UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission File Number 0-16852
Date of Report: April 9, 1999
KOMAG, INCORPORATED
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2914864
1704 Automation Parkway, San Jose, California 95131
Telephone: (408) 576-2000
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ITEM 5: OTHER EVENTS
The Company issued the following press release on April 9, 1999:
KOMAG AND WESTERN DIGITAL COMPLETE STRATEGIC
TRANSACTION
FOR DISK MEDIA MANUFACTURING
FOR IMMEDIATE RELEASE
San Jose, California (April 9,1999): Komag, Incorporated (Nasdaq: KMAG), the
world's largest independent supplier of thin-film media for computer hard disk
drives, today announced that the company has completed the acquisition of
Western Digital Corporation's (NYSE: WDC) disk media operations. The company and
Western Digital also signed a volume purchase agreement under which Komag will
supply a substantial portion of Western Digital's media needs over the next
three years. The parties previously disclosed the signing of a letter of intent
regarding this transaction in a joint press release on February17, 1999. The
company also provided an update on negotiations with its bank lenders.
Acquisition Summary:
Komag purchased the assets of Western Digital's media operations through the
issuance of approximately 10.8 million shares of Komag common stock, a note in
the principal amount of $30.1 million, and cash consideration of $1.6 million.
The shares issued in the transaction, which represent 16.7% of Komag's
outstanding shares on a post-issuance basis, are unregistered and subject to
trading restrictions. Western Digital may resell these shares in specified
increments over a three and one-half year period under registration rights
granted by the company or under SEC rules after expiration of the required
holding periods. Principal and interest accrued on the note are due in three
years and the note is subordinated to the company's senior credit facilities. In
the event that Western Digital realizes a return on its Komag equity holdings in
excess of a targeted amount within three years, the excess amount will reduce
the balance due under the note. Komag also assumed certain liabilities, mainly
equipment and building leases, as part of the transaction.
"The transaction with Western Digital is of strategic importance to our company
and reflects the type of partnership which we expect will become more
commonplace in our technically demanding and cost competitive industry. Given
the continuing excess supply of disk media, the volume purchase agreement
secures significant unit volumes for Komag over the next three years. In our
industry, suppliers must lower production costs relentlessly to maintain
profitability in light of aggressive industry pricing and must advance
technology rapidly to support the industry's shorter product cycles. The higher
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unit volumes anticipated under our partnership with Western Digital will allow
us to spread fixed manufacturing costs over more units, thus lowering our unit
production costs. The larger revenue base will support our significant on-going
commitment to research and development and reduce operating expenses as a
percentage of revenue," said Stephen C. Johnson, president and chief executive
officer of Komag, Incorporated.
Market conditions and overlapping functional organizations prompted reductions
in the staffing levels at both media operations. As part of the consolidation
effort Komag extended job offers to approximately 50% of Western Digital's disk
media work force. Concurrently, Komag reduced the work force at its existing
U.S. operation by approximately 8%. Production will be slowed in the
consolidated organization by idling certain production lines during a two-week
period in April. During this time the company will focus on employee training
and operational integration activities.
"The demand for disk drives has recently softened due to a slower-than-expected
growth rate for personal computers. The ability of disk media manufacturers to
accommodate more storage density on a given disk has further slowed the
consumption rate for magnetic disk media. Due to demand expectations for our
second quarter of 1999, we have taken a series of actions to properly balance
inventory levels and minimize operating costs in the combined operations," said
Johnson.
Bank Negotiations:
The company and the Agents for the Bank Groups have recently been negotiating
covenant levels that incorporate the combined media operations of Western
Digital and Komag. The credit committee of each bank lender must now decide
whether to approve the proposed covenant levels and other terms and conditions
of the loan restructure agreement. If approved, the loan restructure agreement
would be subject to final documentation and execution. The execution of the loan
restructure agreement would cure the company's continuing default under its
existing credit facilities.
Forward-Looking Statements:
The above information contains predictions, estimates and other forward-looking
statements that involve a number of risks and uncertainties. While this outlook
represents Komag's current judgment on the future direction of the business,
actual results may differ materially from any future performance suggested
above. In particular, the additional unit volumes attributable to the volume
purchase agreement with Western Digital could fall below expected levels.
Additionally, the positive long-term benefits anticipated from the consolidation
of the media operations of Western Digital and Komag may not be realized.
Furthermore, costs for near-term consolidation actions could exceed the
company's current expectations, thus adversely affecting the company's operating
results and cash flow. Moreover, there can be no assurance that the company and
its lenders will reach agreement on an amended credit facility. Other risk
factors that may affect the company's financial performance are listed in the
company's various SEC filings, including its Form 10-K for the year ended
January 3, 1999 which was filed on
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April 2, 1999. The company undertakes no obligation to publicly release any
revisions to these forward-looking statements.
About Komag:
Founded in 1983, Komag, Incorporated has produced over 380 million thin-film
disks, the primary storage medium for digital data used in computer disk drives.
The company is well-positioned as the broad-based strategic supplier of choice
for the industry's leading disk drive manufacturers. Through its highly
automated factories in the United States, Japan and Southeast Asia, Komag
provides high quality, leading-edge disk products at a low overall cost of
ownership. These attributes enable Komag to partner with customers in the
execution of their time-to-market design and time-to-volume manufacturing
strategies.
For more information about Komag, visit Komag's Internet home page at
http://www.komag.com or call Komag's Investor Relations 24-hour Hot Line at
888-66-KOMAG or 408-576-2901.
Contact: KOMAG, INCORPORATED, San Jose, CA
William L. Potts, Jr.
(408) 576-2000 or (408) 576-2053
[email protected] for E-mail communications
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on April 16, 1999.
KOMAG, INCORPORATED
(Registrant)
DATE: April 16, 1999 BY: /s/ William L. Potts, Jr.
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William L. Potts, Jr.
Senior Vice President
and Chief Financial
Officer
