CHANDLER, Ariz., Oct. 26 -- Amkor Technology, Inc. (Nasdaq: AMKR) reported third quarter sales of $491 million, essentially flat with the second quarter of 2004 and up 16% over the third quarter of 2003. Amkor's third quarter net loss was $22 million, or ($0.13) per share, compared with net income of $16 million, or $0.09 per share, in the third quarter of 2003. Amkor's third quarter 2003 net income included a gain of $10 million, or $0.06 per share, in connection with the reversal of a tax accrual, and a charge of $2 million, or $0.01 per share, for debt retirement costs.
"Our recent financial performance reflects the impact of the current semiconductor industry correction on an operating plan that was predicated on stronger business conditions," said James Kim, Amkor's chairman and chief executive officer. "In January of this year, business forecasts were robust across our customer base, and I expressed our belief that 2004 revenues would exceed $2 billion. We put in place an operating plan that would position Amkor to capitalize on this growth. Over the past six months, however, semiconductor industry conditions have softened, and we now expect full year revenue closer to $1.9 billion. As we work through the current industry correction, absorb our expanded operational footprint and integrate our recent acquisitions, there will be a near term impact on our financial performance. However our industry is cyclical, and we firmly believe that we are properly positioning Amkor for the long term."
"Due to a strengthening of die support in the last week of September, our third quarter revenue was stronger than we expected when we revised our Q3 outlook one month ago," said John Boruch, Amkor's president and chief operating officer. "Nonetheless, as indicated in our revised outlook, we experienced declining customer forecasts during the third quarter."
"Our third quarter gross margin of 18% was slightly better than the 17% we anticipated in our revised outlook one month ago, as third quarter revenue came in much closer to original guidance," said Ken Joyce, Amkor's chief financial officer. "During the quarter we also increased our material reserves by $6 million to better align our raw material inventory with expected customer demand."
SG&A expenses decreased by $1 million from the second quarter. These expenses included a total of $8 million in legal fees and expenses in connection with the mold compound litigation and Amkor's patent infringement lawsuit against Carsem Semiconductor Sdn Bhd. An evidentiary hearing in the Carsem litigation has been conducted and an initial determination by the International Trade Commission Administrative Law Judge is expected in the fourth quarter, with a final review by the ITC expected in early 2005. The legal fees and expenses were partially offset by the reversal of $2.4 million in employee bonus compensation that was accrued in the first half of 2004.
"Given the continuing inventory correction by our customers, it is difficult to accurately project our revenue, the product mix associated with that revenue, and the resulting gross margin. Near term, we expect our margins to remain under pressure due to the combined impact of competitive pricing actions, excess manufacturing capacity relative to demand, and absorption of costs associated with our recent acquisitions," said Joyce.
"Due to a reduction in forecasted taxable income for the full year 2004, we would have had a nominal tax benefit in the third quarter; however we have recorded a tax provision of $7 million in connection with new guidance issued by tax authorities during the third quarter relating to taxation of our foreign operations," said Joyce.
"Third quarter capital expenditures totaled $73 million and were focused on expanding our test and flip chip capabilities," said Joyce. "We are currently budgeting capital expenditures of $32 million for the fourth quarter, approximating total 2004 capital expenditures of $400 million. For 2005, we are targeting total capital expenditures of $100 million compared with estimated annual depreciation and amortization of approximately $250 million. Next year's capital plan will also be focused on supporting our test and flip chip operations."
In connection with the IBM transaction and related building purchase in China announced in May of this year, we will be making scheduled payments totaling approximately $122 million in the fourth quarter of this year. On our balance sheet at September 30, we include $120 million of this obligation under "short term borrowings and current portion of long-term debt."
As previously announced we are structuring a $300 million six-year term loan facility, with closing scheduled for October 27, 2004. Under terms of the loan agreement we will make a single bullet payment six years from closing of the credit facility. We believe it is prudent to raise these funds at this time to ensure that the company has adequate liquidity during the current industry downturn.
At September 30, 2004 Amkor had U.S. net operating losses available for carryforward totaling $417 million expiring through 2024. Additionally, at September 30, 2004, we had $43 million of non-U.S. operating losses available for carryforward, expiring through 2013.
Selected operating data for the third quarter of 2004 is included in a separate section before the financial tables.
Our customers remain cautious about end-market demand and are exercising tight control over inventory. The high degree of uncertainty in the semiconductor sector is reflected by continued weakness in our customers' forecasts, and this is impairing our business visibility.
On the basis of current customer forecasts, we have the following expectations for the fourth quarter of 2004:
- Revenue in the range of 5% to 10% below the third quarter. - Gross margin in the range of 15% to 17%. - Net loss in the range of $0.16 to $0.23 per share.
Amkor will conduct a conference call on October 26, 2004 at 5:00 p.m. eastern time. The call can be accessed by dialing 303-262-2075 or by visiting the investor relations page of our web site: www.amkor.com or CCBN's website, www.companyboardroom.com. An archive of the webcast can be accessed through the same links and will be available until our next quarterly earnings conference call. An audio replay of the call will be available for 48 hours following the conference call by dialing 303-590-3000 passcode: 11006479#.
Amkor is a leading provider of contract semiconductor assembly and test services. The company offers semiconductor companies and electronics OEMs a complete set of microelectronic design and manufacturing services. More information on Amkor is available from the company's SEC filings and on Amkor's web site: www.amkor.com.
Forward Looking Statement Disclaimer
This press release contains forward-looking statements within the meaning of federal securities laws, including, without limitation, statements regarding the following: Amkor's expected revenues for 2004; Amkor's expected revenue, gross margin and net loss for the fourth quarter of 2004; Amkor's near term financial performance, including expected gross margins; Amkor's positioning for the long term; the trend in declining customer forecasts; the judicial determination and final review of the Carsem litigation; budgeted capital expenditures; estimated depreciation and amortization; payments in connection with the IBM transaction; and the closing of the $300 million six-year term loan facility. These forward-looking statements are subject to a number of risks and uncertainties that could affect future results and cause actual results and events to differ materially from historical and expected results, including, but not limited to, the following: the highly unpredictable nature of the semiconductor industry; volatility of consumer demand for products incorporating our semiconductor packages; weakness in the forecasts of Amkor's customers; customer modification of and follow through with respect to forecasts provided to Amkor; deterioration of the U.S. or other economies; the highly unpredictable nature of litigation; our relationship with IBM; the satisfaction of conditions in the agreements entered into in connection with the IBM transaction; the ability of Amkor to attract potential lenders; the results of any additional negotiations with potential lenders; the ability of the Amkor to successfully close the term loan facility; worldwide economic effects of terrorist attacks; military conflict in the Middle East and potential military conflict in Asia, Africa and elsewhere; competitive pricing and declines in average selling prices; timing and volume of orders relative to the production capacity; fluctuations in manufacturing yields; competition; the risk of adverse results of litigation against us; dependence on international operations and sales; dependence on raw material and equipment suppliers; changes in tax laws; exchange rate fluctuations; dependence on key personnel; difficulties in managing growth; enforcement of intellectual property rights; environmental regulations and technological challenges.
Further information on risk factors that could affect the outcome of the events set forth in these statements and that could affect the company's operating results and financial condition is detailed in the company's filings with the Securities and Exchange Commission, including the Report on Form 10-K for the year ended December 31, 2003 and Form 10-Q for the quarter ended June 30, 2004.
Contact: Jeffrey Luth VP Corporate Communications 480-821-5000 ext. 5130 firstname.lastname@example.org Selected operating data for the third quarter and nine months of 2004 3rd Quarter Nine Months - Capital expenditures: $73 million $368 million - Depreciation and amortization: $59 million $169 million - Free cash flow* ($39 million) ($174 million) *Reconciliation of free cash flow to the most directly comparable GAAP measure: Net cash provided by continuing operating activities $34 million $194 million Less purchases of property, plant and equipment ($73 million) ($368 million) Free cash flow from continuing operations ($39 million) ($174 million) We define free cash flow from continuing operations as net cash provided by continuing operating activities less purchases of property, plant and equipment. Free cash flow is not defined by generally accepted accounting principles, and our definition of free cash flow may not be comparable to similar companies. - Capacity utilization was approximately 72%. We calculate capacity utilization as quarterly revenue divided by revenue generating capacity (RGC) at quarter-end. We define RGC as 100% of installed production capacity (based on the bottleneck limitations for each production line), using quarterly average selling price. - Assembly unit shipments were 1.9 billion, down 7% from Q2 2004. - Percentage of revenue: Leadframe packages 43% Laminate packages 44% Other packages 3% Test 10%
Starting with the second quarter of 2004 we no longer provide end-market revenue distribution. We discontinued this practice because it is difficult for Amkor to accurately determine end-market distribution of our revenue, and we believe that extrapolation of inaccurate data by analysts and investors can be misleading.
AMKOR TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) For the Three Months Ended September 30, 2004 2003 (unaudited) Net revenues $490,843 $423,784 Cost of revenues 403,076 322,369 Gross profit 87,767 101,415 Operating expenses:(1) Selling, general and administrative 53,236 43,977 Research and development 8,664 7,882 Gain on disposal of fixed assets, net (292) (148) Amortization of acquired intangibles 1,867 2,035 Total operating expenses 63,475 53,746 Operating income 24,292 47,669 Other (income) expense: Interest expense, net 38,075 35,151 Foreign currency loss (gain) 1,503 (895) Other (income) expense, net (534) 671 Debt retirement costs(2) -- 2,071 Total other expense 39,044 36,998 Income (loss) before income taxes, equity investment gain, minority interest and discontinued operations (14,752) 10,671 Equity investment gain 12 -- Minority interest (1,266) (1,809) Income (loss) from continuing operations before income taxes (16,006) 8,862 Provision for income taxes (benefit) 6,328 (6,908) Net income (loss) $(22,334) $15,770 Per Share Data: Basic and diluted net income (loss) per common share $(0.13) $0.09 Shares used in computing basic net income (loss) per common share 175,717 166,628 Shares used in computing diluted net income (loss) per common share 175,717 171,440 (1) Certain previously reported amounts have been reclassified to conform with the current presentation. (2) Debt retirement costs include the following: Call premium $-- $1,648 Unamortized deferred debt acquisition costs -- 423 Other debt retirement costs -- -- $-- $2,071 AMKOR TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) For the Nine Months Ended September 30, 2004 2003 (unaudited) Net revenues $1,448,025 $1,144,862 Cost of revenues 1,153,635 922,617 Gross profit 294,390 222,245 Operating expenses:(1) Selling, general and administrative 160,993 128,607 Research and development 27,541 22,675 Gain on disposal of fixed assets, net (490) (870) Amortization of acquired intangibles 5,032 6,103 Total operating expenses 193,076 156,515 Operating income 101,314 65,730 Other (income) expense: Interest expense, net 107,725 107,494 Foreign currency loss (gain) 4,213 (1,083) Other (income) expense, net (26,953) 2,076 Debt retirement costs(2) 2,863 32,632 Total other expense 87,848 141,119 Income (loss) before income taxes, equity investment gain (loss), minority interest and discontinued operations 13,466 (75,389) Equity investment gain (loss) 2 (3,555) Minority interest (1,621) (2,135) Income (loss) from continuing operations before income taxes 11,847 (81,079) Provision for income taxes (benefit) 13,291 (6,072) Loss from continuing operations (1,444) (75,007) Discontinued operations: Income from wafer fabrication services business, net of tax of $419 in 2003 -- 3,047 Gain on sale of wafer fabrication services business, net of tax of $7,081 in 2003 -- 51,519 Income from discontinued operations -- 54,566 Net loss $(1,444) $(20,441) Per Share Data: Basic and diluted loss per common share from continuing operations $(0.01) $(0.45) Basic and diluted income per common share from discontinued operations -- 0.33 Basic and diluted net loss per common share $(0.01) $(0.12) Shares used in computing basic and diluted income (loss) per common share 175,216 165,883 (1) Certain previously reported amounts have been reclassified to conform with the current presentation. (2) Debt retirement costs include the following: Call premium $1,687 $21,304 Unamortized deferred debt acquisition costs 1,176 8,787 Other debt retirement costs -- 2,541 $2,863 $32,632 AMKOR TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2004 2003 (unaudited) Assets Current assets: Cash and cash equivalents $231,311 $313,259 Accounts receivable: Trade, net of allowance of $5,010 in 2004 and $6,514 in 2003 272,325 310,096 Other 4,785 4,413 Inventories 119,969 92,439 Other current assets 32,147 49,606 Total current assets 660,537 769,813 Property, plant and equipment, net 1,387,742 1,007,648 Investments 11,626 51,181 Other assets: Goodwill 654,226 629,850 Acquired intangibles 46,309 37,730 Other 73,448 67,697 773,983 735,277 Total assets $2,833,888 $2,563,919 Liabilities and Stockholders' Equity Current liabilities: Bank overdraft $6,805 $2,690 Short-term borrowings and current portion of long-term debt 171,174 28,665 Trade accounts payable 235,888 230,396 Accrued expenses 175,908 170,145 Total current liabilities 589,775 431,896 Long-term debt 1,744,545 1,650,707 Other noncurrent liabilities 97,273 78,974 Total liabilities 2,431,593 2,161,577 Minority interest 7,304 1,338 Stockholders' equity: Common stock 176 175 Additional paid-in capital 1,323,557 1,317,164 Accumulated deficit (932,980) (931,536) Accumulated other comprehensive gains 4,238 15,201 Total stockholders' equity 394,991 401,004 Total liabilities and stockholders' equity $2,833,888 $2,563,919 AMKOR TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Three Months Ended September 30, 2004 2003 (unaudited) Cash flows from continuing operating activities: (Loss) income from continuing operations $(22,334) $15,770 Depreciation and amortization 58,503 52,660 Equity investment loss (12) -- Other adjustments to reconcile (loss) income to net cash provided by operating activities 8,916 16,297 Changes in assets and liabilities excluding effects of acquisition (11,285) (38,826) Net cash provided by operating activities 33,788 45,901 Cash flows from continuing investing activities: Purchases of property, plant and equipment (73,421) (63,649) Other investing activities (27,547) 32,853 Net cash used in investing activities (100,968) (30,796) Cash flows provided by (used in) continuing financing activities 4,370 (23,007) Effect of exchange rate fluctuations on cash and cash equivalents related to continuing operations (474) 2,041 Cash flows provided from discontinued operations -- 60 Net decrease in cash and cash equivalents (63,284) (5,801) Cash and cash equivalents, beginning of period 294,595 346,304 Cash and cash equivalents, end of period $231,311 $340,503 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $34,608 $32,105 Income taxes $7,663 $3,030 AMKOR TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Nine Months Ended September 30, 2004 2003 (unaudited) Cash flows from continuing operating activities: Loss from continuing operations $(1,444) $(75,007) Depreciation and amortization 169,164 165,360 Equity investment (income) loss (2) 3,555 Other adjustments to reconcile (loss) income to net cash provided by operating activities (6,196) 53,980 Changes in assets and liabilities excluding effects of acquisitions 32,423 (47,879) Net cash provided by operating activities 193,945 100,009 Cash flows from continuing investing activities: Purchases of property, plant and equipment (368,078) (148,230) Other investing activities 11,521 52,865 Net cash used in investing activities (356,557) (95,365) Cash flows provided from continuing financing activities 81,515 8,455 Effect of exchange rate fluctuations on cash and cash equivalents related to continuing operations (962) 2,522 Cash flows provided from discontinued operations 111 13,633 Net (decrease) increase in cash and cash equivalents (81,948) 29,254 Cash and cash equivalents, beginning of period 313,259 311,249 Cash and cash equivalents, end of period $231,311 $340,503 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $96,210 $107,869 Income taxes $22,114 $7,553