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Technology Stocks : Applied Magnetics Corp -- Ignore unavailable to you. Want to Upgrade?

To: T Bowl who wrote (11084)	12/20/1997 2:46:00 AM
From: Jonathan Bird	Read Replies (1) \| Respond to of 12298

Todd, It seems as though at this point it is safe to say that WDC is at least 95 % of revenue or greater for APM. And that the remaining 5% if it still exists at all, is vanishing. It also appears, from all the data i've seen, that at this point APM's only shipping product to WDC is the 1.7 TFI. Do you find any indication that APM is qualified for ANY MR contracts at this time? The only APM MR contract that I have ever seen is for the cancelled 2.1 portfolio drive. They do indicate that qualifications are underway, but if you read through the past 10Qs you will see that this can commonly take 6-9 months. So basicly all of APM's current revenue stream is to WDC and for an outdated product that is being fased out. Can you disagree with any of the above analysis? Jon Bird

To: T Bowl who wrote (11084)	12/20/1997 5:37:00 AM
From: Don Earl	Read Replies (2) \| Respond to of 12298

Hi Todd, Well....I don't know now. The information in the 10K seems to contradict the little jewels I dug out of the 10Q. The math I learned in school seems to be a lot different than "generally accepted accounting principals". It doesn't help that many of the statements in SEC filings are ambiguous to the point of being sense free. If I put my conversation with Crisman, Q3 10Q, FY97 10K, and the company press release all in the same hat, I think I would get several different answers to any single question. I agree that a lot of the information sounds bearish. Some companies tend to over disclose for legal reasons. I'd probably give it 60% bear and 40% over disclosure. If there was nothing but good news the stock would not be selling for $12. There were a number of things I considered positive: <By the end of the fourth quarter of fiscal 1997 the Company completed its transition to more advanced thin film disk head technology using the picoslider ("30%") form factor on 1.4 gigabytes and 1.7 gigabytes per 3.5 inch disk products. The picoslider almost doubles the number of sliders that can be processed from one wafer.> It seems to me that this will improve yields and give APM some small reprieve while making the transition to MR. <In December 1997, Western Digital announced expected lower revenues and profits for its December 1997 quarter, as a result of actions it is taking in response to current disk drive oversupply in the industry's distribution channel and increasing pricing pressures. The Company was then notified of significant reductions to its order backlog due to Western Digital's plan to transition from thin film to MR disk drive production substantially by the end of its June 1998 quarter.> and < The Company's inductive thin film product at the 1.7 gigabyte per 3.5 inch disk capacity point is planned for volume production through the first three quarters of fiscal 1998. This is expected to be the final generation of advanced inductive thin film products, making fiscal 1998 a significant technology transition year for the Company. The product mix will evolve from thin film to MR disk head technology and MR products are expected to represent the majority of the Company's shipments by the third quarter of fiscal 1998. Most of the new customer development programs for which the Company is currently in qualification cycles utilize MR technology.> This suggests that APM made it 2/3 of the way through the quarter at Q4 levels before it hit the fan. The companies statement that Q1 sales would be reduced by about 1/3 then start to grow again in Q2 makes me think they may not be shipping anything this month. The problem might be cured faster by a dead stop than a gradual slow down. Also the APM and WDC transition to MR seem to be pretty much in sync. <The Company operates in a number of foreign countries. Purchases of certain supplies and certain labor costs are paid for in foreign currencies. The Company is not currently hedging against potential foreign exchange risk. Fluctuations of foreign currency to the dollar could have a significant effect on reported cash balances. The effect of foreign currency exchange rate changes was a decrease of $0.6 million and $0.3 million in cash for fiscal 1997 and 1996, respectively.> This suggests that there was about $2 million in foreign currency in the bank during the drop in exchange rates. Note that it does not seem to be counted as a loss but a reduction in cash balances. It appears that it will be used to pay expenses at face value in it's own country. <FOREIGN CURRENCIES: Financial statements and transactions of subsidiaries operating in foreign countries are measured in U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52. The functional currency for all subsidiaries is the U.S. dollar. The effect of reporting assets and liabilities stated in foreign currency is included as a component of "Other Income, net" in the Consolidated Statements of Operations. Foreign currency gains of $2.1 million in 1997 and $0.5 million in 1996 and losses of $0.2 million in 1995 were included in operations.> <The Company operates in a number of foreign countries. The relative impact of foreign currency fluctuations on revenue is not significant as product pricing is generally based on the U.S. dollar. Purchases of certain raw materials and certain labor costs are paid for in foreign currencies. As a result, effects of currency rate fluctuations can affect results of operations. Fluctuations may also have a significant effect on reported cash balances. Malaysian debt maturities are not currently hedged, as the credit facilities are held in U.S. dollars. As a result, there is no current foreign transaction exposure associated with the Malaysian debt.> Note "currently" and "current" in the last two sentences. <The Company's Malaysian subsidiary has a credit facility with a Malaysian bank that has been in place since June 1990, is callable on demand and has no termination date. In May 1995, the Company and the Malaysian bank amended this credit facility to include a security interest in the Company's real property holdings in Malaysia and to include certain covenants which preclude the Company from granting liens and security interests in other assets in Malaysia. During fiscal 1997, the Company's Malaysian subsidiary completed credit facility agreements with five additional banks in Malaysia. The borrowings under the new facilities are callable on demand, have no termination date and are unsecured. The total amount available to borrow under all the credit facilities was approximately $81.3 million of which $50.2 million was outstanding at September 27, 1997. The Company was in compliance with all financial covenants under these facilities. The interest rates outstanding on these loan facilities ranged from 6.65% to 6.75% at September 27, 1997 and had a weighted average interest of 6.70%. The Company intends to continue its practice of repaying maturities with new borrowings under these facilities.> The last sentence is interesting. Do they take out a new loan to pay off the old loan every so often? What it comes down to is that what I was absolutely positive about yesterday, I'm not sure of after reading the 10K. Was I seeing things in the Q3 10Q? Did they take a profit and start a new loan? Is there a web site where accountants get together and chat about how to cook the books? Regards, Don