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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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 2006
5% CONVERTIBLE SUBORDINATED NOTES DUE 2007
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the average bid and asked prices of
such stock, was approximately $1,255,564,563 as of February 28, 2002.
The number of shares outstanding of each of the issuer's classes of common
equity, as of February 28, 2002, was as follows: 163,667,294 shares of Common
Stock, $0.001 par value.
Documents Incorporated by Reference: Portions of the definitive Proxy
Statement to be delivered to stockholders in connection with the 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III.
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TABLE OF CONTENTS
PAGE
PART I.................................................................................... 2
Item 1. BUSINESS................................................................. 2
Item 2. PROPERTIES............................................................... 14
Item 3. LEGAL PROCEEDINGS........................................................ 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................... 15
PART II................................................................................... 15
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................................... 15
Item 6. SELECTED FINANCIAL DATA.................................................. 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............... 35
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................. 35
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................. 66
PART III.................................................................................. 66
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT........................ 66
Item 11. EXECUTIVE COMPENSATION................................................... 66
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 66
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 66
PART IV................................................................................... 66
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM8-K........... 66
USE OF CERTAIN TERMS
All references in this annual report to "Amkor," "we," "us," "our" or the
"company" are to Amkor Technology, Inc. and its subsidiaries. We refer to the
Republic of Korea, which is also commonly known as South Korea, as "Korea."
References to "won" are to the currency of Korea.
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PART I
ITEM 1. BUSINESS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This business section contains forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors that May Affect Future Operating Performance" in Item
7 of this annual report. These factors may cause our actual results to differ
materially from any forward-looking statement.
OVERVIEW
Amkor is the world's largest subcontractor of semiconductor packaging and
test services. The company has built a leading position through:
- one of the industry's broadest offerings of packaging and test
services,
- expertise in the development and implementation of packaging and test
technology,
- long-standing relationships with customers, including many of the
world's leading semiconductor companies, and
- expertise in high-volume manufacturing.
We also market the output of fabricated semiconductor wafers provided by a
wafer fabrication foundry owned and operated by Anam Semiconductor, Inc. (ASI).
The semiconductors that we package and test for our customers ultimately become
components in electric systems used in communications, computing, consumer,
industrial, automotive and military applications. Our customers include, among
others, Agere Systems, Inc., Atmel Corporation, Intel Corporation, LSI Logic
Corporation, Motorola, Inc., Philips Electronics N.V., ST Microelectronics PTE,
Sony Semiconductor Corporation, Texas Instruments, Inc. and Toshiba Corporation.
The outsourced semiconductor packaging and test market is very competitive. We
also compete from time to time with many of our vertically integrated customers,
who may decide to outsource or not outsource certain of their packaging and test
requirements.
Packaging and test are an integral part of the semiconductor manufacturing
process. Semiconductor manufacturing begins with silicon wafers and involves the
fabrication of electronic circuitry into complex patterns, thus creating
individual chips on the wafers. The packaging process creates an electrical
interconnect between the semiconductor chip and the system board. In packaging,
the fabricated semiconductor chips are separated from the wafer, attached to a
substrate and encased in a protective environment to provide optimal electrical
and thermal performance. Increasingly, packages are custom designed for specific
chips and specific end-market applications.
INDUSTRY BACKGROUND
Semiconductor devices are the essential building blocks used in most
electronic products. As semiconductor devices have evolved, there have been
three important consequences: (1) an increase in demand for computers and
related products due to declining prices for such products, (2) the
proliferation of semiconductor devices into diverse end products such as
consumer electronics, communications equipment and automotive systems and (3) an
increase in the number of semiconductor devices in electronic products.
TRENDS TOWARD OUTSOURCING
Historically, semiconductor companies packaged semiconductors primarily in
their own factories and relied on
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subcontract providers to handle overflow volume. In recent years, semiconductor
companies have increasingly outsourced their packaging and testing to
subcontract providers for the following reasons:
Subcontract providers have developed expertise in advanced packaging
technologies.
Semiconductor companies are facing ever-increasing demands for
miniaturization, higher lead counts and improved thermal and electrical
performance in semiconductor devices. As a result of this trend, many
semiconductor companies view packaging as an enabling technology requiring
sophisticated expertise and technological innovation. However, they have had
difficulty developing the necessary capabilities with their internal resources
and are relying on subcontract providers of packaging and test services as a key
source of new package designs.
Subcontract providers can offer shorter time to market for new products
because their resources are dedicated to packaging and test solutions.
We believe that semiconductor companies are seeking to shorten the time to
market for their new products and that having the right packaging technology and
capacity in place is a critical factor in reducing delays for these companies.
Semiconductor companies frequently do not have sufficient time to develop
their packaging and test capabilities or the equipment and expertise to
implement new packaging technology in volume. For this reason, semiconductor
companies are leveraging the resources and capabilities of subcontract packaging
and test companies to deliver their new products to market more quickly.
Many semiconductor manufacturers do not have the economies of scale to offset
the significant costs of building packaging and test factories.
Semiconductor packaging is a complex process requiring substantial
investment in specialized equipment and factories. As a result of the large
capital investment required, this manufacturing equipment must operate at a high
capacity level for an extended period of time to be cost effective. Shorter
product life cycles, faster introductions of new products and the need to update
or replace packaging equipment to accommodate new products have made it more
difficult for semiconductor companies to sustain high levels of capacity
utilization. Subcontract providers of packaging and test services, on the other
hand, can use equipment at high utilization levels over a longer period of time
for a broad range of customers, effectively extending the life of the equipment.
The availability of high quality packaging and testing from subcontractors
allows semiconductor manufacturers to focus their resources on semiconductor
design and wafer fabrication rather than semiconductor packaging and testing.
As the cost to build a new wafer fabrication facility has increased to
over $1 billion, semiconductor companies are choosing to focus their capital
resources on core wafer fabrication activities. The availability of high quality
packaging and testing from subcontractors allows semiconductor manufacturers to
focus their resources on semiconductor design and wafer fabrication rather than
semiconductor packaging and testing.
There is a growing number of semiconductor companies without factories, known
as "fabless" companies, that outsource all of the manufacturing of their
semiconductor designs.
Fabless semiconductor companies focus exclusively on the semiconductor
design process and outsource virtually every significant step of the
semiconductor manufacturing process. We believe that fabless semiconductor
companies will continue to be a significant driver of growth in the subcontract
packaging and test industry.
These outsourcing trends, combined with the growth in the number of
semiconductor devices being produced and sold, are increasing demand for
subcontracted packaging and test services. Today, nearly all of the world's
major semiconductor companies use packaging and test service subcontractors for
at least a portion, if not all, of their packaging and test needs.
Certain of the same forces driving the growth of subcontracted packaging
and testing are also driving demand for subcontracted wafer fabrication
services. Many semiconductor companies are outsourcing some or all of their
wafer fabrication needs because the cost to build new wafer foundries has been
rising steadily. This is particularly true for newer,
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smaller geometry technologies which cannot be produced in many semiconductor
companies' existing wafer foundries. As the demand for semiconductor devices
with smaller geometries increases, we believe semiconductor companies will
increasingly utilize subcontractors for wafer fabrication.
COMPETITIVE STRENGTHS
We believe our competitive strengths include the following:
LEADING INDUSTRY POSITION
We are the world's largest subcontractor of semiconductor packaging and
test services. We have increased our revenues and built our leading position
through:
- one of the industry's broadest offerings of packaging and test
services,
- expertise in the development and implementation of packaging and test
technology,
- long-standing relationships with our customers, and
- advanced manufacturing capabilities.
BROAD OFFERING OF PACKAGING AND TEST SERVICES
With more than 1,000 different package types, we offer one of the
semiconductor industry's broadest lines of packaging services. We provide
customers with a wide array of packaging alternatives including mature leadframe
packages and newer advanced leadframe and laminate packages. We also offer an
extensive line of services to test digital logic, analog and mixed signal
semiconductor devices. We believe that the breadth of our packaging and test
services is important to customers seeking to reduce the number of their
suppliers.
LEADING TECHNOLOGY INNOVATOR
We believe that we are one of the leading providers of advanced
semiconductor packaging and test solutions. We have designed and developed
state-of-the-art thin package formats and laminate packages including our
PowerQuad(R), Super BGA(R), fleXBGA(R) and ChipArray(R) BGA packages. To
maintain our leading industry position, we have approximately 330 employees
engaged in research and development focusing on the design and development of
new semiconductor packaging and test technology. We work closely with customers
and technology partners to develop new and innovative package designs.
LONG-STANDING RELATIONSHIPS WITH PROMINENT SEMICONDUCTOR COMPANIES
Our customer base consists of more than 300 companies, including most of
the world's largest semiconductor companies. Over the last three decades we,
with our predecessor companies, have developed long-standing relationships with
many of our customers.
ADVANCED MANUFACTURING CAPABILITIES
We believe that our company's manufacturing excellence has been a key
factor in our success in attracting and retaining customers. We have worked with
our customers and our suppliers to develop proprietary process technologies to
enhance our existing manufacturing capabilities. These efforts have directly
resulted in reduced time to market, increased quality and lower manufacturing
costs. We believe our manufacturing cycle times are among the fastest available
from any subcontractor of packaging and test services.
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COMPETITIVE DISADVANTAGES
You should be aware that our competitive strengths may be diminished or
eliminated due to certain challenges faced by our company and which our
principal competitors may not face, including the following:
- High Leverage and Restrictive Covenants -- Our substantial
indebtedness could materially restrict our operations and adversely
affect our financial condition.
- Risks Associated With International Operations -- We depend on our
factories in the Philippines, Korea, Japan, Taiwan and China. Many of
our customers' operations are also located outside of the U.S. To the
extent political or economic instability occurs in any of these
regions, our operations could be harmed.
- Difficulties Integrating Acquisitions -- We face challenges as we
integrate new and diverse operations and try to attract qualified
employees to support our expansion plans.
In addition, we and our competitors face a variety of operational and
industry risks inherent to the industry in which we operate. For a complete
discussion of risks associated with our business, please read "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Factors that May Affect Future Operating Performance" in Item 7 of this annual
report.
STRATEGY
To build upon our leading industry position and to remain the preferred
subcontractor of semiconductor packaging and test services, we are pursuing the
following strategies:
CAPITALIZE ON OUTSOURCING TREND
The Company believes that while the outsourcing trend has been impacted
during the present industry downturn, there remains a long-term trend towards
more outsourcing on the part of semiconductor companies. During the downturn, we
believe that many vertically integrated semiconductor companies increased the
use of their in-house packaging and test capabilities in order to minimize the
impact of significant excess internal capacity that resulted from sharply
lowered demand. At the same time, however, there are examples where vertically
integrated semiconductor companies have accelerated their use of outsourcing
during this downturn. In January 2001, the Company commenced a venture with
Toshiba Corporation, in which Toshiba outsourced an entire packaging and test
factory to the venture, which is 60% owned by the Company. The Company also
reached agreement with Agilent Technologies, whereby Agilent has ceased the
packaging and testing of certain package types for its semiconductor devices
used in printers, and is now using the Company as the exclusive provider of
packaging and test services for these package types. We intend to continue to
capitalize on the expected growth in the outsourcing of semiconductor packaging
and test services. We believe semiconductor companies will increasingly
outsource packaging and test services to companies who can provide advanced
technology and high-quality, high-volume manufacturing expertise.
LEVERAGE SCALE AND SCOPE OF PACKAGING AND TEST CAPABILITIES
We are committed to expanding both the scale of our operations and the
scope of our packaging and test services. We believe that our scale and scope
allow us to provide cost-effective solutions to our customers in the following
ways:
- We have the capacity to absorb large orders and accommodate quick
turn-around times;
- We use our size and industry position to obtain low pricing on
materials and manufacturing equipment; and
- We offer an industry-leading breadth of packaging and test services
and can serve as a single source for many of our customers.
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MAINTAIN OUR TECHNOLOGY LEADERSHIP
We intend to continue to develop leading-edge packaging technologies. We
believe that our focus on research and product development will enable us to
enter new markets early, capture market share and promote the adoption of our
new package designs as industry standards. We seek to enhance our in-house
research and development capabilities through the following activities:
- We are collaborating with customers to gain access to technology
roadmaps for the next generation of semiconductor designs;
- We are collaborating with companies, such as Toshiba Corporation,
Ericsson Corporation and Nokia Group to design new packages that
function with the next generation of electronic products; and
- We are implementing new package designs by entering into technology
alliances and by licensing leading-edge designs from others. For
example, we have entered into a strategic alliance with Sharp
Corporation to promote chip scale packaging with fleXBGA(R). We have
licensed from Tessera, Inc. their microBGA(R) design. We have also
licensed "flip-chip" package technology from LSI Logic Corporation and
wafer bumping technology from Flip Chip Technologies and Unitive
Technologies. In general, these license agreements are non-exclusive,
royalty-bearing arrangements with terms extending to various dates
between 2008 and 2011.
PROVIDE AN INTEGRATED, TURNKEY SOLUTION
We are able to provide a complete turnkey solution comprised of
semiconductor wafer fabrication, packaging and test services. We believe that
this will enable customers to achieve faster time to market for new products and
improved cycle times.
STRENGTHEN CUSTOMER RELATIONSHIPS
We intend to further develop our long-standing customer relationships. We
believe that because of today's shortened technology life cycles, integrated
communications are crucial to speed time to market. We have customer support
personnel located near the facilities of major customers and in acknowledged
technology centers. These support personnel work closely with customers to plan
production for existing packages as well as to develop requirements for the next
generation of packaging technology. In addition, we are implementing direct
electronic links with our customers to enhance communication and facilitate the
flow of real-time engineering data and order information.
PURSUE STRATEGIC ACQUISITIONS
We are evaluating candidates for strategic acquisitions and joint ventures
to strengthen our core business and expand our geographic reach. We believe that
there are many opportunities to acquire the in-house packaging operations of our
customers and competitors. To the extent we acquire operations of our customers,
we intend to structure any such acquisition to include long-term supply
contracts with those customers. In addition, we intend to enter new markets near
clusters of wafer foundries, which are large sources of demand for packaging and
test services.
PACKAGING AND TEST SERVICES
PACKAGING SERVICES
We offer a broad range of package formats designed to provide our
customers with a full array of packaging solutions. Our packages are divided
into three families: traditional leadframe, advanced leadframe and laminate, as
described below.
In response to the increasing demands of today's high-performance
electronic products, semiconductor packages have evolved from traditional
leadframe packages and now include advanced leadframe, and laminate formats. The
differentiating
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characteristics of these package formats include (1) the size of the package,
(2) the number of electrical connections the package can support (3) the thermal
and electrical characteristics of the package, and (4), in the case of our
System-in-Package family of laminate packages, the integration of multiple
active and passive components in a single package.
As semiconductor devices increase in complexity, they often require a
larger number of electrical connections. Leadframe packages are so named because
they connect the electronic circuitry on the semiconductor device to the system
board through leads on the perimeter of the package. Our laminate products,
typically called ball grid array or BGA, use balls on the bottom of the package
to create the electrical connections. This array format, which can support
larger numbers of electrical connections, has become widely adopted since it was
introduced in the mid-1990's.
Evolving semiconductor technology has allowed designers to increase the
level of performance and functionality in portable and handheld electronics
products, and this has led to the development of smaller package sizes. In
leading-edge packages, the size of the package is reduced to approximately the
size of the individual chip itself, in a process known as chip scale packaging.
The following table sets forth by product type, for the periods indicated,
the amount of our packaging and test net revenues in millions of dollars and the
percentage of such net revenues:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN MILLIONS)
Traditional leadframe............ $ 450 33.7% $ 648 32.2% $ 560 34.6%
Advanced leadframe............... 294 22.0 508 25.3 412 25.5
Laminate......................... 444 33.2 720 35.8 561 34.7
Test and other................... 149 11.1 134 6.7 84 5.2
--------- ------- ---------- ------- --------- -------
Total packaging and test
net revenues.............. $ 1,337 100.0% $ 2,010 100.0% $ 1,617 100.0%
========= ======= ========== ======= ========= =======
In addition, we had $181 million, $378 million and $293 million of net
revenues from wafer fabrication services in 2001, 2000 and 1999, respectively.
Traditional Leadframe Packages
Traditional leadframe packages are the most widely used package family and
are characterized by a chip encapsulated in a plastic mold compound with metal
leads on the perimeter. This package family has evolved from a design where the
leads are plugged into holes on the circuit board to a design where the leads
are soldered to the surface of the circuit board. We offer a wide range of lead
counts and body sizes to satisfy variations in the size of customers'
semiconductor devices. Continuous engineering and customization has reduced the
footprint of the package on the circuit board and improved the electrical
performance of the package. In addition, we have designed package types to
dissipate the heat generated by high-powered semiconductor devices. Such "power"
designs are advancements on our small outline package (SOP) and metric quad flat
package (MQFP) and are called PowerSOP(R) and PowerQuad(R).
Advanced Leadframe Packages
Our advanced leadframe packages are similar in design to our traditional
leadframe packages. However, the advanced leadframe packages generally are
thinner and smaller, have more leads and have advanced thermal and electrical
characteristics.
The thin small outline packages (TSOPs), thin shrink small outline
packages (TSSOPs), and shrink small outline packages (SSOPs) are smaller than
our traditional small outline integrated circuit (SOIC) package. The thin quad
flat package (TQFP) is a smaller version of the metric quad flat package (MQFP).
We also offer power versions of these package types to dissipate heat generated
by high-powered semiconductor devices. We plan to continue to develop
increasingly smaller versions of these packages to keep pace with continually
shrinking semiconductor device sizes and demand for miniaturization of portable
electronic products.
7
One of our newest package offerings is the MicroLeadFrame(TM), a family of
"leadless" advanced leadframe packages that is particularly well suited for RF
and wireless applications. Our smallest MicroLeadFrame package is only 2mm
square and can fit on the head of a pin.
Laminate Packages
The laminate family employs the ball grid array design which utilizes a
plastic or tape laminate substrate rather than a leadframe substrate and places
the electrical connections on the bottom of the package rather than around the
perimeter.
The ball grid array format was developed to address the need for higher
lead counts required by advanced semiconductor devices. As the number of leads
surrounding the package increased, packagers increased the proximity of the
leads to one another in an attempt to maintain the size of the package. The
nearness of one lead to another resulted in electrical shorting problems, and
required the development of increasingly sophisticated and expensive techniques
for producing circuit boards to accommodate the high number of leads.
The ball grid array format solved this problem by effectively creating
leads on the bottom of the package in the form of small bumps or balls. These
balls can be evenly distributed across the entire bottom surface of the package,
allowing greater distance between the individual leads. For the highest lead
count devices, the ball grid array configuration can be manufactured less
expensively and requires less delicate handling at installation.
Our first package format in this family was the plastic ball grid array
(PBGA). We have subsequently designed or licensed additional ball grid array
package formats that have superior performance characteristics and features that
enable low-cost, high-volume manufacturing. These new laminate products include:
- SuperBGA(R), which includes a copper layer to dissipate heat and is
designed for low-profile, high-power applications;
- microBGA(R), which is designed to be approximately the same size as
the chip and uses a thinner tape substrate rather than a plastic
laminate substrate; and
- ChipArray(R) BGA, in which the package is only 1.5 mm larger than the
chip itself.
ChipArray(R) BGA, TapeSuper BGA(R), TapeArray(TM)BGA and WaferScale Chip
Scale Package are extensions of other ball grid array packages that further
reduce package size and increase manufacturing efficiency.
Test Services
We also provide our customers with services to test the specifications of
semiconductor devices. We have the capability to test digital logic, analog and
mixed signal products. Although test services were performed on only 16%, 17%
and 17% of the total units shipped in 2001, 2000 and 1999, respectively, we
believe that our ability to provide both packaging and test services at the same
location provides us with a competitive advantage.
System in Package (SiP)
To capitalize on an increasing customer demand for multi-chip modules, we
created our "System-in-Package" (SiP) business unit. A SiP module is an
integrated solution that uses both advanced packaging and traditional surface
mount techniques to enable the combination of otherwise incompatible
technologies in a single, highly reliable laminate-based package. By integrating
various system elements into a single-function block, the SiP module delivers
space and power efficiency, high performance, and lower production costs. SiP
technology has been utilized in manufacturing of wireless technology, memory
cards and sensors.
WAFER FABRICATION SERVICES
In January 1998, we entered into a supply agreement with ASI to market
wafer fabrication services provided by ASI's semiconductor wafer fabrication
facility. Using 0.35 micron, 0.25 micron and 0.18 micron complementary metal
oxide
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silicon ("CMOS") process technology provided by Texas Instruments pursuant to
technology assistance agreements with ASI, this facility currently has a
capacity to produce 28,000 eight-inch wafers per month. The wafer fabrication
facility primarily manufactures digital signal processors ("DSPs"),
application-specific integrated circuits ("ASICs") and other logic devices,
which are found in many advanced electronic products.
We plan to continue to focus our semiconductor technology development
efforts to serve the high-performance digital logic market. However, as
technological capability evolved and the need for new CMOS designs arose, we
added embedded memory and special analog functionality to our core CMOS
technology. We provide complete turnkey solutions comprised of wafer
fabrication, packaging and test services. We believe this turnkey solution
enables our customers to achieve faster time to market for new products and
reduce manufacturing costs.
Agreements With ASI and Texas Instruments
Under the 1998 Manufacturing and Purchase Agreement between our company
and Texas Instruments (as amended on July 1, 2000), Texas Instruments agreed to
purchase from us at least 40%, and under certain circumstances had the right to
purchase 70%, of ASI's wafer fabrication facility's 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. As a result of the weakness in the semiconductor industry, Texas
Instruments' demand for the output of ASI's wafer fabrication facility decreased
significantly in 2001 and they failed to meet minimum purchase obligations.
Texas Instruments made certain concessions to us to partially mitigate this
shortfall in demand.
The Manufacturing and Purchase Agreement between Texas Instruments and our
company was amended again on December 31, 2001. This most recent amendment is
among Texas Instruments, ASI and Amkor and relates both to matters covered by
the prior Manufacturing and Purchase Agreement as well as matters covered by the
most recent technical assistance agreement between Texas Instruments and ASI.
Pursuant to the newly amended Manufacturing and Purchase Agreement, we agreed to
modify Texas Instruments' purchase obligation to 40% of ASI's wafer fabrication
facility's capacity in the quarter ending March 31, 2002, 30% of such capacity
in the quarter ending June 30, 2002, and 20% of such capacity in each subsequent
quarter. Texas Instruments has agreed to increase its purchases to at least 40%
of such capacity if a new technical assistance agreement covering advanced wafer
fabrication technology is entered into among ASI, Amkor and Texas Instruments
prior to December 31, 2002. In addition, the amended Manufacturing and Purchase
Agreement also transfers high voltage Linear BiCMOS technology to ASI's wafer
fabrication facility. We anticipate that this linear BiCMOS process technology
will be used primarily for customers other than Texas Instruments at this time.
The Manufacturing and Purchasing Agreement and related technical
assistance agreements terminate on December 31, 2007, unless they have been
previously terminated. The agreements may be terminated upon, among other
things: (1) the consent of ASI, Texas Instruments and the company; (2) a
material breach by ASI, Texas Instruments or the company; (3) the failure of ASI
or the company to protect Texas Instruments' intellectual property; or (4) the
parties' failure to enter into a new technical assistance agreement by December
31, 2002.
If the parties fail to enter into a new technical assistance agreement by
December 31, 2002, then any party may give the other notice of termination. This
notice will, among other things, result in the amended Manufacturing and
Purchasing Agreement and the technology assistance agreements terminating two
years after such notice. During such two-year period, Texas Instruments will
only be obligated to purchase a minimum of 20% of the ASI wafer fabrication
facility's capacity. In addition, even if the parties were to enter into a new
technical assistance agreement, that agreement would provide that if ASI is not
able to enter into production using the advanced wafer fabrication technology
licensed under that agreement, the Manufacturing and Purchasing Agreement is
terminable by any party as discussed above over a two year period beginning on
December 31, 2002.
In order for the Manufacturing and Purchasing Agreement and the technology
assistance agreements to continue until December 31, 2007, Amkor, ASI and Texas
Instruments would have to enter into a new technology assistance agreement by
December 31, 2002. However, the advanced wafer fabrication technology that would
be licensed under this agreement would require ASI either to (i) invest in
excess of $400 million to refurbish its existing manufacturing facility,
requiring the shutdown of part or all of its existing facility during the period
of refurbishment, or (ii) obtain access to a new or existing manufacturing
facility owned by a third party that could support the advanced technology. A
third option for ASI would be to build and equip a new manufacturing facility,
but this option would require substantially greater capital investment by ASI
9
than the other options. We cannot be certain that Amkor and ASI will be able to
negotiate successfully a new technical assistance agreement with Texas
Instruments. Moreover, we believe that it will be extremely difficult for ASI to
finance, acquire and equip the necessary manufacturing facility to deploy the
advanced wafer fabrication technology that would be transferred by Texas
Instruments. In the event the Manufacturing and Purchasing Agreement and the
technology assistance agreements with Texas Instruments were to be terminated,
we cannot be certain what the nature of Amkor's and ASI's business relationship,
if any, would be with Texas Instruments. If Texas Instruments were to
significantly reduce or terminate its purchase of ASI's wafer fabrication
services, our wafer fabrication business would be seriously harmed. However, we
have maintained a strong historical relationship with Texas Instrument and we
currently expect that in the event new manufacturing and technology assistance
agreements could not be entered into by December 31, 2002, Texas Instruments
would negotiate a new relationship with our company and continue to use our
company's wafer fabrications services for a significant portion of its
outsourced wafer fabrication needs.
Under the existing technical assistance agreements between Texas
Instruments and ASI, ASI has a license to use certain wafer fabrication-related
trade secrets of Texas Instruments for non-Texas Instruments' products. In the
event that the Manufacturing and Purchase Agreement is terminated, this license
will also terminate. At such time, it would be necessary for ASI to negotiate a
new license agreement with Texas Instruments relating to its trade secrets, or
ASI would not be able to continue its wafer fabrication operations as currently
practiced. This would have the result of shutting down the wafer fabrication
business of ASI and Amkor unless and until alternative technology arrangements
could be made and implemented at ASI's wafer manufacturing facility.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus on developing new package
designs and improving the efficiency and capabilities of our existing production
processes. We believe that technology development is one of the key success
factors in the semiconductor packaging and test market and believe that we have
a distinct advantage in this area. 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.
As of December 31, 2001, we employ approximately 330 persons in research
and development activities. In addition, we involve management and operations
personnel in research and development activities. In 2001, 2000 and 1999, we
spent $38.8 million, $26.1 million and $11.4 million, respectively, on research
and development. We expect to continue to invest in research and development.
We intend to continue to develop leading-edge packaging technologies. We
believe that our focus on research and product development will enable us to
enter new markets early, capture market share and promote the adoption of our
new package designs as industry standards. We seek to enhance our in-house
research and development capability through the following activities:
- We are collaborating with customers to gain access to technology
roadmaps for the next generation of semiconductor designs;
- We are collaborating with companies, such as Toshiba Corporation,
Ericsson Corporation and Nokia Group to design new packages that
function with the next generation of electronic products; and
- We are implementing new package designs by entering into technology
alliances and by licensing leading-edge designs from others. For
example, we have entered into a strategic alliance with Sharp
Corporation to promote chip scale packaging with fleXBGA(R). We have
licensed from Tessera, Inc. their microBGA(R) design. We have also
licensed "flip-chip" package technology from LSI Logic Corporation and
wafer bumping technology from Flip Chip Technologies and Unitive
Technologies. In general, these license agreements are non-exclusive,
royalty-bearing arrangements with terms extending to various dates
between 2008 and 2011.
10
MARKETING AND SALES
We sell our packaging and test services and wafer fabrication services to
our customers and support them through a network of international offices. To
better serve our customers, our offices are located near our largest customers
or near a concentration of several of our customers. Our office locations
include sites in the U.S. (Austin, Texas; Boise, Idaho; Boston, Massachusetts;
Chandler, Arizona; Dallas, Texas; Greensboro, North Carolina; Santa Clara,
California; and West Chester, Pennsylvania), France, Singapore, Taiwan, the
Philippines, Japan and Korea. We have historically derived a majority of our net
revenues from U.S.-based customers.
To provide comprehensive sales and customer service, we assign each of our
customers a direct team consisting of an account manager, a technical program
manager and one or more customer support representatives. We also typically
support our largest multinational customers from multiple offices.
The direct teams are closely supported by an extended staff of product
managers, process and reliability engineers, marketing and advertising
specialists, information systems technicians and factory personnel. Together,
these direct and extended teams deliver an array of services to our customers.
These services include: (1) providing information and expert advice on packaging
solutions and trends, (2) managing the start-up of specific packaging and test
programs, (3) providing a continuous flow of information to the customers
regarding products and programs in process and (4) researching and helping to
resolve technical and logistical issues.
We are implementing direct electronic links with our customers to enhance
communication and facilitate the flow of real-time engineering data and order
information. These links connect our customers to our sales and marketing
personnel worldwide and to our factories.
CUSTOMERS
As of February 28, 2002, we had more than 300 customers, and our customers
include many of the largest semiconductor companies in the world. The table
below lists our top 50 customers in 2001 based on revenues:
Adaptec, Inc.
Advanced Micro Devices, Inc.
Agere Technologies, Inc.
Agilent Technologies
Alcatel Mietec
Altera Corporation
American Micro Systems, Inc.
Analog Devices, Inc.
Atmel Corporation
Austria Mikro Systeme
Broadcome Corporation
Cirrus Logic
Conexant
Displaytech Inc.
ESS Technology Inc.
Fairchild Semiconductor Corporation
Hynix Semiconductor
IC Works Inc.
Infineon Technologies AG
Integrated Circuit Systems, Inc.
Integrated Device Technology, Inc.
Intel Corporation
International Business Machines Corp.
International Rectifier
Intersil Corporation
Lattice Semiconductor Corporation
LSI Logic Corporation
Macronix International Corporation
Maxim Integrated Circuits
Mediatek Inc.
Microchip Technology Inc.
Motorola, Inc.
National Semiconductor Corp.
NEC Corporation Ltd.
ON Semiconductor
PMC - Sierra Inc.
Philips Electronics
R.F. Micro Devices
Robert Bosch GmbH
SEC - ONYANG
Silicon Laboratories
Sony Semiconductor Corporation
ST Microelectronics PTE
Standard Microsystems
Texas Instruments, Inc.
Toshiba
Via Technologies, Inc.
Xilinx, Inc.
Zarlink Semiconductor
Zilog Electronics
11
We derive substantially all of our wafer fabrication revenues from Texas
Instruments (TI). Total net revenues derived from TI accounted for 10.2%, 14.1%
and 16.5% of net revenues in 2001, 2000 and 1999, respectively. Intel
Corporation, accounted for approximately 14.1% of net revenues in 1999. Revenues
for services provided to Intel for 2001 and 2000 did not exceed 10%. 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 14.3% of our consolidated net revenues for 2001.
MATERIALS AND EQUIPMENT
Our packaging operations depend upon obtaining adequate supplies of
materials and equipment on a timely basis. The principal materials used in our
packaging process are leadframes or laminate substrates, gold wire and molding
compound. We purchase materials based on customer orders, and our customers are
generally responsible for any unused materials in excess of the quantity that
they indicated that they would need.
We work closely with our primary material suppliers to insure that
materials are available and delivered on time. Moreover, we also negotiate
worldwide pricing agreements with our major suppliers to take advantage of the
scale of our operations. We are not dependent on any one supplier for a
substantial portion of our material requirements.
Our packaging operations and our expansion plans also depend on obtaining
adequate supplies of manufacturing equipment on a timely basis. We work closely
with major equipment suppliers to insure that equipment is delivered on time and
that the equipment meets our stringent performance specifications.
For a discussion of additional risks associated with our materials and
equipment suppliers, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors that May Affect Future
Operating Performance" in Item 7 of this annual report.
ENVIRONMENTAL MATTERS
The semiconductor packaging process uses chemicals and gases and generates
byproducts that are subject to extensive governmental regulations. For example,
at our foreign manufacturing facilities, 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.
We have been engaged in a continuing program to assure compliance with
federal, state and local environmental laws and regulations. We do not expect
capital expenditures or other costs attributable to compliance with
environmental laws and regulations to have a material adverse effect on our
business, results of operations or financial condition.
For a discussion of additional risks associated with the environmental
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Factors that May Affect Future Operating
Performance -- Environmental Regulations" in Item 7 of this annual report.
COMPETITION
The subcontracted semiconductor packaging and test market is very
competitive. An industry analyst estimates our company along with our 12
principal competitors accounted for approximately 89.5% of the outsourced
packaging and test market.
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
include Advanced Semiconductor Engineering, Inc., ASE Test Limited, ASAT Ltd.,
ChipPAC Incorporated, Oriental Semiconductor Engineering, ST Assembly and Test
Services, and Siliconware Precision Industries Co., Ltd. Such companies have
also 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.
12
The principal elements of competition in the subcontracted semiconductor
packaging market include: (1) breadth of package offering, (2) technical
competence, (3) new package design and implementation, (4) manufacturing yields,
(5) manufacturing cycle times, (6) customer service and (7) price. We believe
that we generally compete favorably with respect to each of these factors.
The subcontracted wafer fabrication business is also highly competitive.
Our wafer fabrication services compete primarily with other semiconductor wafer
fabrication subcontractors, 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. We also expect to compete with device manufacturers that provide
semiconductor wafer fabrication facility services for other semiconductor
companies, such as LG Semicon Co., Ltd., Hitachi, Ltd., Toshiba Corp. and
Winbond Electronics Corporation. Each of these semiconductor wafer foundries,
and many of these companies have also established relationships with many large
semiconductor companies that are current or potential customers of our company.
The principal elements of competition in the wafer fabrication facility
market include: (1) technical competence, (2) new semiconductor wafer design and
implementation, (3) manufacturing yields, (4) manufacturing cycle times, (5)
customer service and (6) price. As with the subcontracted semiconductor
packaging market, we believe that we generally compete favorably with respect to
each of these factors.
INTELLECTUAL PROPERTY
As of February 2002, we held 121 U.S. patents, and we had 257 pending
patents and we were preparing an additional 20 patent applications for filing.
In addition to the U.S. patents we held 440 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 also enter into agreements
with other developers of packaging technology to license or otherwise obtain
certain process or packaging technologies.
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 our company or ASI, our company or ASI could be required to: (1)
discontinue the use of certain processes, (2) cease the manufacture, use, import
and sale of infringing products, (3) pay substantial damages, (4) develop
non-infringing technologies or (5) 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.
EMPLOYEES
As of December 31, 2001, we had approximately 21,600 full-time employees.
Of these employees, 17,770 were engaged in manufacturing, 2,400 were engaged in
manufacturing support, 330 were engaged in research and development, 280 were
engaged in marketing and sales and 820 were engaged in finance, business
management and administration. We believe that our relations with our employees
are good. We have never experienced a work stoppage in any of our factories. Our
employees in the U.S., the Philippines, Taiwan and China are not represented by
a collective bargaining unit. Certain members of our factories in Korea and
Japan are members of a union, and all employees at these factories are subject
to collective bargaining agreements.
13
ITEM 2. PROPERTIES
We provide packaging and test services through our factories in Korea,
Philippines, Taiwan, China and Japan. We also source wafer fabrication services
from ASI's semiconductor wafer fabrication facility located in Korea pursuant to
a supply agreement. In addition, we have a research and development facility at
our Chandler, Arizona site.
We believe that total quality management is a vital component of our
advanced manufacturing capabilities. We have established a comprehensive quality
operating system designed to: (1) promote continuous improvements in our
products and (2) maximize manufacturing yields at high volume production without
sacrificing the highest quality standards. The majority of our factories are
ISO9001, ISO9002, ISO14001, QS9000 and SAC Level I certified. Additionally, as
we acquire or construct additional factories we commence the quality
certification process to meet the certification standards of our existing
facilities. We believe that many of our customers prefer to purchase from
quality certified suppliers. In addition to providing world-class manufacturing
services, our factories in the Philippines and Korea provide purchasing,
engineering and customer service support.
The size, location, and manufacturing services provided by each of our
company's and ASI's factories, are set forth in the table below.
APPROXIMATE
FACTORY SIZE
LOCATION (SQUARE FEET) SERVICES
-------- ------------- --------
OUR FACTORIES
KOREA
Seoul, Korea (K1) 670,000 Packaging services
Package and process development
Pucheon, Korea (K2) 271,000 Packaging services
Pupyong, Korea (K3) 428,000 Packaging and test services
Kwangju, Korea (K4) 779,000 Packaging and test services
PHILIPPINES
Muntinlupa, Philippines (P1) 547,000 Packaging and test services
Packaging and process development
Muntinlupa, Philippines (P2) 112,000 Packaging services
Province of Laguna, Philippines (P3) 406,000 Packaging and test services
Province of Laguna, Philippines (P4) 200,000 Test services
TAIWAN
Lung Tan, Taiwan (T1) 275,000 Packaging and test services
Linkou, Taiwan (T2) 80,000 Packaging services
CHINA
Shanghai, China 145,000 Packaging and test services
JAPAN
Kitakami, Japan 142,000 Packaging and test services
ASI'S FACTORY
Pucheon, Korea 480,000 Wafer fabrication services
Our operational headquarters is located in Chandler, Arizona, and our
administrative headquarters is located in West Chester, Pennsylvania. In
addition to an executive staff, the Chandler, Arizona campus houses: (1) sales
and customer service for the southwest region, (2) product management planning
and marketing and (3) a 121,000 square foot center for technical design and
research and development. The West Chester location houses finance and
accounting, legal, and information systems, and serves as a satellite sales
office for our eastern sales region.
14
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business we may be involved in legal proceedings
from time to time. As of the date of this annual report, there are no material
proceedings pending against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth fiscal quarter of the fiscal year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"AMKR." Public trading of the common stock began on May 1, 1998. Prior to that,
there was no public market for our common stock.
The following table sets forth, for the periods indicated, the high and low sale
price per share of our common stock as quoted on the Nasdaq National Market.
HIGH LOW
---- ---
2001
First Quarter..................................................... $ 23.6250 $ 14.6250
Second Quarter.................................................... 25.0000 14.8750
Third Quarter..................................................... 22.4800 10.5200
Fourth Quarter.................................................... 18.0200 9.4200
2000
First Quarter..................................................... $ 64.5625 $ 24.6875
Second Quarter.................................................... 61.6250 29.1875
Third Quarter..................................................... 38.8125 22.3750
Fourth Quarter.................................................... 26.3750 12.0000
There were approximately 379 holders of record as of February 28, 2002 of
our common stock.
DIVIDEND POLICY
We currently expect to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. In addition, our secured bank debt
agreements and the indentures governing our senior, senior subordinated and
convertible subordinated notes restrict our ability to pay dividends.
RECENT SALES OF UNREGISTERED SECURITIES
None.
15
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We have derived the selected historical consolidated financial data
presented below for, and as of the end of, each of the years in the five-year
period ended December 31, 2001 from our consolidated financial statements. You
should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes, included elsewhere in this annual report.
The summary consolidated financial data below reflects the following
transactions on a historical basis (i) our 1999 acquisition of K4 from ASI for
$582.0 million together with its related financing, (ii) our 2000 acquisitions
of K1, K2 and K3 from ASI for $950.0 million and equity investment in ASI of
$459.0 million together with the related financing for the acquisitions and
investment and (iii) our 2001 acquisitions of Amkor Iwate Corporation, Sampo
Semiconductor Corporation and Taiwan Semiconductor Technology Corporation (a
prior equity investment). We have presented the gains and losses from the
disposal of fixed assets as a separate line item above operating income.
Previously reported amounts have been reclassified from other (income) expense
to conform with the current presentation.
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net revenues................................................ $ 1,517,862 $ 2,387,294 $ 1,909,972
Cost of revenues--including purchases from ASI.............. 1,448,064 1,782,158 1,560,816
------------ ----------- ------------
Gross profit................................................ 69,798 605,136 349,156
------------ ----------- ------------
Operating expenses:
Selling, general and administrative....................... 200,218 192,623 144,538
Research and development.................................. 38,786 26,057 11,436
Loss (gain) on disposal of fixed assets................... 14,515 1,355 1,805
Amortization of goodwill and other acquired intangibles... 84,962 63,080 17,105
------------ ----------- ------------
Total operating expenses............................ 338,481 283,115 174,884
------------ ----------- ------------
Operating income (loss)..................................... (268,683) 322,021 174,272
------------ ----------- ------------
Other (income) expense:
Interest expense, net..................................... 164,064 119,840 45,364
Foreign currency (gain) loss.............................. 872 4,812 308
Other (income) expense, net (a)........................... (3,669) (60) 23,312
------------ ----------- ------------
Total other expense................................. 161,267 124,592 68,984
------------ ----------- ------------
Income (loss) before income taxes, equity in income
(loss) of investees and minority interest................. (429,950) 197,429 105,288
Provision (benefit) for income taxes(b)..................... (81,691) 22,285 26,600
Equity in income (loss) of investees (c).................... (100,706) (20,991) (1,969)
Minority interest (d)....................................... (1,896) -- --
------------ ----------- ------------
Net income (loss) (b)....................................... $ (450,861) $ 154,153 $ 76,719
============ =========== ============
Basic net income (loss) per common share.................... $ (2.87) $ 1.06 $ 0.64
=========== =========== ============
Diluted net income (loss) per common share.................. $ (2.87) $ 1.02 $ 0.63
=========== =========== ============
Pro Forma Data (Unaudited) (b):
Historical income before income taxes, equity in
income (loss) of ASI and minority interest................
Pro forma provision for income taxes........................
Pro forma income before equity in income (loss)
of investees and minority interest........................
Historical equity in income (loss) of investees.............
Historical minority interest................................
Pro forma net income........................................
Basic pro forma net income per common share.................
Diluted pro forma net income per common share...............
Shares used in computing basic pro forma net
income per common share................................... 157,111 145,806 119,341
Shares used in computing pro forma diluted net
income per common share................................... 157,111 153,223 135,067
OTHER FINANCIAL DATA:
Depreciation and amortization including debt issue costs.... $ 465,083 $ 332,909 $ 180,332
Capital expenditures........................................ 158,700 480,074 242,390
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net revenues................................................ $ 1,567,983 $ 1,455,761
Cost of revenues--including purchases from ASI.............. 1,307,150 1,242,669
-------------- -------------
Gross profit................................................ 260,833 213,092
-------------- -------------
Operating expenses:
Selling, general and administrative....................... 118,392 103,021
Research and development.................................. 8,251 8,525
Loss (gain) on disposal of fixed assets................... 1,837 (239)
Amortization of goodwill and other acquired intangibles... 1,454 705
-------------- -------------
Total operating expenses............................ 129,934 112,012
-------------- -------------
Operating income (loss)..................................... 130,899 101,080
-------------- -------------
Other (income) expense:
Interest expense, net..................................... 18,005 32,241
Foreign currency (gain) loss.............................. 4,493 (835)
Other (income) expense, net (a)........................... 7,666 8,668
-------------- -------------
Total other expense................................. 30,164 40,074
-------------- -------------
Income (loss) before income taxes, equity in income
(loss) of investees and minority interest................. 100,735 61,006
Provision (benefit) for income taxes(b)..................... 24,716 7,078
Equity in income (loss) of investees (c).................... -- (17,291)
Minority interest (d)....................................... (559) 6,644
-------------- -------------
Net income (loss) (b)....................................... $ 75,460 $ 43,281
============== =============
Basic net income (loss) per common share.................... $ 0.71 $ 0.52
============== =============
Diluted net income (loss) per common share.................. $ 0.70 $ 0.52
============== =============
Pro Forma Data (Unaudited) (b):
Historical income before income taxes, equity in
income (loss) of ASI and minority interest................ $ 100,735 $ 61,006
Pro forma provision for income taxes........................ 29,216 10,691
-------------- -------------
Pro forma income before equity in income (loss)
of investees and minority interest........................ 71,519 50,315
Historical equity in income (loss) of investees............. -- (17,291)
Historical minority interest................................ 559 (6,644)
-------------- -------------
Pro forma net income........................................ $ 70,960 $ 39,668
============== =============
Basic pro forma net income per common share................. $ 0.67 $ 0.48
============== =============
Diluted pro forma net income per common share............... $ 0.66 $ 0.48
============== =============
Shares used in computing basic pro forma net
income per common share................................... 106,221 82,610
Shares used in computing pro forma diluted net
income per common share................................... 116,596 82,610
OTHER FINANCIAL DATA:
Depreciation and amortization including debt issue costs.... $ 119,239 $ 81,864
Capital expenditures........................................ 107,889 178,990
16
DECEMBER 31,
------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 200,057 $ 93,517 $ 98,045 $ 227,587 $ 90,917
Short term investments........................... -- -- 136,595 1,000 2,521
Working capital (deficit)........................ 160,856 102,586 194,352 191,383 (38,219)
Total assets..................................... 3,223,318 3,393,284 1,755,089 1,003,597 855,592
Total long-term debt............................. 1,771,453 1,585,536 687,456 221,846 346,710
Total debt, including short-term borrowings and
current portion of long-term debt............. 1,826,268 1,659,122 693,921 260,503 514,027
Stockholders' equity............................. 1,008,717 1,314,834 737,741 490,361 90,875
(a) In 1999 we recognized a pre-tax loss of $17.4 million as a result of the
early conversion of $153.6 million principal amount of our 5 3/4%
convertible subordinate notes due 2003.
(b) Prior to our reorganization in April 1998, our predecessor, Amkor
Electronics, Inc. ("AEI"), elected to be taxed as an S Corporation under
the Internal Revenue Code of 1986 and comparable state tax laws. As a
result AEI did not recognize any provision for federal income tax expense
during the periods presented. The pro forma provision for income taxes
reflects the U.S. federal income taxes that would have been recorded if AEI
had been a C Corporation during these periods.
(c) In 1997, we recognized a loss of $17.3 million resulting principally from
the impairment of value of our prior investment in ASI, which we sold in
February 1998.
(d) In 2001, minority interest reflects Toshiba's 40% ownership interest in
Amkor Iwate in Japan as well as shares that we did not acquire in
connection with our two acquisitions in Taiwan. In 1997, minority interest
reflects ASI's 40% interest in the earnings of Amkor/Anam Pilipinas, Inc.
("AAP"), one of our subsidiaries in the Philippines. We purchased ASI's
interest in AAP with a portion of the proceeds from our initial public
offering in May 1998.
17
ITEM 7. 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, including but not limited to statements
regarding: (1) the anticipated trends in and condition of the semiconductor
industry, (2) the anticipated growth in the market for our products, (3) our
anticipated capital expenditures and financing needs, (4) our expected capacity
utilization rates, (5) our belief as to our future operating performance, (6)
statements regarding the future of our relationship with ASI and (7) other
statements that are not historical facts. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable
terminology. 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" and "Business." The following discussion provides
information and analysis of our results of operations for the three years ended
December 31, 2001 and our liquidity and capital resources. You should read the
following discussion in conjunction with "Selected Historical Consolidated
Financial Data" and our consolidated financial statements and the related notes,
included elsewhere in this annual report.
Amkor is the world's largest subcontractor of semiconductor packaging and
test services. The company has built a leading position through:
- one of the industry's broadest offerings of packaging and test
services,
- expertise in the development and implementation of packaging and test
technology,
- long-standing relationships with customers, including many of the
world's leading semiconductor companies, and
- expertise in high-volume manufacturing.
We also market the output of fabricated semiconductor wafers provided by a
wafer fabrication foundry owned and operated by Anam Semiconductor, Inc. (ASI).
The semiconductors that we package and test for our customers ultimately become
components in electric systems used in communications, computing, consumer,
industrial, automotive and military applications. Our customers include, among
others, Agere Systems, Inc., Atmel Corporation, Intel Corporation, LSI Logic
Corporation, Motorola, Inc., Philips Electronics N.V., ST Microelectronics PTE,
Sony Semiconductor Corporation, Texas Instruments, Inc. and Toshiba Corporation.
The outsourced semiconductor packaging and test market is very competitive. We
also compete from time to time with many of our vertically integrated customers,
who may decide to outsource or not outsource certain of their packaging and test
requirements.
Our business is tied to market conditions in the semiconductor industry,
which is highly cyclical. Based on industry estimates, from 1978 through 2001,
there were 11 years when semiconductor industry growth was 10% or less and 13
years when growth was 19% or greater. The historical trends in the semiconductor
industry are not necessarily indicative of the results of any future period. The
strength of the semiconductor industry is dependent primarily upon the strength
of the computer and communications systems markets. Since 1970, the
semiconductor industry declined in 1975, 1985, 1996, 1998 and most recently
beginning in the fourth quarter of 2000 and continuing through 2001. The
weakness in the semiconductor industry caused an estimated decline of 32% for
2001. Industry analysts are forecasting little or no growth for 2002. 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. Although we have noted
some recent improvement in our customers' forecasted demand, 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
recovery of the semiconductor industry. The weaker demand is expected to
continue to adversely impact our results into 2002, however, we expect to return
to profitability in 2002.
During the current industry downturn, our business strategy has been to
move forward with geographic diversification, invest in next-generation
technology, and enhance our financial flexibility. We commenced operations in
Japan in connection with our venture with Toshiba, constructed an assembly and
test facility in China and consummated two acquisitions in Taiwan.
18
We continue to evaluate additional acquisition and investment opportunities.
Although we have significantly reduced our capital expenditure plans, we are
committed to investing in new technologies primarily to support the development
of our Flip Chip, System-in-Package and high-end BGA capabilities. We raised
$500.0 million of 9.25% senior notes due 2008 and $250.0 million of 5.75%
convertible subordinated notes due 2006. Of the combined net proceeds of $733.0
million, we used $509.5 million to repay amortizing term loans. The balance of
the net proceeds supports our expansion efforts and general corporate and
working capital purposes. During November 2001 we used $125 million of our cash
to prepay amounts outstanding under our Term B loans. Our cash and cash
equivalent balance as of December 31, 2001 was $200.1 million.
During the second half of the year ended December 31, 2000, we
significantly increased our operating costs to service the demand we were
experiencing and expecting. Beginning in 2001, we implemented numerous cost
reduction initiatives as a significant part of our financial strategy to
partially mitigate the impact of the industry downturn on our results of
operations and cash flows. Our cost reduction efforts included reducing our
worldwide headcount, reducing compensation levels, shortening work schedules,
improving factory efficiencies, negotiating cost reductions with our vendors and
closing non-critical manufacturing support facilities. We reduced our headcount
in the Philippines and Korea by over 3,000 employees or 14% from the employment
levels at December 31, 2000. Labor costs in the Philippines and Korea were
reduced by $14.8 million or 27% for the three months ended December 31, 2001 as
compared with the three months ended December 31, 2000. We reduced our
administrative headcount, excluding the effects of acquisitions, by 22% from the
employment levels at December 31, 2000. Additionally, we estimate that for the
three months ended December 31, 2001 we reduced our U.S. based administrative
overhead by an estimated $9 million as compared with the three months December
31, 2000.
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 adversely affected the demand
for the wafer output from ASI's foundry. Beginning in the fourth quarter of 2000
and throughout 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 2001 decreased 52.8% as
compared with 2000. Although we have noted significant recent improvement in our
customers' forecasted demand, we expect our wafer fabrication services results
and ASI's operating results will continue to be adversely impacted into 2002,
however, recovery is expected by the end of 2002. ASI's results also impact us
through our recording of our share of their results in accordance with the
equity method of accounting.
OVERVIEW OF OUR HISTORICAL RESULTS
Our Historical Relationship with ASI and the Financial Impact of Our Acquisition
of K1, K2 and K3 and Investment in ASI on Our Results of Operations
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 the fourth quarter of
1998 ASI's business had been severely affected by the economic crisis in Korea.
ASI was part of the Korean financial restructuring program known as the
"Workout" program beginning in October 1998. The Workout program was the result
of an accord among Korean financial institutions to assist in the restructuring
of Korean business enterprises. The process involved negotiation between the
related banks and ASI, and did not involve the judicial system. The Workout
process restructured the terms of ASI's significant bank debt. Although ASI's
operations continued uninterrupted during the process, it caused concern among
our customers should the company lose access to ASI's services. As a result, we
decided to acquire ASI's packaging and test operations to ensure continued
access to the manufacturing services previously provided by ASI. During the
course of negotiations for the purchase of the packaging and test operations,
both ASI management and the bank group presented a counter-proposal whereby, in
addition to the purchase of the packaging and test operations, we would also
make an equity investment in ASI. The bank group and ASI management proposed
this structure because they believed the equity investment would reflect a level
of commitment from us to continue our ongoing business relationship with ASI
after the sale of its packaging and test operations to Amkor.
19
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 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. In May 2000 we made a commitment to a $459.0 million
equity investment in ASI, and fulfilled this commitment in installments taking
place over the course of 2000. In connection with the May 2000 transactions with
ASI, we obtained independent appraisals to support the value and purchase price
of the each the packaging and test operations and the equity investment. As of
December 31, 2001, we had invested a total of $500.6 million in ASI including an
equity investment of $41.6 million made in October 1999. We owned as of December
31, 2001 42% of the outstanding voting stock of ASI and report ASI's results in
our financial statements through the equity method of accounting.
There was not a significant change in our revenues as a result of the
acquisitions, because we historically sold substantially all of the output of
those facilities. Our gross margins on sales of services performed by ASI were
set in accordance with supply agreements with ASI and were generally lower than
our gross margins of services performed by our factories in the Philippines.
Effective with our May 2000 acquisition of K1, K2 and K3, we no longer pay
service charges to ASI for packaging and test services. Our gross margins were
favorably impacted by the termination of the supply agreement, but such
favorable impact was partially offset by the additional operating costs that
were previously borne by ASI and the amortization of goodwill and acquired
intangibles.
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.
Financial Impact of Our 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
principally to Toshiba's Iwate factory under a long-term supply agreement
terminating two years subsequent to our acquisition of Toshiba's ownership
interest in Amkor Iwate. 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 venture during the three-year period but cannot be less than 1 billion
Japanese yen and cannot exceed 4 billion Japanese yen ($7.6 million to $30.4
million based on the spot exchange rate at December 31, 2001).
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. Gross margins as a percentage of net revenues 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. Interest expense increased as a
result of the debt incurred to finance the purchase of the packaging and test
assets from Toshiba.
Financial Impact of Our Acquisitions of Taiwan Semiconductor Technology
Corporation and Sampo Semiconductor Corporation
In July 2001, we acquired, in separate transactions, Taiwan Semiconductor
Technology Corporation (TSTC) and Sampo Semiconductor Corporation (SSC) in
Taiwan. The results of TSTC and Sampo have been included in the accompanying
consolidated financial statements since the acquisition dates. Our results of
operations were not significantly impacted by these acquisitions. In accordance
with the new accounting standards related to purchase business combinations and
goodwill, we recorded intangible assets, principally goodwill, of $23.8 million
as of the acquisition date that is nonamortizable.
20
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999
---- ---- ----
Net revenues..................................... 100.0% 100.0% 100.0%
Gross profit..................................... 4.6 25.3 18.3
Operating income (loss).......................... (17.7) 13.5 9.1
Income (loss) before income taxes, equity in
income (loss) of investees and
minority interest.............................. (28.3) 8.3 5.5
Net income (loss)................................ (29.7) 6.5 4.0
Year ended December 31, 2001 Compared to Year ended December 31, 2000
Net Revenues. Net revenues decreased $869.4 million, or 36.4%, to $1,517.9
million in 2001 from $2,387.3 million in 2000. Packaging and test net revenues
decreased 33.5% to $1,336.7 million in 2001 from $2,009.7 million in 2000. Wafer
fabrication net revenues decreased 52.0% to $181.2 million in 2001 from $377.6
million in 2000.
The decrease in packaging and test net revenues, excluding the impact of
acquisitions, was primarily attributable to a 37.3% decrease in overall unit
volumes in 2001 compared to 2000. This overall unit volume decrease was driven
by a 34.6% unit volume decrease for advanced leadframe and laminate packages and
a 39.4% decrease in our traditional leadframe business as a result of a broad
based decrease in demand for semiconductors. Average selling prices across all
product lines eroded by approximately 13.9% for 2001 as compared to 2000.
Partially offsetting the decrease in overall unit volumes and average selling
price erosion was the benefit of $231.0 million in net revenues related to
acquisitions which were completed since January 1, 2001.
The decrease in wafer fabrication net revenues was primarily attributed to
a 52.8% decrease in sales to Texas Instruments in 2001 as compared with 2000.
Texas Instruments' demand for our services declined as a result of the
utilization of excess inventory supply and a decline in end market demand for
cellular phones.
Gross Profit. Gross profit decreased $535.3 million, or 88.5%, to $69.8
million in 2001 from $605.1 in 2000. Our cost of revenues consists principally
of costs of materials, labor and depreciation. Because a substantial portion of
our costs at our factories is fixed, significant increases or decreases in
capacity utilization rates have a significant effect on our gross profit. As a
result of our May 2000 acquisition of K1, K2 and K3 and our 2001 acquisitions in
Japan and Taiwan, we substantially increased our fixed costs.
Gross margins as a percentage of net revenues decreased 81.8% to 4.6% of net
revenues in 2001 as compared to 25.3% of net revenues in 2000 principally as a
result the following:
- Decreasing unit volumes in 2001 at our factories in Korea and the
Philippines that caused an approximate 41% decline in gross margins as a
result of the factories' substantial fixed and labor costs to be
distributed over a smaller revenue base. This decline in gross margins is
net of the benefit of our 2001 cost reduction initiatives to reduce labor
and other factory overhead costs.
- Average selling price erosion across our product lines caused an estimated
39% decline in gross margins.
- Our acquisitions in 2001 contributed approximately 10% to the decline in
gross margin. This is principally attributed to the long-term supply
agreement between Amkor Iwate and Toshiba, which provides for packaging and
test services to be performed on a cost plus basis which produces a
resulting gross margin less than our historical margins in 2000.
- The negative impacts on gross margins were partially offset by the benefit
of stable gross margins with respect to our wafer fabrication services as
compared to 2000.
21
As a result of the decline in the semiconductor industry and the
reductions of our customers' forecasted demand, our provision for excess and
obsolete inventory increased $7.9 million to a total provision of $17.9 million
in 2001 as compared to $10.0 million in 2000. During 2001, we wrote-off and
contemporaneously disposed of $10.6 million of inventory. In general we order
raw materials based on the customers' forecasted demand and we do not maintain
any finished goods inventory. If our customers change their forecasted
requirements and we are unable to cancel our raw materials order or if our
vendors require that we order a minimum quantity that exceeds the current
forecasted demand, we will experience a build-up in raw material inventory. We
will either seek to recover the cost of the materials from our customers or
utilize the inventory in production. However, we may not be successful in
recovering the cost from our customers or being able to use the inventory in
production, which we would consider as part of our reserve estimate. Our reserve
for excess and obsolete inventory is based on forecasted demand we receive from
our customers. When a determination is made that the inventory will not be
utilized in production it is written-off and disposed.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.6 million, or 3.9%, to $200.2 million, or
13.2% of net revenues, in 2001 from $192.6 million, or 8.1% of net revenues, in
2000. The increase in these costs was due to:
- Increased costs of $16.0 million related to the acquisitions in Japan
and Taiwan, the commencement of operations in China and the increased
staffing of our Japanese sales force;
- An overall decrease of $6.6 million in our factories in Korea and the
Philippines as a result of our cost reduction initiatives in the first
and second quarters of 2001 that were partially offset by the
increased selling, general and administrative costs assumed in
connection our May 2000 acquisition of K1, K2 and K3; and
- Decreased costs of $1.8 million principally related our U.S. based
administrative overhead cost reduction initiatives in the first and
second quarters of 2001.
Research and Development. Research and development expenses increased
$12.7 million to $38.8 million, or 2.6% of net revenues, in 2001 from $26.1
million, or 1.1% of net revenues, in 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 package, 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 $21.9 million to $85.0 million
from $63.1 million in 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.
Loss on Disposal of Fixed Assets. Loss on disposal of fixed assets
increased $13.1 million to $14.5 million from $1.4 million in 2000 principally
as a result of the disposition of production equipment and construction
materials in Korea.
Other (Income) Expense. Other expenses, net increased $36.8 million, to
$161.3 million, or 10.8% of net revenues, in 2001 from $124.5 million, or 5.2%
of net revenues, in 2000. The net increase in other expenses was primarily a
result of a net increase in interest expense of $44.3 million. The increased
interest expense resulted from the financing related to our May 2000 acquisition
of K1, K2 and K3 and our investment in ASI and our 2001 financing activities
which are more fully detailed in our discussion of "Liquidity and Capital
Resources." Net interest expense for 2001 also included $13.4 million of
unamortized deferred debt issuance costs expensed in connection with the
repayment in February, May and November 2001 of term loans outstanding under our
secured bank facility and the reduction of the revolving line of credit
commitment. Other expenses were favorably impacted by a change in foreign
currency gains and losses of $3.9 million for 2001 as compared with the
corresponding period in the prior year.
Provision (Benefit) for Income Taxes. Our effective tax rate in 2001 and
2000 was (19.0%) and 11.3%, respectively. The change in the effective tax rate
in 2001 was due to operating losses in jurisdictions for which there is no
offsetting tax benefit from tax holidays as well as operating losses in
jurisdictions with higher corporate income tax rates. The tax returns for open
22
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 losses in
our equity affiliates, principally ASI, in 2001 of $65.2 million compared to our
share of their income in 2000 of $3.9 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 $35.5 million and $24.9 million in 2001 and 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.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenues. Net revenues increased $477.3 million, or 25.0%, to $2,387.3
million in 2000 from $1,910.0 million in 1999. Packaging and test net revenues
increased 24.3% to $2,009.7 million in 2000 from $1,617.2 million in 1999. Wafer
fabrication net revenues increased to $377.6 million in 2000 from $292.7 million
in 1999.
The increase in packaging and test net revenues was primarily attributable
to a significant increase in unit volumes. Overall unit volume increased
approximately 30.3% in 2000 compared to 1999. This overall unit volume increase
was driven by a 30.2% unit volume increase for advanced and laminate packages as
a result of a broad based demand for such packages. Unit volumes in our
traditional lead frame business increased 20.0%. In addition, changes in the mix
of products we are selling, to more advanced and laminate packages, also
provided an offset to overall price erosion. Offsetting the growth in unit
volumes and favorable changes in product mix was an erosion of the average
selling prices across all product lines of approximately 7% for 2000 as compared
to 1999. In addition, we believe revenues for the first half of 2000 were
adversely effected by advanced wafer capacity limitations at some of our
customer locations, a wafer production shift by one of our largest customers and
the loss of business in our P3 factory due to a laminate contamination issue all
of which occurred in the second quarter of 2000.
The increase in wafer fabrication net revenues represents the expanded
capacity of ASI's wafer fabrication facility from 18,000 wafers per month at the
end of 1999 to 26,600 wafers per month by the end of 2000. The capacity
utilization of ASI's wafer foundry was approximately 47% in December 2000 as
compared with a capacity utilization of approximately 89% for all of 2000.
Gross Profit. Gross profit increased $256.0 million, or 73.3%, to $605.1
million, or 25.3% of net revenues, in 2000 from $349.2 million, or 18.3% of net
revenues, in 1999.
Gross margins were positively impacted by:
- Increasing unit volumes in 2000, which permitted better absorption of
our factories' substantial fixed costs, resulting in a lower
manufacturing cost per unit and improved gross margins; and
- Improved gross margin on revenues from the output of K1, K2 and K3
following our acquisition in May 2000 and the benefit of a full year
of improved margin on revenues from the output of K4 following our May
1999 acquisition of K4.
The positive impact on gross margins was partially offset by:
- Average selling price erosion across our product lines; and
- Significant levels of capacity expansion and new product line
introductions in the Philippines and Korea that have a tendency to
lower the gross margins until a base level of customers are qualified.
23
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $48.1 million, or 33.3%, to $192.6 million, or
8.1% of net revenues, in 2000 from $144.5 million, or 7.6% of net revenues, in
1999. 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 as well as the assumption
of a full year or such expenses for K4 which was acquired in May 1999;
and
- Increased headcount and related personnel costs within our sales,
engineering support and System-in-Package groups.
Research and Development. Research and development expenses increased
$14.6 million to $26.1 million, or 1.1% of net revenues, in 2000 from $11.4
million, or 0.6% of net revenues, in 1999. Increased research and development
expenses resulted from increased headcount and general development activities,
primarily the expansion of our Chandler, Arizona-based research facility and 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 $46.0 million to $63.1 million
from $17.1 million in 1999. Increased amortization expense is a result of our
May 2000 acquisition of K1, K2 and K3.
Other (Income) Expense. Other expenses increased $55.6 million, to $124.6
million, or 5.2% of net revenues, in 2000 from $69.0 million, or 3.6% of net
revenues, in 1999. The net increase in other expenses was primarily a result of
an increase in interest expense of $74.5 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
the revolving credit line to fund our May 2000 acquisition of K1, K2 and K3 and
our investment in ASI. Additionally, the increased interest expense resulted
from having a full year of interest expense in 2000 related to the May 1999
issuance of senior and senior subordinated notes to fund the K4 acquisition.
During the fourth quarter of 1999 and continuing into 2000, we completed an
early conversion of a portion of the debt outstanding under the 5.75%
convertible subordinated notes due May 2003. Other expenses in 2000 and 1999
included a $0.3 million and $17.4 million non-cash charge, respectively,
associated with the early conversion of that debt. Other expenses were favorably
impacted by a savings of $3.1 million in accounts receivable securitization
charges as a result of the termination of the agreement at the end of March
2000.
Income Taxes. Our effective tax rate in 2000 and 1999 was 11.3% and 25.3%,
respectively. The decrease in the effective tax rate in 2000 was due to the
higher operating profits at 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 equity in income of ASI
in 2000 and 1999 of $4.9 million and $0.5 million, respectively, excluding the
amortization of the excess of the cost of our investment above of our share of
the underlying net assets of $24.9 million and $2.2 million in 2000 and 1999,
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.
QUARTERLY RESULTS
The following table sets forth our unaudited consolidated financial data,
including as a percentage of our net revenues, for the last eight fiscal
quarters ended December 31, 2001. Our results of operations have varied and may
continue to vary from quarter to quarter and are not necessarily indicative of
the results of any future period. The results of the 2001 acquisitions of Amkor
Iwate Corporation, Sampo Semiconductor Corporation and the consolidated results
of Taiwan Semiconductor Technology Corporation (a prior equity investment) are
included in the consolidated financial data from the
24
date of the acquisitions. Also, the results of K1, K2 and K3 packaging and test
factories acquired from ASI in May 2000 are included in the consolidated
financial data from the date of the acquisition.
We believe that we have included in the amounts stated below all necessary
adjustments, consisting only of normal recurring adjustments, for a fair
presentation of our selected quarterly data. You should read our selected
quarterly data in conjunction with our consolidated financial statements and the
related notes, included elsewhere in this annual report.
Our net revenues, gross profit and operating income are generally lower in
the first quarter of the year as compared to the fourth quarter of the preceding
year primarily due to the combined effect of holidays in the U.S. and Asia.
Semiconductor companies in the U.S. generally reduce their production during the
holidays at the end of December which results in a significant decrease in
orders for packaging and test services during the first two weeks of January. In
addition, we typically close our factories in the Philippines for holidays in
January, and we and ASI close our factories in Korea for holidays in February.
We have presented the gains and losses from the disposal of fixed assets
as a separate line item above operating income. Previously reported amounts have
been reclassified from other (income) expense to conform with the current
presentation.
QUARTER ENDED
-------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
2001 2001 2001 2001
---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net revenues................................... $ 352,354 $ 334,716 $ 350,169 $480,623
Cost of revenues--including
purchases from ASI........................... 360,713 346,355 342,158 398,838
--------- --------- --------- --------
Gross profit.............................. (8,359) (11,639) 8,011 81,785
--------- --------- --------- --------
Operating expenses:
Selling, general and administrative.......... 47,012 47,847 51,365 53,994
Research and development..................... 10,365 9,784 8,135 10,502
Loss on disposal of assets................... 9,861 3,132 398 1,124
Amortization of goodwill and other acquired
intangibles............................... 21,263 21,214 20,573 21,912
--------- --------- --------- --------
Total operating expenses................ 88,501 81,977 80,471 87,532
--------- --------- --------- --------
Operating income (loss)........................ $ (96,860) $ (93,616) $ (72,460) $ (5,747)
========= ========= ========= ========
Net income (loss).............................. $(136,612) $(128,744) $(116,291) $(69,214)
========= ========= ========= ========
Basic net income (loss) per common share....... $ (0.85) $ (0.80) $ (0.76) $ (0.45)
========= ========= ========= ========
Diluted net income (loss) per common share..... $ (0.85) $ (0.80) $ (0.76) $ (0.45)
========= ========= ========= ========
QUARTER ENDED
-------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
2000 2000 2000 2000
---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net revenues................................... $636,871 $ 648,576 $ 547,036 $ 554,811
Cost of revenues--including
purchases from ASI........................... 465,419 469,518 407,441 439,780
-------- ---------- ---------- ----------
Gross profit.............................. 171,452 179,058 139,595 115,031
-------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative.......... 53,759 50,083 46,884 41,897
Research and development..................... 8,976 8,838 4,872 3,371
Loss on disposal of assets................... -- 343 665 347
Amortization of goodwill and other acquired
intangibles............................... 20,925 20,353 15,440 6,362
-------- ---------- ---------- ----------
Total operating expenses................ 83,660 79,617 67,861 51,977
-------- ---------- ---------- ----------
Operating income (loss)........................ $ 87,792 $ 99,441 $ 71,734 $ 63,054
======== ========== ========== ==========
Net income (loss).............................. $ 40,890 $ 45,171 $ 30,936 $ 37,156
======== ========== ========== ==========
Basic net income (loss) per common share....... $ 0.27 $ 0.30 $ 0.21 $ 0.28
======== ========== ========== ==========
Diluted net income (loss) per common share..... $ 0.26 $ 0.28 $ 0.20 $ 0.27
======== ========== ========== ==========
QUARTER ENDED
-------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
2001 2001 2001 2001
---- ---- ---- ----
Net revenues................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues -- including purchases from ASI 102.4 103.5 97.7 83.0
------- ------ ------- -------
Gross profit.............................. (2.4) (3.5) 2.3 17.0
------- ------ ------- -------
Operating expenses:
Selling, general and administrative.......... 13.3 14.3 14.7 11.2
Research and development..................... 2.9 2.9 2.3 2.2
Loss on disposal of assets................... 2.8 0.9 0.1 0.2
Amortization of goodwill and other acquired
intangibles............................... 6.1 6.4 5.9 4.6
------- ------ ------- -------
Total operating expenses................ 25.1 24.5 23.0 18.2
------- ------ ------- -------
Operating income (loss)........................ (27.5)% (28.0)% (20.7)% (1.2)%
======= ====== ======= =======
Net income (loss).............................. (38.8)% (38.5)% (33.2)% (14.4)%
======= ====== ======= =======
QUARTER ENDED
-------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
2000 2000 2000 2000
---- ---- ---- ----
Net revenues................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues -- including purchases from ASI 73.1 72.4 74.5 79.3
------- ------- ------- -------
Gross profit.............................. 26.9 27.6 25.5 20.7
------- ------- ------- -------
Operating expenses:
Selling, general and administrative.......... 8.4 7.7 8.6 7.6
Research and development..................... 1.4 1.4 0.9 0.6
Loss on disposal of assets................... -- 0.1 0.1 0.1
Amortization of goodwill and other acquired
intangibles............................... 3.3 3.1 2.8 1.0
------- ------- ------- -------
Total operating expenses................ 13.1 12.3 12.4 9.3
------- ------- ------- -------
Operating income (loss)........................ 13.8% 15.3% 13.1% 11.4%
======= ======= ======= =======
Net income (loss).............................. 6.4% 7.0% 5.7% 6.7%
======= ======= ======= =======
LIQUIDITY AND CAPITAL RESOURCES
The continued weakness in demand in 2001 for packaging, test and wafer
fabrication services adversely affected our results and cash flows from
operations. Although we have noted a modest improvement in our customers'
forecasted demand, we expect that our results and cash flows from operations
will continue to be adversely impacted into 2002, however, we expect to return
to profitability in 2002. We have undertaken, and may continue to undertake, a
variety of
25
measures to reduce our operating costs including reducing our worldwide
headcount, reducing compensation levels, shortening work schedules, improving
factory efficiencies, negotiating cost reductions with our vendors and closing
non-critical manufacturing facilities. Our ongoing primary cash needs are for
debt service, principally interest, equipment purchases, and working capital.
Additionally, we may require cash to consummate business combinations to
diversify our geographic operations and expand our customer base.
As a result of the adverse impact on our cash flows caused by the decline
in demand for our products and services, net cash provided by operating
activities for the three months ended March 31, 2001, June 30, 2001, September
30, 2001 and December 31, 2001 were $73.2 million, $61.0 million, $16.2 million
and $10.1 million, respectively. Comparatively, the net cash provided by
operating activities for the three months ended March 31, 2000, June 30, 2000,
September 30, 2000 and December 31, 2000 were $70.1 million, $89.1 million,
$120.8 million and $93.8 million, respectively. Net cash used in investing
activities during the year ended December 31, 2001 and 2000 was $168.2 million
and $1,744.3 million, respectively. Net cash provided by financing activities
during the year ended December 31, 2001 and 2000 was $114.7 million and $1,365.9
million, respectively. Cash and cash equivalents balance as of December 31, 2001
was $200.1 million, and we have $100 million available from our revolving line
of credit.
The reduced levels of operating cash flow required us to renegotiate our
existing bank debt covenants. In March 2001, June 2001 and September 2001, we
amended the financial covenants associated with the secured bank facilities. In
connection with the September 2001 amendment, the revolving line of credit was
reduced from a $200 million commitment to $100 million, the interest rate on the
Term B loans was increased from LIBOR plus 3% to LIBOR plus 4% and we prepaid
$125 million of the Term B loans in November 2001 from cash on hand. If the
weakness in the semiconductor industry and for our services continues, we can
not give assurance that we will be able to remain in compliance with our
financial covenants. In the event of default, we may not be able to cure the
default or obtain a waiver, and our operations could be significantly disrupted
and harmed. In general, 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.
During this industry downturn, our business strategy has been in part to
enhance our financial flexibility. We raised $500.0 million of 9.25% senior
notes due 2008 and $250.0 million of 5.75% convertible subordinated notes due
2006. Of the combined net proceeds of $733.0 million, we used $509.5 million to
repay amortizing term loans. The balance of the net proceeds supports our
expansion efforts and general corporate and working capital purposes. In May
2001 holders of the 5.75% convertible subordinated notes due May 2003, as a
result of our intent to redeem, converted $50.2 million of their notes into 3.7
million shares of our common stock. We now have, and for the foreseeable future
will continue to have, a significant amount of indebtedness. As of December 31,
2001, we had a total of $1,826.3 million debt and had available to us a $100.0
million revolving line of credit under which no amounts were drawn. Our
indebtedness requires us to dedicate a substantial portion of our cash flow from
operations to service payments on our debt principally interest. For the year
ended December 31, 2001, interest expense payable in cash was $152.1 million.
As a result of the current business conditions, we have significantly
reduced our capital expenditure plans. We expect to spend up to $100.0 million
in total capital expenditures in 2002 primarily to support the development of
our Flip Chip, System-in-Package and high-end BGA capabilities. Our secured bank
facility restricts our future capital expenditures to $25.0 million per quarter
for five quarters beginning with the quarter ending December 31, 2001. During
the year ended December 31, 2001, 2000 and 1999, we made capital expenditures of
$158.7 million, $480.1 million and $242.4 million, respectively.
Our business strategy during the current industry downturn and previously
has been to diversify our operations geographically. In July 2001, we acquired,
in separate transactions, Taiwan Semiconductor Technology Corporation (TSTC) and
Sampo Semiconductor Corporation (SSC) in Taiwan. The combined purchase price was
paid with the issuance of 4.9 million shares of our common stock valued at $87.9
million, the assumption of $34.8 million of debt and $3.7 million of cash
consideration, net of acquired cash. In connection with earn-out provisions that
provided for additional purchase price based in part on the results of the
acquisitions, we issued an additional 1.8 million shares in January 2002. In
January 2001, Amkor Iwate Corporation commenced operations and acquired from
Toshiba a packaging and test facility located in the Iwate prefecture in Japan
financed by a short-term note payable to Toshiba of $21.1 million and $47.0
million in other financing from a Toshiba
26
affiliate. We currently own 60% of Amkor Iwate and Toshiba owns 40% of the
outstanding shares which within three years we are required to purchase. 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 ($7.6 million to $30.4 million
based on the spot exchange rate at December 31, 2001). 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.
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.
A summary of our contractual commitments as of December 31, 2001 are as
follows:
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------
LESS THAN 1 - 3 4 - 5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Total debt, including capital lease obligations.... $ 1,826,268 $ 54,815 $ 90,609 $ 719,913 $ 960,931
Operating lease obligations........................ 116,189 18,137 22,547 14,635 60,870
--------------- ------------- ------------- ------------- -------------
Total contractual obligations...................... $ 1,942,457 $ 72,952 $ 113,156 $ 734,548 $ 1,021,801
=============== ============= ============= ============= =============
We have a $100.0 million revolving line of credit through March 2005 of
which the entire balance was available as of December 31, 2001. In addition, as
stated above, we are required to purchased Toshiba's ownership interest in Amkor
Iwate by January 1, 2004 at a purchase price that 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 ($7.6
million to $30.4 million based on the spot exchange rate at December 31, 2001).
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. We have identified the policies below as critical to our
business operations and the understanding of our results of operations. A
summary of our significant accounting policies used in the preparation of our
consolidated financial statements appears in Note 1 of the notes to the
consolidated financial statements. Our preparation of this annual report on Form
10-K requires us to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our financial statements and the reported amounts of
revenue and expenses during the reporting period. There can be no assurance that
actual results will not differ from those estimates.
Revenue Recognition and Risk of Loss. Revenues from packaging semiconductors and
performing test services are recognized upon shipment or completion of the
services. Our company does not take ownership of customer-supplied semiconductor
wafers. Title and risk of loss remains with the customer for these materials at
all times. Accordingly, the cost of the customer-supplied materials is not
included in the consolidated financial statements. We record wafer fabrication
services revenues upon shipment of completed wafers. Such policies are
consistent with provisions in the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
Provision for Income Taxes. We operate in and file income tax returns in various
U.S. and non-U.S. jurisdictions, which are subject to examination by tax
authorities. Our tax returns have been examined through 1994 in the Philippines
and through 1996 in the U.S. The tax returns for open years in all jurisdictions
in which we do business are subject to changes upon examination. We believe that
we have provided adequate accruals for additional taxes and related interest
expense that may ultimately result from examinations. In addition, changes in
the mix of income from our foreign subsidiaries, expiration of tax holidays and
changes in tax laws or regulations could result in increased effective tax rates
in the future.
27
Additionally, we record the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts reported
in the accompanying consolidated balance sheets, as well as operating loss and
tax credit carryforwards. The carrying value of our net deferred tax assets
assumes that we will be able to generate sufficient future taxable income in
certain tax jurisdictions, based on estimates and assumptions. If these
estimates and related assumptions change in the future, we may be required to
increase our valuation allowance.
Valuation of Long-Lived Assets. We assess the carrying value of long-lived
assets which includes property, plant and equipment, intangible assets and
goodwill whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors we consider important which could trigger
an impairment review include the following:
- significant under-performance relative to expected historical or
projected future operating results;
- significant changes in the manner of our use of the asset;
- significant negative industry or economic trends; and
- our market capitalization relative to net book value.
Upon the existence of one or more of the above indicators of impairment,
we would test such assets for a potential impairment. The carrying value of a
long-lived asset is considered impaired when the anticipated cash flows are less
than the asset's carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we will
cease amortization of goodwill. In lieu of amortization, we are required to
perform an initial impairment review of our goodwill in 2002 and an annual
impairment review thereafter. We currently do not expect to record an impairment
charge upon completion of the initial impairment review. However, there can be
no assurance that at the time the review is completed a material impairment
charge will not be recorded
Evaluation of Equity Investments. We evaluate our investments for impairment due
to declines in market value that are considered other than temporary. Such
evaluation includes an assessment of general economic and company-specific
considerations such as, customer forecasts and regularly updated projections of
ASI operating results. In the event of a determination that a decline in market
value is other than temporary, a charge to earnings is recorded for the
unrealized loss, and a new cost basis in the investment is established.
The stock prices of semiconductor companies' stocks, including ASI and its
competitors, have experienced significant volatility during 2000 and 2001. The
recent weakness in the semiconductor industry has affected the demand for the
wafer output from ASI's foundry and the market value of ASI's stock as traded on
the Korea Stock Exchange. The carrying value of our investment in ASI was $377.9
million and $478.9 million as of December 31, 2001 and 2000, respectively. The
market value of our investment in ASI, based on ASI's closing share price, was
$204.5 million and $110.5 million as of December 31, 2001 and 2000,
respectively. The carrying amount of our investment in ASI reflects our
long-term outlook for the foundry industry. We have concluded that the decline
in market value of our investment in ASI is temporary based on the expected
future performance of ASI and the recovery of the semiconductor industry. As the
semiconductor industry begins to recover in 2002, we expect that ASI's share
price will also recover. Should ASI stock price fail to perform in line with
other comparable companies in its industry, it could be expected that we would
record an impairment charge. Such assessment could be made as early as the first
quarter of 2002. We remain committed to our long-term strategic relationship
with ASI and continue to explore opportunities to maximize the value of that
investment. We will continue to monitor industry conditions and assess the
carrying value of this investment.
Valuation of Inventory. In general we order raw materials based on the customers
forecasted demand and we do not maintain any finished goods inventory. If our
customers change their forecasted requirements and we are unable to cancel our
raw materials order or if our vendors require that we order a minimum quantity
that exceeds the current forecasted demand, we will experience a build-up in raw
material inventory. We will either seek to recover the cost of the materials
from our customers or utilize the inventory in production. However, we may not
be successful in recovering the cost from our customers or being able to use the
inventory in production, which we would consider as part of our reserve
estimate. Our reserve for excess and obsolete inventory is based on forecasted
demand we receive from our customers. When a determination is made that the
inventory will not be utilized in production it is written-off and disposed.
28
MARKET RISK SENSITIVITY
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. Our use
of derivatives instruments including forward exchange contracts has been
insignificant throughout 2001 and 2000 and it is expected our use of derivative
instruments will continue to be minimal.
The peso-based financial instruments primarily consist 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 December 31, 2001 and 2000, a 20% increase in the Philippine
peso to U.S. dollar spot exchange rate as of the balance sheet dates would
result in a decrease of approximately $3.9 million and $3.8 million,
respectively, in peso-based net assets.
The won-based financial instruments primarily consist 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 December 31, 2001
and 2000, a 20% increase in the Korean won to U.S. dollar spot exchange rate as
of the balance sheet dates would result in a decrease of approximately $3.8
million and $2.5 million, respectively, in won-based net assets.
The yen-based financial instruments primarily consist of cash, non-trade
receivables, accrued payroll taxes, debt and other expenses. Our exposure to the
yen is principally as a result of our 2001 acquisition of Amkor Iwate
Corporation. Based on the portfolio of yen-based assets and liabilities at
December 31, 2001, a 20% decrease in the Japanese yen to U.S. dollar spot
exchange rate as of the balance sheet date would result in an increase of
approximately $15.6 million, in yen-based net liabilities.
Interest Rate Risks
Our company has interest rate risk with respect to our long-term debt. As
of December 31, 2001, we had a total of $1,826.3 million debt of which 91% was
fixed rate debt and 9% was variable rate debt. Our variable rate debt
principally consisted of short-term borrowings and amounts outstanding under our
secured bank facilities that included term loans and a $100.0 million revolving
line of credit of which no amounts were drawn as of December 31, 2001. The fixed
rate debt consisted of senior notes, senior subordinated notes, convertible
subordinated notes and foreign debt. As of December 31, 2000, we had a total of
$1,659.1 million of debt of which 56% was fixed rate debt and 44% was variable
rate debt. 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 December 31, 2001.
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------
2002 2003 2004 2005 2006
------------- ------------ ------------- ------------- -------------
Long-term debt:
Fixed rate debt $ 14,065 $ 14,807 -- -- $ 675,000
Average interest rate 4.0% 4.0% 8.0%
Variable rate debt $ 40,750 $ 20,439 $ 55,363 $ 42,063 $ 2,850
Average interest rate 1.8% 6.0% 6.0% 6.0% 4.9%
FAIR
THEREAFTER TOTAL VALUE
------------- ------------- -------------
Long-term debt:
Fixed rate debt $ 958,750 $ 1,662,622 $ 1,464,628
Average interest rate 8.4% 8.1%
Variable rate debt $ 2,181 $ 163,646 $ 163,646
Average interest rate 4.2% 4.9%
29
Equity Price Risks
Our outstanding 5.75% convertible subordinated notes due 2006 and 5%
convertible subordinated notes due 2007 are convertible into common stock at
$35.00 per share and $57.34 per share, respectively. We intend to repay our
convertible subordinated notes upon maturity, unless converted. If investors
were to decide to convert their notes to common stock, our future earnings would
benefit from a reduction in interest expense and our common stock outstanding
would be increased. If we induced such conversion, our earnings could include an
additional charge.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
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 subcontracted
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 WEAKENED SIGNIFICANTLY IN 2001 AND MAY
NOT RECOVER AS EXPECTED -- WE HAVE BEEN, AND MAY CONTINUE TO BE, AFFECTED BY
THESE TRENDS.
The semiconductor industry weakened significantly in 2001 and conditions
are expected to improve in 2002. 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
recovery of the semiconductor industry. There can be no assurance that overall
industry conditions will recover in 2002, or if industry conditions do not
recover what impact that 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,
- 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, economic or terrorist events,
30
- 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.
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 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 interest and principal 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.
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.
As of December 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 in 2001 adversely affected the
demand for the wafer output from ASI's foundry, our wafer fabrication services
results and ASI's operating results. Demand for our wafer fabrication services
and the wafer output from ASI's foundry have improved significantly in 2002.
However, there can be no assurance that industry
31
conditions will continue to improve as expected. If industry conditions do not
recover as expected, our and ASI's operating results could be adversely
affected.
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, JAPAN, TAIWAN AND CHINA. MANY OF OUR CUSTOMERS' AND
VENDORS' OPERATIONS ARE ALSO LOCATED OUTSIDE OF THE U.S.
We provide packaging and test services through our factories located in
the Philippines, Korea, Japan, Taiwan and China. We also source wafer
fabrication services from ASI's wafer fabrication facility in Korea. Moreover,
many of our customers' and vendors' operations are located outside the U.S. The
following are some of the risks inherent in doing business internationally:
- regulatory limitations imposed by foreign governments;
- fluctuations in currency exchange rates;
- political and terrorist 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.
DIFFICULTIES INTEGRATING ACQUISITIONS -- 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. 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. The amended Manufacturing and Purchasing Agreement requires Texas
Instruments to purchase from us at least 40% of ASI's wafer fabrication
facility's capacity in the quarter ending March 31, 2002, 30% of such capacity
in the quarter ending June 30, 2002, and 20% of such capacity in each subsequent
quarter, and, under certain circumstances, Texas Instruments has the right to
purchase from us up
32
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. As a result of the
weakness in the semiconductor industry, Texas Instruments and our other
customers' demand for the output of ASI's wafer foundry decreased significantly
in 2001. Texas Instruments did not meet the minimum purchase commitment
throughout the twelve months ended December 31, 2001. Texas Instruments has made
certain concessions to us to partially mitigate the shortfall in demand. If
Texas Instruments fails to meet its purchase obligations, our company and ASI's
businesses could be harmed.
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 0.35 micron, 0.25 micron, and 0.18 micron CMOS process
technology. Texas Instruments has provided ASI a license to use wafer
fabrication-related TI trade secrets for non-Texas Instruments products. Texas
Instruments has not granted ASI a license to Texas Instruments patents,
copyrights, or maskworks. Moreover, Texas Instruments has no obligation to
transfer any next-generation technology to ASI. Our company 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.
In order for the Manufacturing and Purchasing Agreement and the
technology assistance agreements to continue until December 31, 2007, Amkor, ASI
and Texas Instruments would have to enter into a new technology assistance
agreement by December 31, 2002. However, the advanced wafer fabrication
technology that would be licensed under this agreement would require ASI either
to (i) invest in excess of $400 million to refurbish its existing manufacturing
facility, requiring the shutdown of part or all of its existing facility during
the period of refurbishment, or (ii) obtain access to a new or existing
manufacturing facility owned by a third party that could support the advanced
technology. A third option for ASI would be to build and equip a new
manufacturing facility, but this option would require substantially greater
capital investment by ASI than the other options. We cannot be certain that
Amkor and ASI will be able to negotiate successfully a new technical assistance
agreement with Texas Instruments. Moreover, we believe that it will be extremely
difficult for ASI to finance, acquire and equip the necessary manufacturing
facility to deploy the advanced wafer fabrication technology that would be
transferred by Texas Instruments. In the event the Manufacturing and Purchasing
Agreement and the technology assistance agreements with Texas Instruments were
to be terminated, we cannot be certain what the nature of Amkor's and ASI's
business relationship, if any, would be with Texas Instruments. If Texas
Instruments were to significantly reduce or terminate its purchase of ASI's
wafer fabrication services, our wafer fabrication business would be seriously
harmed.
Under the existing technical assistance agreements between Texas
Instruments and ASI, ASI has a license to use wafer fabrication-related trade
secrets of Texas Instruments for non-Texas Instruments' products. In the event
that the Manufacturing and Purchase Agreement is terminated, this license will
also terminate. At such time, it would be necessary for ASI to negotiate a new
license agreement with Texas Instruments relating to its trade secrets, or ASI
would not be able to continue its wafer fabrication operations as currently
practiced. This would have the result of shutting down the wafer fabrications
business of ASI and Amkor unless and until alternative technology arrangements
could be made and implemented at ASI's wafer manufacturing facility.
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 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.
33
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 ESTABLISHED COMPETITORS IN BOTH THE PACKAGING
AND TEST BUSINESS AND THE WAFER FABRICATION BUSINESS.
The subcontracted semiconductor packaging and test market is very
competitive. This sector is comprised of 12 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 subcontracted wafer fabrication business is also highly competitive.
Our wafer fabrication services compete primarily with other subcontractors of
semiconductor wafers, 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,
at our foreign manufacturing facilities, 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.
PROTECTION OF INTELLECTUAL PROPERTY -- WE MAY BECOME INVOLVED IN INTELLECTUAL
PROPERTY LITIGATION.
As of February 28, 2002, we held 121 U.S. patents, we had 257 pending
patents and we were preparing an additional 20 patent applications for filing.
In addition to the U.S. patents, we held 440 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.
34
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.
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 February 28, 2002, Mr. James Kim and members of his family
beneficially owned approximately 44.7% of our outstanding common stock. Mr.
James Kim's family, acting together, will substantially 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.
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 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of information regarding quantitative and qualitative
disclosures about market risk, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Market Risk Sensitivity."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We present the information required by Item 8 of Form 10-K here in the
following order:
Report of Independent Accountants...................................................................... 37
Consolidated Statements of Operations -- Years ended December 31, 2001, 2000 and 1999.................. 38
Consolidated Balance Sheets -- December 31, 2001 and 2000.............................................. 39
Consolidated Statements of Stockholders' Equity -- Years ended December 31, 2001, 2000 and 1999........ 40
35
Consolidated Statements of Cash Flows -- Years ended December 31, 2001, 2000 and 1999.................. 41
Notes to Consolidated Financial Statements............................................................. 42
Reports of Independent Public Accountants.............................................................. 61
Schedule II -- Valuation and Qualifying Accounts....................................................... 65
In addition, pursuant to General Instruction G(1) of Form 10-K and Rule
12b-23 promulgated under the Securities Exchange Act of 1934, as amended, the
following financial information of Anam Semiconductor, Inc. required to be
included in this Report by Rule 3-09 of Regulation S-X is incorporated by
reference from our Report on 8-K filed on April 1, 2002.
Reports of Independent Accountants
Consolidated Balance Sheets -- December 31, 2001 and 2000
Consolidated Statements of Operations -- Years ended December 31, 2001, 2000 and
1999
Consolidated Statements of Stockholders' Equity (Deficit) -- Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -- Years
ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Amkor Technology, Inc.:
In our opinion, based on our audits and the report of another auditor, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Amkor Technology,
Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Amkor Technology
Philippines (P1/P2), Inc. and Amkor Technology Philippines (P3/P4), Inc. both
wholly owned subsidiaries, collectively referred to herein as ATP, which
combined financial statements reflect total assets and operating expenses
(including cost of revenues) of 17% and 18%, respectively and 21% and 17%,
respectively, of the related consolidated totals at December 31, 2001 and 2000
and for the years then ended. The combined financial statements of ATP were
audited by another auditor whose report thereon has been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
ATP, is based solely on the report of the other auditor. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditor provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 25, 2002
37
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED
DECEMBER 31,
------------
2001 2000 1999
---- ---- ----
Net revenues........................................................ $1,517,862 $2,387,294 $1,909,972
Cost of revenues--including purchases from
ASI ......................................................... 1,448,064 1,782,158 1,560,816
---------- ---------- ----------
Gross profit........................................................ 69,798 605,136 349,156
---------- ---------- ----------
Operating expenses:
Selling, general and administrative........................... 200,218 192,623 144,538
Research and development...................................... 38,786 26,057 11,436
Loss on disposal of fixed assets.............................. 14,515 1,355 1,805
Amortization of goodwill and other acquired intangibles....... 84,962 63,080 17,105
---------- ---------- ----------
Total operating expenses................................. 338,481 283,115 174,884
---------- ---------- ----------
Operating income (loss)............................................. (268,683) 322,021 174,272
---------- ---------- ----------
Other (income) expense:
Interest expense, net......................................... 164,064 119,840 45,364
Foreign currency (gain) loss.................................. 872 4,812 308
Other expense, net............................................ (3,669) (60) 23,312
---------- ---------- ----------
Total other expense...................................... 161,267 124,592 68,984
---------- ---------- ----------
Income (loss) before income taxes, equity in loss of
investees and minority interest............................... (429,950) 197,429 105,288
Provision (benefit) for income taxes................................ (81,691) 22,285 26,600
Equity in loss of investees......................................... (100,706) (20,991) (1,969)
Minority interest................................................... (1,896) -- --
---------- ---------- ----------
Net income (loss)................................................... $ (450,861) $ 154,153 $ 76,719
========== ========== ==========
Basic net income (loss) per common share............................ $ (2.87) $ 1.06 $ 0.64
========== ========== ==========
Diluted net income (loss) per common share.......................... $ (2.87) $ 1.02 $ 0.63
========== ========== ==========
Shares used in computing net income (loss) per common share:
Basic......................................................... 157,111 145,806 119,341
========== ========== ==========
Diluted....................................................... 157,111 153,223 135,067
========== ========== ==========
The accompanying notes are an integral part of these statements.
38
AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-----------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 200,057 $ 93,517
Accounts receivable:
Trade, net of allowance for doubtful accounts of $6,842 and $2,426 .. 211,419 301,915
Due from affiliates ................................................. 871 1,634
Other ............................................................... 8,953 6,465
Inventories .............................................................. 73,784 108,613
Other current assets ..................................................... 37,106 36,873
----------- -----------
Total current assets ........................................... 532,190 549,017
----------- -----------
Property, plant and equipment, net ............................................. 1,392,274 1,478,510
----------- -----------
Investments .................................................................... 382,951 501,254
----------- -----------
Other assets:
Due from affiliates ...................................................... 20,518 25,013
Goodwill and acquired intangibles, net ................................... 696,180 737,593
Other .................................................................... 199,205 101,897
----------- -----------
915,903 864,503
----------- -----------
Total assets ................................................... $ 3,223,318 $ 3,393,284
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ........................................................... $ 5,116 $ 25,731
Short-term borrowings and current portion of long-term debt .............. 54,815 73,586
Trade accounts payable ................................................... 148,923 167,228
Due to affiliates ........................................................ 16,936 32,534
Accrued expenses ......................................................... 145,544 147,352
----------- -----------
Total current liabilities ...................................... 371,334 446,431
Long-term debt ................................................................. 1,771,453 1,585,536
Other noncurrent liabilities ................................................... 64,077 46,483
----------- -----------
Total liabilities .............................................. 2,206,864 2,078,450
----------- -----------
Commitments and contingencies
Minority interest .............................................................. 7,737 --
----------- -----------
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares authorized
designated Series A, none issued .................................... -- --
Common stock, $0.001 par value, 500,000 shares authorized,
issued and outstanding of 161,782 in 2001 and 152,118 in 2000 ....... 162 152
Additional paid-in capital ............................................... 1,123,541 975,026
Retained earnings (deficit) .............................................. (106,975) 343,886
Receivable from stockholder .............................................. (3,276) (3,276)
Accumulated other comprehensive loss ..................................... (4,735) (954)
----------- -----------
Total stockholders' equity ..................................... 1,008,717 1,314,834
----------- -----------
Total liabilities and stockholders' equity ..................... $ 3,223,318 $ 3,393,284
=========== ===========
The accompanying notes are an integral part of these statements.
39
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
RETAINED RECEIVABLE
COMMON STOCK PAID-IN EARNINGS FROM
SHARES AMOUNT CAPITAL (DEFICIT) STOCKHOLDER
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ..................... 117,860 118 381,061 109,738 --
Net income .................................... -- -- -- 76,719 --
Unrealized losses on investments,
net of tax ................................. -- -- -- -- --
Comprehensive income ..........................
Issuance of stock through employee
stock purchase plan and stock options ...... 664 -- 3,875 -- --
Receivable from stockholder ................... -- -- -- 3,276 (3,276)
Debt conversion ............................... 12,136 13 167,028 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ..................... 130,660 131 551,964 189,733 (3,276)
Net income .................................... -- -- -- 154,153 --
Unrealized losses on investments,
net of tax ................................. -- -- -- -- --
Comprehensive income ..........................
Issuance of 20.5 million common stock shares
and 3.9 million common stock warrants ...... 20,500 21 409,980 -- --
Issuance of stock through employee
stock purchase plan and stock options ...... 710 -- 9,622 -- --
Debt conversion ............................... 248 -- 3,460 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 ..................... 152,118 152 975,026 343,886 (3,276)
Net loss ...................................... -- -- -- (450,861) --
Unrealized losses on investments,
net of tax ................................. -- -- -- -- --
Cumulative translation adjustment ............. -- -- -- -- --
Comprehensive loss ............................
Issuance of stock for acquisitions ............ 4,948 5 87,869 -- --
Issuance of stock through employee
stock purchase plan and stock options ...... 1,000 1 11,698 -- --
Debt conversion ............................... 3,716 4 48,948 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 ..................... 161,782 $ 162 $ 1,123,541 $ (106,975) $ (3,276)
=========== =========== =========== =========== ===========
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME INCOME
(LOSS) TOTAL (LOSS)
----------- ----------- -----------
Balance at December 31, 1998 ..................... (556) 490,361
Net income .................................... -- 76,719 $ 76,719
Unrealized losses on investments,
net of tax ................................. (255) (255) (255)
-----------
Comprehensive income .......................... $ 76,464
===========
Issuance of stock through employee
stock purchase plan and stock options ...... -- 3,875
Receivable from stockholder ................... -- --
Debt conversion ............................... -- 167,041
----------- -----------
Balance at December 31, 1999 ..................... (811) 737,741
Net income .................................... -- 154,153 $ 154,153
Unrealized losses on investments,
net of tax ................................. (143) (143) (143)
-----------
Comprehensive income .......................... $ 154,010
===========
Issuance of 20.5 million common stock shares
and 3.9 million common stock warrants ...... -- 410,001
Issuance of stock through employee
stock purchase plan and stock options ...... -- 9,622
Debt conversion ............................... -- 3,460
----------- -----------
Balance at December 31, 2000 ..................... (954) 1,314,834
Net loss ...................................... -- (450,861) $ (450,861)
Unrealized losses on investments,
net of tax ................................. (103) (103) (103)
Cumulative translation adjustment ............. (3,678) (3,678) (3,678)
-----------
Comprehensive loss ............................ $ (454,642)
===========
Issuance of stock for acquisitions ............ -- 87,874
Issuance of stock through employee
stock purchase plan and stock options ...... -- 11,699
Debt conversion ............................... 48,952
----------- -----------
Balance at December 31, 2001 ..................... $ (4,735) $ 1,008,717
=========== ===========
The accompanying notes are an integral part of these statements.
40
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) ............................................................ $ (450,861) $ 154,153 $ 76,719
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization ............................................. 442,762 325,896 176,866
Amortization of deferred debt issuance costs .............................. 22,321 7,013 3,466
Debt conversion expense ................................................... -- 272 17,381
Provision for accounts receivable ......................................... 4,000 (17) (3,500)
Provision for excess and obsolete inventory ............................... 17,869 10,000 6,573
Deferred income taxes ..................................................... (85,022) (8,255) 9,418
Equity in loss of investees ............................................... 100,706 20,991 4,591
Loss on sale of fixed assets and investments .............................. 14,515 1,355 1,805
Facility closure costs .................................................... 3,600 -- --
Minority interest ......................................................... 1,896 -- --
Changes in assets and liabilities excluding effects
of acquisitions--
Accounts receivable ....................................................... 103,157 (72,914) (44,526)
Repurchase of accounts receivable and settlement of security agreement .... -- (71,500) (2,700)
Other receivables ......................................................... (2,488) 2,884 (555)
Inventories ............................................................... 31,372 (23,871) (12,063)
Due to/from affiliates, net ............................................... (10,340) 2,110 35,403
Other current assets ...................................................... 6,069 (17,977) 1,601
Other non-current assets .................................................. 1,700 (19,582) (15,088)
Accounts payable .......................................................... (24,081) 15,950 42,337
Accrued expenses .......................................................... (24,720) 40,209 949
Other long-term liabilities ............................................... 8,011 7,108 (5,380)
----------- ----------- -----------
Net cash provided by operating activities ............................... 160,466 373,825 293,297
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment ................................... (158,700) (480,074) (242,390)
Acquisitions, net of cash acquired ........................................... (11,057) (17,602) (2,109)
Acquisitions of K1, K2 and K3 and K4, net of cash acquired ................... -- (927,290) (575,000)
Investment in ASI ............................................................ -- (459,000) (41,638)
Proceeds from the sale of property, plant and equipment ...................... 1,863 2,823 --
Proceeds from the sale (purchase) of investments ............................. (321) 136,879 (135,595)
----------- ----------- -----------
Net cash used in investing activities ................................... (168,215) (1,744,264) (996,732)
----------- ----------- -----------
Cash flows from financing activities:
Net change in bank overdrafts and short-term borrowings ...................... 15,067 5,975 (24,264)
Net proceeds from issuance of long-term debt ................................. 750,486 1,027,479 603,569
Payments of long-term debt ................................................... (662,565) (87,166) (9,287)
Net proceeds from the issuance of 20.5 million common shares in a private
equity offering ........................................................... -- 410,001 --
Proceeds from issuance of stock through employee stock
purchase plan and stock options ........................................... 11,698 9,622 3,875
----------- ----------- -----------
Net cash provided by financing activities ............................... 114,686 1,365,911 573,893
----------- ----------- -----------
Effect of exchange rate fluctuations on cash and cash equivalents ............... (397) -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ............................ 106,540 (4,528) (129,542)
Cash and cash equivalents, beginning of period .................................. 93,517 98,045 227,587
----------- ----------- -----------
Cash and cash equivalents, end of period ........................................ $ 200,057 $ 93,517 $ 98,045
=========== =========== ===========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest .................................................................. $ 144,345 $ 111,429 $ 45,500
Income taxes .............................................................. $ (642) $ 18,092 $ 13,734
The accompanying notes are an integral part of these statements.
41
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Amkor
Technology, Inc. and its subsidiaries. The consolidated financial statements
reflect the elimination of all significant intercompany accounts and
transactions. The investments in and the operating results of 20% to 50% owned
companies are included in the consolidated financial statements using the equity
method of accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
previously reported amounts have been reclassified to conform with the current
presentation principally the presentation of gains and losses from the disposal
of fixed assets.
Foreign Currency Translation
Substantially all of the foreign subsidiaries and investee companies use
the U.S. dollar as their functional currency. Accordingly, monetary assets and
liabilities which were originally denominated in a foreign currency are
translated into U.S. dollars at month-end exchange rates. Non-monetary items
which were originally denominated in foreign currencies are translated at
historical rates. Gains and losses from such translation and from transactions
denominated in foreign currencies are included in other (income) expense.
Concentrations of Credit Risk
Financial instruments, for which we are subject to credit risk, consist
principally of accounts receivable, cash and cash equivalents, short-term
investments and marketable securities. With respect to accounts receivable, we
mitigate our credit risk by selling primarily to well established companies,
performing ongoing credit evaluations and making frequent contact with
customers. We have mitigated our credit risk with respect to cash and cash
equivalents, as well as short-term investments, through diversification of our
holdings into various money market accounts, U.S. treasury bonds, federal
mortgage backed securities, high grade municipal bonds, commercial paper and
preferred stocks.
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, our high leverage and the restrictive covenants contained in the
agreements governing our indebtedness, 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, fluctuations in manufacturing yields, the
availability of financing, 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, difficulties
integrating acquisitions, the enforcement of intellectual property rights by or
against us, our need to comply with existing and future environmental
regulations, the results of ASI as it impacts our financial results and
political and economic uncertainty resulting from terrorist activities.
42
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally by using a moving average method. In general we order raw materials
based on the customers forecasted demand and we do not maintain any finished
goods inventory. If our customers change their forecasted requirements and we
are unable to cancel our raw materials order or if our vendor requires that we
order a minimum quantity that exceeds the current forecasted demand, we will
experience a build-up in raw material inventory. We will either seek to recover
the cost of the materials from our customers or utilize the inventory in
production. However, we may not be successful in recovering the cost from our
customers or being able to use the inventory in production, which we would
consider as part of our reserve estimate. Our reserve for excess and obsolete
inventory is based on forecasted demand we receive from our customers. When a
determination is made that the inventory will not be utilized in production it
is written-off and disposed.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated by the straight-line method over the estimated useful lives of
depreciable assets. Accelerated methods are used for tax purposes. Depreciable
lives follow:
Buildings and improvements............................ 10 to 30 years
Machinery and equipment............................... 3 to 5 years
Furniture, fixtures and other equipment............... 3 to 10 years
Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts and any resulting gain or loss is included in
earnings. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense was $356.7 million, $262.0 million and $158.9
million for 2001, 2000 and 1999, respectively.
Goodwill and Acquired Intangibles
Goodwill is recorded when there is an excess of the cost of an acquisition
over the fair market value of the net tangible and identifiable intangible
assets acquired. Acquired intangibles includes patents and workforce-in-place.
Goodwill and acquired intangibles are amortized on a straight-line basis over a
period of ten years. The unamortized balances recorded for goodwill and acquired
intangibles are evaluated periodically for potential impairment based on the
future estimated undiscounted cash flows of the acquired businesses. An
impairment loss, if any, would be measured as the excess of the carrying value
over the fair value.
Other Noncurrent Assets
Other noncurrent assets consist principally of deferred debt issuance
costs, security deposits, the cash surrender value of life insurance policies,
deferred income taxes and tax credits.
Due from and to affiliates
Due from affiliates primarily relates to advances made to a Philippine
realty corporation in which we own 40%. Such investment is accounted for under
the equity method of accounting. Given the foreign ownership restrictions of
foreigners in the Philippines, the affiliated entity owns the land on which our
Philippine factories are located. The affiliated entity has no long-term
obligations other than their obligations to us and we have not extended
guarantees or other commitments to the entity. Due to affiliates primarily
relates to our transactions with Anam Semiconductor, Inc. (See Note 3).
Other Noncurrent Liabilities
Other noncurrent liabilities consist primarily of pension obligations and
noncurrent income taxes payable.
43
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Receivable from Stockholder
Amkor Electronics, Inc. (AEI), which was merged into our company just
prior to the initial public offering of our company in May 1998, elected to be
taxed as an S Corporation under the provisions of the Internal Revenue Code of
1986 and comparable state tax provisions. As a result, AEI did not recognize
U.S. federal corporate income taxes. Instead, the stockholders of AEI were taxed
on their proportionate share of AEI's taxable income. Accordingly, no provision
for U.S. federal income taxes was recorded for AEI. Just prior to the initial
public offering, AEI terminated its S Corporation status at which point the
profits of AEI became subject to federal and state income taxes at the corporate
level. The receivable from stockholder included in stockholders' equity
represents the balance due from Mr. & Mrs. Kim and the Kim family trusts related
to the finalization of AEI's tax returns.
Revenue Recognition and Risk of Loss
Our company does not take ownership of customer-supplied semiconductor
wafers. Title and risk of loss remains with the customer for these materials at
all times. Accordingly, the cost of the customer-supplied materials is not
included in the consolidated financial statements. Revenues from packaging
semiconductors and performing test services are recognized upon shipment or
completion of the services. We record wafer fabrication services revenues upon
shipment of completed wafers. Such policies are consistent with provisions in
the Securities and Exchange Commission's Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements."
Research and Development Costs
Research and development expenses include costs directly attributable to
the conduct of research and development programs primarily related to the
development of new package designs and improving the efficiency and capabilities
of our existing production process. Such costs include salaries, payroll taxes,
employee benefit costs, materials, supplies, depreciation on and maintenance of
research equipment, fees under licensing agreements, services provided by
outside contractors, and the allocable portions of facility costs such as rent,
utilities, insurance, repairs and maintenance, depreciation and general support
services. All costs associated with research and development are expensed as
incurred.
Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 141, Business Combinations, which
prohibits the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001 and addresses the accounting for
purchase method business combinations completed after June 30, 2001. Also in
June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets.
For existing acquisitions, the provisions of SFAS No. 142 were effective as of
January 1, 2002 and are generally effective for business combinations initiated
after June 30, 2001. SFAS No. 142 includes provisions regarding the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles, the
cessation of amortization related to goodwill and indefinite-lived intangibles,
and the testing for impairment of goodwill and other intangibles annually or
more frequently if circumstances warrant. Additionally, SFAS No. 142 requires
that within six months of adoption, goodwill be tested for impairment at the
reporting unit level as of the date of adoption. If any impairment is indicated
to have existed upon adoption, it should be measured and recorded before the end
of the year of adoption. SFAS No. 142 requires that any goodwill impairment loss
recognized as a result of initial application be reported in the first interim
period of adoption as a change in accounting principle, and that the income per
share effects of the accounting change be separately disclosed.
Upon adoption, we will reclassify intangible assets previously identified
as an assembled workforce intangible to goodwill. Additionally, we will stop
amortizing goodwill of $659.1 million, as well as goodwill of $118.6 million
associated with our investment in ASI accounted for under the equity method of
accounting. Based on the current levels of goodwill, the cessation of
amortization will reduce amortization expense and, with respect to equity
investees, it will reduce equity in loss of investees, annually by approximately
$80 million and $36 million, respectively. We have reassessed the useful lives
of our identified intangibles and they continue to be appropriate. Because of
the extensive effort needed to comply with the application of SFAS No. 142, the
impairment loss, if any, related to goodwill upon adoption of this statement
cannot be estimated at this time. Goodwill as of January 1, 2002 is attributable
to two reporting units, assembly and test services. An appraisal firm has been
engaged to assist in the determination of the fair value of our reporting units.
By June 30, 2002, any indication of goodwill impairment will be determined by
comparing the fair value of the reporting units with its carrying value as of
January 1, 2002.
44
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." This statement establishes standards for accounting for
obligations associated with the retirement of tangible long-lived assets. The
standard is required to be adopted by us beginning on January 1, 2003. In August
2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement addresses financial accounting and reporting
for the impairment and disposal of long-lived assets. This standard is required
to be adopted by us beginning on January 1, 2002. We are currently in the
process of evaluating the effect the adoption of these standards will have on
our consolidated results of operations, financial position and cash flows, if
any.
2. ACQUISITIONS IN JAPAN AND TAIWAN
Taiwan Semiconductor Technology Corporation and Sampo Semiconductor
Corporation. In July 2001, we acquired, in separate transactions, 69% of Taiwan
Semiconductor Technology Corporation (TSTC) and 98% of Sampo Semiconductor
Corporation (SSC) in Taiwan. Including our prior ownership interest in TSTC, as
of December 31, 2001, we owned 94% of the outstanding shares of TSTC. The
combined purchase price was paid with the issuance of 4.9 million shares of our
common stock valued at $87.9 million based on our closing share price two days
prior to each acquisition, the assumption of $34.8 million of debt and $3.7
million of cash consideration, net of acquired cash. The carrying value of our
prior investment in TSTC was $17.8 million. In connection with earn-out
provisions that provided for additional purchase price based in part on the
results of the acquisitions, we issued an additional 1.8 million shares in
January 2002. The results of TSTC and Sampo have been included in the
accompanying consolidated financial statements since the acquisition dates. In
accordance with the new accounting standards related to purchase business
combinations and goodwill, we recorded intangible assets, principally goodwill,
of $23.8 million as of the acquisition date that is nonamortizable. The combined
fair value of the assets acquired and liabilities assumed was approximately
$95.3 million for fixed assets, $39.5 million for accounts receivable, inventory
and other assets, $34.8 million of assumed debt and $10.1 million for other
assumed liabilities. The minority interest as of the acquisition date was $4.3
million.
Amkor Iwate Corporation. In January 2001, Amkor Iwate Corporation
commenced operations and acquired from Toshiba a packaging and test facility
located in the Iwate prefecture in Japan. The total purchase price of $77.1
million was financed by a short-term note payable to Toshiba of $21.1 million,
$47.0 million in other financing from a Toshiba financing affiliate and cash on
hand. Amkor Iwate provides packaging and test services to Toshiba's Iwate
factory under a long-term supply agreement based on a cost plus calculation. We
currently own 60% of Amkor Iwate and Toshiba owns the balance of the outstanding
shares. By January 2004 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.
Acquired intangibles as of the acquisition date, based on estimates of fair
value, were $21.4 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. The combined fair value of the assets acquired and
liabilities assumed was approximately $42.4 million for fixed assets, $14.0
million for inventory and other assets, and $0.7 million for assumed
liabilities.
3. ACQUISITIONS FROM ANAM SEMICONDUCTOR, INC. (ASI) AND OUR RELATIONSHIP WITH
ASI
Acquisitions from and investment in Anam Semiconductor, Inc.
On May 1, 2000 we completed our purchase of ASI's three remaining
packaging and test operations, known as K1, K2 and K3, for a purchase price of
$950.0 million. In addition we made a commitment to a $459.0 million equity
investment in ASI, and fulfilled this commitment in installments taking place
over the course of 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 new secured bank debt and
approximately $103 million from cash on hand. As of December 31, 2001, we had
invested a total of $500.6 million in ASI including an equity investment of
$41.6 million made on October 1999. We owned as of December 31, 2001 42% of the
outstanding voting stock of ASI. 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
December 31, 2001, the unamortized excess of the cost of our equity investment
in ASI above our share of the underlying net assets is $118.6 million
45
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On May 17, 1999, we purchased ASI's packaging and test business known as
K4. The purchase price for K4 was $575.0 million in cash plus the assumption of
approximately $7.0 million of employee benefit liabilities. The acquisition was
accounted for as a purchase. Accordingly, the results of K4 have been included
in the accompanying consolidated financial statements since the date of
acquisition. Goodwill and acquired intangibles as of the acquisition date were
$222.9 million and are being amortized on a straight-line basis over a 10 year
period. The fair value of the assets acquired and liabilities assumed was
approximately $359 million for fixed assets and $7 million for assumed
liabilities.
On July 1, 1999, we acquired the stock of Anam/Amkor Precision Machine
Company (AAPMC) for $3.8 million, which was paid to ASI during June 1999. AAPMC
supplies machine tooling used by us at our Philippine operations. As an interim
step to this acquisition, during April 1999, we assumed and repaid $5.7 million
of AAPMC's debt. The acquisition was financed through available working capital
and was accounted for as a purchase. Accordingly, the results of AAPMC have been
included in the accompanying consolidated financial statements since the date of
acquisition and goodwill of approximately $2.0 million was recorded as of the
date of acquisition and is being amortized on a straight-line basis over a ten
year period. The historical operating results of AAPMC are not material in
relation to our operating results.
On June 1, 1998, we purchased ASI's 40% interest in Amkor/Anam Pilipinas,
Inc. (AAP) for $33.8 million. The acquisition was accounted for using the
purchase method of accounting which resulted in the elimination of the minority
interest liability reflected on the consolidated balance sheet and the recording
of approximately $23.9 million of goodwill which is being amortized over 10
years.
Pro Forma Financial Information for Amkor (unaudited)
The unaudited pro forma information below assumes that the May 2000
acquisition of K1, K2 and K3 occurred at the beginning of 2000 and 1999 and the
May 1999 acquisition of K4 had occurred at the beginning of 1999. 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 each
of the periods presented, nor are they necessarily indicative of future
consolidated results.
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999
---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net revenues ............................................ $2,397,515 $1,941,109
Gross profit ............................................ 675,172 574,265
Operating income ........................................ 366,686 311,777
Income before income taxes and equity in income
(loss) of investees .................................. 215,904 147,140
Net income .............................................. 172,518 126,042
Earnings per share:
Basic net income per common share .................... 1.14 0.90
Diluted net income per common share ............... 1.10 0.89
Depreciation expense .................................... 285,256 238,741
Amortization of goodwill and acquired intangibles ....... 81,607 83,436
The pro forma adjustments exclude the effects of our investments in ASI.
Had we included pro forma adjustments for the year ended December 31, 2000 and
1999 related to our investments in ASI, pro forma net income would have been
46
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$160.8 million and $64.9 million, respectively, and pro forma earnings per share
on a diluted basis would have been $1.02 and $0.46, respectively.
Financial Information for ASI
The following summary of consolidated financial information was derived
from the consolidated financial statements of ASI, reflecting ASI's packaging
and test operations as discontinued operations within their results of
operations. ASI's net income for the year ended December 31, 2000 includes a
$434.2 million gain on sale of K1, K2 and K3, which was eliminated for purposes
of calculating our equity in income of ASI.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
SUMMARY INCOME STATEMENT INFORMATION FOR ASI
Net revenues .................................. $ 161,700 $ 344,792 $ 285,925
Gross profit (loss) ........................... (100,295) 41,682 47,550
Loss from continuing operations ............... (162,173) (19,703) (169,759)
Net income (loss) ............................. (162,173) 450,641 109,865
DECEMBER 31, DECEMBER 31,
2001 2000
-------- --------
SUMMARY BALANCE SHEET INFORMATION FOR ASI (IN THOUSANDS)
Cash, including restricted cash and bank deposits ...................... $ 84,721 $224,629
Current assets ......................................................... 144,898 303,486
Property, plant and equipment, net ..................................... 646,298 793,850
Noncurrent assets (including property, plant and equipment) ............ 770,932 943,458
Current liabilities .................................................... 134,727 184,316
Total debt and other long-term financing (including current portion) ... 238,970 370,976
Noncurrent liabilities (including debt and other long-term financing) .. 175,487 301,302
Total stockholders' equity ............................................. 605,616 761,326
Our Investment in ASI
The stock prices of semiconductor companies' stocks, including ASI and its
competitors, have experienced significant volatility during 2000 and 2001. The
recent weakness in the semiconductor industry has affected the demand for the
wafer output from ASI's foundry and the market value of ASI's stock as traded on
the Korea Stock Exchange. The carrying value of our investment in ASI was $377.9
million and $478.9 million as of December 31, 2001 and 2000, respectively. The
market value of our investment in ASI, based on ASI's closing share price, was
$204.5 million and $110.5 million as of December 31, 2001 and 2000,
respectively.
We evaluate our investments for impairment due to declines in market value
that are considered other than temporary. Such evaluation includes an assessment
of general economic and company-specific considerations such as, customer
forecasts and regularly updated projections of ASI operating results. In the
event of a determination that a decline in market value is other than temporary,
a charge to earnings is recorded for the unrealized loss, and a new cost basis
in the investment is established. The carrying amount of our investment in ASI
reflects our long-term outlook for the foundry industry. We have concluded that
the decline in market value of our investment in ASI is temporary based on the
expected future performance of ASI and the recovery of the semiconductor
industry. As the semiconductor industry begins to recover in 2002, we expect
that ASI's share price will also recover. Should ASI stock price fail to perform
in line with other comparable companies in its industry, it could be expected
that we would record an impairment charge. Such assessment could be made as
early as the first quarter of 2002. We remain committed to our long-term
strategic relationship with ASI and continue to explore opportunities to
maximize the value of that investment. We will continue to monitor industry
conditions and assess the carrying value of this investment.
Our Relationship with ASI
We have had a long-standing relationship with ASI and we currently own 42%
of ASI's outstanding shares. ASI was founded in 1956 by Mr. H. S. Kim, the
father of Mr. James Kim, our Chairman and Chief Executive Officer. Through our
supply agreements with ASI, we historically have had a first right to
substantially all of the packaging and test services capacity of ASI and the
exclusive right to all of the wafer output of ASI's wafer fabrication facility.
Beginning in May 2000
47
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with our acquisition of K1, K2 and K3, we no longer receive packaging and test
services from ASI. Under the wafer fabrication services supply agreement which
was consummated in January 1998, we continue to have the exclusive right but not
the requirement to purchase all of the wafer output of ASI's wafer fabrication
facility on pricing terms negotiated annually. Additionally, we have not
committed to purchase a minimum quantity of ASI's wafer output. After January
2003, this agreement is cancelable at any time by either party upon five-year
prior written notice. Historically, we have had other relationships with ASI
affiliated companies for financial services, construction services, materials
and equipment. Total purchases from ASI and its affiliates included in cost of
revenue for the years ended December 31, 2001, 2000 and 1999 were $161.6
million, $499.8 million and $714.5 million. Additionally, financial services
performed by ASI and its affiliates included in interest expense for the years
ended December 31, 2000 and 1999 were $1.6 million and $1.4 million.
Construction services and equipment purchases received from ASI and its
affiliates capitalized during the years ended December 31, 2001, 2000 and 1999
were $14.7 million, $38.8 million and $18.4 million.
ASI's business had been severely affected by the economic crisis in Korea.
ASI has traditionally operated with a significant amount of debt relative to its
equity and has contractually guaranteed the debt obligations of certain
affiliates and subsidiaries. ASI was part of the Korean financial restructuring
program known as "Workout" beginning in October 1998. The Workout program was
the result of an accord among Korean financial institutions to assist in the
restructuring of Korean business enterprises. The process involved negotiation
between the related banks and ASI, and did not involve the judicial system. The
Workout process restructured the terms of ASI's bank debt, however, it did not
impact debts outstanding with trade creditors, including indebtedness with our
company. ASI's operations continued uninterrupted during the process. ASI was
released from workout with its Korean creditor banks on July 18, 2000.
4. ACCOUNTS RECEIVABLE SALE AGREEMENT
Effective July 1997 we entered into an agreement to sell receivables with
certain banks. The transaction qualified as a sale under the provisions of SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under the agreement, the participating banks
committed to purchase, with limited recourse, all right, title and interest in
selected accounts receivable, up to a maximum of $100.0 million. Losses on
receivables sold under the agreement were approximately $1.1 million and $4.3
million in 2000 and 1999, respectively, and are included in other expense, net.
In March 2000, we terminated the agreement and repurchased approximately $71.5
million of accounts receivable.
5. INVENTORIES
Inventories consist of raw materials and purchased components that are
used in the semiconductor packaging process.
DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Raw materials and purchased components .. $ 64,752 $ 99,570
Work-in-process ......................... 9,032 9,043
-------- --------
$ 73,784 $108,613
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
2001 2000
----------- -----------
(IN THOUSANDS)
Land ............................................. $ 88,667 $ 80,048
Buildings and improvements ....................... 495,104 445,785
Machinery and equipment .......................... 1,661,140 1,506,774
Furniture, fixtures and other equipment .......... 118,069 79,691
Construction in progress ......................... 63,782 70,753
----------- -----------
2,426,762 2,183,051
Less--Accumulated depreciation and amortization .. (1,034,488) (704,541)
----------- -----------
$ 1,392,274 $ 1,478,510
=========== ===========
48
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. GOODWILL AND ACQUIRED INTANGIBLES
Goodwill and acquired intangibles consist of the following:
DECEMBER 31,
2001 2000
--------- ---------
(IN THOUSANDS)
Goodwill ........................ $ 788,719 $ 764,742
Assembled workforce ............. 29,984 17,470
Patents and technology rights ... 46,713 39,205
--------- ---------
865,416 821,417
Less--Accumulated amortization .. (169,236) (83,824)
--------- ---------
$ 696,180 $ 737,593
========= =========
8. INVESTMENTS
Investments include equity investments in affiliated companies and
noncurrent marketable securities as follows:
DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Equity investments under the equity method:
ASI (ownership of 42%) (see Note 3) .......................... $377,947 $478,943
Other equity investments (20% - 50% owned)
Taiwan Semiconductor Technology Corporation (see Note 2) .. -- 17,488
Other ..................................................... 966 664
-------- --------
Total equity investments ................................ 378,913 497,095
Marketable securities classified as available for sale .......... 4,038 4,159
-------- --------
$382,951 $501,254
======== ========
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Accrued income taxes .... $ 53,364 $ 52,232
Accrued interest ........ 32,584 24,598
Accrued payroll ......... 20,813 17,194
Other accrued expenses .. 38,783 53,328
-------- --------
$145,544 $147,352
======== ========
49
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEBT
Following is a summary of short-term borrowings and long-term debt:
DECEMBER 31,
2001 2000
----------- -----------
(IN THOUSANDS)
Secured bank facility:
Term A loans, LIBOR plus 2.75% due March 2005 .................................. -- 297,500
Term B loans, LIBOR plus 4% due September 2005 ................................. 97,706 347,375
$100.0 million revolving line of credit, LIBOR plus 2% - 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,
convertible at $13.50 per share ................................................ -- 50,191
5.75% Convertible subordinated notes due June 2006,
convertible at $35.00 per share ................................................ 250,000 --
5% Convertible subordinated notes due March 2007,
convertible at $57.34 per share ................................................ 258,750 258,750
Other debt ........................................................................ 94,812 306
----------- -----------
1,826,268 1,659,122
Less--Short-term borrowings and current portion of long-term debt ................. (54,815) (73,586)
----------- -----------
$ 1,771,453 $ 1,585,536
=========== ===========
In March 2001, June 2001 and September 2001, we amended the financial
covenants associated with the secured bank facilities. In connection with the
September 2001 amendment, the revolving line of credit was reduced from a $200
million commitment to $100 million, the interest rate on the Term B loans was
increased to LIBOR plus 4% and we prepaid $125 million of the Term B loans in
November 2001. We expensed, as interest expense, approximately $4.0 million of
deferred debt issuance costs as a result of the reduction of the revolving line
of credit commitment and the prepayment of the Term B loans.
In May 2001, we sold $250.0 million principal amount of our 5.75%
convertible subordinated notes due 2006 in a private placement. The notes are
convertible into Amkor common stock at a conversion price of $35.00 per share.
We used $122.0 million of the $243.0 million of the net proceeds of that
offering to repay amounts outstanding under the Term B loans 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
in May 2001 of the Term B loans, we expensed, as interest expense, $2.3 million
of unamortized deferred debt issuance costs.
In May 2001, we called for the redemption of all of the 5.75% convertible
subordinated notes due May 2003. In anticipation of the redemption,
substantially all of the holders of the convertible notes opted to convert their
notes into Amkor common stock and, accordingly, $50.2 million of the convertible
notes were converted to 3.7 million of our common stock. In connection with the
conversion of the 5.75% convertible subordinated notes due May 2003, $1.2
million of unamortized deferred debt issuance costs was charged to additional
paid-in capital.
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
in February 2001 of the Term A loans, we expensed, as interest expense, $7.1
million of unamortized deferred debt issuance costs.
Other debt as of December 31, 2001 included our foreign debt principally
related to the financing of Amkor Iwate's acquisition of a Toshiba packaging and
test facility and the debt assumed in connection with the acquisition of Sampo
Semiconductor Corporation in Taiwan. Our foreign debt included fixed and
variable debt maturing between 2002 and 2010, with the substantial majority
maturing by 2003. As of December 31, 2001 the foreign debt had interest rates
ranging from 1.0% to 6.6%. These debt instruments do not include significant
financial covenants.
50
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with our issuance of the 5.75% convertible subordinated
notes due 2006 in May 2001, we incurred debt issuance costs of $7.0 million. In
connection with our issuance of the 9.25% senior notes due 2008 and the
amendment to our secured bank facility in February 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
accompanying consolidated balance sheet and the related amortization expense is
included in interest expense in the accompanying consolidated statements of
operations.
During the fourth quarter of 1999 and continuing into 2000, we completed
an early conversion of the 5.75% convertible subordinated notes due May 2003.
During the year ended December 31, 2000, we exchanged approximately 248,000
shares of our common stock for $3.2 million of the convertible subordinated
notes. During the year ended December 31, 1999, we exchanged 12.1 million shares
of common stock for $153.6 million of convertible subordinated notes. The fair
value of the shares of common stock issued in excess of the shares required for
conversion of the notes was $0.3 million and $17.4 million for the year ended
December 31, 2000 and 1999, respectively, and such amounts were expensed and are
included in other expense in the accompanying consolidated statements of
operations.
Interest expense related to short-term borrowings and long-term debt is
presented net of interest income of $10.3 million, $14.2 million and $19.9
million in 2001, 2000 and 1999, respectively, in the accompanying consolidated
statements of operations. The principal payments required under short-term and
long-term debt borrowings at December 31, 2001 are as follows: 2002 -- $54.8
million, 2003 -- $35.2 million, 2004 -- $55.4 million, 2005 -- $42.1 million,
2006 -- $677.9 million and thereafter -- $960.9 million.
11. STOCKHOLDERS' EQUITY
In connection with a $410.0 million private equity offering in May 2000,
we issued 20.5 million shares of our common stock and granted warrants that
expire four years from issuance to purchase 3.9 million additional shares of our
common stock at $27.50 per share. The estimated fair value of the stock warrants
of $35.0 million is included in additional paid-in capital on our consolidated
balance sheet.
12. EMPLOYEE BENEFIT PLANS
U.S. Defined Contribution Plan
Our company has a defined contribution benefit plan covering substantially
all U.S. employees. Employees can contribute up to 13% of salary to the plan and
the company matches in cash 75% of the employee's contributions up to a defined
maximum on an annual basis. The expense for this plan was $2.1 million, $1.8
million and $1.8 million in 2001, 2000 and 1999, respectively.
Philippine Pension Plan
Our Philippine subsidiaries sponsor a defined benefit plan that covers
substantially all employees who are not covered by statutory plans. Charges to
expense are based upon costs computed by independent actuaries.
The components of net periodic pension cost for the Philippine defined
benefit plan are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
------- ------- -------
Service cost of current period ....................... $ 2,534 $ 1,862 $ 2,153
Interest cost on projected benefit obligation ........ 1,919 1,468 1,563
Expected return on plan assets ....................... (1,482) (1,092) (1,083)
Amortization of transition obligation and actuarial
gains/losses ...................................... 64 66 137
------- ------- -------
Total pension expense ..................... $ 3,035 $ 2,304 $ 2,770
======= ======= =======
It is our policy to make contributions sufficient to meet the minimum
contributions required by law and regulation. The following table sets forth the
funded status of our Philippine defined benefit pension plan and the related
changes in the
51
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
projected benefit obligation and plan assets:
2001 2000
-------- --------
Change in projected benefit obligation:
Projected benefit obligation at beginning of year ...... $ 16,585 $ 15,384
Service cost ........................................... 2,534 1,862
Interest cost .......................................... 1,919 1,468
Actuarial loss (gain) .................................. (401) 1,598
Foreign exchange gain .................................. (378) (2,982)
Benefits paid .......................................... (517) (745)
-------- --------
Projected benefit obligation at end of year ............ 19,742 16,585
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year ......... 11,585 10,669
Actual return on plan assets ........................... (800) 2,187
Employer contribution .................................. -- 1,542
Foreign exchange gain .................................. (265) (2,068)
Benefits paid .......................................... (517) (745)
-------- --------
Fair value of plan assets at end of year ............... 10,003 11,585
-------- --------
Funded status:
Projected benefit obligation in excess of plan assets .. 9,739 5,000
Unrecognized actuarial loss ............................ (3,218) (1,369)
Unrecognized transition obligation ..................... (523) (601)
-------- --------
Accrued pension costs .................................. $ 5,998 $ 3,030
======== ========
The discount rate used in determining the projected benefit obligation was
10% as of December 31, 2001 and 12% as of December 31, 2000 and 1999. The rate
of increase in future compensation levels was 9% as of December 31, 2001 and 11%
as of December 31, 2000 and 1999. The expected long-term rate of return on plan
assets was 12% as of December 31, 2001, 2000 and 1999. These rates reflect
economic and market conditions in the Philippines. The fair value of plan assets
includes an investment in our common stock of $1.6 million at December 31, 2001
and 2000.
Korean Severance Plan
Our Korean subsidiary participates in an accrued severance plan that
covers employees and directors with one year or more of service. Eligible plan
participants are entitled to receive a lump-sum payment upon termination of
their employment, based on their length of service and rate of pay at the time
of termination. Accrued severance benefits are estimated assuming all eligible
employees were to terminate their employment at the balance sheet date. The
contributions to national pension fund made under the National Pension Plan of
the Republic of Korea are deducted from accrued severance benefit liabilities.
Contributed amounts are:
DECEMBER 31,
2001 2000
-------- --------
(IN THOUSANDS)
Balance at the beginning of year .......................... $ 31,446 $ 1,794
Increase resulting from the acquisition of K1, K2 and K3 .. -- 23,195
Provision of severance benefits ........................... 13,430 12,276
Severance payments ........................................ (3,132) (1,894)
Gain on foreign currency translation ...................... (1,742) (3,925)
-------- --------
40,002 31,446
Payments remaining with the Korean National Pension Fund .. (1,715) (1,941)
-------- --------
Balance at the end of year ................................ $ 38,287 $ 29,505
======== ========
13. INCOME TAXES
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and the tax bases of assets and liabilities. The
components of the
52
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provision for income taxes follow:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
-------- -------- --------
Current:
Federal ............................... $ -- $ 2,149 $ 9,928
State ................................. -- (159) 1,746
Foreign ............................... 3,331 28,550 5,508
-------- -------- --------
3,331 30,540 17,182
-------- -------- --------
Deferred:
Federal ............................... (87,077) (6,869) 532
Foreign ............................... 2,055 (1,386) 8,886
-------- -------- --------
(85,022) (8,255) 9,418
-------- -------- --------
Total provision (benefit) ..... $(81,691) $ 22,285 $ 26,600
======== ======== ========
The reconciliation between the taxes payable based upon the U.S. federal
statutory income tax rate and the recorded provision follows:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000 1999
--------- --------- ---------
Federal statutory rate ........................................ $(150,419) $ 69,101 $ 36,162
Income (loss) of foreign subsidiaries subject to tax holiday .. 33,762 (43,367) (14,860)
Foreign exchange (losses) gains recognized for income taxes ... 13,221 (382) 8,023
Change in valuation allowance ................................. 3,656 5,898 (11,084)
Difference in rates on foreign subsidiaries ................... 20,415 (8,142) (630)
Change in tax rate from prior year ............................ 5,796 -- --
State taxes, net of federal benefit ........................... (8,480) (661) 2,028
Goodwill and other permanent differences ...................... 358 (162) 6,961
--------- --------- ---------
Total .............................................. $ (81,691) $ 22,285 $ 26,600
========= ========= =========
The following is a summary of the significant components of the deferred
tax assets and liabilities:
DECEMBER 31,
2001 2000
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards ................... $ 103,340 6,457
Inventories ........................................ 10,495 5,762
Corporate income tax credits ....................... 9,990 --
Accounts receivable ................................ 3,248 517
Other accrued liabilities .......................... 542 1,934
Unrealized foreign exchange losses ................. 257 8,535
Other .............................................. 5,549 2,750
--------- ---------
Total deferred tax assets ............................. 133,421 25,955
Valuation allowance ................................... (13,722) (8,735)
--------- ---------
Total deferred tax assets net of valuation allowance .. 119,699 17,220
--------- ---------
Deferred tax liabilities:
Property, plant and equipment ...................... 5,188 3,607
Goodwill ........................................... 3,888 --
Unrealized foreign exchange gains .................. 88 2,013
Other .............................................. 619 --
--------- ---------
Total deferred tax liabilities ........................ 9,783 5,620
--------- ---------
Net deferred tax assets ............................... $ 109,916 $ 11,600
========= =========
In connection with our 2001 acquisitions in Japan and Taiwan, we recorded
net deferred tax assets of $13.3 million which is net of a $1.3 million
valuation allowance.
53
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of certain capital investments, export commitments and
employment levels, income from operations in Korea, the Philippines and China,
is subject to reduced tax rates, and in some cases is wholly exempt from taxes.
As a result of our 1999 and 2000 acquisitions of K1, K2, K3 and K4 in Korea, we
benefit from a tax holiday extending through 2012 that provides for a 100% tax
holiday for seven years and then 50% tax holiday for an additional 3 years. In
the Philippines, two of our subsidiaries operate in economic zones and in
exchange for tax holidays we have committed to certain export and employment
levels. One of our Philippine subsidiaries benefits from a full tax holiday
through 2003, followed by perpetual reduced tax rate of 5% and the other
subsidiary benefits from a perpetual reduced tax rate of 5%. As a result of our
2001 investment in China, we expect to benefit from a 100% tax holiday for five
years and then 50% tax holiday for an additional two years. The income tax
benefits attributable to the tax status of these subsidiaries are approximately
$43.4 million or $0.28 per share in 2000 and $14.9 million or $0.11 per share in
1999. As a result of the losses at these subsidiaries during 2001, there is a
lost income tax benefit attributable to the tax status of these subsidiaries, of
approximately $33.8 million or $0.21 per share.
The deferred tax asset and liability for foreign exchange gains and losses
relate to U.S. dollar denominated monetary assets and liabilities for which
foreign exchange gains or losses were realized for book purposes and not for tax
purposes. During 2000 one of our Philippine subsidiaries realized net foreign
exchange gains and losses for book purposes which were deferred for tax and
established a valuation allowance for a portion of the related deferred tax
assets. Our ability to utilize these assets depends on the timing of the
settlement of the related assets or liabilities and the amount of taxable income
recognized within the Philippine statutory carryforward limit of three years.
During 2001, such Philippine subsidiary realized the foreign exchange gains and
losses for tax causing a reduction to the valuation allowance established in
2000.
As of December 31, 2001, our company has U.S. net operating losses for tax
purposes totaling $254.9 million expiring between 2019 and 2021. Non-U.S. loss
before taxes and minority interest was approximately $180.7 million in 2001 and
non-U.S. income before taxes and minority interest was approximately $201.0
million and $74.0 million in 2000 and 1999, respectively. At December 31, 2001,
undistributed earnings of non-U.S. subsidiaries totaled approximately $336.1
million. Deferred tax liabilities have not been recognized for these
undistributed earnings because it is our intention to reinvest such
undistributed earning outside the U.S. An estimated $53.3 million in U.S. income
and foreign withholding taxes would be due if these earnings were remitted as
dividends.
At December 31, 2001 and 2000 current deferred tax assets of $16.3 million
and $13.5 million, respectively, are included in other current assets and
noncurrent deferred tax assets of $108.1 million and $2.3 million, respectively,
are included in other assets in the consolidated balance sheet. The net deferred
tax assets include amounts, which, in our opinion, are more likely than not to
be realizable through future taxable income. In addition, at December 31, 2001
and 2000, noncurrent deferred tax liabilities of $14.5 million and $4.2 million,
respectively, are included in other noncurrent liabilities in the consolidated
balance sheet.
We operate in and file income tax returns in various U.S. and non-U.S.
jurisdictions, which are subject to examination by tax authorities. Our tax
returns have been examined through 1994 in the Philippines and through 1996 in
the U.S. The tax returns for open years in all jurisdictions in which we do
business are subject to changes upon examination. We believe that we have
provided adequate accruals for additional taxes and related interest expense
that may ultimately result from examinations. In addition, changes in the mix of
income from our foreign subsidiaries, expiration of tax holidays and changes in
tax laws or regulations could result in increased effective tax rates in the
future.
14. 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. In 2001, 2.1 million stock options and the outstanding convertible
notes and warrants were excluded from the computation of diluted earnings per
share as a result of the antidilutive effect. In 2000, the 5% convertible
subordinated notes due 2007 and the outstanding warrants were excluded from the
computation of diluted earnings per share as a result of the antidilutive
effect. The basic and diluted per share amounts for the years presented are
54
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculated as follows:
WEIGHTED
EARNINGS AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- --------------- ---------
Earnings per Share--Year Ended December 31, 2000
Basic earnings per share ....................... $154,153 145,806 $1.06
Impact of convertible notes .................... 2,414 3,744
Dilutive effect of options ..................... -- 3,673
-------- -------- -----
Diluted earnings per share ..................... $156,567 153,223 $1.02
======== ======== =====
Earnings per Share--Year Ended December 31, 1999
Basic earnings per share ....................... $ 76,719 119,341 $0.64
Impact of convertible notes .................... 8,249 14,228
Dilutive effect of options ..................... -- 1,498
-------- -------- -----
Diluted earnings per share ..................... $ 84,968 135,067 $0.63
======== ======== =====
15. STOCK COMPENSATION PLANS
1998 Director Option Plan. A total of 300,000 shares of common stock have
been reserved for issuance under the Director Plan. The option grants under the
Director Plan are automatic and non-discretionary. Generally, the Director Plan
provides for an initial grant of options to purchase 15,000 shares of common
stock to each new non-employee director of the company when such individual
first becomes an Outside Director. In addition, each non-employee director will
automatically be granted subsequent options to purchase 5,000 shares of common
stock on each date on which such director is re-elected by the stockholders of
the company, provided that as of such date such director has served on the Board
of Directors for at least six months. The exercise price of the options is 100%
of the fair market value of the common stock on the grant date. The term of each
option is ten years and each option granted to an non-employee director vests
over a three year period. The Director Plan will terminate in January 2008
unless sooner terminated by the Board of Directors.
1998 Stock Plan. The 1998 Stock Plan generally provides for the grant to
employees, directors and consultants of stock options and stock purchase rights.
Unless terminated sooner, the 1998 Plan will terminate automatically in January
2008. A total of 5,000,000 shares are reserved for issuance under the 1998 Stock
Plan, and there is a provision for an annual replenishment to bring the number
of shares of common stock reserved for issuance under the plan up to 5,000,000
as of each January 1.
Unless determined otherwise by the Board of Directors or a committee
appointed by the Board of Directors, options and stock purchase rights granted
under the 1998 Plan are not transferable by the optionee. Generally, the
exercise price of all stock options granted under the 1998 Plan must be at least
equal to the fair market value of the shares on the date of grant. In general,
the options granted will vest over a four year period and the term of the
options granted under the 1998 Plan may not exceed ten years.
1998 Stock Option Plan for French Employees. Unless terminated sooner, the
French Plan will continue in existence until 2003. The French Plan provides for
the granting of options to employees of our French subsidiaries. A total of
250,000 shares of common stock are reserved for issuance under the French Plan,
and there is a provision for an annual replenishment to bring the number of
shares of common stock reserved for issuance under the plan up to 250,000 as of
each January 1. In general, stock options granted under the French Plan vest
over a four year period, the exercise price for each option granted under the
French Plan shall be 100% of the fair market value of the shares of common stock
on the date the option is granted and the maximum term of the option must not
exceed ten years. Shares subject to the options granted under the French Plan
may not be transferred, assigned or hypothecated in any manner other than by
will or the laws of descent or distribution before the date which is five years
after the date of grant.
55
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the stock option plans follows:
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER EXERCISE PRICE GRANT DATE
OF SHARES PER SHARE FAIR VALUES
---------- ---------------- ----------------
Balance at December 31, 1998 .. 3,823,900 $ 9.97
Granted ....................... 1,468,450 10.62 $ 6.33
==========
Exercised ..................... 75,534 10.49
Cancelled ..................... 151,268 9.91
---------- ----------
Balance at December 31, 1999 .. 5,065,548 10.15
Granted ....................... 5,168,950 40.15 $ 22.46
==========
Exercised ..................... 418,388 10.32
Cancelled ..................... 545,909 33.87
---------- ----------
Balance at December 31, 2000 .. 9,270,201 25.48
Granted ....................... 4,313,850 15.14 $ 8.47
==========
Exercised ..................... 517,822 9.88
Cancelled ..................... 709,863 27.60
---------- ----------
Balance at December 31, 2001 .. 12,356,366 $ 22.40
========== ==========
Options exercisable at:
December 31, 1999 ............. 1,363,644 $ 9.82
December 31, 2000 ............. 2,827,380 10.23
December 31, 2001 ............. 4,508,557 22.35
Significant option groups outstanding at December 31, 2001 and the related
weighted average exercise price and remaining contractual life information are
as follows:
OUTSTANDING EXERCISABLE
------------------------ -------------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE REMAINING
SHARES PRICE SHARES PRICE LIFE (YEARS)
------------ --------- ------------ --------- ------------
Options with Exercise Price of:
$50.44 - $60.06...................................... 57,815 $ 52.58 23,544 $ 52.69 8.3
$33.563 - $50.3445................................... 3,486,753 $ 42.98 1,458,839 $ 43.03 8.2
$22.125 - $33.1875................................... 612,191 $ 29.45 210,202 $ 31.15 8.5
$14.438 - $21.657.................................... 4,342,678 $ 15.52 123,016 $ 18.68 9.2
$9.06 - $13.59....................................... 3,318,332 $ 10.67 2,310,167 $ 10.85 6.9
$5.66 - $8.49........................................ 538,597 $ 5.70 382,789 $ 5.70 6.9
------------ ------------
Options outstanding at December 31, 2001................ 12,356,366 4,508,557
============ ============
In order to calculate the fair value of stock options at date of grant, we
used the Black-Scholes option pricing model. The following assumptions were used
to calculate weighted average fair values of the options granted:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000 1999
------ ------ ------
Expected life (in years) ....... 4 4 4
Risk-free interest rate ........ 4.5% 6.8% 5.4%
Volatility ..................... 70% 66% 75%
Dividend yield ................. -- -- --
1998 Employee Stock Purchase Plan. A total of 1,000,000 shares of common
stock are available for sale under the Stock Purchase Plan and an annual
increase is to be added on each anniversary date of the adoption of the Stock
Purchase Plan to restore the maximum aggregate number of shares of common stock
available for sale under the plan up to 1,000,000. Employees (including officers
and employee directors of the company but excluding 5% or greater stockholders)
are eligible to participate if they are customarily employed for at least 20
hours per week. The Stock Purchase Plan permits eligible
56
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees to purchase common stock through payroll deductions, which may not
exceed 15% of the compensation an employee receives on each payday. Each
participant will be granted an option on the first day of a two year offering
period, and shares of common stock will be purchased on four purchase dates
within the offering period. The purchase price of the common stock under the
Stock Purchase Plan will be equal to 85% of the lesser of the fair market value
per share of common stock on the start date of the offering period or on the
purchase date. Employees may end their participation in an offering period at
any time, and participation ends automatically on termination of employment with
the company. The Stock Purchase Plan will terminate in January 2008, unless
sooner terminated by the Board of Directors.
For the years ended December 31, 2001, 2000 and 1999, employees purchased
common stock shares under the stock purchase plan of 482,937, 263,498 and
586,755, respectively. The average estimated fair values of the purchase rights
granted during the years ended December 31 2001, 2000 and 1999 based on the
Black-Scholes option pricing model were $6.53, $12.17 and $5.65, respectively.
The following assumptions were used to calculate weighted average fair values of
the purchase rights granted:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
------ ------ ------
Expected life (in years) .... 0.5 0.5 0.5
Risk-free interest rate ..... 4.5% 6.8% 5.4%
Volatility .................. 70% 66% 75%
Dividend yield .............. -- -- --
We account for our stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and the Financial Accounting Standards Board Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB No. 25." Accordingly, compensation cost for stock-based
plans is generally measured as the excess, if any, of the quoted market price of
our company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. Had we recorded compensation expense for our stock
compensation plans, as provided by SFAS No. 123, "Accounting for Stock-Based
Compensation," our reported net income and basic and diluted earnings per share
would have been reduced to the pro forma amounts indicated below:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Net Income (Loss):
As reported ..... $ (450,861) $ 154,153 $ 76,719
Pro forma ....... (480,480) 127,581 72,033
Earnings per share:
Basic:
As reported ..... (2.87) 1.06 0.64
Pro forma ....... (3.06) 0.88 0.60
Diluted:
As reported ..... (2.87) 1.02 0.63
Pro forma ....... (3.06) 0.85 0.59
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined
using available market information and appropriate methodologies; however,
considerable judgment is required in interpreting market data to develop the
estimates for fair value. Accordingly, these estimates are not necessarily
indicative of the amounts that we could realize in a current market exchange.
Certain of these financial instruments are with major financial institutions and
expose us to market and credit risks and may at times be concentrated with
certain counterparties or groups of counterparties. The creditworthiness of
counterparties is continually reviewed, and full performance is anticipated.
The carrying amounts reported in the balance sheet for short-term
investments, due from affiliates, other accounts receivable, due to affiliates,
accrued expenses and accrued income taxes approximate fair value due to the
short-term nature of these instruments. The methods and assumptions used to
estimate the fair value of other significant classes of financial instruments is
set forth below:
57
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents. Cash and cash equivalents are due on demand or
carry a maturity date of less than three months when purchased. The carrying
amount of these financial instruments is a reasonable estimate of fair value.
Available for sale investments. The fair value of these financial
instruments was estimated based on market quotes, recent offerings of similar
securities, current and projected financial performance of the company and net
asset positions.
Long-term debt. The carrying amount of our total long-term debt as
December 31, 2001 was $1,771.5 million and the fair value based on available
market quotes is estimated to be $1,573.5 million.
17. 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 remit to the third party our estimate of amounts due under this agreement.
Depending on the outcome of this dispute, the ultimate payable by us, as of
December 31, 2001, could be up to an additional $14.6 million. The third party
is not actively pursuing resolution to this dispute and we have not accrued the
potential additional amount.
Net future minimum lease payments under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are:
DECEMBER 31,
2001
---------------
(IN THOUSANDS)
2002 ....................................................... $ 18,137
2003 ....................................................... 14,501
2004 ....................................................... 8,046
2005 ....................................................... 7,444
2006 ....................................................... 7,191
Thereafter..................................................... 60,870
---------------
Total (net of minimum sublease income of $3,619)....... $ 116,189
===============
Rent expense amounted to $21.8 million, $13.7 million and $10.4 million
for 2001, 2000 and 1999, respectively. We lease office space in West Chester,
Pennsylvania from certain of our stockholders. The lease expires in 2006. We
have the option to extend the lease for an additional 10 years through 2016.
Amounts paid for this lease in 2001, 2000 and 1999 were $1.2 million, $1.2
million and $1.1 million, respectively.
18. 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, Japan, Taiwan and China, 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 for ASI's wafer
foundry, under a long-term supply agreement.
We derived 79.4%, 80.7% and 99.3% of our wafer fabrication revenues from
Texas Instruments (TI) for 2001, 2000 and 1999, respectively. Total net revenues
derived from TI accounted for 10.2%, 14.1% and 16.5% of our consolidated net
revenues 2001, 2000 and 1999, 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 14.3% of our
consolidated
58
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net revenues for 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
equity affiliates and other investments.
PACKAGING WAFER
AND TEST FABRICATION OTHER TOTAL
----------- ----------- ----------- -----------
2001
Net revenues ................................. $ 1,336,674 $ 181,188 $ $ 1,517,862
Gross profit ................................. 52,251 17,547 69,798
Operating income (loss) ...................... (272,494) 8,465 (264,029)
Depreciation and amortization including debt
issue costs .............................. 462,912 2,171 465,083
Capital expenditures including by acquisition 296,346 105 296,451
Total assets ................................. 2,540,020 87,953 595,345 3,223,318
2000
Net revenues ................................. $ 2,009,701 $ 377,593 $ -- $ 2,387,294
Gross profit ................................. 567,381 37,755 -- 605,136
Operating income ............................. 299,101 24,275 -- 323,376
Depreciation and amortization including debt
issue costs .............................. 330,824 2,085 -- 332,909
Capital expenditures including by acquisition 883,752 1,124 -- 884,876
Total assets ................................. 2,732,733 46,231 614,320 3,393,284
1999
Net revenues ................................. $ 1,617,235 $ 292,737 $ -- $ 1,909,972
Gross profit ................................. 319,877 29,279 -- 349,156
Operating income ............................. 158,283 17,794 -- 176,077
Depreciation and amortization including debt
issue costs .............................. 178,771 1,561 -- 180,332
Capital expenditures including by acquisition 603,173 2,536 -- 605,709
Total assets ................................. 1,391,105 37,011 326,973 1,755,089
The following table presents net revenues by country based on the
location of the customer:
NET REVENUES
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
United States ............. $ 601,066 $1,280,896 $1,316,147
Ireland ................... 76,786 92,548 57,000
Japan ..................... 297,277 76,133 20,086
Singapore ................. 151,183 325,903 238,961
Other foreign countries ... 391,550 611,814 277,778
---------- ---------- ----------
Consolidated .............. $1,517,862 $2,387,294 $1,909,972
========== ========== ==========
59
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents property, plant and equipment based on
the location of the asset:
PROPERTY, PLANT AND EQUIPMENT
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
United States ............. $ 87,776 $ 84,351 $ 48,438
Philippines ............... 471,302 579,619 448,644
Korea ..................... 698,448 813,983 362,144
Taiwan .................... 90,088 -- --
Japan ..................... 35,074 174 132
China ..................... 9,093 -- --
Other foreign countries ... 493 383 410
---------- ---------- ----------
Consolidated .............. $1,392,274 $1,478,510 $ 859,768
========== ========== ==========
The following supplementary information presents net revenues allocated by
product family for the packaging and test segment:
NET REVENUES
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
Traditional Leadframe ... $ 449,742 $ 647,872 $ 559,563
Advanced Leadframe ...... 293,402 508,544 412,395
Laminates ............... 444,170 719,576 561,181
Test and Other .......... 149,360 133,709 84,096
---------- ---------- ----------
Consolidated ............ $1,336,674 $2,009,701 $1,617,235
========== ========== ==========
60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Stockholders and the Board of Directors
Amkor Technology Philippines (P1/P2), Inc. and
Amkor Technology Philippines (P3/P4), Inc.
We have audited the combined balance sheet of Amkor Technology Philippines
(P1/P2), Inc. and Amkor Technology Philippines (P3/P4), Inc., (companies
incorporated under the laws of the Republic of the Philippines and collectively
referred to as the "Companies") as of December 31, 2001 and 2000, and the
related combined statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Amkor Technology Philippines (P1/P2), Inc. and Amkor Technology Philippines
(P3/P4), Inc. as of December 31, 2001 and 2000, and the combined results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ SYCIP GORRES VELAYO & CO.
Makati City, Philippines
March 19, 2002
61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amkor Technology, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Amkor Technology, Inc. and Subsidiaries
for the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of Anam Semiconductor, Inc. ("ASI") (See Note 3), the
investment in which is reflected in the accompanying 1999 financial statements
using the equity method of accounting. The equity in the net loss of ASI
represents 2% of net income before the equity in loss of investees in 1999. In
addition, we did not audit the financial statements of Amkor Technology Korea,
Inc., ("ATK"), a wholly-owned subsidiary, which statements reflect operating
income of 6% of consolidated operating income in 1999. The statements of ASI and
ATK were audited by other auditors whose reports have been furnished to us and
our opinion, insofar as it relates to amounts included for ASI and ATK, is based
solely on the reports of the other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based upon our audit and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Amkor Technology, Inc. and
Subsidiaries for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 3, 2000
62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Amkor Technology Korea, Inc.
We have audited the accompanying balance sheet of Amkor Technology Korea,
Inc. (the "Company") as of December 31, 1999, and the related statements of
operations, stockholder's equity, and cash flows for the period from February 19
(date of incorporation) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amkor Technology Korea, Inc.
as of December 31, 1999, and the results of its operations and its cash flows
for the period from February 19 (date of incorporation) to December 31, 1999 in
conformity with generally accepted accounting principles in the United States of
America.
/s/ SAMIL ACCOUNTING CORPORATION
Seoul, Korea
January 15, 2000
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amkor Technology, Inc.:
We have audited in accordance with auditing standards generally accepted
in the United States, the Consolidated Financial Statements of Amkor Technology,
Inc. and Subsidiaries as of December 31, 1999 and for the year then ended and
have issued our report thereon dated February 3, 2000. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities an Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements for the year ended December 31,
1999, and in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 3, 2000
64
AMKOR TECHNOLOGY, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED
BEGINNING TO BALANCE AT
OF PERIOD EXPENSE WRITE-OFFS OTHER END OF PERIOD
---------- --------- ---------- ------- -------------
Year ended December 31, 1999:
Allowance for doubtful accounts ... $ 5,952 $(3,500) $ (9) -- $ 2,443
Year ended December 31, 2000:
Allowance for doubtful accounts ... $ 2,443 $ (17) $ -- -- $ 2,426
Year ended December 31, 2001:
Allowance for doubtful accounts ... $ 2,426 $ 4,000 $(1,037) 1,453 $ 6,842
65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Reference is made to the information regarding our directors and officers
under the heading "Directors and Officers" in our proxy statement to be
delivered to stockholders in connection with the 2002 annual meeting of
stockholders, which information is hereby incorporated by reference.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires a company's
officers and directors, and persons who own more than ten percent of a
registered class of the company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. Such officers, directors and ten-percent stockholders are also
required by SEC rules to furnish the company with copies of all forms that they
file pursuant to Section 16(a). Based solely on our review of the copies of such
forms received by us, or written representations from certain reporting persons
that no other reports were required for such persons, we believe that all
Section 16(a) filing requirements applicable to our officers, directors and
ten-percent stockholders were complied with in a timely fashion.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information regarding executive compensation
appearing under the heading "Executive Compensation" in our proxy statement to
be delivered to stockholders in connection with the 2002 annual meeting of
stockholders, which information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information regarding security ownership under
the heading "Security Ownership of Certain Beneficial Owners and Management" in
our proxy statement to be delivered to stockholders in connection with the 2002
annual meeting of stockholders, which information is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information regarding relationships and related
transactions under the heading "Certain Relationships and Related Transactions"
in our proxy statement to be delivered to stockholders in connection with the
2002 annual meeting of stockholders, which information is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements and schedule filed as part of this Annual Report
on Form 10-K are listed in the
66
index under Item 8.
(b) REPORTS ON FORM 8-K
We did not file any reports of Form 8-K with the Securities and Exchange
Commission during the fourth quarter of the fiscal year ended December 31, 2001.
(c) EXHIBITS
2.1 Asset Purchase Agreement by and between Amkor Technology Korea, Inc. and
Anam Semiconductor, Inc., dated January 14, 2000.(12)
2.2 Amendment to Asset Purchase Agreement by and between Amkor Technology
Korea, Inc. and Anam Semiconductor, Inc., dated as of February 25,
2000.(12)
3.1 Certificate of Incorporation.(1)
3.2 Certificate of Correction to Certificate of Incorporation.(6)
3.3 Restated Bylaws.(6)
4.1 Specimen Common Stock Certificate.(4)
4.2 Convertible Subordinated Notes Indenture dated as of May 13, 1998 between
the Registrant and State Street Bank and Trust Company, including form of
5 3/4% Convertible Subordinated Notes due 2003.(4)
4.3 Senior Notes Indenture dated as of May 13, 1999 between the Registrant and
State Street Bank and Trust Company, including form of 9 1/4% Senior Note
Due 2006.(8)
4.4 Senior Subordinated Notes Indenture dated as of May 6, 1999 between the
Registrant and State Street Bank and Trust Company, including form of 10
1/2% Senior Subordinated Note Due 2009.(8)
4.5 Convertible Subordinated Notes Indenture dated as of March 22, 2000
between the Registrant and State Street Bank and Trust Company, including
form of 5% Convertible Subordinated Notes due 2007.(11)
4.6 Registration Agreement between the Registrant and the Initial Purchasers
named therein dated as of March 22, 2000.(11)
4.7 Indenture dated as of February 20, 2001 for 9-1/4% Senior Notes due
February 15, 2008.(13)
4.8 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.(13)
4.9 Convertible Subordinated Notes Indenture dated as of May 25, 2001 between
the Registrant and State Street Bank and Trust Company, as Trustee,
including the form of the 5.75% Convertible Subordinated Notes due
2006.(14)
4.10 Registration Rights Agreement between the Registrant and Initial
Purchasers named therein dated as of May 25, 2001.(14)
4.11 Amended and restated credit agreement dated as of March 30, 2001 between
the Registrant and the Initial Lenders and Initial Issuing Banks and
Salomon Smith Barney Inc., Citicorp USA, Inc. and Deutsche Banc Alex.
Brown, Inc.(14)
4.12 Amendment No. 1 to the Amended and restated credit agreement dated as of
March 30, 2001 between the Registrant and the Initial Lenders and Initial
Issuing Banks and Salomon Smith Barney Inc., Citicorp USA, Inc. and
Deutsche Banc Alex. Brown, Inc.(14)
4.13 Amendment No. 2 to the Amended and restated credit agreement dated as of
March 30, 2001 between the Registrant and the Initial Lenders and Initial
Issuing Banks and Salomon Smith Barney, Inc., Citicorp USA, Inc. and
Deutsche Banc Alex. Brown, Inc. (15)
10.1 Form of Indemnification Agreement for directors and officers.(4)
10.2 1998 Stock Plan and form of agreement thereunder.(4)
10.3 Form of Tax Indemnification Agreement between Amkor Technology, Inc.,
Amkor Electronics, Inc. and certain stockholders of Amkor Technology,
Inc.(4)
10.4 Commercial Office Lease between the 12/31/87 Trusts of Susan Y., David D.
and John T. Kim and Amkor Electronics, Inc., dated October 1, 1996.(1)
10.5 Commercial Office Lease between the 12/31/87 Trusts of Susan Y., David D.,
and John T. Kim and Amkor Electronics, Inc., dated June 14, 1996.(1)
67
10.6 Contract of Lease between Corinthian Commercial Corporation and Amkor/Anam
Pilipinas Inc., dated October 1, 1990.(1)
10.7 Contract of Lease between Salcedo Sunvar Realty Corporation and Automated
Microelectronics, Inc., dated May 6, 1994.(1)
10.8 Lease Contract between AAP Realty Corporation and Amkor/Anam Advanced
Packaging, Inc., dated November 6, 1996.(1)
10.9 Immunity Agreement between Amkor Electronics, Inc. and Motorola, Inc.,
dated June 30, 1993.(1)
10.10 1998 Director Option Plan and form of agreement thereunder.(1)
10.11 1998 Employee Stock Purchase Plan.(4)
10.12 Foundry Services Agreement by and among Amkor Electronics, Inc., C.I.L.
Limited, Anam Industries Co., Ltd. and Anam USA dated as of January 1,
1998.(1)
10.13 Technical Assistance Agreement by and between Texas Instruments
Incorporated and Anam Semiconductor, Inc. dated as of July 1, 2000.(16)+
10.14 Amended and Restated Manufacturing and Purchase Agreement by and between
Texas Instruments Incorporated, Anam Semiconductor, Inc. and Amkor
Technology, Inc., dated as of December 31, 2001.+
10.15 1998 Stock Option Plan for French Employees.(1)
10.16 Loan Agreement between Amkor Electronics, Inc. and John Boruch dated
January 30, 1998.(3)
10.17 Intellectual Property Transfer and License Agreement by and between Amkor
Technology, Inc. and Anam Semiconductor, Inc.(5)
12.1 Calculation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sycip Gorres Velayo & Co.
23.3 Consent of Samil Accounting Corporation.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Siana Carr & O'Connor, LLP.
23.6 Consent of Ahn Kwon & Company.
--------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed October 6, 1997 (File No. 333-37235).
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on October 6, 1997, as amended on October 27, 1997 (File No.
333-37235).
(3) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on October 6, 1997, as amended on December 31, 1997 (File No.
333-37235).
(4) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on October 6, 1997, as amended on March 31, 1998 (File No.
333-37235).
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on October 6, 1997, as amended on April 29, 1998 (File No.
333-37235).
(6) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on April 8, 1998, as amended on August 26, 1998 (File No.
333-49645).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
filed March 31, 1999.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q filed May 17, 1999.
(9) Incorporated by reference to the Company's Report on Form 8-K dated
October 26, 1999.
(10) Incorporated by reference to the Company's Report on Form 8-K dated
April 21, 1999, as filed on
68
April 26, 1999 and as amended on June 1, 1999.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
filed March 30, 2000.
(12) Incorporated by reference to the Company's Report on Form 8-K dated
May 2, 2000.
(13) Incorporated by reference to the Company's Quarterly Report on Form
10-Q filed May 15, 2001.
(14) Incorporated by reference to the Company's Quarterly Report on Form
10-Q filed August 14, 2001
(15) Incorporated by reference to the Company's Quarterly Report on Form
10-Q filed November 14, 2001.
(16) Incorporated by reference to the Company's Annual Report on Form 10-K
filed April 2, 2001, as amended on May 16, 2001.
(17) To be filed by amendment.
+ Confidential Treatment requested as to certain portions of this exhibit.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed, on its behalf by the undersigned, thereunto duly authorized.
AMKOR TECHNOLOGY, INC.
By: /s/ JAMES J. KIM
------------------------------------
James J. Kim
Chairman and Chief Executive Officer
Date: March 29, 2002
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James J. Kim and Kenneth Joyce, and each
of them, his attorneys-in-fact, and agents, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Report on Form 10-K, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents of any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ JAMES J. KIM Chief Executive Officer and Chairman March 29, 2002
-------------------------
James J. Kim
/s/ JOHN N. BORUCH President and Director March 29, 2002
-------------------------
John N. Boruch
/s/ KENNETH JOYCE Chief Financial Officer March 29, 2002
------------------------- (Principal Financial and Accounting Officer)
Kenneth Joyce
/s/ WINSTON J. CHURCHILL Director March 29, 2002
-------------------------
Winston J. Churchill
/s/ THOMAS D. GEORGE Director March 29, 2002
-------------------------
Thomas D. George
/s/ GREGORY K. HINCKLEY Director March 29, 2002
-------------------------
Gregory K. Hinckley
/s/ JOHN B. NEFF Director March 29, 2002
-------------------------
John B. Neff
70