Loss of or a reduction in orders from
one or more of the Company's customers could result in a substantial reduction
in net sales. Because many of the Company's expense levels are based, in part,
on its expectations as to future revenues, decreases in net sales may result in
a disproportionately greater negative impact on operating results. Due to the
rapid technological change and frequent development of new disk drive products,
it is common in the industry for the relative mix of customers and products to
change rapidly, even from quarter to quarter. At any one time the Company
typically supplies disks in volume for fewer than ten disk drive products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net Sales. Net sales were $76.4 million in the first quarter of fiscal 1997
compared with $28.6 million in first quarter of fiscal 1996, representing an
increase of 167.3%. The increase in net sales in the first quarter of fiscal
1997 was primarily attributable to an increase in manufacturing capacity and
improved utilization of existing capacity, improved manufacturing processes, and
increased yields, resulting in higher production volume and unit shipments.
Substantially all of the Company's net sales consist of products delivered to
customers in Asia, primarily foreign subsidiaries of U.S. companies.
Gross Profit (Loss). Gross margin was 42.4% in first quarter of fiscal 1997,
compared with 23.1% in the first quarter of fiscal 1996. The increase in gross
margin was primarily a result of decreased unit production costs, improved
utilization of manufacturing capacity, improved manufacturing processes,
increased yields and the absorption of fixed costs over higher unit production
volume effected by the refocusing of the strategy and operations of the Company.
7
<PAGE> 8
Operating Expenses. The Company's operating expenses were $4.3 million in
the first quarter of fiscal 1997 as compared to $2.2 million in the first
quarter of fiscal 1996. Research and development expenses were $1.3 million, or
1.6% of net sales, and $700,000, or 2.8% of net sales, respectively, over the
same periods. Research and development expenses increased in absolute dollars
due to an increase in headcount related to the Company's new product
introductions, but declined as percentage of net sales, primarily a result of
the substantial increase in net sales over the same period. Selling, general and
administrative expenses were $3.0 million, or 4.0% of net sales, in the first
quarter of fiscal 1997 compared with $1.4 million, or 4.9% of net sales, in the
first quarter of fiscal 1996. The increase in selling, general and
administrative expenses in absolute dollars reflected increased headcount
necessary to support higher production volume and unit shipments, while the
decline as a percentage of net sales primarily reflects the increase in net
sales over the same period.
The Company anticipates that operating expenses will continue to increase in
absolute dollars as headcount is increased to support new product introductions,
anticipated higher levels of production volume and unit shipments, as well as
the demands of administering a stand-alone public entity, although as a
percentage of net sales, operating expenses may fluctuate from period to period.
Provision for Income Taxes. The Company recorded an income tax provision of
$10.3 million in the first quarter of fiscal 1997, reflecting an effective tax
rate of approximately 38%. The income tax provision of $123,000 recorded during
the first quarter of fiscal 1996 was based upon state income taxes of Hitachi
Metals (the former parent company of HMT) allocated to the Company. Due to net
operating loss carryforwards, the Company required no federal income tax
provision during this period.
The Company's operating results historically have been, and may continue to
be, subject to significant quarterly and annual fluctuations. As a result, the
Company's operating results in any quarter may not be indicative of its future
performance. Factors affecting operating results include: market acceptance of
new products; timing of significant orders; changes in pricing by the Company or
its competitors; timing of product announcements by the Company, its customers
or its competitors; order cancellations, modifications and quantity adjustments
and shipment reschedulings; changes in product mix; manufacturing yields; the
level of utilization of the Company's production capacity; increases in
production and engineering costs associated with initial manufacture of new
products; and changes in the cost of or limitations on the availability of
materials. The impact of these and other factors on the Company's revenues and
operating results in any future period cannot be forecasted with certainty. The
Company's expense levels are based, in part, on its expectations as to future
revenues. Because the Company's sales are generally made pursuant to purchase
orders that are subject to cancellation, modification, quantity reduction or
rescheduling on short notice and without significant penalties, the Company's
backlog as of any particular date may not be indicative of sales for any future
period, and such changes could cause the Company's net sales to fall below
expected levels. If revenue levels are below expectations, operating results are
likely to be materially adversely affected. Net income, if any, and gross
margins may be disproportionately affected by a reduction in net sales because a
proportionately smaller amount of the Company's expenses varies with its
revenues.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had $43.2 million in cash and cash equivalents
as compared to $35.8 million at March 31, 1996. During the first quarter of
fiscal 1997, the Company financed its cash requirements primarily through cash
from operating and financing activities. The Company's operations provided net
cash of $17.8 million and $2.3 million for the first quarter of fiscal 1997 and
1996, respectively. Cash generated during the first quarter of fiscal 1997
reflected net income plus depreciation and amortization, as well as an increase
in liabilities, partially offset by increases in receivables and inventories.
Increased sales and improved margins contributed to the increase in positive
cash flow provided by operations during the most recent quarter.
The Company invested $21.7 million and $3.9 million in property, plant and
equipment during the first quarter of fiscal 1997 and 1996, respectively. During
May 1996, the Company purchased an
8
<PAGE> 9
aluminum substrate manufacturing facility and other related equipment in Eugene,
Oregon for approximately $4.8 million. The Company expects to spend in excess of
$150.0 million on capital expenditures directed toward expansion of production
capacity over the next twelve months, although there can be no assurance
regarding the timing and amounts of such expenditures.
Cash provided by financing activities for the first quarter of fiscal 1997
reflected the $12.2 million in cash generated from options exercised and the
sale of approximately 1.3 million shares of common stock pursuant to the
underwriters' over-allotment option in connection with the Company's initial
public offering.
As of June 30, 1996, the Company's principal sources of liquidity consisted
of cash and cash equivalents, and a $30.0 million revolving credit facility
under which there were no borrowings. At June 30, 1996, the Company had
indebtedness of $47.0 million in principal amount of Subordinated Notes payable
to existing stockholders that bear interest at 12.0% (increasing by 1% per year
commencing January 1, 1999) and begin to require annual payments of principal on
December 31, 2003. The Company also had outstanding $59.0 million of Series A
Preferred Stock. The revolving credit facility is secured by all of the
Company's assets.
The Company believes existing cash balances, cash generated from operations,
and funds available under its credit facilities, will provide adequate cash to
fund its operations for at least the next twelve months. While operating
activities are expected to provide cash in certain periods, continued expansion
of the Company's manufacturing capacity will require the Company to obtain
additional sources of financing. Additional sources of long-term liquidity could
include cash generated from operations and debt and equity financings. The
Company continues to have significant future obligations and expects that it
will require additional capital to support planned expansion of the Company's
manufacturing capacity and growth, if any. There can be no assurance that the
Company will be able to obtain alternative sources of financing on favorable
terms, if at all, at such time or times as the Company may require such capital.
9
<PAGE> 10
PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
11.1 Calculation of earnings per share.
(b) Reports on Form 8-K:
During the quarter ended March 31, 1996, there were no reports on Form
8-K filed by the Company.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMT TECHNOLOGY CORPORATION
(Registrant)
Date: August 1, 1996 BY: /s/ Peter S. Norris
---------------------- ---------------------
Peter S. Norris
Vice President and
Chief Financial Officer
Date: August 1, 1996 BY: /s/ Ronald L. Schauer
---------------------- -----------------------
Ronald L. Schauer
President and
Chief Executive Officer
11
<PAGE> 1
EXHIBIT 11.1
HMT TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------
1996 1995
---- ----
<S> <C> <C>
Primary and Fully Diluted:
Weighted average shares outstanding for the period.......... 39,965 29,656
Common equivalent shares pursuant to Staff Accounting
Bulletin No. 83............................................. -- 5,166
Dilutive options and warrants ............................. 4,050 --
------- -------
Shares used in computing per share amounts.................. 44,015 34,822
------- -------
Net income available for common
stockholders.............................................. $15,895 $ 2,567
------- -------
Net income available for common stockholders per share...... $ 0.36 $ .07
------- -------
</TABLE>
(1) Primary and fully diluted calculations are substantially the same
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001005967
<NAME> HMT TECHNOLOGY CORP.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,175
<SECURITIES> 0
<RECEIVABLES> 41,265
<ALLOWANCES> 627
<INVENTORY> 11,016
<CURRENT-ASSETS> 100,692
<PP&E> 138,664
<DEPRECIATION> 45,181
<TOTAL-ASSETS> 200,467
<CURRENT-LIABILITIES> 40,700
<BONDS> 0
61,040
0
<COMMON> 90,146
<OTHER-SE> (42,533)
<TOTAL-LIABILITY-AND-EQUITY> 47,613
<SALES> 76,420
<TOTAL-REVENUES> 76,420
<CGS> 44,014
<TOTAL-COSTS> 44,014
<OTHER-EXPENSES> 4,296
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 1,048
<INCOME-PRETAX> 27,062
<INCOME-TAX> 10,284
<INCOME-CONTINUING> 16,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,778
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
