Amkor Technology, Inc. (NASDAQ: AMKR) today reported its financial results for the second quarter ended June 30, 2007. Net sales of $652 million for the second quarter of 2007 were flat from the first quarter of 2007 and down 5% from $687 million for the second quarter of 2006. Second quarter net income was $31 million, or $0.16 per diluted share, compared with net income of $24 million, or $0.13 per diluted share, in the second quarter of 2006. During the second quarter of 2007, Amkor recorded charges, with no tax effect, of $16 million, or $0.08 per diluted share, in connection with refinancing a $300 million second lien term loan and the redemption of its 10.5% senior subordinated notes. Net income for the second quarter of 2006 reflected charges, with no tax effect, of $28 million, or $0.14 per diluted share, for debt retirement costs incurred in connection with a series of refinancing transactions completed during that quarter.
“During the second quarter of 2007, sales of our wirebond packages were strong, in support of a broad array of wireless, consumer, networking, and gaming applications,” said James Kim, chairman and chief executive officer of Amkor. “This was not enough, however, to offset reduced levels of modules business and lower than expected sales of our flip chip assembly and test services to certain customers in the computing and gaming sectors who experienced inventory corrections during the quarter,” said Kim. “Although second quarter 2007 sales were lower than anticipated, gross margin was higher than expected because packages with less material content accounted for a larger portion of our sales resulting in lower overall material costs.
“With first quarter seasonal weakness behind us and our belief that our customers have largely worked off excess inventories in the first six months of 2007, I expect modest growth to resume in the third quarter,” said Kim. “Our business is increasingly influenced by growth in the world economy and levels of consumer spending. As standards of living rise globally, the demand for consumer goods should increase, requiring IC assembly and test services in support of a wide range of devices and end-market applications. We expect to benefit from this growth by maintaining our technology and product leadership in key market segments, and by exercising financial discipline so that we are positioned to achieve our goals of consistent profitability and free cash flow.”
“During the second quarter, unit shipments of wirebond packages increased 7% sequentially, which helped to offset the decline in the flip chip and modules businesses,” said Ken Joyce, chief financial officer of Amkor. “The change of sales mix in the second quarter resulted in lower overall material costs and improved gross margin of 24.8%, up from 22.6% in the first quarter of 2007 and up slightly from 24.7% in the second quarter of 2006,” added Joyce.
“Capital additions totaled $60 million in the second quarter 2007 and $115 million for the first six months. In the second quarter, we expanded capacity for our wirebond packages in response to strong demand in that area,” said Joyce. “Second quarter capital additions also include approximately $10 million in IT solutions as we continue to build and enhance our Information Systems. We are currently targeting third quarter 2007 capital additions of approximately $90 million and full year additions in the range of $275 - $300 million. We are prepared to adjust these figures depending on business conditions.
“We have achieved positive free cash flow for the past seven quarters, and given our current view of business conditions, we anticipate this trend will continue throughout 2007,” said Joyce.
“We have continued to address our capital structure by extending our debt maturities and reducing our ongoing interest expense through the repayment of outstanding debt and selective refinancing of high cost debt. As previously announced, in April we refinanced a $300 million second lien term loan due October 2010 (accruing interest at LIBOR + 450 bp) with a new loan from Woori Bank in Korea bearing interest at the bank’s base rate plus 50 bp (currently 6.6% or approximately LIBOR + 125 bp) which amortizes in 28 equal quarterly payments through April 2014. In May 2007, we redeemed all of our outstanding 10.50% senior subordinated notes due 2009 at a price equal to 100% of the principal amount of $21.9 million plus accrued interest.
“In connection with the April 2007 refinancing and the May 2007 redemption, Amkor recorded a charge with no tax effect of approximately $16 million, or $0.08 per diluted share, in the second quarter of 2007, consisting of $9 million in early prepayment fees and $7 million to write-off unamortized deferred debt issuance costs.
“We have reduced our total outstanding debt by $193 million in the past two quarters. As a result of the repayment of $142 million of 5% convertible notes in the first quarter, the $300 million refinancing in April and the $21.9 million redemption in May, we expect to realize approximately $14 million in interest savings in 2007 as compared with 2006,” said Joyce. “When these savings are combined with the interest savings from our 2006 capital structure improvements, we expect to realize approximately $28 million in aggregate interest savings in 2007 as compared with 2006.”
The income tax rate was 12% for the second quarter of 2007, and we anticipate an effective tax rate of 9% for the year. This reflects the utilization of foreign net operating loss carry-forwards and tax holidays in certain of our foreign jurisdictions. At June 30, 2007, Amkor had U.S. net operating losses available for carry-forward totaling $401 million expiring through 2027 and $47 million of non-U.S. operating losses available for carry-forward, expiring through 2012.
Selected operating data for the second quarter 2007 is included in a section before the financial tables.
On the basis of customers’ forecasts, we have the following expectations for the third quarter of 2007:
- Sales up 4% to 7% from the second quarter of 2007
- Gross Margin in the range of 24% to 25%
- Net income in the range of $0.23 to $0.28 per diluted share
Amkor will conduct a conference call on July 31, 2007 at 5:00 p.m. eastern time. The call can be accessed by dialing 303-262-2175, or by visiting the investor relations page of our website: www.amkor.com or CCBN’s website: www.companyboardroom.com. An archive of the webcast can be accessed through the same links, and will be available until our next quarterly earnings conference call. An audio replay of the call will be available for 48 hours following the conference call by dialing 303-590-3000 passcode: 11087561#.
Amkor is a leading provider of advanced semiconductor assembly and test services. The company offers semiconductor companies and electronics OEMs a complete set of microelectronics design and manufacturing services. More information on Amkor is available from the company’s SEC filings and on Amkor’s website: www.amkor.com.
Forward Looking Statement Disclaimer
This press release contains forward-looking statements within the meaning of federal securities laws. All statements other than statements of historical fact are considered forward looking statements including, without limitation, statements regarding the following: modest growth in the third quarter and the remainder of 2007; the influence of the world economy and consumer spending levels on our business and expectations regarding increasing demand for consumer goods requiring IC assembly and test services; our intention to maintain technology and product leadership in key market segments and the expected benefit to our business; our plans to exercise financial discipline in support of our profitability and free cash flow goals; plans regarding capital expenditures for the third quarter and the remainder of 2007; expectations regarding achievement of positive free cash flow for the remainder of 2007; expectations regarding interest savings and our effective tax rate during 2007; and the statements regarding sales, gross margin and net income per diluted share contained under Business Outlook. These forward-looking statements involve a number of risks, uncertainties, assumptions and other factors that could affect future results and cause actual results and events to differ materially from historical and expected results and those expressed or implied in the forward looking statements, including, but not limited to, the following: the highly unpredictable nature of the semiconductor industry; inability to achieve high capacity utilization rates; volatility of consumer demand for products incorporating our semiconductor packages; weakness in the forecasts of Amkor’s customers; customer modification of and follow through with respect to forecasts provided to Amkor; curtailment of outsourcing by our customers; our substantial indebtedness and restrictive covenants; failure to realize sufficient cash flow to fund capital expenditures; deterioration of the U.S. or other economies; the highly unpredictable nature and costs of litigation and other legal activities and the risk of adverse results of such matters; the outcome of the pending SEC investigation; worldwide economic effects of terrorist attacks, natural disasters and military conflict; competitive pricing and declines in average selling prices; timing and volume of orders relative to production capacity; fluctuations in manufacturing yields; competition; dependence on international operations and sales; dependence on raw material and equipment suppliers and changes in raw material costs; exchange rate fluctuations; dependence on key personnel; difficulties in managing growth; enforcement of intellectual property rights; environmental and other governmental regulations; and technological challenges.
Further information on risk factors that could affect the outcome of the events set forth in these statements and that could affect the company’s operating results and financial condition is detailed in the company’s filings with the Securities and Exchange Commission, including Form 10-Q for the quarter ended March 31, 2007. Amkor undertakes no obligation to review or update any forward-looking statements to reflect events or circumstances occurring after the date of this press release.
Selected operating data for the second quarter and six month 2007
|Capital additions||$60 million|
|Net increase in related accounts|
|payable and deposits|
($ 9 million)
($ 13 million)
|Payments for property, plant &|
|Depreciation and amortization||$71 million||$142 million|
|Free cash flow (1)||$80 million||$152 million|
(1) Reconciliation of free cash
Net cash provided by operating activities
|$131 million||$254 million|
|Less payments for property, plant and equipment|
|($ 51 million)||($102 million)|
|Free cash flow from continuing operations|
|$ 80 million||$152 million|
We define free cash flow as net cash provided by operating activities less payments for property, plant and equipment. Free cash flow is not defined by generally accepted accounting principles. However, we believe free cash flow to be relevant and useful information to our investors because it provides them with additional information in assessing our liquidity, capital resources and financial operating results. Our management uses free cash flow in evaluating our liquidity, our ability to service debt and our ability to fund capital expenditures. However, this measure should be considered in addition to, and not as a substitute, or superior to, cash flows or other measures of financial performance prepared in accordance with generally accepted accounting principles, and our definition of free cash flow may not be comparable to similarly titled measures reported by other companies.
- Second quarter capacity utilization was approximately 80%.
- Assembly unit shipments for Q2 2007 were 2.1 billion, up 7% from Q1 2007.
- For Q2 2007, our top ten customers accounted for 48% of net sales.
- Q2 2007 end market distribution (an approximation based on a sampling of programs with some of our largest customers):
Communications 35% Consumer 30% Computing 25% Other 10%
- Q2 2007 percentage of net sales:
Laminate packages 51% Leadframe packages 35% Test 11% Other 3%
AMKOR TECHNOLOGY, INC.
|CONSOLIDATED STATEMENTS OF INCOME|
For the Three
For the Six
|June 30,||June 30,|
|(In thousands, except per share data)|
|Net sales||$ 652,486||$ 686,631||$ 1,303,474||$ 1,331,720|
|Cost of sales||490,794||517,307||994,444||1,007,659|
|Selling, general and administrative||62,360||58,967||125,027||120,171|
|Research and development||11,023||10,315||20,648||19,745|
|Total operating expenses||73,383||69,282||145,675||139,916|
|Other (income) expense:|
|Interest expense, net||31,114||40,600||66,274||81,757|
|Interest expense, related party||1,562||1,563||3,125||3,351|
|Foreign currency loss, net||4,562||1,079||4,547||5,007|
|Debt retirement costs, net||15,875||27,860||15,875||27,389|
|Other (income) expense, net||(532||)||2,840||(1,218||)||2,375|
|Total other expense, net||52,581||73,942||88,603||119,879|
|Income before income taxes and minority interests|
|Income tax expense||4,272||1,972||8,379||5,584|
|Income before minority interests||31,456||24,128||66,373||58,682|
|Minority interests, net of tax||(466||)||(340||)||(793||)||(455||)|
|Net income||$ 30,990||$ 23,788||$ 65,580||$ 58,227|
|Net income per common share:|
|Basic||$ 0.17||$ 0.13||$ 0.37||$ 0.33|
|Diluted||$ 0.16||$ 0.13||$ 0.34||$ 0.32|
|Shares used in computing net income per common share:|
|AMKOR TECHNOLOGY, INC.|
|CONSOLIDATED BALANCE SHEETS|
|June 30,||December 31,|
|Cash and cash equivalents||$ 238,407||$ 244,694|
|Trade, net of allowances||362,621||380,888|
|Other current assets||35,071||39,650|
|Total current assets||783,533||837,857|
|Property, plant and equipment, net||1,418,093||1,443,603|
|Total assets||$ 2,953,315||$ 3,041,264|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Short-term borrowings and current portion of long-term debt||$ 159,297||$ 185,414|
|Trade accounts payable||280,741||291,847|
|Total current liabilities||573,082||622,762|
|Long-term debt, related party||100,000||100,000|
|Pension and severance obligations||195,060||170,070|
|Other non-current liabilities||32,992||30,008|
|Commitments and contingencies|
|Additional paid-in capital||1,477,489||1,441,194|
|Accumulated other comprehensive loss||(8,480||)||(6,062||)|
|Total stockholders’ equity||493,380||393,920|
|Total liabilities and stockholders’ equity||$ 2,953,315||$ 3,041,264|
|AMKOR TECHNOLOGY, INC.|
|CONSOLIDATED STATEMENTS OF CASH FLOWS|
|For the Six Months Ended|
|Cash flows from operating activities:|
|Net income||$ 65,580||$ 58,227|
|Depreciation and amortization||141,504||133,525|
|Debt retirement costs||6,875||27,389|
|Other operating activities and non-cash items||9,342||23,363|
|Changes in assets and liabilities||30,682||(2,698||)|
|Net cash provided by operating activities||253,983||239,806|
|Cash flows from investing activities:|
|Payments for property, plant and equipment||(102,212||)||(169,469||)|
|Proceeds from the sale of property, plant and equipment||4,566||1,333|
|Other investing activities||(1,469||)||-|
|Net cash used in investing activities||(99,115||)||(168,136||)|
|Cash flows from financing activities:|
|Borrowings under revolving credit facilities||61,836||111,185|
|Payments under revolving credit facilities||(79,448||)||(95,462||)|
Proceeds from issuance of long-term debt
|Payments for debt issuance costs||(3,437||)||(14,852||)|
|Payments on long-term debt||(474,746||)||(731,634||)|
|Proceeds from issuance of stock through stock compensation plans||34,466||4,959|
|Net cash used in financing activities||(161,329||)||(135,804||)|
|Effect of exchange rate fluctuations on cash and cash equivalents||174||1,066|
|Net decrease in cash and cash equivalents||(6,287||)||(63,068||)|
|Cash and cash equivalents, beginning of period||244,694||206,575|
|Cash and cash equivalents, end of period||$ 238,407||$ 143,507|
Kenneth Joyce, 480-821-5000, ext. 5725
Executive Vice President & CFO