KOMG Komag (MM)

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. (Logo: http://www.newscom.com/cgi-bin/prnh/19990816/KOMGLOGO) 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 http://www.newscom.com/cgi-bin/prnh/19990816/KOMGLOGO http://photoarchive.ap.org/ 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/

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