CHIPPAC INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004.

¨	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 000-31173

ChipPAC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

77-0463048

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

47400 Kato Road, Fremont, California 94538

(Address of Principal Executive Offices, Zip Code)

Registrant’s Telephone Number, Including Area Code (510) 979-8000

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 whether the registrant is an accelerated filer (as defined in Rule 12b.2 of the Act). Yes x No ¨

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


Class		Outstanding as of July 21, 2004
Class A common stock, $.01 par value		98,570,401
Class B common stock, $.01 par value		None

TABLE OF CONTENTS


			Page
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets	3

		Unaudited Condensed Consolidated Statements of Operations	4

		Unaudited Condensed Consolidated Statements of Cash Flows	5

		Notes to Unaudited Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

	Item 4.	Controls and Procedures	22

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	22

	Item 2.	Changes in Securities and Use of Proceeds	22

	Item 3.	Defaults Upon Senior Securities	22

	Item 4.	Submission of Matters to a Vote of Security Holders	22

	Item 5.	Other Information	23

	Item 6.	Exhibits and Reports on Form 8-K	23

	Signatures		27

ChipPAC, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	June 30, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	22,151		$	24,722
Short-term investments		275			34,986
Accounts receivable, less allowances for doubtful accounts of $725 and $574		71,907			56,728
Inventories		32,256			26,060
Prepaid expenses and other current assets		6,672			7,411

Total current assets		133,261			149,907
Property, plant and equipment, net		458,297			397,267
Intangible assets, net		15,407			15,860
Other assets		18,202			16,297

Total assets	$	625,167		$	579,331

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	8,709		$	—
Accounts payable		85,170			69,251
Accrued expenses and other current liabilities		30,988			27,724
Current portion of capital lease obligations		2,437			—

Total current liabilities		127,304			96,975
Long-term debt		165,000			165,000
Convertible subordinated notes		200,000			200,000
Capital lease obligations, less current portion		4,983			—
Other long-term liabilities		22,700			22,313

Total liabilities		519,987			484,288

Stockholders’ equity :
Preferred stock —par value $0.01 per share; 10,000,000 shares authorized, no shares issued or outstanding at June 30, 2004 and December 31, 2003		—			—
Common stock, Class A—par value $0.01 per share; 250,000,000 shares authorized, 98,547,000 and 97,237,000 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively		985			972
Common stock, Class B—par value $0.01 per share; 250,000,000 shares authorized, no shares issued or outstanding at June 30, 2004 and December 31, 2003		—			—
Additional paid-in capital		289,973			284,849
Receivables from stockholders		(104	)		(164	)
Accumulated other comprehensive income		9,905			9,169
Accumulated deficit		(195,579	)		(199,783	)

Total stockholders’ equity		105,180			95,043

Total liabilities and stockholders’ equity	$	625,167		$	579,331

The accompanying notes are an integral part of these financial statements.

ChipPAC, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2004			2003			2004			2003
Revenue	$	142,533		$	106,844		$	269,481		$	195,412
Cost of revenue		114,571			90,257			218,534			168,784

Gross profit		27,962			16,587			50,947			26,628

Operating expenses:
Selling, general and administrative		9,819			8,465			18,965			17,931
Research and development		3,007			3,106			5,991			5,960
Merger-related charges		1,405			—			4,735			—

Total operating expenses		14,231			11,571			29,691			23,891

Operating income		13,731			5,016			21,256			2,737
Non-operating (income) expenses:
Interest expense		7,920			7,622			15,566			14,890
Interest income		(145	)		(190	)		(260	)		(309	)
Foreign currency (gains) losses		(81	)		438			364			216
Write-off of debt issuance costs and other related expenses		—			1,182			—			1,182
Other income, net		(173	)		(74	)		(360	)		(116	)

Total non-operating expenses		7,521			8,978			15,310			15,863

Income (loss) before income taxes		6,210			(3,962	)		5,946			(13,126	)
Provision for income taxes		1,242			500			1,742			1,000

Net income (loss)	$	4,968		$	(4,462	)	$	4,204		$	(14,126	)

Net income (loss) per share (Note 4)
Basic	$	0.05		$	(0.05	)	$	0.04		$	(0.15	)
Diluted	$	0.05		$	(0.05	)	$	0.04		$	(0.15	)
Weighted average shares used in per share calculation:
Basic		98,456			95,076			98,061			94,742
Diluted		101,597			95,076			101,707			94,742

The accompanying notes are an integral part of these financial statements.

ChipPAC, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	4,204		$	(14,126	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		41,022			33,149
Debt issuance cost amortization		1,263			960
Foreign currency losses		364			216
Write-off of debt issuance cost and other related expenses		—			1,182
Gain on sale of equipment		(385	)		(127	)
Changes in assets and liabilities:
Accounts receivable		(15,179	)		(4,617	)
Inventories		(6,196	)		(5,299	)
Prepaid expenses and other current assets		1,475			(2,100	)
Other assets		(3,168	)		(1,510	)
Accounts payable		15,919			16,814
Accrued expenses and other current liabilities		3,264			(3,412	)
Other long-term liabilities		23			1,638

Net cash provided by operating activities		42,606			22,768

Cash flows from investing activities:
Purchase of short-term investments		(15,549	)		(55,978	)
Proceeds from sale of short-term investments		50,260			7,998
Acquisition of intangible assets		(2,281	)		(1,815	)
Acquisition of property and equipment		(91,945	)		(44,800	)
Proceeds from sale of equipment		784			160
Acquisition of test asset		(125	)		—
Malaysian acquisition, net of cash and cash equivalents acquired		—			(3,475	)

Net cash used in investing activities		(58,856	)		(97,910	)

Cash flows from financing activities:
Proceeds from revolving loans and other lines of credit		37,809			27,354
Repayment of revolving loans and other lines of credit

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