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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
Other long-term liabilities 3,297 3,279 (7,326)
--------- --------- ---------
Net cash provided by operating activities 46,214 45,932 98,747
--------- --------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment (93,174) (57,856) (61,332)
Proceeds from sale of equipment 17,549 1,347 1,635
Malaysian acquisition, net of cash and cash equivalents (54,835) -- --
--------- --------- ---------
Net cash used in investing activities (130,460) (56,509) (59,697)
--------- --------- ---------
Cash flows provided by financing activities:
Advances to affiliates (249) (4,430) (30,160)
Proceeds from short-term loans 45,600 1,169 63,391
Repayment of short-term loans (37,800) (19,469) (79,093)
Net proceeds from long term loans 63,660 285,631 10,185
Capital redemption at recapitalization -- (311,220) --
Capital contribution by HEI at recapitalization -- 19,816 --
Repayment of long-term debt and capital leases (73,460) (133,615) (31,795)
Payment made to extinguish debt early -- (1,373) --
Dividend paid -- (9,435) --
Net proceeds from common stock issuance at recapitalization -- 74,018 --
Net proceeds from preferred stock issuance -- 50,000 --
Net proceeds from sale of stock to management -- 1,671 --
Net proceeds from common stock issuance 152,538 -- --
The accompanying notes are an integral part of these financial statements.
37
ChipPAC, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
(In thousands)
For the Year Ended
December 31,
2000 1999 1998
-------- -------- --------
Redemption of Class B preferred stock (79,310) -- --
Contributions to paid in capital -- 20,750 82,953
-------- -------- --------
Net cash provided by (used in) financing activities 70,979 (26,487) 15,481
-------- -------- --------
Effect on cash from changes in exchange rates -- 414 11,169
-------- -------- --------
Net increase (decrease) in cash (13,267) (36,650) 65,700
Cash and cash equivalents at beginning of year 32,117 68,767 3,067
-------- -------- --------
Cash and cash equivalents at end of year $ 18,850 $ 32,117 $ 68,767
======== ======== ========
Supplemental disclosure of noncash investing and financing activities
Acquisition of equipment under capital leases $ -- $ -- $ 2,191
======== ======== ========
Dividend declared and accreted $ (8,197) $ (3,960) $ (9,701)
======== ======== ========
Accretion of recorded value of Intel warrant $ (990) $ (260) $ --
======== ======== ========
Conversion of HEA equity to preferred stock $ -- $ 30,000 $ --
======== ======== ========
Contribution of non-cash capital $ -- $ 475 $ --
======== ======== ========
Sale of common stock for stockholder notes $ 562 $ 1,128 $ --
======== ======== ========
Supplemental disclosure of cash flow information
Income taxes paid in cash $ 4,011 $ 1,442 $ 195
======== ======== ========
Interest paid in cash $ 36,865 $ 12,400 $ 12,708
======== ======== ========
The accompanying notes are an integral part of these financial statements.
38
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business, Recapitalization and Basis of Presentation
Business and Organization
ChipPAC Inc. and its subsidiaries (the "Company"), provide packaging and
testing services to the worldwide semiconductor industry. The Company packages
and tests integrated circuits from wafers provided by its customers. The Company
markets its services worldwide, with emphasis on the North American market. The
Company's packaging and testing operations are located in the Republic of Korea
("South Korea" or "Korea"), the People's Republic of China ("China") and
Malaysia.
Recapitalization
Prior to August 5, 1999, the Company represented the combination of four
business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which
operated collectively as HEI's worldwide packaging and testing operations. These
four business units historically consisted of the Assembly and Test Division of
HEI, Hyundai Electronics Co. (Shanghai) Ltd. ("HECS"), and the Assembly and Test
Division of Hyundai Electronics America ("HEA"), a majority owned subsidiary of
HEI. Sales and marketing services were primarily performed by the Assembly and
Test Division of HEA, and packaging and testing services were performed by HECS
and the Assembly and Test Division of HEI. Also included was ChipPAC, Inc. (CPI)
which was owned by HEA.
On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a
portfolio concern of Citicorp Venture Capital Ltd., which we refer to
collectively as the "Equity Investors," and management acquired a controlling
interest in the Company from Hyundai Electronics and Hyundai Electronics America
through a series of transactions, including a merger into ChipPAC, Inc. of a
special purpose corporation organized by the Equity Investors. The merger was
structured to be accounted for as a recapitalization. Specifically:
. the Equity Investors and other parties, including members of our
management, invested $92.0 million to acquire common stock of ChipPAC,
Inc. which represented approximately 90.2% of its common stock
outstanding immediately following the recapitalization;
. the prior stockholders of ChipPAC, Inc. retained a portion of their
common stock in ChipPAC, Inc. equal to $10.0 million, or approximately
9.8% of ChipPAC, Inc.'s common stock outstanding immediately following
the recapitalization; and
. the prior stockholders received as consideration for the remainder of
their common stock (i) an aggregate of $384.0 million in cash and (ii)
mandatorily redeemable convertible preferred stock payable for up to an
aggregate of $70.0 million. Net payment to Hyundai of $384.0 million,
included capital redemption of $311.0 million and debt retirement of
$133.0 million, offset by Hyundai investment of $40.0 million in
39
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
mandatorily redeemable preferred stock, and a capital contribution of
$20.0 million. After completion of the recapitalization, the balance of
divisional equity of $0.2 million was transferred to additional paid in
capital.
Basis of Presentation
2000 and 1999:
The financial statements for the period subsequent to the
recapitalization and as at December 31, 2000 and 1999 have been prepared on a
consolidated basis. The consolidated financial statements include the accounts
of ChipPAC, Inc. and its majority controlled and owned subsidiaries. All
significant intercompany balances have been eliminated on consolidation. Prior
to the recapitalization, the Company prepared it's comparative financial
statements on a combined basis as described below.
1998:
For the comparative disclosures for the period ended December 31, 1998,
the Company represents the combination of four corporations then owned by
Hyundai Electronics Industries Co., Ltd. (HEI) and Hyundai Electronics America
(HEA). These four corporations are ChipPAC, Inc. (CPI), ChipPAC Korea Co.,
Ltd. (CPK), ChipPAC Assembly and Test Co. Ltd. (CATS), and Hyundai Electronics
Co. (Shanghai) Ltd., (HECS). Accordingly, the financial statements for the
comparative periods are prepared on a combined basis.
These comparative financial statements prepared on a combined basis
include the accounts of CPI, CPK, HECS and CATS, or the divisional accounts of
the predecessor Assembly and Test Divisions for periods prior to the business
transfers referred to above, and reflect the combined financial position,
results of operations, and cash flows of these entities. All inter-company or
inter-divisional transactions have been eliminated in the combination.
The combined statements of operations include all revenue and costs
attributable to the Company including an allocation of the costs of shared
facilities, costs of general and administrative services and overhead costs of
HEI and HEA. For the periods prior to the legal formations of CPI and CPK, such
allocated expenses were determined according to allocation bases deemed
appropriate for the nature of each expense item, including relative headcount,
relative occupancy of shared facilities, and relative sales volume. Costs
allocated by HEI and HEA after the legal formations were based on services
rendered, the costs of which were specified by affiliate agreements. In
addition, subsequent to the legal formations, CPI and CPK established internal
administrative and support functions, significantly reducing their reliance on
HEI and HEA for such services. Since inception, HECS generally maintained its
own internal administrative and support functions and was not allocated any
costs by HEI. Management fees charged by HEI to HECS have been included in the
combined results of operations and varied based on the level of services
provided by HEI. Interest is not charged on intercompany trading balances.
Management believes that the allocation methods used are reasonable.
However, the financial information included herein may not be representative of
the consolidated financial position, results of
40
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
operations, and cash flows of the Company in the future or what they would have
been had the Company operated as a consolidated entity during the periods
presented.
Note 2: Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and revenues and expenses in the financial statements and
accompanying notes. Significant estimates made by management include: the useful
lives of property; plant and equipment; allowances for doubtful accounts and
customer returns; inventory realizability; contingent assets and liabilities and
allocated expenses, among others. Actual results could differ from the
estimates, and such differences may be material to the consolidated financial
statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Financial Instruments
The amounts reported for cash and cash equivalents, accounts receivable,
certain other assets, accounts payable, certain accrued and other liabilities,
and short-term and long-term debt approximate fair value due to their short
maturities or market interest rates.
Comprehensive Income (Loss)
Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" ("SAFS No. 130") establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. In the year ended December 31, 2000,
comprehensive income approximated net income. In the years ended December 31,
1999 and 1998, comprehensive income (loss) was ($8.6) million and $60.6 million,
respectively.
Inventories
Inventories are stated at the lower of cost (computed using first-in,
first-out method) or market value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which
generally range from three to ten years except for building facilities and
building improvements in Shanghai, China which are depreciated over thirty and
fifteen years, respectively. In addition, land use rights in Shanghai, China and
Malaysia are amortized over 50 and 99 years, respectively, which represent the
contractual rights. Assets under capital leases and
41
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
leasehold improvements are amortized over the shorter of the asset life or the
remaining lease term. Amortization of assets under capital leases is included
with depreciation expense. Upon disposal or sale, the Company removes the asset
and accumulated depreciation from its records and recognizes the gain or loss in
operations.
Effective January 1, 2000, the Company re-evaluated the estimated useful
lives of equipment. Based on an independent appraisal to evaluate the useful
lives of such equipment and the Company's internal assessment, the Company
changed the estimated useful lives of assembly and test product equipment and
furniture and fixtures from five years to eight years. Previously, such
equipment was depreciated on a straight line basis over an estimated useful life
of five years.
The net book values of assembly and test product equipment and furniture
and fixtures, as of January 1, 2000, are now being depreciated over the
remaining useful life, based on eight years from the date such assets were
originally placed in service. This change resulted in a decrease in depreciation
expense for the year ended December 31, 2000 being $29.0 million lower than
would have been recorded using five year lives.
The Company reviews property, plant and equipment and other long lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company determines
whether there has been an impairment by comparing the anticipated undiscounted
future net cash flows to the related asset's carrying value. If an asset is
considered impaired, the asset is written down to fair value which is either
determined based on discounted cash flows or appraised values, depending on the
nature of the asset.
Intangibles
Intangibles are amortized over their useful lives on a straight line basis
over a period of five to nine years.
Concentration of Credit Risk and Major Customers
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable
and cash and cash equivalents.
The Company's customers are comprised of companies in the semiconductor
industry located primarily in the United States of America. Credit risk with
respect to the Company's trade receivables is mitigated by selling to well
established companies, performing ongoing credit evaluations and maintaining
frequent contact with customers. The allowance for doubtful accounts is based
upon the expected collectibility of the Company's accounts receivable.
At December 31, 2000, three customers accounted for 18%, 16% and 11% of
the outstanding trade receivables, respectively. At December 31, 1999, three
customers accounted for 24%, 14% and 11% of the outstanding trade receivables,
respectively. Loss of or default by these customers could have an adverse effect
upon the Company's financial position, results of operations and cash flows.
42
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Cash and cash equivalents are deposited with banks in the United States,
Korea, China, and Malaysia. Deposits in these banks may exceed the amount of
insurance provided on such deposits; however, the Company is exposed to loss
only to the extent of the amount of cash and cash equivalents reflected on its
balance sheet. The Company has not experienced any losses to date on its bank
cash deposits.
Revenue Recognition
The Company recognizes revenue, net of rebates and discounts, upon
shipment of packaged semiconductors to its customers on completion of the
services. The Company does not take ownership of customer-supplied
semiconductors as these materials are sent to the Company on a consignment
basis. Accordingly, the customer supplied materials are not reflected in revenue
or in cost of revenue.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Accounting for Income Taxes
The Company accounts for deferred income taxes using the liability method
whereby deferred tax assets and liabilities are recorded for temporary
differences between amounts reported in the financial statements and amounts
that are or would have been reported had the combined companies filed separate
income tax returns. A valuation allowance is provided for deferred tax assets
when management cannot conclude, based on the available evidence, that it is
more likely than not that all or a portion of the deferred tax assets will be
realized through future operations. The provision for income taxes represents
taxes that are or would have been payable for the current period, plus the net
change in deferred tax amounts.
Computation of Net Income per Share of Common Stock
Basic net income available to common stockholders per share of common
stock is computed using the weighted-average number of common shares outstanding
during the period. Diluted net income per share of common stock is computed
using the weighted-average number of common and dilutive common equivalent
shares outstanding during the period. Dilutive common equivalent shares consist
of stock options and warrants.
Foreign Exchange Contracts
In the ordinary course of business the Company may enter into foreign
exchange contracts as one way to mitigate the effect of foreign currency
movements associated with its operations. 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 have not qualified 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 in the period in which the exchange rate changed. There were no deferred
43
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
gains or losses at December 31, 2000 and 1999. At December 31, 2000, the Company
had no outstanding forward contracts and at December 31, 1999, the Company had
outstanding forward contracts to purchase Japanese Yen of $25.5 million.
Foreign Currency Translation
Effective October 1999, upon completion of the recapitalization, the
Company concluded that the functional currency of its foreign operations is the
U.S. Dollar. Previously, the Company's functional currencies of its foreign
operations were the respective local currencies and the net of the effect of the
translation of the accounts of the foreign operations were included in
stockholders' equity as a cumulative translation adjustment.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and Financial Accounting
Standards Board Interpretation No. 44 "Accounting for certain transactions
involving stock compensation" in accounting for its employee stock options.
Accordingly, compensation for stock options is measured by the excess, if any,
of the fair market value of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock. The Company has adopted
the disclosure and pro-forma requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation".
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137 ("SFAS 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 ("SFAS"), "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, such as forward currency exchange contracts and interest rate swaps
or embedded derivatives and requires that these instruments be marked-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. The Company is required to adopt SFAS 133 in the first quarter of
its fiscal year 2001 and believes that the impact of SFAS 133 will have no
material effect on its financial opinion or results of operations.
Note 3: Acquisition of Malaysian Business
On June 30, 2000, the Company consummated the 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, the Company entered into a
five-year supply agreement with Intersil to provide Intersil assembly and test
services on an exclusive basis.
44
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The acquisition has been accounted for 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 requires the
Company 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 a third
party, to us. The Company 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, Intersil would receive
an additional sum of approximately $17.9 million in the aggregate. As of
December 31, 2000, $0.4 million has been paid and an additional $1.3 million has
been accrued 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.
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:
45
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
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 acquired along with the Malaysian business primarily
consists of trade secrets and patents. The estimated average useful life of
these assets are 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 the 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.
The results of operations of the Malaysian business have been included
within the Company's results of operations for periods subsequent to June 30,
2000. Set forth below is the unaudited pro forma combined summary of operations
of the 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 the Company, patents, copyrights, and technical
information used exclusively in or associated with the Malaysian business.
Furthermore, Intersil granted a worldwide, non-exclusive, royalty-free license
under other Intersil patents, copyright and technical information, to the
Company, 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
46
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
bonding diagrams, test programs, maskworks and test boards uniquely related to
the Intersil products for which the Company will provide packaging and test
services under the supply agreement with Intersil are licensed to it only for
use in providing those services.
Note 4: Termination of Advisory Agreements
At the time of the 1999 recapitalization, the Company entered into two
advisory agreements with certain Equity Investors under which the Equity
Investors provided financial, advisory and consulting services to the Company.
Each advisory agreement was to remain in effect for an initial term of ten
years.
The Company 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 the Company's Class A common stock at a price
per share equal to the initial public offering price. A one time charge to
income of $8.0 million was made in the third quarter of fiscal 2000 for this
agreement termination.
Note 5: Risks and Uncertainties
Industry
The Company's business involves certain risks and uncertainties. Factors
that could affect the Company's future operating results and cause actual
results to vary materially from expectations include, but are not limited to,
dependence on a cyclical industry that is characterized by rapid technological
changes, fluctuations in end-user demands, evolving industry standards,
competitive pricing and declines in average selling prices, risks associated
with foreign currencies, and enforcement of intellectual property rights.
Additionally, the market in which the Company operates is very competitive. As a
result of these industry and market characteristics, key elements of competition
in the independent semiconductor packaging market include breadth of packaging
offerings, time-to-market, technical competence, design services, quality,
production yields, reliability customer service and price. During the year ended
December 31, 2000, the Company reduced its concentration of customer base
greater than 10% of sales to two customers accounting for 47% of revenues. One
customer accounted for 62% of revenue for the year ended December 31, 1999. (No
other customers were over 10% of sales.) In 1998, one customer accounted for
over 10% of sales. As a result, any de-commitment from any major customer for
products could have an adverse impact on the Company's financial position,
results of operations and cash flows.
Other
Korean, Chinese, and Malaysian foreign currency exchange regulations place
restrictions on the flow of foreign funds into and out of those countries. The
Company is required to comply with these regulations when entering into
transactions in foreign currencies in Korea, China and Malaysia.
The Company procures materials from local vendors in the
ordinary course of business. Three vendors in South Korea supply approximately
40% of the Company's component parts used in performing packaging services.
Management believes that the Company has sufficient suppliers such that the loss
of these concentrated suppliers would not have a material impact on the
Company's combined financial position, results of operations or cash flows.
47
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 6: Selected Balance Sheet Accounts
The components of inventories are as follows (in thousands):
December 31,
2000 1999
------- -------
Raw materials .......................... $16,935 $12,274
Work in process ........................ 2,935 3,003
Finished goods ......................... 1,380 2,220
------- -------
$21,250 $17,497
======= =======
Property, plant and equipment are comprised of the following (in
thousands):
December 31,
2000 1999
--------- ---------
Land use rights .................................... $ 11,089 $ 4,041
Buildings and improvements ......................... 58,351 49,688
Equipment .......................................... 496,722 369,212
--------- ---------
566,162 422,941
Less accumulated depreciation and amortization ..... (231,429) (196,010)
--------- ---------
$ 334,733 $ 226,931
========= =========
Land use rights represent payments made to secure, on a fully paid-up
basis, the use of the property where the Company's facilities are located in
Shanghai, China and Malaysia for a period of 50 years and 99 years;
respectively.
Other assets are comprised of the following (in thousands):
December 31,
2000 1999
------- -------
Deposits for severance benefits ............................ $ 1,393 $ 2,027
Long-term employee loans ................................... 2,350 1,216
Deferred taxes ............................................. 3,712 5,207
Debt issuance costs, net of amortization of $5,114 and $774. 11,673 13,594
Intangibles cost, net of amortization of $4,764 ............ 18,465 --
Other ...................................................... 4,195 14
------- -------
$41,788 $22,058
======= =======
Total debt issuance costs of $16.8 million were incurred in raising $300.0
million of debt in connection with the recapitalization plus approximately $55.8
million of debt raised and then retired related to the Malaysian acquisition.
48
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Accrued expenses and other liabilities are comprised of the following (in
thousands):
December 31,
2000 1999
------- -------
Payroll and related items .................... $12,556 $ 4,673
Interest payable ............................. 8,768 8,781
Customer rebate .............................. 3,613 4,127
Deferred taxes ............................... 4,142 4,685
Warranty and other expenses .................. 14,820 4,942
------- -------
$43,899 $27,208
======= =======
Note 7: Dividends Accreted
2000 1999
------ ------
Preferred Stock, Class A ("Intel Preferred Stock") ....... $ 620 $ 406
Preferred Stock, Class B ("Hyundai Preferred Stock") .... 5,756 3,554
Preferred Stock, Class C ("Intersil Preferred Stock") .... 1,821 --
------ ------
$8,197 $3,960
====== ======
Dividends on the Intel Preferred Stock are accrued on a daily basis at a
rate of 10% per annum. Accumulated and unpaid dividends as of December 31, 1999
were capitalized as part of Mandatorily Redeemable Preferred Stock. Total
accreted dividends and liquidation value of $11.0 million were converted into
2,800,438 shares of common stock at the initial public offering.
Dividends on the Hyundai Preferred Stock are accrued on a daily basis at a
rate of 12.5% per annum. Dividends were recorded as accumulated and unpaid
dividends as part of Mandatorily Redeemable Preferred Stock. Total dividends and
liquidation value of $79.3 million were paid in full through the proceeds of the
initial public offering.
Dividends on the Intersil Preferred Stock are accrued on a daily basis at
a rate of 5% per annum. Dividends were recorded as accumulated and unpaid
dividends as part of Mandatorily Redeemable Preferred Stock. Total dividends and
liquidation value of $17.6 million were converted into 1,548,816 shares of
common stock at the initial public offering.
Note 8: Earnings per share
Statement of Accounting Standards No. 128 ("SFAS 128") requires a
reconciliation of the numerators and denominators of the basic and diluted per
share computations. Basic earnings per share ("EPS") is computed by dividing net
income available to stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period. Diluted EPS is
computed using the weighted average number of shares of common stock and all
potentially dilutive shares of common stock outstanding during the period. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options and the if-converted method is used for determining the number of
shares assumed issued from the conversion of the convertible subordinated notes.
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS computations for the periods presented below.
December 31, 2000 December 31, 1999 December 31, 1998
Per-Share Per-Share Per-Share
Income Shares Amount Loss Shares Amount Income Shares Amount
------ ------ ------ ---- ------ ------ ------ ------ ------
(In thousands, except per share amounts)
Basic EPS:
Income (loss) per share available
to common stockholder before
extraordinary item.............. $ 5,259 57,067 $ 0.09 $(10,155) 38,935 $(0.26) $32,303 38,861 $0.83
Effect of dilutive securities:
Stock options and warrants...... 1,186 - -
Diluted EPS:
Income (loss) per share available
to common stockholder before
extraordinary item ............. $ 5,259 58,253 $ 0.09 $(10,155) 38,935 $(0.26) $ 32,303 38,861 $0.83
Basic EPS:
Extraordinary item ................ $ 2,390 57,067 $(0.04) $ 1,373 38,935 $(0.04) $ - 38,861 $ -
Effect of dilutive securities:
Stock options and warrants ..... 1,186 - -
Diluted EPS:
Extraordinary item ................ $ 2,390 58,253 $(0.04) $ 1,373 38,935 $(0.04) $ - 38,861 $ -
Basic EPS:
Net Income (loss) per share
available to common stockholders $ 2,869 57,067 $ 0.05 $(11,528) 38,935 $(0.30) $32,303 38,861 $0.83
Effects of dilutive securities:
Stock options and warrants...... 1,186 - - -
Diluted EPS
Net Income (loss) per share
available to common
stockholders................. $ 2,869 58,253 $ 0.05 $(11,528) 38,935 $(0.30) $32,303 38,861 $0.83
All of the Company's preferred stock and warrants were excluded from
diluted earning per share since their effect is antidilutive.
49
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 9: Segments and Geographic Information
The Company is engaged in one industry segment, the packaging and testing
of integrated circuits. Financial data, summarized by geographic area, is as
follows (in thousands):
United
States Asia Eliminations Combined
---------------- --------------- ------------- ------------
Year ended December 31, 1998
Revenue from unaffiliated customers $ 317,348 $ 11,529 $ - $ 328,877
Revenue from affiliates 2,330 319,093 (316,219) 5,204
---------------- --------------- ------------- ------------
Total revenue $ 319,678 $ 330,622 $(316,219) $ 334,081
================ =============== ============= ============
Interest expense $ - $ 13,340 $ - $ 13,340
Interest income (265) (1,011) - (1,276)
Depreciation and amortization expense 489 45,366 - 45,855
Income tax expense (benefit) 954 19,610 - 20,564
Income (loss) from operations 1,885 38,544 - 40,429
Identifiable assets $ 62,724 $ 413,373 $(116,625) $ 359,472
================= ============== ============= ============
Year ended December 31, 1999
Revenue from unaffiliated customers $ 347,349 $ 17,382 $ - $ 364,731
Revenue from affiliates - 347,000 (336,201) 10,799
----------------- -------------- ------------- ------------
Total revenue $ 347,349 $ 364,382 $(336,201) $ 375,530
================= ============== ============= ============
Interest expense $ 14,484 $ 6,757 $ - $ 21,241
Interest income (747) (2,004) (2,751)
Depreciation and amortization expense 2,528 54,947 - 57,475
Income tax expense (benefit) 1,166 772 - 1,938
Income (loss) from operations 4,307 8,312 - 12,619
Extraordinary item, net of related income tax
benefit - 1,373 - 1,373
Identifiable assets $ 286,673 $ 371,082 $(314,326) $ 343,429
================= ============== ============= ============
Year ended December 31, 2000
Revenue from unaffiliated customers $ 494,282 $ 129 $ - $ 494,411
Revenue from affiliates - 457,609 (457,609) -
----------------- -------------- ------------- ------------
Total revenue $ 494,282 $ 457,738 $(457,609) $ 494,411
================= ============== ============= ============
Interest expense $ 39,426 $ 6 $ - $ 39,432
Interest income (383) (460) (843)
Depreciation and amortization expense 3,625 41,424 - 46,999
Income tax expense (benefit) (3,276) 6,890 - 3,614
Income (loss) from operations 9,785 52,545 - 62,330
Extraordinary item, net of related income tax
benefit 2,390 - - 2,390
Identifiable assets $ 359,560 $ 472,037 $(362,352) $ 469,245
================= ============== ============= ============
50
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Revenue from unaffiliated customers is based on the geographic location of
each site's principal place of business. Revenue from affiliated customers is
based on the origin of the shipment. Identifiable assets are those assets that
can be directly associated with a particular geographic area. In determining
each geographic location's income (loss) from operations and identifiable
assets, the expenses and assets relating to general corporate activities are
included in the amounts for the geographical area where they were incurred,
acquired or utilized.
In 2000, the Company had two U.S. customers over 10% of sales. In 1999 and
1998, there was one U.S. customer over 10% of sales in both years.
The Company's sales by geographic location of the customer are as follows:
December 31,
Region 2000 1999
- ------ ---- ----
USA 83% 89%
Asia 14% 9%
Europe 3% 2%
==== ====
Total 100% 100%
===================
Note 10: Term Debt and Credit Facilities
Under the terms of the recapitalization and merger in 1999 all short and
long-term debt, loans and leases and other credit facilities existing prior to
the recapitalization were terminated at the recapitalization date.
To finance part of the recapitalization, the Company borrowed $300.0
million of new debt, comprising $150.0 million of term loans and $150.0 million
of senior subordinated notes (the Exchange Notes). The term loans bear interest
at a reserve adjusted Eurodollar rate (6.71% at December 31, 2000) plus 2.75% to
4.0% and the senior subordinated notes bear interest at 12.75% per annum. The
senior subordinated notes mature on July 21, 2009. If a change of control
occurs, the Company may be required to allow holders of the senior subordinated
notes to sell the Company their notes at a purchase price of 101.0% of the
principal amount of the notes, plus accrued and unpaid interest. Interest is
payable semi-annually for the senior subordinated notes and quarterly for the
term loans.
The Company has a borrowing facility of $50.0 million for working capital
and general corporate purposes under the revolving credit facility. In addition,
borrowings of up to $20.0 million are available for acquiring equipment and
making certain other capital expenditures under a capex facility. The Company
may borrow and repay under the capex facility until July 31, 2002. Amounts
repaid under the capex facility after August 5, 2001 may not be borrowed by the
Company later. The final maturity of these facilities will be on July 31, 2005.
Approximately $7.8 million is outstanding under the revolving credit facility at
December 31, 2000 which bears interest ranging from 8.26% to 10.25%. No amounts
were outstanding under the capex facility at December 31, 2000.
51
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Future maturities of term debt and Senior subordinated notes outstanding
at December 31, 2000 are as follows (in thousands):
Year Ended December 31,
- -----------------------
2001......................................................... $ 6,800
2002.......................................................... 12,800
2003.......................................................... 14,300
2004.......................................................... 19,300
2005.......................................................... 11,800
2006.......................................................... 75,200
2007.......................................................... --
2008.......................................................... --
2009.......................................................... 150,000
--------
$290,200
========
The term loans and the revolving and capital expenditure lines (the Senior
Credit Facilities) require that the Company meet specified financial tests,
including, without limitation, a maximum leverage ratio, a minimum interest
coverage ratio and minimum fixed charge coverage ratio. These facilities also
contain covenants which restrict the Company's ability to:
. make capital expenditures;
. incur liens or engage in sale-leaseback transactions;
. transact with affiliates;
. incur indebtedness and contingent obligations;
. declare dividends or redeem or repurchase capital stock;
. prepay, redeem or repurchase indebtedness;
. change the business being conducted;
. make loans and investments; and
. engage in mergers, acquisitions, consolidations and asset sales.
The Senior Credit Facilities also require that the Company satisfy
customary affirmative covenants and provide customary indemnifications in favor
of the senior lenders. These credit facilities contain customary events of
default, including, without limitation, payment defaults, breaches of
representations and warranties in all material respects, covenant defaults, some
events of bankruptcy and insolvency, ERISA violations, judgment defaults,
cross-defaults to other indebtedness and a change in control.
There were no violations of these loan covenants through December 31,
2000.
52
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Substantially all assets of the ChipPAC consolidated group, with the
exception of the two Chinese non-guarantor entities (ChipPAC Shanghai (Shanghai)
and ChipPAC Electronic Technology (Shanghai)), have been pledged as collateral
under the term debt and revolving credit facilities agreement put in place on
August 5, 1999. See Note 18 - Supplemental Financial Statements of
Guarantor/Non-Guarantor Entities.
On early retirement of certain debt upon the initial public offering and
the recapitalization, respectively, the Company recorded an extraordinary loss
of $2.4 million and $1.4 million, net of related tax benefit, in December 31,
2000 and 1999, respectively.
Note 11: Mandatorily Redeemable Preferred Stock
Intel Preferred Stock
Pursuant to the Intel Stock Purchase Agreement, the Company issued 10,000
shares of Class A 10.0% mandatorily redeemable preferred stock and the Intel
warrant to Intel, which is referred to as the Intel Preferred Stock, for $10
million in cash.
Dividends on the Intel Preferred Stock accrue on a daily basis from the
date of issuance at a rate of 10.0% per annum, payable when and as declared by
the board of directors; provided, however, that dividends will be paid prior to
the payment of any dividends with respect to any of the Company capital stock or
equity securities which the Company refers to as junior securities, other than
the Hyundai Preferred Stock and the Class C Preferred Stock.
The total dividend accreted at December 31, 2000 and 1999 was $0.6 million
and $0.4 million, respectively. All of the Intel Preferred Stock and accreted
dividends of $11.0 million were converted to 2,800,438 shares of common stock at
the initial public offering.
Intel Warrant
Under the Intel Stock Purchase Agreement, the Company also issued to
Intel the Intel Warrant, which entitles Intel to purchase $5.0 million of our
common stock at $9.60 (20% discount off the initial public offering price of
$12.00). These warrants expired on February 5, 2001. Accordingly, the Company
has valued the Intel warrant at $1.3 million and this amount has been recorded
as equity. The Intel Preferred Stock was recorded net of this amount.
Subsequent to December 31, 2000, the warrant was not exercised and expired.
Hyundai Preferred Stock
In connection with the recapitalization, the Company issued to Hyundai
Electronics Industries Co., Ltd. (HEI) and Hyundai Electronics America (HEA)
70,000 shares of Class B preferred stock, which the Company refers to as the
Hyundai Preferred Stock, which had an initial aggregate liquidation preference
of $70.0 million. Dividends on the Hyundai Preferred Stock accrued on a daily
basis from August 5, 1999 at a rate of 12.5% per annum.
The total dividend accreted at December 31, 2000 and 1999 was $5.8 million
and $3.6 million, respectively. The Hyundai Preferred Stock including all
accreted dividends totaling $79.3 million, was fully redeemed with proceeds from
the initial public offering.
53
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
In addition, Hyundai Electronics could have received up to an additional
$55.0 million in cash during the four-year period beginning January 1, 1999 if
the Company had exceeded certain levels of EBITDA as set forth in the
recapitalization agreement. Hyundai Electronics was entitled to receive 33.3%
of the amount by which the EBITDA (defined in the recapitalization agreement
as net income before interest, taxes, depreciation, amortization,
extraordinary items and advisory fees) exceeded $116.5 million, $171.3
million, $198.5 million and $231.8 million, respectively, in each of the first
four years following the recapitalization. In the event the final $20.0
million of such $55.0 million in cash was required to be paid to Hyundai
Electronics, it would have been paid by the mandatory redemption of an equal
amount of Hyundai Preferred Stock. No payment was made to Hyundai Electronics
in the years ended December 31, 2000 and 1999 under these terms, and this
right expired with the redemption of the Hyundai Preferred Stock.
Class C Preferred Stock
In connection with our acquisition of the Malaysian business, the Company
authorized and issued shares of non-voting Class C mandatorily redeemable
preferred stock having an aggregate liquidation preference of $17.5 million.
Dividends on the Class C mandatorily redeemable preferred stock accrued at a
rate of 5.0% per annum.
Total liquidation value and accreted dividends of $17.6 million were
converted into 1,548,815 shares of Class A common stock at the initial public
offering.
Note 12: Common Stock and Stockholders' and Equity
The Company's equity for earlier periods includes the divisional equity of
CPI, paid-in-capital of HECS, and the common stock and divisional equity of CPK.
This divisional equity was either redeemed or converted in accordance with the
terms of the recapitalization agreement. After completion of this
recapitalization, the balance of the divisional equity of $167.7 million was
transferred to additional paid in capital.
A portion of the shares sold are subject to a right of repurchase by the
Company subject to vesting, which is generally over a four year period from the
earlier of grant date or employee hire date, as applicable until vesting is
complete. At December 31, 2000 and 1999, there were 765,213 and 1,028,667 shares
subject to repurchase, respectively.
The Company currently has authorized Class A and B common stock. There
are 250,000,000, $0.01 par value, shares authorized of each Class A and Class
B common stock. At December 31, 2000 and 1999 there were 68,438,000 and
36,671,000 shares, respectively, of Class A common stock issued and
outstanding. There were no shares of Class B common issued or outstanding.
Class A and B common stockholders may convert their shares at the ratio of
one to one into the shares of the other class of common stock.
On June 13, 2000 the company was reincorporated in Delaware ("ChipPAC
Delaware"). In order to effect the reincorporation, ChipPAC, Inc., a California
corporation ("ChipPAC California"), was merged with and into ChipPAC Delaware,
as a result of which ChipPAC California ceased to exist. The company operates
its business as ChipPAC, Inc. The merger occurred immediately prior to the
effectiveness of the Company's Registration Statement on Form S-1. In the
merger, each outstanding share of ChipPAC California Class A common stock was
converted into one share of ChipPAC Delaware Class A common stock. Each
outstanding share of ChipPAC California Class B common stock was converted into
one share of ChipPAC Delaware Class B common stock. Each outstanding share of
ChipPAC California Class L common stock was converted into and became one share
of ChipPAC Delaware Class A common stock plus an additional number of shares of
ChipPAC Delaware Class A common stock which was determined by dividing a
preferential distribution, based in part on the original cost of such share plus
an amount which accrued daily at a rate of 12% per annum, compounded quarterly,
by the per share price of the ChipPAC Delaware Class A common stock in the
initial public offering. As a result, Class L common stockholders received
8,880,507 shares of Class A common shares.
54
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The Company currently has authorized 10,000,000 shares of preferred stock,
par value $0.01, which may be issued in one or more series. At December 31, 2000
there were no shares of preferred stock outstanding. At December 31, 1999 there
were 10,000 shares of Class A preferred stock and 70,000 shares of Class B
preferred stock outstanding.
Initial Public Offering
In July 2000, a 0.38098771 for 1 reverse stock split was made effective of
the Company's common stock. All share and per share information presented herein
has been restated to give effect to the stock split.
On August 8, 2000, the Securities and Exchange Commission declared
effective the Registration Statement on Form S-1 (Registration No. 333-39428)
relating to the initial public offering of the Company's Class A common stock.
In connection with the closing of the initial public offering, the Company
issued 10,000,000 shares of Class A Common Stock for gross proceeds of $120.0
million. The Company 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,
an additional 1,500,000 shares of Class A common stock for gross proceeds of
$18.0 million was issued by the Company. Total proceeds from the issuance of the
additional shares, net of issuance costs, was $16.9 million.
The net proceeds, amounting to $151.8 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 the 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 the Company under which the Company 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 the
55
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Company's initial public offering. Based on the initial public offering price of
$12.00, Qualcomm purchased 2,192,983 shares of Class A Common Stock.
Note 13: Commitments and Contingencies
Intel Materials Agreement
On August 5, 1999, the Company and Intel entered into the Intel Materials
Agreement pursuant to which Intel will outsource to the Company a portion of its
semiconductor packaging needs. In return, the Company will provide Intel with
rebates based upon the volume of packaging services outsourced to the Company.
Rebates are deducted from revenue and accrued as current liabilities when the
sale is made. The rebate percentage applied in computing the accrual is based on
projected total sales and the relevant rebate percentages for the periods stated
in the agreement. The Intel Materials Agreement covers semiconductor packaging
services for which Intel has an ongoing purchasing requirement and for which the
Company is a qualified source and where costs, yields and quality are equal to
that of the same services provided by other semiconductor packaging companies.
The Intel Materials Agreement also provides that Intel will not enter into other
agreements for packaging services that contain provisions relating to
competitive pricing and volume guarantees similar to those contained in the
Intel Materials Agreement. This restriction only applies to agreements with
semiconductor packaging companies that (i) are qualified to provide packaging
services to Intel and (ii) provide the same type of packaging services provided
by the Company. The Intel Materials Agreement also obligates the Company to
first offer to Intel rights to use intellectual property related to certain new
packaging services technology developed by the Company. Following the expiration
of its initial term on December 31, 2001, the Intel Materials Agreement may be
extended upon the mutual consent of the Company and Intel. For the year ended
December 31, 2000 and 1999, Intel earned and was paid $3.6 million and $3.6
million, respectively. The rebate was accrued when earned and were paid in the
January following each of December 31, 2000 and 1999.
The Company's executive offices in the United States and its facilities in
Korea are leased from HEA and HEI respectively, under noncancellable operating
lease arrangements through 2001. Rent expense for the years ended December 31,
2000, 1999, and 1998 was $5.2 million, $4.9 million, and $7.6 million
respectively.
Future annual minimum lease payments under noncancellable operating leases
that have initial or remaining noncancellable lease terms in excess of one year
at December 31, 2000 are as follows (in thousands):
Year Ended December 31,
- -----------------------
2001........................................................... $15,886
2002........................................................... 11,076
2003........................................................... 7,591
2004........................................................... 3,050
2005........................................................... 574
Then after..................................................... 7,766
-------
$45,943
=======
56
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 14: Related Party Transactions
(In thousands) December 31,
2000 1999 1998
----------------------------------------
Revenues from sale of packaging and testing services to HEI group $31,500 $10,800 $5,200
Reimbursement for plating services provided to HEI group including
margin of $4,236, $2,734 and $57 respectively 9,300 8,100 6,200
Purchase of administrative services from HEI group - - 1,200
Allocated costs for use of HEI facilities, utilities and employee
benefits - - 7,200
Dividend paid to HEI - - 9,700
Accounts receivable at year end for sales and plating services to HEI
group 814 11,700 -
Accounts payable to HEI group for construction of facilities,
manufacturing, technical support, and equipment in China - - 12,800
Since May 1998, the Company's primary office facility has been located on
premises which it has subleased from HEA. During the year ended December 31,
2000 and 1999, HEA charged $0.7 million and $0.8 million, respectively to the
Company for rent and building related taxes, insurance, and maintenance.
At June 30, 1998, Hyundai Information Technology ("HIT") entered into a
three year agreement with CPK to provide information technology services.
Substantially all of CPK's major information technology services are provided by
HIT. HIT also entered into a six months agreement at October 1998 to provide CPK
with services for Year 2000 remediation. For the years ended December 31, 2000
and 1999, HIT charged CPK $1.6 million and $2.3 million, respectively.
During 1998, CPI entered into an agreement with HIT for the installation
of a significant portion of a modular software system. The installation of this
portion of the software system was completed in February 1999. For the years
ended December 31, 1999 and 1998, CPI incurred charges of $2.3 million and $1.2
million, respectively from HIT.
57
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Management Advisory Agreements
At the time of the recapitalization, the Company entered into two ten year
advisory agreements with the Equity Investors. The Company and the Equity
Investors agreed to terminate the advisory agreements upon the closing of the
initial public offering in exchange 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. The Company recorded a one-time charge to income of $8.0
million in the third quarter of fiscal 2000 in respect of these agreement
terminations.
Note 15: 2000 Equity Incentive Plan and 1999 Stock Purchase and Option Plan
As a result of the March 1999 HEI and HEA agreement to reorganize the
Company, the 1997 stock purchase plan was terminated. Cash paid to holders of
vested options upon termination of the plan totaled approximately $0.2 million
and was charged as additional employee compensation.
The Company adopted the 1999 Stock Purchase and Option Plan, or the "1999
Stock Plan," which authorized the granting of stock options and the sale of
Class A common stock or Class L common stock to current or future employees,
directors, consultants or advisors of the Company. Under the 1999 Stock Plan, a
committee of the board of directors authorized to sell or otherwise issue Class
A common stock or Class L common stock at any time prior to the termination of
the 1999 Stock Plan in such quantity, at such price, on such terms and subject
to such conditions as established by the committee up to an aggregate of
15,500,000 shares of Class A common stock and 500,000 shares of Class L common
stock, including shares of common stock with respect to which options may be
granted, subject to adjustment upon the occurrence of specified events to
prevent any dilution or expansion of the rights of participants that might
otherwise result from the occurrence of such events. No options or stock grants
have been made under the 1999 Stock Plan since our initial public offering, when
the 2000 Equity Incentive Plan or "2000 Plan" became effective.
The Company's 2000 Plan was adopted by the board of directors and approved
by the stockholders on June 14, 2000. Amendments to the 2000 Plan were adopted
by the board of directors on January 30, 2001, and approved by the stockholders
on March 16, 2001. The 2000 Plan provides for the grant of incentive stock
options to employees (including officers and employee directors) and for the
grant of nonstatutory stock options to employees, directors and consultants. A
total of (1) 10,500,000 shares of common stock, (2) any shares returned to the
company's 1999 Plan (the 1999 Stock Purchase and Option Plan) as a result of
termination of options and (3) annual increases to be added on the date of each
annual meeting of stockholders of the Company commencing in 2001 equal to one
percent of the outstanding shares of common stock, or a lesser amount as may be
determined by the board of directors, have been reserved for issuance pursuant
to the 2000 Plan.
In October 1999, pursuant to its 1999 Stock Purchase and Option Plan,
ChipPAC California authorized to a group of 213 employees (adjusted to reflect
our reverse stock split): (i) the sale of 115,644 shares of Class L common
stock, par value $0.01, at a price of $23.62 per share, and the sale of
1,040,668 shares of Class A common stock, par value $0.01, at a price of
$0.2916 per share, for an aggregate purchase price of $3,035,000, (ii) the
sale of 941,040 shares of Class A common stock, which vests over time with par
value of $0.01 per share, at a price of $0.2916 per share, (iii) the grant of
options to purchase an aggregate of 400,704 shares of Class A common stock at
a price of $0.2916 per share and (iv) the grant of options to purchase an
aggregate of 870,747 shares of Class A common stock at a price of $5.51 per
share. The options are not transferable, and neither the options nor the
employees rights to the time vesting stock vest prior to August 2000.
In January 2000, pursuant to its 1999 Stock Purchase and Option Plan,
ChipPAC California authorized to a group of 27 employees (adjusted to reflect
our reverse stock split): (i) the sale of 7,620 shares of Class L common
stock, par value $0.01, at a price of $23.62 per share, and the sale of 68,578
shares of Class A common stock, par value $0.01, at a price or $0.2916 per
share, for an aggregate purchase price of $0.2 million, (ii) the sale of
28,574 share of Class A common stock, par value $0.01 per share, at a price of
$0.2916 per share, which shares vest over time, (iii) the grant of options to
purchase an aggregate of 49,814 shares of Class A common stock at a price of
$0.2916 per share and (iv) the grant of options to purchase an aggregate of
41,147 shares of Class A common stock at a price of $5.51 per share. The
options are not transferable, and neither the options nor the employees rights
to the time vesting stock vest prior to January 2001.
On April 2000, pursuant to its 1999 Stock Purchase and Option Plan,
ChipPAC California authorized to a group of 11 employees (adjusted to reflect
our reverse stock split): (i) the grant of options to purchase an aggregate of
21,907 shares of Class A common stock at a price of $0.2916 per share and (ii)
the grant of options to purchase an aggregate of 1,905 shares of Class A
common stock at a price of $5.51 per share. The options are not transferable,
and the options do not vest prior to April 2001.
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.
Subsequent to the initial public offering, pursuant to our 2000 Equity
Incentive Plan, the following were granted to ChipPac's employees:
. In August 2000, options to purchase an aggregate of 188,259 shares of
Class A common stock at a price of $12.75 per share.
. In October 2000, options to purchase an aggregate of 165,493 shares of
Class A common stock at a price of $7.88 per share.
. In December 2000, options to purchase an aggregate of 909,750 shares of
Class A common stock at a price of $2.88 per share.
The options are not transferable and do not vest prior to August 2001.
58
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The following table summarizes stock option activity under the 1999 Option
Plan:
Weighted
1999 Option Plan Options Average
Available Options Exercise Aggregate
for Grant Outstanding Price Amount
-------------------------------------------------------------
Options reserved 2,857,408 -- $ -- $ --
Options granted (2,213,443) 2,213,443 2.35 5,191,090
Options cancelled 26,860 (26,860) 1.40 (37,666)
Options exercised -- (1,028,665) 0.29 (299,959)
-------------------------------------------------------------
Balances at December 31, 1999 670,825 1,157,918 4.19 4,853,465
Options reserved 51,909 -- -- --
Options granted (682,154) 682,154 10.30 7,028,514
Options cancelled 106,658 (106,658) 4.96 (528,664)
Options exercised -- (45,174) 0.47 (21,129)
Options transferred (147,238) -- -- --
-------------------------------------------------------------
Balances at December 31, 2000 -- 1,688,240 $ 6.71 $ 11,332,186
=============================================================
The following table summarizes stock option activity under the 2000 Option
Plan:
Weighted
2000 Option Plan Options Average
Available Options Exercise Aggregate
for Grant Outstanding Price Amount
-----------------------------------------------------------
Balances at January 1, 2000
Options reserved 1,142,963 -- $ -- $ --
1999 options unused 147,238 -- -- --
Options granted (1,263,502) 1,263,502 5.01 6,324,467
Options cancelled 12,770 (12,770) 12.60 (160,923)
-----------------------------------------------------------
Balances at December 31, 2000 39,469 1,250,732 4.93 6,163,544
===========================================================
The following table summarizes information with respect to options
outstanding and exercisable at December 31, 2000:
Options Outstanding Options Exercisable
Weighted Avg.
Weighted Avg. Remaining Number of Weighted Avg.
Exercise Price Number of Shares Exercise Price Contractual Life Shares Exercise Price
$ 0.2916 292,758 $ 0.2916 8.87 61,478 $ 0.2916
2.8800 909,750 2.8800 9.97 - 2.8800
5.5120 893,940 5.5120 8.84 208,955 5.5120
7.8800 165,104 7.8800 9.80 - 7.8800
12.6000 501,542 12.6000 9.50 - 12.6000
12.7500 175,878 12.7500 9.63 - 12.7500
---------------------------------------------------------------- ----------------------------
2,938,972 $ 5.9530 9.41 270,433 $ 4.3252
================================================================ ============================
As of December 31, 2000, options for 518,171 shares were vested and
exercisable. The weighted average contractual life is approximately 9.41 years.
59
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Employee Stock Purchase Plan
The Company has adopted an employee stock purchase plan (ESPP) for the
benefit of its employees. The Plan qualified in the United States of America
under section 423 of the Internal Revenue Code. Under the ESPP, substantially
all employees may purchase the Company's common stock through payroll deductions
at a price equal to 85 percent of the lower of the fair market value at the
beginning or the end of each specified six-month offering period. Stock
purchases are limited to 15% of an employee's eligible compensation. At December
31, 2000 no shares were issued under the plan. At December 31, 2000, 1,142,963
shares were reserved for future issuance under the ESPP.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS 123.
Accordingly, no compensation expense has been recognized for the Company's stock
option and purchase plan activity. If compensation expense had been determined
based on the grant date fair value for awards in 2000, 1999 and 1998 in
accordance with the provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
(In thousands, except per share amounts
Net income (loss) as reported $ 2,869 $(11,528) $32,303
Pro forma net income (loss) 1,259 (11,692) 32,244
Earnings (loss) per share as reported:
Basic $ 0.05 $ (0.30) $ 0.83
Diluted $ 0.05 $ (0.30) $ 0.83
Pro forma earnings (loss) per share:
Basic $ 0.02 $ (0.30) $ 0.83
Diluted $ 0.02 $ (0.30) $ 0.83
- -------------------------------------------------------------------------------
In accordance with the provisions of SFAS 123, the pro forma amounts
presented above include only those options granted subsequent to December 15,
1995.
In calculating pro forma compensation, the fair value of each stock option
and stock purchase right is estimated on the date of grant using the
Black-Scholes option-pricing model and the following weighted average
assumptions:
Employee Stock Options
December 31,
2000 1999 1998
---------------------------------------------------------------
Dividend yield None None None
Volatility 54% 39% 41%
Risk-free interest rate 5.99%-7.13% 5.74%-6.13% 5.53%
Expected lives (in years) 4 4 4
60
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 16: Income Taxes
The provision for (benefit from) income taxes is comprised of the
following (in thousands):
December 31,
2000 1999 1998
-------- -------- --------
Current
Federal .................. $ -- $ 209 $ 1,099
State .................... 1 98 279
Foreign .................. 1,584 4,680 3,012
-------- -------- --------
Total Current .... 1,585 4,987 4,390
-------- -------- --------
Deferred
Federal .................. (3,533) 566 (358)
State .................... (420) 95 (62)
Foreign .................. 5,982 (3,710) 16,594
-------- -------- --------
Total Deferred ... 2,029 (3,049) 16,174
-------- -------- --------
Tax expense ....................... $ 3,614 $ 1,938 $ 20,564
======== ======== ========
Income (loss) before taxes and extraordinary items is comprised of the
following (in thousands):
December 31,
2000 1999 1998
---- ---- ----
Domestic.......................... $ (9,003) $(1,498) $ 2,165
Foreign........................... 27,063 (2,499) 50,702
-------- -------- -------
$ 18,060 $(3,997) $ 52,867
======== ======= ========
A summary of the composition of net deferred income tax assets
(liabilities) is as follows (in thousands):
December 31,
2000 1999
-------- --------
Assets:
Income recognized for tax but not for books . $ 7,598 $ --
Tax credits ................................. 2,663 --
NOL Carryforward ............................ 3,490 --
Other ....................................... 3,381 6,270
-------- --------
Total gross deferred assets ...................... 17,132 6,270
Less valuation allowance ......................... (6,122) --
-------- --------
Net deferred tax assets .......................... 11,010 6,270
-------- --------
Liabilities:
Depreciation ................................ (10,870) 92
Reserves deducted for tax and not for books . (570) (621)
-------- --------
(11,440) (529)
-------- --------
Net Deferred Tax Liabilities ..................... $ (430) $ 5,741
======== ========
61
ChipPAC, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The differences between provision for (benefit from) income taxes at the
statutory Federal income tax rate and income taxes reported in the combined
statements of operations are as follows:
December 31,
2000 1999 1998
------ ------ ------
Federal statutory tax
rate ...................................... 35.0 % 35.0 % 35.0 %
State tax, net of
Federal benefit ........................... (1.7)% (0.5)% 0.3 %
Net operating losses not,
benefited ................................. -- % (14.5)% 11.4 %
Foreign operations rate
difference ................................ (16.5)% (44.2)% (7.8)%
Other ...................................... 3.2 % (24.3)% -- %
------ ------ ------
20.0 % (48.5)% 38.9 %
====== ====== ======
At December 31, 2000, the Company had approximately $9.2 million of
federal and $6.0 million of state net operating loss carryforwards available to
offset future taxable income, which expire in varying amount from 2006 to 2019.
Under the Tax Reform Act of 1986, the amounts of the benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year, include, but are not limited to a cumulative
ownership change of more than 50%, as defined over a three-year period.
As of December 31, 2000 the Company established a partial valuation
against its gross deferred tax assets to reduce such assets to the amount that
the Company deemed, more likely than not, to be recoverable prior to expiration.
The Company considered, among other factors, the historical profitability, prior
to one-time charges, projections for future profits and the ability of the
Company's foreign subsidiaries to utilize their deferred tax assets. The net
change in the total valuation allowance as of December 31, 2000 was an increase
of approximately $6.1 million.
Note 17: Employee Benefit Plans
Retirement and Deferred Savings Plan--United States of America
The Company maintains a retirement and deferred savings plan for its
employees (the "401(k) Plan"). The 401(k) Plan is intended to qualify as a tax
qualified plan under the Internal Revenue Code. The 401(k) Plan provides that
each participant may contribute up to 15% of tax gross compensation (up to a
statutory limit). Under the 401(k) Plan, the Company is required to make
contributions based on contributions made by employees. The Company's
contributions to the 401(k) Plan for the years ended December 31, 2000, 1999 and
1998 were approximately $0.2 million, $0.2 million, and $0.1 million
respectively. All amounts contributed by participants and related earnings are
fully vested at all times.
Severance Benefits--Korea
Employees and directors with more than one year of service are entitled to
receive a lump-sum payment upon termination of their employment with CPK, based
on their length of service and rate of pay at the time of termination. Accrued
severance benefits are adjusted annually for all eligible employees based on
their employment as of the balance sheet date.
In accordance with the National Pension Act, a certain portion of
severance benefits is required to be remitted to the National Pension Fund and
deducted from accrued severance benefits. The amounts contributed will be
refunded to employees from the National Pension Fund upon retirement. The
expense for severance benefits for the years ended December 31, 2000, 1999, and
1998 amounted to approximately $3.0 million, $2.8 million, and $2.9 million
respectively.
62
Note 18: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities
In connection with the recapitalization, ChipPAC International Company
Limited, (CP Int'l), issued senior subordinated debt securities which are fully
and unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by the parent company, ChipPAC, Inc. (CPI) and by ChipPAC (Barbados)
Ltd., ChipPAC Limited, ChipPAC Korea Company Limited (CPK), ChipPAC Malaysia
Sdn. Bhd. (CPM), ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management
Hungary Limited Liability Company (the "Guarantor Subsidiaries"). All guarantor
subsidiaries are wholly-owned direct or indirect subsidiaries of ChipPAC, Inc.
ChipPAC Shanghai Limited (CPS) and ChipPAC Electronic Technology Ltd. (CETS)
(collectively the Chinese entities), will not provide guarantees (the "Non-
Guarantor Subsidiaries"). The following is consolidated and combining financial
information for CP Int'l CPI, and CPK, CPS, CETS, ChipPAC (Barbados) Ltd.,
ChipPAC Limited, ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management
Hungary Limited Liability Company, segregated between the Guarantor and Non-
Guarantor Subsidiaries. ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC
Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability
Company were formed by Hyundai in 1999, ChipPAC Malaysia was acquired in 2000,
these entities have no historical operating results or balances for the
year ended December 31, 1998. As a result, it is not possible to include these
entities in the supplemental financial statements for these periods. Separate
financial statements and other disclosures concerning the Guarantor Subsidiaries
are not presented herein because management has determined that they are not
material to investors. Financial information for ChipPAC (Barbados) Ltd.,
ChipPAC Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management
have not been presented as these entities have no historical financial results
and future transactions will primarily consist of inter-company transactions.
The following HECS financial statements in the condensed combining financial
statements include the accounts of CATS.
63
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
December 31, 2000
(In thousands)
Parent Non-
Guarantor Issuer Other Guarantor
CPI CP Int'l Guarantors China
----------- ----------- ----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 181 $ (2,674) $ 17,284 $ 4,059
Intercompany accounts receivable 8,062 13,275 -- --
Accounts receivable 45 -- 45,839 20
Inventory -- -- 17,872 3,378
Prepaid Expenses and other current assets 407 -- 3,315 2,998
----------- ----------- ----------- -----------
Total current assets 8,695 10,601 84,310 10,455
Property and Equipment, net 3,752 -- 239,002 91,979
Intercompany loans receivable -- 323,500 -- --
Investment in subsidiaries 188,987 34,222 -- --
Other Assets 3,322 11,673 26,617 176
----------- ----------- ----------- -----------
Total assets $ 204,756 $ 379,996 $ 349,929 $ 102,610
=========== =========== =========== ===========
Liabilities and Equity (Deficit)
Current liabilities:
Intercompany accounts payable $ -- $ -- $ 2,161 $ 19,176
Accounts payable 1,009 -- 47,253 6,401
Accrued expense and other Liabilities 6,345 8,782 23,386 5,386
Short-term debt -- 7,800 -- --
Current portion of long-term debt -- 6,800 -- --
----------- ----------- ----------- -----------
Total current liabilities 7,354 23,382 72,800 30,963
Long-term debt, less current portion -- 283,400 -- --
Intercompany loans payable -- -- 289,500 34,000
Other long term liabilities -- -- 6,986 --
----------- ----------- ----------- -----------
Total liabilities 7,354 306,782 369,286 64,963
=========== =========== =========== ===========
Stockholders' equity (deficit):
Common Stock 685 -- -- --
Warrants 1,250 -- -- --
Additional Paid in Capital 104,509 -- -- --
Receivable from stockholders (1,505) -- -- --
Currency translation gain (loss) -- -- 8,704 465
Accumulated Earning (deficit) 92,463 73,214 (28,061) 37,182
----------- ----------- ----------- -----------
Stockholders' equity (deficit) 197,402 73,214 (19,357) 37,647
=========== =========== =========== ===========
Total Liabilities and stockholders' equity (deficit) $ 204,756 $ 379,996 $ 349,929 $ 102,610
=========== =========== =========== ===========
Eliminations Consolidated
------------ ------------
Assets
Current assets:
Cash and marketable securities $ -- $ 18,850
Intercompany accounts receivable (21,337) --
Accounts receivable from Customers -- 45,904
Inventory -- 21,250
Prepaid Expenses & other current assets -- 6,720
----------- -----------
Total current assets (21,337) 92,724
Plant, Property & Equipment , net -- 334,733
Intercompany loans receivable (323,500) --
Investment in subsidiaries (223,209) --
Other Assets -- 41,788
----------- -----------
Total assets $ (568,046) $ 469,245
=========== ===========
Liabilities and Equity
Current liabilities:
Intercompany accounts payable $ (21,337) $ --
Bank borrowings -- 7,800
Accounts payable -- 54,663
Accrued expense and other Liabilities -- 43,899
Current portion of long-term debt -- 6,800
----------- -----------
Total current liabilities (21,337) 113,162
Long-term debt, less current portion -- 283,400
Intercompany loans payable (323,500) --
Other long term liabilities -- 6,986
----------- -----------
Total liabilities (344,837) 403,548
=========== ===========
Stockholders' equity:
Common Stock -- 685
Warrants -- 1,250
Additional Paid in Capital -- 104,509
Receivable from stockholders -- (1,505)
Currency translation gain (loss) -- 9,169
Accumulated Earning (deficit) (223,209) (48,411)
----------- -----------
Stockholders' equity (deficit) (223,209) 65,697
=========== ===========
Total Liabilities and stockholders'
equity (deficit) $ (568,046) 469,245
=========== ===========
64
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year ended December 31, 2000
(In thousands)
Parent Non-
Guarantor Issuer CP Other Guarantor
CPI Int'l Guarantors China Eliminations Consolidated
Revenue
Intercompany Revenue $ 28,827 $ -- $ 403,796 $ 53,813 $(486,436) $ --
Customer Revenue -- -- 494,408 3 -- 494,411
--------------------------------------------------------------------------
Revenue 28,827 -- 898,204 53,816 (486,436) 494,411
Cost of Revenue -- -- 796,639 45,289 (456,661) 385,267
--------------------------------------------------------------------------
Gross Profit 28,827 -- 101,565 8,527 (29,775) 109,144
Operating Expenses:
Selling, general & administrative 24,550 (8) 38,927 1,105 (29,775) 34,799
Research & Development 5,562 -- 6,453 -- -- 12,015
--------------------------------------------------------------------------
Total Operating Expenses (Income) 30,112 (8) 45,380 1,105 (29,775) 46,814
--------------------------------------------------------------------------
Operating Income (Loss) (1,285) 8 56,185 7,422 -- 62,330
Non-Operating Income (Expense)
Interest Income 257 30,587 31,504 75 (61,580) 843
Interest expense -- (39,425) (58,147) (3,440) 61,580 (39,432)
Income (loss) from Investment in
Subsidiaries 17,107 3,689 -- -- (20,796) --
Other income (expense), net (7,975) -- 1,839 455 -- (5,681)
--------------------------------------------------------------------------
Total Non-Operating Income (expense) 9,389 (5,149) (24,804) (2,910) (20,796) (44,270)
--------------------------------------------------------------------------
Income (loss) before income taxes 8,104 (5,141) 31,381 4,512 (20,796) 18,060
Provision for (benefit from) income taxes (3,952) 323 7,243 -- -- 3,614
--------------------------------------------------------------------------
Income (loss) before extraordinary item 12,056 (5,464) 24,138 4,512 (20,796) 14,446
--------------------------------------------------------------------------
Extraordinary item -- 2,390 -- -- -- 2,390
--------------------------------------------------------------------------
Net Income (Loss) $ 12,056 $ (7,854) $ 24,138 $ 4,512 $ (20,796) $ 12,056
==========================================================================
65
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2000
(In thousands)
Parent Non-
Guarantor Issuer Other Guarantor
CPI CP Int'l Guarantors China
Cash flows from operating activities:
Net income (loss) $ 12,056 $ (7,854) $ 24,138 $ 4,512
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,281 -- 34,073 8,695
Debt issue amortization -- 1,950 -- --
Deferred tax (3,712) -- 5,741 --
Non-operating early debt extinguishment loss -- 2,390 -- --
Fee paid in stock to equity investors 4,400 -- -- --
Foreign currency (gains) losses -- -- (2,168) --
(Gain) loss on sale of equipment -- -- 75 (168)
Equity income from investment in subsidiaries (17,107) (3,689) -- --
Changes in assets and liabilities:
Intercompany accounts receivable (1,255) (9,222) 11,927 11,502
Accounts receivable (73) -- (3,446) --
Inventories -- -- 3,057 (3,212)
Prepaid expenses and other current assets (177) -- (1,431) (2,726)
Other long-term assets 417 1,922 (16,145) (242)
Intercompany accounts payable -- -- 2,161 (3,611)
Accounts payable (242) (40) (6,966) 4,749
Accrued expenses and other current liabilities 1,878 (262) (1,438) 1,681
Other long-term liabilities (240) -- 3,537 --
--------------------------------------------------------
Net cash provided by (used in) operating activities (1,774) (14,805) 53,115 21,180
--------------------------------------------------------
Cash flows used in investing activities:
Acquisition of property and equipment -- -- (69,557) (23,617)
Proceeds from sale of equipment -- -- 16,415 1,134
Malaysian acquisition, net of cash and cash equivalents -- -- (54,835) --
Investment in subsidiaries (72,030) 63,157 (2,629) --
--------------------------------------------------------
Net cash provided by (used in) investing activities (72,030) 63,157 (110,606) (22,483)
--------------------------------------------------------
Cash flows provided by financing activities:
Advances (to) from affiliates (249) -- -- --
Proceeds from short-term loans -- 45,600 -- --
Repayment of short-term loans (37,800) -- --
Net proceeds from long term loans -- (9,800) 73,460 --
Intercompany loan (advances) payments -- (52,500) 52,500 --
Repayment of long-term debt and capital leases -- -- (73,460) --
Net proceeds from common stock issuance 152,538 -- -- --
Retirement of Class B preferred stock (79,310) -- -- --
--------------------------------------------------------
Net cash provided by (used in) financing activities 72,979 (54,500) 52,500 --
--------------------------------------------------------
Net increase (decrease) in cash (825) (6,148) (4,991) (1,303)
Cash and cash equivalents at beginning of year 1,006 3,474 22,275 5,362
--------------------------------------------------------
Cash and cash equivalents at end of year $ 181 $ (2,674) $ 17,284 $ 4,059
========================================================
Eliminations Consolidated
Cash flows from operating activities:
Net income (loss) $ (20,796) $ 12,056
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 45,049
Debt issue amortization -- 1,950
Deferred tax -- 2,029
Non-operating early debt extinguishment loss -- 2,390
Fee paid in stock to equity investors -- 4,400
Foreign currency (gains) losses -- (2,168)
(Gain) loss on sale of equipment -- (93)
Equity income from investment in subsidiaries 20,796 --
Changes in assets and liabilities:
Intercompany accounts receivable (12,952) --
Accounts receivable -- (3,519)
Inventories -- (155)
Prepaid expenses and other current assets -- (4,334)
Other long-term assets -- (14,048)
Intercompany accounts payable 1,450 --
Accounts payable -- (2,499)
Accrued expenses and other current liabilities -- 1,859
Other long-term liabilities -- 3,297
------------------------------
Net cash provided by (used in) operating activities (11,502) 46,214
------------------------------
Cash flows used in investing activities:
Acquisition of property and equipment -- (93,174)
Proceeds from sale of equipment -- 17,549
Malaysian acquisition, net of cash and cash equivalents -- (54,835)
Investment in subsidiaries 11,502 --
------------------------------
Net cash provided by (used in) investing activities 11,502 (130,460)
------------------------------
Cash flows provided by financing activities:
Advances (to) from affiliates -- (249)
Proceeds from short-term loans -- 45,600
Repayment of short-term loans -- (37,800)
Net proceeds from long term loans -- 63,660
Intercompany loan (advances) payments -- --
Repayment of long-term debt and capital leases -- (73,460)
Net proceeds from common stock issuance -- 152,538
Retirement of Class B preferred stock -- (79,310)
------------------------------
Net cash provided by (used in) financing activities -- 70,979
------------------------------
Net increase (decrease) in cash -- (13,267)
Cash and cash equivalents at beginning of year -- 32,117
------------------------------
Cash and cash equivalents at end of year $ -- $ 18,850
==============================
66
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
December 31, 1999
(In thousands)
Parent Non-
Guarantor Issuer Other Guarantor
Assets CPI CP Int'l Guarantors China Eliminations Consolidated
--------- --------- ---------- --------- ------------ ------------
Current assets:
Cash and cash equivalents $ 1,006 $ 3,474 $ 22,275 $ 5,362 $ -- $ 32,117
Intercompany accounts receivable 6,807 4,053 11,927 -- (22,787) --
Receivable from stockholders -- -- 11,662 -- -- 11,662
Accounts receivable (28) -- 30,011 20 -- 30,003
Inventories -- -- 17,331 166 -- 17,497
Prepaid Expenses and other current assets 230 -- 2,659 272 -- 3,161
--------- --------- --------- --------- --------- ---------
Total current assets 8,015 7,527 95,865 5,820 (22,787) 94,440
Property and equipment, net 6,293 -- 142,680 77,958 -- 226,931
Intercompany loans receivable -- 271,000 -- -- (271,000) --
Investment in subsidiaries 82,866 30,532 -- -- (113,398) --
Other assets 27 13,595 8,436 -- -- 22,058
--------- --------- --------- --------- --------- ---------
Total assets $ 97,201 $ 322,654 $ 246,981 $ 83,778 $(407,185) $ 343,429
========= ========= ========= ========= ========= =========
Liabilities and Stockholders Equity (Deficit)
Current liabilities:
Intercompany accounts payable $ -- $ -- $ -- $ 22,787 $ (22,787) $ --
Accounts payable 1,251 40 49,265 1,652 -- 52,208
Accrued expense and other liabilities 4,467 9,044 9,992 3,705 -- 27,208
Current portion of long-term debt -- 4,800 -- -- -- 4,800
--------- --------- --------- --------- --------- ---------
Total current liabilities 5,718 13,884 59,257 28,144 (22,787) 84,216
Long-term debt, less current portion -- 295,200 -- -- -- 295,200
Intercompany loans payable -- -- 237,000 34,000 (271,000) --
Other long-term liabilities 240 -- 3,689 -- -- 3,929
--------- --------- --------- --------- --------- ---------
Total liabilities 5,958 309,084 299,946 62,144 (293,787) 383,345
========= ========= ========= ========= ========= =========
Mandatorily redeemable preferred stock 82,970 -- -- -- -- 82,970
Stockholders' equity (deficit):
Common Stock 407 -- -- -- -- 407
Warrants 1,250 -- -- -- -- 1,250
Additional Paid in Capital (81,304) -- -- -- -- (81,304)
Receivable from stockholders (1,128) -- -- -- -- (1,128)
Accumulated Earning (deficit) 89,048 13,570 (61,669) 21,169 (113,398) (51,280)
Accumulated other comprehensive income -- -- 8,704 465 -- 9,169
--------- --------- --------- --------- --------- ---------
Stockholders equity (deficit) 8,273 13,570 (52,965) 21,634 (113,398) (122,886)
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 97,201 $ 322,654 $ 246,981 $ 83,778 $(407,185) $ 343,429
========= ========= ========= ========= ========= =========
67
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year ended December 31, 1999
(In thousands)
Parent Non-
Guarantor Issuer CP Other Guarantor
CPI Int'l Guarantors China Eliminations Consolidated
Revenue
Intercompany Revenue $ 10,772 $ -- $ 320,618 $ 16,863 $(348,253) $ --
Customer Revenue 191,897 -- 183,482 151 -- 375,530
--------------------------------------------------------------------------
Revenue 202,669 -- 504,100 17,014 (348,253) 375,530
Cost of Revenue 183,633 -- 444,339 26,997 (337,481) 317,488
--------------------------------------------------------------------------
Gross Profit 19,036 -- 59,761 (9,983) (10,772) 58,042
Operating Expenses:
Selling, general & administrative 15,113 -- 16,878 -- (10,772) 21,219
Research & Development 5,928 -- 6,434 -- -- 12,362
Change of control expenses 180 -- 11,662 -- -- 11,842
--------------------------------------------------------------------------
Total Operating Expenses 21,221 -- 34,974 -- (10,772) 45,423
--------------------------------------------------------------------------
Operating Income (Loss) (2,185) -- 24,787 (9,983) -- 12,619
Non-Operating Income (Expense)
Interest Income 625 12,491 14,101 441 (24,907) 2,751
Interest expense -- (14,481) (28,416) (3,251) 24,907 (21,241)
Foreign currency gains (loss) -- -- 1,253 (29) -- 1,224
Income(loss) from Investment in Subsidiaries (4,848) 1,502 (9,327) -- 12,673 --
Other income(expense), net 61 -- 713 (124) -- 650
--------------------------------------------------------------------------
Total Non-Operating Income (expense) (4,162) (488) (21,676) (2,963) 12,673 (16,616)
--------------------------------------------------------------------------
Income (loss) before income taxes (6,347) (488) 3,111 (12,946) 12,673 (3,997)
Provision for (benefit from) income taxes 961 132 845 -- -- 1,938
--------------------------------------------------------------------------
Income (loss) before extra ordinary item (7,308) (620) 2,266 (12,946) 12,673 (5,935)
Extraordinary item:
Loss from early extinguishment of Debt, net of
income tax benefit -- -- 1,373 -- -- 1,373
--------------------------------------------------------------------------
Net Income (Loss) $ (7,308) $ (620) $ 893 $ (12,946) $ 12,673 $ (7,308)
==========================================================================
68
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999
(In thousands)
Parent Non-
Guarantor Issuer CP Other Guarantor
CPI Int'l Guarantors HECS Eliminations Consolidations
Cash Flow from operating activities:
Net Income (loss) $ (7,308) $ (620) $ 893 $ (12,946) $ 12,673 $ (7,308)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation & amortization 1,753 -- 44,490 10,458 -- 56,701
Debt issue amortization -- 774 -- -- -- 774
Provision for inventory and accounts receivable (110) -- (950) -- -- (1,060)
Non operating early debt extinguishment loss -- -- 1,373 -- -- 1,373
Foreign currency (gains) losses -- -- (1,224) -- -- (1,224)
(Gain) loss on sales of equip -- -- (283) 1 -- (282)
Equity income from investment in subsidiaries 4,848 (1,502) 9,327 -- (12,673) --
Changes in Assets & Liabilities: --
I/C account receivable 4,038 (4,053) (21,244) (6,852) 28,111 --
Accounts receivable 34,879 -- (34,109) (20) -- 750
Inventories -- -- (5,464) 49 -- (5,415)
Prepaid expenses and other assets 247 -- (3,198) 73 -- (2,878)
Advances (to) from affiliates (443) -- (6,981) -- -- (7,424)
I/C accounts payable (83,556) -- 114,203 (2,536) (28,111) --
Accounts payable (1,035) 40 (10,465) (155) -- (11,615)
Accrued expenses & other liabilities 4,000 9,045 6,283 693 -- 20,021
Other long term liabilities -- -- 3,519 -- -- 3,519
------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (42,687) 3,684 96,170 (11,235) -- 45,932
------------------------------------------------------------------------
Cash Flow, Investing Activities
Acquisition of property & equipment (2,239) -- (52,792) (9,926) 7,101 (57,856)
Proceeds from external sales of equipment -- -- 6,017 2,431 (7,101) 1,347
Investment in subsidiaries (90,637) (29,030) (184,970) -- 304,637 --
------------------------------------------------------------------------
Net cash used in investing activities (92,876) (29,030) (231,745) (7,495) 304,637 (56,509)
------------------------------------------------------------------------
Cash Flow, Financing Activities
Advances (to)from affiliates -- -- -- (4,430) -- (4,430)
Short term loans received -- -- 1,169 -- -- 1,169
Short term loans repaid -- -- (3,769) (15,700) -- (19,469)
Net proceeds of term loans -- 285,631 -- -- -- 285,631
Repayment term loans and capital leases -- -- (105,387) (28,228) -- (133,615)
Intercompany loan (advances) payments -- (271,000) 237,000 34,000 -- --
Capital redemption at recap -- -- (311,220) -- -- (311,220)
Capital contribution at recap -- -- 19,816 -- -- 19,816
Intercompany capital contribution -- 14,215 290,422 -- (304,637) --
Payment made to extinguish debt early -- -- (1,373) -- -- (1,373)
Dividends paid -- -- (9,435) -- -- (9,435)
Net proceeds from common stock issuance 74,071 (26) (27) -- -- 74,018
Net proceeds from mandatorily redeemable
preferred stock 50,000 -- -- -- -- 50,000
Net Proceeds from sale of stock to management 1,671 -- -- -- -- 1,671
Contributions to (withdrawals from) paid in capital -- -- (4,052) 24,802 -- 20,750
------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 125,742 28,820 113,144 10,444 (304,637) (26,487)
------------------------------------------------------------------------
Effect on cash from changes in exchange rates -- -- 414 -- -- 414
------------------------------------------------------------------------
Net increase (decrease) in cash (9,821) 3,474 (22,017) (8,286) -- (36,650)
Cash & cash equivalents at beginning of period 10,827 -- 44,292 13,648 -- 68,767
------------------------------------------------------------------------
Cash & cash equivalents at end of period 1,006 3,474 22,275 5,362 -- 32,117
========================================================================
69
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
(In thousands)
Non-
Guarantors Guarantor
CPI CPK HECS Eliminations Consolidated
Revenue
Intercompany Revenue -- 302,460 13,759 (316,219) --
Customer Revenue 319,678 14,403 -- -- 334,081
-----------------------------------------------------------
Revenue 319,678 316,863 13,759 (316,219) 334,081
Cost of Revenue 303,937 256,626 26,021 (316,219) 270,365
-----------------------------------------------------------
Gross Profit 15,741 60,237 (12,262) -- 63,716
Operating Expenses:
Selling, general & administrative 10,252 4,815 -- -- 15,067
Research & Development 3,604 4,088 -- -- 7,692
Management fees charged by affiliate -- -- 528 -- 528
Writedown of impaired assets -- -- -- -- --
-----------------------------------------------------------
Total Operating Expenses 13,856 8,903 528 -- 23,287
-----------------------------------------------------------
Operating Income (loss) 1,885 51,334 (12,790) -- 40,429
Non-Operating Income (Expense)
Interest Income 265 967 44 -- 1,276
Interest expense -- (9,973) (3,367) -- (13,340)
Foreign currency gains (losses) -- 24,699 (29) -- 24,670
Other income (expense), net 15 903 (1,086) -- (168)
-----------------------------------------------------------
Total Non-Operating Income (expense) 280 16,596 (4,438) -- 12,438
-----------------------------------------------------------
Income (loss) before income taxes 2,165 67,930 (17,228) -- 52,867
Provision for Income taxes 954 19,610 -- -- 20,564
-----------------------------------------------------------
Net Income (Loss) 1,211 48,320 (17,228) -- 32,303
===========================================================
70
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1998
(In thousands)
Non-
Guarantors Guarantor
CPI CPK HECS Eliminations Consolidated
Net Income $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303
Depreciation & amortization 489 35,584 9,782 45,855
Provision for inventory and accounts receivable 448 (873) -- -- (425)
Foreign currency (gains) losses -- (24,670) -- (24,670)
(Gain) loss on intercompany sales of equip -- (686) -- 686 --
(Gain) loss on external sales of equip 26 26
Equity income from investment in subsidiaries -- -- -- --
I/C account receivable (10,845) (39,058) 3,576 46,327 --
Accounts receivable (8,367) (4,373) -- -- (12,740)
Inventories -- 7,056 2,033 -- 9,089
Prepaid expenses and other assets (475) 11,761 519 54 11,859
Advances (to) from affiliates 443 (730) 4,958 -- 4,671
I/C accounts payable 59,196 (3,573) (9,242) (46,381) --
Accounts payable 1,777 36,395 1,807 -- 39,979
Accrued expenses & other liabilities 642 (1,615) 1,099 -- 126
Other long term liabilities -- (7,326) -- -- (7,326)
--------------------------------------------------------------------
Net cash provided by (used in) operating
activities 44,519 56,238 (2,696) 686 98,747
--------------------------------------------------------------------
Acquisition of property & equipment (5,443) (52,514) (13,240) 9,865 (61,332)
Proceeds from intercompany sales of equipment -- 10,551 -- (10,551) --
Proceeds from external sales of equipment -- 1,635 -- -- 1,635
--------------------------------------------------------------------
Net cash used in by investing
activities (5,443) (40,328) (13,240) (686) (59,697)
--------------------------------------------------------------------
Advances to HEA (30,160) -- -- -- (30,160)
Short term loans received -- 50,735 12,656 -- 63,391
Short term loans repaid -- (79,136) 43 -- (79,093)
Net proceeds of term loans -- 185 10,000 -- 10,185
Repayment term loans and capital leases -- (17,681) (14,114) -- (31,795)
Contributions to (withdrawals) of capital 938 62,014 20,001 -- 82,953
--------------------------------------------------------------------
Net cash provided by (used in)
financing activities (29,222) 16,117 28,586 -- 15,481
Effect on cash from changes in exchange rates -- 11,174 (5) -- 11,169
Net increase (decrease) in cash 9,854 43,201 12,645 -- 65,700
Cash & cash equivalents at beginning of period 973 1,091 1,003 -- 3,067
--------------------------------------------------------------------
Cash & cash equivalents at end of period $ 10,827 $ 44,292 $ 13,648 $ -- $ 68,767
====================================================================
71
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not Applicable.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors and
executive officers is incorporated by reference to ChipPac's proxy statement for
the 2001 annual meeting of shareholders on our "2001 Proxy Statement."
ITEM 11.
EXECUTIVE COMPENSATION
The information appearing under the captions "Director Compensation" and
"Executive Compensation" (including all related sub captions thereof) in the
2001 Proxy Statement is incorporated herein by reference. The Company does not
incorporate by reference in this Form 10-K either the "Compensation Committee
Report on Executive Compensation" or the "Performance Graph" sections of the
2001 Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section captioned "Principal Stockholders" contained in the 2001 Proxy
Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
section captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Relationships and Related Transactions" in the 2001 Proxy
Statement.
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report
(1) Financial Statements. See the "Index to Financial Statements" in
item 8.
(2) Financial Statement Schedules. See the schedule captioned
"Valuation and Qualifying Accounts.
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of ChipPAC, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated January 25, 2001 appearing in this annual report on Form 10-K of ChipPAC,
Inc. also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Jose, California
January 25, 2001
72
CHIPPAC, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance
Beginning Costs and at End
Year ended December 31, of Year Expenses Deductions of Year
- ----------------------- ---------- ---------- ---------- -------
2000
Allowance for Doubtful Receivables $1,196 $ - $(224) $ 972
1999
Allowance for Doubtful Receivables 1,162 144 (110) 1,196
1998
Allowance for Doubtful Receivables 375 787 - 1,162
(3) Exhibits.
2.1 Amended and Restated Agreement and Plan of Merger of ChipPAC, Inc., a
California corporation, and ChipPAC, Inc., a Delaware corporation.**
2.2 Agreement and Plan of Recapitalization and Merger, dated as of
March 13, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai
Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.*
2.3 First Amendment to Agreement and Plan of Recapitalization and Merger,
dated as of June 16, 1999 by and among Hyundai Electronics Industries Co., Ltd.,
Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.*
2.4 Second Amendment to Agreement and Plan of Recapitalization and Merger,
dated as of August 5, 1999, by and among Hyundai Electronics Industries Co.,
Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.*
3.1 Amended and Restated Certificate of Incorporation of ChipPAC, Inc.**
3.2 Amended and Restated By-Laws of ChipPAC, Inc.**
4.1 Specimen certificate for ChipPAC, Inc. Common Stock.**
10.1 Credit Agreement, dated as of August 5, 1999, by and among ChipPAC
International Company Limited, ChipPAC, Inc., the Lenders listed therein and
Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and
Collateral Agent.*
10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc. and
certain subsidiaries of ChipPAC, Inc., in favor of Credit Suisse First Boston.*
10.3 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and
among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC (Barbados) Ltd.,
ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity Management Hungary Limited
Liability Company and ChipPAC International Company Limited, in favor of Firstar
Bank of Minnesota, N.A.*
10.4 Amended and Restated Stockholders Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc. the Hyundai Group (as defined therein), the
Bain Group (as defined therein), the SXI Group (as defined therein), Intel
Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset
Partners, L.P.*
10.5 Amended and Restated Registration Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc., the Hyundai Stockholders (as defined therein),
the Bain Stockholders (as defined therein), the
74
SXI Stockholders (as defined therein), Intel Corporation, ChipPAC Equity
Investors LLC, and Sankaty High Yield Asset Partners, L.P.*
10.5.1 Amendment No. 1 to Amended and Restated Registration Agreement,
dated as of June 30, 2000, by and among ChipPAC, Inc., Sapphire Worldwide
Investments, Inc., the Bain Stockholders (as defined therein) and SXI Group
LLC.**
10.5.2 Form of Amendment No. 2 to Amended and Restated Registration
Agreement, dated as of July 13, 2000, by and among ChipPAC, Inc., Qualcomm
Incorporated, SXI Group LLC and the Bain Shareholders (as defined therein).**
10.5.3 Form of Amendment No. 3 to Amended and Restated Registration
Agreement, dated as of August 2, 2000, by and among ChipPAC, Inc., Bain Capital,
Inc., SXI Group LLC and the Bain Shareholders (as defined therein).**
10.6 Transition Services Agreement, dated as of August 5, 1999, by and
among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America,
ChipPAC, Inc., ChipPAC Korea Company Ltd., Hyundai Electronics Company
(Shanghai) Ltd., ChipPAC Assembly and Test (Shanghai) Company Ltd., ChipPAC
Barbados Limited and ChipPAC Limited.*
10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai
Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement,
dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and
ChipPAC Korea Ltd.*
10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease
Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries
Co., Ltd. and ChipPAC Korea Ltd.*
10.8 Agreement Concerning Supply of Utilities, Use of Welfare
Facilities and Management Services for Real Estate, dated as of June 30, 1998,
by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.9 Service Agreement, dated as of August 5, 1999, by and between
Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.+*
10.10 Sublease Agreement, dated as of May 1, 1998, by and between
Hyundai Electronics America and ChipPAC, Inc.*
10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and
between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.*
10.12 TCC License Agreement, dated December 22, 1998, between Tessera
Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc. and the
Licensee Affiliates (as defined therein).+*
10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc.,
Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.*
10.13 Materials Agreement, dated as of July 1, 1999, by and between
ChipPAC Limited and Intel Corporation.+*
75
10.14 Assembly Services Agreement, dated as of August 5, 1999, by and
between Intel Corporation and ChipPAC Limited.+*
10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and
between ChipPAC, Inc. and Intel Corporation.*
10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated
as of August 5, 1999, issued to Intel Corporation.*
10.17 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain Capital,
Inc.*
10.18 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI Group LLC.*
10.19 Employment Agreement, dated as of October 1, 1999, between
ChipPAC, Inc. and Dennis McKenna.*++
10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan.*++
10.21 ChipPAC, Inc. 2000 Equity Incentive Plan.**++
10.22 ChipPAC, Inc. 2000 Employee Stock Purchase Plan.**++
10.23.1 Form of Key Employee Purchased Stock Agreement.*++
10.23.2 Form of Key Employee Purchased Stock Agreement (with Loan).*++
10.24 Form of Employee Restricted Stock Agreement.*++
10.25 Form of Directors Tranche I Stock Option Agreement.*++
10.26 Form of Employees Tranche I Stock Option Agreement.*++
10.27 Form of Tranche II Stock Option Agreement.*++
10.28 Indenture, dated as of July 29, 1999, by and among ChipPAC
International Limited, ChipPAC Merger Corp. and Firstar Bank of Minnesota, N.A.,
as trustee.*
10.29 First Supplemental Indenture, dated as of August 5, 1999, by and
among ChipPAC International Company Limited, ChipPAC, Inc. and Firstar Bank of
Minnesota, N.A., as trustee.*
10.30 12 3/4% Senior Subordinated Notes Due 2009.*
10.31 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.*
10.32 Intellectual Property Rights Agreement, entered into as of
June 30, 2000, by and between Intersil Corporation and ChipPAC Limited.**
10.33 Supply Agreement, entered into as of June 30, 2000, by and between
Intersil Corporation and ChipPAC Limited.**
10.34 Shareholders Agreement, dated as of June 30, 2000, by and among
ChipPAC, Inc., the Bain Group (as defined therein), the SXI Group (as defined
therein) and Sapphire Worldwide Investments, Inc.**
10.35 Class A Common Stock Purchase Agreement, dated as of July 13,
2000, by and between ChipPAC, Inc. and Qualcomm Incorporated.**
76
10.36 Promissory Note, dated as of August 2, 2000 by and between Dennis
McKenna and ChipPAC, Inc.**
10.37 Promissory Note, dated as of August 2, 2000, by and between Robert
Krakauer and ChipPAC, Inc.**
10.38 Form of Amended and Restated Supplemental Agreement No. 1 to the
Advisory Agreement, dated as of August 2, 2000, by and among ChipPAC, Inc.,
ChipPAC Limited, ChipPAC International Company Limited and Bain Capital, Inc.**
10.39 Amended and Restated Supplemental Agreement No. 4 to the Advisory
Agreement, dated as of August 2, 2000 by and among ChipPAC, Inc., ChipPAC
Limited, ChipPAC International Company Limited and SXI Group LLC.**
10.40 Employment letter agreement, dated as of November 15, 1999
between ChipPAC, Inc. and Robert Krakauer. ++
10.41 Employment letter agreement, dated as of March 18, 1998 between
ChipPAC, Inc. and Gregory Bronzovic. ++
10.42 Employment letter agreement, dated as of April 16, 1999 between
ChipPAC, Inc. and Robert Bowden. ++
10.43 Employment letter agreement, dated as of September 2, 1998 between
ChipPAC, Inc. and Marcos Karnezos. ++
21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company
Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Liquidity Management
Limited Liability Company, ChipPAC Luxembourg S.a.R.L. and ChipPAC Korea Company
Ltd.*
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included on signature page hereto).
99.1 Risk Factors
- -----------------------
* Incorporated by reference to the Company's Form S-4 (No. 333-91641).
** Incorporated by reference to the Company's Form S-1 (No. 333-39428).
+ Confidential treatment has been granted as to certain portions of these
exhibits, which are incorporated by reference.
++ Denotes management contract or compensatory plan or arrangement required
to be filed as an Exhibit to this Form 10-K.
(b) Reports on Form 8-K.
On November 28, 2000, we filed a report on Form 8-K with the Securities
and Exchange Commission to announce our intention to acquire VIKO Test Labs, a
division of VIKO Technology, Inc.
77
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, as of March 30, 2001.
CHIPPAC, INC.
(Registrant)
/s/ Robert Krakauer
------------------------------
ROBERT KRAKAUER
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Dennis P. McKenna, Robert Krakauer and Michael G.
Potter, and each of them, his/her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him/her and in her/her
name, place and stead, in any and all capacities, to sign any or all amendments
to this annual report on Form 10-K under the Securities Exchange Act of 1934, as
amended, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Dennis P. McKenna President, Chief Executive Officer March 30, 2001
- ------------------------- and Director (Principal Executive Officer)
Dennis P. McKenna
/s/ Robert J. Krakauer Senior Vice President and Chief March 30, 2001
- ------------------------- Financial Officer (Principal Financial Officer)
Robert J. Krakauer
/s/ Michael G. Potter Controller March 30, 2001
- ------------------------- (Principal Accounting Officer)
Michael G. Potter
/s/ Edward Conard Director March 30, 2001
- -------------------------
Edward Conard
/s/ Michael A. Delaney Director March 30, 2001
- -------------------------
Michael A. Delaney
/s/ David Dominik Director March 30, 2001
- -------------------------
David Dominik
/s/ Marshall Haines Director March 30, 2001
- -------------------------
Marshall Haines
/s/ Joseph Martin Director March 30, 2001
- -------------------------
Joseph Martin
/s/ Chong Sup Park Director March 30, 2001
- -------------------------
Chong Sup Park
/s/ Paul C. Schorr, IV Director March 30, 2001
- -------------------------
Paul C. Schorr, IV