SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(x) ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 3, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED) For the transition period from __________ to
____________ Commission file number _____________.
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
Applied Magnetics Corporation Employee Stock Purchase Plan (the "Plan")
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117
Financial Statements Page
- -------------------- ----
Report of Independent Public Accountants 3
Statements of Financial Condition -
October 3, 1998 and September 27, 1997 4
Statements of Changes in Plan Equity for the
years ended October 3, 1998, September 27, 1997 and
September 28, 1996 5
Notes to Financial Statements, October 3, 1998 6
Schedules are not submitted because they are not applicable or not
required or because the required information is included elsewhere in the
financial statements or notes thereto.
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SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee has duly caused this annual report to be signed by the undersigned
hereunto duly authorized.
APPLIED MAGNETICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Date: December 15, 1998 By: /s/ Peter Altavilla
--------------------
Peter Altavilla
Corporate Controller
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Employee Stock Purchase Plan Committee of the Applied Magnetics
Corporation Employee Stock Purchase Plan:
We have audited the accompanying statements of financial condition of the
APPLIED MAGNETICS CORPORATION EMPLOYEE STOCK PURCHASE PLAN (the "Plan") as of
October 3, 1998 and September 27, 1997, and the related statements of changes in
Plan equity for each of the three years in the period ended October 3, 1998.
These financial statements are the responsibility of the Plan's administrative
committee. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Applied Magnetics Corporation (the "Plan Sponsor") is currently in a
significant technology transition stage. See Note 1 for a discussion of the
related risk factors, the potential financial impact faced by the Plan Sponsor
and management's plan in this regard.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Plan as of October 3,
1998 and September 27, 1997, and the changes in Plan equity for each of the
three years in the period ended October 3, 1998, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
December 15, 1998
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APPLIED MAGNETICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
As of
---------------------------------
October 3, September 27,
ASSETS 1998 1997
- ------ ---------------------------------
Investments in common stock of
Applied Magnetics Corporation,
at market value (cost of $662,175
in 1998 and $608,318 in 1997) $ 301,240 $1,804,622
Cash 11 492
Contributions due from participants 25,630 25,179
---------- ----------
$ 326,881 $1,830,293
========== ==========
LIABILITIES AND PLAN EQUITY
Excess contributions from
Applied Magnetics Corporation
at market value (cost of $118,783
in 1998 and $223,736 in 1997) $ 54,421 $ 830,320
Plan equity 272,460 999,973
---------- ----------
$ 326,881 $1,830,293
========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
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APPLIED MAGNETICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN PLAN EQUITY
For the Years Ended
-----------------------------------------
October 3, September 27, September 28,
1998 1997 1996
-----------------------------------------
Contributions from participants $ 266,172 $ 249,308 $ 180,537
Contributions from Applied
Magnetics Corporation, net
of forfeitures 119,757 220,763 68,371
Distributions to participants (186,881) (813,758) (376,016)
Net appreciation
(depreciation) of investments (926,561) 570,119 68,850
-------- -------- --------
Increase (decrease) in plan equity (727,513) 226,432 (58,258)
Plan equity, beginning of year 999,973 773,541 831,799
-------- -------- --------
Plan equity, end of year $ 326,881 $ 999,973 $ 773,541
========= ========= =========
The accompanying notes to financial statements are an integral part of these
statements.
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Note 1. Description
-----------
The following description of the Applied Magnetics Corporation Employee
Stock Purchase Plan (The "Plan") provides only general information. Participants
should refer to the Plan agreement for a more complete description of the Plan's
provisions. The Plan was established by Applied Magnetics Corporation (the
"Company") on November 2, 1979, and is offered to employees of Applied Magnetics
Corporation and certain of its subsidiaries. The Plan is a broad-based
nonqualified Employee Stock Purchase Plan. The Plan is administered by the
Employee Stock Purchase Plan Committee (the "Committee") consisting of one
member of the Company's management appointed by the Board of Directors of the
Company. All expenses of the Plan are paid by the Company. Expenses paid by the
Company for the years ended October 3, 1998, September 27,1997 and September 28,
1996 were immaterial.
Participation in the Plan is entirely voluntary and open to each full-time
employee 18 years of age or older who has been with the Company or participating
subsidiaries for at least six full months of continuous employment. Shares
purchased under the Plan are limited to the Company's common stock and
accordingly the participant's only option is to purchase the Company's common
stock. Each participating employee must contribute a minimum of 2 percent of his
or her compensation and may also make voluntary contributions up to a maximum of
an additional 4 percent of their compensation depending on the length of service
with the Company.
The Company contributes shares of its common stock and/or cash equal in
aggregate value to one-third of the value of the common stock purchased by the
participants' total contributions. At October 3, 1998, the Company had
contributed shares in excess of the amount required by the Plan. The aggregate
value of these excess contributions, stated at fair value as of October 3, 1998
and September 27, 1997 is reflected as a liability under the caption "Excess
contributions from Applied Magnetics Corporation" in the accompanying statements
of Financial Condition." The excess contributions can be used by the Company to
offset future contributions required by the Plan. The Plan allows the Company to
withdraw the excess contributions from the Plan.
In fiscal 1998, the Company experienced a significant decrease in net
sales and demand for its inductive thin film products, which resulted in a
significant loss from operations as the Company is currently transitioning from
thin film to MR technology. The Company's ability to fund its operating and
capital requirements for fiscal 1999 is heavily dependent on the Company's
ability to receive qualification and begin volume production of its MR products
on a timely basis. It is also dependent on cash inflows the Company expects to
receive in fiscal 1999 from the planned merger with DAS Devices Inc. and the
sale of Magnetic Data Technologies (a subsidiary of the Company). If the Company
is unable to achieve any of these factors on a timely basis and is unable to
obtain adequate alternative financing, there would be a material adverse effect
on the Company's financial condition, competitive position and continuing
operations. In that event, the value of plan equity could be adversely affected.
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However, the Company believes it will have sufficient cash flows from existing
cash balances, operations, existing credit facilities and equipment lease
financing alternatives to meet its operating and capital expenditure
requirements and to execute its business plan during fiscal 1999 as the Company
transitions from thin film disk head production to MR and GMR disk head
production.
Note 2. Summary of Accounting Policies
------------------------------
Basis of Accounting:
The accompanying financial statements are prepared on the accrual basis of
accounting.
Reclassifications:
Certain previously reported amounts have been reclassified to conform with
current year presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of changes in Plan
equity during the reporting period. Actual results could differ from those
estimates.
Payment of Benefits:
Benefits are recorded on the accrual basis of accounting.
Note 3. Plan Vesting
------------
All voluntary contributions are 100 percent vested and non-forfeitable.
Company contributions will become 100 percent vested and non-forfeitable upon
the earliest occurrence of: (1) the termination of the Plan, (2) the termination
of the participant's employment with the Company on or after the attainment of
age 65, (3) the termination of the participant's employment with the Company by
reason of the participant's death, total disability or layoff (as defined), (4)
the termination of the participant's employment with the Company on or after the
attainment of age 55 and the completion of a minimum of 15 years of service with
the Company, and when the age and years of service sum to 75 years or greater,
or (5) the February 1, immediately following the expiration of two years from
the end of the Plan year in which the contributions were made. At October 3,
1998, unvested Company contributions had a market value of $72,335, which was
included in "Investments in common stock of Applied Magnetics Corporation" in
the accompanying Statements of Financial Condition. Amounts shown as
"Contributions from Applied Magnetics Corporation, net" in the accompanying
Statements of Changes in Plan Equity are net of forfeitures. Forfeitures offset
against contributions from the Company for fiscal years 1998, 1997 and 1996 were
$10,876, $37,035 and $12,988, respectively. There were no material forfeitures
outstanding as of October 3, 1998, and September 27, 1997.
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Note 4. Investments
-----------
Robertson Stephens & Company has been retained by the Committee to act as
custodian over the assets of the Plan. All investments must be made in the
Company's common stock and consisted of 71,398 and 53,970 shares at October 3,
1998 and September 27, 1997, respectively. The Company's common stock is valued
at its quoted market price. The closing sales prices of the Company's common
stock on the New York Stock Exchange on December 15, 1998, October 3, 1998 and
September 27, 1997, were $6.8125, $4.1875 and $33.4375, respectively.
Note 5. Participant Withdrawals and Distributions
-----------------------------------------
Withdrawals and distributions allocated to accounts of participants who
have withdrawn from participation in the equity of the Plan are included in
"Plan equity". As of October 3, 1998 and September 27, 1997 such withdrawals or
distributions were not material to the plan.
Note 6. Net Appreciation/(Depreciation) of Investments
----------------------------------------------
Net appreciation/(depreciation) included in investments for the years
ended October 3, 1998, September 27, 1997 and September 28, 1996 were as
follows:
1998 1997 1996
---- ---- ----
Balance, beginning of year $ 1,196,304 $ 552,384 $590,446
Net appreciation/(depreciation) (1,557,239) 643,920 (38,062)
----------- ---------- --------
Balance, end of year $ (360,935) $1,196,304 $552,384
=========== ========== ========
The amounts shown as "Net appreciation of investments" in the accompanying
Statements of Changes in Plan Equity, are primarily comprised of the difference
between the net appreciation/(depreciation) of investments and the net
appreciation/(depreciation) in the excess contributions from Applied Magnetics.
Note 7. Plan Termination
----------------
Although it has not expressed any intention to do so, the Company has the
right, under the terms of the Plan document to amend or terminate the Plan at
anytime. In event of Plan termination, participants will become fully vested in
all Plan assets, excluding excess contributions at that date which will be
remitted back to the Company.
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Note 8. Federal Income Tax Status
-------------------------
The Company has received a private letter ruling from the Internal Revenue
Service with regard to the Federal income tax consequences of the Plan. The Plan
is a broad-based non-qualified Employee Stock Purchase Plan. In accordance with
this letter and Section 83 of the Internal Revenue Code of 1986, as amended,
Company contributions generally become taxable to participants on the date they
vest in an amount equal to the market value of the stock which vests on such
date, unless certain elections are made.
There is no taxable income associated with the Plan, and no income taxes
have been provided for in the accompanying financial statements since the income
taxes are the obligation of the participants.
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