Komag (NASDAQ:KOMG)
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SAN JOSE, Calif., Aug. 6 /PRNewswire-FirstCall/ -- Komag, Incorporated (NASDAQ:KOMG), a leading independent supplier of thin-film media for disk drives, today announced revenue of $187.2 million and basic loss per share of $0.72 for the second quarter of 2007. Revenue decreased 20% over the prior year's second quarter. Finished disk shipments decreased 29% in the second quarter of 2007 compared to the prior year period.
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The Company's second quarter of 2007 was significantly impacted by market pressure on unit volumes and average selling prices. The combined effect of low factory utilization, lower average selling prices, higher production costs associated with initial ramp of new products including additional new Perpendicular Magnetic Recording (PMR) media products resulted in significantly reduced gross margin and operating results. The Company's second quarter of 2007 operating results include expenses of approximately $4.3 million related to the previously announced acquisition of the Company by Western Digital Corporation (WDC).
As previously announced on June 28, 2007, the Company and WDC announced that the two companies had entered into a definitive agreement for WDC to acquire Komag for $32.25 in cash per share. The transaction is structured as a cash tender offer for all the outstanding shares of Komag common stock. The cash tender is currently in process and the acquisition is expected to close in the third calendar quarter of 2007. WDC expects to fund the transaction, including the retirement of Komag's convertible notes due 2014, through a combination of the companies' cash and proceeds from a senior secured term loan of up to $1.25 billion.
On April 13, 2007, the Company completed its previously announced redemption of its $80.5 million 2.0% Convertible Subordinated Notes due 2024 (the "2.0% Notes"). Holders of all of the 2.0% Notes elected to convert their notes into shares of the Company's common stock, in accordance with the terms of the notes, rather than having their notes redeemed and receiving the redemption price. In connection with the conversion of the 2.0% Notes, the Company issued 3,049,234 shares of its common stock.
Second Quarter Review
Sales to Western Digital, Seagate and Hitachi Global Storage Technologies accounted for 40%, 34% and 18% of disk product (media and substrates) revenue in the second quarter of 2007, respectively. Total finished disk shipments were 25.8 million in the second quarter of 2007.
High capacity 3.5-inch advanced disks with storage capacities of 160GB and above represented approximately 55% of our total finished disk shipments in the second quarter of 2007. These disks are primarily targeted for high capacity desktop and multi-platter consumer applications. These rapidly growing consumer applications include personal video recorders (PVRs), digital video recorders (DVRs), high definition television (HDTV), external storage, gaming and other home entertainment devices.
Other revenue, which includes sales of aluminum substrates, nickel-plated polished aluminum substrates and textured substrates, and the sale of $2.3 million worth of precious metals inventory, accounted for 24% of our total revenue in the second quarter.
Other Information
The Company will not be holding a second quarter 2007 conference call. In addition, the Company is not providing a business outlook due to the pending acquisition of the Company.
About Komag
Founded in 1983, Komag is a leading independent supplier of thin-film disks, the primary high-capacity storage medium for digital data. Komag leverages the combination of its world-class U.S. research and development center and Malaysian manufacturing operations to produce disks that meet the high-volume, stringent quality, low cost and demanding technology needs of its customers. By enabling rapidly improving storage density at ever-lower cost per gigabyte, Komag seeks to create extraordinary value for consumers of computers, enterprise storage systems and electronic appliances such as digital video recorders, game boxes and consumer electronic storage systems.
For more information about Komag, visit Komag's Internet home page at http://www.komag.com/. The Investors section of the website provides a variety of financial and investor information, including an investor presentation. To request an investor packet, call Komag's Investor Relations at 408-576-2901.
Forward-Looking Statements
This press release contains certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. These statements represent the Company's current judgment and include, but are not limited to, the expectation that the acquisition of the Company will close in the third calendar quarter of 2007 and the expectation that the transaction, including the retirement of Komag's convertible notes due 2014, will be funded through a combination of the Companies' cash and proceeds from a senior secured term loan of up to $1.25 billion. The Company's actual results for future periods could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, costs related to the proposed tender offer and merger, the risk of failing to meet the minimum tender condition or obtain any required stockholder or regulatory approvals or satisfy other conditions to the transaction, the risk that the transaction will not close or that closing will be delayed, the risk that Komag's business will suffer due to uncertainty related to the transaction and other risks related to its business set forth in its filings with the Securities and Exchange Commission, including the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 2007. There can be no assurance that the tender offer or any other transaction will be consummated. The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Komag's control. Komag cautions investors that any forward-looking statements made by it are not guarantees of future performance or events. Komag disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments, except to the extent required by law.
KOMAG, INCORPORATED
Consolidated Statements Of Operations
(in thousands, except per share data)
(Unaudited)
Three Three Three Six Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
July 1, April 1, July 2, July 1, July 2,
2007 2007 2006 2007 2006
Net Sales $187,173 $264,666 $233,627 $451,839 $442,139
Cost of Sales 181,045 205,660 168,659 386,705 318,078
Gross Profit 6,128 59,006 64,968 65,134 124,061
Gross Profit % 3.3% 22.3% 27.8% 14.4% 28.1%
Research, Development,
and Engineering Expense 15,406 16,499 16,081 31,905 31,156
Selling, General, and
Administrative Expense 11,707 8,467 9,125 20,174 17,149
Gain on Disposal of
Assets (166) (54) (26) (220) (86)
Operating Income
(Loss) (20,819) 34,094 39,788 13,275 75,842
Interest Income 2,300 1,459 1,867 3,759 3,938
Interest Expense (1,637) (511) (441) (2,148) (882)
Other Income (Expense),
Net 3 (5) 41 (2) (435)
Income (Loss) before
Income Taxes (20,153) 35,037 41,255 14,884 78,463
Provision for Income
Taxes 823 2,060 966 2,883 1,937
Net Income (Loss) $(20,976) $32,977 $40,289 $12,001 $76,526
Net Income (Loss) % (11.2%) 12.5% 17.2% 2.7% 17.3%
Basic Net Income (Loss)
per Share $(0.72) $1.09 $1.35 $0.41 $2.57
Diluted Net Income
(Loss) per Share $(0.72) $0.99 $1.21 $0.42 $2.31
Basic Shares Outstanding 29,084 30,166 29,883 29,625 29,784
Diluted Shares
Outstanding 29,084 33,811 33,544 33,841 33,525
KOMAG, INCORPORATED
Condensed Consolidated Balance Sheets
(in thousands)
July 1, 2007 December 31, 2006
ASSETS (Unaudited) (NOTE 1)
Cash, Cash Equivalents, and Short-Term
Investments $183,038 $171,132
Receivables, Net 112,597 140,230
Inventories:
Raw Materials 152,459 78,701
Work In Process 18,292 15,900
Finished Goods 20,916 9,580
Total inventories 191,667 104,181
Prepaid Expenses and Deposits 2,126 2,119
Total Current Assets 489,428 417,662
Property, Plant, and Equipment, Net 533,330 542,585
Other Assets 18,329 17,440
TOTAL ASSETS $1,041,087 $977,687
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade Accounts Payable $126,796 $139,477
Customer Advances 79,045 127,181
Other Liabilities 19,825 25,412
Total Current Liabilities 225,666 292,070
Long-Term Debt 250,000 80,500
Other Long-Term Liabilities 3,810 3,091
Stockholders' Equity 561,611 602,026
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,041,087 $977,687
NOTE 1: The Condensed Consolidated Balance Sheet at December 31, 2006 was
derived from the audited financial statements.
KOMAG, INCORPORATED
Condensed Consolidated Statements Of Cash Flows
(In thousands)
Six Months Ended
July 1, 2007 July 1, 2006
(Unaudited) (Unaudited)
Operating Activities
Net income $12,001 $76,526
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization of
property, plant, and equipment 52,263 32,738
Other non-cash items 13,448 11,146
Changes in operating assets and
liabilities (128,151) 38,840
Net cash provided by (used
in) operating activities (50,439) 159,250
Investing Activities
Acquisition of property, plant, and
equipment (41,806) (177,409)
Short-term investments, net (41,650) 47,050
Other 267 95
Net cash used in investing
activities (83,189) (130,264)
Financing Activities
Proceeds from long-term obligations,
net of issuance costs 243,215 --
Repurchase of common stock (140,417) (1,080)
Proceeds from sale of common stock,
net 1,021 3,235
Net cash provided by
financing activities 103,819 2,155
Effect of exchange rate changes on
cash and cash equivalents 65 1,074
Increase (decrease) in cash and cash
equivalents (29,744) 32,215
Cash and cash equivalents at
beginning of period 129,632 99,984
Cash and cash equivalents at
end of period $99,888 $132,199
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DATASOURCE: Komag, Incorporated
CONTACT: Investors and Press, Kathy Bayless, Chief Financial Officer of
Komag, Incorporated, +1-408-576-2000,
Web site: http://www.komag.com/