================================================================================
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 December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____ to _____
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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
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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 January 26, 1998, 43,030,928 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.
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------ ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $46,682 $44,225
Short-term investments........................... -- 10,833
Receivables, net................................. 50,634 35,794
Inventories...................................... 16,796 11,837
Deposits, prepaid expenses and other assets...... 1,053 474
Deferred income taxes............................ 6,532 6,532
------------ ----------
Total current assets..................... 121,697 109,695
Construction in progress........................... 67,591 76,433
Property, plant and equipment, net................. 264,454 178,875
Other assets....................................... 7,822 8,386
------------ ----------
Total assets................................ $461,564 $373,389
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $25,547 $26,424
Accrued liabilities.............................. 22,110 8,765
Obligations under capital leases --
current portion................................ 3,013 2,679
------------ ----------
Total current liabilities................ 50,670 37,868
Long-term liabilities.............................. 8,315 3,562
Convertible subordinated promissory notes.......... 230,000 230,000
Obligations under capital leases, net
of current portion............................. 697 3,172
Deferred tax liability, long term.................. 3,345 3,345
------------ ----------
Total liabilities........................ 293,027 277,947
Stockholders' equity:
Common Stock..................................... 43 41
Additional paid-in capital....................... 110,271 92,084
Retained earnings ............................... 134,872 79,966
Distribution in excess of basis.................. (76,649) (76,649)
------------ ----------
Total stockholders' equity............... 168,537 95,442
------------ ----------
Total liabilities and stockholders' equity.. $461,564 $373,389
============ ==========
</TABLE>
See accompanying notes
<PAGE>
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ........................................ $98,556 $61,243 $265,839 $199,743
Cost of sales .................................... 61,538 36,371 164,764 115,748
---------- ---------- ---------- ----------
Gross profit ................................... 37,018 24,872 101,075 83,995
---------- ---------- ---------- ----------
Operating expenses:
Research and development ....................... 2,229 1,527 6,411 4,192
Selling, general and administrative ............ 3,408 3,020 10,519 8,660
---------- ---------- ---------- ----------
Total operating expenses .................... 5,637 4,547 16,930 12,852
---------- ---------- ---------- ----------
Operating income ................................. 31,381 20,325 84,145 71,143
Interest expense, net ............................ 2,138 349 5,711 2,762
---------- ---------- ---------- ----------
Income before income tax provision ............... 29,243 19,976 78,434 68,381
Income tax provision ............................. 8,773 5,993 23,531 20,119
---------- ---------- ---------- ----------
Net income .................................. $20,470 $13,983 $54,903 $48,262
Accretion for dividends on Mandatorily
Redeemable Series A Preferred Stock ............ -- (909) -- (2,688)
---------- ---------- ---------- ----------
Net income available for common stockholders ..... $20,470 $13,074 $54,903 $45,574
========== ========== ========== ==========
Net income available for common
stockholders per share:
Basic ....................................... $0.48 $0.30 $1.31 $1.03
========== ========== ========== ==========
Diluted ..................................... $0.40 $0.30 $1.09 $1.03
========== ========== ========== ==========
Shares used in computing per share amounts:
Basic ....................................... 42,768 44,229 41,912 44,150
========== ========== ========== ==========
Diluted ..................................... 55,099 44,229 54,481 44,150
========== ========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
-------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $54,903 $48,262
Adjustments to reconcile net income to net
cash used in operations:
Depreciation and amortization ................. 28,846 14,709
Deferred income taxes ......................... -- 3,703
Loss on disposal of assets .................... -- 2,988
Changes in operating assets and liabilities:
Receivables.................................. (14,840) (11,669)
Inventories.................................. (4,959) (4,874)
Deoposis, prepaid expenses and other assets.. (579) 115
Accounts payable............................. (877) 3,209
Accrued liabilities.......................... 13,346 (4,837)
Lomg term liabilities........................ 4,753 --
--------- ---------
Net cash provided by operating activities. 80,593 51,606
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ... (105,538) (126,155)
Decrease in other assets ......................... 519 323
--------- ---------
Net cash used in investing activities .... (105,019) (125,832)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases ........................................ (2,141) (2,460)
Other............................................. -- 1,184
Repayments on short-term borrowings............... -- --
Net proceeds from long-term borrowings ........... -- 31,000
Proceeds from issuance of Common Stock ........... 18,191 12,817
--------- ---------
Net cash provided by financing activities. 16,050 42,541
--------- ---------
Net increase (decrease) in cash and cash
equivalents ...................................... (8,376) (31,685)
Cash and cash equivalents at beginning of period .. 55,058 35,843
--------- ---------
Cash and cash equivalents at end of period ........ $46,682 $4,158
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period ......... $6,392 $3,646
Cash paid for income taxes during the period ..... $13,050 $24,820
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Accretion for dividends on Mandatorily Redeemable
Series A Preferred Stock ...................... $ -- $2,688
</TABLE>
See accompanying notes
<PAGE>
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 December 31, 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>
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials..................... $3,849 $4,307
Work-in-process................... 5,276 5,843
Finished goods.................... 7,671 1,687
------------ ------------
$16,796 $11,837
============ ============
</TABLE>
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ("SFAS
No. 128"), "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
is effective for financial statements issued for periods ending
after December 15, 1997, and requires that prior periods be
restated. The provisions of SFAS No. 128 have been adopted in the
quarter ended December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income," which will require the
reporting of additional financial information in a complete set of
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and will require earlier periods
to be restated to reflect application of the provisions of SFAS No.
130. The impact of the adoption of SFAS No. 130 on the financial
statements of the Company has not yet been determined.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS No.
131,") "Disclosures About Segments of an Enterprise and Related
Information," which specifies disclosure requirements for segment
reporting. SFAS No. 131 supersedes SFAS No. 14 and SFAS No. 18 and
is effective for fiscal years beginning after December 15, 1997,
and requires earlier years to be restated if practicable. The
impact of the adoption of SFAS No. 131 on the financial statements
of the Company has not yet been determined.
<PAGE>
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
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 60.9% in the third quarter of
fiscal 1998 to $98.6 million, up $37.4 million over the third
quarter of fiscal 1997. For the first nine months of fiscal 1998
net sales of $265.8 million were $66.1 million or 33.1% higher
than the same period in fiscal 1997. The increase in net sales
during the three and nine month periods ending December 31, 1997
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 third
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 37.6 % and 38.0 % for the three
and nine months ended December 31, 1997, respectively, compared
with 40.6 % and 42.1 % for the three and nine months ended December
31, 1996, respectively. The decrease in gross margin for the three
and nine months ended December 31, 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
$702,000 and $2.2 million in the three- and nine-month periods
ending December 31, 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 $0.4 million and $1.9 million in the third quarter and
first nine months of fiscal 1998, respectively, compared to 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 nine months ended December
31, 1997 and 1996, the Company recorded income taxes at its
estimated annual effective tax rate of 30%.
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
Cash and cash equivalents decreased by $8.4 million to $46.7
million at December 31, 1997 from the end of the prior fiscal year.
Cash flows from operations were $80.6 million for the nine-month
period ended December 31, 1997 as compared to $51.6 million in the
same period of 1996. Cash generated during the first nine 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 nine months of fiscal 1998.
The Company invested $105.5 million and $126.2 million in
property, plant and equipment during the first nine months 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 nine months
of fiscal 1998 reflected the $13.9 million generated from a public
offering of the Company's common stock during the second quarter
of fiscal 1998.
As of December 31, 1997, the Company's principal sources of
liquidity consisted of cash and cash equivalents, and an unsecured
$100.0 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 at least through fiscal 1999. Further 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 any needed alternative sources
of financing on favorable terms, if at all, at such time or times
as the Company may require such capital.
<PAGE>
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 December 31, 1997.
<PAGE>
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: February 10, 1998 BY: /s/ Peter S. Norris
----------------- ------------------------------------
Peter S. Norris
Vice President, Finance and
Chief Financial Officer
Date: February 10, 1998 BY: /s/ Ronald L. Schauer
----------------- ------------------------------------
Ronald L. Schauer
President and
Chief Executive Officer
<PAGE>
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>
[MULTIPLIER] 1,000
Part II. Other information, Item 6a.
Exhibit 11.1
EXHIBIT 11.1
HMT TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding
for the period ...................... 42,768 40,673 41,912 40,346
--------- --------- --------- ---------
Shares used in computing per
share amounts ....................... 42,768 44,229 41,912 44,150
========= ========= ========= =========
Net income available for common
stockholders ........................ $20,470 $13,074 $54,903 $45,574
========= ========= ========= =========
Net income available for common
stockholders per share .............. $0.48 $0.30 $1.31 $1.03
========= ========= ========= =========
Diluted:
Weighted average shares outstanding
for the period ...................... 42,768 40,673 41,912 40,346
Net effect of dilutive stock options
based on the treasury stock method
using average market price .......... 2,647 3,556 2,885 3,804
Assumed conversion of 5 3/4%
convertible subordinated notes ...... 9,684 -- 9,684 --
--------- --------- --------- ---------
Shares used in computing per share
amounts ............................. 55,099 44,229 54,481 44,150
========= ========= ========= =========
Net income available for common
stockholders ........................ 20,470 13,074 54,903 45,574
Add 5 3/4% convertible subordinated
note interest, net of interest
capitalized and income tax effect ... 1,841 -- 4,717 --
--------- --------- --------- ---------
Net income available for common
stockholders ........................ $22,311 $13,074 $59,620 $45,574
========= ========= ========= =========
Net income available for common
stockholders per share .............. $0.40 $0.30 $1.09 $1.03
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,682
<SECURITIES> 0
<RECEIVABLES> 50,634
<ALLOWANCES> 0
<INVENTORY> 16,796
<CURRENT-ASSETS> 121,697
<PP&E> 264,454
<DEPRECIATION> 0
<TOTAL-ASSETS> 461,564
<CURRENT-LIABILITIES> 50,670
<BONDS> 230,000
0
0
<COMMON> 43
<OTHER-SE> 168,494
<TOTAL-LIABILITY-AND-EQUITY> 461,564
<SALES> 98,556
<TOTAL-REVENUES> 98,556
<CGS> 61,538
<TOTAL-COSTS> 61,538
<OTHER-EXPENSES> 5,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,138
<INCOME-PRETAX> 29,243
<INCOME-TAX> 8,773
<INCOME-CONTINUING> 20,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,470
<EPS-PRIMARY> $0.48
<EPS-DILUTED> $0.40
</TABLE>
