-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oxg4eGVAxY6LL5xJtBguwTrXt2Z61N+NoXudRfV7rwJJNA87uLhX4H/N5TUJaUSX jT5EnX1zjLgl4Y7i/YyrgA== 0000912057-96-029830.txt : 19961223 0000912057-96-029830.hdr.sgml : 19961223 ACCESSION NUMBER: 0000912057-96-029830 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED MAGNETICS CORP CENTRAL INDEX KEY: 0000006948 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 951950506 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06635 FILM NUMBER: 96683753 BUSINESS ADDRESS: STREET 1: 75 ROBIN HILL RD CITY: GOLETA STATE: CA ZIP: 93117 BUSINESS PHONE: 8056835353 MAIL ADDRESS: STREET 1: 75 ROBIN HILL ROAD CITY: GOLETA STATE: CA ZIP: 93117 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1996. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-6635 ------------------------ APPLIED MAGNETICS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 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 (Zip Code) offices) Registrant's telephone number, including area code: (805) 683-5353 ------------------------ Securities registered pursuant to Section 12 (b) of the Act: NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED - -------------------------------------- -------------------------------------- Common Stock, $.10 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None (Title of Class) 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 90 days. Yes _x_ No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K /X/ The aggregate market value of the Common Stock held by non-affiliates of registrant was $547,409,504 as of December 16, 1996. COMMON STOCK (PAR VALUE $.10) 19,207,351 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the registrant's 1997 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A within 120 days following the registrant's fiscal year ended September 28, 1996, are incorporated by reference into Part III on this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 ITEM 1. BUSINESS GENERAL Applied Magnetics Corporation (the "Company" or "Applied Magnetics") was incorporated in California in 1957 and was reincorporated in Delaware in 1987. The Company presently operates in one industry segment, namely, components for the computer peripheral industry with one major product group, recording heads for rigid disk drives. Applied Magnetics is a leading independent manufacturer of magnetic recording heads and of head stack assemblies for disk drives. The Company manufactures advanced inductive thin film ("thin film") disk head products, magnetoresistive ("MR") disk head products and assembles ferrite metal-in-gap ("ferrite" or "MIG") disk head products, in each case, primarily to supply to manufacturers of 3.5 inch hard disk drives. The Company's products compete on the basis of price, performance and availability. Performance improvements in microprocessors, continuing proliferation of powerful operating systems and applications software, image intensive applications, increased home personal computer use, network connections, on-line services and the Internet have resulted in increasing demand for greater data storage capacity and performance in smaller form factor disk drives. In addition, the market growth of notebook and sub-notebook computers has increased demand for smaller form factor disk drives. Due to these trends, thin film disk heads, which generally permit greater storage capacities per disk and provide higher data transfer rates than ferrite disk heads, represent one of the fastest growing segments of the recording head industry. The Company has focused its long-range growth strategy on thin film and MR disk head technologies and believes that MR disk heads, which ultimately afford greater recording densities and other performance advantages as compared to thin film heads, represent the next important magnetic recording head technology. The Company believes that, overall, the market for ferrite disk heads peaked in 1995 and the Company's customers are typically no longer developing new products based on ferrite disk head technology. As a result, the Company completed new ferrite head manufacturing, as planned, in the fourth quarter of fiscal 1996 and does not currently anticipate additional ferrite head business in fiscal 1997. During fiscal 1996, market conditions in the disk drive industry served by the Company were characterized by continued reduction of product life cycles and intense competition. The industry product life cycle is currently running approximately 9 to 12 months. The Company experienced a transition to a new generation of higher performance thin film heads during the third quarter of fiscal 1996, resulting in a temporary decline of yields, which negatively impacted production volumes, revenues and profits. By the fourth fiscal quarter, this transition was completed and yields returned to planned levels. Prior to December 10, 1994, the Company also manufactured and sold recording heads for tape drives which are used in the computer peripheral industry. On December 10, 1994, the Company sold its Tape Head business unit to Seagate Technology, Inc. ("Seagate") for $21.5 million, pursuant to a Stock Purchase Agreement (the "Seagate Agreement"). The Company received $19.9 million during fiscal 1995 and a final payment of $1.3 million in the first quarter of fiscal 1996, upon completion of certain performance obligations to supply tape related products and services to Seagate. In accordance with the terms of the Seagate Agreement, at the conclusion of one year, it was mutually agreed that the Company would forego $0.3 million, as a result of claims presented by Seagate, relating to the representations and warranties made by the Company. Except for those arrangements to provide tape-related products and services to Seagate, the Company is no longer engaged in the design, development, manufacture and sale of recording heads for tape drives. 2 DISK DRIVE INDUSTRY Rigid disk drives (hard disk drives) are the predominant high capacity data storage device used in all classes of computers. Rigid disk drives typically include one to ten disks onto and from which data is recorded and retrieved by two to twenty recording heads. These heads are positioned by an actuator assembly to fly within two micro inches, or less, on one or both sides of each disk. The head (or "slider") attached to a suspension assembly comprises a head gimbal assembly ("HGA"). Multiple HGAs, assembled together with other components, comprise an actuator, or head stack assembly ("HSA"). The Company supplies both HGAs and HSAs to disk drive manufacturers. Disk drive manufacturers are constantly developing higher capacity and higher performance products. Head suppliers, such as the Company, work with the drive manufacturers to develop customized HGAs and HSAs for each new drive program. Head suppliers seek to have their products "designed-in" for a particular drive program, thus becoming a primary supplier. Achieving a "primary supplier" status usually offers a competitive advantage, manifested as higher internal yields and more favorable pricing, compared to entering the program later in its product life cycle. The Company was successful in achieving "primary supplier" status on a number of programs in fiscal 1996. The disk drive industry continues to be highly competitive. Achieving mature, mass production status on newer technology products as a primary supplier will be required in order for the Company to continue the revenue and shipment volume growth rate experienced in fiscal 1996. The disk drive industry is cyclical and has been characterized by periods of intense product demand requiring high production levels followed by periods of oversupply, order cancellations, pricing pressure and reduced production levels. During periods of high demand, the Company has expanded production facilities, but at times has been unable to expand facilities and hire and train production personnel rapidly enough to meet the demand for its products. Conversely, in periods of lower demand, the Company has had excess production capacity and has experienced gross margin declines. TECHNOLOGY Magnetic disk heads are electromechanical devices that record ("write") data onto and retrieve ("read") data from the magnetic layers of magnetic data storage disks. The principal elements of an inductive magnetic recording head are a magnetic core, which is interrupted by a non-magnetic gap, and an electrically conducting coil wrapped or deposited in turns around the core. To write data, a current is passed through the coil, thereby inducing a magnetic field in the core. Since the core is interrupted by a non-magnetic gap, the magnetic field must "fringe" out from the gap, and in doing so, it magnetizes a segment of the disk. Reversing the direction of the current reverses the polarity of the next magnetized segment of the disk as it passes by the gap of the head, thus allowing data to be encoded as a pattern of reversing polarities. To read data, the previously encoded disk is again passed by the head and the reversing magnetic polarities induce reversing magnetic fields in the core. These reversing magnetic fields in the core generate correspondingly reversing currents in the coil which are sensed and decoded by the drive circuitry. Disk drive storage capacity and performance are largely determined by the magnetic properties and interface of the recording head and disk. The number of coil turns and magnetic materials of the recording head are each optimized to achieve required performance. The number of coil turns and coil pitch characteristics (including the geometry of the coils and the distance between the coils) are selected to provide appropriate writing and maximum read-back signal levels. Higher data densities require that the head fly both closer to the disk and at more uniform flying heights across the disk or, alternatively, that the head maintain a light contact with the disk at a point near the head's gap, with the disk sliding over this portion of the head (known as contact recording). This is influenced by the size and mass of the head and by its hydrodynamic air bearing design and performance characteristics. 3 Historically, ferrite disk heads have represented more cost-effective design alternatives for rigid disk drives than thin film disk heads. However, as demand for high performance, small form factor rigid disk drives has grown, there has been a corresponding increase in demand for disk heads that provide higher areal densities and data transfer rates. This technology and market shift has resulted in disk head specifications that increasingly require higher performance thin film heads. Coupled with the increasing supply of competitively priced thin film disk heads and the tendency of major disk drive customers to select thin film products rather than ferrite disk heads, the Company expects that demand for ferrite devices will continue to decline dramatically and the Company's customers are typically no longer developing new products based on ferrite disk head technology. As a result, the Company completed new ferrite disk head manufacturing in the fourth quarter of fiscal 1996 and does not currently anticipate additional ferrite disk head business in fiscal 1997. Thin film heads are produced with processes adapted from semiconductor manufacturing operations in which thin films of magnetic, conductive and insulating materials are deposited on a non-magnetic substrate to form the magnetic core and the electrical coils of the head. These processes permit a greater degree of precision and repeatability, greater miniaturization and lower mass than can be achieved with ferrite production methods in which the electrical coil is usually wound on a machined ferrite core. The Company believes that MR disk heads represent the next important magnetic recording head technology. In contrast to an inductive disk head, which is typically designed to "read" and "write" data using a single inductive element, an MR disk head uses an inductive element to "write" data onto the disk and a separate MR element to "read" data from the disk. The MR read element incorporates a magnetoresistor whose electrical resistance changes in the presence of a magnetic field. As the encoded disk is passed by the read element, the disk drive circuitry senses and decodes the changes in electrical resistance caused by the reversing magnetic polarities. The greater sensitivity of MR read elements provides higher signal output per unit of recording track width on the disk surface. As a result, MR disk heads have certain design and performance advantages over inductive heads, particularly in high performance small form factor disk drive applications. In addition, MR disk heads can read data from a rotating disk independent of the speed of rotation, thus allowing these devices to read data more reliably from small form factor disks in which linear velocities are inherently lower. MR disk heads also allow for optimization of read and write gaps independently. Typical inductive heads incorporate a single gap for both read and write functions. PRODUCTS THIN FILM AND MR DISK HEADS. During fiscal 1996, the Company qualified and made volume production shipments on a number of new disk drive programs which require thin film products. The Company's thin film products are produced in volume for 3.5 inch disk drives to achieve areal densities of up to approximately 700 megabits of data per square inch of disk surface. The thin film disk drive programs for which the Company has become and is seeking to become qualified are primarily for high capacity, low profile, 3.5 inch disk drives for use in next generation personal computers and workstations and represent drive applications with recording densities of up to 1,200 megabits per square inch. Development and commercialization of MR disk heads continued to be a major investment for the Company in fiscal 1996. During fiscal 1996, the Company entered production on its first volume MR disk head program and, in addition, continued to ship prototype and qualification samples of MR disk head products to selected customers for drive applications with recording densities of up to 1,200 megabits per square inch. During fiscal 1997, MR drive applications are expected to require areal densities of nearly 1,600 megabits per square inch. This will require the Company's engineering and production resources to meet their targeted design and process development plan, achieve "design-in" with the customer drives and successfully execute the planned production ramp. 4 During fiscal 1996, the Company continued to make important progress in the design and production of new, advanced thin film disk heads, including higher efficiency products which increase the output signal for a given number of coil turns. Additional thin film advances have been made in developing processes, known as "track trimming", for defining thin film magnetic core elements that are both narrower and of more equal width which, in turn, enhance the capability of the head to write narrower and more densely packed tracks of data onto the disk surface. Advances have also been made in the Company's efforts to develop and offer thin film and MR disk heads with fully etched air bearing ("FEAB") negative air pressure bearing surfaces. The implementation of these designs and processes improved production yields and enhanced the hydrodynamic characteristics of the disk heads, allowing the head to fly at lower, more uniform heights, or in light contact with the disk, thus contributing to higher areal densities, and thereby improving the reliability of the disk head. During fiscal 1997, most of the Company's customer programs will include these design improvements. As a result, the Company's continued shipment and revenue growth and achievement of satisfactory production yields to increase profitability depend on the Company's ability to achieve "design-in" status with its customers utilizing these advanced thin film heads. During fiscal 1996, all of the disk head products supplied by the Company were in the "nanoslider" or "50%" form factor (in which the slider is approximately 50% of the size, in each of its three dimensions, of the original inductive thin film slider). The Company has been and continues to develop products in the smaller "picoslider" or "30%" form factor, for both advanced inductive thin film and MR disk heads and anticipates the introduction of picoslider form factor products during the second half of fiscal 1997. This will require the Company's engineering and production resources to complete development plans for these products, achieve "design in" with customer drives and successfully execute the planned production ramp. FERRITE DISK HEADS. Due to declining volumes caused by limited demand for ferrite disk heads, the Company has chosen to focus its resources on advanced thin film and MR disk heads and does not plan to actively pursue any ferrite programs in fiscal 1997. Further, because the Company's thin film disk head production is vertically integrated, the Company believes that obtaining sales of thin film products generally represents more attractive opportunities for revenue growth and profit improvement than the ferrite disk head business. For discussion of net sales and percentage of sales by product, see "Annual Results of Operations" under Item 7. MANUFACTURING WAFER / SLIDER FABRICATION MR and thin film transducers are manufactured using a semiconductor-like wafer fabrication process. This process involves photolithography, vacuum deposition, wet chemical and plasma etching and precision electroplating technologies. The Company's two wafer fabrication facilities in Goleta, California, are based on 150mm (approximately six inch) diameter round substrates. Fiscal 1996 production was of the nanoslider form factor, where approximately 8,400 individual (unyielded) sliders can be produced from each six inch wafer. During the second half of fiscal 1997, in addition to nanosliders, the Company expects to commence initial production of picosliders, where approximately 15,300 individual (unyielded) sliders can be produced from each wafer. Completed wafers are sliced into row bars containing 29 sliders per bar for the nanoslider form factor and 44 sliders per bar for the picoslider form factor. After testing, row bars are shipped to Penang, Malaysia for further processing. Rows are converted into individual sliders in the Company's slider fabrication facility in Penang, Malaysia. This process involves high precision lapping as well as photolithography and ion milling technologies utilized to define the critical air bearing geometries which allow the head to fly at about two microinches (or less) above the disk surface. On some of the Company's products, photolithography and 5 ion milling technologies are also used to define pole tip geometries and hence recording densities produced by the heads. For some programs, a thin, hard carbon overcoat is vacuum deposited onto the air bearing surface of the head in order to improve the performance of the head/disk interface and to provide added protection for the magnetic elements of the head. All of the aforementioned processes can be characterized as high technology and their intrinsic yields directly define final production output and Company revenue. Typically, new (higher performance) head designs place increasing demands on process technology. The Company's ability to execute depends on its ability to develop new processing technology, maintain control over its processes and ramp these new products into production volume in a timely manner. The Company believes that demand for recording heads will continue to increase. To meet this demand, it is critical that wafer and slider output increase. This increase is dependent on the Company's ability to generate the required capital funding. If the Company is unable to obtain the required funds in sufficient amounts and at the required times, its future revenues could be adversely affected. See "Liquidity and Capital Resources" under Item 7. The Company also believes that developing new products involving both advanced inductive thin film and MR technologies will be critical to continued revenue growth. ASSEMBLY AND TEST The Company assembles all of its volume production of HGAs and HSAs outside of the United States. Principal manufacturing sites are in Penang, Malaysia; Chung-Ju, South Korea; Dublin, Ireland and Beijing, China. The Company also maintains contractual relationships with unaffiliated parties that provide manufacturing space and contract labor in Malaysia and China. The Company plans on continuing such relationships in the future. From time to time, the Company has experienced a shortage of assembly and test direct labor at its manufacturing locations. Although it is not anticipated that there will be a significant shortage in fiscal 1997, there can be no guarantee that such a condition will not develop. Due to increased market and customer demand forecasted in fiscal 1997, the Company plans to expand all of its current manufacturing locations and some contract labor relationships, and is exploring the possibility of new manufacturing locations in Asia. If such demand declines, management believes that it will be able to reduce its planned, but not committed, capital expenditures accordingly. The Company's foreign operations can be subject to risks associated with currency exchange fluctuations, government approvals, political instability, currency restrictions, trade restrictions, labor unrest, changes in tariff, and the like. Experience indicates that these factors have not produced significant liability, but there can be no assurances that these factors will not impact the Company's future operations. RESEARCH AND DEVELOPMENT The Company commits substantial resources to technology, product and process development in order to meet its customers' continuing demands for higher performance disk heads for successive disk drive product families. Technology development activities relate to creating technological advances required for new product development and the advancement of production processes required in new product manufacturing (e.g., development of smaller form factor products, advanced coil and core structures, constant flying height and contact recording technologies and the development of MR technology). In addition, development activities focus on conceptual formulation, design and testing of new product alternatives and construction of prototypes. Development activities relating to advanced disk head products are predominantly performed at the Company's Goleta, California location. In addition, the 6 Company also has engineering and technical staff located at various production operations and locations to provide manufacturing process and integration support. The Company's future success in achieving "design-in" positions and/or program qualifications depends heavily on the successful and timely completion of its product and process development efforts. While the Company is devoting substantial resources to these efforts, there can be no assurance that the Company will realize satisfactory product and process development results. To the extent that the Company is unable to do so, there could be an adverse effect on the Company's operating results. The Company's technology development is primarily devoted to commercialization of advanced inductive thin film disk head technology and of MR disk head technology. Research and development expenses were $50.9 million, $33.7 million and $38.8 million for fiscal years 1996, 1995 and 1994, respectively, before cost offsets of $14.1 million in fiscal 1994, primarily related to funding pursuant to a License and Technology Agreement with Hitachi Metals, Ltd. ("HML"), dated December 1992. The technology development agreement was concluded in fiscal 1994. The Company does not currently have any ongoing technology development agreements providing funding for research and development efforts relating to new or advanced technology disk head products. While it may continue to consider and pursue opportunities relating to such arrangements, the Company believes that its existing cash resources and expected operating results will provide sufficient financial resources, on an independent basis, to fund its ongoing research and development activities in a manner consistent with its current operating plan. Under the HML Agreement, the Company granted to HML an exclusive, non-transferable license to use the Company's technology to manufacture in Japan thin film, MR and certain ferrite disk head products, HSAs, HGAs and components (the "Licensed Products") and a nonexclusive license to have Licensed Products made by HML subsidiaries and affiliates worldwide. Additionally, the Company granted HML and its subsidiaries and affiliates certain exclusive rights to market and sell Licensed Products to disk drive and head manufacturers in Japan and retained exclusive marketing rights to Licensed Products and improvements to Licensed Products in the rest of the world. SOURCES OF SUPPLY The Company relies on Sumitomo Corporation as its principal supplier of substrates which are used to produce wafers for the Company's thin film and MR disk heads and on multiple independent suppliers for other materials used in the manufacturing process. The Company purchases suspension assemblies from Hutchinson Technology, Incorporated ("Hutchinson") and various other manufacturers. The Company also manufactures suspension assemblies internally. Although the Company has not experienced significant limitations on the availability of these materials, shortages could occur in the future. Such developments could disrupt the Company's production volume and have an adverse effect on the Company's operations. CUSTOMERS AND MARKETING The Company's customers include, among others, Maxtor Corporation ("Maxtor"), Micropolis Corporation ("Micropolis"), NEC Corporation ("NEC"), Quantum Corporation ("Quantum"), Seagate and Western Digital Corporation ("Western Digital"). Western Digital, NEC, Seagate and Quantum represented approximately 44.0%, 20.1%, 13.4% and 10.3%, respectively, of net sales during the year ended September 28, 1996. Due to the small number of disk drive manufacturers and computer system companies requiring independent sources of supply for magnetic recording heads, the Company's customer base is likely to remain concentrated. In addition, the customer base may become more concentrated if disk drive manufacturers that do not have their own internal capabilities for designing and producing disk heads adopt and implement further vertical integration strategies. While the Company believes that industry conditions and economic factors will continue to create an environment in which drive manufacturers will 7 require, as their primary source of supply, independent suppliers of magnetic recording heads and in which vertically integrated disk drive and systems companies will require alternative or "secondary" sources of supply, the further consolidation or integration of one or more of the Company's major customers with other disk drive or disk head firms could have an adverse effect on the Company's business. Such occurrences, however, could potentially be offset by the entry of new manufacturers in the disk drive market. See "Competition" for further discussion. Seagate, a major disk drive manufacturer, and Conner Peripherals, Incorporated ("Conner"), completed the merger of their companies in fiscal 1996. Seagate has a large vertically integrated capability in recording heads and its long term goal will likely be to supply all head requirements for Conner products. Conner was the Company's largest customer in fiscal 1995. Revenues from Conner declined materially during fiscal 1996. During fiscal 1996, Maxtor, a subsidiary of Hyundai Electronics of America, experienced continuing operating losses and announced reorganization of its operations. The Company believes the steps Maxtor is taking are positive, but there can be no assurance that Maxtor will be successful in the future. During fiscal 1996, Micropolis experienced operating losses and it was acquired by Singapore Technologies. The Company believes that this acquisition is a positive development, but there can be no assurance that they will be successful in the future. The Company believes that the most effective means of marketing and selling magnetic recording disk heads is by establishing close customer relationships at the engineering level, which permits technical collaboration and may result in the Company's heads being "designed-in" for particular disk drives. Through its product planning and marketing efforts, the Company seeks to identify those disk drive programs it believes will achieve high volume in order to concentrate its engineering resources on these programs. The Company's magnetic recording disk heads are sold in the United States and foreign countries by its direct sales personnel and through its subsidiary in Ireland. As of December 1992, in accordance with the HML Agreement, the Company granted certain exclusive marketing rights in Japan to HML. The Company has been successful in achieving "design-in" positions with certain customers on certain disk drive programs. There can be no assurance that the Company will successfully obtain "design-in" positions on a sufficient number of the new disk drive programs that it is currently pursuing or that it expects to pursue, or that, after having achieved this position on any given customer program, it will not experience difficulties in obtaining desired levels of production volumes on a timely basis. The failure to secure and satisfactorily perform against orders for volume shipments of thin film disk heads could result in customer cancellations, reschedules and diversion of certain orders to the Company's competitors. To the extent any significant orders for the Company's thin film and/or MR disk heads are canceled, rescheduled or diverted, such actions could have an adverse effect on the Company's operations. COMPETITION The Company competes with other independent recording head suppliers, as well as disk drive companies and systems companies that produce magnetic recording heads used in their own products. Fujitsu, Hitachi, IBM, NEC, Quantum and Seagate produce some or all thin film and/or MR heads for their own use. IBM and Seagate make their thin film and MR disk head products available in the OEM market to competing drive manufacturers. All of these companies have significantly greater financial, technical and marketing resources than the Company. The Company believes that disk drive customers and systems companies that are not vertically integrated continue to represent significant opportunities for sales of the Company's disk head products for competitive and other reasons. Moreover, the Company believes that certain vertically integrated 8 companies will continue to rely on independent suppliers of disk head products as alternative sources of supply, or in some cases, as primary sources of supply for individual disk drive programs Read-Rite Corporation ("Read-Rite") has had substantially greater sales of thin film disk head products than the Company and has been its largest competitor among independent thin film disk head manufacturers. Read-Rite and Sumitomo Metal Industries, Ltd. ("SMI") have a joint venture in Japan to make thin film and MR wafers. Read-Rite also acquired certain assets and technology rights of Censtor Corporation ("Censtor"), a developer of "planar" thin film head technology, during fiscal 1996, and plans to introduce advanced inductive recording heads based on the Censtor planar technology. The Company believes that its picoslider technology is competitive on the basis of cost and performance with planar technology, but there can be no assurance that customer and market demand for the Company's product technology will continue and increase at its current growth rate. In recent years, several large Japanese companies, each with considerably more resources than the Company, have entered the independent head market with considerable success in gaining market share. Alps Electric Corporation, Ltd., TDK Corporation (and its SAE Magnetics, Ltd. subsidiary,) and Yamaha Corporation continue to aggressively develop and market thin film and/or MR disk heads. The principal competitive factors in the markets the Company addresses are price, product performance, quality, product availability, responsiveness to customers and technological sophistication. The disk head industry is intensely competitive and largely dependent on sales to a limited number of disk drive manufacturers and systems companies. The Company's ability to obtain new orders depends on its ability to anticipate technological changes, develop products to meet individualized customer requirements and on timely delivery of products that meet customer specifications at competitive prices. The market for the Company's disk head products could be adversely affected if one or more disk drive manufacturers were to vertically integrate by acquiring disk head manufacturing capability. In addition, the disk drive industry is highly cyclical. Disk drive manufacturers may quickly lose market share as a result of the technological innovations of their competitors or various other factors. A reduction in market share by one of the Company's customers could result in the loss of business from such customer. This loss could have a material, adverse effect on the Company's future operations. BACKLOG The Company's backlog of open orders scheduled for delivery within six months at September 28, 1996 was approximately $116.3 million, compared to approximately $107.5 million at September 30, 1995. Backlog increased year-to-year as a result of increased customer demand for thin film and MR disk head products. Backlog includes only firm orders for which the customers have released a specific purchase order and specified a delivery schedule. The Company receives purchase orders from its customers which express the customer's intentions to purchase, at stated unit prices, certain quantities of products during a specified period, generally for one to two quarters. Orders are subject to rescheduling provisions which permit increases or decreases in volume of shipments during a specified period. In addition, at times of supply shortages, the Company believes it is a common practice for disk drive manufacturers to place orders in excess of actual requirements. Conversely, during periods of soft demand the Company has experienced cancellation and rescheduling of orders, reductions in quantities and repricing as customer requirements change. The contractual arrangements between the Company and most of its customers permit the Company to assert claims for cancellation costs and expenses in these circumstances. However, the resolution of these claims is often a lengthy and extensively negotiated process, resulting in a compromise arrangement in which, among other things, the Company and the customer may agree that the claimed amount to be paid is reduced or that the Company will continue to deliver and the customer will accept all or part of the canceled order over an extended period of time at reduced unit prices. 9 In previous years, particularly those in which the disk drive industry was experiencing overcapacity and intense price competition conditions, certain of the Company's customers delayed shipment dates and requested extended payment terms and price concessions. It is possible that these circumstances could reoccur in future periods which could adversely offset the Company's revenues and profitability. Further, as a result of the foregoing factors, the Company's backlog may not be indicative of product shipments in any future period. EMPLOYEES As of September 28, 1996, the Company had approximately 6,400 employees of whom approximately 950 are located in California, approximately 5,200 are located in Asia and approximately 250 are located in Ireland. The Company's employees located in Korea are represented by a labor union, and the Company's Korean operations have, from time to time in past years, been affected by labor disruptions and slow downs. To meet planned fiscal 1997 production requirements, the Company will be expanding its Malaysian, Korean and China factories, as well as its established subcontractors. Also, additional factory expansion in Asia for assembly capacity is anticipated during the second half of fiscal 1997. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company regards elements of its manufacturing processes, product designs, and equipment as proprietary and seeks to protect its proprietary rights through a combination of employee and third party non-disclosure agreements, internal procedures and patent protection. The Company has been issued a number of United States Patents and has additional patent applications pending. There is no assurance that patents will be issued with respect to such applications or that any patents issued to the Company will protect the Company's competitive position. The Company believes its competitive position is more dependent on the technological know-how and creative skills of its personnel than on patent rights. The Company and IBM hold cross licenses with respect to certain patents held by each of them. Such cross licenses do not include any patents filed by IBM after January 1, 1991, nor any patents filed by the Company after July 1, 1991. While the Company has had discussions with IBM regarding extensions of the existing licenses, there can be no guarantee that such an extension will be negotiated. Under an agreement (the "Hutchinson Agreement") with Hutchinson, the Company and Hutchinson hold cross licenses with respect to certain patents held by each of them concerning suspension assemblies to make, use and sell such products. The Company's purpose of entering into the Hutchinson Agreement was to avoid possible future infringements, thereby reducing the prospects for disputes and litigation. See also "Sources of Supply." In connection with the sale of its Tape Head business unit to Seagate in December 1994, the Company and Seagate have entered into a broad cross license with respect to certain patents held by each of them. The Company believes that its success depends on the innovative skills and technological competence of its employees and upon proper protection of its intellectual properties. The Company has, from time to time, been notified of claims that it may be infringing patents owned by others. If it appears necessary or desirable, the Company may seek licenses under patents which it is allegedly infringing. Although patent holders commonly offer such licenses, no assurance can be given that licenses will be offered or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain a key patent license from a third party could cause the Company to incur substantial liabilities and/or to suspend the manufacture of the products utilizing the patented invention. 10 ENVIRONMENTAL REGULATIONS AND WATER SUPPLY RESTRICTIONS The Company uses certain hazardous chemicals in its manufacturing process and is subject to a variety of environmental and land use regulations related to the use, storage and disposal of such chemicals and the conduct of its manufacturing operations. The State of California "Permit by Rule" legislation requires the Company to obtain permits for any treatment or transportation of materials considered to be hazardous wastes. Although the Company believes it will receive the necessary permits prior to the time required by this legislation, there is no assurance that such permits will be issued in a timely manner or at all. A failure by the Company to comply with present or future regulations could subject it to liability or result in production suspension or delay. In addition, environmental or land use regulations could restrict the Company's ability to expand its current production facilities or establish additional facilities in other locations, or could require the Company to acquire costly equipment, or to incur other significant expenses for compliance with environmental regulations or to clean up prior discharges. The Company, which is subject to water use regulations, uses a significant amount of water in its manufacturing process. Although to date the Company has been able to obtain sufficient water supplies without significantly increased costs, stricter water use regulations may be mandated and additional expenditures for water reclamation and conservation may be required. The Company has been identified as a potentially responsible party at a hazardous waste facility operated by the Omega Chemical Company in Whittier, California. Omega Chemical was employed by the Company for purposes of waste chemical disposal from 1987 to 1990 and was subsequently cited for stockpiling waste chemicals and for allowing leaking containers to contaminate their site. Omega has declared bankruptcy and a cleanup order was issued to the Company along with 56 other customers of Omega. The Company's share of the clean up totaled approximately $16,000 during fiscal 1995 and $1,000 during fiscal 1996 and is expected to be approximately $25,000 during fiscal 1997. Phase I & II of the clean up have now been completed and a site closure plan is being prepared for submission to the U.S. Environmental Protection Agency ("EPA"). While the U.S. EPA cannot predict how they will respond to the closure plan, it is expected that site closure should be completed within the next two years. On July 13, 1994, the California Regional Water Quality Control Board ("CRWQCB") issued a clean up and abatement order to the Company concerning property previously used and owned by the Company on Ward Drive in Goleta, California. As a result of the order, the Company has been required to carry out an environmental study to determine the extent of contamination related to chemicals used by the Company at this site. This study involved taking a number of soil samples and sinking several test wells to test the ground water and monitor the water's condition over a twelve month period. The soil sample work is complete and showed no metal or volatile organic compound ("VOC") contamination. Ground water samples showed low levels of VOC contamination. These contaminants have either remained constant or declined in concentration over the past twelve month period. The CRWQCB has extended the monitoring requirements to an adjacent site and it is anticipated that they will require the Company to continue monitoring for a further twelve months. At the end of the study the CRWQCB will assess the need, if any, for further investigation or cleanup and may issue another order at that time. SEASONALITY Management believes that the Company's revenues are cyclical rather than seasonal. See "Industry" for further discussion. 11 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information as to the name, age, and office(s) held by each executive officer of the Company as of December 16, 1996:
NAME AGE POSITION OR OFFICE - ---------------------------- --- --------------------------------------------------------- Craig D. Crisman............ 55 Chairman of the Board and Chief Executive Officer Peter T. Altavilla.......... 43 Corporate Controller and Secretary
Craig D. Crisman became an employee of the Company on August 1, 1995. Prior to that time, since 1981, he was a member in the consulting firm of Grisanti, Galef & Goldress, Inc. ("GG&G"). GG&G was engaged by the Company on August 1, 1994, to provide crisis management and turnaround services to the Company. The turnaround engagement was determined to have been successfully completed on July 27, 1995. Mr. Crisman was elected Chief Executive Officer and a director of the Company on August 1, 1994. He was elected Chairman of the Board on November 3, 1995. During the five years preceding his appointment as Chief Executive Officer and a director of the Company, Mr. Crisman was a partner of GG&G. In that capacity he had been engaged, as a crisis management consultant, in business turnaround assignments involving a number of different enterprises in various industries. Peter T. Altavilla has been employed by the Company since 1987. He served as Assistant Controller until August 1, 1994, when he was elected to his present position as Corporate Controller. Mr. Altavilla was elected Secretary on February 9, 1996. ITEM 2. PROPERTIES Certain information concerning the Company's principal properties at September 28, 1996 is set forth below:
SQUARE LOCATION TYPE PRINCIPAL USE FOOTAGE OWNERSHIP - ------------------------------------- ------------------------- --------------------------- ----------- ----------- Goleta (Santa Barbara), California... Headquarters, office, Marketing and 217,000 Owned plant and warehouse manufacturing, research and engineering San Jose, California................. Office Customer support 1,300 Leased Penang, Malaysia..................... Office, plant and Manufacturing 208,000 Owned* warehouse Chung Ju, Korea...................... Office, plant and Manufacturing 293,000 Owned warehouse Republic of Singapore................ Office Customer support 6,000 Leased Beijing, China....................... Office, plant and Manufacturing 24,000 Leased warehouse Dublin, Ireland...................... Office, plant and Manufacturing 40,000 Owned warehouse
- ------------------------ * Property held as collateral for Malaysian revolving credit facility. See Note 6 to the Notes to Consolidated Financial Statements under Item 8. The Company owns a building in Dassel, Minnesota which is leased by the Company to the acquiror of a subsidiary which was previously sold by the Company. One facility in Chung Ju, Korea, comprising 93,000 square feet, is being offered for sale. The Company believes expansion of its existing manufacturing facilities and/or the addition of new production facilities will be required to support customer requirements during the second half of fiscal 1997. 12 ITEM 3. LEGAL PROCEEDINGS On November 18, 1994, the Company announced that it had entered into an agreement to dismiss the 1993 securities class action suit brought against the Company and certain former Company officers in the U.S. District Court for the Central District of California. Settlement of the suit was subject to the terms of a definitive agreement which was submitted to the court for preliminary approval during December, 1994. On May 31, 1995, the Court entered a judgement dismissing the litigation as to all claims against the Company and the other defendants, pursuant to an agreement by the parties to settle the litigation. Under the terms of the settlement, the Company was not required to make any cash payments but was required to issue shares of its common stock having an aggregate value of $1.25 million, which was charged to operations in fiscal 1994. The stock, along with $2.75 million from the Company's insurance carrier, was distributed, after court approval was received on September 23, 1996, to a class consisting of all persons who purchased the Company's common stock during the period of October 22, 1992, through October 1, 1993. The Company is not a party, nor are its properties subject to, any material pending legal proceedings other than ordinary routine litigation incidental to the Company's business and the matters described above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange under the symbol "APM." The following table sets forth for the periods indicated the high and low sale prices for the Common Stock.
HIGH LOW ------- ------- Fiscal year ending September 30, 1995 First Quarter......................................................... $ 4- 3/8 $ 2- 1/4 Second Quarter........................................................ 3- 7/8 2- 1/2 Third Quarter......................................................... 7 2- 5/8 Fourth Quarter........................................................ 18- 3/8 7- 1/8 Fiscal year ending September 28, 1996 First Quarter......................................................... $ 19 $ 12- 1/8 Second Quarter........................................................ 19- 1/8 13- 3/4 Third Quarter......................................................... 21- 3/4 9- 1/2 Fourth Quarter........................................................ 18- 1/4 8- 1/4
At December 16, 1996, there were approximately 1,465 record holders of the Company's Common Stock. There were no cash dividends paid by the Company during the fiscal years 1996 or 1995. The Company currently intends to retain any earnings for use in its business and does not anticipate paying cash dividends in the foreseeable future. 14 APPLIED MAGNETICS CORPORATION ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYMENT AMOUNTS) 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- OPERATIONS Net sales................................................. $ 344,754 $ 292,600 $ 275,927 $ 335,898 $ 297,864 Income (Loss) from continuing operations.................. 32,218 1,748 (52,670) (43,728) 315 Loss from discontinued operations......................... -- -- -- -- (25,422) Net income (loss)......................................... 32,218 1,748 (52,670) (43,728) (25,107) Net income (loss) per share: Net income (loss) from continuing operations............ $ 1.35 $ 0.08 $ (2.39) $ (2.17) $ 0.02 Loss from discontinued operations....................... -- -- -- -- (1.53) Net income (loss)....................................... $ 1.35 $ 0.08 $ (2.39) $ (2.17) $ (1.51) Weighted average common and common equivalent shares outstanding:............................................ 23,897 22,472 22,082 20,156 16,604 Order backlog............................................. $ 116,262 $ 107,466 $ 64,781 $ 77,126 $ 96,104 Year-end employment....................................... 6,401 5,478 5,531 7,259 7,407 BALANCE SHEET Working capital (1)....................................... $ 117,882 $ (5,963) $ (36,443) $ 33,920 $ 17,823 Total assets.............................................. 359,450 246,817 220,556 278,516 263,319 Total debt................................................ 163,917 69,629 67,151 57,183 71,224 Shareholders' investment.................................. 139,699 103,592 98,433 151,095 124,399
- ------------------------ (1) This balance includes borrowings outstanding under loan facilities with a Malaysian bank which have been in place since June 1990, are callable on demand, have no termination date and are guaranteed by the Company. The balances for the year ended September 28, 1996 and years ended September 30, 1995, 1994, 1993 and 1992 were $45.8 million, $46.9 million, $46.1 million, $35.2 million and $38.1 million, respectively. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The Company posted a net profit of $32.2 million and $1.7 million for the years ended September 28, 1996 and September 30, 1995, respectively, compared to a net loss of $52.7 million for the year ended September 30, 1994. Net sales increased 17.8% in fiscal 1996 from fiscal 1995 and increased 6.0% in fiscal 1995 from fiscal 1994. The Company's significant revenue growth and profitability during fiscal 1996 as compared to the previous two years is attributable to numerous factors, including increased customer demand for its thin film products, continued timely production ramps on a number of qualified thin film programs during the first half of fiscal 1996, successful transition to a new generation of advanced thin film disk head products and achievement of profitable yields during the second half of fiscal 1996. The fourth quarter of fiscal 1996 also included revenue derived from the Company's first production volume program for magnetoresistive ("MR") technology products. Improvements in production yields, coupled with favorable customer demand for the Company's advanced thin film disk head and MR disk head products, position the Company to meet its customers' requirements for fiscal 1997. MR disk head product development continues to be critical to the Company's future growth. The Company is committed to substantial engineering, production process and capital investments in MR. It began production volume shipments during the fourth quarter of fiscal 1996 and expects MR technology products to contribute to revenue and profitability during fiscal 1997. See "Products" under Item 1. During fiscal 1995, in response to increased customer demands that began during fiscal 1994, the Company continued its shift from production of ferrite disk heads to thin film disk heads, which offer superior performance characteristics over ferrite disk heads and are competitively priced. The Company furthered its technological development from the thin film microslider to the nanoslider form factor and by the first quarter of fiscal 1995, substantially all thin film shipments were nanoslider products. The Company also made substantial progress in thin film production process improvements, including conversion from 3 inch substrate ("wafer") to 6 inch wafer fabrication (which produces more thin film disk heads per wafer), and conversion to fully etched air bearing ("FEAB") and negative air pressure bearing surfaces, that improved product performance. During fiscal 1994, market demand shifted to the thin film nanoslider form factor from the microslider form factor and from ferrite disk heads. This unexpected rapid market transition contributed to the substantial losses in fiscal 1994 as the Company struggled with its thin film manufacturing process which impacted the Company's ability to quickly ramp production to achieve desired levels of volume shipments in response to strong market demand. 16 ANNUAL RESULTS OF OPERATIONS
FOR THE YEARS ENDED ------------------------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 30, (IN THOUSANDS) 1996 1995 1994 ------------- ------------- ------------- Thin Film Disk Head Products Net Sales....................................................... $ 262,027 $ 201,380 $ 121,967 Percentage of Total............................................. 76.0% 68.8% 44.2% Ferrite Disk Head Products Net Sales....................................................... 41,597 21,801 110,110 Percentage of Total............................................. 12.1% 7.5% 39.9% Other Disk Head Products Net Sales....................................................... 41,130 69,419 43,850 Percentage of Total............................................. 11.9% 23.7% 15.9% ------------- ------------- ------------- Total Net Sales..................................................... $ 344,754 $ 292,600 $ 275,927 100.0% 100.0% 100.0% ------------- ------------- ------------- ------------- ------------- -------------
NET SALES: Net sales increased 17.8% in fiscal 1996 from fiscal 1995. Net sales of thin film disk head products increased as a percent of total net sales to 76.0% in 1996 from 68.8% in 1995. In absolute terms, thin film net sales increased 30.1% in 1996 from 1995. The continued growth of thin film disk heads during 1996 was attributable primarily to an increase in head stack assembly ("HSA") shipments which included new advanced thin film technology products shipped during the last half of fiscal 1996. Ferrite disk head net sales, which represented 12.1% of total net sales in 1996, increased in absolute terms, 90.8% in 1996 from 1995, as one customer completed its program requirements. Substantially all ferrite orders were shipped during the fourth quarter of fiscal 1996. Thin film production has replaced ferrite business. Other net sales included disk head products, for which the Company only performs final assembly of HSAs using thin film and MR disk heads purchased from other manufacturers, the Company's internally manufactured MR disk heads and tape head products. Other net sales decreased, in absolute terms, 40.8% in 1996 from 1995, primarily due to a decrease in net sales for final assembly of thin film and MR HSAs and a decrease in tape head product net sales, partially offset by $6.1 million in net sales of the Company's prototype programs and its first volume production program for MR technology products. Net sales increased 6.0% in fiscal 1995 from fiscal 1994. Net sales of thin film disk head products increased as a percent of total net sales to 68.8% in 1995 from 44.2% in 1994. In absolute terms, thin film net sales increased 65.1% in 1995 from 1994. The significant growth in thin film disk heads was attributable to achievement of production volumes for nanoslider products and continued strong demand by certain customers for more mature products. Net sales of ferrite disk head products decreased 80.2% in fiscal 1995 from fiscal 1994. The Company attributed the decline to the market shift to thin film and MR disk heads that offer competitive prices and superior performance and to the Company's decision in fiscal 1994 to focus on thin film disk head product development. As a result, the Company committed its engineering and production resources to further advancement of thin film inductive and MR technology. Other net sales increased 58.3% in fiscal 1995 from fiscal 1994 as a result of increased assembly of HSAs, using thin film and MR disk heads purchased from other manufacturers, offset by a decrease in tape head products. Tape head products were produced by the Company's Tape Head business unit which was sold to Seagate Technology Inc., ("Seagate") in December 1994. Pursuant to the sales agreement, the Company continued to provide certain tape-related goods and services on an ongoing basis. GROSS PROFIT: The gross margin increased in fiscal 1996 to 27.0% as compared to 13.6% in fiscal 1995. The increase resulted from significantly higher revenues and a change in product mix, that included an increase in production of HSAs. 17 The gross margin increased in fiscal 1995 to 13.6% as compared to (2.2%) in fiscal 1994. The increase resulted from significantly higher revenues due to improved production volumes generated from technological improvements in the thin film nanoslider production processes, conversion from the 3 inch to 6 inch wafer fabrication, and due to cost reductions implemented at the end of fiscal 1994. RESEARCH AND DEVELOPMENT: Research and development expenses ("R&D") were $50.9 million, $33.7 million and $38.8 million for fiscal years 1996, 1995 and 1994, respectively, before a cost offset of $14.1 million in fiscal 1994. These expenses represented 14.8%, 11.5% and 14.1% of net sales, respectively, for such periods. The cost offset in fiscal 1994 was related primarily to developmental funding the Company received under a License and Technology Development Agreement with Hitachi Metals, Ltd. for the advancement of the Company's inductive thin film technology and the development and commercialization of MR disk head technology. Funding for this agreement was concluded by the end of fiscal 1994. R&D expenses increased by $17.2 million from fiscal 1995 to 1996 as the Company focused on next generation thin film inductive technology and made significant capital and engineering investments in MR production process development. R&D expenses decreased by $5.1 million from fiscal 1994 to 1995 as the Company implemented cost controls at the end of fiscal 1994, in response to significantly lower revenues and deteriorating gross margins. The Company continues to invest in advanced technology products and processes and expects that expenditures generally will increase on an absolute dollar basis, given that the revenue base can support such expenditures. The Company did not receive any development funding from customers and strategic partners in fiscal 1995 and 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative ("SG&A") expenses in absolute dollars were $6.5 million, $7.4 million and $17.3 million in fiscal 1996, 1995 and 1994, respectively. These expenses represented 1.9%, 2.5% and 6.3% of net sales, respectively, for such periods. SG&A expenses in 1996 were partially offset by a bad debt recovery of $0.5 million, related to a final payment of a 1990 bankruptcy settlement with a previous customer. The reduction in SG&A expenses from fiscal 1994 to 1995 was primarily due to a cost reduction program implemented at the end of fiscal 1994, in response to lower sales volumes. VALUATION ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS: The Company's allowance for uncollectible accounts receivable at September 28, 1996 was $0.8 million. The Company's allowance for uncollectible accounts receivable at September 30, 1995 was $0.7 million, which was $2.9 million less than the reserve required at September 30, 1994. The reduction in this allowance was due to the improved financial stability of the Company's significant customers. During fiscal 1994, the reserve for notes receivable, (related to the sale of the Company's two subsidiaries, Magnetic Data, Inc. and Brumko Magnetics to Delta Bravo, Inc. ("DBI"), a privately owned company), was increased by $0.8 million as all income related to interest payments from DBI was deferred. During fiscal 1995, DBI defaulted on certain notes covenants and failed to make the fourth quarter's scheduled interest payment. Due to this situation and related disputes, management determined that the remaining notes receivable balance should be fully reserved. This was accomplished by applying $3.2 million of excess reserve for accounts receivable, $2.8 million of excess 1993 restructuring reserves and $0.8 million of interest payments received from DBI to the reserve for the notes receivable. There were no special charges in fiscal 1996, 1995 and 1994. INTEREST INCOME AND EXPENSE: Interest income was $4.2 million, $2.0 million and $0.8 million in fiscal 1996, 1995 and 1994, respectively. Interest income increased $2.2 million in fiscal 1996 from 1995 and increased $1.2 million in fiscal 1995 from 1994, due to higher average cash balances. Interest expense was $9.1 million, $4.8 million and $4.2 million in fiscal 1996, 1995 and 1994, respectively. Interest expense 18 increased $4.3 million in fiscal 1996 from 1995, primarily as a result of the Company's March 1996 issuance of $115.0 million 7% Convertible Subordinated Debentures due in 2006. Interest expense increased $0.6 million in fiscal 1995 from 1994, primarily as a result of higher average interest rates on the Malaysian bank loans and letter of credit and loan fees related to the secured asset-based revolving line of credit established in January 1995. OTHER INCOME (EXPENSE): Other income of $2.0 million in fiscal 1996 included $1.3 million in final proceeds from the sale of the Company's Tape Head business unit to Seagate. Other income in fiscal 1996 also included $0.5 million in foreign exchange translation and transaction net gains. Other income of $6.3 million in fiscal 1995 included $4.9 million in income recognized as the Company completed certain performance milestones in connection with the sale to Seagate. Other income in fiscal 1995 also included $1.3 million related to sale of tooling and excess assets. Other income (expense) for fiscal 1994 primarily consisted of foreign exchange translation and transaction gains and losses. PROVISION FOR INCOME TAXES: The fiscal 1996 provision for income taxes included alternative minimum state and federal taxes and provision for foreign income taxes. For fiscal years 1995 and 1994, the most significant component of the provision for income taxes was foreign taxes for which there were no foreign tax credit offsets available. See Note 4 of Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES As of September 28, 1996, the Company's cash and cash equivalents balance increased to $127.4 million from $48.2 million at September 30, 1995. During fiscal 1996, the Company generated $39.7 million from operating activities, comprised primarily of the net effect of the following: i) $32.2 million from net income, which included $28.9 million of depreciation and amortization expense; ii) increase in the accounts receivable balance of $6.8 million as a result of the increase in net sales in September 1996 over September 1995, and due to discontinuance of accelerated payment terms by the Company's customers beginning in fiscal 1996; iii) increase in inventories of $3.3 million as the Company began production ramp up of advanced thin film technology and MR products and iv) decrease in the accounts payable balance of $12.2 million, primarily due to reduced business with one supplier that previously had provided extended payment terms and, to a lesser extent, due to reduction in direct material purchases. Increased thin film and MR disk head inventories more than offset the decrease in ferrite disk head inventories, which typically have relatively higher purchased material content. During fiscal 1996, cash of $16.9 million was generated from the following investing activities: i) the sale of a building in Chunchon, Korea for $3.8 million; ii) repayment of notes receivable of $1.8 million; and (iii) $11.3 million from the sale and leaseback of fixed assets. During fiscal 1996, net cash of $92.7 million was also generated from financing activities, consisting primarily of net proceeds from the issuance of $115.0 Convertible Subordinated Debentures in March 1996. The Company used cash to pay off $17.5 million of line of credit debt and made $69.9 million in capital expenditures, primarily related to increasing thin film and MR disk production capacity and MR disk head technology development. Additionally, the Company entered into $40.0 million of operating leases for machinery and equipment, with terms of up to five years. In March 1996, the Company completed the sale, in an offshore offering and in a concurrent private placement in the United States, of $115.0 million of 7.0% Convertible Subordinated Debentures due in 2006. Net proceeds of $110.7 million were used to retire a $10.0 million line of credit maturing March 29, 1996. As a result, total debt at September 28, 1996, including notes payable, was $163.9 million, a net increase of $94.3 million from the balance outstanding at September 30, 1995. During fiscal 1996, the Company also drew down its secured Malaysian credit facility to $45.8 million from a bank in Malaysia. The facility is callable on demand, has no termination date, is guaranteed by the Company, is secured by the Company's real property holdings in Malaysia and is subject to certain covenants which preclude the Company from granting liens and security interests in other assets in Malaysia. Should all or any significant 19 portion of the Malaysian credit facility become unavailable for any reason, the Company would need to pursue alternative financing sources. Additional borrowings available under this facility were approximately $2.0 million at September 28, 1996. The Company has a secured, asset-based revolving line of credit of $35.0 million from CIT Group/ Business Credit, Inc. ("CIT"). This line of credit provides for borrowings up to $35.0 million based on eligible trade receivables at various interest rates over a three-year term and is secured by trade receivables, inventories and certain other assets. As of September 28, 1996, there were no borrowings outstanding. The balance available under this line of credit was approximately $18.3 million at September 28, 1996 and the Company was in compliance with all financial covenants. The line of credit expires January 11, 1998. In 1997, the Company plans approximately $135.0 million in capital expenditures, including equipment to be obtained through operating leases, primarily to continue to improve thin film production processes and continue development and production of MR technologies and products and increase overall production capacity. The Company's accounts receivable and inventory balances are heavily concentrated with a small number of customers. Sales to Western Digital Corporation, NEC Corporation, Seagate and Quantum Corporation accounted for 44.0%, 20.1%, 13.4% and 10.3%, respectively, of the Company's sales in 1996. Further consolidation of the disk drive industry may reduce the number of disk drive programs requiring the Company's products and may increase credit risks for the Company due to the concentration of its customers. In fiscal 1995, Conner agreed to be acquired by Seagate. The Company experienced a significant decrease in the sales volumes to Conner in fiscal 1996, which was replaced by increased business with Western Digital. See "Customers and Marketing" under Item 1. The Company operates in a number of foreign countries. Purchases of certain raw materials and certain labor costs are paid for in foreign currencies. The Company is not currently hedging against potential foreign exchange risk. Fluctuations of foreign currency to the dollar could have a significant effect on reported cash balances. The effect of foreign currency exchange rate changes was a decrease of $0.3 million in cash for fiscal 1996 and an increase $0.1 million in cash for fiscal 1995. During fiscal 1997, the Company believes it will have sufficient cash flows from operations and equipment lease financing alternatives 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 increase sales or maintain production yields at acceptable levels in order to permit it to execute customer orders for new drive programs in a timely manner, there would be a significant adverse impact on liquidity. This would require the Company to either obtain additional capital from external sources or to curtail its capital, research and development and working capital expenditures. Such curtailment could adversely affect the Company's future years' operations and competitive position. FORWARD-LOOKING INFORMATION Certain statements or assumptions in Management's Discussion and Analysis contain or are based on "forward-looking" information (as defined in the Private Securities Litigation and Reform Act of 1995) that involves risk and uncertainties inherent in the Registrant's business. Actual outcomes are dependent upon the Registrant's successful performance of internal plans, its ability to control inventory levels, customer changes in short range and long range plans, domestic and international competition in the Registrant's product areas, successful completion of expansion within current cost estimates, continued acceptance of existing products and the development and acceptance of new products, performance issues 20 with key customers, risks related to international transactions and hedging strategies and general economic risks and uncertainties. RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires an impaired property to be written down to fair value. This Statement will become effective for financial statements of the Company in the first quarter of fiscal 1997. Management believes that the adoption of SFAS 121 will not have a material impact on the Company's financial condition and results of operations when it is adopted. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). For companies electing not to change their accounting, SFAS 123 requires pro-forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 had been adopted. The Company has elected to continue to utilize the accounting method prescribed by APB 25 and adopt the disclosure requirements of SFAS 123 when required in fiscal 1997. As a result, SFAS 123 will have no effect on the financial condition or results of operations of the Company. 21 APPLIED MAGNETICS CORPORATION ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- FINANCIAL STATEMENTS: Report of Independent Public Accountants (Arthur Andersen LLP)............................................. F-2 Consolidated Statements of Operations for the years ended September 28, 1996, September 30, 1995 and September 30, 1994....................................................................................... F-3 Consolidated Balance Sheets as of September 28, 1996 and September 30, 1995................................ F-4 Consolidated Statements of Cash Flows for the years ended September 28, 1996, September 30, 1995 and September 30, 1994....................................................................................... F-5 Consolidated Statements of Shareholders' Investment for the years ended September 28, 1996, September 30, 1995 and September 30, 1994.............................................................................. F-6 Notes to Consolidated Financial Statements................................................................. F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Applied Magnetics Corporation: We have audited the accompanying consolidated balance sheets of Applied Magnetics Corporation (a Delaware corporation) and subsidiaries as of September 28, 1996 and September 30, 1995, and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended September 28, 1996. These financial statements are the responsibility of the Company's management. 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Applied Magnetics Corporation and subsidiaries as of September 28, 1996 and September 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 28, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California December 12, 1996 F-2 APPLIED MAGNETICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEARS ENDED ------------------------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1994 ------------- ------------- ------------- Net sales........................................................... $ 344,754 $ 292,600 $ 275,927 Cost of sales....................................................... 251,503 252,684 281,997 ------------- ------------- ------------- Gross profit (loss)............................................... 93,251 39,916 (6,070) ------------- ------------- ------------- Research and development expenses................................... (50,867) (33,655) (24,682) Selling, general and administrative expenses........................ (6,533) (7,434) (17,267) Interest income..................................................... 4,228 1,996 825 Interest expense.................................................... (9,056) (4,826) (4,216) Other income (expense), net......................................... 2,047 6,335 (160) ------------- ------------- ------------- Income (Loss) before income taxes................................. 33,070 2,332 (51,570) Provision for income taxes.......................................... 852 584 1,100 ------------- ------------- ------------- Net income (loss)................................................. $ 32,218 $ 1,748 $ (52,670) ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss) per share:...................................... $ 1.35 $ 0.08 $ (2.39) ------------- ------------- ------------- ------------- ------------- ------------- Weighted average common and common equivalent shares outstanding:.................................................... 23,897,168 22,472,208 22,081,751 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements. F-3 APPLIED MAGNETICS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PAR VALUE DATA) ASSETS
AS OF ---------------------------- SEPTEMBER 28, SEPTEMBER 30, 1996 1995 ------------- ------------- Current assets: Cash and equivalents.............................................................. $ 127,400 $ 48,236 Accounts receivable, less allowances of $766 in 1996 and $652 in 1995............. 43,403 36,571 Inventories....................................................................... 35,980 32,727 Prepaid expenses and other........................................................ 10,122 10,411 ------------- ------------- 216,905 127,945 ------------- ------------- Property, plant and equipment, at cost: Land.............................................................................. 2,556 2,556 Buildings......................................................................... 72,284 67,314 Manufacturing equipment........................................................... 155,696 146,706 Other equipment and leasehold improvements........................................ 28,268 29,410 Construction in progress.......................................................... 30,052 6,967 ------------- ------------- 288,856 252,953 Less-accumulated depreciation and amortization.................................... (155,134) (148,636) ------------- ------------- 133,722 104,317 ------------- ------------- Other assets........................................................................ 8,823 14,555 ------------- ------------- $ 359,450 $ 246,817 ------------- ------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities: Current portion of long-term debt................................................. $ 1,865 $ 12,004 Bank notes payable................................................................ 45,789 54,371 Accounts payable.................................................................. 32,314 44,535 Accrued payroll and benefits...................................................... 11,001 9,361 Other current liabilities......................................................... 8,054 13,637 ------------- ------------- 99,023 133,908 ------------- ------------- Long-term debt, net................................................................. 116,263 3,254 ------------- ------------- Other liabilities................................................................... 4,465 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 23,283,047 shares at September 28, 1996 and 22,619,205 shares at September 30, 1995........ 2,328 2,262 Paid-in capital................................................................... 185,378 181,191 Retained deficit.................................................................. (46,813) (79,031) ------------- ------------- 140,893 104,422 Treasury stock, at cost (116,995 shares at September 28, 1996 and 96,603 shares at September 30, 1995)............................................................... (1,194) (830) ------------- ------------- 139,699 103,592 ------------- ------------- $ 359,450 $ 246,817 ------------- ------------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated balance sheets. F-4 APPLIED MAGNETICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ------------------------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1994 ------------- ------------- ------------- Cash Flows from Operating Activities: Net income (loss)................................................... $ 32,218 $ 1,748 $ (52,670) Adjustments to derive cash flows: Depreciation and amortization..................................... 28,891 27,600 23,643 Gain on sale of business and assets............................... -- (6,109) -- Amortization of unearned restricted stock compensation, net....... -- 721 (145) Changes in assets and liabilities: Accounts receivable............................................. (6,832) (17,712) 19,153 Other receivables............................................... -- -- 5,170 Inventories..................................................... (3,253) (3,772) 10,906 Prepaid expenses and other...................................... (750) (3,074) (305) Accounts payable................................................ (12,221) 23,168 (5,955) Accrued payroll and benefits.................................... 1,705 181 (2,739) Other assets and liabilities.................................... (86) (3,855) (9,998) ------------- ------------- ------------- Net cash flows provided by (used in) operating activities......... 39,672 18,896 (12,940) ------------- ------------- ------------- Cash Flows from Investing Activities: Additions to property, plant and equipment.......................... (69,900) (27,676) (31,452) Proceeds from sale of businesses and fixed assets, net.............. 15,122 29,539 3,516 Notes receivable.................................................... 1,803 2,048 2,038 ------------- ------------- ------------- Net cash flows provided by (used in) investing activities......... (52,975) 3,911 (25,898) ------------- ------------- ------------- Cash Flows from Financing Activities: Proceeds from issuance of convertible subordinated debentures....... 115,000 -- -- Proceeds from issuance of debt...................................... 144,214 160,868 142,767 Proceeds from issuance of capital lease obligations................. -- 5,142 464 Repayment of debt................................................... (164,787) (163,705) (134,402) Payment of debt issuance costs...................................... (4,274) -- -- Proceeds from stock options exercised, net.......................... 2,574 2,270 153 ------------- ------------- ------------- Net cash flows provided by financing activities................... 92,727 4,575 8,982 ------------- ------------- ------------- Effect of exchange rate changes on cash and equivalents............. (260) 93 1,246 ------------- ------------- ------------- Net increase(decrease) in cash and equivalents...................... 79,164 27,475 (28,610) Cash and equivalents at beginning of period......................... 48,236 20,761 49,371 ------------- ------------- ------------- Cash and equivalents at end of period............................... $ 127,400 $ 48,236 $ 20,761 ------------- ------------- ------------- ------------- ------------- ------------- Supplemental Cash Flow Data: Interest paid....................................................... $ 8,698 $ 4,827 $ 4,215 ------------- ------------- ------------- ------------- ------------- ------------- Income taxes paid................................................... $ 541 $ 494 $ 1,025 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements. F-5 APPLIED MAGNETICS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK TREASURY STOCK UNEARNED ----------------------- ---------------------- RESTRICTED NUMBER PAID-IN RETAINED NUMBER STOCK OF SHARES AMOUNT CAPITAL DEFICIT OF SHARES AMOUNT COMPENSATION ------------ --------- ---------- ---------- ----------- --------- --------------- Balance, September 30, 1993..... 22,153,742 $ 2,215 $ 178,533 $ (28,109) 79,328 $ (736) $ (808) Stock options exercised....... 26,087 3 226 -- -- -- -- Purchase of treasury stock, net......................... -- -- -- -- 13,181 (76) -- Restricted stock issuance, net......................... (18,369) (2) (278) -- -- -- 280 Amortization of unearned restricted stock compensation, net........... -- -- -- -- -- -- (145) Net loss...................... -- -- -- (52,670) -- -- -- ------------ --------- ---------- ---------- ----------- --------- ----- Balance, September 30, 1994..... 22,161,460 2,216 178,481 (80,779) 92,509 (812) (673) Stock options exercised....... 399,773 40 2,668 -- -- -- -- Purchase of treasury stock, net......................... -- -- -- -- 4,094 (18) -- Restricted stock issuance, net......................... 57,972 6 42 -- -- -- (48) Amortization of unearned restricted stock compensation, net........... -- -- -- -- -- -- 721 Net income.................... -- -- -- 1,748 -- -- -- ------------ --------- ---------- ---------- ----------- --------- ----- Balance, September 30, 1995..... 22,619,205 2,262 181,191 (79,031) 96,603 (830) -- Stock options exercised....... 582,772 58 2,945 -- -- -- -- Purchase of treasury stock, net......................... -- -- -- -- 20,392 (364) -- Litigation settlement......... 81,070 8 1,242 -- -- -- -- Net income.................... -- -- -- 32,218 -- -- -- ------------ --------- ---------- ---------- ----------- --------- ----- Balance, September 28, 1996..... 23,283,047 $ 2,328 $ 185,378 $ (46,813) 116,995 $ (1,194) $ -- ------------ --------- ---------- ---------- ----------- --------- ----- ------------ --------- ---------- ---------- ----------- --------- ----- SHAREHOLDERS' INVESTMENT ------------- Balance, September 30, 1993..... $ 151,095 Stock options exercised....... 229 Purchase of treasury stock, net......................... (76) Restricted stock issuance, net......................... -- Amortization of unearned restricted stock compensation, net........... (145) Net loss...................... (52,670) ------------- Balance, September 30, 1994..... 98,433 Stock options exercised....... 2,708 Purchase of treasury stock, net......................... (18) Restricted stock issuance, net......................... -- Amortization of unearned restricted stock compensation, net........... 721 Net income.................... 1,748 ------------- Balance, September 30, 1995..... 103,592 Stock options exercised....... 3,003 Purchase of treasury stock, net......................... (364) Litigation settlement......... 1,250 Net income.................... 32,218 ------------- Balance, September 28, 1996..... $ 139,699 ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements. F-6 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF THE BUSINESS Applied Magnetics Corporation (the "Company") was incorporated in California in 1957 and was reincorporated in Delaware in 1987. The Company manufactures advanced inductive thin film ("thin film") disk head products, magnetoresistive ("MR") disk head products and assembles ferrite metal-in-gap ("ferrite") disk head products, in each case, primarily to supply to manufacturers of 3.5 inch hard disk drives. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies is presented to assist the reader in understanding and evaluating the consolidated financial statements. These policies are in conformity with generally accepted accounting principles. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Applied Magnetics Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain 1994 and 1995 accounts have been reclassified to conform with the 1996 presentation. USE OF ESTIMATES: The preparation of financial statements in conformity with general accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. TRANSLATION OF FOREIGN CURRENCIES: Financial statements and transactions of subsidiaries operating in foreign countries are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52. The functional currency for all subsidiaries is the U.S. dollar. The effect of translating assets and liabilities stated in foreign currency is included as a component of "Other Income (Expense), net" in the Consolidated Statements of Operations. Translation and transaction gains of $0.5 million in 1996 and losses of $0.2 million in 1995 and 1994 were included in operations. The Company operates in a number of foreign countries. The relative impact of foreign currency fluctuations on revenue is not significant as product pricing is generally based on the U.S. dollar. Purchases of certain raw materials and certain labor costs are paid for in foreign currencies. As a result, effects of currency rate fluctuations can affect results of operations. Fluctuations may also have a significant effect on reported cash balances. Malaysian debt maturities are not currently hedged, as the credit facilities are held in U.S. dollars. As a result, there is no current foreign translation or transaction exposure, associated with the Malaysian debt. DEPRECIATION AND AMORTIZATION POLICIES: Plant and equipment are accounted for on a historical cost basis and are depreciated or amortized over their estimated useful lives primarily using the straight-line method. Estimated useful lives are as follows: Buildings average useful life................................ 15-16 Years Manufacturing equipment...................................... 2 - 5 Years Other equipment.............................................. 1 - 5 Years Leasehold improvements....................................... Term of Lease
F-7 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Depreciation and amortization expense from continuing operations amounted to $28.9 million, $27.6 million and $23.6 million in 1996, 1995 and 1994, respectively. The Company follows the policy of capitalizing expenditures that materially increase asset lives. Maintenance and minor replacements are charged to operations when incurred. Maintenance and repair expenses charged to operations were $9.0 million, $6.4 million and $8.7 million in 1996, 1995 and 1994, respectively. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is included in operations. CASH EQUIVALENTS: Cash equivalents consist primarily of money market instruments maturing within 90 days and are carried at cost, which approximates market. Cash equivalents were $120.9 million at September 28, 1996 and $43.6 million at September 30, 1995. The fair value of cash equivalents at September 28, 1996 approximates its carrying value. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. Market for purchased parts and manufacturing supplies is based on replacement costs and for other inventory classifications on net realizable value. Inventories consist of purchased materials and services, direct production labor and manufacturing overhead. The components of inventory were as follows (in thousands):
SEPTEMBER 28, SEPTEMBER 30, 1996 1995 ------------- ------------- Purchased parts and manufacturing supplies...................... $ 10,957 $ 13,036 Work in process................................................. 21,601 17,589 Finished goods.................................................. 3,422 2,102 ------------- ------------- $ 35,980 $ 32,727 ------------- ------------- ------------- -------------
REVENUE RECOGNITION AND WARRANTY POLICIES: Revenue is recognized at the time the product is shipped to the customer. Under the Company's warranty terms, customers are allowed to return products within the applicable warranty periods. The Company accrues for the estimated rework and scrap costs associated with anticipated returns. In addition, the Company reverses the net sales and associated costs upon receipt of returned products. FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The fair value of the Company's debt instruments at September 28, 1996 approximates its carrying value. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Net income per common and common equivalent share is calculated using the treasury stock method, except in those periods where the effect of including common equivalent shares is anti-dilutive. F-8 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT EXPENSES: The Company is actively engaged in basic technology and applied research and development programs which are designed to develop new products and product applications and related manufacturing processes. The costs of these programs are classified as research and development expenses and are charged to operations as incurred. Sustaining engineering is charged to cost of sales. OTHER LIABILITIES: Other liabilities are primarily composed of the non-current portion of accrued expenses related to various employee compensation plans. INCOME TAXES: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). See Note 4. STOCK OPTIONS: Proceeds from the sale of common stock issued upon the exercise of stock options are credited to common stock and paid-in capital accounts at the time the option is exercised. Income tax benefits attributable to stock options exercised are credited to paid-in capital when realized. See Note 5. CONSOLIDATED STATEMENTS OF CASH FLOWS: In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," the Company has selected the "indirect method" of presentation for reporting cash flows. RECENT ACCOUNTING PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires an impaired property to be written down to fair value. This statement will become effective for financial statements of the Company in the first quarter of fiscal 1997. Management believes that the adoption of SFAS 121 will not have a material impact on the Company's financial condition and results of operations when it is adopted. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). For companies electing not to change their accounting, SFAS 123 requires pro-forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 had been adopted. The Company has elected to continue to utilize the accounting method prescribed by APB 25 and adopt the disclosure requirements of SFAS 123 when required in fiscal 1997. As a result, SFAS 123 will have no effect on the financial condition or results of operations of the Company. F-9 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SEGMENTS OF BUSINESS The Company operates in one market worldwide--components for the computer peripheral industry. The Company's trade receivables are unsecured. Sales to major customers are as follows:
FOR THE YEARS ENDED: ------------------------------------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 30, (AS A PERCENTAGE OF SALES) 1996 1995 1994 ----------------- ----------------- ----------------- Western Digital................................. 44% 9% 0% NEC............................................. 20% 9% 0% Seagate......................................... 13% 41% 53% Quantum......................................... 10% 8% 10% All Others...................................... 13% 33% 37% --- --- --- Total........................................... 100% 100% 100% --- --- --- --- --- ---
Export sales are made by the United States operations to the following geographic locations (in thousands):
FOR THE YEARS ENDED: ------------------------------------------- SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1994 ------------- ------------- ------------- Europe.......................................... $ 219 $ 159 $ 1,523 Asia............................................ 322,405 231,781 35,082 North America................................... -- -- 67 ------------- ------------- ------------- $ 322,624 $ 231,940 $ 36,672 ------------- ------------- ------------- ------------- ------------- -------------
F-10 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SEGMENTS OF BUSINESS (CONTINUED) Information regarding the Company's domestic and foreign operations is as follows (in thousands):
UNITED STATES FOREIGN TOTAL ---------- ---------- ---------- 1996 Net sales................................................ $ 329,992 $ 14,762 $ 344,754 ---------- ---------- ---------- ---------- ---------- ---------- Intercompany sales....................................... $ 207,023 $ 304,527 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit......................................... $ 9,887 $ 28,011 $ 37,898 Interest expense, net.................................... (4,828) ---------- Income before income taxes............................. $ 33,070 ---------- ---------- Identifiable assets...................................... $ 246,067 $ 113,383 $ 359,450 ---------- ---------- ---------- ---------- ---------- ---------- 1995 Net sales................................................ $ 271,947 $ 20,653 $ 292,600 ---------- ---------- ---------- ---------- ---------- ---------- Intercompany sales....................................... $ 138,230 $ 213,620 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit (loss).................................. $ (3,608) $ 8,770 $ 5,162 Interest expense, net.................................... (2,830) ---------- Income before income taxes............................. $ 2,332 ---------- ---------- Identifiable assets...................................... $ 165,064 $ 81,753 $ 246,817 ---------- ---------- ---------- ---------- ---------- ---------- 1994 Net sales................................................ $ 98,680 $ 177,247 $ 275,927 Intercompany sales....................................... $ 229,022 $ 220,507 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Operating loss........................................... $ (27,162) $ (21,017) $ (48,179) Interest expense, net.................................... (3,391) ---------- Loss before income taxes............................... $ (51,570) ---------- ---------- Identifiable assets...................................... $ 141,029 $ 79,527 $ 220,556 ---------- ---------- ---------- ---------- ---------- ----------
A significant percentage of the Company's customers, located in the U.S., have production facilities primarily in Asia that receive the Company's products. The majority of the accounts receivable balance is from three of these customers. Foreign operations primarily consist of operations in the Asia-Pacific region. The increase in U.S. export sales to Asia and the decrease in sales of foreign operations in fiscal 1995 was due to the closure of the Company's production facility in Singapore in July 1994 and transfer of sales invoicing responsibility to the U.S. operations. Results of operations for United States-based operations includes all research and development expenditures, thereby causing an unfavorable comparison with the operating results of foreign-based operations. United States income for 1994 includes research and development cost offsets relating to the license and technology development agreement with Hitachi Metals, Ltd. ("HML"). See Note 9. F-11 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES The provision for income taxes for the following fiscal years consist of (in thousands):
1996 1995 1994 --------- --------- --------- Federal Income Taxes Current............................................................ $ 527 $ -- $ -- Deferred........................................................... -- -- -- State Income Taxes Current............................................................ 181 92 211 Deferred........................................................... -- -- -- Foreign income taxes................................................. 144 492 889 --------- --------- --------- $ 852 $ 584 $ 1,100 --------- --------- --------- --------- --------- ---------
Reconciliations of the actual provisions for income taxes to the income tax calculated at the United States Federal rates for continuing operations were as follows (in thousands):
1996 1995 1994 --------- --------- ---------- Income tax at the United States federal income tax rate......................... $ 11,575 $ 816 $ (18,050) State income taxes, net of federal income tax benefit........................... 118 59 137 Foreign income taxed at lower rate.............................................. (8,485) (2,217) (550) Temporary differences/net operating losses (benefited) not benefited............ (2,356) 1,926 19,563 Other, net...................................................................... -- -- -- --------- --------- ---------- $ 852 $ 584 $ 1,100 --------- --------- ---------- --------- --------- ----------
The provision (benefit) for deferred income taxes results from temporary differences which result from different tax bases for assets and liabilities than their reported amounts in the financial statements. Such differences result in recognition of income or expense in different years for tax and financial statement purposes. The sources of these differences and the tax effect of each at September 28, 1996 and September 30, 1995 were as follows (in thousands):
1996 1995 ---------- ---------- Inventory reserves.................................................... $ 4,414 $ 1,348 Restructuring & other reserves........................................ 7,984 9,594 Net operating loss carryforwards...................................... 23,005 32,536 Foreign tax & general business credit carryforwards................... 6,589 5,442 Unrepatriated foreign earnings........................................ (4,550) -- Depreciation.......................................................... 1,703 (4,970) Other, net............................................................ (336) 2,783 ---------- ---------- Subtotal............................................................ 38,809 46,733 Valuation allowance................................................... (38,809) (46,733) ---------- ---------- Total net deferred tax asset (liability).............................. $ -- $ -- ---------- ---------- ---------- ----------
F-12 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED) SFAS 109 requires that all deferred tax balances be determined using the tax rates and limitations expected to be in effect when the taxes will actually be paid or recovered. Consequently, the income tax provision will increase or decrease in the period in which a change in tax rate or limitation is enacted. As of September 28, 1996, the Company had total deferred tax liabilities of $4.9 million and deferred tax assets of $43.7 million. The Company recorded a valuation allowance in the amount of $38.8 million against the amount by which deferred tax assets exceed deferred tax liabilities. The valuation reserve at September 28, 1996 has been provided due to the uncertainty of the amount of future domestic taxable income. Consolidated retained deficit at September 28, 1996 included approximately $61.8 million of accumulated earnings of foreign operations. A deferred tax liability of $4.5 million has been recognized as of September 28, 1996. This liability has been recognized due to the Company's reduction of certain foreign manufacturing operations which may result in the repatriation of foreign earnings to the United States. The Company had federal net operating loss carryforwards available for tax purposes of approximately $62.7 million. To the extent not used, the net operating loss carryforward expires in varying amounts beginning in 2005. 5. STOCK OPTIONS AND LONG-TERM INCENTIVE PLANS The Company adopted stock option plans in 1988, 1992 and 1994. Incentive or nonqualified stock options may be granted under the 1992 and 1994 plans while the 1988 plan is limited to nonqualified options only. The options are issued at exercise prices equal to the fair market value of the Common Stock at the date of grant, and, accordingly, the Company makes no charges against income with respect to these options. Stock option activity under the option plans was as follows:
OPTIONS OUTSTANDING ----------------------------------------- OPTION PRICE NUMBER AVAILABLE PER SHARE OF SHARES FOR GRANT ---------------- ---------- ----------- Balance at September 30, 1993........................................ $ 5.63 - 13.63 1,122,086 178,329 Increase in shares available for grant............................. -- 1,000,000 Grants............................................................. $ 4.25 - 5.88 1,107,000 (1,107,000) Exercised.......................................................... $ 6.00 - 6.38 (2,625) -- Canceled........................................................... $ 5.00 - 12.50 (672,959) 672,959 ---------- ----------- Balance at September 30, 1994........................................ $ 5.00 - 13.63 1,553,502 744,288 ---------- ----------- ---------- ----------- Grants............................................................. $ 2.38 - 8.88 1,090,455 (1,090,455) Exercised.......................................................... $ 3.88 - 9.38 (338,236) -- Canceled........................................................... $ 2.38 - 13.63 (861,520) 861,520 ---------- ----------- Balance at September 30, 1995........................................ $ 2.38 - 13.63 1,444,201 515,353 ---------- ----------- ---------- ----------- Increase in shares available for grant............................. -- 1,100,000 Grants............................................................. $12.88 - 20.88 1,034,000 (1,034,000) Exercised.......................................................... $ 2.38 - 13.63 (468,288) -- Canceled........................................................... $ 2.38 - 15.63 (57,711) 57,711 ---------- ----------- Balance at September 28, 1996........................................ $ 2.88 - 20.88 1,952,202 639,064 ---------- ----------- ---------- -----------
F-13 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. STOCK OPTIONS AND LONG-TERM INCENTIVE PLANS (CONTINUED) At September 28, 1996 and September 30, 1995 and 1994, there were exercisable options outstanding under the option plans to purchase an aggregate of 307,356, 161,889 and 812,002 shares, respectively. The Company adopted long-term incentive plans in 1982, 1986 and 1989. Under the 1982 and 1986 plans, options were issued at exercise prices lower than the market value at the date of grant. The Company accrued as compensation expense, over the life of the plans, the amount by which the market price exceeded the exercise price at the date of grant for options outstanding and for cash performance awards granted under the plans. At September 28, 1996, no options to purchase Common Stock were available for future issuance under these two plans, and nonqualified options of 29,232 shares were outstanding at prices from $1.90 to $2.04 per share, of which 26,838 shares were exercisable. During 1996, options for 6,804 shares were exercised at prices from $1.93 to $2.02 per share and no options were canceled. Under the 1989 plan, the Company grants shares of Common Stock at no cost to the participants. These shares are subject to restrictions which prohibit selling, transferring, assigning or otherwise disposing of the Common Stock. The restrictions automatically expire ten years following the date of grant, or earlier if certain performance objectives are achieved. The market value of Common Stock issued is recorded as unearned restricted stock compensation and shown as a separate component of shareholders' investment. This compensation is amortized against income over the periods in which the participants perform services. At September 28, 1996, 25,369 shares were available for future issuance under the 1989 plan and 28,687 shares remain subject to restrictions. During 1996, no shares were issued, 3,034 shares were canceled and restrictions were removed from 64,000 shares under the 1989 plan. Compensation expense recorded under the 1989 plan during 1995 and 1994 was approximately $0.7 million and $0.2 million, respectively. No compensation expense was recorded during 1996. In 1994, the Company adopted a non-qualified stock option plan for non-employee directors (the "1994 Directors' Plan"). Under this plan, directors who are not employed by the Company are granted options to purchase 5,000 shares of the Company's Common Stock upon being elected to the board and, thereafter, such directors receive automatic annual grants of options to acquire 5,000 shares of Common Stock on March 1 of each year provided the person continues to serve as a director. The exercise price of the options is set at the closing price of the Common Stock on the New York Stock Exchange on the date of grant. The options granted under the 1994 Directors' Plan become exercisable in one third increments beginning on the first anniversary following the date of grant. At September 28, 1996, the Company had reserved 100,000 shares of its $.10 par value Common Stock for future issuance under this plan, options for 50,000 shares were outstanding at prices from $3.00 to $17.88 per share, of which 9,996 shares were exercisable. During 1996, no options were exercised or canceled under this plan. In December 1994, the Company granted 250,000 shares of the Company's Common Stock, at $4.125, to Grisanti, Galef and Goldress, Inc. ("GG&G"), a consulting firm hired in August 1994 to provide the Company with crisis management and turnaround assistance. The options would be exercisable if the turnaround engagement was successfully completed, which the Company determined to be so, in July 1995. The options became exercisable in whole or part and will expire in five years. The exercise price of the options is set at the closing price of the Common Stock on the New York Stock Exchange on the date of grant. During 1996, options for 10,714 shares were exercised. The Company has authorized a class of Preferred Stock consisting of 5,000,000 shares, $.10 par value. The Board of Directors has authority to divide the Preferred Stock into series, to fix the number of shares F-14 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. STOCK OPTIONS AND LONG-TERM INCENTIVE PLANS (CONTINUED) comprising any series and to fix or alter the rights, privileges and preferences of the Preferred Stock. No shares of the Preferred Stock were outstanding at September 28, 1996 or September 30, 1995. During 1988, the Board of Directors declared a dividend of one Right for each outstanding share of Common Stock to stockholders of record on November 4, 1988. Each Right entitles the holder to buy the economic equivalent of one share of Common Stock in the form of one one-hundredth of a share of the Preferred Stock at an exercise price of $75.00. Under certain conditions, each Right will entitle its holder to purchase, at the Rights exercise price, shares of the Company's Common Stock or common stock equivalents having a market value of twice the Right's exercise price. 6. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consisted of the following (in thousands):
SEPTEMBER 28, SEPTEMBER 30, 1996 1995 ------------- ------------- 7% Convertible Subordinated Debentures, due March 15, 2006.......................... $ 115,000 $ -- Secured revolving credit agreement, interest rate of 10.50% as of September 30, 1995.............................................................................. -- 7,500 Secured revolving credit agreement due March 1996, interest rate of 8.75% as of September 30, 1995................................................................ -- 10,000 Secured Malaysian bank credit facility, interest rates from 6.95% to 7.25% as of September 28, 1996................................................................ 45,789 46,871 Mortgage payable, interest rate of 8.50% as of September 28,1996.................... 106 126 Capital leases...................................................................... 3,022 5,132 ------------- ------------- 163,917 69,629 Less--current portion, including bank notes payable................................. 47,654 66,375 ------------- ------------- $ 116,263 $ 3,254 ------------- ------------- ------------- -------------
The aggregate principal payments of bank notes payable and long-term debt for the years subsequent to September 28, 1996 are: 1997--$47.7 million, 1998--$1.2 million, thereafter-$115.1 million. In March 1996, the Company completed the sale, in an offshore offering and in a concurrent private placement in the United States, of $115.0 million of its 7.0% Convertible Subordinated Debentures (the "Convertible Debentures") due in 2006. The net proceeds were used to retire a $10.0 million line of credit maturing March 29, 1996. The balance of the proceeds will be used for working capital and other general corporate purposes, including capital expenditures. Of the $115.0 million debt, $22.0 million may be converted, at any time after May 1, 1996, at a conversion price of $18.60 per share. The remaining $93.0 million of Convertible Debentures may be converted at the same price, at any time after March 22, 1997. The Company has a secured, revolving line of credit from CIT Group/Business Credit, Inc. ("CIT"). This line of credit provides for borrowings up to $35.0 million based on eligible trade receivables at various interest rates and is secured by trade receivables, inventories and certain other assets. As of September 28, 1996, no borrowings were outstanding. The balance available for borrowings under this line of credit was approximately $18.3 million at September 28, 1996 and the Company was in compliance with all financial covenants. The CIT Agreement expires January, 1998. F-15 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED) The Company's Malaysian subsidiary has credit facilities with a Malaysian bank which provide for up to $47.8 million in financing, have been in place since June 1990, are callable on demand, have no termination date and are guaranteed by the Company. In May 1995, the Company and the Malaysian bank amended these credit facilities to include a security interest in the Company's real property holdings in Malaysia and to include certain covenants which preclude the Company from granting liens and security interests in other assets in Malaysia. The Company was in compliance with all financial covenants under these facilities at September 28, 1996. The interest rates outstanding on these loan facilities ranged from 6.95% to 7.25% at September 28, 1996 and had a weighted average interest of 7.1%. The Company intends to continue its practice of repaying maturities with new borrowings under these facilities. 7. ACQUISITIONS During 1993, the Company sold its subsidiaries, Magnetic Data, Inc. and Brumko Magnetics, which had been accounted for as a discontinued operations in 1992, to Delta Bravo, Inc. ("DBI"). A portion of the sales consideration consisted of notes issued to the Company. DBI subsequently defaulted on several note covenants and breached related pledge agreements with the Company. On July 17, 1996, the Company, through a foreclosure procedure, acquired the common stock of DBI for a $2.5 million reduction in debt owed the Company by DBI. All DBI note balances had been fully reserved by the Company in previous years and the Company has no investment in DBI. The Company has engaged a third party consulting firm to operate and facilitate the sale of DBI, which has been accounted for as a discontinued operation at September 28, 1996. It is management's intent to complete the sale of DBI during fiscal 1997. DBI's financial position and results of operations are immaterial to the Company's consolidated financial statements. 8. COMMITMENTS AND CONTINGENCIES A portion of the Company's facilities and equipment are leased under non-cancelable operating leases and certain equipment is leased under capitalized leases. The terms of the leases for facilities and equipment expire over the next five years with renewal options in certain instances. Future minimum lease payments under capital and operating leases as of September 28, 1996 are as follows (in thousands):
LEASES ---------------------- CAPITAL OPERATING --------- ----------- 1997.................................................................... $ 2,063 $ 20,049 1998.................................................................... 1,208 16,156 1999.................................................................... 22 8,481 2000.................................................................... -- 5,957 2001.................................................................... -- 3,423 --------- ----------- Total minimum payments.................................................. 3,293 $ 54,066 --------- ----------- --------- ----------- Less imputed interest................................................... (271) --------- Present value of payments under capital leases.......................... 3,022 Less current portion.................................................... 1,845 --------- Long-term lease obligations............................................. $ 1,177 --------- ---------
F-16 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) Manufacturing and other equipment at September 28, 1996 include assets under capitalized leases of $6.0 million with related accumulated depreciation of $3.2 million. Total rental expense, net of sublease rental income, for the years ended September 28, 1996 and September 30, 1995 and 1994, including items on a month-to-month basis, was approximately $15.2 million, $10.2 million and $3.6 million, respectively. One of the senior executives of the Company has a five year employment agreement. Any changes to the agreement require approval by the Board of Directors. The Company does not have a post-retirement benefits program. As a result no corresponding accrual has been reflected on the accompanying Consolidated Balance Sheets. 9. LICENSE AND TECHNOLOGY DEVELOPMENT AGREEMENTS The Company does not currently have any ongoing technology development agreements providing funding for research and development efforts relating to new or advanced technology disk head products. In September 1992, the Company entered into a license and technology development agreement with HML (the "Agreement") to further the development and marketing of advanced magnetic recording disk head technologies and products. During fiscal 1994, the Company recognized cost offsets of $14.1 million primarily related to funding pursuant to the Agreement. The technology development portion of the agreement was concluded in fiscal 1994. Under the licensing portion of the Agreement, HML will have rights to manufacture products based on this technology and will have certain marketing and distribution rights for certain disk head products and markets. 10. COMMON STOCK ISSUANCE On November 18, 1994 the Company announced that it had entered into an agreement to dismiss the 1993 securities class action suit brought against the Company and certain former Company officers in the U.S. District Court for the Central District of California. Settlement of the suit was subject to the terms of a definitive agreement which was submitted to the court for preliminary approval during December 1994. On May 31, 1995, the Court entered a judgment dismissing the litigation as to all claims against the Company and the other defendants, pursuant to an agreement by the parties to settle the litigation. Under the terms of the settlement, the Company was not required to make any cash payments but was required to issue shares of its common stock having an aggregate value of $1.25 million, which was charged to operations in fiscal 1994. The stock, along with $2.75 million from the Company's insurance carrier, was distributed, after court approval was received on September 23, 1996, to a class consisting of all persons who purchased the Company's stock during the period of October 22, 1992, through October 1, 1993. 11. RELATED PARTY TRANSACTION The Company paid $680,000 and $140,000 in fiscal years 1995 and 1994, respectively, to Grisanti, Galef & Goldress ("GG&G"), for consulting services provided to the Company by employees of GG&G. Craig Crisman, who was a principal of GG&G until August, 1995 has been the Company's Chief Executive Officer and a director since August 1, 1994, and since August 1, 1995, has been the Chairman of the Company's Board of Directors. Jerry Goldress, has been a director of the Company since November 3, 1995 and is Chief Executive Officer of GG&G. F-17 APPLIED MAGNETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. BENEFIT PLANS The Company has a qualified retirement plan (the "401(k) Plan") under the provisions of section 401(k) of the Internal Revenue Code, in which eligible employees may participate. Substantially all participants in this plan are able to defer compensation up to the annual maximum amount allowable under Internal Revenue Service regulations. Additionally, the Company has a profit sharing plan, in which all eligible employees participate. Profit sharing amounts are distributed as 75% in cash, except for foreign employees who receive their profit sharing in cash, and 25% which is contributed to employees participating in the Company's 401(k) Plan. Compensation expense recorded under the cash profit sharing plan during 1996 was approximately $3.3 million, of which approximately $0.5 million was contributed to participating employees' 401(k) accounts. There was no compensation expense recorded and no 401(k) contributions were made by the Company during fiscal 1995 and 1994. 13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED -------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 30 MARCH 30 JUNE 29 SEPTEMBER 28 ------------ ----------- --------- ------------ 1996 Net sales...................................................... $ 94,709 $ 86,706 $ 74,037 $ 89,302 Gross profit................................................... 23,514 25,297 17,882 26,558 Net income..................................................... 9,028 8,696 2,350 12,144 Net income per share:.......................................... $ 0.38 $ 0.36 $ 0.10 $ 0.51 Weighted average common and common equivalent shares outstanding:................................................. 23,774 23,894 24,039 23,882 THREE MONTHS ENDED -------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ------------ ----------- --------- ------------ 1995 Net sales...................................................... $ 55,373 $ 64,919 $ 79,860 $ 92,448 Gross profit (loss)............................................ (794) 5,123 16,406 19,181 Net income (loss).............................................. (11,714) (2,691) 6,721 9,432 Net income (loss) per share:................................... $ (0.53) $ (0.12) $ 0.30 $ 0.40 Weighted average common and common equivalent shares outstanding:.................................................. 22,074 22,100 22,666 23,577
F-18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, portions of the information required by Part III of Form 10-K are incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the 1997 Annual Meeting of Stockholders ("the Proxy Statement"). ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT (a) Information concerning Directors of the Company appears in the Company's Proxy Statement, under Item 1 "Election of Directors". This portion of the Proxy Statement is incorporated herein by reference. (b) For information with respect to Executive Officers, see Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information concerning executive compensation appears in the Company's Proxy Statement, under the caption "Executive Compensation", and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning the security ownership of certain beneficial owners and management appears in the Company's Proxy Statement, under Item 1 "Election of Directors", and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions appears in the Company's Proxy Statement, under Item 1 "Election of Directors", and is incorporated herein by reference. I-1 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following documents are filed as part of this Report: Financial Statements--See Index to Consolidated Financial Statements as Item 8 on F-1 of this Report. (2) Supplemental Schedule: Report of Arthur Andersen LLP Schedule II Valuation and Qualifying Accounts All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------------- 3 Certificate of Incorporation and Bylaws (1) Amended and Restated Bylaws (2) Amendment to Bylaws dated June 14, 1989 (3) Certificate of Incorporation (as amended) (4) 4 Instruments defining the rights of securities holders including indentures Rights Agreement, dated as of October 19, 1988, between Applied Magnetics Corporation and First Interstate Bank of California, as Rights Agent (2) 10 (a) Applied Magnetics Corporation 1982 Long-Term Incentive Plan (5) (b) Applied Magnetics Corporation 1986 Long-Term Incentive Plan (6) (c) Applied Magnetics Corporation 1988 Stock Option Plan (7) (d) Applied Magnetics Corporation 1989 Long-Term Incentive Plan (8) (e) Loan Agreement dated February 13, 1992 between Applied Magnetics Corporation and Union Bank, N. A., as amended (9) (f) License and Technology Development Agreement dated as of September 25, 1992, between Applied Magnetics Corporation and Hitachi Metals, Ltd. (9) (g) Deeds of Trust naming as beneficiary Hitachi Metals, Ltd to secure the Company's obligations under a letter agreement dated March 24, 1995 (15) (h) Applied Magnetics Corporation 1992 Stock Option Plan (9) (i) Financing Agreement dated January 11, 1995 between the Company and CIT Group/ Business Credit, Inc. (14) (j) Letter Agreement between Registrant and Hitachi Metals, Ltd. Dated May 30, 1995 extending maturity date of Letter of Credit to April 12, 1996 (16) (k) Purchase Agreement between the Company and Delta Bravo, Inc.,for the purchase of capital stock of Magnetic Data, Inc., a Delaware Corporation and Brumko Magnetic Corp., a Nebraska Corporation(10) (l) Security Agreement between Registrant and Hitachi Metals, Ltd. dated May 30, 1995 (16) (m) Cross License and Joint Research and Development Agreement effective as of November 5, 1993, between the Company and Hutchinson Technology Incorporated (11) (n) Applied Magnetics Corporation 1994 Employee Stock Option Plan (12) (o) Applied Magnetics Corporation 1994 Nonemployee Director's Stock Option Plan (12)
I-2
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------------- (p) Letter Agreement dated as of November 14, 1994, between the Company and the CIT Group/Business Credit, Inc. (13) (q) Stock Purchase Agreement by and among the Company, Seagate Technology,Inc. and Applied Tape Technology, Inc. (13) (r) Letter Agreement dated September 12, 1994, between the Company and William R. Anderson (13) (s) Letter Agreement dated August 1, 1994, between the Company and Grisanti, Galef & Goldress, Inc. (13) (t) Offer letter dated April 19, 1995 between Maybank Banking Berhad and Applied Magnetics (M) Sdn Bhd. for extension of Credit Facility (16) (u) Corporate Guarantee of the Registrant dated June 8, 1995 in favor of Maybank Banking Berhad (16) (v) Employment Agreement between Craig D. Crisman and the Company dated August 1, 1995 (17) (w) Letter Agreement dated July 19, 1995, between the Company and Raymond P. Le Blanc (17) (x) 1995 Key Management Incentive Bonus Plan dated March 16, 1995 (17) (y) Worldwide Cash Profit Sharing Plan (18) (z) Form of Indemnification Agreement (aa) Form of Agreement (relating to termination benefits to key employees) 11 Statement re computation of per share earnings. 13 Annual Report to Shareholders. Integrated with Form 10-K 21 Subsidiaries of the registrant. Incorporated by reference to Form 10-K dated December 29, 1994 22 Published report regarding matters submitted to vote of security holders. None 23 Consent of experts and counsel. Consent of Arthur Andersen LLP dated December 12, 1996. 24 Power of Attorney. None 27 Financial Data Schedule 28 Information from reports furnished to state insurance regulatory authorities. None (1) Filed an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-13653) filed on April 21, 1987, and incorporated herein by reference (2) Filed as an exhibit to the Company's Current Report on Form 8-K dated October 19, 1988, and incorporated herein reference (3) Filed as an exhibit to the Corporation's Annual Report on Form 10-K dated December 21, 1989 and incorporated hereby reference (4) Filed as an exhibit to the Corporation's Quarterly Report on Form 10-Q dated May 4, 1989 and incorporated herein by reference (5) Filed as an exhibit to the Company's definitive Proxy Statement filed pursuant to Regulation 14A on January 27, 1983, and incorporated herein by reference (6) Filed as an exhibit to the Company's definitive Proxy Statement filed pursuant to Regulation 14A on December 23, 1985, and incorporated herein by reference (7) Filed as an exhibit to the Company's definitive Proxy Statement filed pursuant to Regulation 14A on January 7, 1988, and incorporated herein by reference
I-3
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------------- (8) Filed as an exhibit to the Company's definitive Proxy Statement filed pursuant to Regulation 14A on December 30, 1988 and incorporated herein by reference (9) Filed as an exhibit to the Company's Annual Report on Form 10-K dated December 22, 1992, as amended by Form 8, filed February 12, 1993 and incorporated herein by reference (10) Filed as an exhibit to the Company's Report on Form 10-Q dated May 14, 1993 and incorporated herein by reference (11) Filed as an exhibit to the Company's Current Report on Form 8-K dated December 2, 1993 and incorporated herein by reference (12) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q dated March 31, 1994, and incorporated herein by reference (13) Filed as an exhibit to the Company's Annual Report on Form 10-K dated December 29, 1994 (14) Filed as an exhibit to the Company's Current Report on Form 8-K dated January 16, 1995 and incorporated by reference (15) Filed as an exhibit to the Company's Report on Form 10-Q dated May 15, 1995 and incorporated herein by reference (16) Filed as an exhibit to the Company's Report on Form 10-Q dated August 15, 1995 and incorporated herein by reference (17) Filed as an exhibit to the Company's Annual Report on Form 10-K dated December 21, 1995, as amended by Form 10K/A, dated June 11, 1996 and incorporated herein by reference (18) Filed as an exhibit to the Company's Report on Form 10-Q/A dated March 4, 1996 and incorporated herein by reference
(b) Reports on Form-8K. The Company filed a report on Form 8-K, dated March 11, 1996, during the quarter ended March 30, 1996, reporting, under Item 5 of such Form, the Company's intention to raise $100 million through sale of convertible subordinated notes to institutional investors and non-U.S. investors for repaying debt and for other working capital purposes. The Company filed a report on Form 8-K, dated March 20, 1996, during the quarter ended March 30, 1996, reporting, under Item 5, that an agreement for the sale of debentures had been executed, and under Item 7, a Press Release dated March 15, 1996, announcing such agreement. The Company filed a report on Form 8-K, dated April 2, 1996, during the quarter ended March 30, 1996, reporting under Item 5 of such Form, the completion of the sale of $115 million of Convertible Subordinated Debentures, and under Item 7, a Press Release dated March 25, 1996, announcing completion of sale. The Company filed a report on Form 8-K, dated August 1, 1996, during the quarter ended September 28, 1996, reporting under Item 2 of such Form, that on July 17, 1996, the Company, through a non-judicial foreclosure following a breach of a stock pledge by a third party, acquired 75% of the outstanding common stock of Delta Bravo, Inc, a Delaware Corporation ("DBI"), in satisfaction of approximately $2.5 million of debt owed by DBI to the Company. The Company filed a report on Form 8-KA Amendment No. 1, dated September 27, 1996, during the quarter ended September 28, 1996, reporting under Item 7, audited financial statements of DBI. (c) Exhibits. The exhibits listed (a) (2) above are submitted as a separate section of this report (d) The individual financial statements of the registrant have been omitted since the registrant is primarily an operating company and all subsidiaries are included in the consolidated financial statements I-4 SIGNATURES Pursuant to the requirements of Section 13 (d) or 15 (d) 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 Date: December 20, 1996 By: /s/ CRAIG D. CRISMAN ----------------------------------------- Craig D. Crisman CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL FINANCIAL OFFICER) Date: December 20, 1996 By: /s/ PETER T. ALTAVILLA ----------------------------------------- Peter T. Altavilla CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated. /s/ CRAIG D. CRISMAN - ------------------------------ Chairman of the Board and December 20, 1996 Craig D. Crisman Chief Executive Officer /s/ HAROLD R. FRANK - ------------------------------ Director and Chairman December 20, 1996 Harold R. Frank Emeritus /s/ R. C. MERCURE, JR. - ------------------------------ Director December 20, 1996 R. C. Mercure, Jr. /s/ HERBERT M. DWIGHT, JR. - ------------------------------ Director December 20, 1996 Herbert M. Dwight, Jr. /s/ JERRY E. GOLDRESS - ------------------------------ Director December 20, 1996 Jerry E. Goldress I-5 SCHEDULE II APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING AT END CLASSIFICATION OF PERIOD ADDITIONS DEDUCTIONS(B) OTHER(A)(B) OF PERIOD - ------------------------------------------------------ ----------- ----------- ------------- ----------- --------- Year Ended September 30, 1994 Allowance for doubtful collection: Accounts Receivable................................. $ 3,242 $ 100 $ (28) $ 315 $ 3,629 Notes Receivable.................................... 11,307 1,878 -- -- 13,185 Year Ended September 30, 1995 Allowance for doubtful collection: Accounts Receivable................................. $ 3,629 $ -- $ 268 $ (3,245) $ 652 Notes Receivable.................................... 13,185 1,229 -- 6,045 20,459 Year Ended September 28, 1996 Allowance for doubtful collection: Accounts Receivable................................. $ 652 $ -- $ -- $ 114 $ 766 Notes Receivable.................................... 20,459 -- (2,874) (17,585) --
- ------------------------ (A) In 1994 and 1996 the accounts receivable allowance amount represents recoveries of accounts previously written off. The notes receivable allowance for doubtful collection represents the potential uncollectability of notes from Delta Bravo, Inc. ("DBI"). In 1995 the Company determined that its allowance for doubtful trade receivables was in excess of the amount needed and it transferred this excess to its allowance for notes receivable where it was required. Also, in 1995 the Company applied $2.8 million of excess 1993 restructure reserves to its allowance for notes receivable where it was required. (B) In previous years, the Company fully reserved all DBI note balances. In July 1996, the Company, acquired 100% of DBI (see Note 7). As such the related notes receivable and notes receivable reserve were eliminated in consolidation. S-1 EX-10.(Z) 2 EXHIBIT 10(Z) - INDEMNIFICATION AGREEMENT EXHIBIT 10(Z) INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of , 1996, by and between APPLIED MAGNETICS CORPORATION, a Delaware corporation (the "Company"), and ("Indemnitee"), with reference to the following facts: A. Indemnitee is currently serving as a key executive of the Company. B. The Company and Indemnitee recognize the substantial increase in corporate litigation in general, subjecting key executives to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. C. Indemnitee does not regard the current protection available to be adequate under the present circumstances to protect him or her against the risks associated with his or her service to the Company and the Company recognizes that Indemnitee and other key executives of the Company may not be willing to continue to serve as key executives without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, including Indemnitee, to serve as key executives of the Company and thus desires to indemnify its key executives to provide them with the maximum protection permitted by law. THEREFORE, IN CONSIDERATION OF the foregoing premises, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. 1.1 THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a key executive of the Company, or any subsidiary of the Company, and such proceeding relates to any action or inaction on the part of Indemnitee while a key executive or by reason of the fact that Indemnitee is or was serving at the request of the Company as a key executive, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including, subject to Section 13 hereof, attorneys' fees and any expenses of establishing a right to indemnification pursuant to this Agreement or under Delaware law), judgments, fines, settlements (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee in connection with such proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, if Indemnitee had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or with respect to any criminal proceedings, would not create a presumption that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. 1.2 PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a key executive of the Company, or any subsidiary of the Company, and such action relates to any action or inaction on the part of Indemnitee while a key executive, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including, subject to Section 13 hereof, attorneys' fees and any expenses of 1 establishing a right to indemnification pursuant to this Agreement or under Delaware law) and amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of the proceeding if Indemnitee acted in good faith and in a manner Indemnitee believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made with respect to any claim, issue or matter to which Indemnitee shall have been adjudged to have been liable to the Company in the performance of Indemnitee's duty to the Company, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine is proper. 1.3 SUCCESSFUL DEFENSE ON MERITS. To the extent that Indemnitee has been successful on the merits in defense of any proceeding referred to in Section 1.1 or 1.2 above, or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 1.4 CERTAIN TERMS DEFINED. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans, references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan and references to "proceeding" shall include any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. For purposes of this Agreement, references to the "Company" shall include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that an Indemnitee who is or was a director, officer, employee or other agent of such a constituent corporation, or who, being or having been such a director, officer, employee or other agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as an Indemnitee would if he or she had served the resulting or surviving corporation in the same capacity. 2. AGREEMENT TO SERVE. Indemnitee agrees to serve or continue to serve as a key executive of the Company for so long as he or she is duly elected or appointed or until such time as he or she voluntarily resigns. Indemnitee agrees to tender written notice to the Company at least 30 days prior to voluntarily resigning. The terms of any existing employment agreement between Indemnitee and the Company shall continue in effect but shall be modified or supplemented by the terms of this Agreement. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. EXPENSES; INDEMNIFICATION PROCEDURE. 3.1 ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement (excluding amounts actually paid in settlement of any action, suit or proceeding) or appeal of any civil or criminal action, suit or proceeding referenced in Section 1.1 or 1.2 hereof. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. 3.2 NOTICE OF CLAIM. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Secretary of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 2 3.3 ENFORCEMENT RIGHTS. Any indemnification provided for in Section 1 shall be made no later than sixty (60) days after receipt of the written request of Indemnitee. If a claim or request under this Agreement, under any statute, or under any provision of the Company's Bylaws providing for indemnification, is not paid by the Company, or on its behalf, within sixty (60) days after written request for payment thereof has been received by the Company, Indemnitee may, but need not, at any time thereafter bring suit against the Company to recover the unpaid amount of the claim or request, and subject to Section 13, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3.1 unless and until such defense may be finally adjudicated by court order or judgment for which no further right of appeal exists. The parties hereto intend that, if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be a decision for the court and no presumption regarding whether the applicable standard has been met will arise based on any determination or lack of determination of such by the Company (including its Board of Directors or any committee thereof, independent legal counsel or its stockholders). 3.4 ASSUMPTION OF DEFENSE. In the event the Company shall be obligated to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, unless (i) the employment of counsel by Indemnitee is authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest of such counsel retained by the Company between the Company and Indemnitee in the conduct of such defense, or (iii) the Company ceases or terminates the employment of such counsel with respect to the defense of such proceeding, in any of which events then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. At all times Indemnitee shall have the right to employ other counsel in any such proceeding at Indemnitee's expense. 3.5 NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3.2 hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 3.6 SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall do all things that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 4. EXCEPTIONS. Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to the terms of this Agreement: 4.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or as otherwise required under the Delaware General Corporation Law, 3 but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or 4.2 LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that such proceeding was not made in good faith or was frivolous; or 4.3 INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) that have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or 4.4 CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. 6.1 SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, including those circumstances in which indemnification would otherwise be discretionary and notwithstanding that such indemnification is not specifically authorized by this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a key executive, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. 6.2 NON-EXCLUSIVITY. Nothing herein shall be deemed to diminish or otherwise restrict any rights to which Indemnitee may be entitled under the Company's Bylaws, any agreement, any vote of stockholders or disinterested directors, or under the laws of the State of Delaware. 7. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its key executives under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 8. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors and possibly certain other key executives of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 4 9. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 10. EFFECTIVE DATES. This Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a key executive of the Company, or any predecessor corporation or constituent corporation in a merger involving the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. 11. COVERAGE. The provisions of this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 12. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that the action was not instituted in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that Indemnitee's defenses to such action were not made in good faith or were frivolous. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts in the State of Delaware. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. APPLIED MAGNETICS CORPORATION Address: 75 Robin Hill Road Goleta, California 93117 By: - -------------------------------------- Title: - ------------------------------------- INDEMNITEE Address: -------------------------------------- - -------------------------------------- (Signature) -------------------------------------- - -------------------------------------- (Printed or typed name) 6 EX-10.(AA) 3 EXHIBIT 10(AA) - AGREEMENT EXHIBIT 10(AA) AGREEMENT THIS AGREEMENT (the "Agreement"), made and entered into as of the day of November, 1996, by and between APPLIED MAGNETICS CORPORATION, a Delaware corporation ("AMC") and ("Executive"). W I T N E S S E T H: WHEREAS, AMC (including subsidiaries and divisions) has always followed compensation policies intended to reward executives for past services and to demonstrate to them that AMC is concerned with the welfare of its employees and intends to see that loyal executives are treated fairly; and WHEREAS, AMC regards the continued services of Executive to be in the best interests of AMC and its shareholders and desires to assure the continued services of Executives on an objective and impartial basis and without distraction or conflict of interest in the event of an attempt to obtain control of AMC; and WHEREAS, Executive is willing to remain in the employ of AMC upon the understanding that AMC will provide him or her with income security if his or her employment is terminated under certain conditions following a change in control of AMC; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings indicated: 1.1 "AMC" means and includes Applied Magnetics corporation, and any subsidiary or division thereof, as the context-may require. 1.2 "BASE AMOUNT" means the sum of (a) Executive's then monthly base salary; (b) Executive's then monthly car allowance, if any, and (c) one-twelfth of an amount equal to any bonus that Executive received or was entitled to receive for the fiscal year immediately preceding a Change in Control. 1.3 "CAUSE" means (a) Executive's continued failure to perform his duties after a written demand for substantive performance is delivered by AMC's Board of Directors to Executive documenting specific areas of repeated and continuing nonperformance, or (b) Executive's willful, reckless or grossly negligent misconduct materially injurious to AMC; PROVIDED, HOWEVER, that "Cause" shall be deemed not to have-occurred unless and until a resolution shall have been adopted by the affirmative vote of two-thirds of the entire membership of AMC's Board of Directors after reasonable notice to Executive of such Cause and reasonable opportunity for Executive and his or her counsel to be heard. 1.4 "CHANGE IN CONTROL" means (a) any Person becomes the beneficial owner, directly or indirectly, of securities of AMC representing 20% of the combined voting power of the then outstanding securities of AMC; or (b) there shall be consummated any consolidation or merger of AMC in which AMC is not the continuing or surviving corporation or pursuant to which shares of AMC's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of AMC's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of AMC. 1.5 "DISABILITY" means Executives absence from his or her duties with AMC for a contiguous period of nine months as a result of Executive's incapacity due to physical or mental illness, provided that notice 1 of Executive's termination due to Disability is provided to Executive within the 30-day period following such nine-month period. 1.6 "MEDICAL BENEFITS" mean all life, group insurance, medical and dental care plans and all disability insurance provided by AMC to Executive immediately before Executive's Termination of Employment. 1.7 "OPTIONS" means all the options to purchase shares of Common Stock, $.10 par value, of the Company granted to Executive under AMC's various employee benefit plans (as defined in Rule 405 promulgated under the Securities Act of 1933), whether or not such options are vested or not. 1.8 "PERSON" means a person as defined or referred to in Sections 3(a)(9) and 13(d)(1) ET SEQ. of the Securities Exchange Act of 1934 and rules of the Securities and Exchange Commission promulgated thereunder. 1.9 "RETIREMENT" means termination by AMC or Executive of Executive's employment based on Executive's having reached age 65 or such other age as shall have been fixed in any arrangement established with Executive's consent with respect to Executive. 1.10 "TERMINATION OF EMPLOYMENT" means the termination of Executive's employment with AMC, within three years after a Change in Control, by either (a) AMC (other than for "Cause"); or (b) Executive (other than by Retirement, death or Disability) following the occurrence, without Executive's consent, of any of the following events ("Good Reason"): (i) the assignment to Executive of duties inconsistent with and adverse to Executive's position, duties, responsibilities and status with AMC immediately prior to a Change in Control of AMC, or an adverse change in Executives titles or offices as in effect immediately prior to a Change in Control of AMC, or a reduction of Executive's duties or responsibilities as in effect immediately prior to a change in Control of AMC, or any removal of Executive from or any failure to reelect Executive to any of such positions, except in connection with termination of Executive's employment for Disability, Retirement or Cause or as a result of Executive's death or by Executive other than for Good Reason; (ii) A reduction in Executive's base salary and bonus compensation unless such reduction is part of a uniformly applied program of reductions reasonably adopted due to AMC's then business condition; (iii) A failure to increase Executive's base salary on or before the later to occur of 12 months from the date of the last increase in Executive's base salary or 60 days following a Change in Control, in an amount not less than 50% of the average annual percentage base salary increase for all "Corporate Executives" of AMC in the 36 months preceding the date on which such increase shall be due. For purposes of this subparagraph (iii), "Corporate Executives" of AMC shall include AMC's Chairman, Chief Executive Officer, President; Chief Financial officer; Vice President, General Manager, [OTHERS?]; (iv) A failure of AMC to continue in effect any benefit or incentive plan or arrangement in which Executive is participating at the time of a Change in Control, or the taking of any action by AMC which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan or arrangement or deprive Executive of any material fringe benefit enjoyed by Executive at the time of a Change in Control, unless such failure results from a uniformly applied program of reductions reasonably adopted due to AMC's then business condition; (v) Executive is either (x) transferred to a principal work location which will require him to travel more than twenty-five (25) miles from his or her then principal residence to his or her new principal work location, or (y) he or she is required to engage in a substantially increased amount of travel on AMC's business; (vi) any material breach by AMC or any provision of this Agreement. 2 2. PAYMENT UPON TERMINATION OF EMPLOYMENT. Within 10 days immediately following Termination of Employment, AMC shall forthwith pay to Executive a lump-sum payment equal to multiplied by the Base Amount. 3. CONTINUATION OF INSURANCE. For a period of 12 months following Executive's Termination of Employment or until such time that Executive shall be employed by an employer who provides Executive with medical benefits substantially similar to the Medical Benefits, Executive shall receive the same Medical Benefits that he or she (and his or herfamily, if applicable) received from AMC prior to his or her Termination of Employment; PROVIDED, HOWEVER, that if the plans pursuant to which the Medical Benefits were provided to Executive have been or are modified, Executive shall be entitled to substantially similar Medical Benefits from other reputable sources. Executive shall be required to pay the same amount for such Medical Benefits as he or she paid prior to his or her Termination of Employment. 4. ACCELERATION OF OPTIONS UPON TERMINATION OF EMPLOYMENT. Immediately upon or following Termination of Employment, all shares covered by Executive's Options shall become immediately and fully exercisable, and shall remain exercisable until the expiration thereof, and Executive shall have the right to purchase, by exercise of such Options, all or any portion of the shares covered by such Options; provided however, that in no event may any Option be exercised after the expiration date thereof. 5. REPRESENTATION BY EXECUTIVE; NO EMPLOYMENT CONTRACT. Executive represents that it is his or her present intention to continue in the employ AMC and he or she is not currently aware of any facts or circumstances that would cause him or her to change such intention in the foreseeable future. Executive acknowledges that Executive has been advised and understands that this Agreement shall not, however, be deemed in any way to create a contract of employment between AMC and Executive. 6. EXPENSES OF EXECUTIVE. AMC agrees to pay or reimburse Executive for all costs and expenses (including court costs and attorneys, fees) incurred by Executive (a) in the successful prosecution or settlement of any claim or action by Executive to enforce his or her rights under this Agreement, or (b) in any other action or proceeding, not involving such a claim or action by Executive, which challenges the validity or enforceability of this Agreement or any similar agreements with other employees of AMC. AMC further agrees to pay or reimburse Executive for all ' costs and expenses (including legal and accounting fees and expenses) incurred by Executive in connection with any audit or review by the Internal Revenue Service of any excise tax imposed on any payments under this Agreement. 7. LIABILITY FOR TAXES. AMC shall have no liability for any tax liability of Executive attributable to any payment made under this Agreement. AMC may withhold from any such payment such amounts as may be required by applicable provisions of the Internal Revenue Code, other tax laws, and the rules and regulations of the Internal Revenue Service and other tax agencies, as in effect at the time of any such payment. 8. TERMINATION OF AGREEMENT. This Agreement shall terminate and be of no further effect (except to the extent that any obligation of AMC hereunder remains unpaid as of such time) upon the first to occur of (a) termination of Executive's employment with AMC for any reason, whether voluntarily or involuntary, prior to a change in Control; (b) termination of Executive's employment by AMC due to Executive's death, Retirement, Disability or for Cause or by Executive other than for Good Reason; (c) 36 months from the date of a Change of Control, or (d) 12 months following the date that written notice of termination of this Agreement is provided to Executive by AMC's Board of Directors if a Change in Control does not occur. Within that 12-month period. 9. OTHER PLANS. To the extent that Executive shall receive payments under this Agreement, he or she shall not be eligible to receive severance benefits under AMC's standard severance policy; PROVIDED, HOWEVER, that notwithstanding the previous sentence, Executive shall be entitled to receive unused and accrued vacation pay and shall be entitled to such other benefits as described in Section 3 of this Agreement. 3 10. TAXES. Anything in this Agreement to the contrary notwithstanding, (1) in the event that any payment to or for the Executive's benefit (whether payable pursuant to the terms of this Agreement or otherwise) would not be deductible by AMC as a result of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate amount payable under Section 2 shall be reduced (but not below zero dollars), so that after giving effect to such reduction, no payment made to or for the Executive's benefit will not be deductible because of Section 280G, and (2) if the Executive establishes (in accordance with Section 280G) that all or any portion of the aggregate "parachute payments" (as defined in Section 280G) payable to or for the Executive's benefit constitutes reasonable compensation for services actually rendered, and if the present value of all such "Parachute payments" which constitute reasonable compensation exceeds 299% of the Executive's "base amount" (as defined in Section 280G), then the Executive shall be entitled to receive an amount equal to (but not greater than) the present value of all such "parachute payments" which constitute reasonable compensation. For purposes of this Section 10, the "present value" of any payment shall be determined in accordance with Section 1274(b)(2) of the Code. If it is established that, notwithstanding the good faith of the Executive and AMC in applying the terms of this Section 10, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" not being deductible, then the Executive shall have an obligation to pay AMC upon demand an amount equal to the sum of (1) the excess of the aggregate parachute payments paid to or for the Executive's benefit over the aggregate "parachute payments" that could have been paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible; and (2) interest on the amount set forth in clause (1) of this sentence at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of the receipt of such excess by or for the Executive's behalf until the date of such payment. 11. NO OBLIGATION TO MITIGATE. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination, or otherwise. 12. GENERAL PROVISIONS. 12.1 Subject to the provisions of Section 11.4 below, no right, benefit or interest hereunder shall be subject to assignment (except by operation of law-to the personal representative or heirs of Executive if Executive dies after Termination of Employment but prior to the making of the payment required by section 2), anticipation, alienation, sale, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process. 12.2 Except as provided in section 7, this Agreement may not be amended, modified or canceled except by written agreement of the parties. 12.3 In the event that the scope of any provision of this Agreement, or portion thereof, shall be determined to be unenforceable to its full extent, then such provision, or portion thereof, shall be enforced to the maximum extent permitted by law. In the event that any provision of this Agreement, or portion thereof, is determined to be invalid in its entirety, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. 12.4 This Agreement shall be binding upon and inure to the benefit of Executive (and his or her personal representative), AMC, and any successor organization or organizations which shall succeed to substantially all of the business and property of AMC, whether by means of merger, consolidation, acquisition of substantially all of the assets of AMC or otherwise, including by operation of law. 12.5 This Agreement has been made in and shall be governed and construed in accordance with the laws of the State of California. 4 12.6 This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby. APPLIED MAGNETICS CORPORATION, a Delaware corporation By -------------------------------------- Name: Title: EXECUTIVE ------------------------------------ Name: 5 EX-11 4 EXHIBIT 11 - STATEMENT OF RE COMPUTATION EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1996 ------------------------- FULLY PRIMARY DILUTED EARNING EARNINGS PER PER SHARE SHARE ----------- ------------ Net income............................................................................... $ 32,218 $ 32,218 ----------- ------------ ----------- ------------ Weighted average common shares outstanding............................................... 22,913 22,913 Dilutive common stock equivalents........................................................ 984 1,077 ----------- ------------ Total weighted average common shares outstanding......................................... 23,897 23,990 ----------- ------------ ----------- ------------ Net income per share..................................................................... $ 1.35 $ 1.34 ----------- ------------ ----------- ------------
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 year ended September 28, 1996. EX-23 5 EXHIBIT 23 - CONSENT OF INDEPENDENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 33-17944, 33-22040, 33-24509, 33-28600, 33-58200, 33-59391 and 33-59393) and Form S-3 (File No. 333-02369). ARTHUR ANDERSEN LLP Los Angeles, California December 12, 1996 EX-27 6 EXHIBIT 27 - FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 28, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED AS OF SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-28-1996 SEP-28-1996 127,400 0 43,403 0 35,980 216,905 288,856 (155,134) 359,450 99,023 0 0 0 2,328 137,371 359,450 344,754 344,754 0 251,503 57,400 0 9,056 33,070 852 32,218 0 0 0 32,218 1.35 0
-----END PRIVACY-ENHANCED MESSAGE-----