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 MILPITAS, Calif., Oct. 21 /PRNewswire/ -- Komag Inc. (NASDAQ: KMAG), a leading supplier of thin-film media and thin-film heads for high- performance Winchester disk drives, today announced its third quarter financial results for fiscal 1993.
 For the third quarter ended Oct. 3, 1993, net sales totaled $97.5 million, an 18 percent increase relative to the $82.9 million for the comparable quarter of 1992. Net sales for the company's disk and recording head products in the recently completed third quarter totaled $84.0 million and $13.5 million, respectively. Net sales in the third quarter of 1993 were 6 percent lower than the $103.2 million posted in the second quarter of 1993.
 Net income for the third quarter of 1993 was $4.1 million or 19 cents per share. In comparison, net income for the third quarter of 1992 was $6.1 million, or 29 cents per share. For the recently completed quarter, Komag's media operations recorded net income of $9.7 million, while Dastek Inc., the company's thin-film head joint venture with Asahi Glass America Inc. posted a net loss of $9.3 million. Upon consolidation into Komag's financial statements, Dastek's net loss is reduced by recognition of Asahi's 40 percent minority interest. Net income for the third quarter of 1993 declined sharply from the $8.1 million, or 37 cents per share, reported in the second quarter of 1993.
 Earnings for the third quarter were reduced by 19 cents per share due to a substantial upward adjustment in the company's effective annual tax rate on consolidated earnings. The revised effective annual income tax rate of 75 percent exceeds the 60 percent effective annual income tax rate used during the first and second quarters of 1993. This adjustment was required because the company's current estimate of Dastek's fiscal year 1993 loss significantly exceeded the loss in previous estimates due in large measure to a higher fourth quarter loss projection on lower sales volume.
 Losses incurred by Dastek subsequent to the February 1992 formation of the joint venture with Asahi Glass America may only be utilized to offset Dastek's future taxable income. As long as losses continue at Dastek, this lack of deductibility will generate a tax provision that reflects the taxes attributable to the company's profitable domestic thin-film media operations and a corresponding effective annual tax rate on consolidated earnings that exceeds the combined federal and state statutory rate of 41 percent.
 During the third quarter the company's disk manufacturing operations performed well in spite of continuing weak market conditions within the disk drive industry and increased competition in the high end of the media market. Unit shipments from the U.S. plants and the newly operational Malaysian disk facility increased 6 percent between the second and third quarters of 1993. Media operating performance was aided by rapid product transitions to high performance 1600 Oersted (Oe) media. Product shipments of this new class increased from 6 percent of Komag's U.S.-produced disk output in the second quarter to 22 percent in the third quarter. The company expects this percentage to increase further in the fourth quarter.
 "We are extremely pleased with the performance of Komag USA (Malaysia) Sdn. In its initial quarter of external customer sales, this new subsidiary shipped over 500,000 disks and posted a net profit. The second production line at this highly automated facility should commence operation on schedule, in the first quarter of 1994," said Stephen C. Johnson, Komag Inc.'s president and chief executive officer.
 Looking forward to the fourth quarter, the company expects that its U.S. and Malaysian disk operations should continue to effectively utilize their capacity. However, as previously announced, a significant order reduction from a major customer, coupled with weak market conditions in Japan, will prevent Asahi Komag Co. Ltd. (AKCL), the company's Japanese disk joint venture, from fully utilizing its capacity during the fourth quarter of 1993. This order reduction, coupled with a limited opportunity to sell disk products to Komag for subsequent resale outside of Japan, will most likely cause AKCL to post an operating loss during the fourth quarter. Komag recognized $1.8 million in post-tax equity income in the third quarter of 1993 based on its 50-percent interest in this joint venture.
 "Weakening industry demand and declining prices for microslider products negatively affected the operating performance of Dastek, our thin-film head joint venture. Net sales declined 27 percent between the second and third quarters of 1993. Our focus at Dastek has been to work actively with several customers on new advanced, inductive thin-film recording head designs, including smaller-sized nanosliders. Although customer interest in our new designs remains high, product qualifications into certain key customer programs have proceeded more slowly than anticipated. As a result, fourth quarter thin-film head sales will likely be lower than the third quarter and could fall sharply if one particular qualification is not completed in a timely manner," said Johnson.
 "Although we remain bullish on the long-term opportunities in the recording head market, we must face the financial reality that the continuing losses at Dastek require corrective actions. Toward that end, Dastek is beginning to implement a number a number of actions designed to reduce its operating costs and lower its breakeven point. Such actions may result in a non-recurring charge during the fourth quarter of 1993," said Johnson.
 Failure to achieve volume production on a majority of the new design programs over the next several quarters, due either to internal qualification and production issues at Dastek or to drive program delays initiated by customers, will have a material adverse effect on Dastek's financial condition and competitive market position. Such a result could also have a material adverse effect on Komag's consolidated operating performance.
 Komag is the only independent volume supplier of both thin-film disks and thin-film heads, two performance-enabling components used in today's advanced Winchester disk drives. Winchester disk drives are the primary storage devices used by computers. Founded in 1983, Komag and its consolidated subsidiaries maintain 870,000 square feet of manufacturing and administrative space in California and Malaysia, and employ approximately 3,700 people. Komag also manufactures and sells thin-film disk products through an unconsolidated subsidiary, Asahi Komag Co. Ltd., which is among the top three media producers in Japan.
 Consolidated Income Statements
 (in thousands, except per share data)
 Three Months Ended Nine Months Ended
 Oct. 3, Sept. 27, Oct. 3, Sept. 27,
 1993 1992 1993 1992
 Net Sales $ 97,452 $ 82,930 $294,188 $230,527
 Cost of Sales 74,537 64,889 220,902 182,323
 Gross Profit 22,915 18,041 73,286 48,204 ? Res

ea h & Development
 Expense 7,959 6,240 22,332 18,667
 Selling, General &
 Administrative 7,063 5,453 21,108 15,904
 Operating Profit 7,893 6,348 29,846 13,633
 Other Income (Expense) (301) 633 (1,683) 2,149
 Income Before Income Taxes,
 Minority Interests, and
 Equity Income 7,592 6,981 28,163 15,782
 Provision for Income Taxes 8,778 5,079 21,121 9,729
 Minority Interests in Net
 Loss of Consolidated Sub-
 sidiaries (3,541) (2,713) (8,524) (5,494)
 Equity in Net Income of Un-
 consolidated Joint Venture 1,753 1,517 4,228 968
 Net Income $ 4,108 $ 6,132 $ 19,794 $ 12,515
 Net Income Per Share $ 0.19 $ 0.29 $ 0.90 $ 0.58
 Shares Used in Calculating
 Per Share Amount 22,083 21,349 21,973 21,409
 Condensed Balance Sheets
 (In thousands)
 Oct. 3, 1993 Jan. 3, 1993
 (Unaudited) (See Note A)
 Cash and Short-Term Investments $ 91,869 $ 89,343
 Net Accounts Receivable Trade 47,090 33,301
 Inventories 30,476 20,197
 Deposits and Other Current Assets 11,477 10,589
 Total Current Assets 180,912 153,430
 Investment in Unconsolidated Joint
 Venture 15,313 8,371
 Net Property, Plant & Equipment 219,265 192,051
 Deposits and Other Assets 1,999 1,997
 TOTAL ASSETS $417,489 $355,849
 Accounts Payable Trade $ 24,994 $ 27,615
 Accrued Liabilities 23,981 19,155
 Long-Term Obligations -- Current
 Portion 14,239 8,766
 Total Current Liabilities 63,214 55,536
 Long-Term Obligations 51,686 27,613
 Other Liabilities 7,469 7,379
 Minority Interests in Consolidated
 Subsidiaries 12,532 16,583
 Common Stock 219,920 219,597
 Note Receivable from Stockholder -- (11,031)
 Retained Earnings 57,963 38,169
 Foreign Currency Translation
 Adjustments 4,705 2,003
 EQUITY $417,489 $355,849
 (A) The Consolidated Balance Sheet at Jan. 3, 1993 has been derived from the Audited Financial Statements.
 -0- 10/21/93
 /CONTACT: David H. Allen, William L. Potts Jr. or T. Hunt Payne, 408-946-2300, all of Komag/

CO: Komag Inc. ST: California IN: CPR SU: ERN

TM -- SJ011 -- 5422 10/21/93 16:24 EDT
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Publication:PR Newswire
Date:Oct 21, 1993

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