KOMG Komag (MM)

- Revenue up 32.7%, net income up 32.0% in the fourth quarter of 2006 over prior year SAN JOSE, Calif., Jan. 24 /PRNewswire-FirstCall/ -- Komag, Incorporated (NASDAQ:KOMG), a leading independent supplier of thin-film media for disk drives, today announced record revenue of $255.9 million and diluted earnings per share of $1.39 for the fourth quarter of 2006. Komag also reported record revenue of $937.7 million and diluted earnings per share of $4.75 for the 2006 fiscal year. These financial results represent a 32.7% increase in revenue and a 29.9% increase in diluted earnings per share over the same quarter last year. Fiscal year 2006 revenue increased 36.7% and diluted earnings per share were up 33.8% over the prior fiscal year. (Logo: http://www.newscom.com/cgi-bin/prnh/19990816/KOMGLOGO ) Tim Harris, Komag's Chief Executive Officer stated, "We are pleased that we achieved record revenue and earnings for both the fourth quarter and full year of 2006. This is the tenth consecutive quarter of increasing revenue for Komag. Overall demand for our products continues to be strong for both our perpendicular magnetic recording media (PMR) as well as our longitudinal magnetic recording media (LMR). We shipped over one million PMR disks during the fourth quarter of 2006. Based on the strong demand in the fourth quarter, we increased our finished media capacity to slightly above our expected 40 million disk per quarter target level through our increased manufacturing productivity." Gross margin for the fourth quarter was negatively impacted by an unfavorable Malaysian Ringgit currency rate change which primarily occurred in December of 2006. Net income in the fourth quarter and the year included a $7 million tax benefit from the reversal of certain valuation allowances related to deferred income tax assets. Fourth Quarter Review Sales to Western Digital, Seagate and Hitachi Global Storage Technologies accounted for 42%, 37% and 18% of total revenue in the fourth quarter of 2006, respectively. Total finished disk shipments were 42.1 million in the fourth quarter of 2006. High capacity 3.5-inch advanced disks with storage capacities of 160GB and above represented approximately 36% of total finished disk shipments in the fourth quarter of 2006. This included shipments of over one million PMR disks. 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, accounted for 11% of total revenue in the fourth quarter. Komag is the world's largest hard disk aluminum substrate manufacturer. While substrates are primarily produced for internal use in the manufacture of finished disks, the high quality of Komag's substrates has led to continuing market opportunities to sell substrates externally to strategic customers, particularly for PMR quality substrates. Business Outlook Mr. Harris said, "Komag is continuing to ramp up our PMR media in the first quarter of 2007. We expect that shipments of PMR media will continue to increase significantly during 2007. We have also begun sampling both 65mm glass and aluminum PMR media and we expect to qualify into several programs in 2007. We expect that total revenue for the first quarter of 2007 will be down approximately 2% to 3% compared to the fourth quarter of 2006 and up approximately 20% over the first quarter of 2006. Our revenue outlook for the first quarter includes an expected decrease in overall unit demand for finished media of 4% to 6% due to normal seasonality. We also expect an increase in our blended average selling price for finished media, driven by an improving product mix. Further, we expect an increase in substrate sales to approximately 14% of total revenue in the first quarter. With our expected revenue, the mix of finished media and substrate sales and certain cost increases, our net margin is expected to be in the range of 12% to 14% in the first quarter of 2007. Our 2007 income tax rate is expected to be approximately 5% in the first quarter of 2007. Our income tax rate in 2006 excluding the fourth quarter tax benefit adjustment was approximately 2.4%. During the first quarter of 2007, we expect to maintain our quarterly finished media capacity at approximately 41 million disks. Komag is committed to supporting the growing demand for digital storage by maintaining our high quality, low cost manufacturing structure, providing advanced technology products and excellent customer support. We will continue to provide appropriate capacity in conjunction with strategic supply agreements with our customers, with the goals of growing our business and providing long term financial returns to our stockholders." 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 revenue in the first quarter of 2007 is expected to be down 2% to 3% compared to the fourth quarter of 2006, the Company's expectations regarding product transition plans and increase in the production of PMR products, the Company's expectations regarding finished media unit production capacity in the first quarter of 2007 and during 2007, the Company's expectations for PMR media shipments during 2007, the Company's expectation regarding overall unit demand for finished media during the first quarter of 2007 and during 2007, the Company's expectation that during the first quarter of 2007 substrate sales will increase to approximately 14% of revenue, the Company's expectation that net margin could be in the range of 12% to 14% in the first quarter of 2007, the Company's expectation that the 2007 income tax rate will be approximately 5% in the first quarter of 2007, the Company's ability to accurately estimate costs, net margin, the market for unit shipments of disks and disk drives, the Company's belief in continued increased demand trends, and the benefits of the Company's increased capacity arrangements with its customers and market growth opportunities. 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 include, but are not limited to, the Company's ability to achieve operating yield, cost and profitability targets, changes in the currency exchange rate for the Malaysian ringgit as a result of the managed float system, continued customer demand and the impact of demand variation on factory utilization, the performance by the Company and customers of their obligations under the respective increased capacity arrangements, changes in demand, changes in the price and availability of raw materials (including ruthenium which has recently experienced significant price increases), the Company's ability to increase capacity, variability in demand and associated impact on average selling price of disks, the Company's ability to satisfy customer qualification requirements and meet shipping demands, the Company's expectation that industry unit demand will continue to grow and not decline and the Company's ability to produce new generation disks in volume and the other factors described in the Company's reports filed with the Securities and Exchange Commission, including, but not limited to, our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Komag undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements. KOMAG, INCORPORATED Condensed Consolidated Income Statements (in thousands, except per share data) (Unaudited) Three Three Three Twelve Twelve Months Months Months Months Months Ended Ended Ended Ended Ended Dec. 31, Oct. 1, Jan. 1, Dec. 31, Jan. 1, 2006 2006 2006 2006 2006 Net Sales $255,929 $239,608 $192,920 $937,676 $685,946 Cost of Sales 194,088 177,828 138,217 689,994 497,213 Gross Profit 61,841 61,780 54,703 247,682 188,733 Gross Profit % 24.2% 25.8% 28.4% 26.4% 27.5% Research, Development, and Engineering Expense 15,408 17,621 12,830 64,185 48,873 Selling, General, and Administrative Expense 7,289 9,971 6,210 34,409 23,622 (Gain) Loss on Disposal of Assets (145) (133) (345) (364) (1,694) Operating Income 39,289 34,321 36,008 149,452 117,932 Interest Income 1,510 1,559 1,981 7,007 5,327 Interest Expense (441) (441) (441) (1,764) (1,765) Other Income (Expense), Net 7 2 (67) (426) (415) Income before Income Taxes 40,365 35,441 37,481 154,269 121,079 Provision for (Benefit from) Income Taxes (6,144) 943 2,246 (3,264) 5,442 Net Income $46,509 $34,498 $35,235 $157,533 $115,637 Net Income % 18.2% 14.4% 18.3% 16.8% 16.9% Basic Net Income per Share $1.54 $1.15 $1.20 $5.27 $3.99 Diluted Net Income per Share $1.39 $1.04 $1.07 $4.75 $3.55 Basic Shares Outstanding 30,138 29,969 29,476 29,919 29,003 Diluted Shares Outstanding 33,715 33,565 33,329 33,566 33,042 KOMAG, INCORPORATED Condensed Consolidated Balance Sheets (in thousands) Dec. 31, 2006 Jan. 1, 2006 ASSETS (Unaudited) (NOTE 1) Cash and Cash Equivalents $129,632 $99,984 Short-Term Investments 41,500 105,050 Receivables, Net 140,230 116,217 Inventories 104,181 54,000 Other Current Assets 2,119 1,846 Total Current Assets 417,662 377,097 Property, Plant, and Equipment, Net 542,585 351,046 Deferred Income Taxes 7,346 Other Assets 10,094 3,308 TOTAL ASSETS $977,687 $731,451 LIABILITIES AND STOCKHOLDERS' EQUITY Trade Accounts Payable $139,477 $97,901 Customer Advances 127,181 102,898 Other Liabilities 25,412 28,585 Total Current Liabilities 292,070 229,384 Long-Term Debt 80,500 80,500 Long-Term Deferred Rent 3,091 2,562 Stockholders' Equity 602,026 419,005 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $977,687 $731,451 NOTE 1: The Condensed Consolidated Balance Sheet at January 1, 2006 was derived from the audited financial statements. KOMAG, INCORPORATED Condensed Consolidated Statements Of Cash Flows (In thousands) Year Ended Dec. 31, 2006 Jan. 1, 2006 (Unaudited) (NOTE 1) Operating Activities Net income $157,533 $115,637 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant, and equipment 79,488 44,519 Other non-cash items 15,938 10,596 Changes in operating assets and liabilities (1,520) 74,772 Net cash provided by operating activities 251,439 245,524 Investing Activities Acquisition of property, plant, and equipment (286,082) (155,613) Short-term investments, net 63,550 (27,350) Other (6,652) 3,139 Net cash used in investing activities (229,184) (179,824) Financing Activities Proceeds from sale of common stock, net 3,586 7,874 Net cash provided by financing activities 3,586 7,874 Effect of exchange rate changes on cash and cash equivalents 3,807 -- Increase in cash and cash equivalents 29,648 73,574 Cash and cash equivalents at beginning of period 99,984 26,410 Cash and cash equivalents at end of period $129,632 $99,984 NOTE 1: The Condensed Consolidated Statement of Cash Flows for the year ended January 1, 2006 was derived from the audited financial statements. http://www.newscom.com/cgi-bin/prnh/19990816/KOMGLOGO http://photoarchive.ap.org/ DATASOURCE: Komag, Incorporated CONTACT: Kathy Bayless, Chief Financial Officer, +1-408-576-2000, or Web site: http://www.komag.com/

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