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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-29472
AMKOR TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1722724
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1345 ENTERPRISE DRIVE
WEST CHESTER, PA 19380
(610) 431-9600
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
5-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
5% CONVERTIBLE SUBORDINATED NOTES DUE 2007
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
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of outstanding shares of the registrant's Common Stock as of
May 7, 2001 was 152,496,697.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
---------- ----------
(UNAUDITED)
Net revenues ................................................ $ 480,623 $ 554,811
Cost of revenues -- including purchases from ASI ............ 398,838 439,780
--------- ---------
Gross profit ................................................ 81,785 115,031
--------- ---------
Operating expenses:
Selling, general and administrative .................... 53,994 41,897
Research and development ............................... 10,502 3,371
Amortization of goodwill and acquired intangibles ...... 21,912 6,362
--------- ---------
Total operating expenses ........................... 86,408 51,630
--------- ---------
Operating income (loss) ..................................... (4,623) 63,401
--------- ---------
Other expense (income):
Interest expense, net .................................. 44,795 15,429
Foreign currency loss (gain) ........................... (1,310) 836
Other expense (income), net ............................ 168 2,360
--------- ---------
Total other expense ................................ 43,653 18,625
--------- ---------
Income (loss) before income taxes and equity in income (loss)
of investees ........................................... (48,276) 44,776
Provision (benefit) for income taxes ........................ (5,310) 8,956
Equity in income (loss) of investees ........................ (26,248) 1,336
--------- ---------
Net income (loss) ........................................... $ (69,214) $ 37,156
========= =========
Per Share Data:
Basic net income (loss) per common share ............... $ (0.45) $ 0.28
========= =========
Diluted net income (loss) per common share ............. $ (0.45) $ 0.27
========= =========
Shares used in computing basic net income
(loss) per common share .............................. 152,185 130,872
========= =========
Shares used in computing diluted net income
(loss) per common share .............................. 152,185 138,538
========= =========
The accompanying notes are an integral part of these statements.
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AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 207,601 $ 93,517
Accounts receivable:
Trade, net of allowance for doubtful accounts of $2,225 and $2,426 270,335 301,915
Due from affiliates .............................................. 2,842 1,634
Other ............................................................ 8,461 6,465
Inventories .......................................................... 101,325 108,613
Other current assets ................................................. 45,964 36,873
----------- -----------
Total current assets ........................................ 636,528 549,017
----------- -----------
Property, plant and equipment, net ........................................ 1,500,488 1,478,510
----------- -----------
Investments ............................................................... 475,263 501,254
----------- -----------
Other assets:
Due from affiliates .................................................. 25,150 25,013
Goodwill and acquired intangibles, net ............................... 736,111 737,593
Other ................................................................ 109,282 101,897
----------- -----------
870,543 864,503
----------- -----------
Total assets ................................................ $ 3,482,822 $ 3,393,284
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ....................................................... $ 18,844 $ 25,731
Current portion of long-term debt .................................... 33,851 73,586
Trade accounts payable ............................................... 127,639 133,047
Due to affiliates .................................................... 6,640 32,534
Accrued expenses ..................................................... 137,217 129,301
Accrued income taxes ................................................. 49,451 52,232
----------- -----------
Total current liabilities ................................... 373,642 446,431
Long-term debt ............................................................ 1,804,175 1,585,536
Other noncurrent liabilities .............................................. 58,747 46,483
----------- -----------
Total liabilities ........................................... 2,236,564 2,078,450
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock ...................................................... -- --
Common stock ......................................................... 153 152
Additional paid-in capital ........................................... 976,115 975,026
Retained earnings .................................................... 274,672 343,886
Receivable from stockholder .......................................... (3,276) (3,276)
Accumulated other comprehensive loss ................................. (1,406) (954)
----------- -----------
Total stockholders' equity .................................. 1,246,258 1,314,834
----------- -----------
Total liabilities and stockholders' equity .................. $ 3,482,822 $ 3,393,284
=========== ===========
The accompanying notes are an integral part of these statements.
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AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL RECEIVABLE OTHER
COMMON STOCK PAID-IN RETAINED FROM COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDER LOSS TOTAL
------- ------ ---------- --------- ----------- ------------- -----------
Balance at December 31, 1999 ............. 130,660 $ 131 $ 551,964 $ 189,733 $ (3,276) $ (811) $ 737,741
Net income ............................ -- -- -- 37,156 -- -- 37,156
Unrealized losses on investments,
net of tax .......................... -- -- -- -- -- (16) (16)
Comprehensive loss ....................
Issuance of stock through employee
stock purchase plan and stock options 128 -- 1,300 -- -- -- 1,300
Debt conversion ....................... 228 -- 3,194 -- -- -- 3,194
------- ------ ---------- --------- ----------- ----------- -----------
Balance at March 31, 2000 ................ 131,016 $ 131 $ 556,458 $ 226,889 $ (3,276) $ (827) $ 779,375
======= ====== ========== ========= =========== =========== ===========
Balance at December 31, 2000 ............. 152,118 $ 152 $ 975,026 $ 343,886 $ (3,276) $ (954) $ 1,314,834
Net income (loss) ..................... -- -- -- (69,214) -- -- (69,214)
Unrealized gains on investments,
net of tax .......................... -- -- -- -- -- 112 112
Cumulative translation adjustment ..... -- -- -- -- -- (564) (564)
Comprehensive loss ....................
Issuance of stock through employee
stock purchase plan and stock options 109 1 1,089 -- -- -- 1,090
------- ------ ---------- --------- ----------- ----------- -----------
Balance at March 31, 2001 ................ 152,227 $ 153 $ 976,115 $ 274,672 $ (3,276) $ (1,406) $ 1,246,258
======= ====== ========== ========= =========== =========== ===========
COMPREHENSIVE
INCOME
-------------
Balance at December 31, 1999 .............
Net income ............................ $ 37,156
Unrealized losses on investments,
net of tax .......................... (16)
-----------
Comprehensive loss .................... $ 37,140
===========
Issuance of stock through employee
stock purchase plan and stock options
Debt conversion .......................
Balance at March 31, 2000 ................
Balance at December 31, 2000 .............
Net income (loss) ..................... $ (69,214)
Unrealized gains on investments,
net of tax .......................... 112
Cumulative translation adjustment ..... (564)
-----------
Comprehensive loss .................... $ (69,666)
===========
Issuance of stock through employee
stock purchase plan and stock options
Balance at March 31, 2001 ................
The accompanying notes are an integral part of these statements.
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AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
--------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) .................................................... $ (69,214) $ 37,156
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization ...................................... 108,214 53,766
Amortization of deferred debt issuance costs ....................... 9,458 846
Debt conversion expense ............................................ -- 270
Provision for accounts receivable .................................. (201) --
Provision for excess and obsolete inventory ........................ 8,355 2,000
Deferred income taxes .............................................. (2,436) 36
Equity in (income) loss of investees ............................... 26,248 (1,336)
Loss on sale of fixed assets and investments ....................... 1,124 347
Changes in assets and liabilities excluding effects of acquisitions --
Accounts receivable ................................................ 31,781 (38,590)
Repurchase of accounts receivable under securitization agreement ... -- (2,200)
Other receivables .................................................. (1,996) (751)
Inventories ........................................................ 9,897 8,397
Due to/from affiliates, net ........................................ (27,239) (2,460)
Other current assets ............................................... (5,647) (5,194)
Other noncurrent assets ............................................ 1,122 (4,805)
Accounts payable ................................................... (5,408) 10,840
Accrued expenses ................................................... (11,662) 4,923
Accrued income taxes ............................................... (2,781) 5,808
Other long-term liabilities ........................................ 3,562 1,055
--------- ---------
Net cash provided by operating activities ........................ 73,177 70,108
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ........................... (71,751) (104,082)
Acquisition of Amkor Iwate ........................................... (7,338) --
Proceeds from the sale of property, plant and equipment .............. 646 --
Proceeds from the sale (purchase) of investments ..................... (145) 2,819
--------- ---------
Net cash used in investing activities ............................ (78,588) (101,263)
--------- ---------
Cash flows from financing activities:
Net change in bank overdrafts and short-term borrowings .............. 9,917 416
Net proceeds from issuance of long-term debt ......................... 509,009 249,878
Payments of long-term debt ........................................... (400,111) (220)
Proceeds from issuance of stock through employee stock
purchase plan and stock options .................................... 1,090 1,300
--------- ---------
Net cash provided by financing activities ........................ 119,905 251,374
--------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents ....... (410) --
--------- ---------
Net increase (decrease) in cash and cash equivalents .................... 114,084 220,219
Cash and cash equivalents, beginning of period .......................... 93,517 98,045
--------- ---------
Cash and cash equivalents, end of period ................................ $ 207,601 $ 318,264
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 30,412 $ 1,424
Income taxes ....................................................... $ (267) $ 130
The accompanying notes are an integral part of these statements.
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AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements and related disclosures as of March
31, 2001 and for the three months ended March 31, 2001 and 2000 are unaudited,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In our
opinion, these financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for the fair presentation of the results
for the interim periods. These financial statements should be read in
conjunction with our latest annual report as of December 31, 2000 filed on Form
10-K with the Securities and Exchange Commission. The results of operations for
the three months ended March 31, 2001 are not necessarily indicative of the
results to be expected for the full year.
Certain previously reported amounts have been reclassified to conform with
the current presentation.
2. RISKS AND UNCERTAINTIES
Our future results of operations involve a number of risks and
uncertainties. Factors that could affect future operating results and cause
actual results to vary materially from historical results include, but are not
limited to, dependence on the highly cyclical nature of the semiconductor
industry, uncertainty as to the demand from our customers over both the long-and
short-term, competitive pricing and declines in average selling prices we
experience, our dependence on our relationship with Anam Semiconductor, Inc.
(ASI) for all of our wafer fabrication output, the timing and volume of orders
relative to our production capacity, the absence of significant backlog in our
business, availability of manufacturing capacity and fluctuations in
manufacturing yields, the availability of financing, our high leverage and the
restrictive covenants contained in the agreements governing our indebtedness,
our competition, our dependence on international operations and sales, our
dependence on raw material and equipment suppliers, exchange rate fluctuations,
our dependence on key personnel, our difficulties managing our growth, the
enforcement of intellectual property rights by or against us, our need to comply
with existing and future environmental regulations and the results of ASI as it
impacts our financial results.
3. ACQUISITIONS
In January 2001, Amkor Iwate Corporation commenced operations with the
acquisition of a packaging and test facility at a Toshiba factory located in the
Iwate prefecture in Japan. Amkor Iwate provides packaging and test services to
Toshiba's Iwate factory under a long-term supply agreement. We currently own 60%
of Amkor Iwate and Toshiba owns the balance of the outstanding shares. Within
three years we are required to purchase the remaining 40% of the outstanding
shares of Amkor Iwate from Toshiba. The share purchase price will be determined
based on the performance of the joint venture during the three-year period but
cannot be less than 1 billion Japanese yen and cannot exceed 4 billion Japanese
yen. The results of Amkor Iwate have been included in the accompanying
consolidated financial statements since the date of acquisition. Goodwill and
acquired intangibles as of the acquisition date, based on preliminary estimates
of fair value, were $21.9 million and are being amortized on a straight-line
basis over 5 to 10 years. Acquired intangibles include the value of acquired
technology and of a workforce-in-place. We do not expect that the final purchase
price allocation will differ significantly from the preliminary purchase price
allocation.
On May 1, 2000 we completed our purchase of ASI's three remaining packaging
and test factories, known as K1, K2 and K3, for a purchase price of $950.0
million. In addition we made a commitment to make a $459.0 million equity
investment in ASI. Pursuant to that commitment we made an equity investment in
ASI of $309.0 million on May 1, 2000. We fulfilled the remaining equity
investment commitment of $150.0 million in three installments of which $30.0
million was invested on June 30, 2000, $60.0 million was invested on August 30,
2000 and October 27, 2000. We financed the acquisition and investment with the
proceeds of a $258.8 million convertible subordinated notes offering, a $410.0
million private equity financing, $750.0 million of secured bank debt and
approximately $103 million from cash on hand. As of March 31, 2001, we invested
a total of $500.6 million in ASI and owned 42% of the outstanding voting stock.
We will continue to report ASI's results in our financial statements through the
equity method of accounting.
The amount by which the cost of our investment exceeds our share of the
underlying assets of ASI as of the date of our investment is being amortized on
a straight-line basis over a five-year period. The amortization is included in
our consolidated statement of income within equity in income of investees. As of
March 31, 2001, the unamortized excess of the cost of our equity investment in
ASI above our share of the underlying net assets is $145.3 million.
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The acquisition of K1, K2 and K3 was accounted for as a purchase.
Accordingly, the results of K1, K2 and K3 have been included in the accompanying
consolidated financial statements since the date of acquisition. Goodwill and
acquired intangibles as of the acquisition date were $555.8 million and are
being amortized on a straight-line basis over a 10 year period. Acquired
intangibles include the value of acquired patent rights and of a
workforce-in-place. The fair value of the assets acquired and liabilities
assumed was approximately $394 million for fixed assets, $9 million for
inventory and other assets, and $9 million for assumed liabilities.
Pro Forma Financial Information for Amkor
The pro forma information below assumes that the May 2000 acquisition of
K1, K2 and K3 occurred at the beginning of 2000. The pro forma adjustments
include a provision for amortization of goodwill and other identified
intangibles, an adjustment of depreciation expense based on the fair market
value of the acquired assets, interest expense on debt issued to finance the
acquisitions and income taxes related to the pro forma adjustments. The pro
forma results are not necessarily indicative of the results we would actually
have achieved if the acquisition had been completed as of the beginning of 2000,
nor are they necessarily indicative of future consolidated results.
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
ACTUAL PRO FORMA
2001 2000
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Net revenues ................................... $ 480,623 $ 562,433
Income before income taxes and equity in income
(loss) of investees ......................... (48,276) 72,482
Net income (loss) .............................. (69,214) 64,644
Earnings per share:
Basic net income (loss) per common share .... (0.45) 0.43
Diluted net income (loss) per common share .. (0.45) 0.41
The pro forma adjustments exclude the effects of our investments in ASI.
Had we included pro forma adjustments for the three months ended March 31, 2000
related to our investments in ASI, pro forma net income would have been $60.7
million and pro forma earnings per share on a diluted basis would have been
$0.38.
Financial Information for ASI
The following summary consolidated financial information was derived from
the consolidated financial statements of ASI. ASI's results of operation for the
three months ended March 31, 2000, reflected their packaging and test operations
as discontinued operations.
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000
-------- --------
(IN THOUSANDS)
SUMMARY INCOME STATEMENT INFORMATION FOR ASI
Net revenues ..................................... $ 36,615 $ 79,169
Gross profit (deficit) ........................... (22,791) 18,490
Income (loss) from continuing operations ......... (43,438) (13,584)
Net income (loss) ................................ (43,438) 28,346
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4. INVENTORIES
Inventories consist of raw materials and purchased components that are used
in the semiconductor packaging process. Inventories are located at our
facilities in the Philippines, Korea and Japan. Components of inventories
follow:
MARCH 31, DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Raw materials and purchased components ......... $ 92,908 $ 99,570
Work-in-process ................................ 8,417 9,043
-------- --------
$101,325 $108,613
======== ========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(IN THOUSANDS)
Land ............................................ $ 80,048 $ 80,048
Buildings and improvements ...................... 448,200 445,785
Machinery and equipment ......................... 1,592,240 1,506,774
Furniture, fixtures and other equipment ......... 86,318 79,691
Construction in progress ........................ 79,508 70,753
----------- -----------
2,286,314 2,183,051
Less -- Accumulated depreciation and amortization (785,826) (704,541)
----------- -----------
$ 1,500,488 $ 1,478,510
=========== ===========
6. INVESTMENTS
Investments include equity investments in affiliated companies and
noncurrent marketable securities as follows:
MARCH 31, DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Equity investments under the equity method:
ASI (ownership of 42%) ............................ $451,874 $478,943
Other equity investments (20% - 50% owned)
Taiwan Semiconductor Technology Corporation ..... 18,349 17,488
Other ........................................... 729 664
-------- --------
Total equity investments ...................... 470,952 497,095
Marketable securities classified as available for sale 4,311 4,159
-------- --------
$475,263 $501,254
======== ========
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7. DEBT
Following is a summary of short-term borrowings and long-term debt:
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(IN THOUSANDS)
Secured bank facility:
Term A loan, LIBOR plus 2.75% due March 2005 ........................... -- 297,500
Term B loan, LIBOR plus 3% due September 2005 .......................... 346,500 347,375
$200.0 million revolving line of credit, LIBOR plus 2.75% due March 2005 -- 80,000
9.25% Senior notes due May 2006 ........................................... 425,000 425,000
9.25% Senior notes due February 2008 ...................................... 500,000 --
10.5% Senior subordinated notes due May 2009 .............................. 200,000 200,000
5.75% Convertible subordinated notes due May 2003 ......................... 50,191 50,191
5% Convertible subordinated notes due March 2007 .......................... 258,750 258,750
Other debt ................................................................ 57,585 306
----------- -----------
1,838,026 1,659,122
Less -- Short-term borrowings and current portion of long-term debt ....... (33,851) (73,586)
----------- -----------
$ 1,804,175 $ 1,585,536
=========== ===========
In February 2001, we sold $500.0 million principal amount of our 9.25%
senior notes due 2008 in a private placement. We used $387.5 million of the
$490.0 million of the net proceeds of that offering to repay amounts outstanding
under the Term A loans and revolving line of credit of our secured bank
facility, and the balance of the net proceeds was available to be used for
general corporate and working capital purposes. In connection with the repayment
of the Term A loans, for the three months ended March 31, 2001, we included in
interest expense $7.1 million related to the write-off of unamortized deferred
debt issuance costs.
Other debt as of March 31, 2001 included the financing related to Amkor
Iwate's acquisition of a packaging and test facility at a Toshiba factory
located in the Iwate prefecture in Japan.
In connection with our issuance of the 9.25% senior notes due 2008 and the
amendment to our secured bank facility during the three months ended March 31,
2001, we incurred debt issuance costs of $11.0 million. The debt issuance costs
have been deferred and are being amortized over the life of the associated debt.
Deferred debt issuance costs are included, net of amortization, in other
noncurrent assets in the consolidated balance sheet.
Interest expense related to short-term borrowings and long-term debt is
presented net of interest income of $2.2 million and $2.6 million for the three
months ended March 31, 2001 and 2000, respectively, in the accompanying
consolidated statements of income.
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8. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") of No. 128, "Earnings
Per Share," requires dual presentation of basic and diluted earnings per share
on the face of the income statement. Basic EPS is computed using only the
weighted average number of common shares outstanding for the period while
diluted EPS is computed assuming conversion of all dilutive securities, such as
options. As a result of the net loss for the three months ended March 31, 2001,
potentially dilutive securities are excluded from the diluted weighted average
shares calculation for the three months ended March 31, 2001 because the result
would be antidilutive. The following table presents a reconciliation of basic
and diluted earnings, weighted average shares and per share amounts for the
three months ended March 31, 2000:
FOR THE THREE MONTHS ENDED MARCH 31, 2000
------------------------------------------
WEIGHTED
EARNINGS AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- -------------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Basic earnings per share ............... $ 37,156 130,872 $ 0.28
Impact of convertible notes ............ 584 3,815
Dilutive effect of options
and warrants ........................ -- 3,851
--------- --------- ---------
Diluted earnings per share ............. $ 37,740 138,538 $ 0.27
========= ========= =========
9. SEGMENT INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," we have two reportable segments, packaging
and test services and wafer fabrication services. These segments are managed
separately because the services provided by each segment require different
technology and marketing strategies.
Packaging and Test Services. Through our factories located in the
Philippines, Korea and Japan, we offer a complete and integrated set of
packaging and test services including integrated circuit (IC) packaging design,
leadframe and substrate design, IC package assembly, final testing, burn-in,
reliability testing and thermal and electrical characterization.
Wafer Fabrication Services. Through our wafer fabrication services
division, we provide marketing, engineering and support services of ASI's wafer
foundry, under a long-term supply agreement.
We derive a substantial portion of our wafer fabrication revenues from
Texas Instruments (TI). Total net revenues derived from TI accounted for 6.4%
and 16.1% of net revenues for the three months ended March 31, 2001 and 2000,
respectively. With the commencement of operations of Amkor Iwate and the
acquisition of a packaging and test facility from Toshiba, total net revenues
derived from Toshiba accounted for 13.9% of net revenues for the three months
ended March 31, 2001.
The accounting policies for segment reporting are the same as those for our
consolidated financial statements. We evaluate our operating segments based on
operating income. Summarized financial information concerning reportable
segments is shown in the following table. The "Other" column includes the
elimination of inter-segment balances and corporate assets which include cash
and cash equivalents, non-operating balances due from affiliates, investment in
ASI and Taiwan Semiconductor Technology Corporation and other investments.
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PACKAGING WAFER
AND TEST FABRICATION OTHER TOTAL
----------- ----------- ----------- -----------
(IN THOUSANDS)
Three Months Ended March 31, 2001
Net Revenues ................. $ 439,413 $ 41,210 $ -- $ 480,623
Gross Profit ................. 77,972 3,813 -- 81,785
Operating Income (Loss) ...... (6,097) 1,474 -- (4,623)
Three Months Ended March 31, 2000
Net Revenues ................. $ 468,935 $ 85,876 $ -- $ 554,811
Gross Profit ................. 106,528 8,503 -- 115,031
Operating Income ............. 57,818 5,583 -- 63,401
Total Assets
March 31, 2001 ............... $ 2,782,533 $ 25,907 $ 700,802 $ 3,509,242
December 31, 2000 ............ 2,732,733 46,231 614,320 3,393,284
The following presents property, plant and equipment, net based on the
location of the asset.
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
(IN THOUSANDS)
Property, Plant and Equipment, net
United States ......................... $ 85,414 $ 84,351
Philippines ........................... 567,741 579,619
Korea ................................. 810,015 813,983
Japan ................................. 36,532 --
Other foreign countries ............... 786 557
---------- ----------
$1,500,488 $1,478,510
========== ==========
10. COMMITMENTS AND CONTINGENCIES
Amkor is involved in various claims incidental to the conduct of our
business. Based on consultation with legal counsel, we do not believe that any
claims, either individually or in the aggregate, to which the company is a party
will have a material adverse effect on our financial condition or results of
operations.
We are disputing certain amounts due under a technology license agreement
with a third party. To date, this dispute has not involved the judicial systems.
We have accrued our estimate of amounts due under this agreement. Depending on
the outcome of this dispute, the ultimate payable by us, as of March 31, 2001,
could be up to $12.8 million.
11. SUBSEQUENT EVENTS
On March 7, 2001, we announced that in separate transactions, we will
acquire Taiwan Semiconductor Corporation (TSTC) and Sampo Semiconductor
Corporation (SSC) in Taiwan. Both TSTC and SSC signed letters of intent enabling
negotiations to proceed. Both agreements are expected to be finalized by June
2001. The purchase price will be paid principally through the issuance of
additional shares of our common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the federal securities laws. Because such statements include risks
and uncertainties, actual results may differ materially from those anticipated
in such forward-looking statements as a result of certain factors, including
those set forth in the following discussion as well as in "Risk Factors that May
Affect Future Operating Performance". The following discussion provides
information and analysis of our results of operations for the three months ended
March 31, 2001 and our liquidity and capital resources. You should read the
following discussion in conjunction with our consolidated financial statements
and the related notes, included elsewhere in this quarterly report as well as
the reports we file with the Securities and Exchange Commission.
INDUSTRY AND BUSINESS OUTLOOK
Amkor is the world's largest independent provider of semiconductor
packaging and test services. The company has built a leading position through:
(i) one of the industry's broadest offerings of packaging and test services,
(ii) expertise in the development and implementation of packaging and test
technology, (iii) long-standing relationships with customers, and (iv) advanced
manufacturing capabilities. We also market the wafer fabrication output provided
by a foundry owned by Anam Semiconductor, Inc. (ASI). The semiconductors that we
package and test for our customers are ultimately components in communications,
computer, industrial, consumer, automotive and military systems.
Our business is tied to market conditions in the semiconductor industry,
which is highly cyclical. Based on industry estimates, from 1978 through 2000,
there were 10 years when semiconductor industry growth was 10 percent or less
and 13 years when growth was 19% or greater. The strength of the semiconductor
industry is dependent upon the strength of the computer and communications
systems markets. Since 1970, the semiconductor industry declined in 1975, 1985,
1996 and 1998. The semiconductor industry began to expand subsequent to the 1998
downturn with a growth rate in revenues of 19% and 36% in 1999 and 2000. The
historical trends in the semiconductor industry are not necessarily indicative
of the results of any future period. The semiconductor industry has weakened
significantly beginning in the fourth quarter of 2000 into the first quarter of
2001. The expected continued weakness in the semiconductor industry is causing
industry analysts to forecast a significant downturn in the semiconductor
industry for 2001. Our customers have reduced their forecasts as a result of the
broad weakness in the semiconductor industry, uncertainty about end market
demand, and excess inventory across the semiconductor industry supply chain. The
significant uncertainty throughout the industry is hindering the visibility
throughout the supply chain and that lack of visibility makes it difficult to
forecast the end of the weakness in the semiconductor industry. The weaker
demand is expected to continue to adversely impact our results in 2001.
Prices for packaging and test services and wafer fabrication services have
declined over time. Historically we have been able to partially offset the
effect of price declines by successfully developing and marketing new packages
with higher prices, such as advanced leadframe and laminate packages,
negotiating lower prices with our material vendors, and driving engineering and
technological changes in our packaging and test processes which resulted in
reduced manufacturing costs. We cannot assure you that we will be able to offset
any such price declines in the future.
The weakness in the semiconductor industry is also adversely affecting the
demand for the wafer output from ASI's foundry. Beginning in the fourth quarter
and continuing into the first quarter of 2001, demand for wafers deteriorated
significantly. Historically we derived a substantial portion of our wafer
fabrication service revenues from Texas Instruments. Wafers sales to Texas
Instruments for the three months ended March 31, 2001 decreased 68.1% and 70.2%
as compared with the three months ended December 31, 2000 and March 31, 2000,
respectively. We expect, as a result of the weaker demand for the wafer output
from ASI's foundry, our wafer fabrication services results and ASI's operating
results will continue to be adversely impacted in 2001. ASI's results impact us
through our recording of our share of their results in accordance with the
equity method of accounting.
OVERVIEW OF OUR HISTORICAL RESULTS
Historically we performed packaging and test services at our factories in
the Philippines and subcontracted for additional services with ASI which
operated four packaging and test facilities in Korea. In May 1999, we acquired
K4, one of ASI's packaging and test facilities, and in May 2000 we acquired
ASI's remaining packaging and test facilities, K1, K2 and K3. With the
completion of our
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acquisition of K1, K2 and K3, we no longer depend upon ASI for packaging or test
services, but we continue to market ASI's wafer fabrication services.
Historically, our cost of revenues has consisted principally of: (1)
service charges paid to ASI for packaging and test services performed for us,
(2) costs of materials and (3) labor and other costs at our factories. Service
charges paid to ASI and our gross margins on sales of services performed by ASI
were set in accordance with supply agreements with ASI. Our gross margins on
sales of services performed by ASI were generally lower than our gross margins
on sales of services performed by our factories in the Philippines, but we had
not previously borne any of ASI's fixed costs. Effective with our May 2000
acquisition of K1, K2 and K3 and May 1999 acquisition of K4, we bear all of the
costs associated with these factories, but we no longer pay service charges to
ASI for packaging and test services. We will continue to incur costs of direct
materials used in packages that we produce for our customers. Because a portion
of our costs at our factories will remain fixed, increases or decreases in
capacity utilization rates may continue to have a significant effect on our
gross profit. The unit cost of packaging and test services generally decreases
as fixed charges, such as depreciation expense on our equipment, are allocated
over a larger number of units produced.
Financial Impact of Our Acquisition of K1, K2 and K3 and Investment in ASI on
Our Results of Operations
Prior to our 1999 acquisition of the K4 factory and our May 2000
acquisition of the K1, K2 and K3 factories from ASI, we were very dependent on
ASI's packaging and test operations. Because we historically sold substantially
all of the output of K1, K2 and K3, there was not a significant change in our
revenues as a result of this acquisition. Our gross profits improved since the
cost to operate the factories is less than the payments made to ASI under our
previous supply agreement with ASI. This represented a significant overall
improvement in gross margins as compared with the historical gross margins of
approximately 11% generated under the previous ASI assembly and test supply
agreement.
The favorable increase in gross profits was offset by increased operating
expenses related to the operations of K1, K2 and K3 and the amortization of
$555.8 million of goodwill and acquired intangibles over a 10 year period. Our
interest expense increased due to the total debt we incurred to finance the
$950.0 million acquisition of K1, K2 and K3 and our $459.0 million investment in
ASI. Our overall effective tax rate decreased due to a 100% tax holiday for
seven years, with an anticipated expiration in 2006, on K1, K2 and K3's results
of operations. Upon the expiration of the 100% tax holiday, we will have a 50%
tax holiday for three additional years. As of March 31, 2001, we owned 42% of
ASI's outstanding voting stock and we report ASI's results in our financial
statements through the equity method of accounting.
Financial Impact of Our Joint Venture with Toshiba Corporation
As of January 1, 2001, Amkor Iwate Corporation commenced operations with
the acquisition of a packaging and test facility at a Toshiba factory located in
the Iwate prefecture in Japan. Amkor Iwate provides packaging and test services
to Toshiba's Iwate factory under a long-term supply agreement. We currently own
60% of Amkor Iwate and Toshiba owns the balance of the outstanding shares.
Within three years we are required to purchase the remaining 40% of the
outstanding shares of Amkor Iwate from Toshiba. The share purchase price will be
determined based on the performance of the joint venture during the three-year
period but cannot be less than 1 billion Japanese yen and cannot exceed 4
billion Japanese yen.
The results of Amkor Iwate have been included in the accompanying
consolidated financial statements since January 2001. Our revenues increased as
a result of the packaging and test services performed by Amkor Iwate for Toshiba
under the supply agreement. Overall gross margins were negatively impacted given
the terms of the supply agreement provide for gross margins lower than our
historical gross margins on services performed by our other factories. Operating
expenses increased as a result of the additional administrative expenses
incurred by Amkor Iwate and the amortization of $21.9 million of goodwill and
acquired intangibles over 5 to 10 years. Interest expense increased as a result
of the debt incurred to finance the purchase of the packaging and test assets
from Toshiba.
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RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated:
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
-------- --------
(UNAUDITED)
Net revenues ......................................... 100.0% 100.0%
Gross profit ......................................... 17.0 20.7
Operating income (loss) .............................. (1.0) 11.4
Income (loss) before income taxes and equity in income
of investees ...................................... (10.0) 8.1
Net income (loss) .................................... (14.4) 6.7
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net Revenues. Net revenues decreased $74.2 million, or 13.4%, to $480.6
million in the three months ended March 31, 2001 from $554.8 million in the
three months ended March 31, 2000. Packaging and test net revenues decreased
6.3% to $439.4 million in the three months ended March 31, 2001 from $468.9
million in the three months ended March 31, 2000. Wafer fabrication net revenues
decreased 52.0% to $41.2 million in the three months ended March 31, 2001 from
$85.9 million in the three months ended March 31, 2000.
The decrease in packaging and test net revenues was primarily attributable
to a 16.7% decrease in overall unit volumes in the three months ended March 31,
2001 compared to the three months ended March 31, 2000. This overall unit volume
decrease was driven by a 18.7% unit volume decrease for advanced and laminate
packages and a 15.3% decrease in our leadframe business as a result of a broad
based decrease in demand for semiconductors. Average selling prices across all
product lines eroded approximately 9.5% for the three months ended March 31,
2001 as compared to the three months ended March 31, 2000. Partially offsetting
the decrease in overall unit volumes and average selling price erosion was the
benefit of $59.1 million in net revenues related to the commencement of
operations of Amkor Iwate in Japan in January 2001.
The decrease in wafer fabrication net revenues was primarily attributed to
a 70.2% decrease in sales to Texas Instruments in the three months ended March
31, 2001 as compared with the three months ended March 31, 2000.
Gross Profit. Gross profit decreased $33.2 million, or 28.9%, to $81.8
million, or 17.0% of net revenues, in the three months ended March 31, 2001 from
$115.0 million, or 20.7% of net revenues, in the three months ended March 31,
2000.
Gross margins were negatively impacted by:
- Decreasing unit volumes in 2001, which drove a higher manufacturing
cost per unit as a result of our factories' substantial fixed costs;
- Average selling price erosion across our product lines; and
- Packaging and test services performed by Amkor Iwate under a
long-term supply agreement with Toshiba that provides for gross
margins lower than our historical gross margins on services performed
by our other factories.
The negative impact on gross margins was partially offset by:
- Improved gross margin on revenues from the output of K1, K2 and K3
following our acquisition in May 2000.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $12.1 million, or 28.9%, to $54.0 million, or
11.2% of net revenues, in the three months ended March 31, 2001 from $41.9
million, or 7.6% of net revenues, in the three months ended March 31, 2000. The
increase in these costs was due to:
- Increased costs related to our Korean factories primarily as a result
of the assumption of the general and administrative expenses of K1,
K2 and K3 following our acquisition in May 2000;
- Increased headcount and related personnel costs within our worldwide
sales, engineering support and System-in-Package groups; and
- Increased costs related to the commencement of operations of Amkor
Iwate in Japan.
Research and Development. Research and development expenses increased $7.1
million to $10.5 million, or 2.2% of net revenues, in the three months ended
March 31, 2001 from $3.4 million, or 0.6% of net revenues, in the three months
ended March 31, 2000. Increased research and development expenses resulted from
the acquisition of the packaging and test research and development group within
ASI related to the K1, K2 and K3 transaction. Our research and development
efforts support our customers' needs for smaller packages and increased
functionality. We continue to invest our research and development resources to
continue the development of our Flip Chip interconnection solutions, our
System-in-Package technology, that uses both advanced packaging and traditional
surface mount techniques to enable the combination of technologies in a single
chip, and our Chip Scale packages that are nearly the size of the semiconductor
die.
Amortization of Goodwill and Other Acquired Intangibles. Amortization of
goodwill and other acquired intangibles increased $15.6 million to $21.9 million
from $6.4 million in the three months ended March 31, 2000 principally as a
result of our May 2000 acquisition of K1, K2 and K3 and to a lesser extent our
January 2001 acquisition of Amkor Iwate.
Other (Income) Expense. Other expenses increased $25.0 million, to $43.7
million, or 9.1% of net revenues, in the three months ended March 31, 2001 from
$18.6 million, or 3.4% of net revenues, in the three months ended March 31,
2000. The net increase in other expenses was primarily a result of an increase
in interest expense of $29.4 million. The increased interest expense resulted
from the issuance of $258.8 million of convertible subordinated notes, $750.0
million of secured bank debt and an additional draw of $50.0 million from our
revolving line of credit under our secured bank debt to fund our May 2000
acquisition of K1, K2 and K3 and our investment in ASI. In February 2001, we
sold $500.0 million principal amount of our 9.25% senior notes due 2008 in a
private placement. We used $387.5 million of the $490.0 million of the net
proceeds of this offering to repay amounts outstanding under the revolving line
of credit and Term A loans of our secured bank facility. In connection with the
repayment of the Term A loans, for the three months ended March 31, 2001, we
included in interest expense $7.1 million related to the write-off of the
unamortized deferred debt issuance costs. Other expenses were favorably impacted
by a change in foreign currency gains and losses of $2.1 million for the three
months ended March 31, 2001 as compared with the corresponding period in the
prior year principally as a result of the movement of the Korean won. Other
expenses were also favorably impacted by a savings of $1.2 million in accounts
receivable securitization charges as a result of the termination of a
securitization agreement at the end of March 2000.
Income Taxes. Our effective tax rate in the three months ended March 31,
2001 and the three months ended March 31, 2000 was 11.0% and 20.0%,
respectively. The decrease in the effective tax rate in 2001 was due to our
factories that operate with tax holidays. The tax returns for open years are
subject to changes upon final examination. Changes in the mix of income from our
foreign subsidiaries, expiration of tax holidays and changes in tax laws and
regulations could result in increased effective tax rates for us in the future.
Equity in Loss of Investees. Our earnings included our share of ASI's loss
in the three months ended March 31, 2001 of $18.2 million and our share of their
income in the three months ended March 31, 2000 of $5.4 million. Our earnings
also included the amortization of the excess of the cost of our investment above
of our share of the underlying net assets of $8.8 million and $3.6 million in
the three months ended March 31, 2001 and the three months ended March 31, 2000,
respectively. Our investment in ASI increased to 42% as of October 2000 from 40%
as of September 2000, 38% as of May 2000 and 18% as of October 1999.
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LIQUIDITY AND CAPITAL RESOURCES
Our ongoing primary cash needs are for equipment purchases, factory
expansions, interest and principal payments on our debt and working capital, in
addition to acquisitions and investments.
In February 2001, we sold $500.0 million principal amount of our 9.25%
senior notes due 2008 in a private placement. We used $387.5 million of the
$490.0 million of the net proceeds of that offering to repay amounts outstanding
under our secured bank facilities, and the balance of the net proceeds was
available to be used for general corporate and working capital purposes. In
March 2001, we amended the secured bank facilities to relax certain of the
covenants and to provide us with additional operating flexibility. As of March
31, 2001, no amounts were drawn under the $200.0 million revolving line of
credit provided within the secured bank facility. As a result of limitations
based on the outstanding accounts receivable, only $160.0 was available to be
drawn under this revolving line of credit at March 31, 2001.
In January 2001, Amkor Iwate Corporation commenced operations with the
acquisition of a packaging and test facility at a Toshiba factory located in the
Iwate prefecture in Japan. Amkor Iwate provides packaging and test services to
Toshiba's Iwate factory under a long-term supply agreement. We currently own 60%
of Amkor Iwate and Toshiba owns the balance of the outstanding shares. Within
three years we are required to purchase the remaining 40% of the outstanding
shares of Amkor Iwate from Toshiba. The share purchase price will be determined
based on the performance of the joint venture during the three-year period but
cannot be less than 1 billion Japanese yen and cannot exceed 4 billion Japanese
yen. The acquisition of the Toshiba packaging and test operations in Iwate,
Japan by Amkor Iwate was financed by a short-term note payable to Toshiba of
$21.1 million and $47.0 million in other financing from a Toshiba affiliated
financing company.
On March 7, 2001, we announced that in separate transactions, that we will
acquire Taiwan Semiconductor Corporation (TSTC) and Sampo Semiconductor
Corporation (SSC) in Taiwan. Both TSTC and SSC signed letters of intent enabling
negotiations to proceed. Both agreements are expected to be finalized in June
2001. The purchase price will be paid principally through the issuance of
additional shares of our common stock.
In May 2000 we completed our purchase of ASI's remaining three packaging
and test factories, known as K1, K2 and K3 for a purchase price of $950.0
million. In connection with our acquisition of K1, K2 and K3 we made an
additional equity investment in ASI of $459.0 million and as of March 31, 2001
we owned 42% of ASI. We financed the acquisition and investment with the
proceeds of a $258.8 million convertible subordinated notes offering, a $410.0
million private equity financing, $750.0 million of secured bank debt and
approximately $103 million of cash on hand. In conjunction with the private
equity financing, we issued 20.5 million shares of our common stock in the
private equity offering and granted warrants to purchase 3.9 million additional
shares of our common stock at $27.50 per share.
In connection with the secured bank debt, we terminated, during the second
quarter of 2000, a trade receivables securitization agreement and repaid $71.5
million due under this facility. The securitization agreement represented a
commitment by a commercial financial institution to purchase, with limited
recourse, all right, title and interest in up to $100 million in eligible
receivables. In addition, we repaid $11.4 million of additional secured term
loans.
We have invested significant amounts of capital to increase our packaging
and test services capacity. Last year we constructed our P4 facility in the
Philippines, added capacity in our other factories in the Philippines and Korea
and constructed a new research and development facility in the U.S. During the
three months ended March 31, 2001 and 2000, we made capital expenditures of
$71.8 million and $104.1 million, respectively. During the year ended December
31, 2000 we made capital expenditures of $480.1 million. As a result of the
current business conditions, we have significantly reduced our capital
expenditure plans. We expect to spend approximately $170 million in total
capital expenditures in 2001, excluding any capital requirements of the
companies we expect to acquire in 2001, primarily to support the development of
our Flip Chip, System-in-Package and high-end BGA capabilities.
Covenants in the agreements governing our existing debt, and debt we may
incur in the future, may materially restrict our operations, including our
ability to incur debt, pay dividends, make certain investments and payments and
encumber or dispose of assets. In addition, financial covenants contained in
agreements relating to our existing and future debt could lead to a default in
the event our results of operations do not meet our plans. A default under one
debt instrument may also trigger cross-defaults under our other debt
instruments. An event of default under any debt instrument, if not cured or
waived, could have a material adverse effect on us.
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Net cash provided by operating activities during the three months ended
March 31, 2001 and 2000 was $73.2 million and $70.1 million, respectively. Net
cash used in investing activities during the three months ended March 31, 2001
and 2000 was $78.6 million and $101.3 million, respectively. Net cash provided
by financing activities during the three months ended March 31, 2001 and 2000
was $119.9 million and $251.4 million, respectively.
The continued weakness in demand expected in 2001 for packaging, test and
wafer fabrication services will adversely affect our cash flow from operations.
We believe that our existing cash balances, available credit lines, cash flow
from operations and available equipment lease financing will be sufficient to
meet our projected capital expenditures, debt service, working capital and other
cash requirements for at least the next twelve months. We may require capital
sooner than currently expected. We cannot assure you that additional financing
will be available when we need it or, if available, that it will be available on
satisfactory terms. In addition, the terms of the secured bank facility, senior
notes and senior subordinated notes significantly reduce our ability to incur
additional debt. Failure to obtain any such required additional financing could
have a material adverse effect on our company.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
In addition to the factors discussed elsewhere in this form 10-Q and in our
report on Form 10-K for the year ended December 31, 2000 and our other reports
filed with the Securities and Exchange Commission, the following are important
factors which could cause actual results or events to differ materially from
those contained in any forward looking statements made by or on behalf of Amkor.
DEPENDENCE ON THE HIGHLY CYCLICAL SEMICONDUCTOR AND ELECTRONIC PRODUCTS
INDUSTRIES -- WE OPERATE IN VOLATILE INDUSTRIES, AND INDUSTRY DOWNTURNS HARM OUR
PERFORMANCE.
Our business is tied to market conditions in the semiconductor industry, which
is highly cyclical. Because our business is, and will continue to be, dependent
on the requirements of semiconductor companies for independent packaging, test
and wafer fabrication services, any downturn in the semiconductor industry or
any other industry that uses a significant number of semiconductor devices, such
as the personal computer and telecommunication devices industries, could have a
material adverse effect on our business.
CONDITIONS IN THE SEMICONDUCTOR INDUSTRY HAVE WEAKENED SIGNIFICANTLY AND COULD
REMAIN WEAK OR WORSEN -- WE HAVE BEEN, AND MAY CONTINUE TO BE, AFFECTED BY THESE
TRENDS.
The semiconductor industry has weakened significantly recently and conditions
are expected to remain weak during 2001. The significant uncertainty throughout
the industry related to market demand is hindering the visibility throughout the
supply chain and that lack of visibility makes it difficult to forecast the end
of the weakness in the semiconductor industry. There can be no assurance that
overall industry conditions will not weaken further or last longer than we
currently expect, or what impact such a further or prolonged weakening would
have on our business.
FLUCTUATIONS IN OPERATING RESULTS -- OUR OPERATING RESULTS MAY VARY
SIGNIFICANTLY AS A RESULT OF FACTORS THAT WE CANNOT CONTROL.
Our operating results have varied significantly from period to period. Many
factors could materially and adversely affect our revenues, gross profit and
operating income, or lead to significant variability of quarterly or annual
operating results. These factors include, among others:
- the cyclical nature of both the semiconductor industry and the
markets addressed by end-users of semiconductors,
- the short-term nature of our customers' commitments, timing and
volume of orders relative to our production capacity,
- changes in our capacity utilization,
- evolutions in the life cycles of our customers' products,
- rescheduling and cancellation of large orders,
- erosion of packaging selling prices,
- fluctuations in wafer fabrication service charges paid to ASI,
- changes in costs, availability and delivery times of raw materials
and components and changes in costs and availability of labor,
- fluctuations in manufacturing yields,
- changes in product mix,
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- timing of expenditures in anticipation of future orders,
- availability and cost of financing for expansion,
- ability to develop and implement new technologies on a timely basis,
- competitive factors,
- changes in effective tax rates,
- loss of key personnel or the shortage of available skilled workers,
- international political or economic events,
- currency and interest rate fluctuations,
- environmental events, and
- intellectual property transactions and disputes.
DECLINING AVERAGE SELLING PRICES -- THE SEMICONDUCTOR INDUSTRY PLACES DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
Historically, prices for our packaging and test services and wafer fabrication
services have declined over time. We expect that average selling prices for our
packaging and test services will continue to decline in the future. If we cannot
reduce the cost of our packaging and test services and wafer fabrication
services to offset a decline in average selling prices, our future operating
results could suffer.
RELATIONSHIP WITH ASI -- OUR BUSINESS PERFORMANCE CAN BE ADVERSELY AFFECTED BY
ASI'S FINANCIAL PERFORMANCE OR A DISRUPTION IN THE WAFER FABRICATION SERVICES
ASI PROVIDES TO US.
We report ASI's financial results in our financial statements, and if ASI
encounters financial difficulties, our financial performance could suffer. As of
March 31, 2001 we owned approximately 42% of ASI's outstanding voting stock.
Accordingly, we report ASI's financial results in our financial statements
through the equity method of accounting. If ASI's results of operations are
adversely affected for any reason (including as a result of losses at its
consolidated subsidiaries and equity investees), our results of operations will
suffer as well. Financial or other problems affecting ASI could also lead to a
complete loss of our investment in ASI. Our wafer fabrication business may
suffer if ASI reduces its operations or if our relationship with ASI is
disrupted.
Our wafer fabrication business depends on ASI providing wafer fabrication
services on a timely basis. If ASI were to significantly reduce or curtail its
operations for any reason, or if our relationship with ASI were to be disrupted
for any reason, our wafer fabrication business would be harmed. We may not be
able to identify and qualify alternate suppliers of wafer fabrication services
quickly, if at all. In addition, we currently have no other qualified third
party suppliers of wafer fabrication services and do not have any plans to
qualify additional third party suppliers.
The weakness in the semiconductor industry is also adversely affecting the
demand for the wafer output from ASI's foundry. Beginning in the fourth quarter
and continuing into the first quarter of 2001, demand for wafers deteriorated
significantly. We expect, as a result of the weaker demand for the wafer output
from ASI's foundry, our wafer fabrication services results and ASI's operating
results will continue to be adversely impacted in 2001.
ABSENCE OF BACKLOG -- WE MAY NOT BE ABLE TO ADJUST COSTS QUICKLY IF OUR
CUSTOMERS' DEMAND FALLS SUDDENLY.
Our packaging and test business does not typically operate with any material
backlog. We expect that in the future our packaging and test net revenues in any
quarter will continue to be substantially dependent upon our customers' demand
in that quarter. None of our customers has committed to purchase any significant
amount of packaging or test services or to provide us with binding forecasts of
demand for packaging and test services for any future period. In addition, our
customers could reduce, cancel or delay their purchases of packaging and test
services. Because a large portion of our costs is fixed and our expense levels
are based in part on our expectations of future revenues, we may be unable to
adjust costs in a timely manner to compensate for any revenue shortfall.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- WE DEPEND ON OUR FACTORIES IN
THE PHILIPPINES, KOREA AND JAPAN. MANY OF OUR CUSTOMERS' OPERATIONS ARE ALSO
LOCATED OUTSIDE OF THE U.S.
We provide packaging and test services through our factories located in the
Philippines, Korea and Japan. We also source wafer fabrication services from
ASI's wafer fabrication facility in Korea. In addition, we are beginning
operations in China. Moreover, many of our customers' operations are located
outside the U.S. The following are some of the risks inherent in doing business
internationally:
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- regulatory limitations imposed by foreign governments;
- fluctuations in currency exchange rates;
- political risks;
- disruptions or delays in shipments caused by customs brokers or
government agencies;
- unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;
- difficulties in staffing and managing foreign operations; and
- potentially adverse tax consequences resulting from changes in tax
laws.
MANAGEMENT OF GROWTH -- WE FACE CHALLENGES AS WE INTEGRATE NEW AND DIVERSE
OPERATIONS AND TRY TO ATTRACT QUALIFIED EMPLOYEES TO SUPPORT OUR EXPANSION
PLANS.
We have experienced, and may continue to experience, growth in the scope and
complexity of our operations and in the number of our employees. This growth has
strained our managerial, financial, manufacturing and other resources. Future
acquisitions may result in inefficiencies as we integrate new operations and
manage geographically diverse operations.
In order to manage our growth, we must continue to implement additional
operating and financial systems and controls. For example, we currently are in
the process of implementing a new management enterprise resource planning
system. If we fail to successfully implement such systems and controls in a
timely and cost-effective manner as we grow, our business and financial
performance could be materially adversely affected.
Our success depends to a significant extent upon the continued service of our
key senior management and technical personnel, any of whom would be difficult to
replace. In addition, in connection with our expansion plans, we will be
required to increase the number of qualified engineers and other employees at
our existing factories, as well as factories we may acquire. Competition for
qualified employees is intense, and our business could be adversely affected by
the loss of the services of any of our existing key personnel. We cannot assure
you that we will continue to be successful in hiring and properly training
sufficient numbers of qualified personnel and in effectively managing our
growth. Our inability to attract, retain, motivate and train qualified new
personnel could have a material adverse effect on our business.
RISKS ASSOCIATED WITH OUR WAFER FABRICATION BUSINESS -- OUR WAFER FABRICATION
BUSINESS IS SUBSTANTIALLY DEPENDENT ON TEXAS INSTRUMENTS.
Our wafer fabrication business depends significantly upon Texas Instruments. An
agreement with ASI and Texas Instruments requires Texas Instruments to purchase
from us at least 40% of the capacity of ASI's wafer fabrication facility, and
under certain circumstances, Texas Instruments has the right to purchase from us
up to 70% of this capacity. From time to time, Texas Instruments has failed to
meet its minimum purchase obligations, and we cannot assure you that Texas
Instruments will meet its purchase obligations in the future. If Texas
Instruments fails to meet its purchase obligations, our company's and ASI's
businesses could be harmed. The capacity utilization of ASI's wafer foundry has
decreased significantly in 2001 as a result of the weakness in the semiconductor
industry. Texas Instruments as of the date of this filing was not meeting the
minimum purchase commitment and we along with ASI negotiated a resolution of the
shortfall with Texas Instruments to partially offset the decrease in demand.
Texas Instruments has transferred certain of its complementary metal oxide
silicon ("CMOS") process technology to ASI, and ASI is dependent upon Texas
Instruments' assistance for developing other state-of-the-art wafer
manufacturing processes. In addition, ASI's technology agreements with Texas
Instruments only cover 0.25 micron and 0.18 micron CMOS process technology.
Texas Instruments has not granted ASI a license under Texas Instruments' patents
to manufacture semiconductor wafers for third parties. Moreover, Texas
Instruments has no obligation to transfer any next-generation technology to ASI.
Our company's and ASI's businesses could be harmed if ASI cannot obtain new
technology on commercially reasonable terms or ASI's relationship with Texas
Instruments is disrupted for any reason.
DEPENDENCE ON MATERIALS AND EQUIPMENT SUPPLIERS -- OUR BUSINESS MAY SUFFER IF
THE COST OR SUPPLY OF MATERIALS OR EQUIPMENT CHANGES ADVERSELY.
We obtain from various vendors the materials and equipment required for the
packaging and test services performed by our factories. We source most of our
materials, including critical materials such as leadframes and laminate
substrates, from a limited group of suppliers. Furthermore, we purchase all of
our materials on a purchase order basis and have no long-term contracts with any
of our
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suppliers. Our business may be harmed if we cannot obtain materials and other
supplies from our vendors: (1) in a timely manner, (2) in sufficient quantities,
(3) in acceptable quality and (4) at competitive prices.
RAPID TECHNOLOGICAL CHANGE -- OUR BUSINESS WILL SUFFER IF WE CANNOT KEEP UP WITH
TECHNOLOGICAL ADVANCES IN OUR INDUSTRY.
The complexity and breadth of both semiconductor packaging and test services and
wafer fabrication are rapidly changing. As a result, we expect that we will need
to offer more advanced package designs and new wafer fabrication technology in
order to respond to competitive industry conditions and customer requirements.
Our success depends upon the ability of our company and ASI to develop and
implement new manufacturing processes and package design technologies. The need
to develop and maintain advanced packaging and wafer fabrication capabilities
and equipment could require significant research and development and capital
expenditures in future years. In addition, converting to new package designs or
process methodologies could result in delays in producing new package types or
advanced wafer designs that could adversely affect our ability to meet customer
orders.
Technological advances also typically lead to rapid and significant price
erosion and may make our existing products less competitive or our existing
inventories obsolete. If we cannot achieve advances in package design and wafer
fabrication technology or obtain access to advanced package designs and wafer
fabrication technology developed by others, our business could suffer.
COMPETITION -- WE COMPETE AGAINST LARGE AND ESTABLISHED COMPETITORS IN BOTH THE
PACKAGING AND TEST BUSINESS AND THE WAFER FABRICATION BUSINESS.
The independent semiconductor packaging and test market is very competitive.
This sector is comprised of 13 principal companies. We face substantial
competition from established packaging and test service providers primarily
located in Asia, including companies with significant manufacturing capacity,
financial resources, research and development operations, marketing and other
capabilities. These companies also have established relationships with many
large semiconductor companies that are current or potential customers of our
company. On a larger scale, we also compete with the internal semiconductor
packaging and test capabilities of many of our customers.
The independent wafer fabrication business is also highly competitive. Our wafer
fabrication services compete primarily with independent semiconductor wafer
foundries, including those of Chartered Semiconductor Manufacturing, Inc.,
Taiwan Semiconductor Manufacturing Company, Ltd. and United Microelectronics
Corporation. Each of these companies has significant manufacturing capacity,
financial resources, research and development operations, marketing and other
capabilities and has been operating for some time. Many of these companies have
also established relationships with many large semiconductor companies that are
current or potential customers of our company. If we cannot compete successfully
in the future against existing or potential competitors, our operating results
would suffer.
ENVIRONMENTAL REGULATIONS -- FUTURE ENVIRONMENTAL REGULATIONS COULD PLACE
ADDITIONAL BURDENS ON OUR MANUFACTURING OPERATIONS.
The semiconductor packaging process uses chemicals and gases and generates
byproducts that are subject to extensive governmental regulations. For example,
we produce liquid waste when silicon wafers are diced into chips with the aid of
diamond saws, then cooled with running water. Federal, state and local
regulations in the United States, as well as environmental regulations
internationally, impose various controls on the storage, handling, discharge and
disposal of chemicals used in our manufacturing processes and on the factories
we occupy.
Increasingly, public attention has focused on the environmental impact of
semiconductor manufacturing operations and the risk to neighbors of chemical
releases from such operations. In the future, applicable land use and
environmental regulations may: (1) impose upon us the need for additional
capital equipment or other process requirements, (2) restrict our ability to
expand our operations, (3) subject us to liability or (4) cause us to curtail
our operations.
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PROTECTION OF INTELLECTUAL PROPERTY -- WE MAY BECOME INVOLVED IN INTELLECTUAL
PROPERTY LITIGATION.
As of April 30, 2001, we held 95 U.S. patents, we had 209 pending patents and we
were preparing an additional 60 patent applications for filing. In addition to
the U.S. patents, we held 623 patents in foreign jurisdictions. We expect to
continue to file patent applications when appropriate to protect our proprietary
technologies, but we cannot assure you that we will receive patents from pending
or future applications. In addition, any patents we obtain may be challenged,
invalidated or circumvented and may not provide meaningful protection or other
commercial advantage to us.
We may need to enforce our patents or other intellectual property rights or to
defend our company against claimed infringement of the rights of others through
litigation, which could result in substantial cost and diversion of our
resources. If we fail to obtain necessary licenses or if we face litigation
relating to patent infringement or other intellectual property matters, our
business could suffer.
Although we are not currently a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and
other intellectual property rights. If any third party makes a valid claim
against us, we could be required to:
- discontinue the use of certain processes;
- cease the manufacture, use, import and sale of infringing products;
- pay substantial damages;
- develop non-infringing technologies; or
- acquire licenses to the technology we had allegedly infringed.
Our business, financial condition and results of operations could be materially
and adversely affected by any of these negative developments.
In addition, Texas Instruments has granted ASI very limited licenses under
certain technology agreements, including a license under Texas Instruments'
trade secret rights to use Texas Instruments' technology in connection with
ASI's provision of wafer fabrication services. However, Texas Instruments has
not granted ASI a license under Texas Instruments' patents to manufacture
semiconductor wafers for third parties. Furthermore, Texas Instruments has
reserved the right to bring infringement claims against our customers or
customers of ASI with respect to semiconductor wafers purchased from us or ASI.
Such customers and others could in turn subject us or ASI to litigation in
connection with the sale of semiconductor wafers produced by ASI.
CONTINUED CONTROL BY EXISTING STOCKHOLDERS -- MR. JAMES KIM AND MEMBERS OF HIS
FAMILY CAN DETERMINE THE OUTCOME OF ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of April 30, 2001, Mr. James Kim and members of his family beneficially owned
approximately 51% of our outstanding common stock. Mr. James Kim's family,
acting together, will effectively control all matters submitted for approval by
our stockholders. These matters could include:
- the election of all of the members of our Board of Directors;
- proxy contests;
- approvals of transactions between our company and ASI or other
entities in which Mr. James Kim and members of his family have an
interest, including transactions which may involve a conflict of
interest;
- mergers involving our company;
- tender offers; and
- open market purchase programs or other purchases of our common stock.
HIGH LEVERAGE AND RESTRICTIVE COVENANTS -- OUR SUBSTANTIAL INDEBTEDNESS COULD
MATERIALLY RESTRICT OUR OPERATIONS AND ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We now have, and for the foreseeable future will have, a significant amount of
indebtedness. In addition, despite current debt levels, the terms of the
indentures governing our indebtedness do not prohibit us or our subsidiaries
from incurring substantially more debt. If new debt is added to our consolidated
debt level, the related risks that we now face could intensify.
Covenants in the agreements governing our existing debt, and debt we may incur
in the future, may materially restrict our operations, including our ability to
incur debt, pay dividends, make certain investments and payments, and encumber
or dispose of assets. In
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addition, financial covenants contained in agreements relating to our existing
and future debt could lead to a default in the event our results of operations
do not meet our plans. A default under one debt instrument may also trigger
cross-defaults under our other debt instruments. An event of default under any
debt instrument, if not cured or waived, could have a material adverse effect on
us.
Our substantial indebtedness could:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital
expenditures, research and development and other general corporate
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to service payments on our debt;
- limit our flexibility to react to changes in our business and the
industry in which we operate;
- place us at a competitive disadvantage to any of our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in
our indebtedness, among other things, our ability to borrow
additional funds.
STOCK PRICE VOLATILITY
The trading price of our common stock has been and is likely to continue to be
highly volatile and could be subject to wide fluctuations in response to factors
such as:
- actual or anticipated quarter-to-quarter variations in operating
results;
- announcements of technological innovations or new products and
services by Amkor or our competitors;
- general conditions in the semiconductor industry;
- changes in earnings estimates or recommendations by analysts;
- developments affecting ASI; and
- or other events or factors, many of which are out of our control.
In addition, the stock market in general, and the Nasdaq National Market and the
markets for technology companies in particular, have experienced extreme price
and volume fluctuations. This volatility has affected the market prices of
securities of companies like ours for that have often been unrelated or
disproportionate to the operating performance. These broad market fluctuations
may adversely affect the market price of our common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our company is exposed to market risks, primarily related to foreign
currency and interest rate fluctuations. In the normal course of business, we
employ established policies and procedures to manage the exposure to
fluctuations in foreign currency values and changes in interest rates.
Foreign Currency Risks
Our company's primary exposures to foreign currency fluctuations are
associated with transactions and related assets and liabilities denominated in
Philippine pesos, Korean won and Japanese yen. The objective in managing these
foreign currency exposures is to minimize the risk through minimizing the level
of activity and financial instruments denominated in pesos, won and yen.
At March 31, 2001, the peso-based financial instruments primarily consisted
of cash, non-trade receivables, deferred tax assets and liabilities, non-trade
payables, accrued payroll, taxes and other expenses. Based on the portfolio of
peso-based assets and liabilities at March 31, 2001, a 20% increase in the
Philippine peso to U.S. dollar exchange rate would result in a decrease of
approximately $3.4 million, in peso-based net assets.
At March 31, 2001, the won-based financial instruments primarily consisted
of cash, non-trade receivables, non-trade payables, accrued payroll, taxes and
other expenses. Based on the portfolio of won-based assets and liabilities at
March 31, 2001, a 20% increase in the Korean won to U.S. dollar exchange rate
would result in a decrease of approximately $2.7 million, in won-based net
assets.
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At March 31, 2001, the yen-based financial instruments primarily consisted
of cash, non-trade receivables, accrued payroll taxes, debt and other expenses.
Based on the portfolio of yen-based assets and liabilities at March 31, 2001, a
20% decrease in the Japanese yen to U.S. dollar exchange rate would result in a
decrease of approximately $18.6 million, in yen-based net liabilities.
Interest Rate Risks
Our company has interest rate risk with respect to our long-term debt. As
of March 31, 2001, we had a total of $1,838.0 million debt of which 80.2% was
fixed rate debt and 19.8% was variable rate debt. Our variable rate debt
principally consisted of amounts outstanding under our secured bank facilities
that included term loans and a $200.0 million revolving line of credit of which
no amounts were drawn as of March 31, 2001. The fixed rate debt consisted of
senior notes, senior subordinated notes and convertible subordinated notes.
Changes in interest rates have different impacts on our fixed and variable rate
portions of our debt portfolio. A change in interest rates on the fixed portion
of the debt portfolio impacts the fair value of the instrument but has no impact
on interest incurred or cash flows. A change in interest rates on the variable
portion of the debt portfolio impacts the interest incurred and cash flows but
does not impact the fair value of the instrument. The fair value of the
convertible subordinated notes is also impacted by the market price of our
common stock.
The table below presents the interest rates, maturities and fair value of
our fixed and variable rate debt as of March 31, 2001.
YEAR ENDING DECEMBER 31,
-----------------------------------------------------
FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
------- ------- ------- -------- -------- ----------- --------- ---------
Long-term debt:
Fixed rate debt ..... 10,183 14,063 66,468 -- -- 1,383,750 1,474,464 1,362,655
Average interest rate 4.0% 4.0% 4.9% 8.5% 7.3%
Variable rate debt .. 19,517 3,500 3,556 168,114 168,875 -- 363,562 363,562
Average interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Equity Price Risks
Our outstanding 5.75% and 5% convertible subordinated notes are convertible
into common stock at $13.50 per share and $57.34 per share, respectively. As
stated above, we intend to repay our convertible subordinated notes upon
maturity, unless converted. If investors were to decide to convert their
convertible subordinated notes to common stock, our future earnings would
benefit from a reduction in interest expense and our earnings on a per share
basis would be diluted by the additional common stock issued. Additionally if
such conversion were induced by us, our earnings could include an additional
charge.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 20, 2001, we issued $500.0 million of principal of 9-1/4% Senior
Notes due 2008 (the "Senior Notes") to a group of initial purchasers. The
Senior Notes were issued as part of a private placement. The Senior Notes are
senior in right of payment to the Company's 5-3/4% Convertible Subordinated
Notes due 2003 and 5% Convertible Subordinated Notes due 2007 (collectively,
the "Convertible Notes"). In the event that we fail to comply with any of the
terms of the Senior Notes we may be blocked from making payments of principal
or interest under the Convertible Notes. In addition, the Senior Notes
restrict our ability to pay dividends on our Common Stock, repurchase Common
Stock and redeem the Convertible Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1 Indenture dated as of February 20, 2001 for 9-1/4% Senior Notes due
February 15, 2008
4.2 Registration Rights Agreement dated as of February 20, 2001 by and
among Amkor Technology, Inc., Salomon Smith Barney Inc. and Deutsche
Banc Alex. Brown Inc.
12.1 Computation of Ratio of Earnings to Fixed Charges
(b) REPORTS ON FORM 8-K
We filed with the Securities and Exchange Commission the following reports
on Form 8-K during the quarterly period ended March 31, 2001:
Current Report on Form 8-K dated January 31, 2001 (filed February 2, 2001)
related to a press release dated January 31, 2001 announcing our financial
results for the fourth quarter and year ended December 31, 2000.
Current Report on Form 8-K dated February 8, 2001 (filed February 8, 2001)
related to a press release dated February 8, 2001 announcing our intent to offer
senior notes.
Current Report on Form 8-K dated February 15, 2001 (filed February 16, 2001)
related to the filing of our consolidated financial statements as of and for the
three years ended December 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AMKOR TECHNOLOGY, INC.
By: /s/ KENNETH T. JOYCE
----------------------------------------------
Kenneth T. Joyce
Chief Financial Officer
(Principal Financial, Chief Accounting Officer
and Duly Authorized Officer)
Date: May 15, 2001
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