<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
March 10, 2000
---------------------
Date of Report (Date of earliest event reported)
AMKOR TECHNOLOGY, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware
---------------------
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-29472 23-1722724
- -------------------- ------------------------------------
(Commission File No.) (IRS Employer Identification Number)
</TABLE>
1345 Enterprise Drive
West Chester, PA 19380
(610) 431-9600
---------------------
(Address of Principal Executive Offices)
---------------------
(Former name or former address, if changed since last report)
<PAGE> 2
The Registrant hereby amends Items of the Report on Form 8-K filed on March 13,
2000, as follows:
Item 5(a) is restated, in its entirety, as follows:
a) Our Proposed Acquisition of ASI's Packaging and Test Business and
Investment in ASI
PROPOSED ACQUISITION
We have agreed with ASI, subject to certain conditions, to purchase ASI's
packaging and test business, which consists primarily of its K1, K2 and K3
factories. The purchase price for these assets will be approximately $950.0
million. The table below provides selected information about these factories:
<TABLE>
<CAPTION>
APPROXIMATE
FACTORY SIZE
FACTORY LOCATION EMPLOYEES (SQUARE FEET) SERVICES
------- -------------- --------- ------------- ---------------------------------
<S> <C> <C> <C> <C>
K1................. Seoul, Korea 3,300 646,000 lead frame packaging and package
and process development
K2................. Pucheon, Korea 1,800 264,000 lead frame and laminates
packaging services
K3................. Pupyong, Korea 1,500 404,000 advanced lead frame packaging and
test services
</TABLE>
In connection with our acquisition of K1, K2 and K3, we will acquire all of
ASI's patents, patent applications and other intellectual property rights
related to its packaging and test business. We also plan to retain the
approximately 6,600 Korean employees currently working at K1, K2 and K3. We
intend to complete the acquisition during the second quarter of 2000.
PROPOSED INVESTMENT
In October 1999, we purchased 10 million shares of ASI's common stock at a
price of W5,000 per share, for approximately $41.6 million. As a result of this
investment and the conversion of ASI's debt to equity by ASI's creditor banks,
we now own approximately 18% of ASI's voting stock. We have also agreed to make
a $459.0 million additional investment in ASI, subject to certain conditions. We
have agreed to invest $309.0 million of this additional investment at the time
we acquire K1, K2 and K3, with the remaining $150.0 million to be invested in
three installments: $30.0 million by June 30, 2000, $60.0 million by August 31,
2000 and $60.0 million by October 31, 2000. However, we have the right to
accelerate this investment. Of this $459.0 million investment, $109.0 million
will be invested at a purchase price of W8,000 per share and the remaining
$350.0 million will be invested at W18,000 per share. As of February 28, 2000,
the closing price of ASI's common stock on the Korea Stock Exchange was W10,100
per share. As of March 16, 2000, the closing price of ASI's common stock on the
Korea Stock Exchange was W15,600. Our investment will fulfill our prior
obligation to invest $150.0 million in ASI. Based upon an exchange rate of
W1,135 per $1.00 at December 31, 1999, we would purchase a total of
approximately 37.5 million shares for this $459.0 million investment in ASI. If
we acquire this number of shares of ASI's common stock, assuming ASI's creditor
banks convert an additional W150 billion (approximately $132.0 million) of their
ASI debt to equity in connection with our acquisition and investment, we will
own approximately 43% of ASI's outstanding voting stock.
PROPOSED FINANCING
We intend to finance the purchase of K1, K2 and K3 and the investment in
ASI with our proposed private placement of Series A preferred stock,
approximately $750.0 million of new secured bank debt, a proposed issuance of
$225.0 million of convertible subordinated notes and cash on hand.
In November 1999, we secured a commitment from a group of institutional
investors to provide $410.0 million in equity financing for use in connection
with our proposed acquisition of K1, K2 and K3.
<PAGE> 3
If we consummate our acquisition of K1, K2 and K3, we would issue to these
investors a total of 2,050,000 shares of Series A preferred stock, convertible
into an aggregate of 20,500,000 shares of our common stock. In addition, we
would issue warrants for an aggregate of 3,895,000 million shares of our common
stock with a strike price of $27.50 per share to the Series A preferred stock
investors. These warrants would expire four years after the date we issue them.
For a more complete description of the rights and privileges of the Series A
preferred stock, as well as a description of ancillary agreements that we would
enter into with the Series A preferred stock investors, see "Proposed Private
Placement of Series A Preferred Stock."
We expect to borrow $750.0 million in new secured bank debt under a new
$850.0 million secured credit facility to be provided by a syndicate of
institutional lenders. We are currently in the process of negotiating the terms
of the facility to be provided by a syndicate of institution lenders. The
initial borrowing under the facility will be subject to the consummation of our
proposed acquisition of K1, K2 and K3 and other related transactions. The
facility will provide for amortization of the drawn amount over a five to five
and one-half-year period and quarterly principal and interest payments. We will
be required to make mandatory prepayments under the facility out of a portion of
any excess cash flow, the net proceeds of any asset sales and the net proceeds
of any issuance of debt or equity securities, subject to certain exceptions. We
expect that the agreement governing the facility will include certain financial
covenants, as well as covenants restricting our ability to incur debt, pay
dividends, make certain investments and payments, and encumber or dispose of
assets. We expect that our obligations under the facility will be guaranteed by
certain of our subsidiaries and will be secured by a pledge of the domestic
assets of our company and our subsidiaries, a pledge of the shares of certain of
our subsidiaries and a pledge of certain intercompany indebtedness.
The closing of our proposed private placement of Series A preferred stock
and our proposed new secured bank financing is expected to take place
concurrently with, and is conditioned upon, the closing of our acquisition of
K1, K2 and K3 and our investment in ASI. We cannot assure you that any of these
transactions will occur.
RELATIONSHIP WITH ASI FOLLOWING OUR ACQUISITION OF ASI'S PACKAGING AND TEST
BUSINESS AND OUR INVESTMENT IN ASI
If we complete our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, we expect to continue to have certain contractual and other
business relationships with ASI, including under our wafer fabrication services
supply agreement with ASI. Under this supply agreement, we will continue
to have the exclusive right to all of the wafer output of ASI's wafer
fabrication facility. The supply agreement has a five-year term, expiring
November 1, 2002, and may be terminated by either party upon five years' written
notice after completion of the initial five year term. The supply agreement may
also be terminated upon breach or insolvency of either party. The supply
agreement generally provides for continued cooperation between our company and
ASI in research and development.
Concurrent with the completion of our proposed acquisition of K1, K2 and
K3, we will enter into a transition services agreement with ASI. Pursuant to
this agreement, we will provide many of the same services to ASI's wafer
fabrication business that had been provided by ASI's packaging and test business
prior to its acquisition by us, including human resources, accounting and
general administrative services and customer services.
Following our proposed investment in ASI and the anticipated conversion of
additional ASI debt to equity by ASI's creditor banks, we will own approximately
43% of ASI's outstanding voting stock. Accordingly, we will 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, 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. In addition, under proposed changes in U.S. GAAP, we could be required to
consolidate ASI's financial results with ours. In such an event, adverse changes
in any line item of ASI's financial statements would adversely affect the
corresponding line items in our consolidated financial statements.
<PAGE> 4
Our company and ASI will also continue to have close ties due to our
overlapping ownership and management. We expect that Mr. James Kim will continue
to serve as Chairman and as a Director of ASI and as our Chairman and Chief
Executive Officer. The Kim family currently beneficially owns approximately 59%
of our outstanding common stock and approximately 11% of ASI's voting stock. If
we complete our proposed private placement of Series A preferred stock, our
proposed investment in ASI and if ASI's creditor banks convert additional ASI
debt into equity, the Kim family will beneficially own approximately 51% of our
outstanding common and preferred stock and approximately 6% of ASI's voting
stock. Even though the Kim family's direct ownership of ASI and our company will
be reduced, we believe that the Kim family will continue to exercise significant
influence over our company, ASI and its affiliates.
We have also entered into agreements with ASI and Texas Instruments
relating to our wafer fabrication business. For information on these agreements,
see "Business -- Wafer Fabrication Services" in our report on Form 10-K for the
year ended December 31, 1998.
We may engage in other transactions with ASI from time to time that are
material to us. The indentures governing our senior subordinated notes, our
subordinated notes and our convertible subordinated notes, as well as the
agreements relating to our new secured bank debt, restrict our ability to enter
into transactions with ASI and other affiliates.
PROPOSED PRIVATE PLACEMENT OF SERIES A PREFERRED STOCK
In November, 1999 we secured a commitment from a group of investors to
provide $410.0 million in equity financing for use in connection with our
proposed acquisition of K1, K2 and K3 and proposed investment in ASI. The
following discussion assumes that we have consummated these transactions.
SERIES A PREFERRED STOCK
We would issue to these investors 2,050,000 shares of Series A preferred
stock, convertible into an aggregate of 20,500,000 shares of our common stock.
The Series A preferred stock would be convertible at any time at the election of
the holder, and would convert automatically upon the earlier of (i) such time
that the fair market value of our common stock exceeded predetermined levels for
30 consecutive trading days or (ii) five years after the first issue date of the
Series A preferred stock. Holders of the Series A preferred stock would be
entitled to receive dividends as may from time to time be declared by the Board
of Directors out of funds legally available therefor and prior to payment of
dividends to holders of common stock. In the event of a liquidation, dissolution
or winding up of our Company, holders of Series A preferred stock would be
entitled to receive $200 per share, or an aggregate of $410.0 million (assuming
issuance of 2,050,000 shares of Series A preferred stock) prior to and in
preference of the holders of common stock. After the Series A preferred stock
liquidation preference is paid, the holders of common stock would be entitled to
share equally and ratably in the remaining assets of the Company, if any.
Holders of Series A preferred stock would be entitled to vote on all
matters on which the holders of common stock are entitled to vote and have the
number of votes equal to the number of shares of common stock into which their
shares of Series A preferred stock are convertible. In addition, the holders of
the Series A preferred stock would be entitled to a class vote to approve (i)
changes to our Certificate of Incorporation or Bylaws if such change would
directly and adversely affect the rights of the Series A preferred stock or (ii)
authorization of any class of stock having preference or priority to the rights
of the Series A preferred stock. Finally, for so long as at least 500,000 shares
of Series A preferred stock remain outstanding, the holders of the Series A
preferred stock will be entitled to elect one member of our Board of Directors.
WARRANTS
We would issue warrants for an aggregate of 3,895,000 shares of common
stock with a strike price of $27.50 per share to the Series A preferred stock
investors. These warrants would expire four years after the date we issue them.
STOCKHOLDER RIGHTS AGREEMENT
We would enter into an agreement with the Series A preferred stock
investors relating to their rights and obligations as stockholders. The
agreement would include the following provisions:
- Registration Rights: Holders of the Series A preferred stock and warrants
issued with respect thereto would be entitled to certain rights with
respect to the registration of the resale of shares of common stock
issued on conversion or exercise thereof (the "Registrable Securities")
under the Securities Act. We will have an obligation to register part or
all of these shares after the first anniversary of the date we first
issue the Series A preferred stock on up to four occasions if the holders
of at least 20% of the Registrable Securities request that we do so,
provided that we have not already caused a registration statement to go
effective within the last nine months. In addition, we shall extend to
the holders of Registrable Securities the right to include their
securities in registrations initiated by us. These registration rights
would expire six years after we issue the Series A preferred stock.
- Preemptive Rights: We would extend to the holders of at least 750,000
shares of Registrable Securities the right to purchase up to their
pro-rata amount of new securities that we issue, subject to various
exceptions, until five years after we issue the Series A preferred stock.
<PAGE> 5
Item 5(b)(1) is restated, in its entirety, as follows:
b) Financial Data of Amkor and ASI
1) Unaudited Pro Forma Consolidated Financial Data of Amkor
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF AMKOR
The unaudited pro forma consolidated balance sheet as of December 31, 1999
appearing below gives effect to the following proposed transactions as if they
had occurred on December 31, 1999:
- our proposed $410.0 million private placement of our Series A preferred
stock;
- our proposed incurrence of $750.0 million of new secured bank debt;
- our proposed issuance of $225.0 million of convertible subordinated
notes;
- our proposed acquisition of K1, K2 and K3 for $950.0 million;
- our proposed $459.0 million equity investment in ASI;
- ASI's use of the net proceeds from its proposed sale of K1, K2 and K3 and
our proposed investment, principally to repay outstanding debt; and
- the proposed conversion of W150 billion (approximately $132 million) of
ASI's debt to equity by ASI's creditor banks.
The unaudited pro forma, consolidated income statement for the year ended
December 31, 1999 appearing below gives effect to the above proposed and the
following historical transactions for the year ended December 31, 1999 appearing
below as if they occurred on January 1, 1999:
- our acquisition of K4 in May 1999 for $582.0 million and our incurrence
of $625.0 million of long-term debt in connection with that acquisition;
- our W50 billion (approximately $41.6 million) equity investment in ASI in
October 1999;
- the conversion of W98 billion (approximately $82 million) of ASI's debt
into equity by ASI's creditor banks in October 1999; and
- ASI's use of the net proceeds from its sale of K4, principally to repay
outstanding debt.
The unaudited pro forma consolidated financial information appearing below
is not necessarily indicative of the results of operations and financial
condition that we would have achieved if the completed and proposed transactions
described above had actually been consummated on such dates, nor are they
necessarily indicative of the future results and financial condition we will
achieve if the proposed transactions are consummated. In addition, while we
expect that the proposed transactions described above will be consummated on the
terms described in this report, these transactions may not be consummated on
those terms, or at all. Accordingly, our future results and financial condition
could vary significantly from the unaudited pro forma consolidated financial
information appearing below.
We have used the purchase method of accounting in accordance with APB
Opinion No. 16 "Business Combinations" to prepare the accompanying unaudited pro
forma consolidated financial information. Under this method of accounting, we
allocated (1) the $575.0 million aggregate purchase price of K4, plus $7.0
million of assumed employee benefit liabilities and (2) the $950.0 million
aggregate purchase price of K1, K2 and K3, to specific assets acquired based on
their estimated fair values. The purchase price does not include $20.3 million
of transaction expenses incurred in connection with the acquisition of K4 or the
$30.0 million of estimated transaction fees and expenses expected to be incurred
in connection with our proposed acquisition of K1, K2 and K3 and related
financing. The balance of the purchase price both of K4 and of K1, K2 and K3
represents the excess of cost over net assets acquired. We have estimated the
preliminary fair value of K1, K2 and K3 assets based primarily on our knowledge
of this business and on information furnished by ASI. We will determine the
final allocation of the purchase price after the consummation of the acquisition
of K1, K2 and K3 based upon the receipt of an appraisal. We will not complete
all of the work required to fully evaluate the assets acquired by the time of
the closing of the acquisitions. Accordingly, we may not finalize purchase
accounting adjustments for up to one year after the closing of our acquisition
of K1, K2 and K3.
We have used the equity method of accounting in accordance with APB Opinion
No. 18 to prepare the accompanying unaudited pro forma financial information to
give effect to our investment in ASI. Under this method of accounting, our
investment in ASI is carried at cost plus or minus our equity in all increases
or decreases in the investee's net assets after the date of investment. Under
the equity method, net income and stockholders' equity of the investor should be
the same as if the investor fully consolidated the investee. Accordingly, we
have included in the unaudited pro forma consolidated income statement for the
year ended December 31, 1999 the equity in the loss of ASI, including
amortization of the excess of the cost of our investment over the underlying
equity in the net assets at the date of investment.
We have prepared the unaudited pro forma consolidated financial information
in accordance with U.S. GAAP. These principles require us to make extensive use
of estimates and assumptions that affect: (1) the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and (2) the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
<PAGE> 6
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
ACQUISITION PRO FORMA
OF K1, K2 ADJUSTMENTS
K1, K2 AND K3 AND FOR
AMKOR AND K3 OUR INVESTMENT PROPOSED PRO FORMA
HISTORICAL HISTORICAL IN ASI FINANCING AS ADJUSTED
---------- ---------- ----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 98,045 $ -- $ -- $ (4,391)(a) $ 93,654
Short-term investments.................. 136,595 -- -- (136,595) --
Accounts receivable:
Trade................................. 157,281 3,416 (3,416)(b) 71,500(e) 228,781
Due from affiliates................... 6,278 304,762 (304,762)(b) -- 6,278
Other................................. 6,469 3,653 (3,653)(b) -- 6,469
Inventories............................. 91,465 7,984 -- -- 99,449
Other current assets.................... 11,117 2,666 (2,666)(b) -- 11,117
---------- --------- --------- ---------- ----------
Total current assets........... 507,250 322,481 (314,497) (69,486) 445,748
---------- --------- --------- ---------- ----------
Property, plant and equipment, net...... 859,768 404,384 20,616(c) -- 1,284,768
---------- --------- --------- ---------- ----------
Investments............................. 63,672 -- 459,000(j) -- 522,672
---------- --------- --------- ---------- ----------
Other assets:
Due from affiliates................... 27,858 277 (277)(b) -- 27,858
Excess of cost over net assets
acquired............................ 233,532 -- 517,016(d) -- 750,548
Deferred income taxes................. -- 41,656 (41,656)(b) -- --
Other................................. 63,009 4,953 (4,953)(b) 30,000(f) 93,009
---------- --------- --------- ---------- ----------
Total other assets............. 324,399 46,886 470,130 30,000 871,415
---------- --------- --------- ---------- ----------
Total assets................... $1,755,089 $ 773,751 $ 635,249 $ (39,486) $3,124,603
========== ========= ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdraft.......................... $ 16,209 $ -- $ -- $ -- $ 16,209
Short-term borrowings and current
portion of long-term debt............. 6,465 -- -- (6,465)(k) --
Trade accounts payable.................. 122,147 51,360 (51,360)(b) -- 122,147
Due to affiliates....................... 37,913 14,788 (14,788)(b) -- 37,913
Accrued expenses........................ 88,577 13,845 (13,845)(b) -- 88,577
Accrued income taxes.................... 41,587 -- -- -- 41,587
---------- --------- --------- ---------- ----------
Total current liabilities...... 312,898 79,993 (79,993) (6,465) 306,433
Long-term debt.......................... 9,021 -- -- 750,000(g) 750,000
(9,021)(k) --
Due to affiliates....................... -- 124,294 (124,294) -- --
Senior and senior subordinated notes.... 625,000 -- -- -- 625,000
Convertible subordinated notes.......... 53,435 -- -- 225,000(h) 278,435
Other noncurrent liabilities............ 16,994 45,122 (45,122)(b) -- 16,994
---------- --------- --------- ---------- ----------
Total liabilities.............. 1,017,348 249,409 (249,409) 959,514 1,976,862
---------- --------- --------- ---------- ----------
Stockholders' equity:
Common stock.......................... 131 -- -- -- 131
Preferred stock....................... -- -- -- 2(i) 2
Warrants to purchase common stock..... -- -- -- 35,000(i) 35,000
Additional paid-in capital............ 551,964 -- -- 374,998(i) 926,962
Receivable from stockholders.......... (3,276) -- -- -- (3,276)
Retained earnings..................... 189,733 -- -- -- 189,733
Unrealized losses..................... (811) -- -- -- (811)
Net assets (liabilities).............. -- 524,342 (524,342)(b) -- --
---------- --------- --------- ---------- ----------
Total stockholders' equity..... 737,741 524,342 (524,342) 410,000 1,147,741
---------- --------- --------- ---------- ----------
Total liabilities and
stockholders' equity......... $1,755,089 $ 773,751 $(773,751) $1,369,514 $3,124,603
========== ========= ========= ========== ==========
</TABLE>
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(a) Represents net cash to be used to acquire K1, K2 and K3, to make the
additional investment in ASI and to pay transaction fees and expenses.
<PAGE> 7
(b) Represents the elimination of those assets and liabilities of K1, K2 and K3
that we will not acquire or assume as part of our proposed acquisition of
K1, K2 and K3.
(c) Represents the excess of the fair value over the book value of the
property, plant and equipment acquired.
(d) Represents the excess of the purchase price for K1, K2 and K3 over the
estimated fair values of the net assets acquired.
(e) Represents the repurchase of accounts receivable to retire our accounts
receivable sales agreement.
(f) Represents transaction fees and expenses, which have been recorded as
deferred financing costs and will be amortized over the debt's term.
(g) Represents the financing of the transactions with $750.0 million of new
secured bank debt.
(h) Represents the proposed issuance of $225.0 million of convertible
subordinated notes.
(i) Represents the issuance of 2,050,000 shares of Series A preferred stock at
$200 per share (convertible into 20,500,000 shares of common stock at
$20.00 per share) and the fair value of the related warrants to purchase
3,895,000 shares of common stock at $27.50 per share.
(j) Represents our additional $459.0 million investment in ASI.
(k) Represents the paydown of existing debt.
<PAGE> 8
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
PRO FORMA ACQUISITION
ADJUSTMENT OF K1, K2
FOR K1, K2 AND K3 AND OUR PRO FORMA
AMKOR K4 ACQUISITION AND K3 INVESTMENT ADJUSTMENT FOR PRO FORMA
HISTORICAL HISTORICAL OF K4 HISTORICAL IN ASI PROPOSED FINANCING AS ADJUSTED
---------- ---------- ------------ ---------- -------------- ------------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $1,909,972 $ 42,582 $(39,353)(a) $435,659 $(407,751)(a) $ -- $1,941,109
Cost of revenues --
including purchases
from ASI.................. 1,577,226 30,725 (39,353)(a) 289,233 (407,751)(a) -- 1,472,235
10,751(b) 51,881(b) --
(4,792)(c) (35,685)(c) --
---------- -------- -------- -------- --------- -------- ----------
Gross profit............ 332,746 11,857 (5,959) 146,426 (16,196) -- 468,874
---------- -------- -------- -------- --------- -------- ----------
Operating expenses:
Selling, general and
administrative.......... 145,233 2,344 -- 16,120 -- -- 163,697
Research and
development............. 11,436 536 -- 3,383 -- -- 15,355
---------- -------- -------- -------- --------- -------- ----------
Total operating
expenses............ 156,669 2,880 -- 19,503 -- -- 179,052
---------- -------- -------- -------- --------- -------- ----------
Operating income........ 176,077 8,977 (5,959) 126,923 (16,196) -- 289,822
---------- -------- -------- -------- --------- -------- ----------
Other (income) expense:
Interest expense, net..... 45,364 24,492 (1,319)(d) (19,091) 19,091(d) 83,990(g) 159,760
-- -- -- -- -- 1,733(h) --
7,049(h) --
(1,549)(h) --
Foreign currency (gain)
loss.................... 308 (16,665) 16,665(d) (582) 582(d) -- 308
Other (income) expense,
net..................... 25,117 113 -- 1,449 -- (4,280)(i) 22,399
---------- -------- -------- -------- --------- -------- ----------
Total other (income)
expense............. 70,789 7,940 15,346 (18,224) 19,673 86,943 182,467
---------- -------- -------- -------- --------- -------- ----------
Income (loss) before
income taxes and
minority interest..... 105,288 1,037 (21,305) 145,147 (35,869) (86,943) 107,355
Provision for (benefit
from) income taxes........ 26,600 -- (5,937)(e) 46,376 (46,376)(f) (1,782) 18,881
Equity in loss of
investees................. (1,969) -- -- -- (69,971)(j) -- (71,940)
---------- -------- -------- -------- --------- -------- ----------
Net income.............. $ 76,719 $ 1,037 $(15,368) $ 98,771 $ (59,464) $(85,161) $ 16,534
========== ======== ======== ======== ========= ======== ==========
Basic net income
per common share........ $ .64 $ .14
========== ==========
Diluted net income
per common share........ $ .63 $ .12
========== ==========
Shares used in computing
basic net income per
common share............ 119,341 119,341
Shares used in computing
diluted net income per
common share(k).......... 135,067 141,339
</TABLE>
- ---------------
(a) We have eliminated the processing charges that we have paid to ASI for
services performed for us at the K4 and the K1, K2 and K3 facilities under
our supply agreements. Because we currently sell substantially all of K4's
and K1, K2 and K3's services, the net revenue from the sale of these
services to our customers is already reflected in our historical net
revenues.
(b) Represents the amortization of goodwill related to our acquisition of K4 and
our acquisition of K1, K2 and K3, assuming a ten-year life.
(c) Represents change in depreciation expense based on adjusted book values of
acquired property, plant and equipment of K4 and of K1, K2 and K3.
(d) Represents the elimination of interest expense and foreign currency losses
related to the debt of K4 and of K1, K2 and K3 which we have not assumed as
part of the acquisition of K4 and will not assume as part of our acquisition
of K1, K2 and K3. As it relates to the Acquisition of K4, interest expense,
net includes (1) interest expense of $22.2 million on $625 million of senior
and senior subordinated notes at an assumed weighted average interest rate
of 9.65%, (2) $1.0 million of amortization of debt issuance costs, which are
amortized over the life of the respective debt, and (3) net of $24.5 million
of the K4 interest eliminated.
(e) Represents an income tax benefit due to the pro forma adjustments for
interest expense.
<PAGE> 9
(f) Represents the elimination of income tax expenses at K1, K2 and K3 due to
the fact that profits of K1, K2 and K3 will be subject to a tax holiday in
Korea.
(g) Represents (1) interest expense on $750.0 million of new secured bank debt
and on $225.0 million of convertible notes at an assumed weighted average
interest rate of 8.17% and (2) $5.6 million of amortization of debt issuance
costs, which are amortized over the life of the respective debt.
(h) Represents interest on funds used to finance our $41.6 million investment in
ASI made in October 1999 and cash used to repurchase accounts receivable of
$71.5 million and to fund transaction costs and expenses net of interest
savings as a result of the pay down of $15.5 million of our existing debt.
(i) Represents fees paid by us under our accounts receivable sale agreement.
(j) Represents our equity in the loss of ASI, including $51.5 million of
amortization of the difference between the cost of our investment
over the underlying equity in net assets of ASI, assuming that the
investment occurred on January 1, 1999.
(k) Shares used in computing the diluted pro forma as adjusted net income per
common share for the year ended December 31, 1999 give effect to the
conversion into common stock of our Series A preferred stock we intend to
issue in a private placement and the exercise of outstanding stock options.
On a pro forma as adjusted basis, the conversion of convertible subordinated
notes is not dilutive.
<PAGE> 10
Item 5(c) is restated, in its entirety, as follows:
c) 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 statements regarding: (1) the
anticipated growth in the market for our products, (2) our anticipated capital
expenditures and financing needs, (3) our expected capacity utilization rates,
(4) our belief as to our future operating performance, (5) our proposed
acquisition of K1, K2 and K3 and our proposed investment in ASI, including the
financing of these transactions, (6) future won/dollar exchange rates, (7) the
future of our relationship with ASI and (8) other matters that are not
historical facts. 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" and "Business."
The following discussion provides information and analysis of our results of
operations for the three years ended December 31, 1999 and our liquidity and
capital resources. You should read the following discussion in conjunction with
"Selected Historical Consolidated Financial Data of Amkor" and our consolidated
financial statements and the related notes, included elsewhere in this report.
OVERVIEW
From 1995 to 1999, our net revenues increased from $932.4 million to
$1,910.0 million. We generate revenues primarily from the sale of semiconductor
packaging and test services. Historically we performed these services at our
three factories in the Philippines and subcontracted for additional services
with ASI which operated four packaging and test facilities in Korea. In May
1999, we acquired K4, one of ASI's packaging and test facilities, and we intend
to acquire ASI's remaining packaging and test facilities, K1, K2, and K3 during
the second quarter of 2000. Since 1998, we have also generated revenue by
marketing the wafer fabrication services performed by the wafer fabrication
facility owned by ASI. If we complete our proposed acquisition of K1, K2 and K3,
we will no longer depend upon ASI for packaging or test services, but we will
continue to market ASI's wafer fabrication services.
Historically, prices for our packaging and test services and wafer
fabrication services have declined over time. Beginning in 1997, a worldwide
slowdown in demand for semiconductor devices led to excess capacity and
increased competition. As a result, price declines in 1998 accelerated. From
1996 through 1999, we were 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. We cannot assure you that we will
be able to offset any such price declines in the future. In addition, beginning
in the third quarter of 1999, demand for packaging and test services increased
significantly, which reduced the decline in average selling prices.
We depend on a small group of customers for a substantial portion of our
revenues. In 1997, 1998 and 1999, we derived 40.1%, 35.3% and 30.6,
respectively, of our net revenues from sales to five packaging and test
customers, with 23.4%, 20.6% and 14.1% of our net revenues, respectively,
derived from sales to Intel Corporation. In addition, during 1998 and 1999, we
derived 7.4% and 15.3%, respectively, of our net revenues from wafer fabrication
services, and we derived substantially all of these revenues from Texas
Instruments.
Historically, our cost of revenues has consisted principally of: (1)
service charges paid to ASI for packaging and test services performed for us,
(2) costs of materials and (3) labor and other costs at our factories in the
Philippines and at K4 after our acquisition of that factory in May 1999. Service
charges paid to ASI and our gross margins on sales of services performed by ASI
have been set in accordance with our supply agreements with ASI, which provide
for periodic pricing adjustments based on changes in forecasted demand, product
mix, capacity utilization and fluctuations in exchange rates, as well as our
mutual long-term strategic interests. Fluctuations in service charges we pay to
ASI have historically had a significant effect on our gross margins. In
addition, our gross margins on sales of services performed by ASI have generally
been lower than our gross margins on sales of services performed by our
factories in the Philippines, but we have not borne any of ASI's fixed costs. If
we complete our proposed acquisition of
<PAGE> 11
K1, K2 and K3 from ASI, we will bear all of the costs associated with these
factories, but we will no longer pay service charges to ASI for packaging and
test services. We will continue to incur costs of direct materials used in
packages that we produce for our customers. Because a portion of our costs at
our factories in the Philippines and Korea will remain fixed, increases or
decreases in capacity utilization rates may continue to have a significant
effect on our gross profit. The unit cost of packaging and test services
generally decreases as fixed charges, such as depreciation expense on our
equipment, are allocated over a larger number of units produced.
In order to meet customer demand for our laminate packages, we have made
significant investments to expand our capacity in the Philippines. In connection
with our newest factory in the Philippines, P3, in 1996 we expensed $15.5
million of pre-operating and start-up costs and in the first six months of 1997
we incurred $16.6 million of initial operating losses. This factory operated at
substantially less than full capacity during these periods while our customers
were completing qualification procedures for the production of laminate packages
at this factory. During the last six months of 1997 and in 1998 and in 1999, we
significantly increased utilization at P3 due to continued growth in demand for
laminate packages. As a result, P3 contributed positive gross margins throughout
1998 and 1999.
Relationship with ASI
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. During 1997, 1998 and 1999, we derived approximately 68%, 69% and 60%,
respectively, of our net revenues and approximately 42%, 49% and 38%,
respectively, of our gross profit from sales of services performed for us by
ASI. In addition, ASI has derived nearly all of its revenues from services sold
by us. Historically, ASI has directly sold packaging and test services in Japan
and Korea. In January 1998, we assumed the marketing rights for packaging and
test services in Japan from ASI, and we expect to assume marketing rights for
such services in Korea upon completion of our proposed acquisition of K1, K2 and
K3. In January 1998, we also began marketing wafer fabrication services provided
by ASI's new semiconductor wafer fabrication facility.
Upon completion of our proposed acquisition of K1, K2 and K3, we will no
longer receive any packaging and test services from ASI. However, we expect to
continue to have certain contractual and other business relationships with ASI,
primarily our wafer fabrication services supply agreement. Under this supply
agreement, we will continue to have the exclusive right to all of the wafer
output of ASI's wafer fabrication facility, and we expect to continue to
purchase all of ASI's wafer fabrication services. Furthermore, we will own
approximately 43% of ASI's outstanding voting stock after our investment in ASI
and the anticipated conversion of an additional W150 billion (approximately
$132.0 million) of ASI's debt to equity by ASI's creditor banks. Accordingly, we
will report ASI's results in our financial statements through the equity method
of accounting. Our company and ASI will also continue to have close ties due to
our overlapping ownership and management.
For more information concerning our relationship with ASI, you should read
"Risk Factors -- Relationship with ASI," "Risk Factors -- Potential Conflicts of
Interest with ASI," "Our Acquisition of ASI's Packaging and Test Business and
Investment in ASI" and "-- Liquidity and Capital Resources."
Financial Impact of Our Acquisition of K1, K2 and K3 and Investment in ASI on
Our Results of Operations
If we complete our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, we expect there will be significant changes in our future
financial results. Because we already sell substantially all of the output of
K1, K2 and K3, there will not be a significant change in our revenues. We expect
our gross margin to increase significantly as the K1, K2 and K3 factories would
no longer be subject to our supply agreement with ASI. The factories that we
currently own operate with gross margins significantly higher than the margins
we achieve under our supply agreement with ASI. However, our operating expenses
will increase as we will absorb the research and development, general and
administrative expenses
<PAGE> 12
related to the operations of K1, K2 and K3. Our interest expense will also
increase due to the debt we will incur to finance our proposed acquisition and
investment. We expect our overall effective tax rate to decrease due to the fact
that the profits of K1, K2 and K3 will be subject to a tax holiday in Korea. The
tax holiday will apply to 100% of the profits of K1, K2 and K3 for seven years
and then to 50% of such profits for three additional years. Because of our
equity investment in ASI, we will be required to record our increased
proportionate share of ASI's net income, net of the amortization of goodwill
incurred in the acquisition of our equity interest in ASI.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Gross profit................................................ 14.6% 16.6% 17.4%
Operating income............................................ 6.9% 8.5% 9.2%
Income before income taxes, equity in income (loss) of
investees and minority interest........................... 4.2% 6.4% 5.5%
Net income.................................................. 3.0% 4.8% 4.0%
EBITDA...................................................... 12.1% 15.5% 18.1%
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Net revenues increased $342.0 million, or 21.8%, to $1,910.0
million in 1999 from $1,568.0 million in 1998. Packaging and test net revenues
increased 11.4% to $1,617.2 million in 1999 from $1,452.3 million in 1998. For
the same one-year periods, wafer fabrication net revenues increased to $292.7
million from $115.7 million.
The increase in packaging and test net revenues was primarily attributable
to a significant increase in unit volumes, which more than offset significant
average selling price erosion across all product lines. The average selling
price erosion was most severe in the second half of 1998 and has slowed during
1999 due to increases in product demand and decreases in excess factory
capacity. Offsetting this erosion in average selling prices was an overall unit
volume increase of approximately 30%. Growth in demand for our services was
driven by our customers in the PC and telecommunications industries.
Particularly strong was the demand for packages used in cellular phones and
internet enabling equipment. 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. During 1999, advanced and laminate packages, which have
higher average selling prices than traditional leadframe products, accounted for
60.2% of packaging and test net revenues compared to 53.8% in 1998.
The significant increase in wafer fabrication net revenues represents the
production ramp-up of the wafer fabrication facility, which began operation in
January 1998 and did not commence producing at near full installed capacity
until the beginning of 1999. ASI plans to expand the capacity of the wafer
fabrication facility from 18,000 wafers to 22,000 wafers per month by the end of
the first quarter of 2000.
Gross Profit. Gross profit increased $71.9 million, or 27.6%, to $332.7
million, or 17.4% of net revenues, in 1999 from $260.8 million, or 16.6% of net
revenues, in 1998.
Gross margins were positively impacted by:
- Improved gross margin on the output of K4 following our acquisition of K4
in May 1999.
- Increasing unit volumes during the third and fourth quarter of 1999,
which permitted better absorption of our factories' substantial fixed
costs, resulting in a lower manufacturing cost per unit and improved
gross margins.
<PAGE> 13
The positive impact on gross margins was partially offset by:
- Increasing contribution to total revenues from our low margin wafer
fabrication services business. In 1999 wafer fabrication services net
revenues represented 15.3% of total net revenues compared to 7.4% of
total net revenues in 1998. In addition, beginning in 1999, our
contractual gross margin for this business under our supply agreement
with ASI was reduced to 10% from 15% in 1998; and
- Significant average selling price erosion across all product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $25.4 million, or 21.2%, to $145.2 million, or
7.6% of net revenues, in 1999 from $119.8 million, or 7.6% of net revenues, in
1998. The increase in these costs was due to:
- Increased headcount and related personnel costs at our marketing, sales
and wafer fabrication departments;
- Increased headcount and related personnel costs at our P3 factory, which
continued to increase production capacity; and
- Increased costs related to the consolidation of K4 factory operations
during the second quarter of 1999 and general and administrative
expenses, including fees paid to ASI under the transition services
agreement.
Research and Development. Research and development expenses increased $3.2
million, or 38.6%, to $11.4 million, or 0.6% of net revenues, in 1999 from $8.3
million, or 0.5% of net revenues, in 1998. Increased research and development
expenses resulted from increased headcount and general development activities,
primarily the expansion of our Chandler, Arizona-based research facility.
Other (Income) Expense. Other expenses increased $38.8 million, or 121.2%,
to $70.8 million, or 3.7% of net revenues, in 1999 from $32.0 million, or 2.0%
of net revenues, in 1998. The net increase in other expenses was primarily a
result of:
- Increase in interest expense of $27.4 million. The increased interest
expense resulted from the May 1999 issuance of senior and senior
subordinated notes to fund the K4 acquisition, which more than offset the
decrease in interest expense resulting from the application of the
proceeds from our initial public offering in May 1998 against outstanding
debt;
- Decrease in foreign exchange losses of $4.2 million resulting from the
stabilization of the Philippine peso since the first quarter of 1998; and
- Increase in other expenses, which in 1999 included a $17.4 million
non-cash charge associated with the early conversion of $153.6 million of
our outstanding convertible subordinated notes in the fourth quarter.
Income Taxes. Our effective tax rate in 1999 and 1998 was 25.3% and 29.0%,
respectively (after giving effect to the pro forma adjustment for income taxes).
The decrease in the effective tax rate in 1999 was due to the higher operating
profits at our factories that operate with tax holidays.
We have structured our global operations to take advantage of lower tax
rates in certain countries and tax incentives extended to encourage investment.
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.
Minority Interest. Minority interest represented ASI's ownership in the
consolidated net income of Amkor/Anam Pilipinas, Inc. ("AAP"). Accordingly,
until the second quarter of 1998, we recorded a minority interest expense in our
consolidated financial statements relating to the minority interest in the net
income of AAP. In the second quarter of 1998, we purchased ASI's 40% interest in
AAP and, as a result, we now own substantially all of the common stock of AAP.
The acquisition of the minority interest resulted in the elimination of the
minority interest liability and in additional goodwill amortization of
approximately $2.5 million per year.
<PAGE> 14
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Revenues. Net revenues increased $112.2 million, or 7.7%, to $1,568.0
million in 1998 from $1,455.8 million in 1997. Packaging and test net revenues
were relatively unchanged in 1998 compared to 1997. However, net revenues from
wafer fabrication services have ramped up since operations began in January 1998
and accounted for substantially all of the increase in net revenues. In
addition, beginning in January 1998, we assumed marketing rights for packaging
and test services in Japan from ASI.
Total unit volumes increased during 1998 compared to 1997. This increase
was primarily due to increases in volumes of laminate packages, which more than
doubled compared to 1997. Our advanced leadframe packages also increased in
volume, but unit volumes for traditional leadframe packages declined. Although
traditional leadframe packages accounted for more than 65% of our total unit
volume for 1998, the shift to laminate packages significantly impacted revenues
because each laminate package had an average selling price significantly higher
than the average selling price of a traditional leadframe package. Laminate and
advanced leadframe packages accounted for 53.8% of packaging and test net
revenues in 1998 compared to 38.7% in 1997. This trend was consistent throughout
1998.
Gross Profit. Gross profit increased $47.7 million, or 22.4%, to $260.8
million in 1998 from $213.1 million in 1997. Gross margin improved to 16.6% in
1998 from 14.6% in 1997. The following factors contributed to higher gross
margins in 1998:
- Gross margins on packaging and test services provided by ASI improved as
a result of the supply agreements entered into in January 1998;
- Gross margins at P3, which incurred significant pre-operating and
start-up costs and initial operating losses in the first half of 1997,
improved primarily as a result of increased volumes and better absorption
of fixed costs; and
- Gross margins improved as a result of the positive impact from wafer
fabrication revenues during 1998 compared to no revenue from wafer
fabrication in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $16.1 million, or 15.5%, to $119.8 million in
1998 from $103.7 million in 1997. Selling, general and administrative expenses
as a percentage of net revenues increased to 7.6% in 1998 from 7.1% in 1997. The
increase was primarily due to: (1) higher administrative expenses at P3 as unit
volumes continued to increase and (2) costs related to wafer fabrication
services, which began in January 1998.
Research and Development Expenses. Research and development expenses
decreased $0.3 million, or 3.2%, to $8.3 million in 1998 from $8.5 million in
1997. Research and development expenses as a percentage of net revenues
decreased to 0.5% in 1998 from 0.6% in 1997.
Other (Income) Expense. Other (income) expense decreased $7.8 million to
$32.0 million in 1998 from $39.8 million in 1997. The decline was primarily due
to a reduction in net interest expense of $14.2 million to $18.0 million in 1998
from $32.2 million in 1997. We used a portion of the proceeds from our initial
public offering in May 1998 to repay much of our outstanding debt. Additionally,
we accumulated a significant cash balance. An increase in foreign exchange
losses, due to fluctuations in the Philippine peso, partly offset lower interest
expense.
Income Taxes. Our effective tax rate, after giving effect to the pro forma
adjustment for income taxes, was 29.0% in 1998 compared to an effective tax rate
of 17.5% in 1997. The lower effective tax rate in 1997 was due to the
recognition of deferred tax assets on currency losses for Philippine tax
reporting purposes, which are not recognized for financial reporting purposes.
This decrease was offset by increases in the effective rate resulting from
non-deductible losses at P3 where we have a tax holiday until the end of 2002.
To the extent P3 is profitable, our effective tax rate related to our operations
in the Philippines during this tax holiday will be less than the statutory rate
of 35% in the Philippines. In 1997 we recognized deferred tax benefits from
unrealized foreign exchange losses which are recognized in the Philippines for
tax reporting purposes and relate to unrecognized net foreign exchange losses on
U.S. dollar denominated monetary assets and liabilities. These losses are not
recognized for financial reporting purposes because the
<PAGE> 15
U.S. dollar is our functional currency. These losses will be realized for tax
reporting purposes in the Philippines upon settlement of the related asset or
liability. The benefit derived from unrealized foreign exchange losses was
partially offset by an increase in the valuation allowance. We concluded that it
was more likely than not that we could realize a portion of these tax benefits
in the Philippines within the three year loss carryforward period. We recorded a
valuation allowance for the remaining tax benefits where we could not reach such
a conclusion.
Equity in Income (Loss) of ASI. In 1997, we recognized a loss of $17.3
million resulting principally from the impairment of value in our investment in
ASI. In February 1998, we disposed of our investment in ASI's common stock.
Minority Interest. Minority interest represented ASI's ownership in the
consolidated net income of AAP, one of our subsidiaries in the Philippines.
During 1997, as a result of a settlement of an intercompany loan, which
otherwise had no effect on our combined pretax income, AAP reported a net loss
as a separate entity. Accordingly, we recorded a minority interest benefit in
our consolidated financial statements related to the minority interest in the
net loss.
In the second quarter of 1998, we purchased ASI's 40% interest in AAP, and,
as a result, we now own substantially all of the common stock of AAP. The
purchase of the minority interest resulted in the elimination of the minority
interest liability and goodwill amortization of approximately $2.5 million per
year.
QUARTERLY RESULTS
The table below sets forth unaudited consolidated financial data, including
as a percentage of net revenues, for the last eight fiscal quarters ended
December 31, 1999. 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. In addition, in light of our recent growth, including as a
result of our acquisition of the K4 packaging and test factory from ASI in May
1999, we believe that you should not rely on period-to-period comparisons as an
indication of our future performance.
We believe that we have included in the amounts stated below all necessary
adjustments, consisting only of normal recurring adjustments, to present fairly
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 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., the
Philippines and Korea. 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.
The semiconductor industry experienced a general slowdown during 1998. As a
result, our packaging and test net revenues decreased by 3.5% from the first
quarter of 1998 to the fourth quarter of 1998. The decrease in packaging and
test net revenue was offset by significant growth in net revenues from wafer
fabrication services. Net revenues from wafer fabrication services, which
represented less than 1% of net revenues in the first quarter of 1998, increased
to 16.4% of net revenues in the fourth quarter of 1998.
<PAGE> 16
In May 1999 we purchased the K4 factory from ASI. The acquisition resulted
in improved gross margins due to the difference in margins between company-owned
factories and factory services provided by ASI under our supply agreement. To
purchase K4, we issued $625 million of senior and senior subordinated notes.
This has resulted in increased interest expense.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ $371,733 $384,724 $386,718 $424,808 $ 419,957 $449,925 $501,816 $538,274
Cost of revenues -- including
purchases from ASI................ 310,056 317,106 321,758 358,230 357,382 383,162 404,327 432,355
-------- -------- -------- -------- --------- -------- -------- --------
Gross profit.................... 61,677 67,618 64,960 66,578 62,575 66,763 97,489 105,919
-------- -------- -------- -------- --------- -------- -------- --------
Operating expenses:
Selling, general and
administrative.................. 28,715 28,939 30,017 32,175 30,106 35,017 40,376 39,734
Research and development.......... 2,057 1,938 2,109 2,147 2,251 2,843 2,990 3,352
-------- -------- -------- -------- --------- -------- -------- --------
Total operating expenses.... 30,772 30,877 32,126 34,322 32,357 37,860 43,366 43,086
-------- -------- -------- -------- --------- -------- -------- --------
Operating income.................... 30,905 36,741 32,834 32,256 30,218 28,903 54,123 62,833
-------- -------- -------- -------- --------- -------- -------- --------
Net income.......................... $ 8,812 $ 26,119 $ 20,874 $ 19,655 $ 18,925 $ 11,520 $ 26,088 20,186
======== ======== ======== ======== ========= ======== ======== ========
Pro forma net income................ $ 9,640 $ 20,791
======== ========
Basic net income per common share... $ .11 $ .25 $ .18 $ .17 $ .16 $ .10 $ .22 $ .16
======== ======== ======== ======== ========= ======== ======== ========
Diluted net income per common
share............................. $ .11 $ .24 $ .17 $ .16 $ .16 $ .10 $ .21 $ .16
======== ======== ======== ======== ========= ======== ======== ========
Basic pro forma net income per
common share...................... $ .12 $ .20
======== ========
Diluted pro forma net income per
common share...................... $ .12 $ .19
======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues -- including
purchases from ASI................. 83.4 82.4 83.2 84.3 85.1 85.2 80.6 80.3
----- ----- ----- ----- ----- ----- ----- -----
Gross profit..................... 16.6 17.6 16.8 15.7 14.9 14.8 19.4 19.7
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative................... 7.7 7.5 7.8 7.6 7.2 7.8 8.0 7.4
Research and development........... 0.6 0.5 0.5 0.5 0.5 0.6 0.6 .6
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses..... 8.3 8.0 8.3 8.0 7.7 8.4 8.6 8.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income..................... 8.3 9.6 8.5 7.6 7.2 6.4 10.8 11.7
----- ----- ----- ----- ----- ----- ----- -----
Net income........................... 2.4% 6.8% 5.4% 4.6% 4.5% 2.6% 5.2% 3.8%
===== ===== ===== ===== ===== ===== ===== =====
Pro forma net income................. 2.6% 5.4%
===== =====
</TABLE>
Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Code and comparable state tax laws. As a
result, AEI did not recognize any provision for federal income tax expense from
January 1, 1994 through April 28, 1998. In accordance with applicable SEC
regulations, we have provided in our consolidated financial statements the pro
forma adjustments for income taxes (unaudited) to reflect the additional U.S.
federal income taxes which we would have recorded if AEI had been a C
Corporation during these periods.
Our operating results have varied significantly from period to period and
may continue to vary in the future due to a variety of factors. For more
information on the risks affecting our operating results, see the
<PAGE> 17
risk factors entitled "Declining Average Selling Prices," "Dependence on Highly
Cyclical Semiconductor and Electronic Products Industries," "Relationship with
ASI," "Absence of Backlog," "Customer Concentration," "Risks Associated with Our
Wafer Fabrication Business," "Rapid Technological Change," "Competition" and
"Protection of Intellectual Property."
LIQUIDITY AND CAPITAL RESOURCES
Our ongoing primary cash needs are for equipment purchases, factory
expansions, interest and principal payments on our debt and working capital, in
addition to our acquisitions and investments.
In February 2000, we reached an agreement with ASI to acquire K1, K2 and K3
for a purchase price of approximately $950.0 million and to make a $459.0
additional investment in ASI. This agreement supersedes our remaining commitment
to invest $108.4 million in ASI, out of the total $150 million we committed to
invest. We intend to finance our proposed acquisition and investment with the
proceeds of our proposed $410.0 million equity financing, $750.0 million of new
secured bank debt, $225.0 million of proposed new convertible subordinated notes
and cash on hand. The new secured bank debt will be drawn from a new $850.0
million secured bank facility, which will provide for amortization of the drawn
amount over a five to five and one-half year period and quarterly principal and
interest payments. See "Our Acquisition of ASI's Packaging and Test Business and
Investment in ASI -- Proposed Financing."
In May 1998, we consummated our initial public offering of 35,250,000
shares of common stock and $207 million principal amount of convertible
subordinated notes due May 1, 2003. We used the net proceeds of approximately
$558 million primarily to repay approximately $264 million of short-term and
long-term debt and approximately $86 million of amounts due to Anam USA, Inc., a
wholly-owned financing subsidiary of ASI, and to purchase for $34 million ASI's
40% interest in AAP. The remaining amount of net proceeds was available for
capital expenditures and working capital.
On May 17, 1999 we completed an asset purchase of ASI's newest and largest
packaging and test factory, K4, excluding cash and cash equivalents, notes and
accounts receivables, intercompany accounts and existing claims against third
parties. The purchase price for K4 was $575 million, plus the assumption of
approximately $7 million of employee benefit liabilities. In conjunction with
our purchase of K4, we completed a private placement in May 1999 to raise $425
million in senior notes and $200 million in senior subordinated notes. The
senior notes mature in May 2006 and have a coupon rate of 9.25%. The senior
subordinated notes mature in 2009, and have a coupon rate of 10.5%. We are
required to pay interest semi-annually in May and November for all of the notes.
Under the terms of our trade receivables securitization agreement, a
commercial financial institution is committed to purchase, with limited
recourse, all right, title and interest in up to $100 million in eligible
receivables, as defined in the agreement. In connection with our proposed
incurrence of new secured bank debt for the proposed acquisition of K1, K2 and
K3 and the proposed investment in ASI, we plan to terminate this agreement.
We have invested significant amounts of capital to increase our packaging
and test services capacity. During the last three years we have constructed our
P3 factory, added capacity in our other factories in the Philippines and
constructed a new research and development facility in the U.S. In 1997, 1998
and 1999, we made capital expenditures of $179.0 million, $107.9 million and
$242.4 million, respectively. We intend to spend approximately up to $400
million in additional capital expenditures in 2000, primarily for the expansion
of our factories. We believe the increase in capital expenditures is necessary
to expand our capacity to meet the growth in demand we expect in 2000. If we
acquire the K1, K2 and K3 factories, we could incur significant additional
capital expenditures.
During the second quarter of 1999, we executed a letter with ASI committing
to make a $150 million equity investment in ASI. Our commitment required that we
invest this amount in installments of approximately $41 million in each of 1999,
2000 and 2001 and $27 million in 2002. In October, 1999 we made our initial
investment in ASI. We purchased 10 million shares of common stock at price of
W5,000 per share, or approximately $41.6 million dollars. As a result of this
investment and the conversion of
<PAGE> 18
ASI's debt to equity by ASI's creditor banks, we now own approximately 18% of
ASI's voting stock. The remaining portion of this commitment has been superseded
by our new agreement to invest an additional $459.0 million in ASI.
At December 31, 1999, our debt consisted of $625 million of senior and
senior subordinated notes, $6.5 million of borrowings classified as current
liabilities, $9.0 million of long-term debt and capital lease obligations and
$53.4 million of 5.75% convertible subordinated notes due 2003. We had $85.6
million in borrowing facilities with a number of domestic and foreign banks, of
which $82.2 million remained unused. These facilities are typically revolving
lines of credit and working capital facilities that are renewable annually and
bear interest at rates ranging from 8.0% to 10.75%. Long-term debt and capital
lease obligations outstanding have various expiration dates through April 2004
and bear interest at rates ranging from 5.8% to 13.8%.
Covenants in the agreements governing our new $850 million secured bank
facility, our existing $425 million of senior notes and $200 million of senior
subordinated notes and any future indebtedness 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.
Net cash provided by operating activities in 1997, 1998 and 1999 was $250.1
million, $238.0 million and $293.3 million, respectively. Net cash provided by
(used in) financing activities in 1997, 1998 and 1999 was $(16.0) million, $62.0
million and $573.9 million, respectively.
In the fourth quarter of 1999, the holders of our convertible subordinated
notes converted $153.6 million of such notes into 12.1 million shares of common
stock. In the fourth quarter 1999, we incurred a non-cash after-tax charge of
approximately $13.9 million representing the fair market value of the shares of
common stock issued in the conversion in excess of the shares required to be
issued, which represents a premium for early retirement. In the first quarter of
2000 we expect to incur a similar charge in the amount of $0.3 million.
Following our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, 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 senior
and senior subordinated notes sold by us in May 1999 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.
In connection with our wafer fabrication facility agreement with Texas
Instruments, our company and Texas Instruments agreed to revise certain payment
and other terms contained in the Texas Instruments Manufacturing and Purchase
Agreement. As part of the revision, Texas Instruments agreed to advance our
company $20 million in June 1998 and another $20 million in December 1998. These
advances represented prepayments of wafer fabrication facility services to be
provided in the fourth quarter of 1998 and first quarter of 1999, respectively.
We recorded these amounts as accrued expenses. In turn, we advanced these funds
to ASI as prepayment for fabrication facility service charges. We completely
offset the first $20 million advance to ASI against billings for wafer
fabrication services performed for us by ASI in the fourth quarter of 1998 and
offset the second $20 million advance to ASI against billings for wafer
fabrication services performed for us by ASI in the first quarter of 1999. Under
the terms of the revision to the Texas Instruments Manufacturing and Purchase
Agreement, we remain ultimately responsible for reimbursing Texas Instruments if
ASI fails to comply with the terms of the agreement.
<PAGE> 19
Subchapter S Taxes and Distributions
Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Code and comparable state laws. As a
result, ASI did not recognize any provision for federal income tax expense prior
to April 28, 1998. Instead, up until the date the S Corporation status of AEI
terminated, Mr. and Mrs. James Kim and certain trusts established for the
benefit of other members of Mr. and Mrs. James Kim's family (the "Kim Family
Trusts") had been obligated to pay U.S. federal and certain state income taxes
on their allocable portion of the income of AEI. Under certain tax
indemnification agreements, we are indemnified by such stockholders with respect
to their proportionate share of any U.S. federal or state corporate income taxes
attributable to the failure of AEI to qualify as an S Corporation for any period
or in any jurisdiction for which S Corporation status was claimed through April
28, 1998. The agreements in turn provide that, under certain circumstances, we
will indemnify such stockholders if they are required to pay additional taxes or
other amounts attributable to taxable years for which AEI filed tax returns
claiming status as an S Corporation. AEI has made various distributions to Mr.
and Mrs. Kim and the Kim Family Trusts which have enabled them to pay their
income taxes on their allocable portions of the income of AEI. Such
distributions totaled approximately $5.0 million and $33.1 million in 1997 and
1998, respectively. As a result of the finalization of the AEI tax returns in
1999, approximately $3.3 million of the 1998 distributions will be refunded to
our company.
YEAR 2000 ISSUES
We have been actively engaged in addressing year 2000 issues. These issues
occur because many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may not be
able to distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
At the date of this report, our systems have not experienced any year 2000
problems. We presently believe that the year 2000 problem will not pose
significant operational problems for our business and operations on a going
forward basis. While we have contingency plans in place for operational problems
which may still arise as a result of year 2000 problems, we cannot assure you
that the year 2000 problem will not pose significant operational problems or
have a material adverse effect on our business, financial condition and results
of operations in the future. Through the date of this report, costs incurred for
year 2000 compliance have not been material.
We are not aware of any material year 2000 problems encountered by our
suppliers to date but have not yet obtained confirmations from our suppliers
that they did not experience year 2000 problems. Accordingly, we cannot
determine whether our suppliers have experienced year 2000 problems that may
impact their ability to supply us with equipment and services. Further, we
cannot determine the state of their year 2000 readiness. We cannot assure you
that our suppliers will be successful in ensuring that their systems have been
and will continue to be or will be year 2000 compliant or that their failure to
do so will not harm our business.
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 is
associated with Philippine peso-based transactions and related peso-based assets
and liabilities, as well as Korean-won based transactions and related won-based
assets and liabilities. The objective in managing this foreign currency exposure
is to minimize the risk through minimizing the level of activity and financial
instruments denominated in pesos and won. Although we have selectively hedged
some of our currency exposure through short-term
<PAGE> 20
(generally not more than 30 to 60 days) forward exchange contracts, the hedging
activity to date has been immaterial.
At December 31, 1999, the peso-based financial instruments primarily
consisted of cash, non-trade receivables, deferred tax assets and liabilities,
non-trade payables, accrued payroll, taxes and other expenses. Based on the
portfolio of peso-based assets at December 31, 1999, a 20% increase in the
Philippine peso to U.S. dollar exchange rate would result in a decrease of
approximately $3 million, in peso-based net assets.
At December 31, 1999, the won based financial instruments primarily
consisted of cash, non-trade receivables, non-trade payables, accrued payroll,
taxes and other expenses. Based on the portfolio of won-based assets at December
31, 1999, a 20% increase in the Korean won to U.S. dollar exchange rate would
result in a decrease of less than $1 million, in won-based net assets.
Interest Rate Risks
Our company has interest rate risk with respect to our investment in cash
and cash equivalents, use of short-term borrowings and long-term debt, including
the $206.9 million of convertible subordinated notes, $425.0 million of senior
notes and $200.0 million of senior subordinated notes outstanding, and will have
such risk with respect to the additional $225.0 million of convertible notes
that we propose to issue in connection with our proposed acquisition of K1, K2,
and K3 and proposed investment in ASI. Overall, we mitigate the interest rate
risks by investing in short-term investments, which are due on demand or carry a
maturity date of less than three months. In addition, both the short-term
borrowings and long-term debt, excluding our convertible subordinated notes,
senior notes and senior subordinated notes, have variable rates that reflect
currently available terms and conditions for similar borrowings. As the
convertible subordinated notes, senior notes and senior subordinated notes bear
fixed rates of interest, the fair value of these instruments fluctuate with
market interest rates. 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, maturity dates, principal cash
flows and fair value of our fixed rate debt as of December 31, 1999.
<TABLE>
<CAPTION>
FIXED INTEREST
DEBT RATE MATURITY DATE PRINCIPAL FAIR VALUE
---- -------------- ------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Convertible Notes.......................... 5.75% May 2003 $ 53,435 $115,420
Senior Notes............................... 9.25% May 2006 $425,000 $416,500
Senior Subordinated Notes.................. 10.5% May 2009 $200,000 $199,000
</TABLE>
Based on our conservative policies with respect to investments in cash and
cash equivalents, use of variable rate debt, and the fact we currently intend to
repay upon maturity our senior notes, senior subordinated notes the convertible
subordinated notes (unless converted), we believe that the risk of potential
loss due to interest rate fluctuations is not material.
Equity Price Risks
Our outstanding convertible subordinated notes are convertible into common
stock at $13.50 per share. As stated above, we intend to repay our convertible
subordinated notes upon maturity, unless converted. If investors were to decide
to convert their convertible subordinated notes to common stock, there would be
no impact on our future earnings, other than a reduction in interest expense,
unless such conversion were induced by us.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMKOR TECHNOLOGY, INC.
By: /s/ Kenneth T. Joyce
------------------------
Kenneth T. Joyce
Chief Financial Officer
Dated: March 17, 2000
