<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, 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 IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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 July 23, 1997, 41,296,187 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 JUNE 30, 1997
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets at June 30, 1997
and March 31, 1997................................................3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996.........................4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996.........................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of 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
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
----------- ---------
<S> <C> <C>
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents....................................... $37,391 $44,225
Short-term investments.......................................... 8,965 10,833
Receivables, net................................................ 40,281 35,794
Inventories..................................................... 16,734 11,837
Deposits, prepaid expenses and other assets..................... 1,091 474
Deferred income taxes........................................... 6,532 6,532
-------- --------
Total current assets.................................... 110,994 109,695
Construction in progress.......................................... 83,450 76,433
Property, plant and equipment, net................................ 203,553 178,875
Other assets...................................................... 8,255 8,386
-------- --------
Total assets............................................ $406,252 $373,389
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $27,888 $26,424
Accrued liabilities............................................. 19,421 8,765
Obligations under capital leases -- current portion............. 2,172 2,679
-------- --------
Total current liabilities............................... 49,481 37,868
Long-term liabilities............................................. 8,962 3,562
Convertible subordinated promissory notes......................... 230,000 230,000
Obligations under capital leases, net of current portion.......... 2,604 3,172
Deferred tax liability, long term................................. 3,345 3,345
-------- --------
Total liabilities....................................... 294,392 277,947
Common Stock...................................................... 41 41
Additional paid-in capital........................................ 93,161 92,084
Retained earnings ................................................ 95,307 79,966
Distribution in excess of basis................................... (76,649) (76,649)
-------- --------
Total stockholders' equity................................... 111,860 95,442
-------- --------
Total liabilities and stockholders' equity.............. $406,252 $373,389
======== ========
</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,
---------------------
1997 1996
------- -------
<S> <C> <C>
(Unaudited)
Net sales ........................................ $76,837 $76,420
Cost of sales .................................... 47,476 44,014
------- -------
Gross profit ................................... 29,361 32,406
Operating expenses:
Research and development ....................... 1,902 1,260
Selling, general and administrative ............ 3,818 3,036
------- -------
Total operating expenses .................... 5,720 4,296
Operating income ................................. 23,641 28,110
Interest expense, net ............................ 1,685 1,048
------- -------
Income before income tax provision ............... 21,956 27,062
Income tax provision ............................. 6,587 10,284
------- -------
Net income .................................. $15,369 $16,778
Accretion for dividends on Mandatorily
Redeemable Series A Preferred Stock ............ - (883)
------- -------
Net income available for common stockholders ..... $15,369 $15,895
======= =======
Net income available for common
stockholders per share
Primary ..................................... $ 0.35 $ 0.36
======= =======
Fully diluted ............................... $ 0.31 $ 0.36
======= =======
Shares used in computing per share amounts
Primary ..................................... 44,121 44,015
======= =======
Fully diluted ............................... 53,805 44,015
======= =======
</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,
------------------------
1997 1996
-------- --------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 15,369 $ 16,778
Adjustments to reconcile net income to net
cash used in operations:
Depreciation and amortization ................. 8,080 4,411
Deferred income taxes ......................... - -
Loss on disposal of assets .................... - 2,988
Net Change in operating assets and liabilities. 7,489 (6,332)
-------- --------
Net cash provided by operating activities. 30,938 17,845
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ... (39,760) (21,741)
Maturities of short-term investments ............. 1,868 -
Decrease in other assets ......................... 116 47
-------- --------
Net cash used in investing activities .... (37,776) (21,694)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases ........................................ (1,075) (1,013)
Net proceeds from long-term borrowings ........... - -
Proceeds from issuance of Common Stock ........... 1,079 12,194
-------- --------
Net cash provided by financing activities. 4 11,181
-------- --------
Net increase (decrease) in cash and cash
equivalents ...................................... (6,834) 7,332
Cash and cash equivalents at beginning of period .. 44,225 35,843
-------- --------
Cash and cash equivalents at end of period ........ $ 37,391 $ 43,175
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period ......... $ 783 $ 1,564
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 an 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 June 30, 1997 may not necessarily be
indicative of the results to be expected for any other interim period or for the
full fiscal 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,
1997 1997
------- -------
<S> <C> <C>
(IN THOUSANDS)
Raw materials......................................... $6,231 $4,307
Work-in-process....................................... 6,298 5,843
Finished goods........................................ 4,205 1,687
------- -------
$16,734 $11,837
======= =======
</TABLE>
2. SUBSEQUENT EVENT
On July 24, 1997, the Company filed a registration statement with the
Securities and Exchange Commission covering the proposed sale and issuance of
1,150,000 shares of the Company's common stock (including 150,000 shares subject
to the underwriters' over-allotment option) and the sale of 10,350,000 shares of
the Company's common stock on behalf of certain selling stockholders (including
1,350,000 shares subject to the underwriters' over-allotment option).
6
<PAGE> 7
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, which has been filed with the
Securities and Exchange Commission. Actual results may differ materially from
the results discussed in the forward-looking statements.
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.
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 THREE MONTHS ENDED JUNE 30, 1996 AND 1997
Net sales increased 0.5% in the three months ended June 30, 1997 to $76.8
million, representing an increase of $417,000 compared to the three months ended
June 30, 1996. Unit sales volume increased 32.9% during the three months ended
June 30, 1997, while average selling prices declined 26.3%, compared to the
three months ended June 30, 1996. The increase in unit sales volume during the
three months ended June 30, 1997 was primarily attributable to an increase in
manufacturing capacity, a result of the Company's facility expansion and the
installation of additional sputtering lines. Five additional sputtering lines
were brought into service during the nine months ended March 31, 1997, and two
were brought into service during the three months ended June 30, 1997. Improved
utilization of existing capacity, as well as improved manufacturing processes,
also contributed to higher production volume and unit shipments. The ability to
increase revenue will depend upon an increase in overall unit production
volume.
During the three months ended June 30, 1997, three customers individually
accounted for at least ten percent of consolidated net sales: Iomega Corporation
(32.1%), Samsung Electronics Company Limited (27.7%), and Western Digital
Corporation (18.7%). During the three months ended June 30, 1996, three
customers accounted for at least ten percent of consolidated net sales: Maxtor
Corporation (43.3%), Western Digital (17.5%) and Iomega (15.6%). The Company
expects that it will continue to derive a substantial portion of its sales from
a relatively small number of customers, although the identity of such customers
may change from period to period.
Gross Profit. Gross margin was 38.2% for the three months ended June 30,
1997, compared with 42.4% for the three months ended June 30, 1996. The decline
in gross margin during the three months ended June 30, 1997 was a result of the
26.3% decline in average selling prices versus the comparable period in fiscal
1997, offset in part by decreased unit production costs, improved utilization of
manufacturing capacity, improved manufacturing processes, and the absorption of
fixed costs over higher unit production
7
<PAGE> 8
volume. Production of substrates at the Eugene, Oregon manufacturing facility
(which was acquired during the three months ended June 30, 1996) and lower
substrate and other raw material prices also contributed to decreases in unit
costs in the three months ended June 30, 1997 compared to comparable three month
period in fiscal 1997.
Research and Development. Research and development expenses increased
$642,000 in the three months ended June 30, 1997, compared to the same period in
1996. Research and development expenses increased primarily due to an increase
in headcount related to the Company's new product introductions and expanded
research efforts to support the Company's overall capacity expansion.
Selling, General and Administrative. Selling, general and administrative
expenses increased $782,000 in the three months ended June 30, 1997, compared to
the same period in the prior fiscal year. The increase in selling, general and
administrative expenses primarily 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.
Interest Expense, Net. Net interest expense increased $637,000 during the
three months ended June 30, 1997, compared to the same period in fiscal 1997, a
result of the increased debt balance, partially offset by the $1.4 million in
interest that was capitalized during the same period.
Provision for Income Taxes. For the three months ended June 30, 1997, the
Company recorded income taxes at its estimated annual effective tax rate of 30%.
During the three months ended June 30, 1996, income taxes were recorded at a
rate of 38%, reflecting the estimated annual rate 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 product announcements by the Company, its customers
or its competitors; order cancellations, modifications and quantity adjustments
and shipment rescheduling; 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 effected. 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 $6.8 million to $37.4 million at June
30, 1997 from March 31, 1997. Cash flows from operations were $30.9 million for
the three-month period ended June 30, 1997 as compared to $17.8 million in the
comparable period of 1996. Cash generated during the three months ended June 30,
1997 reflected net income plus depreciation and amortization, as well as an
increase in accounts payable and current and long-term 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 three months ended June 30, 1998.
8
<PAGE> 9
The Company invested $39.8 million and $21.7 million in property, plant and
equipment during the first three months ended June 30, 1997 and 1996,
respectively. The Company currently expects to spend in excess of $200 million
during calendar 1998 for expansion of production capacity, a substantial
majority of which will be spent on the Company's Fremont, California facility.
Cash provided by financing activities for the first three months of fiscal
1998 reflected $1.1 million in cash received for employee stock purchases
options, offset by $1.1 million in principal payments on capital leases.
As of June 30, 1997, the Company's principal sources of liquidity consisted
of cash, cash equivalents and short-term investments, as well as the full
balance of the unsecured $50 million revolving credit facility.
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 end of fiscal
1998. If it were to accelerate or increase the scope of its facilities
expansion, the Company could require additional capital prior to that time. The
Company will continue to have significant future obligations and expects that it
could require additional capital to support future growth, if any. The Company
may not be able to obtain additional financing as needed on acceptable terms or
at all. If the Company is unable to obtain sufficient capital, it could be
required to modify its planned capital expenditures and research and development
expenditures, which could materially adversely affect the Company's future
operations and competitive position. Moreover, the Company's need to raise
additional capital through the issuance of securities may result in additional
dilution to earnings per share.
9
<PAGE> 10
PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No.
- - -----------
<S> <C>
11.1 Statement Regarding Computation of Net Income per Share.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997.
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: July 29, 1997 BY: /s/ Peter S. Norris
----------------- ------------------------------------
Peter S. Norris
Vice President, Finance and
Chief Financial Officer
Date: July 29, 1997 BY: /s/ Ronald L. Schauer
----------------- ------------------------------------
Ronald L. Schauer
President and
Chief Executive Officer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
11.1 Statement Regarding Computation of Net Income per Share.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
HMT TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1997 1996
------- -------
<S> <C> <C>
Primary: (Unaudited)
Weighted average shares outstanding for the period .......... 41,135 39,965
Net effect of dilutive stock options-based on the
treasury stock method using average market price .......... 2,986 4,050
------- -------
Shares used in computing per share amounts .................. 44,121 44,015
------- -------
Net income available for common stockholders ................ $15,369 $15,895
======= =======
Net income available for common stockholders per share ...... $ 0.35 $ 0.36
======= =======
Fully Diluted:
Weighted average shares outstanding for the period .......... 41,135 39,965
Net effect of dilutive stock options-based on the
treasury stock method using the average market price ...... 2,986 4,050
Assumed conversion of 5 3/4% convertible subordinated notes . 9,684 -
------- -------
Shares used in computing per share amounts .................. 53,805 44,015
======= =======
Net income available for common stockholders ................ $15,369 $15,895
======= =======
Add 5 3/4% convertible subordinated note interest, net
of interest capitalized and income tax effect ............. 1,389 -
======= =======
Net income available for common stockholders ................ $16,758 $15,895
======= =======
Net income available for common stockholders per share ...... $ 0.31 $ 0.36
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> DOLLAR (OR US DOLLAR)
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 37,391
<SECURITIES> 8,965
<RECEIVABLES> 41,351
<ALLOWANCES> (1,070)
<INVENTORY> 16,734
<CURRENT-ASSETS> 110,994
<PP&E> 346,539
<DEPRECIATION> (59,536)
<TOTAL-ASSETS> 406,252
<CURRENT-LIABILITIES> 49,481
<BONDS> 230,000
0
0
<COMMON> 93,202
<OTHER-SE> 18,656
<TOTAL-LIABILITY-AND-EQUITY> 406,252
<SALES> 76,837
<TOTAL-REVENUES> 76,837
<CGS> 47,476
<TOTAL-COSTS> 47,476
<OTHER-EXPENSES> 5,720
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 1,685
<INCOME-PRETAX> 21,956
<INCOME-TAX> 6,587
<INCOME-CONTINUING> 15,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,369
<EPS-PRIMARY> .35
<EPS-DILUTED> .31
</TABLE>
