================================================================================
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, 1998
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 July 26, 1998, 43,519,299 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>
June 30, March 31,
1998 1998
------------ ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $27,057 $24,985
Short-term investments........................... -- 0
Receivables, net................................. 53,257 70,660
Inventories...................................... 26,976 18,400
Deposits, prepaid expenses and other assets...... 818 629
Deferred income taxes............................ 12,249 12,249
------------ ----------
Total current assets..................... 120,357 126,923
Property, plant and equipment, net................. 355,306 343,856
Other assets....................................... 7,074 7,444
------------ ----------
Total assets................................ $482,737 $478,223
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $28,113 $27,301
Accrued liabilities.............................. 11,666 8,270
Obligations under capital leases --
current portion................................ 560 2,653
------------ ----------
Total current liabilities................ 40,339 38,224
Long-term liabilities.............................. 7,684 7,984
Convertible subordinated promissory notes.......... 230,000 230,000
Obligations under capital leases, net
of current portion............................. 412 555
Deferred tax liability, long term.................. 19,008 19,008
------------ ----------
Total liabilities........................ 297,443 295,771
Stockholders' equity:
Common Stock..................................... 43 43
Additional paid-in capital....................... 110,912 109,164
Retained earnings ............................... 150,988 149,894
Distribution in excess of basis.................. (76,649) (76,649)
------------ ----------
Total stockholders' equity............... 185,294 182,452
------------ ----------
Total liabilities and stockholders' equity.. $482,737 $478,223
============ ==========
</TABLE>
See accompanying notes
<PAGE>
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Net sales ........................................ $56,765 $61,243
Cost of sales .................................... 47,439 36,371
---------- ----------
Gross profit .................................. . 9,326 24,872
---------- ----------
Operating expenses:
Research and development ....................... 2,435 1,527
Selling, general and administrative ............ 2,664 3,020
---------- ----------
Total operating expenses .................... 5,099 4,547
---------- ----------
Operating income ................................. 4,227 20,325
Interest expense and other, net ................... 2,667 349
---------- ----------
Income before income tax provision ............... 1,560 19,976
Income tax provision ............................. 468 5,993
---------- ----------
Net income .................................. $1,092 $13,983
Accretion for dividends on Mandatorily
Redeemable Series A Preferred Stock ............ -- (909)
---------- ----------
Net income available for common stockholders .... . $1,092 $13,074
========== ==========
Net income available for common
stockholders per share:
Basic ....................................... $0.03 $0.30
========== ==========
Diluted ..................................... $0.03 $0.30
========== ==========
Shares used in computing per share amounts:
Basic ....................................... 43,415 44,229
========== ==========
Diluted ..................................... 43,415 44,229
========== ==========
</TABLE>
See accompanying notes
<PAGE>
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $1,092 $15,369
Adjustments to reconcile net income to net
cash used in operations:
Depreciation and amortization ................. 13,129 8,080
Changes in operating assets and liabilities:
Receivables.................................. 17,403 (4,487)
Inventories.................................. (8,576) (4,897)
Deoposis, prepaid expenses and other assets.. (189) (617)
Accounts payable............................. 812 1,464
Accrued liabilities.......................... 3,396 10,626
Lomg term liabilities........................ (300) 5,400
--------- ---------
Net cash provided by operating activities. 26,767 30,938
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ... (24,592) (39,760)
Maturities of short-term investments ............. -- 1,868
Decrease in other assets ......................... 385 116
--------- ---------
Net cash used in investing activities .... (24,207) (37,776)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases ........................................ (2,236) (1,075)
Proceeds from issuance of Common Stock ........... 1,748 1,079
--------- ---------
Net cash provided by financing activities. (488) 4
--------- ---------
Net increase (decrease) in cash and cash
equivalents ...................................... 2,072 (6,834)
Cash and cash equivalents at beginning of period .. 24,985 44,225
--------- ---------
Cash and cash equivalents at end of period ........ $27,057 $37,391
========= =========
</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, 1998.
Operating results for the quarter ended June 30, 1998 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>
June 30, March 31,
1998 1998
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials..................... $7,053 $7,498
Work-in-process................... 7,503 6,024
Finished goods.................... 12,420 4,878
------------ ------------
$26,976 $18,400
============ ============
</TABLE>
Recent Accounting Pronouncements
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 Company believes that the adoption of SFAS
130 will have an immaterial effect on the financial statements.
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 Company believes that it operates in one
segment for purposes of SFAS 131.
<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 (the "Company") is an independent supplier of
high-performance thin film disks for high-end, high-capacity and removable
hard disk drives, which in turn are used in PCs, network servers and work-
stations.
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, 1998 AND 1997
Net sales for the three months ended June 30, 1998 were $56.8 million,
down 26.1% from the $76.8 million reported in the three months ended June
30, 1997. Unit sales volume decreased 19.4% during the three months ended
June 30, 1998, while average selling prices declined 8.4%, compared to the
three months ended June 30, 1997. The decrease in unit sales volume during
the three months ended June 30, 1998 was attributable to overall weakened
industry demand as disk drive manufacturers reduced drive production and
media inventory levels in response to excess supply in many disk drive
market segments. The excess media supply also heightened price
competition among independent media suppliers, causing the decline in
average selling prices. Future revenue will depend, among other things,
largely upon customer demand, unit shipments and production volumes.
During the three months ended June 30, 1998 and 1997, three customers
individually accounted for at least ten percent of consolidated net sales.
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 16.4% of net sales for the three months
ended June 30, 1998, compared with 38.2% for the three months ended June
30, 1997. The decline in gross margin during the three months ended June
30, 1998 was a result of higher unit production costs and the decline in
average selling prices versus the comparable period in fiscal 1998. Unit
production costs rose as fixed costs were absorbed over lower unit
production volumes. Production volumes decreased 15.4% in the first quarter
of fiscal 1999, compared with the first quarter of fiscal 1998. The
increase in unit production costs caused by lower production volumes was
partially offset by reduced expense for wages and salaries as the Company
responded to lower demand by reducing work hours for permanent employees,
curtailing the use of temporary personnel, and reducing the accruals for
profit sharing and bonuses for all of the Company's personnel.
Research and Development. Research and development expenses increased
$533,000 in the three months ended June 30, 1998, compared to the same
period in 1997. Research and development expenses increased primarily due
to an increase in headcount related to the Company's new product
introductions, expanded research efforts to support the Company's overall
capacity expansion, and continued technology enhancements.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $1.2 million in the three months ended June 30, 1998,
compared to the same period in the prior fiscal year. The decrease in
selling, general and administrative expenses was primarily a result of
lower expense for wages and salaries as the Company responded to lower
demand by reducing work hours for permanent employees, curtailing the use
of temporary personnel, and reducing the accruals for profit sharing and
bonuses. The Company anticipates that operating expenses will fluctuate in
absolute dollars and as a percentage of net sales as headcount is modified
to support new product introductions and levels of production volume and
unit shipments.
Interest Expense, Net. Interest expense, net increased $982,000 during
the three months ended June 30, 1998, compared to the same period in fiscal
1998. The increase in interest expense, net was primarily a result of a
decrease in interest income (as the Company's average cash balances
declined) and capitalized interest versus the comparable period in the
prior year.
Provision for Income Taxes. For the three months ended June 30, 1998 and
1997, 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
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 increased by $2.1 million to $27.1 million at
June 30, 1998 from March 31, 1998. Cash flows from operations were $26.8
million for the three months ended June 30, 1998 as compared to $30.9
million in the comparable period of 1997. Cash generated from operations
during the three months ended June 30, 1998 reflected net income plus
depreciation and amortization, a decrease in receivables, as well as an
increase in accounts payable and accrued liabilities, partially offset by
an increase in inventories.
The Company invested $24.6 million and $39.8 million in property, plant
and equipment during the three months ended June 30, 1998 and 1997,
respectively. Total capital expenditures are currently planned at
approximately $100 million during fiscal 1999. Capital expenditures are
primarily targeted for capacity expansion and continuing technology
enhancements. The Company may assess market conditions and the potential
of a change in market demand in determining future capital spending.
Cash used by financing activities for the first three months of fiscal
1998 reflected $2.2 million in principal payments on capital leases, offset
by $1.7 million in cash received for employee stock purchases.
As of June 30, 1998, the Company's principal sources of liquidity
consisted of cash, cash equivalents and short-term investments, as well as
the unsecured $100 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 at
least through June 30, 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.
YEAR 2000 COMPLIANCE
The Company has reviewed both its internal computer systems and its
products that could be affected by the "Year 2000" issue and has identified
some systems and a few products that will be affected. The Company
presently believes, with modification to existing software and conversion
to new software, the "Year 2000" issues relating to internal computer
systems and products will not cause significant operational problems or
computer problems. Furthermore, the cost of implementing these solutions
is not anticipated to be material to the financial position or results of
operations. However, if such modifications and conversions are not made,
or not completed timely, the "Year 2000" issue could have a material
adverse impact on the operations of the Company. Furthermore, the costs of
such conversions and updates are based on management's best estimates,
which are derived utilizing numerous assumptions of future events including
such things as, but not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties.
The Company is initiating formal communications with all of its
significant suppliers and large customers during fiscal 1999 to determine
the extent to which the Company is vulnerable to those third parties
failure to remediate their own "Year 2000" issues. There can be no
guarantee that the systems of other companies on which significant
suppliers and large customers rely upon will be timely converted, or a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems will not have a material adverse impact on the
Company.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 22, 1998, the Company held a Special Meeting of Stockholders. At
such meeting, the stockholders voted on a proposal to approve an amendment
to the Company's Employee Stock Purchase Plan to increase the aggregate
number of shares of common stock authorized for issuance under such plan by
1,000,000 shares as follows: 19,968,616 shares were voted in favor of the
proposal, 8,090,423 shares were voted against the proposal, 577,904 shares
abstained and 9,199,458 shares were broker non-votes.
Item 5. Other Information
Pursuant to the Company's bylaws, stockholders who wish to bring matters or
propose nominees for director at the Company's 1999 annual meeting of
stockholders must provide specified information to the Company between
April 20, 1999 and May 20, 1999 (unless such matters are included in the
Company's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended).
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits:
Exhibit No.
11.1 Statement Regarding Computation of Net Income Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter ended June 30, 1998, the Company did not file any
reports on Form 8-K.
<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: August 13, 1998 BY: /s/ Peter S. Norris
----------------- ------------------------------------
Peter S. Norris
Vice President, Finance and
Chief Financial Officer
Date: August 13, 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
June 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Basic:
Weighted average shares outstanding
for the period ...................... 43,415 41,135
--------- ---------
Shares used in computing per
share amounts ....................... 43,415 41,135
========= =========
Net income available for common
stockholders ........................ 1,092 15,369
========= =========
Net income available for common
stockholders per share .............. $0.03 $0.37
========= =========
Diluted(1):
Weighted average shares outstanding
for the period ...................... 43,415 41,135
Net effect of dilutive stock options
based on the treasury stock method
using average market price .......... -- 2,989
Assumed conversion of 5 3/4%
convertible subordinated notes ...... -- 9,684
--------- ---------
Shares used in computing per share
amounts ............................. 43,415 53,808
========= =========
Net income available for common
stockholders ........................ 1,092 15,369
Add 5 3/4% convertible subordinated
note interest, net of interest
capitalized and income tax effect ... -- 1,389
--------- ---------
Net income available for common
stockholders ........................ $1,092 $16,758
========= =========
Net income available for common
stockholders per share .............. $0.03 $0.31
========= =========
(1) Diluted EPS for the three months ended June 30, 1998 does not assume
conversion of the Company's 5 3/4% convertible subordinated notes, as the
effect would be anti-dilutive.
</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 JUNE 30, 1998 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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,057
<SECURITIES> 0
<RECEIVABLES> 53,257
<ALLOWANCES> 1,237
<INVENTORY> 26,976
<CURRENT-ASSETS> 120,357
<PP&E> 355,306
<DEPRECIATION> 13,129
<TOTAL-ASSETS> 482,737
<CURRENT-LIABILITIES> 40,339
<BONDS> 230,000
0
0
<COMMON> 43
<OTHER-SE> 185,251
<TOTAL-LIABILITY-AND-EQUITY> 482,737
<SALES> 56,765
<TOTAL-REVENUES> 56,765
<CGS> 47,439
<TOTAL-COSTS> 47,439
<OTHER-EXPENSES> 5,099
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 2,667
<INCOME-PRETAX> 1,560
<INCOME-TAX> 468
<INCOME-CONTINUING> 1,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,092
<EPS-PRIMARY> $0.03
<EPS-DILUTED> $0.03
</TABLE>
