SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
[ ] Preliminary Proxy Statement
[ ] Confidential , for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
READ-RITE CORPORATION
- ---------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
APPLIED MAGNETICS CORPORATION
- ---------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------
- 1 -
<PAGE>
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------
- 2 -
<PAGE>
[LOGO] [LOGO]
APPLIED MAGNETICS CORPORATION READ-RITE CORPORATION
A POWERFUL COMBINATION
FOR
INVESTORS, CUSTOMERS AND THE INDUSTRY
- 3 -
<PAGE>
Preface
This document contains certain forward looking statements with respect to
the financial condition, results of operations and business of Applied
Magnetics Corporation and, assuming the consummation of the proposed
business combination, a combined Applied Magnetics/Read-Rite Corporation.
In addition, the ability of Applied Magnetics to realize increases in
operating income resulting from potential cost savings is also subject to
the following uncertainties, among others: (a) the ability to integrate
the Applied Magnetics and Read-Rite management and R&D and operations
functions on a timely basis, if at all: and (b) the ability to eliminate
duplicative functions while maintaining acceptable performance levels.
Further information on other factors which could affect the financial
results of Applied Magnetics after the proposed business combination is
included in filings by Applied Magnetics with the Securities and Exchange
Commission, (the "Commission"), including a registration statement on
Form S-4 filed with the Commission on February 24, 1997, and the Commission
filings incorporated by reference therein.
- 4 -
<PAGE>
Table of Contents
Tab
---
Overview I
Disk Drive Market Opportunity II
Market Drive Product Road Map III
Applied Magnetics: Myth vs. Reality IV
Financial Highlights V
Applied Magnetics Corporation's
Proposed Merger With Read-Rite
Corporation VI
Comparison of Applied Magnetics
and Read-Rite VII
- 5 -
<PAGE>
===========================================================================
OVERVIEW
===========================================================================
- 6 -
<PAGE>
Combined, Applied Magnetics and Read-Rite Offer Investors Powerful
Earnings Potential
[Graph showing the FY 1998 estimated earnings per share
for Applied Magnetics standalone, Read-Rite standalone
and combined.]
FY 1988 EPS
-----------
Applied Magnetics
Standalone $6.22 (+44% Growth)
Read-Rite
Standalone $3.20 (+55% Growth)
Combined $7.44(1)
Note: All figures based on most recent street estimates. Growth
percentages based on 1998 vs. 1997 estimates.
(1) Includes $145 million of pretax synergies: $100 million cost savings
and $45 million gross margin improvement assumed.
- 7 -
<PAGE>
The Technology Sector Has Performed Poorly Since Applied Magnetics Launched
Its Offer
Offer Premium (Based on 2/21/97 Prices) 33%
2/21/97 2/28/97 % Change
------- ------- --------
Stock Prices (1):
APM 55 1/4 38 1/2 (30.3%)
RDRT 28 1/8 30 5/8 8.9%
Peer Group Index (2) 100.0 91.1 (8.9%)
Nasdaq Composite -- -- (1.9)
Recent declines in APM's stock price do not reflect:
> the underlying value of APM's standalone earnings potential
or
> cost saving synergies and enhanced earnings power of a combined APM
and RDRT
(1) Closing bid.
(2) Peer group includes: QNTM, KMAG, HMTT, STMD, SEG, WDC and HTCH.
- 8 -
<PAGE>
APM has Produced Superior Financial Performance and Created Substantial
Shareholder Value Since the Installation of a New Management Team in 1994
[Two graphs. The first is APM's stock price from 1/1/94
through 2/21/97. The second graph is Applied Magnetics'
quarterly revenues and earnings before interest and taxes
over the same time period.]
Stock Price
-----------
(Price/Share)
2/10/94 5.00
3/25/94 7.00
5/10/94 5.50
6/22/94 4.50
8/04/94 4.50
9/16/94 4.25
10/28/94 3.875
12/12/94 2.25
1/25/95 3.375
3/09/95 2.75
4/21/95 4.00
6/05/95 5.50
7/18/95 8.375
8/29/95 10.50
10/11/95 15.375
11/22/95 15.00
1/08/96 17.375
2/20/96 16.25
4/02/96 15.625
5/15/96 20.125
6/27/96 10.375
8/09/96 12.875
9/23/96 17.00
11/04/96 21.375
12/17/96 28.375
1/30/97 58.00
Revenues EBIT
-------- ----
($ in Millions)
94Q2 $ 69.8 $ (8.5)
94Q3 70.3 (14.9)
94Q4 64.6 (19.0)
95Q1 55.4 (10.8)
95Q2 64.9 (3.8)
95Q3 79.9 5.9
95Q4 92.4 7.5
96Q1 94.7 8.5
96Q2 86.7 9.4
96Q3 74.0 3.8
96Q4 89.3 14.1
97Q1 121.6 33.4
- 9 -
<PAGE>
Applied Magnetics Has Strong Potential - Standalone or Combined with
Read-Rite
________________
[ ]> Continue to add capacity
[ APM Standalone ]> Continue to develop
[ FY 1998E: ] advanced technology as
____________----------------> [ $6.22 EPS ] market demands
[ ] [________________]
[ APM ]
[ Today ]
[ FY1997E: ]
[ $4.32EPS ]
[___________]
----------------> ________________
[ ]> APM/RDRT adds production
[ Combined with ] capacity immediately
[ RDRT ]> Significant potential
[ FY 1998E: ] for cost savings
[ $7.44 EPS ]> Increased scale in
[________________] consolidating industry
> Product mix OEM customers
need
> Enhances R&D leverage for
new products
Note: APM FY 1997 EPS estimate based on most recent Street estimates fully
taxed.
- 10 -
<PAGE>
The APM Investment Opportunity
> Strong market forces driving greater demand for storage
> APM has advanced thin film and MR technology
> APM's advanced thin film and MR products address the fastest growing
segments of the head market
> APM Management team has proven its operating capability by delivering
a dramatic financial turnaround
> APM managment has dramatically increased shareholder value
> Opportunity to invest today to participate in current APM standalone
value and recognize future potential of RDRT with APM's proven
management team
> RESULT: $7.44 EPS in FY 1998!
- 11 -
<PAGE>
APM, Currently Trading at a Significantly P/E Discount Despite its Superior
Financial Performance, Should Appeal to Both Growth and Value Investors
P/E Multiples (1)
1997E 1998E
----- -----
Applied Magnetics 8.9x 6.2x
Read-Rite 14.8 9.6
Peer Group (2) 13.3 9.3
Applied Magnetics P/E Premium/(Discount) to:
Read-Rite (40%) (35%)
Peer Group (2) (33%) (33%)
(1) Based on closing prices on February 28, 1997 (APM=$38.50,
RDRT=$30.69).
(2) Peer group includes: QNTM, KMAG, HMTT, SEG, WDC and HTCH.
- 12 -
<PAGE>
===========================================================================
Disk Drive Market Opportunity
===========================================================================
- 13 -
<PAGE>
Product Overview
> Both APM and RDRT manufacture
recording heads for Hard Disk
Drives, which are supplied as
. Head Gimbal [Diagram of hard disk drive and
Assemblies ("HGAs") its components, recording head
slider, head gimbal assembly
. Head Stack and head stack assembly]
Assemblies ("HSAs")
> The technologies used to
manufacture heads include
. Metal in Gap (MIG)
. Thin Film
. Planar
. Magnetoresistive (MR)
- 14 -
<PAGE>
The Recording Head Manufacturing Process and Resulting Yields
100 HGA - Equivalent Starts
WAFER
Goleta, CA
Yield: 82 --> ROW
Goleta, CA
68 --> SLIDER
Penang, Malaysia
42 --> HGA Sub-Assembly
Malaysia, Korea, China
38 --> HGA Test ---> Ship to Customer
Malaysia, Korea
34 --> HSA
Malaysia, Korea, Ireland
33 --> Ship to Customer
- 15 -
<PAGE>
Drivers of Data Storage Demand Growth
Database Applications/
Datawarehousing
Graphical Internet ________________ Multimedia
Web Sites [ ] Data Types
[ Storage Demand ]
[ Growth ]
[_________________]
Disk Arrays E-mail
Proliferation
Overall Computer Growth Memory Intensive
(Home and Office) Software Applications
- 16 -
<PAGE>
Unit Growth of PCs Continues...
[Graph of PC shipments in millions of units from 1993-
1999 estimated]
(Millions)
1993 38.8
1994 47.4
1995 61.2
1996 73.5
1997E 87.1
1998E 100.8
1999E 118.0
CAGR:
1993-99 20%
1996-99 17% (1)
(1) Market research estimates range from 17-20%
Source: Applied Magnetics and Trend-Focus
- 17 -
<PAGE>
...While Storage Requirements Propel Strong Growth in Disk Drive Units
[Graph of total disk drive unit shipments in millions
of units from 1994-1997 estimated)
(Millions)
1993 52.1
1994 69.1
1995 88.3
1996 106.0
1997E 131.4
1998E 173.4
1999E 211.2
CAGR:
26%
Source: Applied Magnetics and Trend-Focus
- 18 -
<PAGE>
...Resulting in More Heads Per Average Drive and...
[Graph of the average number of heads per disk drive
shipped from 1994-1997 estimated]
1994 5.0
1995 5.8
1996 6.0
1997E 6.3
Source: Applied Magnetics and Trend-Focus
- 19 -
<PAGE>
...An Even Faster Rate of Growth of Head Unit Shipments
[Graph of the number of heads shipped in millions of
units from 1993-1997 estimated]
(Millions)
1993 259
1994 345 (+33%)
1995 525 (+52%)
1996 639 (+22%)
1997E 830 (+30%)
CAGR:
35%
Source: Trend-Focus
- 20 -
<PAGE>
Technology Advances are Driving Up Storage Capacity per Disk...
[Graph of the average number of megabytes of storage
per 3.5 inch disk drive shipped from 1993-1997
estimated]
(Megabytes per
3.5" Disk)
1993 170
1994 270
1995 420
1996 670
1997E 1,080
Source: Applied Magnetics
- 21 -
<PAGE>
...And Driving Down Prices, Which Drives Demand, But...
[Graph of the average cost (in cents) to the consumer
of a megabyte of storage on a 3.5 inch disk from 1993-
1997 estimated]
($ per Megabyte)
1993 $0.68
1994 0.43
1995 0.27
1996E 0.16
1997E 0.10
...Requires Intense, Cost-Focused Management.
38% per Year Cost Reduction
Source: Applied Magnetics
- 22 -
<PAGE>
==============================================================================
Market Driven Product Road Map
==============================================================================
- 23 -
<PAGE>
Market Driven Product Strategy
> Overall Philosophy - Deliver products which meet today's customer
price/performance needs and provide superior gross margins
> Exploit advanced thin film head technology to develop industry leading
data storage capacity at superior price points:
. Presently in commercial volume with 1.3GB per disk
. Presently qualifying 1.6GB per disk advanced thin film product
with six OEMs
. Sample 2.1GB per disk advanced thin film product in 3/97
> Provide cost-effective advanced thin film products as a solution for
our desktop market:
. Desktop producers will continue to adopt MR more slowly than the
notebook/workstation segments due to price/performance and volume
availability
> Continue to expand MR capacity consistent with customer adoption
roadmaps
. APM's & RDRT's major customer today is 90% thin film
- 24 -
<PAGE>
APM Is Successfully Making Product Transitions
[Graph of the percentage breakdown of APM's actual and
estimated production of heads with varying capacities
from the first quarter of fiscal 1996 through the
fourth quarter of fiscal 1997 estimated]
Q1 FY1996 Q2 FY1996 Q3 FY1996 Q4 FY1996
- --------- --------- --------- ---------
540/670MB 100% 540/670MB 99% 540/670MB 69% 540/670MB 20%
850 MB 1% 850MB 30% 850MB 64%
1080MB 1% 1080MB 16%
Q1 FY1997E Q2 FY1997E Q3 FY1997E Q4 FY1997E
- ---------- ---------- ---------- ----------
850MB 25% 850MB 12% 850MB 10% 850MB 8%
1080MB 69% 1080MB 65% 1080MB 38% 1080MB 24%
1300MB 2% 1300MB 22% 1300MB 49% 1300MB 34%
1600MB 3% 1600MB 26%
2100MB 8%
Source: Applied Magnetics
- 25 -
<PAGE>
Advanced Thin Film Will Continue to Provide Industry Leading Storage
Capacities...
[Chart outlining APM's planned advanced thin film
product roadmap from the third calendar quarter of 1996
through the second calendar quarter of 1998 estimated]
1996A 1997E 1998E
--------- ------------------------ -----------
Capacity/ CQ3 CQ4 CQ1 CQ2 CQ3 CQ4 CQ1 CQ2
Disk
- ----
850MB ---------------O
1080 MB ==O--------------------------------O
1300 MB ========O-----------------------------------O
1600 MB O==================O---------------------------------->
2100 MB O===================O-------------------->
2800 MB O==============O----------->
==== Qualification Cycles
- ---- Planned Volume Production
...Meeting a Market Need for Future Advanced Product Generations
- 26 -
<PAGE>
APM Will Roll Out New MR Products as Customers Require
[Chart outlining APM's planned MR
product roadmap from the third calendar
quarter of 1996 through the second
calendar quarter of 1998 estimated]
1996A 1997E 1998E
--------- ------------------------ -----------
Capacity/ CQ3 CQ4 CQ1 CQ2 CQ3 CQ4 CQ1 CQ2
Disk
- ----
<900 MB -----------------------------------O
910/1080 MB ==============O----------------------------O
1600 MB =====================O------------------------------->
2100 MB O=============O------------------------>
2800 MB O=============>O-->
3400 MB O=========>
4300 MB O=====>
==== Qualification Cycles
- ---- Planned Volume Production
- 27 -
<PAGE>
Thin Film Heads Have Substantial Cost Savings Over Comparable MR Products
[Graph of the average sales price for thin film and MR
heads of comparable performance from 1995-1999
estimated]
Average Sales Price
Comparable Performance Heads
Thin Film Inductive MR
------------------- --
1995 8.96 18.20
1996 7.95 12.97
1997E 7.04 10.42
1998E 6.71 8.83
1999E 6.57 8.00
Source: Trend-Focus
- 28 -
<PAGE>
APM Has Been Shipping MR Heads into Customer Programs for Nine Months...
[Graph of the percentage of thin film and MR heads that
APM expects to produce between the second calendar
quarter of 1997 and the second calendar quarter of
1999]
Percentage of HGA Units
CY 1997E CY 1998E CY 1999E
----------------- ------------------------- ----------
CQ2 CQ3 CQ4 CQ1 CQ2 CQ3 CQ4 CQ1 CQ2
--- --- --- --- --- --- --- --- ---
Thin Film 90% 84% 78% 68% 57% 43% 22% 4%
MR 10% 16% 22% 32% 43% 57% 78% 96% 100%
...and Has a Price/Performance, Demand Driven Transition Plan.
Source: Applied Magnetics estimates.
- 29 -
<PAGE>
The Facts About Applied Magnetics and Thin Film
> APM is supplying in commercial volumes the highest capacity heads
available - 1.3GB per disk - on advanced thin film technology
> Advanced thin film heads are approximately 35% less expensive than
similar capacity MR heads
> MR technology offers certain technical advantages for the workstation
and portable markets, but advanced thin film offers superior
price/performance in the desktop market
> Western Digital is in volume production on a 1.3GB per disk product
using APM's advanced thin film heads
> APM's advanced thin film capability has allowed it to beat Seagate and
RDRT to market
> Seagate is in volume with an 850MB per disk thin film product vs.
APM's 1.3GB per disk offering
> RDRT has consistently lagged APM to the market:
APM Delivery RDRT Delivery
------------ -------------
850MB CQ296 CQ396
1.0GB CQ396 CQ496
1.3GB CQ496 CQ297?
- 30 -
<PAGE>
==============================================================================
Applied Magnetics: Myths vs. Reality
================================================================================
- 31 -
<PAGE>
Applied Magnetics: Myths vs. Reality
Myth #1: "Applied Magnetics is Acquiring Read-Rite for its MR Head
Technology."
Reality:
> APM has been shipping MR head products in volume for three quarters
> APM presently is sampling MR heads in six OEM programs and is moving
toward qualification
> APM is ramping MR production to an annualized run rate of more than
6 million units by CQ2 1997
> APM recently began expanding wafer capacity in anticipation of its MR
ramp
> APM converted slider fabrication and HGA and HSA assembly capacity to
handle MR production
> APM won't over-invest in any technology before its time, especially
when current technology meets customer needs and delivers superior
margins and shareholder value
> MR technology is widely available and could be obtained through
acquisition or joint venture at a lower cost than acquiring RDRT
- 32 -
<PAGE>
Applied Magnetics: Myths vs. Reality
Myth #2: "MR Heads 'Better' Suit Today's Customer Needs."
Reality:
> APM's has high margin thin film product shipping in volume at industry
leading capacities of 1.0GB and 1.3GB per disk
> Applied presently is qualifying a 1.6GB per disk product and in March
will sample a 2.1GB per disk 3.5" advanced thin film product
> Seagate's most common MR head in volume is only 1.0GB per disk.
RDRT's highest capacity MR head in commercial production gives it no
higher capacity than APM's applied advanced thin film technology today
> APM's advanced thin film products are far more cost effective than MR
products (approximately 35% cheaper for comparable capacity)
> REMEMBER: MR offers certain technical advantages to the workstation
and portable market, but advanced thin film offers superior price/
performance for the desktop market (and superior gross margins to
APM).
- 33 -
<PAGE>
Applied Magnetics: Myths vs. Reality
Myth #3: "The Thin Film Head Business Will Die Soon."
Reality
> Seagate and Western Digital: "MR is too expensive for the desktop."
> Applied has a clear migration path for its advanced thin film products
> Applied will migrate its MR business as capacity demands, as its
customers require and as the margins will accretively support
transition, not before then
> Technology obsolescence has been greatly exaggerated before (e.g., MIG
to thin film, which experienced a transition much slower than
predicted)
- 34 -
<PAGE>
Applied Magnetics: Myths vs. Reality
Myth #4: "Read-Rite's prospects as a standalone company are bright."
Reality
> RDRT has failed to deliver on planar technology and has not
demonstrated a cost-effective technology solution
> RDRT has consistently lagged the market with new product introductions
and failed to satisfy its customer requirements
> RDRT has substantial underutilized capacity and a bloated cost
structure
> RDRT has failed to deliver acceptable financial performance
CONCLUSION: READ-RITE NEEDS APPLIED MAGNETICS AND ITS MANAGEMENT
- 35 -
<PAGE>
==============================================================================
Financial Highlights
==============================================================================
- 36 -
<PAGE>
APM Has Substantially Increased Revenues and Margins While Dramatically
Reducing Costs...
[Graphs of APM's revenues, gross margin percentage,
SG&A expenses (in $millions and as a percentage of
revenues) and research and development expenses (in
$millions and as a percentage of revenues) from fiscal
year 1994-1996 and the first fiscal quarters of 1996
and 1997]
FY1994 FY1995 FY1996 FY96-Q1 FY97-Q1
------ ------ ------ ------- -------
($ in Millions)
Revenues $276 $293 $345 $ 95 $122
SG&A 17.3 7.4 6.5 1.7 2.0
(% of Revenues) 6.3% 2.5% 1.9% 1.8% 1.6%
R&D 24.7 33.7 50.9 13.3 11.1
(% of Revenues) 8.9% 11.5% 14.8% 14.0% 9.1%
Gross Margin (2.2%) 13.6% 27.0% 24.8% 38.3%
- 37 -
<PAGE>
...Leading to Rapidly Growing Earnings
[Graph of APM's earnings per share for Fiscal year 1994
- fiscal year 1998 estimated]
FY1994 FY1995 FY1996 FY97E FY98E
------ ------ ------ ----- -----
EPS $(2.39)(1) $0.08 $1.35 $4.32(2) $6.22(2)
(1) New management took control near the end of FY1994.
(2) Source: Most recent Street estimates.
- 38 -
<PAGE>
==============================================================================
Applied Magnetics Corporation's Proposed Merger
With Read-Rite Corporation
=============================================================================
A Powerful Combination
for Investors and the Industry
- 39 -
<PAGE>
Transaction Summary
Exchange Ratio 0.679 (fixed)
Accounting Method Pooling of interests
(Not a condition)
Tax Tax-free exchange
Projected Operating
Cost Savings $100MM over 1st 12 months
Cost of Goods Sold Savings Up to $150 Million if APM's standard
costs are applied to RDRT's unit volume
Total Cost Savings Used for
Pro Forma Estimates $145 million
Impact on APM's Shareholders:
- -----------------------------
Pro Forma FY 1998 EPS $7.44
Accretion to Stand-Alone(1) 20%
Impact on RDRT's Shareholders:
- ------------------------------
Pro Forma FY 1998 EPS $5.05
Accretion to RDRT
Stand-Alone(2) 58%
(1) Based on earnings estimates of $6.22.
(2) Based on earnings estimates of $3.20.
- 40 -
<PAGE>
Benefits of a Combined Company
Combined Company Will Have:
============================
Greater Production Capacity --->
> Higher margin product mix
Superior Technology > Lower cost overhead structure
Price/Performance ------------->
> Lower product costs
Substantial Cost Savings > Superior next generation products
SG&A, R&D, COGS --------------->
> Stronger financial results
Revenue Enhancement > Economies of scale
Opportunities ----------------->
Management team will be focused on cost
control, product execution, EPS growth and
shareholder value.
- 41 -
<PAGE>
Why Does Read-Rite Need to Merge With Applied Magnetics?
> To achieve $5.05 (=.679 exchange ratio x $7.44 combined pro forma
estimate) per share for its shareholders in FY 1998, RDRT would have
to:
(i) Increase its operating margin to 25% (from 4% in Q1 of FY 1997)
or
(ii) Increase projected revenues to $2.3 billion (from $1.0 billion
annualized in Q1 of FY 1997)
> RDRT needs a product mix with more advanced thin film capability:
. MR price/performance better suited for notebook/workstation
segments
. RDRT has been late on the past three generations of thin film
programs
. RDRT's strategy to bridge thin film and MR technologies with
planar technology has failed (missed 1.6 GB product window)
. RDRT could benefit from access to APM's superior air bearing
technology
> RDRT needs better product development execution
> RDRT needs APM's maangement to benefit from the cost savings synergies
available in a combination
- 42 -
<PAGE>
Enhanced Earnings Potential
> APM has demonstrated the ability to significantly reduce SG&A expense
while strengthening its business:
Fiscal Year SG&A Expense % of Revenue
----------- ------------ ------------
1991 $27.2 7.1%
1992 25.5 8.6
1993 20.1 6.0
1994 17.3 6.2
1995 7.4 2.5
1996 6.5 1.9
> The management team at APM will apply this experience to reduce the
combined company's SG&A and R&D spending.
> Similarly, the APM team will utilize the same discipline to increase
overall manufacturing efficiency:
. Application of APM's standard costs to RDRT's unit volume would
increase RDRT's pre-tax income by approximately $150 million.
> Operations will benefit from the combined business' economies of
scale, including increased purchashing power for: materials,
components and capital equipment.
> Increased manufacturing volumes may result in even further reduced
unit costs.
- 43 -
<PAGE>
Enhanced Earnings Potential
> Management believes that significant cost savings can be achieved by
eliminating redundant components of SG&A and R&D.
Year Ending September 30,
1998
--------
Projected Net Income(1) $363
After-Tax Cost Savings 80(2)
----
Pro Forma Reported Net Income $443
Pro Forma Reported Earnings
Per Share $6.88
Accretion to APM Standalone 11%
(1) Figures based on most recent Street estimates.
(2) $100 million pre-tax savings fully taxed at APM's 20% tax rate.
- 44 -
<PAGE>
Enhanced Earnings Potential
> Manufacturing Efficiencies:
. Application of APM's standard costs to RDRT's unit volume could
result in pre-tax savings of approximately $150 million.
Projected FY 1998 EPS of $7.44 assumes $45 million estimated COGS
savings.
Pre-Tax Manufacturing Savings
$15 $30 $45 $60 $75
--- --- --- --- ---
% of Total Potential Savings 10% 20% 30% 40% 50%
Increment to Projected
Reported 1998 EPS $0.19 $0.37 $0.56 $0.75 $0.93
Accretion to APM Stand-Alone 14% 17% 20% 23% 26%
- 45 -
<PAGE>
Enhanced Earnings Potential
> Combining the effects of SG&A and R&D savings with manufacturing
efficiencies (estimated at only 30% of total potential manufacturing
efficiencies) would result in earnings per share accretion of 20% for
Fiscal Year 1998.
Fiscal 1998
-----------
Projected Combined Net Income (1) $363
After-Tax Cost Savings 80
After-Tax Impact of
Manufacturing Efficiencies (2) 36
---
$479
Pro Forma Reported EPS $7.44
Accretion to APM Stand-Alone 20%
(1) Figures based on selected Street estimates.
(2) Assumes 30% of total potential savings are achieved in 1998.
- 46 -
<PAGE>
Read-Rite's manufacturing facilities are complementary and offer APM the
ability to expand production more rapidly
Applied Magnetics Read-Rite
- ----------------- ---------
Wafer Fabrication
Goleta, California Milpitas and Fremont,
California
Slider Fabrication
Malaysia Thailand
Assembly & Test
Malaysia, Korea, Malaysia, Philippines
China, Ireland
- 47 -
<PAGE>
=============================================================================
Comparison of Applied Magnetics and Read-Rite
=============================================================================
- 48 -
<PAGE>
Applied Magnetics Has Produced Far Superior Operating Results
Fiscal Year 1996 Q1 Fiscal 1997
---------------------- ----------------------
(in Millions) Applied Applied
Magnetics Read-Rite Magnetics Read-Rite
--------- --------- --------- ---------
Revenues $345 $991 $122 $252
Gross Profit 93 104 47 36
Gross Margin 27% 10% 39% 14%
R&D 51 52 11 15
SG&A 7 44 2 11
------ ------ ------ ------
Operating Expense % 17% 10% 11% 10%
Operating Income 36 8 33 10
Operating Margin 10% 1% 27% 4%
Net Income 32 (43) 32 6
Net Income Margin 9% N.M. 26% 2%
Total Assets 359 909 399 919
Return on Equity 26% N.M. 82%(1) 4%(1)
(1) Annualized.
- 49 -
<PAGE>
Indexed Stock Price History, 12/31/93 to 2/21/97
[Graph of the indexed stock price values of Applied
Magnetics, Read-Rite and a composite consisting of
QNTM, KMAG, HMTT, STMD, SEG, WDC and HTCH for the
period 12/31/93-2/21/97]
Indexed Prices %
Applied
Magnetics Read-Rite Composite(1)
--------- --------- ------------
12/31/93 100.00% 100.00% 100.00%
4/19/94 100.00 79.17 106.95
8/05/94 86.36 105.83 112.36
11/21/94 56.82 110.00 115.50
3/10/95 52.27 108.33 116.37
6/27/95 125.00 177.50 180.66
10/12/95 275.00 239.17 188.36
1/30/96 261.36 130.00 228.81
5/16/96 361.36 167.50 273.18
9/03/96 265.91 81.67 203.45
12/18/96 550.00 170.83 324.17
(1) Composite includes QNTM, KMAG, HMTT, SEG, WDC HTCH.
Note: All stock price figures from FacSet, 3/1/97.
- 50 -
<PAGE>
Comparison of Applied Magnetics and Read-Rite
[Graph of APM's and RDRT's revenues and gross margin
percentage from the first quarter of fiscal 1996
through the first quarter of fiscal 1997]
APM is showing significantly ...as well as consistently
higher revenue growth... better gross margins.
REVENUES GROSS MARGIN
-------- ------------
APM RDRT APM RDRT
--- ---- --- ----
($ in Millions) ($ in Millions)
FY96-Q1 95 299 25% 26%
FY96-Q2 87 258 29% 19%
FY96-Q3 74 238 24% 9%
FY96-Q4 89 195 30% (17%)
FY97-Q1 122 252 38% 14%
- 51 -
<PAGE>
Comparison of Applied Magnetics and Read-Rite
[Graph of APM's and RDRT's selling, general and
administrative expenses ($ in Millions) and research
and development expense ($ in Millions) from the fourth
quarter of fiscal 1995 through the first quarter of
fiscal 1997]
APM operates with a lower ...while investing heavily in R&D.
cost structure...
SG&A EXPENSE R&D EXPENSE
------------ -----------
APM RDRT APM RDRT
--- ---- --- ----
($ in Millions) ($ in Millions)
FY95-Q4 $1.7 $12.3 $10 $11
FY96-Q1 1.7 11.5 13 8
FY96-Q2 1.9 10.8 14 9
FY96-Q3 1.7 10.5 12 13
FY96-Q4 1.3 10.8 11 13
FY97-Q1 2.0 10.8 11 15
- 52 -
<PAGE>
Comparison of Applied Magnetics and Read-Rite (Q1 FY 1997)
Applied Magnetics has far greater employee productivity...
Applied Magnetics Read-Rite
----------------- ---------
Revenues $121,627,000 $251,588,000
Employees (approx.) 7,000 20,000
Revenue Per Employee $17,375 $12,579
...and utilizes its PP&E much more efficiently.
Applied Magnetics Read-Rite
----------------- ---------
Revenues $121,627,000 $251,588,000
PP&E, Net $142,920,000 $581,023,000
Revenue as a % of PP&E 85% 43%
- 53 -
<PAGE>
A Powerful Combination for Investors, Customers and the Industry
> $7.44 per share in FY1998
> Increased scale in consolidating industry
> APM management's proven ability to execute
- 54 -
<PAGE>
[LOGO] [LOGO]
APPLIED MAGNETICS CORPORATION READ-RITE CORPORATION
A POWERFUL COMBINATION
FOR
INVESTORS, CUSTOMERS AND THE INDUSTRY
- 55 -
