Here are some interesting predictions from Komag.
To: Mark Oliver (2322 )
From: Larry Kuznets Tuesday, Jan 20 1998 9:58PM EST
Reply # of 2334
KMAG reports small profit for Dec quarter, but says it expects to report a large loss for the Mar 98 quarter due to dropoff in orders.
biz.yahoo.com
Tuesday January 20, 4:05 pm Eastern Time
Company Press Release
SOURCE: Komag, Incorporated
Komag Returns to Profitability in 1997 Fourth Quarter,
But Sees Significant Net Loss in 1998 First Quarter
SAN JOSE, Calif., Jan. 20 /PRNewswire/ -- Komag, Incorporated (Nasdaq: KMAG - news), the
world's largest independent supplier of thin-film media for computer hard disk drives, today
announced a small profit on net sales of $159.0 million for the fourth quarter ended December 28,
1997. The company also announced that sharp order reductions in late December could cause first
quarter 1998 net sales to fall 40% below the fourth quarter's level. The company stated that the
anticipated lower sales and corresponding reduction in unit production volume, coupled with the
company's high fixed cost structure, will result in a significant net loss for the first quarter of the 1998
fiscal year.
Fourth Quarter Results:
Net sales for the fourth quarter of fiscal 1997 totaled $159.0 million, up from $141.2 million in the
fourth quarter of 1996. On a sequential basis, fourth quarter 1997 net sales were up sharply over the
third quarter 1997 net sales of $129.7 million.
Net income for the fourth quarter of 1997 at $1.2 million declined from the same quarter a year
earlier. For the fourth quarter of 1996 Komag posted net income of $8.4 million. Fourth quarter
1997 net income was up sequentially compared to the third quarter 1997 net loss of $52.7 million.
The third quarter results included a pre-tax $52.2 million restructuring charge for the consolidation of
the company's U.S. manufacturing operations and other non-recurring adjustments.
Diluted earnings per share for the fourth quarter of 1997 was $0.02 compared to diluted earnings
per share of $0.16 for the fourth quarter of 1996. The net loss per share for the third quarter of
1997 was $1.01 per share.
Under a new accounting standard companies must now report earnings per share on both a diluted
and basic basis in their financial statements. The dilutive impact of employee stock option shares is
included in the calculation of diluted earnings per share but is excluded from the calculation of basic
earnings per share. Loss per share is computed only on the basic earnings per share method.
1997 Fiscal Year Results:
Net sales for fiscal year 1997 were a record $631.1 million, up from $577.8 million in 1996. The
company recorded a net loss in 1997 of $22.1 million, or $0.42 per share. Komag posted net
income in fiscal 1996 of $110.0 million, or $2.07 diluted earnings per share.
Fourth Quarter Review:
''Demand for high-end desktop media weakened late in the fourth quarter, causing sales to fall short
of our internal target. Our fourth quarter gross margin dropped to 12% from the low 20% range of
the first half of 1997 due mainly to a lower average selling price level and inventory-related charges.
During the fourth quarter unit production costs were unfavorably impacted by low factory utilization
and manufacturing yield issues. Cost savings realized from the company's recent restructuring
activities and foreign currency gains generated by the weakening of the Malaysian Ringgit, however,
offset the unfavorable utilization and yield effects. Additionally, available tax loss carrybacks arising
from the net losses of our U.S. operations generated a tax provision benefit of $6.2 million in the
fourth quarter,'' said Stephen C. Johnson, president and chief executive officer of Komag,
Incorporated.
Unit sales in the fourth quarter rose to 13.6 million disks from 11.0 million disks in the third quarter.
In response to the weakening market conditions, the company reduced unit production volume at its
U.S. and Malaysian factories to 12.1 million disks during the fourth quarter to lower the company's
finished goods inventory level. Unit production volume in the third quarter was 13.1 million.
Advanced magnetoresistive (MR) and proximity disk products accounted for 59% and 40% of the
company's fourth quarter unit sales, respectively. Product shipments continued to remain highly
skewed toward the high-end desktop market segment which accounted for nearly 80% of the
company's unit sales. Sales of 3 1/2-inch disks capable of storing at least 2 gigabytes per platter
totaled 4.1 million disks, or 31% of the company's fourth quarter unit sales, up sixfold over the third
quarter of 1997, making Komag the merchant market leader in this category.
''Low factory utilization rates accounted for the fourth quarter net loss at Asahi Komag Co., Ltd.
(AKCL), the company's 50%-owned unconsolidated Japanese joint venture. Our share of this loss
reduced Komag's fourth quarter net income by $3.3 million. Although disappointed by the
magnitude and continuation of these losses, we are encouraged by recent customer qualifications of
AKCL disk products,'' said Johnson.
Komag ended fiscal 1997 with a cash and short-term investment balance of $166 million and with
$100 million available under unsecured, multi-year bank lines of credit that total $345 million.
Continued availability of these lines of credit is subject to compliance with certain financial
covenants, including limitations on both the size and number of sequential quarterly losses.
1998 First Half Outlook:
''In December several disk drive manufacturers initiated cutbacks in their desktop product
production plans for early 1998 in response to supply/demand imbalances within the industry. This
recent development, combined with the continuing slow recovery of the enterprise-class market
segment and the increased capacity of captive media suppliers, has resulted in an excess supply of
media and heightened price competition among independent media suppliers. While these conditions
dampened our fourth quarter results, the most significant impact of lower unit volumes and average
selling prices will be evident in our first quarter 1998 results. Improving industry conditions and
shipment of new, higher density products could bolster our second quarter sales but our bottom line
will likely remain under pressure due to capacity utilization and pricing issues,'' said Johnson.
In response to this situation, the company has implemented a hiring freeze and will idle its worldwide
production operations for two weeks during the first quarter of 1998. The temporary closures of the
company's U.S. and Malaysian factories will be staggered to support customer requirements. The
company has also accelerated the closure of its remaining Milpitas, California manufacturing facility
which was originally set to close at the end of June 1998. Additionally, the company has reduced its
1998 capital expenditure target by $40 million to $120 million.
''While current conditions pose significant short-term challenges, we are optimistic about the
long-term growth outlook for the data storage industry and Komag. The company is making
excellent progress on customer qualifications of disk products with density levels of 2.0 to 2.5
gigabits per square inch (Gb/in2), the equivalent of 2.5 to 3.3 gigabytes of information on a 3
1/2-inch disk platter. New process technologies developed over the last six months will be used to
manufacture a majority of these new products. These new process technologies add best-of-breed
magnetics to our industry-leading disk tribology. With proper extensions, these new process
technologies could accommodate recording densities beyond 5 gigabits per square inch,'' said
Johnson.
Deployment of the new process technologies into manufacturing is already underway and involves
modifications to the company's sputtering machines and certain changes in the company's front-end
processing steps. The company is currently planning to incorporate the required modifications in all
production facilities by early 1999. The relative success of the 2.0 to 2.5 Gb/in2 product
qualifications and timely deployment of the new process technologies into the company's
manufacturing operations are essential to Komag's sales volumes and financial performance in the
final two quarters of 1998. First half 1998 sales volume of the company will be comprised mainly of
1.5 to 2.0 Gb/in2 disks produced predominately with the company's current manufacturing process.
''We have also begun the sampling of disk products with density levels of 3.0 gigabits per square
inch and higher. Customer response to these products has also been encouraging. Volume
production of this disk product family requires the use of the new process technologies and should
commence in the fourth quarter of 1998. The timely delivery of leading-edge products to our disk
drive customers, supported by capable production capacity and an effective cost structure, will
determine our long-term success in this demanding industry,'' said Johnson.
Forward-Looking Statements:
The above business outlook contains predictions, estimates and other forward-looking statements
that involve a number of risks and uncertainties. While this outlook represents Komag's current
judgment on the future direction of the business, actual results may differ materially from any future
performance suggested above. Factors that could cause actual results to differ include the following:
industry supply-demand relationship and related pricing for enterprise and high-end desktop disk
products; successful product qualification of next-generation products; successful deployment of
new process technologies into manufacturing; utilization of manufacturing facilities; rate of
improvement in manufacturing efficiencies; extensibility of process equipment to meet more stringent
future product requirements; availability of sufficient cash resources; vertical integration and
consolidation within the company's limited customer base; increased competition; availability of
certain sole-sourced raw material supplies; and the risk factors listed in the company's Form 10-K
filed in March 1997. The company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
About Komag:
Founded in 1983, Komag, Incorporated is the world's largest independent manufacturer of thin-film
disks, the primary storage medium for digital data used in computer disk drives. The company is well
positioned as the broad-based strategic supplier of choice for the industry's leading disk drive
manufacturers. From technically-advanced, highly automated factories in the United States, Japan,
and Southeast Asia, Komag provides its customers with high quality, leading-edge, disk products at
a low overall cost of ownership and with time-to-market and time-to-volume support.
For more information about Komag, visit Komag's Internet home page at komag.com or
call Komag's Investor Relations 24-hour Hot Line at 888-66-KOMAG or 408-576-2901.
Komag's investor relations department can also be reached by e-mail at irweb@komag.com.
KOMAG, INCORPORATED
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
Dec. 28, Sept. 28, Dec. 29, Dec. 28, Dec. 29
1997 1997 1996 1997 1996
Net Sales $159,025 $129,694 $141,211 $631,082 $577,791
Cost of Sales 140,657 129,492 124,674 537,536 402,224
Gross Profit 18,368 202 16,537 93,546 175,567
Gross
Profit % 11.6% 0.2% 11.7% 14.8% 30.4%
Research &
Development
Expense 14,970 13,118 7,901 51,427 29,409
Selling,
General &
Administrative 5,860 3,913 4,802 27,523 33,665
Restructuring
Charge -- 52,157 -- 52,157 --
Operating
Profit (Loss)(2,462) (68,986) 3,834 (37,561) 112,493
Interest Income 980 1,159 911 4,753 6,437
Interest
Expense (2,603) (2,541) (298) (9,116) (625)
Other Income 2,423 1,077 1,332 4,104 2,843
Income (Loss)
Before
Income Taxes,
Minority
Interest and
Equity
Income (Loss)(1,662) (69,291) 5,779 (37,820) 121,148
Provision
(Benefit) for
Income Taxes (6,204) (20,411) (2,479) (20,982) 20,595
Minority
Interest in
Net Income
(Loss) of
Consolidated
Subsidiary 37 (6) 245 400 695
Equity in Net
Income
(Loss) of
Unconsolidated
Joint Venture(3,336) (3,874) 399 (4,865) 10,116
Net Income
(Loss) $1,169 ($52,748) $8,412 ($22,103) $109,974
Net Income
(Loss)% 0.7% (40.7%) 6.0% (3.5%) 19.0%
Basic Earnings
(Loss) Per
Share $0.02 ($1.01) $0.16 ($0.42) $2.15
Diluted Earnings
(Loss) Per
Share $0.02 ($1.01) $0.16 ($0.42) $2.07
Basic Shares
Outstanding 52,551 52,399 51,495 52,217 51,179
Diluted
Shares
Outstanding 53,570 52,399 53,568 52,217 53,132
KOMAG, INCORPORATED
Consolidated Balance Sheets
(in thousands)
Dec. 28, 1997 Dec. 29, 1996
ASSETS (Unaudited) (See Note a)
Cash and Short-Term
Investments $166,197 $93,241
Net Accounts
Receivable Trade 77,667 60,358
Inventories 66,778 61,960
Deposits and Other
Current Assets 61,047 35,538
Total Current Assets 371,689 251,097
Investment in Unconsolidated
Joint Venture 30,126 39,754
Net Property, Plant
& Equipment 678,596 643,706
Deposits and Other Assets 4,253 3,800
TOTAL ASSETS $1,084,664 $938,357
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts Payable Trade $47,136 $83,383
Accrued Liabilities 17,201 25,572
Restructuring Liability 11,253 --
Total Current Liabilities 75,590 108,955
Long-Term Debt, Less
Current Portion 245,000 70,000
Other Liabilities 74,295 58,303
Minority Interest in
Consolidated Subsidiary 3,595 3,159
Common Stock 402,397 388,822
Retained Earnings 281,476 303,579
Foreign Currency
Translation Adjustments 2,311 5,539
TOTAL STOCKHOLDERS' EQUITY 686,184 697,940
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,084,664 $938,357
(a) The Consolidated Balance Sheet at December 29, 1996 has been derived from the Audited
Financial Statements.
SOURCE: Komag, Incorporated |
