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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
|_| 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 333-91641
ChipPAC, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-0463048
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3151 Coronado Drive, Santa Clara, California 95054
(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code (408) 486-5900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, $.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|_|
Aggregate market value of voting stock held by
non-affiliates of the registrant as of March 23, 2001:
$ 155,786,096
68,455,513 shares of the Registrant's Class A common stock were outstanding
on March 23, 2001. No shares of the Registrant's Class B common stock were
outstanding on that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement related to the 2001 Annual Meeting
of Stockholders, to be filed subsequent to the date hereof - Part III.
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TABLE OF CONTENTS
PAGE
----
PART I.................................................................. 3
Item 1. BUSINESS.................................................... 3
Item 2. PROPERTIES.................................................. 14
Item 3. LEGAL PROCEEDINGS........................................... 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II................................................................. 16
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 16
Item 6. SELECTED FINANCIAL DATA..................................... 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 20
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 32
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 72
PART III................................................................ 72
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 72
Item 11. EXECUTIVE COMPENSATION...................................... 72
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 72
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 72
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 72
2
Part I
Item 1.
BUSINESS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable terminology. These statements are only predictions and speak
only as of their dates. These forward-looking statements are based largely on
our current expectations and are subject to a number of risks and uncertainties,
including those identified under Exhibit 99.1 of this annual report and other
risks and uncertainties indicated from time to time in our filings with the SEC.
Actual results could differ materially from these forward-looking statements. In
addition, important factors to consider in evaluating these forward-looking
statements include changes in external market factors, changes in our business
or growth strategy or an inability to execute our strategy due to changes in our
industry or the economy generally, the emergence of new or growing competitors
and various other competitive factors. 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 annual report will in fact occur.
Industry
ChipPAC is one of the world's largest providers of semiconductor
packaging, test, and distribution test services. We offer a full portfolio of
leaded, laminate, and flip-chip packaging and inter-connect technologies to
leading semiconductor companies that service the communications, computing, and
consumer markets. We are a leader in providing high end packaging solutions,
including ball grid array packages, or BGA packages, the most advanced mass
produced type of package. We also provide advanced packaging products that
address the needs of semiconductors used in wireless and wireline communications
applications, including flip-chip, chip-scale and stacked die technologies.
Outsourcing of packaging, test and distribution services to independent
packagers like ChipPAC is expanding due to several factors, including time to
market pressures, increased technological complexity of packaging, the growth of
"fabless" semiconductor manufacturers, resource allocation, and equipment
utilization. Our headquarters are located in the Silicon Valley (Santa Clara,
California) and the facilities are strategically located in China, Malaysia and
South Korea. We believe the following business strengths further differentiate
us from our competitors:
. High End Technology Expertise - We are one of the world's largest
providers of outsourced BGA packages, which accounted for approximately
61% of our packaging revenues during the twelve months ended December
31, 2000. Our BGA packages are used for most high end applications such
as providing non-microprocessor packaging requirements for
3
computing and communications devices including Qualcomm Incorporated's
CDMA chipsets. Our advanced package portfolio also includes next
generation flip-chip technology for system on a chip, or SOC, which is
used in Internet servers and telecom switching devices, as well as
multi-die packaging for digital signal processors, or DSPs, and other
wireless chipsets. In addition, the Malaysian business expanded our
mixed-signal testing platforms and provides us with critical expertise
for testing radio frequency, or RF, devices. We believe that our
advanced technology expertise and our commitment to research and
development will enable us to continue to drive the development of
solutions for next generation semiconductor packages.
. Focus on Communications End Markets--In order to address the small
footprint needs of wireless networks, Internet appliances and handheld
computing devices, we have developed smaller, more efficient and lighter
weight products, including EconoCSP(TM), LFCSP(TM), WaferCSP(TM), and
M/2/CSP(TM). As a result, we provide packaging and test services for
most of the flash memory manufacturers.
Our Services
We offer semiconductor packaging and test services to the semiconductor
industry, with products and service offerings in communications, computing and
multi-applications end markets. Approximately 90.8% and 9.2% of our revenues
during 2000 and approximately 88.1% and 11.9% of our revenues during the quarter
ended December 31, 2000 were derived from packaging and test services,
respectively.
Since customers require their suppliers to pass a lengthy and rigorous
qualification process that can be costly to the customers, we believe they
generally do business with a few suppliers. Because our services are considered
part of the customer's manufacturing infrastructure, we must have dedicated
resources and systems to provide flexible manufacturing, quick-turns and
real-time information transfers.
Packaging
We have provided semiconductor packaging and test services since 1984, and
offer a broad range of packaging formats for a wide variety of electronics
applications. Based on the pro forma results for the acquisition of the
Malaysian business, our two types of packaging services, leaded and substrate,
or BGA, contributed approximately 38.4% and 53.6% of revenue, respectively, for
1999, and 35.0% and 55.8% of revenue, respectively, for the year ended December
31, 2000.
Leaded Packaging
Leaded packaging is the most widely used packaging type and is used in
almost every electronics application, including automobiles, household
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appliances, desktop and notebook computers, and telecommunications. Leaded
packages have been in existence since semiconductors were first produced. In
1999, semiconductors comprised over half of the total industry packaging volume.
Leaded packages are characterized by a semiconductor die encapsulated in a
plastic mold compound with metal leads surrounding the perimeter of the package.
With leaded packages, the die is attached to a leadframe (a flat lattice of
wires). The die is then encapsulated in a plastic or ceramic package, with the
ends of the leadframe wires protruding from the edges of the package to enable
connection to a printed circuit board. This packaging type has evolved from
packages designed to be plugged into a printed circuit board by inserting the
leads into holes on the printed circuit board to the more modern surface-mount
design, in which the leads or pins are soldered to the surface of the printed
circuit board. Specific packaging customization and improvements are continually
being engineered to improve electrical and thermal performance, shrink package
sizes and enable multi-chip capability.
Leaded Package Profile
We offer a wide range of lead counts and body sizes within this packaging
group to satisfy customer die size variations. Our traditional leaded packages
are at least three millimeters in thickness and include PDIP, PLCC, and SOIC.
Our advanced leaded packages are thinner than our traditional leaded packages,
approximately 1.4 millimeters in thickness, and have a finer pitch because the
leads are closer together, allowing for a higher pin count and greater
functionality in a smaller package size. Our advanced leaded packages include
LFCSP, MQFP, TQFP, iQUAD, TSSOP and SSOP. Our acquisition of the Malaysian
business added Power Packages to our portfolio.
Substrate Packaging (or BGA), represents the newest and fastest growing
area in the packaging industry and is used primarily in high-growth end markets,
including computing platforms and networks, hand held consumer products
including wireless communications devices, personal digital assistants and video
cameras, and home electronic devices such as DVDs and home video game machines.
BGA technology was first introduced as a solution to problems associated with
the increasingly high lead counts required for advanced semiconductors. As the
number of leads surrounding the integrated circuit increased, high lead count
packages experienced significant electrical shorting problems. The BGA
methodology solved this problem by effectively creating leads on the bottom
surface of the package in the form of small bumps or solder balls. In a typical
BGA package, the semiconductor die is placed on top of a plastic or tape
laminate substrate rather than a leadframe. The die is connected to the
circuitry in the substrate by a series of fine gold wires that are bonded to the
top of the substrate near its edges. On the bottom of the substrate is a grid of
metal balls that connect the packaged device to a printed circuit board.
Benefits of BGA packaging over leaded packaging include:
. smaller size;
. greater pin count, or number of connections to the printed circuit
board;
. greater reliability;
. better electrical signal integrity; and
. easier attachment to a printed circuit board.
5
We supply our customers with substantially the entire family of BGA
packaging services offered in the marketplace today, including:
Standard BGA. Standard BGA packaging has a grid array of balls on the
underside of the integrated circuit, and is used in high-performance
applications, like personal computer chipsets, graphic controllers and DSPs. A
standard BGA package generally has greater than 100 pins. Standard BGA packages
have better thermal and electrical performance than leaded packages. They also
feature more advanced surface mount technology, allowing for easier handling in
the packaging process. Standard BGA packaging services accounted for all of our
BGA packaging revenues in 1998.
BGA Package Profile
Chip-Scale BGA. Chip-scale BGA packaging includes all packages where the
package is less than 1.2 times the size of the silicon die. Chip-scale BGA is a
substrate-based package that is designed for memory devices and other medium pin
count semiconductors and requires dense ball arrays in very small package sizes,
like wireless telephones and personal digital assistants, video cameras, digital
cameras and pagers.
We are continually developing new BGA technologies and BGA packaging
techniques. One of our research and development facilities is working to develop
prototypes of flip-chip BGA packaging in which the silicon die is directly
attached to the substrate using bumps or solder balls rather than wire bonds.
This is expected to improve heat dissipation and the electrical performance of
the chip. Flip-chip BGA technology can be used in a wide array of applications
ranging from consumer products to highly sophisticated application specific
integrated circuits, referred to as ASIC, microprocessors and memory packages.
While we believe that flip-chip BGA represents the next generation of BGA
packaging technology, we believe that standard BGA and chip-scale BGA packaging
will experience long life cycles as have many of our leaded packaging solutions.
The following chart summarizes the packaging services we offer. Packaging
revenues are pro forma for the acquisition of the Malaysian business. The full
names of each packaging type are provided in the Glossary accompanying our
registration statement on Form S-1 (Registration number 333-39428).
Percentage
of
2000
Packaging
Revenue Packaging Types Application Pin Count
- ------------- ------------- ------------------------ ------------------------ --------
Leaded 30.6% Traditional: PDIP, PLCC, SOIC, SOJ, Telecommunications, 8-304
SSOP, SIP, DPAK and automobiles, household
D/2/PAK, Power, Hermetic, appliances, and desktop
MOV. and notebook computers
4.5% Advanced: TQFP, TSOP, QFP, Personal computers and 32-176
LQFP TSSOP, TO5, telecommunications
iQUAD(TM) and MQFP
BGA 45.2% Standard PBGA, M/2/BGA(TM), Personal computer 119-371
BGA: TBGA and EBGA chipsets, graphic
controllers
11.7% Chip-Scale EconoCSP(TM), (i)BGA(TM), Wireless telephones, 36-280
BGA: M/2/CSP(TM)and FBGA-T personal digital
assistants, video
cameras and wireless
pagers
0.1% Flip-Chip FlipPAC(TM), RamPAC(TM) High-end network servers 36-1732
BGA: and FlashPAC(TM) products, application
specific integrated
circuits,
microprocessors and
memory packages
6
Test Services
We also provide our customers with semiconductor test services for a
number of device types, including mixed-signal, digital logic, memory, power and
RF devices. Semiconductor testing measures and ensures the performance,
functionality and reliability of a packaged device, and requires knowledge of
the specific applications and functions of the devices being tested. In order to
enable semiconductor companies to improve their time-to-market, streamline their
operations and reduce costs, there has been an increasing trend toward
outsourcing both packaging and test services. We have capitalized on this trend
by enhancing our test service capabilities. We operate 282 testers, and achieved
251% year-over-year growth in 2000. The Malaysian business expanded our
mixed-signal testers and provides us with critical expertise for testing RF
devices, one of the fastest growth areas for test outsourcing.
In order to test the capability of a semiconductor device, a semiconductor
company will provide us with its proprietary test program and specify the test
equipment to run that program. In the alternative, however, our customers may
consign their test equipment to us. Our test operators place devices to be
tested on a socketed, custom load board and insert the load board into the test
equipment which then tests the devices using software programs developed and
supplied by our customers. The cost of any specific test and the time, usually
measured in seconds, to run a test vary depending on the complexity of the
semiconductor device and the customer's test program.
In addition to final test services, we also provide "burn in" test
services. Through "burn in," a semiconductor is inserted into a socket and
subjected to extreme hot and cold temperatures over a period of time. "Burn in"
tests are typically conducted to determine overall reliability of a
semiconductor under extreme conditions.
Other Services
We also provide a full range of other value-added services, including:
. Design and Characterization Services. We offer design and
characterization services at our Santa Clara, California; Chandler, Arizona and
Ichon, Korea facilities. Our design engineers at these facilities select, design
and develop the appropriate package, leadframe or substrate for that device by
simulating the semiconductor's performance and end-use environment.
. Dry Pack Services. In order to prevent the failure of any semiconductors
due to exposure to moisture during shipping, we "dry pack" most of our packaged
integrated circuits in specially sealed, environmentally secure containers.
. Tape and Reel Services. Many electronic assembly lines utilize "tape and
reel" methods in which semiconductors are attached to a tape to enable faster
attachment to the printed circuit board. We offer a service in which we ship
packaged and tested devices on a tape and reel mechanism rather than on a tray,
to facilitate the assembly process.
. Drop Shipment. In order to enable semiconductor companies to improve
their time-to-market and reduce supply chain and handling costs, we offer drop
shipment services in which we ship packaged semiconductor devices directly to
those companies that purchase devices from our customers.
. Wafer probe. We offer a wafer sort operation where an electrical test is
performed on die while still in wafer form. This process establishes which die
on each wafer are suitable to be assembled into a final package.
7
Customers
We provide packaging and test services to 77 customers worldwide,
including 41 in the United States. Our customers include many of the world's
largest and most prominent semiconductor manufacturers including: Atmel,
Fairchild Semiconductor International, Hyundai Electronics Industries Co. Ltd.,
International Business Machines Corporation, Intel, Intersil, LSI Logic
Corporation, Lucent, NVIDIA Corporation, Qualcomm, Samsung, and
STMicroelectronics.
During the years ended December 31, 2000 and 1999, approximately 71.5%,
and 83.4%, respectively, of our revenues were derived from our top five
customers. We anticipate that this customer concentration will decrease as new
customers for which we have already become qualified and customers with which we
are undergoing qualification.
Our customers are located around the world, but principally in the United
States, Asia and Europe. The following table details the percentage of total
revenue we received from each of these principal geographic locations.
December 31,
2000 1999
---- ----
United States 83% 89%
Asia 14% 9%
Europe 3% 2%
---- ----
100% 100%
---- ----
In general, our customers principally rely on at least two independent
packagers. A packaging company must pass a lengthy and rigorous qualification
process that can take a minimum of three months for a typical leaded package and
can take more than six months for a typical BGA package and, in each case, can
cost the customer approximately $0.25 million to $0.3 million. Once a primary
packager has been selected, that packager gains insight into its customer's
business operations and an understanding of its products as part of the overall
working relationship. These factors, combined with the pressures of a
semiconductor company to meet the time-to-market demands of its customers,
result in high switching costs for semiconductor companies, making them adverse
to changing or adding additional suppliers. We have been successful in
attracting new customers because we are one of a few independent packaging and
test companies that offers packaging, test and distribution services for a full
portfolio of packages.
8
Marketing, Sales and Customer Support
We provide sales support to our customers through an international network
of offices located in:
. the United States,
- Santa Clara, California (our worldwide headquarters),
- San Diego, California,
- Chandler, Arizona,
- Boston, Massachusetts,
- Dallas, Texas,
- Palm Bay, Florida
. Kampen, The Netherlands,
. Tokyo, Japan,
. Shanghai, China,
. Ichon, Korea,
. Singapore and
. Kuala Lumpur, Malaysia
Our account managers, applications engineers, customer service
representatives and sales support personnel form teams that focus on a specific
customer or geographic region.
As is industry practice, we operate with essentially no order backlog due
to our quick cycle times. Customers deliver near-term forecasts and release
production die to us in daily or weekly increments for packaging, test and
distribution. These near-term forecasts guide us as to anticipated volumes, but
provide no meaningful backlog statistics. Because substantially all of our
materials inventory is purchased based on customer forecasts, we carry small
quantities of inventory and we have relatively low finished goods inventory.
9
Our marketing efforts focus on creating a brand awareness and familiarity
with our advanced device packaging technologies and an understanding of our
end-user market applications in wireless handset and PDA graphics, PC chipsets,
wireless LAN, memory, storage and networking. We market our leadership in
advanced packaging, test technology, and distribution and our ability to supply
a broad line of packaging and test services to the semiconductor industry. We
target engineers and executive level decision makers through the delivery of
"white papers" at industry conferences, quarterly mailings of technical
brochures and newsletters, advertisements in trade journals and our website.
Suppliers
Our packaging operations depend upon obtaining adequate supplies of
materials on a timely basis. The principal materials used in our packaging
process are lead frames, rigid and flexible substrates, gold wire and molding
compound. We purchase materials based on the demand forecasts of our customers.
Our customers are responsible for the costs of any unique materials that we
purchase but do not use, particularly those lead frames and substrates that are
ordered on the basis of customer-supplied forecasts. We work closely with our
primary materials suppliers to insure the timely availability of materials
supplies, and we are not dependent on any one supplier for a substantial portion
of our materials requirements. We do not see the need for long-term supply
contracts and therefore have no significant agreements with materials suppliers.
The materials we procure are readily available and we are able to meet our
production requirements from multiple sources through periodic negotiation and
placement of written purchase orders. We combine our global requirements into
centrally negotiated blank purchase orders to gain economies of scale in
procurement and more significant volume discounts. Approximately 65% of our
substrate costs in 2000 were incurred from the purchase of materials from Korea,
with the balance coming primarily from Japan and Taiwan. We expect that in the
next several years, an increasing portion of our materials will be supplied from
sources in China, Taiwan, and Southeast Asia.
Our packaging operations and expansion plans also depend on obtaining
adequate quantities of equipment on a timely basis. To that end, we work closely
with our major equipment suppliers to insure that equipment deliveries are on
time and the equipment meets our stringent performance specifications.
10
Intellectual Property
Our ability to develop and provide advanced packaging technologies and
designs for our customers depends in part on our proprietary know-how, trade
secrets and other non-patented, confidential technologies, which we either own
or license from third parties. We have licenses to use numerous third party
patents, patent applications and other technology rights, as well as trademark
rights, in the operation of our business. Under the patent and technology
license agreement that we entered into with Hyundai Electronics, which we refer
to as the Hyundai Electronics License, we obtained a non-exclusive license to
use intellectual property in connection with our packaging activities.
Following expiration of its initial term on December 31, 2003, the Hyundai
Electronics License may be extended by us from year to year upon payment of a
nominal annual license fee. Hyundai Electronics may terminate the Hyundai
Electronics License prior to December 31, 2003 if we breach the Hyundai
Electronics License and do not cure that breach within the applicable time
period, or in the event of our bankruptcy or similar event, or if a force
majeure event prevents performance of the agreement.
We have entered into a License Agreement with Tessera, Inc. which we refer
to as the Tessera License, under which we have obtained a worldwide,
royalty-bearing, non-exclusive license under specified Tessera patents,
technical information and trademarks relating to Tessera's proprietary IC
packages, most significantly its mBGA(TM), or micro BGA, packages. The Tessera
License will run until the expiration of the last Tessera patent licensed under
the Tessera License. Accordingly, the expiration of the Tessera License will not
occur until sometime after February, 2018, which is the earliest date that all
patents licensed under the Tessera License may expire.
In connection with our recapitalization, we obtained a non-exclusive
sublicense from Hyundai Electronics under patents owned by Motorola for use in
connection with our BGA packaging process. The initial term of our sublicense
under the Motorola patents will expire on December 31, 2002. This sublicense
requires Hyundai Electronics to use commercially reasonable efforts to extend or
renew its license from Motorola prior to its expiration on December 31, 2002 and
obtain from Motorola the right to grant us a sublicense on the same terms and
conditions as those of any extended or renewed license.
We have entered into two license agreements with LSI Logic. Under the
first license, which we refer to as the LSI flip-chip license, we have received
a worldwide, non-exclusive, royalty-bearing license to use LSI packaging
technology and technical information to manufacture, use and sell flip-chip
semiconductor devices having at least 200 solder balls. Our rights under the LSI
flip-chip license will become perpetual and irrevocable upon our payment of fees
or January 1, 2004, whichever occurs first. LSI Logic may terminate the LSI
flip-chip license if, before our rights have become perpetual and irrevocable,
we breach the LSI flip-chip license and do not cure that breach within the
applicable time period, or in the event of our bankruptcy or similar event.
11
Our second license from LSI Logic, which we refer to as the LSI CSP
license, grants us a worldwide, non-exclusive license under LSI packaging
technology and technical information to manufacture, use and sell semiconductor
device assemblies having an overall height of less than 1.2 millimeter. Our
rights under the LSI CSP license are perpetual but LSI Logic may terminate the
LSI CSP license if we breach the LSI CSP license and do not cure that breach
within the applicable time period, or in the event of our bankruptcy or similar
event.
In connection with our acquisition of the Malaysian business, we acquired
ownership of all Intersil patents, technical information and copyrights used
exclusively in or associated exclusively with the Malaysian business and,
additionally, Intersil granted us a worldwide, non-exclusive, royalty-free
license under other Intersil patents, copyrights and technical information which
are also used in or related to the operation of the Malaysian business. This
Intersil license is perpetual and irrevocable.
Our primary trademark and trade name is "ChipPAC." We own or are licensed
to use other secondary trademarks.
Research and Development
Our research and development efforts are focused on developing new
packages, assembly and test technologies and on improving the efficiency and
capabilities of our existing packaging and test services. Technology development
is a basic competence of ChipPAC and a key competitive factor in the packaging
industry. We have invested considerable resources and we are among the leaders
in new product and technology development. During the past two years, we have
introduced the following new package families:
. Flip-Chip CSP
. EconoCSP(TM)
. M2CSP(TM)
. MicroBGA
. LFCSP(TM)
. EconoLGA(TM)
. M2BGA(TM)
. FlipPAC(TM)
. TBGA-I
. TBGA-II
. TEBGA
Materials engineering plays a critical role in advanced packaging and has
enabled us to develop environmentally friendly lead free and halogen free
packaging already required by several of our customers.
We have established three design centers where new packages are designed
and fully characterized for performance and tested both for package and system
level reliability to meet end customer needs.
12
As of December 31, 2000, we employed approximately 112 full-time research
and development personnel. During 2000 and 1999, we spent approximately $12.0
and $12.4 million, respectively, on research and development.
Competition
The packaging and test industry is highly fragmented. Our primary
competitors and their locations are as follows:
. Advanced Semiconductor Engineering, Inc.--Taiwan
. Amkor Technology, Inc.--Korea and Philippines
. ASAT, Ltd.--Hong Kong
. ASE Test Limited--Taiwan and Malaysia
. Shinko Electric Industries Co., Ltd.--Japan
. Siliconware Precision Industries Co., Ltd.--Taiwan
. ST Assembly Test Services Limited--Singapore
Each of these companies has significant packaging capacity, financial
resources, research and development operations, marketing and other
capabilities, and has some degree of operating experience. These companies also
have established relationships with many large semiconductor companies which are
current or potential customers of ours. We also compete with the internal
packaging and testing capabilities of many of our largest customers. We believe
the principal elements of competition in the independent semiconductor packaging
market include time-to-market, breadth of packaging services, technical
competence, design services, quality, yield, customer service and price. We
believe that we generally compete favorably in these areas.
Due in significant part to the lengthy and costly process of qualifying a
supplier, most semiconductor manufacturers generally have two or more sources of
packaging services.
Employees
As of December 31, 2000, we employed 6,753 full-time employees, of whom
approximately 112 were employed in research, and development, 6,311 in packaging
and test services and 330 in marketing, sales, customer service and
administration.
Approximately 2,100 of our employees at the Ichon, Korea facility are
represented by ChipPAC Korea Labor Union and are covered by a collective
bargaining agreement which expires on May 1, 2001. We believe that we have good
relationships with our employees and unions.
13
Item 2.
Properties
Our operations are conducted through seven operating facilities. Our
corporate headquarters are located in Santa Clara, California, and we provide
all packaging, test and distribution services through facilities in Ichon and
Chungju, Korea, Shanghai, China and, Kuala Lumpur, Malaysia. The Chungju
facility provides electroplating services on leadframes from the Ichon facility.
The Chungju facility was founded in 1983 and is both ISO-9002 and QS-9000
certified. The Ichon facility was founded in 1985 and is both ISO-9002 and
QS-9000 certified. The Shanghai facility was founded in 1994 and is also
ISO-9002 certified and QS-9000 certified. The Kuala Lumpur facility is ISO-9002,
QS-9000 and ISO-14001 certified.
The following chart summarizes the information about our facilities:
Principal Packaging or Service
Facility Location Leased/Owned Sq. Ft. Functions/Services Provided or Being Developed
- -------------------------------------------------------------------------------------------------------------------------------
Executive offices, Research and
Santa Clara, California Leased 40,000 Development, Sales, Flip-Chip BGA, Flip-
Marketing and Administration Chip and CSP Design Services
Pleasanton, California Leased 1,800 Sales, Marketing and Sales, Marketing and
Administration Administration Services
Chandler, Arizona....... Leased 5,000 Research and Design and
Development, Sales and Characterization
Marketing Services
Shanghai, China......... Owned(1) 442,000 Packaging and Test Services, Leaded IC, Chip-Scale Packaging,
Warehousing Services Test and Distribution Services
Ichon, Korea............ Leased 474,000 Packaging and Test Services, Advanced Leaded, BGA
Research and Development, Packaging, Chip-Scale,
Warehousing Services Test and Distribution Services
Chungju, Korea.......... Leased 129,000 Electroplating Electroplated leadframes
Leadframes for Ichon, Korea
Kuala Lumpur, Malaysia.. Owned(1) 524,000 Packaging and Test Services, Discrete Power, Leaded IC,
Warehousing Services Test and Distribution Services
(1) Improvements are owned by ChipPAC but upon the termination of the existing
long-term lease revert to the lessor.
14
ITEM 3 LEGAL PROCEEDINGS
We are not involved in any legal proceedings, the outcome of which we
believe would have a material adverse effect on our business, financial
condition or results of operations. From time to time, however, we are involved
in claims that arise in the ordinary course of business, and we maintain
insurance that we believe to be adequate to cover these claims.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of 2000.
15
Part II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A common stock is traded on the Nasdaq National Market under the
symbol "CHPC." Public trading of the Class A common stock began on August 9,
2000. Prior to that, there was no public market for our common stock. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the our Class A common stock as quoted on the Nasdaq National
Market.
HIGH LOW
------- --------
2000
August 9, 2000 - September 30, 2000............ $19.500 $11.188
Fourth Quarter................................. 12.375 2.625
There were approximately 2,246 beneficial holders of record as of March
15, 2001 of the Company's Class A common stock.
DIVIDEND POLICY
We have not in the past paid, and do not expect for the foreseeable future
to pay dividends on our common stock. Instead, it is anticipated that all
earnings, if any, in the foreseeable future will be used for working capital and
other general corporate purposes. The payment of dividends by us to holders of
our common stock is prohibited by our senior credit facility and is restricted
by the indenture relating to our senior subordinated notes. Any future
determination to pay dividends will be at the discretion of the board of
directors and will depend upon, among other factors, the results of operations,
financial condition, capital requirements and contractual restrictions.
RECENT SALES OF UNREGISTERED SECURITIES
ChipPAC, Inc. was incorporated in Delaware in June 2000 for the purpose of
reincorporating ChipPAC, Inc., a California corporation, under the laws of the
state of Delaware in connection with our initial public offering. We refer to
the Delaware corporation as ChipPAC Delaware and to the California corporation
as ChipPAC California. The reincorporation was effected pursuant to a merger
whereby ChipPAC California was merged into ChipPAC Delaware. The merger occurred
immediately prior to the effectiveness of our registration statement on Form S-1
in August 2000. In the merger the following issuances took place which were
exempted from registration under the Securities Act of 1933, as amended, by
virtue of Sections 3(a)(11) or 4(2) of the Securities Act:
. each share of Class A common stock of ChipPAC California became one share
of Class A common stock of ChipPAC Delaware;
16
. each share of Class B common stock of ChipPAC California became one share
of Class B common stock of ChipPAC Delaware;
. each share of Class L common stock of ChipPAC California became one share
of Class A common stock of ChipPAC Delaware, plus an additional number of
shares of Class A common stock of ChipPAC Delaware, rounded to the nearest
whole share, determined by dividing the Preference Amount described below
by the value of a share of Class A common stock of ChipPAC Delaware based
on the initial public offering price;
. each share of Class A convertible preferred stock of ChipPAC California
became one share of Class A convertible preferred stock of ChipPAC
Delaware;
. each share of Class B preferred stock of ChipPAC California became one
share of Class B preferred stock of ChipPAC Delaware;
. each share of Class C preferred stock of ChipPAC California became one
share of Class C preferred stock of ChipPAC Delaware; and
. each outstanding option and warrant for the purchase of Class A common
stock of ChipPAC California became an option and warrant for the purchase
of Class A common stock of ChipPAC Delaware.
In August 2000, concurrently with our initial public offering, we issued
2,192,983 shares of Class A common stock to Qualcomm for $25 million. Also
concurrently with our initial public offering, we issued 183,334 shares of our
Class A common stock to each of Bain Capital, L.L.C. and SXI Group LLC as
partial compensation for the termination of their advisory agreements with us.
At the initial public offering price, the 366,668 total shares issued in
connection with the termination of the advisory agreements were worth $4.4
million.
In June 2000, we issued 17,500 shares of Class C preferred stock, par
value $0.01, to Intersil in connection with and as partial consideration for
ChipPAC California's acquisition of the Malaysian business.
These issuances in June and August of 2000 were deemed exempt from
registration under the Securities Act of 1933, as amended, by virtue of Section
4(2) of the Securities Act.
In January 2000, pursuant to our 1999 Stock Purchase and Option Plan, we
issued the following to a group of 27 employees (adjusted to reflect our
reverse stock split):
. 7,620 shares of Class L common stock at a price of $23.62 per share;
. 68,578 shares of Class A common stock at a price of $0.2916 per share;
. 28,574 shares of time-vesting Class A common stock at a price of $0.2916
per share;
17
. options to purchase an aggregate of 49,814 shares of Class A common stock
at a price of $0.2916 per share; and
. options to purchase an aggregate of 41,147 shares of Class A common stock
at a price of $5.512 per share.
The options are not transferable. The options and the time-vesting stock began
to vest in January 2001. These grants of stock and options were deemed exempt
from registration under the Securities Act by virtue of Rule 701 of the
Securities Act.
In April 2000, also pursuant to our 1999 Stock Purchase and Option Plan,
we issued the following shares to a group of 11 employees (adjusted to reflect
our reverse stock split):
. options to purchase an aggregate of 14,287 shares of Class A common stock
at a price of $0.2916 per share; and
. options to purchase an aggregate of 1,905 shares of Class A common stock
at a price of $5.512 per share.
The options are not transferable and do not vest prior to April 2001. These
option grants were deemed exempt from registration under the Securities Act by
virtue of Rule 701 of the Securities Act.
In July 2000, also pursuant to our 1999 Stock Purchase and Option Plan, we
issued the following to a group of 5,590 employees:
. 23,959 shares of Class A common stock at a price of $0.2916 per share;
. options to purchase an aggregate of 534,998 shares of Class A common stock
at a price of $12.60 per share; and
. options to purchase an aggregate of 3,810 shares of Class A common stock
at a price of $5.512 per share.
The options are not transferable and do not vest prior to July 2001. These
option grants were deemed exempt from registration under the Securities Act by
virtue of Rule 701 of the Securities Act.
18
ITEM 6.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
ChipPAC, Inc.
Selected Historical Financial Data
(In thousands)
For the Year Ended December 31,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Statement of Operations Data
Net revenue $ 494,411 $ 375,530 $ 334,081 $ 289,429 $ 191,655
Gross profit 109,144 58,042 63,716 60,191 24,990
Operating income 62,330 12,619 40,429 25,518 7,620
Net income (loss) 12,056 (7,308) 32,303 (46,118) (5,625)
Net income (loss) available to
common stockholders 2,869 (11,528) 32,303 (46,118) (5,625)
Net income (loss) per share available to
common stockholders:
Basic $ 0.05 ($ 0.30) $ 0.83 ($ 1.19) ($ 0.14)
Diluted $ 0.05 ($ 0.30) $ 0.83 ($ 1.19) ($ 0.14)
-------------------------------------------------------------
Shares use in per share calculation:
Basic 57,067 38,935 38,861 38,861 38,861
Diluted 58,253 38,935 38,861 38,861 38,861
-------------------------------------------------------------
Other Financial Data:
Depreciation and amortization $ 45,049 $ 56,701 $ 45,855 $ 40,682 $ 26,632
Debt issue amortization 1,950 774 -- -- --
Acquisition of property and equipment 93,174 57,856 61,332 136,594 118,971
Balance Sheet Data (at period end):
Cash and cash equivalents $ 18,850 $ 32,117 $ 68,767 $ 3,067 $ 2,323
Accounts receivable, less allowance for
doubtful accounts 45,904 30,003 37,729 30,156 20,694
Working capital (20,438) 10,224 20,320 29,637 20,240
Total assets 469,245 343,429 359,472 233,241 215,932
Total long-term debt, including current portion 290,200 300,000 133,715 152,410 109,053
Mandatorily redeemable preferred stock -- 82,970 -- -- --
Total stockholders' equity (deficit) 65,697 (122,886) 113,191 9,472 53,692
19
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial conditions and
results of operations covers periods prior to the completion of our
recapitalization in August 1999 and prior to our initial public offering in
August 2000. As part of our recapitalization, we entered into financing
arrangements and, as a result, we have a different capital structure. As a
result of the initial public offering, we again significantly changed our
capitalization. Accordingly, the results of operations for periods subsequent to
the recapitalization and initial public offering are not necessarily comparable
to prior periods. The following discussion should be read in conjunction with
the combined financial statements contained in this annual report.
Overview
In 1997, we were incorporated as a distinct entity and established as the
parent of a stand-alone worldwide business. Prior to this time, we operated as a
separate division of Hyundai Electronics, one of the world's largest
semiconductor manufacturers and a member of the Hyundai Group, the Korean
conglomerate. In 1999, as part of the recapitalization, the Equity Investors
obtained control of ChipPAC and Hyundai Electronics America retained
approximately 10.0% of our outstanding common stock, which was then reduced to
6.8% as a result of our initial public offering.
Our revenues consist of fees charged to our customers for the packaging,
testing, and distribution of their integrated circuits. From 1995 to 2000, net
revenues increased from $179.2 million to $494.4 million, a cumulative annual
growth rate of 22.5%, primarily from the growth of BGA packaging, and, in
2000, from the growth of test revenue and the acquisition of the Malaysian
business. We are one of the largest providers of outsourced BGA packaging
services worldwide. The capital investments made by Hyundai Electronics from
1995 to 1997 totaled approximately $307.0 million and provided us with the
capacity necessary to support this growth in advanced packaging services,
along with providing capacity to support future growth. By 1998, we possessed
the scale required to provide our services to a broad base of customers who
required BGA packaging services. We also have a significant business in leaded
packaging, which accounted for 35.0% and 29.1% of our sales in the years ended
December 31, 2000 and 1999, respectively.
The following table describes the composition of revenue by product group
and test services, as a percentage of total revenues:
December 31
2000 1999 1998
------ ------ ------
Laminate 55.8% 68.1% 61.8%
Leaded 35.0% 29.1% 35.5%
Test 9.2% 2.8% 2.7%
--------------------------------------
Total 100.0% 100.0% 100.0%
======================================
20
Quarterly Results (Unaudited)
The following table describes our unaudited historical quarterly sales and
gross profit in thousands of U.S. dollars.
2000 1999
----------------------------------------- -------------------------------------------
(In thousands) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- --
Revenues $ 97,469 $108,979 $155,795 $132,168 $ 85,548 $ 80,853 $101,270 $107,859
Gross Profit $ 20,422 $ 26,141 $ 35,568 $ 27,013 $ 13,417 $ 9,684 $ 16,791 $ 18,150
Gross Margin 21.0% 24.0% 22.8% 20.4% 15.7% 12.0% 16.6% 16.8%
The above table illustrates the cyclical and seasonal nature of our
financial performance. We have historically experienced steadily
rising revenue levels during the course of the year, peaking in the third or
fourth quarter, due to a peak in demand for electronics in this quarter of the
year. In 2000, revenues peaked in the third quarter as semiconductor device
end-demand slowed in the fourth quarter and an inventory correction began
generally in the electronics industry.
Results of Operations
The following table describes our results of operations based on the
percentage relationship of operating and other financial data to revenues during
the periods shown:
December 31,
2000 1999 1998
------ ------ ------
Historical Statement of Operations Data
Revenue 100.0% 100.0% 100.0%
Gross margin 22.1% 15.5% 19.1%
Selling, general & administrative 7.0% 5.7% 4.5%
Research & development 2.4% 3.3% 2.3%
Change of control expenses --% 3.2% 0.2%
----------------------------
Operating income 12.6% 3.4% 12.1%
============================
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues: Net revenues in 2000 increased 31.7% to $494.4 million from
$375.5 million in 1999. We experienced strong increases across all product
lines. Laminate sales increased 7.9% over 1999. Leaded sales, not including
those attributable to our acquisition of the Malaysian business, increased 32.2%
over 1999, and test revenue increased 186.4% over 1999. Increases in revenues
were broadly distributed across all of our end markets, but the communications
segment showed an increase of 99.4%. During these six months of 2000, the
Malaysian business contributed $44.0 million in revenues in 2000.
21
Gross Profit: Gross Profit increased to $109.1 million in 2000 from $58.0
million in 1999, resulting in a gross margin of 22.1% compared to 15.5% in 1999.
Effective January 1, 2000 we re-evaluated the estimated useful lives of our
property, plant and equipment. Based on an independent appraisal of the useful
lives of this equipment and from our internal assessment, estimated useful lives
of assembly and test product equipment and furniture and fixtures were, for
accounting purposes, changed from five years to eight years. The net book values
of assembly and test product equipment and furniture and fixtures already in use
are now being depreciated over the remaining useful life, based on eight years
from the date the assets were originally placed in service. This change resulted
in depreciation expense for the year ended December 31, 2000 being $29.0 million
lower than we would have recorded if we had continued to use five-year lives.
The remaining increase in gross profit was attributable to improved materials
procurement and greater efficiency due to high utilization rates partially
offset by an increase in average labor costs, the effect of the Malaysian
business acquisition, and the strengthening of the Won against the U.S. Dollar
in 2000 versus the prior year.
Selling, General, and Administrative: Selling, general and administrative
expenses increased to $34.8 million in 2000 from $21.2 million in 1999. As a
percentage of revenues, these expenses increased to 7.0% from 5.7%. In 2000 we
hired new personnel at the management level to accommodate both our expanded
operations and our transition to a public company. As a result, we incurred
additional expenses associated with hiring in the areas of administration,
sales, and marketing.
Research and Development: Research and development expenses decreased to
$12.0 million in 2000 from $12.4 million in 1999. As a percentage of revenues,
these expenses decreased to 2.4% from 3.3%. The decrease as a percentage of
revenues was mainly caused by the additional revenue from the Malaysia business
that did not require as high research and development expenditures in 2000 as
the required intellectual property and process technology for the Malaysian
business was acquired in the purchase.
Change of Control Expense: As a result of our recapitalization, we were
contractually required to make a one-time change of control payment to our
unionized Korean employees of approximately $11.8 million. The payment was
recorded as an operating expense during the year ended December 31, 1999. This
expense did not reoccur in 2000.
Interest Income: Interest income decreased to $0.8 million in 2000
compared to $2.8 million in 1999. The average cash balance maintained in 2000
was significantly lower than in 1999 due to the working capital and fixed asset
investments needed to support our growth.
Interest Expense: Interest expense for 2000 increased 85.8% to $39.4
million in 2000 from $21.2 million in 1999. This is primarily due to 12 months
of interest expense on the debt incurred as part of the recapitalization
compared to five months of interest payments in 1999. In addition, we incurred
interest expense on the debt incurred to complete the Malaysian acquisition.
22
Foreign Currency Gains: The foreign currency gain was $2.2 million in 2000
compared to $1.2 million in the prior year period. The exposure to foreign
currency gains and losses has been significantly mitigated by two related
factors. First, we negotiated with the large majority of our material and
equipment suppliers to denominate purchase transactions in U.S. Dollars. Second,
on October 1, 1999, we changed our functional currency to the U.S. Dollar from
the local currencies of the Korean and Chinese subsidiaries.
Other Income/Expense: Other expense increased $7.9 million in 2000
compared to other income of $0.7 million in 1999. This was primarily due to the
one time charge of $8.0 million to end the management services agreements with
Bain Capital and SXI group.
Income Taxes: Income tax expense was $3.6 million in 2000 compared to $1.9
million in 1999. Our effective tax rate was 20.0% in 2000 compared to negative
48.5% in 1999. Our effective tax rate during 1999 was adversely affected by
losses of the operations in China, for which no tax benefit was realized. The
recapitalization also changed the tax structure and overall effective tax rate
compared to 1999.
Extraordinary Loss: We incurred an extraordinary loss of $2.4 million, net
of tax benefit, related to the early repayment of our senior term debt that was
used in the acquisition of Intersil's Malaysian business that was subsequently
repaid using proceeds from our initial public offering.
Net Income: As a result of the items described above, our net income
increased to $12.1 million in 2000 compared to a net loss of $7.3 million in
1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues: Net revenues in 1999 increased 12.4% to $375.5 million compared
with $334.1 million in 1998. This increase came primarily from sales growth in
BGA packaging services, which increased by 23.6% from $206.9 million to $255.8
million. This increase was partially offset by a decline in revenues from leaded
packages services from $127.2 million to $109.3 million. The strong growth in
BGA revenues was driven primarily by higher volumes of BGA packaging services
sold to Intel, our leading customer, partially offset by lower average selling
prices. Additionally, we started to ship BGA packages to new customers including
nVIDIA, IBM, Lucent and Level One during 1999. The decline in leaded product
revenues was driven by the continuing soft market conditions in the
semiconductor industry present during the second half of 1998, and has been
partially offset by strengthened market conditions during 1999.
Gross Profit: Gross profit decreased to $58.0 million in 1999 from $63.7
million in 1998, resulting in gross margin of 15.5% in 1999 compared to 19.1%
for 1998. The gross profit experienced during the 1998 was significantly
higher than usual due to the large depreciation of the Korean Won which averaged
1,372.1 Won per U.S. Dollar during 1998 compared to an average exchange rate of
1,189.3 Won per U.S. Dollar during 1999. This exchange rate resulted in lower
costs for overhead and labor in Korea in 1998.
23
Selling, General and Administrative: Selling, general and administrative
expenses increased 40.8% to $21.2 million in 1999 compared to $15.1 million
during 1998. As a percentage of sales, these expenses increased from 4.5% to
5.7% of sales during the same period. This increase was due to the additional
expenses associated with hiring new personnel in the areas of administration,
sales and marketing necessary to strengthen our worldwide infrastructure.
Research and Development: Research and development expenses increased to
$12.4 million in 1999 compared to $7.7 million in 1998. As a percentage of
sales, these expenses increased to 3.3% of sales in 1999 as compared to 2.3%
of sales in 1998. The increase in the level of research and development
expenses was due to the establishment of a prototype development center in
Santa Clara, California at the end of 1998. Expenses of the prototype
development center increased by $1.7 million during 1999 over 1998.
Change of Control Expense: As a result of the recapitalization, we were
contractually required to make a one-time change of control payment to our
unionized Korean employees of approximately $11.8 million. The payment was
recorded as an operating expense during the quarter ended September 30, 1999.
Interest Income: For 1999, interest income increased to $2.8 million from
$1.3 million for 1998. Most of the interest income was earned from cash invested
in time deposits. During 1999, we maintained an average cash balance of $51.0
million. During 1998, we did not have a significant cash balance as
substantially all cash was transferred to Hyundai, the then sole stockholder, at
its request. ChipPAC was a wholly owned subsidiary at the time of the transfer.
ChipPAC does not expect to maintain significant cash balances going forward.
Interest Expense: Interest expense for 1999 increased 59.2% to $21.2
million from $13.3 million for 1998. This is primarily due to interest expense
on the debt raised as part of the recapitalization.
Foreign Currency (Gains) Losses: During 1998, we incurred a net non-cash
foreign currency gain of $24.7 million, which arose from ChipPAC Korea's
holding of U.S. Dollar-denominated liabilities in excess of U.S. Dollar
monetary assets and from an appreciation in the value of the Won. During 1999,
ChipPAC incurred a non-cash foreign currency gain of $1.2 million.
Other Income (Expense): Other expense increased from $0.2 million in 1998
to income of $0.6 million in 1999. The increase in other income arose
principally from an increase in the gains from the sale of excess production
equipment and scrap material.
Income Taxes: Income tax expense was $1.9 million in 1999 compared to
$20.6 million expense for 1998. The effective tax rate was approximately
negative 48.5% in 1999 versus the historic effective tax rate of approximately
38.9% in 1998. The effective tax rates during both periods were adversely
affected by losses by our operations in China, for which no tax benefit was
realized.
Extraordinary Loss: We incurred an extraordinary loss of $1.4 million, net
of tax benefit, related to the early retirement of debt upon the
recapitalization of the company.
Net Income (Loss): As a result of the items described above, we showed a
net loss of $7.3 million for 1999 compared to net income of $32.3 million in
1998.
Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai
charged fees to ChipPAC for the use of technology and technical support for our
facility in China. This agreement was terminated on June 30, 1998. ChipPAC is
fully capable of providing this support today.
24
Sources and Uses of Cash
In 2000, 1999, and 1998, cash provided by operations was $48.5 million,
$45.9 million, and $98.8 million, respectively. Cash from operations mainly
consisted of net income (loss) plus depreciation and amortization less
utilization for working capital.
In 2000, 1999, and 1998, cash used in investing activities was $131.0
million, $56.5 million, and $59.7 million, respectively. In 1998 and 1999, cash
used in investing activities mainly was invested in property and equipment. In
2000, in addition to the acquisition of property and equipment, cash was
invested in the purchase of the Malaysian business, including purchased
intellectual property.
In 2000, 1999, and 1998 cash provided by (used in) financing activities
was $68.9 million, ($26.5) million, and $15.5 million, respectively. Cash was
mainly provided by or used in debt issuance, debt prepayment, stock issuance,
and stock redemption.
Liquidity and Capital Resources
We have a borrowing capacity of $50 million for working capital and
general corporate purposes under the revolving credit line portion of our
senior credit facilities. In addition, borrowings of up to $20.0 million are
available for acquiring equipment and making other specified capital
expenditures under the capital expenditure line portion of the senior credit
facilities. We may borrow and repay under the capital expenditure line until
August 5, 2001. Amounts that are repaid under the capital expenditure line
after August 5, 2001 may not be reborrowed by us later. The final maturity for
both these facilities is August 5, 2005. We did not draw upon these facilities
in connection with our recapitalization.
Our capitalization significantly changed following our initial public
offering of stock on August 8, 2000, as explained in detail above under the
caption "Business."
Our ongoing primary cash needs are for operations and equipment
purchases. Prior to the recapitalization, we met a significant portion of our
cash requirements from a combination of (1) short and long-term bank loans and
(2) capital contributions from Hyundai. All short and long-term debt, loans,
leases and other credit facilities existing prior to the recapitalization were
repaid and terminated at the recapitalization date.
Prior to the recapitalization, Hyundai Electronics invested significant
amounts of capital to increase our packaging and test services capacity. The
capital investments made by Hyundai Electronics from 1995 to 1997 totaled
approximately $307.0 million. We spent approximately $93.2 million, $57.9
million and $61.3 million in capital expenditures in 2000, 1999 and 1998,
respectively.
25
Under the recapitalization agreement, Hyundai Electronics may receive up
to an additional $55.0 million of cash during the four-year period beginning
January 1, 1999 if we exceed specified levels of EBITDA as described in the
recapitalization agreement. Hyundai Electronics is entitled to receive 33.3%
of the amount by which the EBITDA, which is defined in the recapitalization
agreement, exceeds $116.5 million, $171.3 million, $198.5 million and $231.8
million, respectively, in each of the first four years following the
recapitalization. No payment was made to Hyundai Electronics in 2000 and 1999
under these terms, and this right expired with the redemption of the Hyundai
preferred stock.
As of December 31, 2000, our debt consisted of $298.0 million in outside
borrowings; comprised of $7.8 million of revolving loans, $140.2 million of
term loans and $150.0 million in senior subordinated notes. Interest is
payable semi-annually for the senior subordinated notes and quarterly for the
revolving and term loans. The Senior notes carry an interest rate of 12.75%.
The Company has the option to adjust the interest rates on part or all of the
remaining debt throughout the terms of the loans. At December 31, 2000, the
weighted average interest rate for the Revolving loans and the Term loans was
9.53%. Our Senior Credit Facilities are secured by the assets of the Company
and those of certain of its subsidiaries. Maturity on the credit facilities
range from 2005 to 2009.
We believe that our existing cash balances, cash flows from operations,
available equipment lease financing and available borrowings under the senior
credit facilities will be sufficient to meet our projected capital expenditures,
working capital and other cash requirements for the next twelve months.
Our debt instruments require that we meet specified financial tests,
including, without limitation, a maximum leverage ratio, a minimum interest
coverage ratio, and a minimum fixed charge coverage ratio. These debt
instruments also contain covenants restricting our operations. There were no
violations of these covenants through December 31, 2000.
Derivative Financial Instruments
Since October 1998, we have entered into foreign forward contracts to
mitigate the effect of foreign currency movements on the cost of materials and
equipment. The contracts entered into require the purchase of Korean Won or
Japanese Yen, and the delivery of U.S. Dollars, and generally have maturities
which do not exceed three months. Because the contracts entered into to date do
not qualify as hedges under generally accepted accounting principles in the
United States of America, the gains and losses from these contracts have been
recorded as foreign currency gains and losses. We had no gain or loss in 2000
and a net loss of $0.8 million in 1999 arising from forward foreign currency
contracts.
As of December 31, 2000, we had no foreign currency contracts outstanding.
26
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133." SFAS 137 amends Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to defer its
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments including standalone instruments, as forward currency exchange
contracts and interest rate swaps or embedded derivatives and requires that
these instruments be market-to-market on an ongoing basis. These market value
adjustments are to be included either in the income statement or stockholders'
equity, depending on the nature of the transaction. We are required to adopt
SFAS 133 in the first quarter of our fiscal year 2001. We believe that the
impact of SFAS 133 will have no material effect on our financial statements.
Acquisition of Malaysian Business
On June 30, 2000, we consummated our acquisition of Intersil's packaging
and test operations located in Kuala Lumpur, Malaysia along with related
intellectual property for approximately $75.6 million in cash and preferred
stock. In connection with the acquisition, we entered into a five-year supply
agreement with Intersil to provide Intersil assembly and test services on an
exclusive basis. The Malaysian business increases opportunities in high growth
advanced communications products, provides a presence in Malaysia near emerging
wafer foundries, broadens our package portfolio and enhances our intellectual
property in key areas. In addition, the Malaysian business expands our
mixed-signal testing capabilities and provides us with critical expertise in RF
testing.
We accounted for the Malaysian acquisition using purchase accounting.
Under purchase accounting, the total purchase price of the Malaysian business is
allocated to the acquired assets and liabilities based on their relative fair
values as of the closing date of the acquisition. The purchase price of $75.6
million represents the total of the cash consideration (including direct costs
of the acquisition) and the estimated fair value of the Class C preferred stock
exchanged for the whole of the issued shares of the Malaysian business and
certain intellectual property associated with it.
The terms of the acquisition of the Malaysian business require us to pay
until June 30, 2003 additional contingent incentive payments to Intersil based
on the achievement of milestones with respect to the transfer of the seller's
packaging business, currently subcontracted by Intersil to third parties, to us.
We will record these contingent payments as additional purchase price if and
when they are earned and paid on a quarterly basis. In the event that Intersil
were to achieve all the milestones, we would pay Intersil an additional sum of
approximately $17.9 million in the aggregate. As of December 31, 2000, we have
paid $0.4 million and accrued an additional $1.3 million for such incentive
payments. These payments increased the effective purchase price and the
resulting decrease in negative goodwill was allocated to non-current assets.
Additionally, $2.4 million of other purchase price adjustments were recorded
resulting in a further reduction of negative goodwill.
27
The amount and components of the purchase price along with the allocation
of the purchase price to assets purchased and liabilities assumed as of December
31, 2000 are as follows:
(in millions)
Purchase Price:
Cash consideration ............................................... $56.6
Estimated fair value of Class C preferred stock .................. 15.8
Expenses ......................................................... 5.0
Less: payment due from Intersil ................................... (1.8)
-----
$75.6
=====
Allocation of Purchase Price:
Estimated fair value of
Land and buildings .............................................. $17.7
Plant and equipment ............................................. 59.6
Intellectual property ........................................... 13.3
Restructuring accrual ........................................... (7.4)
Deferred taxes .................................................. (4.1)
Net other assets and liabilities ................................ (3.5)
-----
$75.6
=====
There is no goodwill arising from the acquisition of the Malaysian
business. The fair value of total assets and liabilities exceeded the purchase
price, resulting in negative goodwill of $52.1 million. The negative goodwill
has been allocated in full to non-current assets as summarized below:
Estimated Negative
Fair Goodwill Adjusted
Non-current asset Value Allocated Fair Value
-------- ------------ ----------
(in millions)
Land and buildings .............. $ 27.9 $(10.2) $ 17.7
Plant and equipment ............. 93.9 (34.3) 59.6
Intellectual property ........... 20.9 (7.6) 13.3
------ ------ ------
$142.7 $(52.1) $ 90.6
====== ====== ======
Intellectual property we acquired along with the Malaysian business
primarily consists of trade secrets and patents. The estimated average useful
life of these assets is between five and nine years. An accrual of $7.4 million
was established for expected costs of restructuring the Malaysian business. As
of December 31, 2000, $5.5 million of these one time non-recurring costs have
been incurred in connection with our factory reorganization, product
discontinuance and employee related costs. A total of $1.9 million remains for
completion of the restructuring activities which will occur in the first half of
2001.
28
The results of operations of the Malaysian business have been included
with our results of operations for periods subsequent to June 30, 2000. Set
forth below is the unaudited pro forma combined summary of operations of our
Company for the years ended December 31, 2000 and 1999, as if the acquisition
had been made on January 1, 1999 (in thousands, except for per share amounts).
Pro Forma Disclosure
December 31,
2000 1999
-------------------------
(unaudited) (unaudited)
Net sales $536,326 $477,394
Income before extraordinary item 9,165 7,009
Net income 6,775 6,749
Earnings per share
Basic $ 0.10 $ 0.12
-------- --------
Diluted $ 0.10 $ 0.12
-------- --------
Shares used in per share calculation:
Basic 68,367 54,002
-------- --------
Diluted 69,553 54,601
-------- --------
Intersil assigned to us patents, copyrights, and technical information
used exclusively in or associated with the Malaysian business. Furthermore,
Intersil granted us a worldwide, non-exclusive, royalty-free license under other
Intersil patents, copyright and technical information which is also used in or
related to the operation of the Malaysian business. This license is perpetual
and irrevocable. Any intellectual property rights in the bounding diagrams, test
programs, maskworks and test boards uniquely related to the Intersil products
for which we will provide packaging and test services under the supply agreement
with Intersil are licensed to it only for use in providing those services.
Initial Public Offering
On August 8, 2000 the Securities and Exchange Commission declared
effective our Registration Statement on Form S-1 (Registration No. 333-39428)
relating to the initial public offering of our Class A common stock. In
connection with the closing of our initial public offering, we issued 10,000,000
shares of Class A common stock for gross proceeds of $120.0 million. We
concurrently completed the private placement described below. The total
proceeds from the offering and the concurrent private placement, net of
issuance costs, was $135.0 million.
On August 18, 2000 in connection with the underwriters' exercise of their
over-allotment option to purchase additional shares of our Class A common stock,
we issued an additional 1,500,000 shares of Class A
29
common stock for gross proceeds of $18.0 million. Total proceeds from the
issuance of the additional shares, net of issuance costs, was $16.9 million.
The net proceeds, amounting to $151.9 million, have been used to redeem in
full the Class B mandatorily redeemable preferred stock of $79.3 million and to
repay debt of $64.2 million.
In connection with the closing of our initial public offering, all
outstanding shares of Class A and Class C mandatorily redeemable preferred stock
were automatically converted into an aggregate of 4,349,254 shares of Class A
common stock.
Qualcomm Private Placement
On July 13, 2000, Qualcomm agreed to enter into a three-year supply
agreement with us under which we will provide packaging and test services for
integrated circuit devices for Qualcomm and Qualcomm agreed to purchase $25.0
million of our Class A common stock at a purchase price per share of $11.40 (95%
of the initial public offering price) in a private placement that occurred
concurrently with the closing of our initial public offering. Based on the
initial public offering price of $12.00, Qualcomm purchased 2,192,983 shares of
Class A Common Stock.
Summary Sources and Uses of Initial Public
Offering and Private Placements August 11, 2000
-----------------------------------------------
Gross Expenses Net Cash
----- -------- --------
I. Sources of Funds
A. IPO net proceeds $138,000 $(11,108) $126,892
B. Qualcomm net proceeds 25,000 ___ 25,000
-------- -------- --------
$163,000 $(11,108) $151,892
======== ======== ========
II. Uses of Cash Proceeds
A. Retirement of Series B mandatorily redeemable
preferred stock, including accreted dividends $ 79,310
B. Repayment of term debt 55,845
C. Senior Term facilities paydown 8,310
D. Corporate purposes 8,427
--------
$151,892
========
Private Placement for Termination of Advisory Agreements
At the time of our 1999 recapitalization, we entered into advisory
agreements with affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio
concern of Citicorp Venture Capital Ltd.(our Equity Investors), under which
the Equity Investors provided financial, advisory and consulting services to us.
Each advisory agreement was to remain in effect for an initial term of ten
years.
We agreed to terminate the advisory agreements with the Equity Investors
upon the closing of the initial public offering for a one-time aggregate payment
of $8.0 million consisting of a $3.6 million cash payment and the issuance of
$4.4 million of our Class A common stock at a price per share equal to the
initial public offering price. We recorded a one time charge to income of $8.0
million in the third quarter of fiscal 2000 for this agreement termination.
30
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. We utilize derivative financial
instruments but do not use derivative financial instruments for speculative or
trading purposes. We have long-term debt that carries fixed and variable
interest rates. A fluctuation in interest rates of 1% (approximately 10% of
our blended interest rate) would increase the annual interest charge by $1.7
million. We do enter into transactions in other currencies, primarily the
Korean Won. However, a majority of the revenues and capital spending is
transacted in U.S. Dollars. Therefore, effective October 1, 1999, we changed
the functional currency of ChipPAC Korea and ChipPAC China from their
respective local currencies to the U.S. Dollar. The use of the U.S. Dollar as
the functional currency will result in a much lower level of foreign exchange
gains and losses in our overseas subsidiaries.
For 2000, 1999, and 1998, we generated approximately 16.7%, 11.3%, and
7.2% of total revenues, respectively, from international markets, primarily from
customers in Korea and Japan. In addition, all of the facilities currently used
to provide packaging services are located in Korea, China and Malaysia.
Moreover, many of our customers' operations are located in countries outside of
the United States of America. We cannot determine if our future operations and
earnings will be affected by new laws, new regulations, a volatile political
climate, changes in or new interpretations of existing laws or regulations or
other consequences of doing business outside the United States of America,
particularly in Korea, China and Malaysia. If future operations are negatively
affected by these changes, sales or profits may suffer.
Investment Risk
We do not have investments and therefore are not exposed to investment
risk.
Foreign Currency Risk
Based on the our overall currency rate exposure at December 31, 2000, a
near term 10% appreciation or depreciation in the value of the U.S. dollar
would have an insignificant effect on our financial position, results of
operations and cash flows over the next fiscal year. There can be no
assurance, however, that there will not be a material impact further in the
future.
A portion of our costs is denominated in foreign currencies, like the
South Korean Won, the Chinese Renminbi, and the Malaysian Ringgit. As a result,
changes in the exchange rates of these currencies or any other applicable
currencies to the U.S. dollar will affect the cost of goods sold and operating
margins and could result in exchange losses. We cannot fully predict the impact
of future exchange rate fluctuations on our profitability. From time to time, we
may have engaged in, and may continue to engage in, exchange rate hedging
activities in an effort to mitigate the impact of exchange rate fluctuations.
However, we cannot assure that any hedging technique we implement will be
effective. If it is not effective, we may experience reduced operating margins.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants .......................................... 33
Consolidated Balance Sheets -- December 31, 2000 and 1999................... 34
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2000 .......................... 35
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 2000 .......................... 36
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2000 ................................... 37
Notes to Consolidated Financial Statements.................................. 39
Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts for each of the three years in
the period ended December 31, 2000
32
Report of Independent Accountants
To the Stockholders and Board of Directors of ChipPAC, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and cash
flow, present fairly, in all material respects, the financial position of
ChipPAC, Inc. and its subsidiaries at December 31, 2000 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 25, 2001
33
ChipPAC, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2000 1999
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 18,850 $ 32,117
Receivable from stockholders -- 11,662
Accounts receivable, less allowance for
doubtful accounts of $972 and $1,196 45,904 30,003
Inventories 21,250 17,497
Prepaid expenses and other current assets 6,720 3,161
--------- ---------
Total current assets 92,724 94,440
Property and equipment, net 334,733 226,931
Other assets 41,788 22,058
--------- ---------
Total assets $ 469,245 $ 343,429
========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Bank borrowings $ 7,800 $ --
Accounts payable 54,663 52,208
Accrued expenses and other liabilities 43,899 27,208
Current portion of long-term debt 6,800 4,800
--------- ---------
Total current liabilities 113,162 84,216
Long-term debt, less current portion 283,400 295,200
Other long-term liabilities 6,986 3,929
--------- ---------
Total liabilities 403,548 383,345
--------- ---------
Commitments and contingencies (Note 13)
Mandatorily redeemable preferred stock
10.0% cumulative convertible preferred stock, Class A - par value $0.01
per share; no shares and 10,000 shares authorized, issued and
outstanding at December 31, 2000 and 1999 -- 9,416
--------- ---------
12.5% cumulative preferred stock, Class B - par value $0.01 per share; 105,000 shares
authorized, issued and outstanding, no shares and 70,000 shares at December 31, 2000
and 1999 -- 73,554
--------- ---------
Stockholders' equity (deficit):
Common stock, Class A - par value $0.01 per share; 250,000,000 shares authorized,
68,438,000 and 36,671,000 shares issued and outstanding at December 31, 2000 and
1999 685 367
Common stock, Class B - par value $0.01 per share; 250,000,000 shares, no shares
issued or outstanding at December 31, 2000 and 1999 -- --
Common stock, Class L - par value $0.01 per share; 20,000,000 shares authorized,
no shares and 3,984,000 shares issued and outstanding at December 31, 2000 and
1999 -- 40
Warrants - Class A common stock 1,250 1,250
Additional paid in capital-common stock 104,509 (81,304)
Receivable from stockholders (1,505) (1,128)
Accumulated deficit (48,411) (51,280)
Accumulated other comprehensive income 9,169 9,169
--------- ---------
Total stockholders' equity (deficit) 65,697 (122,886)
--------- ---------
Total liabilities, mandatorily redeemable preferred stock and stockholders'
equity (deficit) $ 469,245 $ 343,429
========= =========
The accompanying notes are an integral part of these financial statements.
34
ChipPAC, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
For the Years Ended
December 31,
2000 1999 1998
--------- --------- ---------
Revenue $ 494,411 $ 375,530 $ 334,081
Cost of revenue 385,267 317,488 270,365
--------- --------- ---------
Gross profit 109,144 58,042 63,716
Operating expenses:
Selling, general and administrative 34,799 21,219 15,067
Research and development 12,015 12,362 7,692
Management fees charged by affiliate -- -- 528
Change of control expenses -- 11,842 --
--------- --------- ---------
Total operating expenses 46,814 45,423 23,287
--------- --------- ---------
Operating income 62,330 12,619 40,429
Non-operating (income) expenses:
Interest expense 39,432 21,241 13,340
Interest income (843) (2,751) (1,276)
Foreign currency (gains) losses (2,168) (1,224) (24,670)
Other (income) expenses, net 7,849 (650) 168
--------- --------- ---------
Non-operating (income) expenses 44,270 16,616 (12,438)
--------- --------- ---------
Income (loss) before income taxes and extraordinary items 18,060 (3,997) 52,867
Provision for income taxes 3,614 1,938 20,564
--------- --------- ---------
Income (loss) before extraordinary item 14,446 (5,935) 32,303
Extraordinary item:
Loss from early extinguishment of debt, net of
related income tax benefit 2,390 1,373 --
--------- --------- ---------
Net income (loss) 12,056 (7,308) 32,303
Accretion of dividends on mandatorily redeemable
preferred stock (8,197) (3,960) --
Accretion of recorded value of the Intel warrant (990) (260) --
--------- --------- ---------
Net income (loss) available to common stockholders $ 2,869 $ (11,528) $ 32,303
========= ========= =========
Comprehensive income:
Net income (loss) $ 12,056 $ (7,308) $ 32,303
Currency translation adjustments -- (1,309) 28,261
--------- --------- ---------
Comprehensive income gains (loss) $ 12,056 $ (8,617) $ 60,564
========= ========= =========
Income (loss) per share available to common stockholders
before extraordinary item
Basic $ 0.09 $ (0.26) $ 0.83
Diluted $ 0.09 $ (0.26) $ 0.83
Extraordinary item
Basic $ (0.04) $ (0.04) $ --
Diluted $ (0.04) $ (0.04) $ --
Net income (loss) per share available to common stockholders
Basic $ 0.05 $ (0.30) $ 0.83
Diluted $ 0.05 $ (0.30) $ 0.83
Shares used in per share calculation:
Basic 57,067 38,935 38,861
Diluted 58,253 38,935 38,861
The accompanying notes are an integral part of these financial statements.
35
ChipPAC, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
---------------------
Warrants Divisional
Class A Additional Equity, Net Amount due
Number of Common Paid in of Capital from
Shares Amount Stock Capital Redemption Stockholders
----------------------------------------------------------------------------
Balance as at December 31, 1997 -- $ -- $ -- $ -- $ 97,075 $ (7,466)
Capital increase -- -- -- -- 82,953 --
Advances to Hyundai Electronics -- -- -- -- -- (30,160)
Amortization of stock option compensation -- -- -- -- 63 --
Currency translation gain -- -- -- -- -- --
Dividends declared by ChipPAC Korea -- -- -- -- -- --
Net income -- -- -- -- -- --
----------------------------------------------------------------------------
Balance as at December 31, 1998 -- -- -- -- 180,091 (37,626)
Proceed from common stock issuance at
recapitalization, net of issuance cost of
$17,982 38,861 389 -- 83,629 (10,000) --
Sale of common stock and exercise of stock
options 1,794 18 -- 2,781 -- (1,128)
Capital contribution -- -- -- -- (16,401) 37,626
Conversion of divisional equity to mandatorily
redeemable preferred stock -- -- -- -- (30,000) --
Capital redemption at recapitalization -- -- -- -- (311,220) --
Capital contribution by HEI at recapitalization -- -- -- -- 19,816 --
Transfer of divisional equity upon
recapitalization -- -- -- (167,714) 167,714 --
Issuance of Intel warrant -- -- 1,250 -- -- --
Accretion of recorded value of Intel warrant -- -- -- -- -- --
Dividend accretion of mandatorily redeemable
preferred stock -- -- -- -- -- --
Currency translation loss -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------------
Balance as at December 31, 1999 40,655 407 1,250 (81,304) -- (1,128)
Repayment of amount due from stockholders 185
Sale of common stock 510 5 -- 1,181 -- (562)
Common stock repurchased by Company during the
year (61) (1) -- (39) -- --
Conversion of preferred stock to common stock 4,349 43 -- 28,588 -- --
Exercise of stock options 45 1 -- 20 -- --
Accretion of recorded value of Intel warrant -- -- -- -- -- --
Dividend accretion of mandatorily redeemable
preferred stock -- -- -- -- -- --
Issuance of common stock to Class L
stockholders 8,880 89 -- (89) -- --
Stock issued in connection with termination of
management advisory agreement 367 4 -- 4,396 -- --
Stock issued at IPO, net of issuance cost of
$11,108 13,693 137 -- 151,756 -- --
Net profit -- -- -- -- -- --
----------------------------------------------------------------------------
Balance as at December 31, 2000 68,438 $ 685 $ 1,250 $ 104,509 -- $ (1,505)
============================================================================
Accumulated
other
Comprehensive Accumulated
Income/(Loss) Deficit Total
----------------------------------------
Balance as at December 31, 1997 $ (17,783) $ (62,354) $ 9,472
Capital increase -- -- 82,953
Advances to Hyundai Electronics -- -- (30,160)
Amortization of stock option compensation -- -- 63
Currency translation gain 28,261 -- 28,261
Dividends declared by ChipPAC Korea -- (9,701) (9,701)
Net income -- 32,303 32,303
----------------------------------------
Balance as at December 31, 1998 10,478 (39,752) 113,191
Proceed from common stock issuance at
recapitalization, net of issuance cost of
$17,982 -- -- 74,018
Sale of common stock and exercise of stock
options -- -- 1,671
Capital contribution -- -- 21,225
Conversion of divisional equity to mandatorily
redeemable preferred stock -- -- (30,000)
Capital redemption at recapitalization -- -- (311,220)
Capital contribution by HEI at recapitalization -- -- 19,816
Transfer of divisional equity upon
recapitalization -- -- --
Issuance of Intel warrant -- -- 1,250
Accretion of recorded value of Intel warrant -- (260) (260)
Dividend accretion of mandatorily redeemable
preferred stock -- (3,960) (3,960)
Currency translation loss (1,309) -- (1,309)
Net loss -- (7,308) (7,308)
----------------------------------------
Balance as at December 31, 1999 9,169 (51,280) (122,886)
Repayment of amount due from stockholders 185
Sale of common stock -- -- 624
Common stock repurchased by Company during the
year -- (40)
Conversion of preferred stock to common stock -- -- 28,631
Exercise of stock options -- -- 21
Accretion of recorded value of Intel warrant -- (990) (990)
Dividend accretion of mandatorily redeemable
preferred stock -- (8,197) (8,197)
Issuance of common stock to Class L
stockholders -- -- --
Stock issued in connection with termination
of management advisory agreement -- -- 4,400
Stock issued at IPO, net of issuance cost of
$11,108 -- -- 151,893
Net profit -- 12,056 12,056
----------------------------------------
Balance as at December 31, 2000 $ 9,169 $ (48,411) $ 65,697
========================================
The accompanying notes are an integral part of these financial statements.
36
ChipPAC, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended
December 31,
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 12,056 $ (7,308) $ 32,303
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation and amortization 45,049 56,701 45,855
Debt issue amortization 1,950 774 --
Deferred tax 2,029 (3,049) 7,616
Non-operating early debt extinguishment extraordinary loss 2,390 1,373 --
Fee paid in stock to Equity Investors 4,400 -- --
Foreign currency (gains) losses (2,168) (1,224) (24,670)
(Gain) loss on sale of equipment (93) (282) 26
Changes in assets and liabilities:
Accounts receivable (3,519) 6 (13,038)
Inventories (155) (5,731) 8,962
Prepaid expenses and other assets (4,334) (2,906) 8,469
Other assets (14,048) 3,317 (4,226)
Advances (to) from affiliates -- (7,424) 4,671
Accounts payable (2,499) (11,615) 39,979
Accrued expenses and other current liabilities 1,859 20,021 126