Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended December 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File No.1-6635
APPLIED MAGNETICS CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
A Delaware Corporation 95-1950506
------------------------ ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Robin Hill Road, Goleta, California 93117
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(805) 683-5353
(No Change)
___________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes ...X... No......
Indicate the number of shares outstanding of each of the
issuer's classes of common stock: 22,915,400 $.10 par value
common stock as of February 12, 1996.
Exhibit Index on Page 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
The unaudited condensed consolidated financial statements
included herein have been prepared by Applied Magnetics
Corporation and its subsidiaries (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The unaudited condensed
consolidated financial statements and selected notes included
therein should be read in conjunction with the audited
consolidated financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30,1995.
The following unaudited condensed consolidated financial
statements reflect all adjustments, consisting only of normal and
recurring adjustments, which, in the opinion of management, are
necessary to present fairly the consolidated financial position
and results of operations for the periods presented.
-2- <PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - Unaudited
(In thousands except share and per share data)
For the three months ended
December 30, December 31,
------------ ------------
1995 1994
---- ----
Net sales $ 94,709 $ 55,373
Cost of sales 71,195 56,167
---------- ----------
Gross profit (loss) 23,514 (794)
---------- ----------
Research and development
expenses 13,315 7,782
Selling, general and
administrative expenses 1,671 2,195
---------- ----------
Total operating expenses 14,986 9,977
---------- ----------
Profit (loss) from operations 8,528 (10,771)
Interest income 538 271
Interest expense (1,426) (994)
Other income (expense), net 1,489 (4)
---------- ----------
Profit (loss) before taxes 9,129 (11,498)
Provision for income taxes 101 216
---------- ----------
Net income (loss) $ 9,028 $ (11,714)
========== ==========
Net income (loss) per share: $0.38 ($0.53)
========== ==========
Weighted average common and
dilutive equivalent shares
outstanding: 23,774,471 22,074,285
========== ==========
The accompanying Selected Notes to Condensed Consolidated
Financial Statements are an integral part of
these consolidated statements.
-3- <PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets - Unaudited
(In thousands except share and par value data)
December 30, September 30,
ASSETS 1995 1995
Current Assets: ---- ----
Cash and equivalents $ 55,668 $ 48,236
Accounts receivable, net 53,433 36,571
Inventories 28,540 32,727
Prepaid expenses and other 8,152 10,411
--------- ---------
145,793 127,945
--------- ---------
Property, plant and equipment, at cost 251,785 252,953
Less-accumulated depreciation (148,446) (148,636)
--------- ---------
103,339 104,317
--------- ---------
Other assets 13,781 14,555
--------- ---------
$ 262,913 $ 246,817
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 11,909 $ 12,004
Bank notes payable 62,078 54,371
Accounts payable 42,715 44,535
Accrued payroll and benefits 9,033 9,361
Other current liabilities 14,313 13,637
--------- ---------
140,048 133,908
--------- ---------
Long-term debt, net 2,790 3,254
--------- ---------
Other liabilities 6,196 6,063
--------- ---------
Shareholders' Investment:
Preferred stock, $.10 par value, authorized
5,000,000 shares, none issued and
outstanding - -
Common stock, $.10 par value, authorized
40,000,000 shares, issued 22,872,580 and
22,619,205 shares at December 30, 1995
and September 30, 1995, respectively 2,287 2,262
Paid-in capital 182,425 181,191
Retained deficit (70,003) (79,031)
--------- ---------
114,709 104,422
Treasury stock, at cost (96,603 shares at
December 30, 1995 and September 30, 1995) (830) (830)
--------- ---------
113,879 103,592
--------- ---------
$ 262,913 $ 246,817
========= =========
The accompanying Selected Notes to Condensed Consolidated Financial
Statements are an integral part of these consolidated balance sheets.
-4- <PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows - Unaudited
(In thousands)
For the three months ended
December 30, December 31,
1995 1994
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 9,028 $ (11,714)
Adjustments to derive cash flows:
Depreciation and amortization 7,385 6,544
Provision for receivable allowances
and related costs - 50
Amortization of unearned restricted
stock compensation - 244
Other assets 119 186
Other liabilities 133 41
Other, net 230 (14)
Working capital changes affecting
cash flows from operations:
Accounts receivable (16,862) (1,952)
Inventories 4,187 5,435
Prepaid expenses and other 1,313 395
Accounts payable (1,820) (1,905)
Accrued payroll and benefits (263) (1,645)
Other current liabilities 676 (778)
Net cash flows provided by (used in) --------- ---------
operating activities 4,126 (5,113)
--------- ---------
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (6,034) (6,274)
Proceeds from sale of businesses and
real estate - 18,858
Notes receivable 1,010 470
--------- ---------
Net cash flows provided by (used in) (5,024) 13,054
investing activities --------- ---------
Cash Flows from Financing Activities:
Proceeds from debt 45,946 36,481
Repayment of debt (38,553) (36,102)
Proceeds from stock options exercised 1,194 72
--------- ---------
Net cash flows provided by financing
activities 8,587 451
--------- ---------
Effect of Exchange rate Changes on Cash
and Equivalents (257) (92)
--------- ---------
Net Increase in Cash and Equivalents 7,432 8,300
--------- ---------
Cash and Equivalents at Beginning of Period 48,236 20,761
--------- ---------
Cash and Equivalents at End of Period $ 55,668 $ 29,061
========= =========
The accompanying Selected Notes to Condensed Consolidated Financial
Statements are an integral part of these consolidated statements.
-5- <PAGE>
Selected Notes to Condensed Consolidated Financial Statements
Unaudited
Note A: Inventories
-------------------
Inventories are stated at the lower of cost (first-in, first-out)
or market. Inventory costs consist of purchased materials and
services, direct production labor and manufacturing overhead
expense. The components of inventory are as follows (in
thousands):
December 30, September 30,
1995 1995
------------ -------------
Purchased parts and
manufacturing supplies $ 9,140 $ 13,036
Work in process 16,477 17,589
Finished goods 2,923 2,102
------- --------
$ 28,540 $ 32,727
Note B: Restructuring Reserve
-----------------------------
During the three months ended December 30, 1995 and December 31,
1994, expenditures of approximately $0.1 million and $0.6
million, respectively, were charged to the 1993 restructuring
reserve, which related to the consolidation of certain of the
Company's manufacturing resources.
Note C: Sale of Assets
----------------------
During the three months ended December 30, 1995, the Company
received final payment of $1.3 million related to the completion
of certain milestones and release of the escrow holdback in
connection with the sale of the Company's Tape Head business unit
to Seagate Technology, Inc. ("Seagate") in December 1994. This
completes the sale to Seagate.
-6- <PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
During fiscal 1995, in response to market demands, the Company
furthered its technological development of the nanoslider form
factor thin film disk head products, made substantial progress in
thin film production process improvements and increased
production capacity for thin film disk heads. This resulted in
quarterly improvements in net sales, unit shipments and profit
margins for fiscal 1995 and the first quarter of fiscal 1996.
The Company's revenue base will transition towards more advanced
inductive head technologies and it is working closely with its
customers to qualify on the next generation of thin film disk
heads. The Company is currently in production of magnetoresistive
("MR") disk heads and continues development efforts to increase
production capabilities.
Three Months Ended December 30, 1995
------------------------------------
NET SALES. Net sales in the first quarter of fiscal 1996
increased 71.0% from the first quarter of fiscal 1995. Thin film
disk head net sales increased 69.3% for the comparable period
primarily due to the Company's continued volume production on
qualified customer programs. Ferrite disk head net sales
increased 77.3% for the comparable period, but continue to be a
small portion of total revenues as the Company focuses its
resources on its thin film business. Other net sales primarily
include tape head products and disk head products for which the
Company only performs head stack assembly ("HSA") functions using thin
film and MR disk heads purchased from other manufacturers. Other
net sales increased primarily due to assembly of thin film and MR
HSA's.
The following table sets forth, for the periods indicated, net
sales by product line.
For the three months ended
----------------------------------
December 30, December 31,
1995 1994
------------- ------------
Thin film disk head products
Net sales $64,617 $38,164
Percentage of total 68.2% 68.9%
Ferrite disk head products
Net sales $13,505 $ 7,616
Percentage of total 14.3% 13.8%
Other products
Net sales $16,587 $ 9,593
Percentage of total 17.5% 17.3%
Total net sales $94,709 $55,373
-7- <PAGE>
GROSS PROFIT. As a percentage of net sales, gross profit was
24.8% and (1.4%) for the first quarter of fiscal 1996 and the
first quarter of fiscal 1995, respectively. The increase in
gross profit was primarily due to higher sales volumes and
production process improvements in thin film disk head shipments.
RESEARCH AND DEVELOPMENT. Research and development expenses as a
percent of net sales was 14.1% for the first quarter of fiscal
1996 and the first quarter of fiscal 1995. Expenses in dollars
during the first quarter of fiscal 1996 increased $5.5 million
from the first quarter of fiscal 1995 as the Company focused on
next generation thin film inductive technology and MR prototype
development.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses as a percent of net sales were 1.8%
and 4.0% for the first quarter of fiscal 1996 and the first
quarter of fiscal 1995, respectively. Expenses in dollars for
the first quarter of fiscal 1996 decreased $0.5 million from the
first quarter of fiscal 1995 as the Company benefited from
significant staff and cost reductions experienced in fiscal 1995.
INTEREST INCOME AND EXPENSE. Interest income in the first
quarter of fiscal 1996 increased $0.3 million compared to the
first quarter of fiscal 1995 due to higher average cash balances
and favorable investment management results. Interest expense in
the first quarter of fiscal 1996 increased $0.4 million compared
to the first quarter of fiscal 1995 due to higher average debt
outstanding and higher average interest rates on the Malaysian
bank loans.
OTHER INCOME AND EXPENSE. Other income, net, of $1.5 million for
the first quarter of fiscal 1996 included $1.3 million related to
the completion of certain milestones and release of the escrow
holdback in connection with the sale of the Company's Tape Head
business unit to Seagate in December 1994. See Note C to the
Financial Statements for further discussion of sale of assets.
PROVISION FOR INCOME TAXES. The Company's provision for income
taxes for the three months ended December 30, 1995, primarily
related to federal alternative minimum taxes, state minimum taxes
and foreign taxes.
Liquidity and Capital Resources
-------------------------------
At December 30, 1995, the Company's cash and equivalents
increased to $55.7 million from $48.2 million at September 30,
1995. During the first quarter of fiscal 1996 the Company
generated $4.1 million from operating activities, comprised of
$9.0 million from net income which included $7.4 million of non-
cash depreciation and amortization charges and $4.2 million from
-8- <PAGE>
reduced inventories, offset by $16.9 million in increased
accounts receivable as a result of higher sales levels and
discontinuance of accelerated payment terms with some of the
Company's customers.
At December 30, 1995, total debt, including notes payable,
amounted to $76.8 million, an increase of $7.1 million from the
balance outstanding at September 30, 1995, primarily due to an
increase in borrowings on the CIT credit facility. The balance
available for additional borrowings under this line of credit was
approximately $4.5 million. At December 30, 1995, the Company
had fully drawn down its unsecured Malaysian credit facility
which has no stated maturity but is callable on demand from a
bank in Malaysia where the Company has substantial manufacturing
operations. Should all or any significant portion of the
Malaysian credit facility become unavailable for any reason, the
Company would need to pursue alternative financing sources.
In May 1995, the Company obtained an extension until March 1996
of the maturity date on a $10.0 million revolving credit facility
from a commercial bank. This facility is secured by a letter of
credit issued for the account of HML, subject to reimbursement by
the Company. The Company's reimbursement obligation to HML is
secured by a security interest in and lien on certain machinery
and equipment.
The Company no longer has accelerated payment terms with any of
its customers. However, the liquidity risk associated with the
discontinuance of these arrangements is partially ameliorated by
the credit available under the CIT credit facility under which
available loan proceeds would generally increase as the Company's
trade accounts receivable increase.
Capital expenditures for the three months ended December 30,
1995, were $6.0 million. In addition, the Company leased
$9.7 million of production equipment through operating leases.
The Company plans a total of approximately $125 million in new
capital expenditures, including equipment to be obtained through
operating leases, during fiscal 1996 primarily to continue to
improve thin film production processes, increase thin film
production volumes and continue development and production of MR
technologies and products. The Company's objective is to provide
sufficient cash flows from operations and to continue to pursue
other financing alternatives in order to meet its operating and
capital expenditure requirements.
Market and customer demand continues to be strong for the
Company's thin film disk heads. In the event that demand for the
Company's products declines, management believes that it will be
able to reduce its funding requirements for planned, but not
committed, capital expenditures. However, if the Company were
unable to continue to maintain production yields at acceptable
levels in order to permit it to execute customer orders for new
drive programs in a timely manner, there could be a significant
adverse impact on liquidity. This would require the Company to
-9- <PAGE>
either obtain additional capital from external sources or to
curtail its capital, research and development or working capital
expenditures. Such curtailment could adversely affect the
Company's future years' operations and competitive position.
-10- <PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description
------- -----------
11 Statement re computation of per share
information.
27 Financial Data Schedule
(b) Reports on Form 8-K. None
-11- <PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APPLIED MAGNETICS CORPORATION
Dated: February 13, 1996 /s/Craig D. Crisman
--------------------------------
Craig D. Crisman
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
Dated: February 13, 1996 /s/Peter T. Altavilla
--------------------------------
Peter T. Altavilla
Corporate Controller
(Principal Accounting Officer)
-12- <PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Page
------- ----------- -----
11 Statement re computation of per share
information. 14
27 Financial Data Schedule 15
-13- <PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
For the three months ended
December 30, 1995
(Unaudited)
---------------------------------------
Primary earnings Fully diluted
per share earnings per share
Net income $ 9,028 $ 9,028
======= =======
Weighted average common
shares outstanding 22,698 22,698
Dilutive common stock
equivalents 1,076 1,175
------- -------
Total weighted average
common shares outstanding 23,774 23,873
======= =======
Net income per share $ 0.38 $ 0.38
======= =======
Since fully diluted earnings per share does not reduce the Company's
earnings per share by more than 3% of primary earnings per share, the
Company has reflected primary earnings per share on the Consolidated
Statement of Operations for the three months ended December 30, 1995.
-14- <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 30, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED AS OF DECEMBER 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> DEC-30-1995
<CASH> 55,668
<SECURITIES> 0
<RECEIVABLES> 53,433
<ALLOWANCES> 0
<INVENTORY> 28,540
<CURRENT-ASSETS> 145,793
<PP&E> 251,785
<DEPRECIATION> (148,446)
<TOTAL-ASSETS> 262,913
<CURRENT-LIABILITIES> 140,048
<BONDS> 0
0
0
<COMMON> 2,287
<OTHER-SE> 111,592
<TOTAL-LIABILITY-AND-EQUITY> 262,913
<SALES> 94,709
<TOTAL-REVENUES> 94,709
<CGS> 71,195
<TOTAL-COSTS> 71,195
<OTHER-EXPENSES> 14,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,426
<INCOME-PRETAX> 9,129
<INCOME-TAX> 101
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,028
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
