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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
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
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1055 PAGE AVENUE, FREMONT, CA 94538
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(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 August 12,1999, 45,104,181 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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HMT TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999
and March 31, 1999 ........................................1
Condensed Consolidated Statements of Operations for the
three month periods ended June 30, 1999 and 1998 ..........2
Condensed Consolidated Statements of Cash Flows for the
three month periods ended June 30, 1999 and 1998 ..........3
Notes to Condensed Consolidated Financial Statements ......4
Item 2 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations .............7
Item 3 Quantitative and Qualitative Disclosures about Market
Risks ....................................................10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................10
Signatures ...........................................................12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, March 31,
1999 1999
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents........................ $55,579 $53,077
Receivables, net................................. 29,544 29,572
Inventories...................................... 18,036 26,585
Deposits, prepaid expenses and other assets...... 520 588
Deferred income taxes............................ 5,133 5,133
------------ ------------
Total current assets..................... 108,812 114,955
Property, plant and equipment, net................. 308,797 321,508
Other assets....................................... 5,827 6,077
------------ ------------
Total assets............................. $423,436 $442,540
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $13,285 $20,732
Accrued liabilities.............................. 15,127 8,498
Obligations under capital leases --
current portion................................ 411 555
------------ ------------
Total current liabilities................ 28,823 29,785
Long-term liabilities.............................. 2,380 2,680
Convertible subordinated promissory notes.......... 230,000 230,000
Deferred tax liability, long term.................. 14,127 14,127
------------ ------------
Total liabilities........................ 275,330 276,592
Stockholders' equity:
Common Stock..................................... 45 44
Additional paid-in capital....................... 115,160 113,661
Retained earnings ............................... 109,550 128,892
Distribution in excess of basis.................. (76,649) (76,649)
------------ ------------
Total stockholders' equity............... 148,106 165,948
------------ ------------
Total liabilities and stockholders' equity.. $423,436 $442,540
============ ============
See accompanying notes
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
(Unaudited)
Net sales ................... $44,899 $56,765
Cost of sales ............... 65,196 47,439
------------ ------------
Gross profit (Loss)........ (20,297) 9,326
------------ ------------
Operating expenses:
Research and development .. 2,141 2,435
Selling, general and
administrative ........... 2,462 2,664
------------ ------------
Total operating expenses . 4,603 5,099
------------ ------------
Operating income (loss) ..... (24,900) 4,227
Interest expense, net ....... 2,732 2,667
------------ ------------
Income (loss) before income
tax provision (benefit).... (27,632) 1,560
Income tax provision
(benefit) ................. (8,290) 468
------------ ------------
Net income (loss) ........ ($19,342) $1,092
============ ============
Net income (loss) available
for common stockholders
per share:
Basic..................... ($0.43) $0.03
============ ============
Diluted................... ($0.43) $0.03
============ ============
Shares used in computing
per share amounts:
Basic..................... 44,758 43,415
============ ============
Diluted................... 44,758 43,415
============ ============
See accompanying notes
HMT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................ ($19,342) $1,092
Adjustments to reconcile net income (loss)
to net cash used in operations:
Depreciation and amortization ................. 14,525 13,129
Changes in operating assets and liabilities:
Receivables ................................. 28 17,403
Inventories ................................. 8,549 (8,576)
Deposits, prepaid expenses and other assets . 68 (189)
Accounts payable ............................ (7,447) 812
Accrued liabilities ......................... 6,629 3,396
Long term liabilities ....................... (300) (300)
------------ ------------
Net cash provided by operating activities. 2,710 26,767
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ... (1,797) (24,592)
Decrease in other assets ......................... 233 385
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Net cash used in investing activities .... (1,564) (24,207)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases ........................................ (144) (2,236)
Proceeds from issuance of Common Stock ........... 1,500 1,748
------------ ------------
Net cash provided by (used in)
financing activities.................... 1,356 (488)
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Net increase in cash and cash equivalents ........ 2,502 2,072
Cash and cash equivalents at beginning of period .. 53,077 24,985
------------ ------------
Cash and cash equivalents at end of period ........ $55,579 $27,057
============ ============
See accompanying notes
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, 1999.
Operating results for the quarter ended June 30, 1999 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.
June 30, March 31,
1999 1999
------------ ------------
(in thousands)
Raw materials..................... $6,536 $5,575
Work-in-process................... 5,762 3,569
Finished goods.................... 5,738 17,441
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$18,036 $26,585
============ ============
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to stockholders. SFAS 131 generally supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." Under SFAS 131, operating segments are components
of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Generally, financial information is required to be reported on the basis
it is used internally. SFAS 131 is effective for financial statements
for periods beginning after December 15, 1997, and restatement of
comparative information for earlier years is required. However, SFAS
131 is not required to be applied to interim financial statements in the
initial year of application. Based upon the criteria of SFAS 131, the
Company has a single operating segment. Accordingly, the financial
statements provided herein satisfy the standard for reporting.
Geographic information about revenues, operating income and identifiable
assets are provided in the notes to the financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 requires
derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either
in the statement of operations or as a component of comprehensive
income, depending on the type of hedging relationship that exists. SFAS
133 will be effective for fiscal years beginning after June 15, 1999.
The Company does not currently hold derivative instruments or engage in
hedging activities.
2. COMPUTATION OF NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended
June 30,
-------------------------
1999 1998
------------ ------------
Basic:
Weighted average shares outstanding
for the period..................... 44,758 43,415
------------ ------------
Shares used in computing
per share amounts.................. 44,758 43,415
============ ============
Net income (loss) available for
common stockholders................ ($19,342) $1,092
============ ============
Net income (loss) available for
common stockholders per share...... ($0.43) $0.03
============ ============
Diluted (1):
Weighted average shares outstanding
for the period..................... 44,758 43,415
Net effect of dilutive stock
options based on the treasury stock
method using average market
price.............................. -- --
Assumed conversion of 5 3/4%
convertible subordinated notes..... -- --
------------ ------------
Shares used in computing
per share amounts.................. 44,758 43,415
============ ============
Net income (loss) available for
common stockholders................ ($19,342) $1,092
Add 5 3/4% convertible subordinated
note interest, net of interest
capitalized and income tax effect.. -- --
------------ ------------
Net income (loss) available for
common stockholders................ ($19,342) $1,092
============ ============
Net income (loss) available for
common stockholders per share...... ($0.43) $0.03
============ ============
(1) Diluted EPS for the three months ended June 30, 1999 and 1988
does not assume conversion of the Company's 5 3/4% convertible
subordinated notes, as the effect would be anti-dilutive.
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 below and in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999, 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, 1999 and 1998.
Net sales for the three months ended June 30, 1999 were $44.9 million,
down 20.0% from the $56.8 million reported in the three months ended
June 30, 1998. Unit sales volume decreased 5.8% during the three months
ended June 30,1999, while average selling prices declined 16.0%,
compared to the three months ended June 30,1998. The decrease in
unit sales volume during the three months ended June 30, 1999 was
attributable to continuing 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
decrease in unit sales volume is also a result of reduced
number of disks required per drive, due to the higher storage capacity
of the disks. The excess media supply also heightened price competition
among independent media suppliers, causing a decline in average selling
prices. Future sales will depend largely upon customer demand, unit
shipments and production volumes.
During the three months ended June 30,1999 and 1998, four
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 profit (loss) was (45.2%) of net sales for the three
months ended June 30, 1999, compared with 16.4% for the three months
ended June 30, 1998. The decline in gross margin during the three
months ended June 30, 1999 was primarily a result of higher unit
production costs and the decline in average selling prices versus the
comparable period in fiscal 1999. First quarter unit production costs
rose as the company slowed production to reduce finished goods
inventory levels. Production volumes decreased 44.3% in the first
quarter of fiscal 2000,compared with the first quarter of fiscal 1999.
As a result, fixed costs were absorbed over lower unit production
volumes and cost of goods sold included costs for producing inventory in
prior periods as well as the full balance of production costs for the
first quarter of fiscal 2000. The increase in unit production cost,
caused by lower production volumes, was partially offset by reduced
salaries, as the Company responded to lower demand by reducing work
hours during the first quarter of fiscal 2000.
Research and Development.
Research and development expenses decreased $294,000 in the three months
ended June 30, 1999, compared to the same period in 1998. The decrease
in research and development expenses was primarily a result of reduced
work hours. The Company anticipates that research and development
expenses will increase in absolute dollars in future periods, although
as a percentage of net sales, research and development expenses may
fluctuate.
Selling, General and Administrative.
Selling, general and administrative expenses decreased $202,000 in the
three months ended June 30, 1999, compared to the same period in the
prior fiscal year. The decrease in selling, general and administrative
expenses was primarily a result of lower headcount and reduced work
hours and eliminating 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.
Net interest expense decreased $65,000 during the three months ended
June 30, 1999, compared to the same period in fiscal 1999. The decrease
in interest expense, net was primarily a result of an increase in
interest income (as the Company's average cash balances increased)
partially offset by lower capitalized interest versus the comparable
period in the prior year.
Provision (Benefit) for Income Taxes.
For the three months ended June 30, 1999 and 1998, 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 $2.5 million to $55.6 million at
June 30, 1999 from $53.1 million at March 31, 1999. Cash flows from
operations were $2.7 million for the three month period ending June 30,
1999 as compared to $2.1 million in the comparable period of 1998. Cash
generated during the three months ended June 30, 1999 reflected net
income adjusted for non-cash changes including depreciation and
amortization and an increase in accrued liabilities and a decrease in
inventories, partially offset by an increase in accounts payable.
The Company invested $1.8 million and $24.6 million in property,
plant and equipment during the three months ended June 30, 1999 and
1998, respectively. The Company currently expects to spend approximately
$20 million over the next twelve months on property, plant & equipment.
Cash used by financing activities for the first three months of fiscal
2000 reflected $1.5 million in cash received for employee stock
purchases.
As of June 30, 1999, the Company's principal sources of liquidity
consisted of cash, cash equivalents and short-term investments, as well
as the entire balance of the $50 million revolving credit facility. The
company must comply with certain restrictive financial covenants and
conditions as defined in the revolving credit facility. As of June 30,
1999 the company was not in compliance with certain covenants but
subsequently the agreement was amended to eliminate the prior compliance
issues.
The Company believes that existing cash balances, cash generated from
operations and funds available under its credit facilities, will
provide adequate cash to fund its operations and anticipated capital
expenditures at least through June 30, 2000. Should improved market
conditions result in a need for a substantial expansion in the Company's
manufacturing capacity, the Company may need 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.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to stockholders. SFAS 131 generally supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." Under SFAS 131, operating segments are components
of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Generally, financial information is required to be reported on the basis
it is used internally. SFAS 131 is effective for financial statements
for periods beginning after December 15, 1997, and restatement of
comparative information for earlier years is required. However, SFAS
131 is not required to be applied to interim financial statements in the
initial year of application. Based upon the criteria of SFAS 131, the
Company has a single operating segment. Accordingly, the financial
statements provided herein satisfy the standard for reporting.
Geographic information about revenues, operating income and identifiable
assets are provided in the notes to the financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 requires
derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either
in the statement of operations or as a component of comprehensive
income, depending on the type of hedging relationship that exists. SFAS
133 will be effective for fiscal years beginning after June 15, 1999.
The Company does not currently hold derivative instruments or engage in
hedging activities.
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 that will be affected. In the ordinary course
of replacing computer equipment and software, the Company attempts to
obtain replacements that are Year 2000 compliant. The Company has used
both internal and external resources to identify and assess needed Year
2000 remediation, the Companys internal Year 2000 identification,
assessment, remediation and testing efforts, which began in October
1997, have been completed, and that such efforts are substantially
complete.
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 of the Company. However, if
such modifications and conversions are not made, or not completed on a
timely basis, the Year 2000 issue could have a material adverse effect
on the Company. Furthermore, the costs of such conversions and updates
are based on estimates, which are derived utilizing numerous assumptions
of future events, including, but not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer code and similar uncertainties. There can
be no assurance that the Company will be able to upgrade any or all of
its major systems or, once upgraded, that the systems will be Year 2000
compliant. Should the Company fail to upgrade such systems in a timely
manner, or should those upgrades fail to be Year 2000 compliant, the
Company may be unable to conduct business or manufacture its products,
which could cause a material adverse effect on the Company.
The Company initiated 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 or products of other companies or
significant suppliers will be Year 2000 compliant. A failure to take
appropriate remediation measures by another company, or remediation that
is incompatible with the Company's systems, could have a material
adverse effect on the Company. As of June 1, 1999, the Company had
received responses from all critical vendors, and all have provided
written assurances that they expect to address all their significant
Year 2000 issues on a timely basis. Of these responses, all are
considered to be adequate.
The Company is currently working with its customers and suppliers to
address their Year 2000 compliance in a timely manner. The Company
anticipates completion of this effort during calendar 1999; however,
should the Company's customers or suppliers fail to address Year 2000
issues, the Company could be adversely affected. Should any of the
Company's suppliers encounter Year 2000 problems that cause them to
delay manufacturing or shipments of key components, the Company may be
forced to delay or cancel shipments of its products, which could have a
material adverse effect on the Company. Additionally, any inability of
customers to become Year 2000 compliant which would cause them to delay
or cancel substantial purchase orders or delivery of products could also
have a material adverse effect on the Company.
The Company has a contingency plan in place for operation without its
computer based manufacturing control systems. However, there are
scenarios for failure of suppliers or infrastructure for which no
contingency exists.
Item 3. Quantitative and Qualitative Disclosures of Risk
There is no material change from that reported in Form 10-K as of
March 31, 1999.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Default Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
During the quarter ending June 30, 1999 no sale of unregistered or
restricted stock were made.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended June 30, 1999, the Company did not file
any reports on Form 8-K.
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 16, 1999 BY: /s/ Peter S. Norris
---------------------------
Peter S. Norris
Vice President and
Chief Financial Officer
Date: August 16, 1999 BY: /s/ Ronald L. Schauer
---------------------------
Ronald L. Schauer
President and
Chief Executive Officer
EXHIBIT INDEX
(a) Exhibits:
Exhibit No.
27.1 Financial Data Schedule.