<PAGE> 1
================================================================================
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
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: 000-27586
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 October 26, 1997, 42,658,949 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.
================================================================================
<PAGE> 2
HMT TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997
and March 31, 1997............................................3
Condensed Consolidated Statements of Operations for the
three and six month periods ended September 30,
1997 and 1996.................................................4
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1997 and 1996..................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 4. Submission of Matters to a Vote of Security Holders................10
Item 6. Exhibits and Reports on Form 8-K...................................11
Signatures.........................................................12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 38,460 $ 44,225
Short-term investments ................................................. -- 10,833
Receivables, net ....................................................... 51,420 35,794
Inventories ............................................................ 14,318 11,837
Deposits, prepaid expenses and other assets ............................ 880 474
Deferred income taxes .................................................. 6,532 6,532
--------- ---------
Total current assets ........................................... 111,610 109,695
Construction in progress ................................................. 64,147 76,433
Property, plant and equipment, net ....................................... 244,134 178,875
Other assets ............................................................. 7,986 8,386
--------- ---------
Total assets ................................................... $ 427,877 $ 373,389
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 15,559 $ 26,424
Accrued liabilities .................................................... 21,691 8,765
Obligations under capital leases -- current portion .................... 2,233 2,679
--------- ---------
Total current liabilities ...................................... 39,483 37,868
Long-term liabilities .................................................... 8,615 3,562
Convertible subordinated promissory notes ................................ 230,000 230,000
Obligations under capital leases, net of current portion ................. 2,008 3,172
Deferred tax liability, long-term ........................................ 3,345 3,345
--------- ---------
Total liabilities .............................................. 283,451 277,947
Common Stock ............................................................. 42 41
Additional paid-in capital ............................................... 106,632 92,084
Retained earnings ........................................................ 114,401 79,966
Distribution in excess of basis .......................................... (76,649) (76,649)
--------- ---------
Total stockholders' equity .......................................... 144,426 95,442
--------- ---------
Total liabilities and stockholders' equity ..................... $ 427,877 $ 373,389
========= =========
</TABLE>
See accompanying notes
<PAGE> 4
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------
1997 1996 1997 1996
-------------- ----------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ....................................... $ 90,446 $ 62,080 $ 167,283 $ 138,500
Cost of sales ................................... 55,750 35,363 103,229 79,377
--------- --------- --------- ---------
Gross profit .................................. 34,696 26,717 64,054 59,123
Operating expenses:
Research and development ...................... 2,280 1,405 4,182 2,665
Selling, general and administrative ........... 3,293 2,604 7,110 5,640
--------- --------- --------- ---------
Total operating expenses ................... 5,573 4,009 11,292 8,305
--------- --------- --------- ---------
Operating income ...................... 29,123 22,708 52,762 50,818
Interest expense and other, net ................. 1,888 1,365 3,572 2,413
--------- --------- --------- ---------
Income before income tax provision ............. 27,235 21,343 49,190 48,405
Income tax provision, net ....................... 8,171 3,842 14,757 14,126
--------- --------- --------- ---------
Net income ................................. $ 19,064 $ 17,501 $ 34,433 $ 34,279
Accretion for dividends on Mandatorily Redeemable
Series A Preferred Stock ...................... -- (896) -- (1,779)
--------- --------- --------- ---------
Net income available for common stockholders .... $ 19,064 $ 16,605 $ 34,433 $ 32,500
========= ========= ========= =========
Net income available for common
stockholders per share
Primary .................................... $ 0.43 $ 0.38 $ 0.77 $ 0.74
========= ========= ========= =========
Fully diluted .............................. $ 0.38 $ 0.38 $ 0.69 $ 0.74
========= ========= ========= =========
Shares used in computing per share amounts
Primary .................................... 44,796 44,205 44,459 44,110
========= ========= ========= =========
Fully diluted .............................. 54,538 44,205 54,172 44,110
========= ========= ========= =========
</TABLE>
See accompanying notes
<PAGE> 5
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 34,433 $ 34,279
Adjustments to reconcile net income to net
cash used in operations:
Depreciation and amortization ................ 17,696 9,433
Loss on disposal of assets ................... -- 2,988
Changes in operating assets and liabilities:
Receivables ................................ (15,626) (16,666)
Inventories ................................ (2,481) (7,495)
Deposits, prepaid expenses and other assets (406) 141
Accounts payable ........................... (10,865) 5,808
Accrued liabilities ........................ 12,926 (9,629)
Long term liabilities ...................... 5,053 --
-------- --------
Net cash provided by operating
activities ............................ 40,730 18,859
-------- --------
Cash flows from investing activities:
Expenditures for property, plant and equipment .. (70,639) (60,033)
Decrease (increase) in other assets ............. 370 182
-------- --------
Net cash used in investing activities .... (70,269) (59,851)
-------- --------
Cash flows from financing activities:
Principal payments on obligations under capital
leases ....................................... (1,610) (2,061)
Other ........................................... -- 172
Repayments on short-term
borrowings ................................... -- --
Proceeds from issuance of Common Stock .......... 14,551 12,194
-------- --------
Net cash provided by (used in) financing
activities ............................ 12,941 10,305
Net decrease in cash and cash equivalents ......... (16,598) (30,687)
Cash and cash equivalents at beginning of period .. 55,058 35,843
-------- --------
Cash and cash equivalents at end of period ........ $ 38,460 $ 5,156
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period ........ $ 6,392 $ 3,197
Cash paid for income taxes during the period .... $ 4,550 $ 24,210
Supplemental disclosure of noncash investing and
financing activities:
Accretion for dividends on mandatorily redeemable
Series A Preferred Stock ..................... $ -- $ 1,779
</TABLE>
See accompanying notes
<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, 1997.
Operating results for the quarter ended September 30, 1997 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.
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>
SEPTEMBER 30, MARCH 31,
1997 1997
----- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials .......... $ 5,469 $ 4,307
Work-in-process......... 2,513 5,843
Finished goods.......... 6,336 1,687
------- -------
$14,318 $11,837
======= =======
</TABLE>
Item 2. 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 for the fiscal year ended March 31,
1997, which has been filed with the Securities and Exchange Commission. Actual
results may differ materially from the results discussed in the forward-looking
statements.
<PAGE> 7
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 work-stations. The Company also
supplies high-performance thin film disks for removable hard disk drives.
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 twelve disk drive products.
RESULTS OF OPERATIONS
Net Sales. Net sales increased 45.6% in the second quarter of fiscal 1998
to $90.4 million, up $28.4 million over the second quarter of fiscal 1997. For
the first six months of fiscal 1998 net sales of $167.3 million were $28.8
million or 20.7% higher than the same period in fiscal 1997. The increase in net
sales during fiscal 1998 was primarily attributable to an increase in
manufacturing capacity from continued expansion of the Company's production
facilities, including the addition of two new sputtering lines during the second
fiscal quarter of 1998. 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. Gross margin was 38.4% and 38.3% for the three and six months
ended September 30, 1997, respectively, compared with 43.0% and 42.7% for the
three and six months ended September 30, 1996, respectively. The decrease in
gross margin for the three and six months ended September 30, 1997 was primarily
a result of a decline in average selling prices versus the comparable periods in
the prior year, partially offset by decreased unit production costs, a result of
the absorption of fixed costs over higher unit production volume, improved
utilization of manufacturing capacity, and improved manufacturing processes.
Operating Expenses. Research and development expenses increased 62.3% and
56.9% in the three- and six-month periods ending September 30, 1997,
respectively, compared to the same periods in 1996. Research and development
expenses increased due to an increase in headcount related to the Company's new
product introductions. Selling, general and administrative expenses increased
$0.7 million and $1.5 million in the second quarter and first half of fiscal
1998, respectively, compared to the same periods in the prior year. The increase
in selling, general and administrative expenses reflected the increased
headcount necessary to support higher production volume and unit shipments.
The Company anticipates that operating expenses will continue to increase
in absolute dollars as headcount is increased to support new product
introductions, and anticipated higher levels of production volume and unit
shipments, although as a percentage of net sales, operating expenses may
fluctuate from period to period.
Provision for Income Taxes. For the six months ended September 30, 1997,
the Company recorded income taxes at its estimated annual effective tax rate of
30%. During the six months ended September 30, 1996, the Company revised its
estimated annual effective rate from 38% to 30%, reflecting the effects of
available tax planning strategies and state tax credits at that time.
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
<PAGE> 8
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
Cash and cash equivalents decreased by $16.6 million to $38.5 million at
September 30, 1997 from the end of the prior fiscal year. Cash flows from
operations were $40.7 million for the six-month period ended September 30, 1997
as compared to $18.9 million in the comparable period of 1996. Cash generated
during the first six months of fiscal 1998 reflected net income plus
depreciation and amortization, as well as an increase in accrued liabilities,
partially offset by increases in receivables and inventories and a decrease in
accounts payable. Increased sales contributed to the increase in positive cash
flow provided by operations during the first half of fiscal 1998.
The Company invested $70.6 million and $60.0 million in property, plant and
equipment during the first half of fiscal 1998 and 1997, respectively. 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 half of fiscal 1998
reflected the $13.9 million in cash generated from the sale of the Company's
common stock during the second quarter of fiscal 1998.
As of September 30, 1997, the Company's principal sources of liquidity
consisted of cash and cash equivalents, and an unsecured $50.0 million revolving
credit facility under which there were no borrowings.
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 and ongoing facility expansion through the
next twelve months. While operating activities are expected to provide cash in
certain future periods, continued expansion of the Company's manufacturing
capacity may require the Company to obtain additional sources of financing.
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.
<PAGE> 9
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on August 14, 1997.
(b) The following individuals, each of whom served as directors of the Company
prior to the annual meeting, were elected to serve as Directors until the
next annual meeting:
Ronald L. Schauer
Bruce C. Edwards
Neil M. Garfinkel
Walter G. Kortschak
Robert G. Teal
The Stockholders voted to ratify the selection of Coopers & Lybrand L.L.P. as
the Company's Independent Auditors for the fiscal year ended March 31, 1998.
Shares of Common Stock voted were as follows:
Item No. 1
(Election of Board of Directors)
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
<S> <C> <C>
Ronald L. Schauer......... 37,242,906 77,105
Bruce C. Edwards.......... 37,248,937 71,074
Neil M. Garfinkel......... 37,242,681 77,330
Walter G. Kortschak....... 37,247,142 72,869
Robert G. Teal............ 37,248,642 71,369
</TABLE>
Item No. 2
<TABLE>
<CAPTION>
Total Vote For Total Vote Against Abstain
-------------- ------------------ -------
<S> <C> <C> <C>
(Selection of independent
auditors)...... 37,234,070 48,416 37,525
</TABLE>
(d) Not applicable
<PAGE> 10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
- -----------
11.1 Calculation of earnings per share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter ended September 30, 1997, there were no reports
on Form 8-K filed by the Company.
<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: November 12, 1997 BY: /s/ PETER S. NORRIS
------------------------ ------------------------------
Peter S. Norris
Vice President and
Chief Financial Officer
Date: November 12, 1997 BY: /s/ RONALD L. SCHAUER
------------------------ -------------------------------
Ronald L. Schauer
President and
Chief Executive Officer
<PAGE> 12
EXHIBIT INDEX
Exhibit # Description
- --------- -----------
11.1 Statement Regarding Computation of Per-Share Earnings
27.1 Financial Data Schedule
<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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding
for the period .................................... 41,832 40,399 41,484 40,182
Net effect of dilutive stock options-based on the
treasury stock method using average market price... 2,964 3,806 2,975 3,928
------- ------- ------- -------
Shares used in computing per share amounts........... 44,796 44,205 44,459 44,110
======= ======= ======= =======
Net income available for common stockholders ........ $19,064 $16,605 $34,433 $32,500
======= ======= ======= =======
Net income available for common stockholders
per share ......................................... $ 0.43 $ 0.38 $ 0.77 $ 0.74
======= ======= ======= =======
Fully Diluted:
Weighted average shares outstanding for the period... 41,832 40,399 41,484 40,182
Net effect of dilutive stock options-based on the
treasury stock method using average market price... 3,021 3,806 3,004 3,928
Assumed conversion of 53/4% convertible subordinated
notes ............................................. 9,684 -- 9,684 --
Shares used in computing per share amounts .......... 54,538 44,205 54,172 44,110
Net income available for common stockholders ........ $19,064 $16,605 $34,433 $32,500
------- ------- ------- -------
Add 5 3/4% convertible subordinated note interest,
net of interest capitalized and income tax
effect ............................................ 1,541 -- 2,876 --
======= ======= ======= =======
Net income available for common stockholders ........ $20,705 $16,605 $37,309 $32,500
Net income available for common stockholders
per share ......................................... $ 0.38 $ 0.38 $ 0.69 $ 0.74
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,460
<SECURITIES> 0
<RECEIVABLES> 52,505
<ALLOWANCES> 1,085
<INVENTORY> 14,318
<CURRENT-ASSETS> 111,610
<PP&E> 376,942
<DEPRECIATION> 68,661
<TOTAL-ASSETS> 427,877
<CURRENT-LIABILITIES> 39,483
<BONDS> 230,000
0
0
<COMMON> 42
<OTHER-SE> 144,384
<TOTAL-LIABILITY-AND-EQUITY> 427,877
<SALES> 90,446
<TOTAL-REVENUES> 90,446
<CGS> 55,750
<TOTAL-COSTS> 55,750
<OTHER-EXPENSES> 5,573
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 1,888
<INCOME-PRETAX> 27,235
<INCOME-TAX> 8,171
<INCOME-CONTINUING> 19,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,064
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.38
</TABLE>
