UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
April 2, 2005

or

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission file number 000-50397

AMIS Holdings, Inc.

(Exact name of registrant as specified in its charter)

2300 Buckskin Road
Pocatello, ID 83201
(Address of principal executive offices)

(208) 233-4690

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days:

Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Yes þ No o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

AMIS Holdings, Inc.

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

     This quarterly report on Form 10-Q contains forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “target,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. These statements are only predictions and speak only as of the date of this report. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Factors that could cause or contribute to such differences include general economic and political uncertainty, conditions in the semiconductor industry, changes in the conditions affecting our target markets, manufacturing underutilization, fluctuations in customer demand, raw material costs, exchange rates, timing and success of new products, competitive conditions in the semiconductor industry risks associated with international operations, the other factors identified under “Factors that May Affect Our Business and Future Results” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other risks and uncertainties indicated from time to time in our filings with the U.S. Securities and Exchange Commission (SEC). In light of these risks and uncertainties, there can be no assurance that the matters referred to in the forward-looking statements contained in this quarterly report will in fact occur. We do not intend to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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PART I: FINANCIAL INFORMATION

See accompanying notes to unaudited condensed consolidated financial statements.

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AMIS HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to unaudited condensed consolidated financial statements.

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AMIS HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited condensed consolidated financial statements.

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AMIS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 2, 2005

Note 1: Basis of Presentation

     The financial statements have been prepared on a consolidated basis in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of AMIS Holdings, Inc. (the “Company”) and its majority controlled and owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

     In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial information included therein. This financial data should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2004 contained in the Company’s Annual Report on Form 10-K.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment,” which requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. Securities and Exchange Commission Release number 33-8568, “Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment” has made the effective date the beginning of the first fiscal year after June 15, 2005. The Company is required to adopt SFAS No. 123R in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. See “Stock Options” in Note 2 for the pro forma net income (loss) and net income (loss) per share amounts, for the three months ended April 2, 2005 and March 27, 2004, as if the Company had used a fair-value-based method similar to the methods required under SFAS No. 123R to measure compensation expense for employee stock incentive awards. Because SFAS No. 123R provides for the use of differing valuation models and other required estimates such as an estimate of future forfeitures, the Company has not yet determined whether the adoption of SFAS No. 123R will result in amounts that are similar to or different from the current pro forma disclosures under SFAS No. 123. SFAS No. 123R also provides for optional modified prospective or modified retrospective adoption. The Company has not yet made a determination on which adoption method it will choose. Management is currently evaluating these and other requirements under SFAS No. 123R and expects the adoption to have a significant impact on the Company’s consolidated statements of operations, although it will have no impact on the Company’s overall financial position.

     In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (“FAS 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004.” The American Jobs Creation Act introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. FAS 109-2 provides accounting and disclosure guidance for the repatriation provision. The Company is considering whether to repatriate a portion of its unremitted foreign earnings during 2005. See note 5 below for further discussion.

Note 2: Stock-Based Compensation

     The Company has elected to follow the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

     Stock compensation expense for options and/or warrants granted to non-employees has been determined in accordance with SFAS 123 and the Emerging Issues Task Force consensus on Issue No. 96-

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18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services” (EITF 96-18).

     The following table provides pro forma information for the three month periods ended April 2, 2005 and March 27, 2004 that illustrates the net income (loss) and net income (loss) per common share as if the fair value method had been adopted under SFAS No. 123 (in millions, except per share data).

Note 3: Inventories

     Inventories consist of the following (in millions):

Note 4: Net Income (Loss) per Common Share

     Basic net income (loss) per common share is based on the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share also includes the effect of common stock equivalents, consisting of stock options and warrants, if the effect of their inclusion is dilutive.

     The following table sets forth the computation of basic and diluted net income (loss) per common share (in millions):

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     Options to purchase 5.8 million and 0.5 million shares of common stock and warrants to purchase 4.6 million shares of common stock were outstanding at April 2, 2005 and March 27, 2004, respectively, but were not included in the computation of diluted earnings per share as the effect would be antidilutive.

     For the three months ended April 2, 2005, upon exercise of stock options, warrants and the issuance of shares under the employee stock purchase plan, 0.4 million, 0.1 million and 0.2 million shares of common stock were issued, respectively.

Note 5: Income Taxes

     Income taxes are recorded based on the liability method, which requires recognition of deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded to reduce the Company’s deferred tax asset to an amount determined to be more likely than not to be realized, based on management’s analyses of past operating results, future reversals of existing taxable temporary differences and projected taxable income, including tax strategies available to generate future taxable income. Based on projections of taxable income for the remainder of 2005 and for future periods, during the three month period ended April 2, 2005, the Company reversed approximately $1.6 million of the valuation allowance. Management’s analyses of future taxable income are subject to a wide range of variables, many of which involve estimates and, therefore, the Company’s deferred tax asset may not be ultimately realized in full.

     During 2005, the Company may repatriate a portion of the unremitted pre-tax earnings of certain of its foreign subsidiaries, and take advantage of lower tax rates allowed under the American Jobs Creation Act of 2004 (AJCA). The AJCA provides a temporary incentive for United States corporations to repatriate accumulated income earned in foreign jurisdictions. However, the incentive is subject to a number of limitations and significant uncertainty remains about the way to interpret numerous provisions in the Act. Due to these factors, the Company has not yet completed its analysis as to whether, and to what extent, it might repatriate foreign earnings that have not yet been remitted to the United States. Based upon its current analysis, the Company may repatriate from zero to $40.0 million, with related estimated income tax expense and liability of between zero and $6.0 million in 2005. The Company plans to finalize its assessment after Congress or the Treasury Department provides additional clarifying language on key elements of the repatriation provision.

Note 6: Long-Term Debt

     The Company and AMI Semiconductor, Inc. maintain senior secured credit facilities consisting of a term loan and a revolving credit facility.

     On March 2, 2005, the Company announced a tender offer for its 10 ³/4% senior subordinated notes as well as a refinancing of the existing $125.0 million term loan and $90.0 million revolving credit facility. On April 1, 2005, 100% of the outstanding notes had been repurchased and the indenture governing the senior subordinated notes was discharged. Proceeds from a new term loan of $210.0 million, entered into on April 1, 2005, and existing cash of $75.8 million were used to purchase the outstanding notes for $130.0 million, pay a premium on the notes and expenses associated with the tender of $28.0 million in the aggregate recorded in other expense on the accompanying unaudited condensed consolidated statement of operations, repay the outstanding balance of the previous term loan of $123.2 million, with the remainder used to pay accrued interest on the notes and the previous term loan and pay expenses related to the refinancing of the senior credit facilities. As a result of these transactions, total debt was reduced by $43.2 million. In conjunction with the refinancing, the Company recorded a charge of $6.8 million in other expense on the accompanying unaudited condensed consolidated statement of operations in the first quarter of 2005 for the write off of deferred financing and other costs associated with the notes and the previous senior credit facilities. In addition, the Company recorded $2.7 million in deferred financing costs related to the new senior credit facility, included in other long-term assets in the accompanying unaudited condensed consolidated balance sheet, which will be amortized over the term of the senior credit facility.

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     The new senior credit facilities consist of the new term loan and a $90.0 million revolving credit facility, which remained undrawn at April 2, 2005. The term loan requires a principal payment of $0.5 million, together with accrued and unpaid interest, on the last day of March, June, September and December, with the balance due on April 1, 2012. The interest rate on the term loan at April 2, 2005 was 4.36%. The revolving credit facility ($40.0 million of which may be in the form of letters of credit) is available for working capital and general corporate purposes.

     The facilities require the Company to maintain a consolidated interest coverage ratio and a maximum leverage ratio and contains certain other nonfinancial covenants, all as defined within the credit agreement. The facilities also generally restrict payment of dividends to parties outside of the consolidated entity. The Company was in compliance with these covenants as of April 2, 2005.

     During January 2005 one of the Company’s subsidiaries, AMI Semiconductor Belgium, BVBA obtained a Letter of Credit in association with the planned relocation to a new facility in the Philippines. The Letter of Credit is for $6.0 million, of which $3.0 million is collateralized with a cash deposit recorded as restricted cash in other assets on the accompanying unaudited condensed consolidated balance sheet. The face value of the Letter of Credit decreases every six months beginning June 30, 2006 by $0.2 million for 15 years and the $3.0 million of collateral is reduced by the same amount until fully eliminated in 7.5 years. The bank issuing the Letter of Credit has the right to create a mortgage on the real property of AMI Semiconductor Belgium, BVBA as additional collateral, which had not been done as of April 2, 2005.

Note 7: Comprehensive Income (Loss)

Note 8: Restructuring and Impairment Charges

     Pursuant to FASB Statement 146, “Accounting for Costs Associated with Exit or Disposal Activities,” in 2004 and 2003, senior management and the Board of Directors approved plans to restructure certain of the Company’s operations.

     The 2004 plan involved the consolidation of sort operations in the United States and Belgium to the Philippines, the move of certain offices to lower cost locations and the termination of certain employees. The objectives of the plan were to increase the competitiveness of the Company and manage costs during the current period of end-market weakness. In total, approximately 110 employees in the United States and Belgium were terminated as part of this program in 2004. Such terminations affected virtually all departments within the Company’s business. All terminated employees were notified in the period in which the charge was recorded. Expenses related to the plan totaled approximately $8.2 million as of April 2, 2005, of which $0.3 million was recorded in the first quarter of 2005. As of April 2, 2005, approximately $4.7 million had been paid out. The remaining accrual of approximately $3.5 million is included in accrued expenses on the accompanying balance sheet at April 2, 2005 and is expected to be paid out in 2005. Additional expenses are expected to be incurred during 2005 relating to this plan primarily related to the relocation of the facilities and other severance benefits.

     The 2003 plan involved the termination of certain management and other employees as well as certain sales representative firms in the United States. Internal sales employees replaced these sales representative firms. In total, 32 employees, from various departments within the Company, were terminated as part of this program. All terminated employees and sales representative firms were notified in the period in which the charge was recorded. Expenses related to the plan totaled approximately $1.7 million, which includes $0.6 million related to the accelerated vesting on certain options making them immediately exercisable

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upon termination. As of April 2, 2005, approximately $1.0 million had been paid out related to this plan. The remaining accrual relating to the 2003 plan of approximately $0.1 million is included in accrued expenses on the accompanying balance sheet as of April 2, 2005 and is expected to be paid in 2005.

     Following is a summary of the restructuring accrual relating to the 2004 and 2003 plans (in millions):

Note 9: Defined Benefit Plan

     Certain Belgian employees are eligible to participate in a defined benefit retirement plan. The benefits of this plan are for all professional employees who are at least 20 years old and have an employment agreement for an indefinite period of time. The amount of net periodic benefit cost recognized is as follows (in millions):

Note 10: Contingencies

     In 2004 the Company produced parts for a customer that the customer incorporated into its product that it shipped to its customers. After experiencing a number of product failures, the customer initiated a recall of its product. In the fourth quarter of 2004, the Company accrued a charge of $1.1 million to cover the cost of replacing the parts in the recalled products. The customer has asserted that the Company is liable for additional costs associated with the recall. Management believes the Company is not liable for any additional costs and is currently discussing the matter with the customer. Since the product recall is ongoing, management is not able to estimate a range of potential additional costs that may be incurred. However, management believes that the resolution of this matter will not have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.

Note 11: Segment Reporting

     The Company has three reportable segments: Integrated Mixed Signal Products, Structured Digital Products and Mixed Signal Foundry Services. Each segment is composed of product families with similar requirements for design, development and marketing.

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     Information about segments (in millions):

Reconciliation of segment information to consolidated financial statements (in millions):

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the Unaudited Condensed Consolidated Financial Statements included elsewhere herein. Except for the historical information contained herein, the discussions in this section contain forward-looking statements that involve risks and uncertainties. For example, the “Outlook” section below contains numerous forward-looking statements. Actual results could differ materially from those discussed below. See “Factors That May Affect Our Business and Future Results” for a discussion of these risks and uncertainties. Unless the context otherwise requires, references to “we,” “our,” “us” and “the company” refer to AMIS Holdings, Inc. and consolidated subsidiaries; and references to “AMI Semiconductor” and “AMIS” refer to AMI Semiconductor, Inc., a wholly owned subsidiary of the company.

Overview

     We are a leader in the design and manufacture of customer specific integrated analog mixed signal semiconductor products. We focus on the automotive, medical and industrial markets, which have many products with significant real world, or analog, interface requirements. We have organized our business into three operating segments: integrated mixed signal products, mixed signal foundry services and structured digital products. Through these segments, we serve our target markets of automotive, medical and industrial. These target markets accounted for 66% of total revenues in the first quarter of 2005. Integrated mixed signal products combine analog and digital functions on a single chip to form a customer defined system-level solution. We also provide outsourced mixed signal foundry services to other semiconductor designers and manufacturers. Structured digital products, which involve the conversion of higher cost programmable digital logic integrated circuits into lower cost digital custom integrated circuits, provide us with growth opportunities and digital design expertise, which we use to support the design of system solutions for customers in our target markets. Mixed signal foundry services provide us with an opportunity to further penetrate our target markets with our products and increase the utilization of our fabrication facilities.

     When evaluating our business, we generally look at financial measures such as revenue, gross margins and operating margins. We also use internal tracking measures, such as projected three-year revenue from design wins and the capacity utilization of our fabrication facilities. Design win activity was strong in the first quarter of 2005; however, we are experiencing a reduction in our capacity utilization. Capacity utilization is a measure of the degree to which our manufacturing assets are being used and, correspondingly, our ability to absorb our fixed manufacturing costs into inventory. Our gross margins could be negatively impacted in the future if capacity utilization continues to decline. Other key metrics we use to analyze our business include days sales outstanding (DSO) and inventory turns. DSO was 59

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days in the first quarter of 2005, unchanged from the fourth quarter of 2004. Inventory turns decreased to 4.1 in the first quarter of 2005 from 4.4 in the fourth quarter of 2004 due to continuing inventory builds in support of the relocation of our test facility in Manila and the transfer of our wafer sort operations from Pocatello, Idaho (USA) and Oudenaarde, Belgium to Manila, as well as builds for level-loading our factories during this period of soft demand.

     In November 2004, we acquired substantially all of the assets and certain liabilities of Dspfactory Ltd., a leader in ultra-low power digital signal processing technology for digital hearing aids and other low power applications. Results of operations for the first quarter of 2005 fully include this business and results for the first quarter of 2004 do not include this business.

Results of Operations

Three-month period ended April 2, 2005 compared to the three-month period ended March 27, 2004

Revenue

     Revenue in the first quarter of 2005 decreased 10% to $115.9 million from $128.3 million in the first quarter of 2004. The decrease was primarily due to broad-based weakness in market conditions across our target markets. In addition, revenues for the first quarter of 2004 included revenues received from STMicroelectronics under a take-or-pay arrangement that expired in June 2004. Minimal revenues from STMicroelectronics were recorded in the first quarter of 2005. First quarter 2005 revenues include those from the Dspfactory acquisition. Excluding revenues from Dspfactory in the first quarter of 2005 and STMicroelectronics in the first quarter of 2004, revenues declined 6% in the first quarter of 2005 compared to the first quarter of 2004.

     Integrated mixed signal revenue for the first quarter of 2005 increased 7% to $73.7 million from $68.7 million in the first quarter of 2004. The increase was primarily due to the incremental revenues from the Dspfactory acquisition, which helped grow our medical revenues in this segment 56% in the first quarter of 2005 over the first quarter of 2004. The automotive and defense markets were comparatively stronger as well. This segment saw an increase in average selling prices, due to product mix improvements. This was partially offset by a decrease in unit volume sold.

     Structured digital products revenue in the first quarter of 2005 decreased 8% to $25.7 million from $28.0 million in the first quarter of 2004. This decrease was primarily due to lower revenue from the overall market softness in the communications end market, partially offset by increased revenue in the defense end market. For the first quarter of 2005, this segment saw an increase in average selling prices due to changes in product mix, but a decrease in unit volume sold.

     Mixed signal foundry services revenue for the first quarter of 2005 decreased 48% to $16.5 million from $31.6 million in the first quarter of 2004. This decrease was primarily due to decreased sales to STMicroelectronics as a result of the expiration of the take-or-pay arrangement in June 2004. During the first quarter of 2005, this segment experienced a decrease in unit volumes sold, due to the expiration of the take-or-pay agreement, but an increase in average selling prices due to improved product mix.

     The following table represents our regional revenue:

Gross Profit

     Cost of revenue consists primarily of purchased materials, labor and overhead (including depreciation) associated with the design and manufacture of products sold. Costs related to non-recurring engineering

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fees are included in cost of revenue to the extent that they are reimbursed by our customers under a development arrangement. Costs associated with unfunded non-recurring engineering are classified as research and development because we typically retain ownership of the proprietary rights to intellectual property that has been developed in connection with non-recurring engineering work. Gross profit decreased to $53.8 million, or 46.4% of revenue, in the first quarter of 2005 from $59.0 million, or 46.0% of revenue, in the first quarter of 2004. The increase in gross profit margin was due to an increased percentage of higher margin products in the mix of the products we sold partially offset by lower fixed manufacturing cost absorption due to lower factory utilization. During the first quarter of 2005, mixed signal foundry revenues as a percentage of total revenues decreased to 14.2% from 24.6% in the first quarter of 2004. This helped to increase our overall gross profit margin, as margins in our mixed signal foundry segment are generally lower than the company average.

Operating Expenses

     Research and development expenses consist primarily of activities related to process engineering, cost of design tools, investments in development libraries, technology license agreements and product development. Research and development expenses increased to $21.0 million, or 18.1% of revenue, in the first quarter of 2005 from $19.6 million, or 15.3% of revenue, in the first quarter of 2004. The increase was primarily attributable to expenses related to increased design wins and the associated non-customer funded expenses, as well as incremental expense from the Dspfactory acquisition.

     Marketing and selling expenses consist primarily of commissions to sales representatives, salaries and commissions of sales and marketing personnel and advertising and communication costs. Marketing and selling expenses decreased to $9.7 million, or 8.4% of revenue, in the first quarter of 2005 compared to $10.4 million, or 8.1% of revenue, in the first quarter of 2004. The decrease was primarily due to decreased commissions associated with lower sales levels.

     General and administrative expenses consist primarily of salaries of our administrative staff, professional fees related to audit and tax services and advisory fees for various consulting projects. General and administrative expenses decreased slightly to $6.5 million, or 5.6% of revenue, in the first quarter of 2005 compared to $6.6 million, or 5.1% of revenue, in the first quarter of 2004.

     Amortization of acquisition-related intangible assets increased to $1.2 million in the first quarter of 2005 compared with $0.2 million in the first quarter of 2004. This increase was due to increased amortization expense in 2005 related to amortization of intangible assets associated with the Dspfactory acquisition.

     We recorded $0.3 million in restructuring charges in the first quarter of 2005, with no comparable charge in the first quarter of 2004. This amount includes charges for employee severance and other items as a result of our restructuring program announced in the fourth quarter of 2004. This program includes headcount reductions related to the consolidation of our sort operations in the United States and Belgium to the Philippines as well as other reductions in force resulting from cost containment measures. We expect to realize approximately $4 million per quarter in cost savings as a result of this action by the fourth quarter of 2005.

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Operating Income

     Operating income decreased to $15.1 million, or 13.0% of revenue, in the first quarter of 2005 compared with $22.2 million, or 17.3% of revenue, in the first quarter of 2004. Following is a discussion of operating income by segment.

     Integrated mixed signal products operating income decreased to $5.2 million, or 7.1% of segment revenue, in the first quarter of 2005 from $12.8 million, or 18.6% of segment revenue, in the first quarter of 2004. This decrease is primarily attributable to lower fixed manufacturing cost absorption resulting from lower capacity utilization, which resulted in higher per unit product costs, as well as an increase in R&D investment, including incremental expense from the Dspfactory acquisition.

     Structured digital products operating income increased to $6.2 million, or 24.1% of segment revenue, in the first quarter of 2005 from $4.2 million, or 15.0% of segment revenue, in the first quarter of 2004. This increase is primarily attributable to lower operating expenses due to cost reductions and shifting of research and development investment focus to the integrated mixed signal business.

     Mixed signal foundry services operating income decreased to $4.0 million, or 24.2% of segment revenue, in the first quarter of 2005 from $5.2 million, or 16.5% of segment revenue, in the first quarter of 2004. This decrease is primarily due to lower revenue levels and higher product costs due to lower capacity utilization.

Net Interest Expense

     Net interest expense for the first quarter of 2005 increased slightly to $4.6 million, compared with $4.5 million for the first quarter of 2004. The higher net interest expense was primarily attributable to the increased interest rate on our term loan, which is variable based on LIBOR.

Other Expense

     Other expense in the first quarter of 2005 increased to $34.8 million from $0.3 million in the first quarter of 2004. This increase was primarily due to a charge of $28.0 million associated with the tender offer and redemption of our 10 ³/4% senior subordinated notes and a charge of $6.8 million for the write-off of deferred financing and other costs associated with our prior senior credit facility and senior subordinated notes, which is described in further detail below in “Liquidity and Capital Resources.”

Income Taxes

     Income tax benefit was $13.2 million in the first quarter of 2005, compared with an income tax expense of $3.9 million in the first quarter of 2004. The effective tax rate was 54.3% in the first quarter of 2005, compared to 22.4% in the first quarter of 2004. During the first quarter of 2005, we incurred pre-tax losses in certain jurisdictions with higher statutory tax rates, while in other lower tax jurisdictions, we incurred pre-tax income causing the income tax benefit to comprise an unusually large percentage of the pre-tax loss for the quarter. We have a valuation allowance to reduce our deferred tax assets to amounts that are more likely than not to be realized. Based on projections of taxable income for the remainder of 2005 and future periods, we reversed approximately $1.6 million of valuation allowance during the quarter. We will continue to evaluate the need to increase or decrease the valuation allowance on our deferred tax assets based upon the anticipated pre-tax operating results of future periods.

Liquidity and Capital Resources

     Our principal cash requirements are to fund working capital needs, meet required debt payments, including debt service payments on our senior credit facilities, complete planned maintenance of equipment and equip our fabrication facilities. We anticipate that cash flow from operations, together with available borrowings under our revolving credit facility, will be sufficient to meet working capital, interest payment requirements on our debt obligations and capital expenditures for at least the next twelve months. Although we believe these resources may also meet our liquidity needs beyond that period, the adequacy of these resources will depend on our growth, semiconductor industry conditions and the capital expenditures necessary to support capacity and technology improvements.

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     On March 2, 2005, we announced