10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 000-31173 CHIPPAC, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 77-0463048 (State or other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 47400 Kato Road Fremont, California 94538 (Address of Principal Executive Offices) (Zip Code) (510) 979-8000 Registrant's Telephone Number, Including Area Code 3151 Coronado Drive Santa Clara, California 94538 (Former Address) 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 the number of shares of the issuer's class of common stock, as of the latest practicable date: Class Outstanding as of October 31, 2001 -------------------------------------------------------------------------------- Class A Common stock, $.01 par value 69,326,843 Class B Common stock, $.01 par value 0 ChipPAC, Inc. Part I -- FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets ......................................... 3 Unaudited Condensed Consolidated Statements of Operations ............................... 4 Unaudited Condensed Consolidated Statements of Cash Flows ............................... 5 Notes to Unaudited Condensed Consolidated Financial Statements .......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................................................. 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk .......................... 20 Part II -- OTHER INFORMATION Item 1. Legal Proceedings ................................................................... 21 Item 2. Changes in Securities and Use of Proceeds ........................................... 21 Item 3. Defaults Upon Senior Securities ..................................................... 21 Item 4. Submission of Matters to a Vote of Security Holders ................................. 21 Item 5. Other Information ................................................................... 21 Item 6. Exhibits and Reports on Form 8-K .................................................... 21 Signatures .................................................................................. 26
ChipPAC, Inc. Condensed Consolidated Balance Sheets (In thousands, except for share amounts) (Unaudited)
September 30, December 31, 2001 2000 ------------- -------------- Assets Current assets: Cash and cash equivalents $ 25,908 $ 18,850 Accounts receivable, less allowance for doubtful accounts of $357 and $972 34,219 45,904 Inventories 10,917 21,250 Prepaid expenses and other current assets 8,534 6,720 ------------- -------------- Total current assets 79,578 92,724 Property, plant and equipment, net 336,627 334,733 Other non-current assets 46,242 41,788 ------------- -------------- Total assets $ 462,447 $ 469,245 ============= ============== Liabilities and Stockholders' Equity Current liabilities: Bank borrowings $ 28,367 $ 7,800 Accounts payable 28,568 54,663 Accrued expenses and other liabilities 28,650 43,899 Current portion of long-term debt -- 6,800 ------------- -------------- Total current liabilities 85,585 113,162 Long-term debt, less current portion 283,627 283,400 Convertible subordinated note 50,000 -- Other long-term liabilities 6,474 6,986 ------------- -------------- Total liabilities 425,686 403,548 ------------- -------------- Stockholders' equity Common stock, Class A- par value $0.01 per share; 250,000,000 shares authorized, 69,323,000 and 68,438,000 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 693 685 Common stock, Class B- par value $0.01 per share; 250,000,000 shares authorized, no shares issued or outstanding at September 30, 2001 and December 31, 2000 -- -- Additional paid in capital 110,024 105,759 Receivable from stockholders (1,093) (1,505) Accumulated deficit (82,032) (48,411) Accumulated other comprehensive income 9,169 9,169 ------------- -------------- Total stockholders' equity 36,761 65,697 ------------- -------------- Total liabilities and stockholders' equity $ 462,447 $ 469,245 ============= ==============
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc Condensed Consolidated Statements of Operations (In thousands, except for per share amount) (Unaudited)
Three Months Ended Nine Months Ended Sept 30, Sept 30, Sept 30, Sept 30, 2001 2000 2001 2000 ------------ ------------ ------------ ---------- Revenue $ 74,662 $ 155,795 $ 251,894 $ 362,243 Cost of revenue 72,637 120,227 226,688 280,113 ------------ ------------ ------------ ---------- Gross profit 2,025 35,568 25,206 82,130 Operating expenses: Selling, general and administrative 5,877 9,667 25,601 24,007 Research and development 3,333 2,839 10,683 7,981 ------------ ------------ ------------ ---------- 9,210 12,506 36,284 31,988 ------------ ------------ ------------ ---------- Operating income (loss) (7,185) 23,062 (11,078) 50,142 Non-operating (income) expenses: Interest expense 9,445 10,574 27,733 29,930 Interest income (167) (198) (389) (553) Foreign currency (gains) losses 16 (109) (239) (796) Other (income) expenses, net (38) 7,867 (267) 6,894 ------------ ------------ ------------ ---------- Non-operating expenses 9,256 18,134 26,838 35,475 ------------ ------------ ------------ ---------- Income (loss) before income taxes (16,441) 4,928 (37,916) 14,667 Provision for (benefit from) income taxes - 984 (4,295) 2,930 ------------ ------------ ------------ ---------- Income (loss) before extraordinary item (16,441) 3,944 (33,621) 11,737 Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit - 2,390 - 2,390 ------------ ------------ ------------ ---------- Net income (loss) (16,441) 1,554 (33,621) 9,347 Accretion of dividends on mandatorily redeemable preferred stock - (2,974) - (8,197) Accretion of recorded value of the Intel warrant - (678) - (990) ------------ ------------ ------------ ---------- Net income (loss) available to common stockholders $ (16,441) $ (2,098) $ (33,621) $ 160 ============ ============ ============ ========== Net income (loss) per share: Income (loss) per share available to common stockholders before extraordinary item Basic $ (0.24) $ 0.00 $ (0.49) $ 0.05 Diluted $ (0.24) $ 0.00 $ (0.49) $ 0.04 Extraordinary item Basic $ - $ (0.04) $ - $ (0.04) Diluted $ - $ (0.04) $ - $ (0.04) Net income (loss) per share available to common stockholders Basic $ (0.24) $ (0.03) $ (0.49) $ 0.00 Diluted $ (0.24) $ (0.03) $ (0.49) $ 0.00 Weighted Average shares used in per share calculation: Basic 68,889 60,295 68,714 53,162 Diluted 68,889 60,295 68,714 56,827
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
For the Nine Months Ended September 30, 2001 2000 -------- -------- Cash flows from operating activities: Net income (loss) $(33,621) $ 9,347 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 44,177 32,364 Debt issue amortization 1,522 1,485 Foreign currency (gains) losses -- (467) Loss on sale of equipment 20 (19) Changes in assets and liabilities: Accounts receivable 11,685 (16,349) Inventories 10,333 2,268 Prepaid expenses and other assets (7,559) (9,364) Accounts payable (26,095) (7,074) Accrued expenses and other current liabilities (23,833) (16,597) Other long-term liabilities (507) 2,753 -------- -------- Net cash used in operating activities (23,878) (1,653) -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment (33,976) (61,092) Proceeds from sale of equipment 532 20,198 Malaysian acquisition, net of cash and cash equivalents -- (54,835) -------- -------- Net cash used in investing activities (33,444) (95,729) -------- -------- Cash flows from financing activities: Net proceeds (repayments) from short-term loans 14,179 29,585 Net proceeds (repayment) of long-term debt (14,773) (11,474) Net proceeds from debt offering 60,703 -- Net proceeds from issuance of common stock 4,271 77,972 -------- -------- Net cash provided by financing activities 64,380 96,083 -------- -------- Net increase (decrease) in cash 7,058 (1,299) Cash and cash equivalents at beginning of period 18,850 32,117 -------- -------- Cash and cash equivalents at end of period $ 25,908 $ 30,818 ======== ========
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended September 30, 2001 (Unaudited) Note 1: Interim Statements In the opinion of management of ChipPAC, Inc. ("ChipPAC" or the "Company"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information included therein. This financial data should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2000 included in ChipPAC's 2000 Annual Report. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for any other period or the fiscal year which ends on December 31, 2001. The interim period ended on September 30th, 2001, the Sunday nearest September 30th. For presentation purposes, the interim financial statements and accompanying notes refer to our interim period ending as of September 30, 2001. Basis of Presentation The financial statements 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. Note 2: 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 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, 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 was required to adopt SFAS 133 in the first quarter of its fiscal year 2001 and the impact of SFAS 133 had no material effect on its financial statements. In July 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. The use of the pooling-of-interest method of accounting is no longer allowed. SFAS No. 142 requires that goodwill and other intangible assets will no longer be amortized but shall be reviewed and tested annually for impairment. SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001, and early adoption is permitted for companies with a fiscal year beginning after March 15, 2001. The Company expects that the adoption of SFAS No.141 and 142 on January 1, 2002, will not have a material effect on its financial statements. In October 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of" and the accounting and reporting provision of Accounting Principles Board ("APB") No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets including amortizable intangibles and is effective for fiscal years beginning December 15, 2001 as well as interim periods within those fiscal years. SFAS No. 144 will address the impairment of goodwill and non-amortizable intangibles. The Company is currently reviewing this statement to determine its effect on the Company's financial position and results of operations. Note 3: Selected Balance Sheet Accounts The components of inventories are as follows (in thousands): September 30, December 31, 2001 2000 -------- -------- Raw materials .......................... $ 8,490 $ 16,935 Work in process ........................ 2,247 2,935 Finished goods ......................... 180 1,380 -------- -------- $ 10,917 $ 21,250 ======== ======== Other assets are comprised of the following (in thousands): September 30, December 31, 2001 2000 -------- -------- Deposits for severance benefits ........ $ 1,152 $ 1,393 Long-term employee loans ............... 2,171 2,350 Deferred taxes ......................... 9,162 3,712 Debt issuance cost, net of amortization of $6,636 and $5,114 .... 14,448 11,673 Intangible assets, net of amortization of $10,074 and $4,764 ... 18,903 18,465 Other .................................. 406 4,195 -------- -------- $ 46,242 $ 41,788 ======== ======== Accrued expenses and other liabilities are comprised of the following (in thousands): September 30, December 31, 2001 2000 -------- -------- Payroll and related items ............... $ 9,047 $ 12,556 Interest payable ........................ 6,470 8,768 Customer rebate ......................... 57 3,613 Deferred taxes .......................... 6,732 4,142 Streamlining and restructuring accrual .. 652 -- Warranty and other expenses ............. 5,692 14,820 -------- -------- $ 28,650 $ 43,899 ======== ======== In the three months ended September 30, 2001, we incurred approximately $370 thousand of severance and restructuring expenses at our Korean and United States headquarters' sites that we applied against existing accruals. Our workforce was reduced by 12 employees as a result of the programs related to the accrual and approximately 161 employees were furloughed during the period. We expect the remainder of the streamlining and restructuring accrual of $65 thousand to be consumed during the three months ended December 31, 2001. Note 4: Convertible Subordinated Notes In June 2001, the Company issued $50.0 million aggregate principal amount of 8.00 percent Convertible Subordinated Notes due 2011, (the "Convertible Notes"), along with ChipPAC International Company Limited's (a wholly owned subsidiary) issuance of $15.0 aggregate principal amount million of 12.75 percent Senior Subordinated Notes due 2009 (the "Additional Senior Subordinated Notes") in a private placement. The holders of the Convertible Notes may convert the Convertible Notes into shares of our Class A common stock at any time prior to the maturity date, unless previously redeemed or purchased, at a conversion price of $9.96 per share, subject to adjustment in certain circumstances. The Convertible Notes are currently convertible into 5,020,080 shares of Class A common stock. Interest on the Convertible Notes is payable on June 15 and December 15 of each year, beginning December 15, 2001 and will end on June 15, 2011, unless earlier redeemed. The Company may redeem any portion of the Convertible Notes at any time prior to June 15, 2004, upon at least 20 and not more than 60 days notice to the holders of the notes, at a redemption price equal to $1,000 per $1,000 aggregate principal amount of Convertible Notes plus accrued and unpaid interest to the redemption date subject to adjustment in certain circumstances and provided that the Company's stock is consistently trading above a certain price and that the resales of the Convertible Notes will be registered under the Securities Act of 1933, as amended. The Company may, at its option, redeem the Convertible Notes on or after June 15, 2004, in whole or in part, upon at least 20 days and not more than 60 days notice to the holders of the notes, at redemption prices expressed as percentages of the principal amount ranging from 104.00 percent for the period from June 15, 2004 to June 14, 2005 and reducing by 0.67 percent each subsequent period to 100.00 percent beginning June 15, 2010 and thereafter. ChipPac International Company Limited issued the Additional Senior Subordinated Notes under the terms of its original Indenture from July 1999. The Additional Senior Subordinated Notes have identical terms to the $150 million aggregate principal amount of 12.75 percent Senior Subordinated Notes due 2009 issued in July of 1999, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto. Note 5: Pro Forma Disclosure Relating to the Acquisition of Malaysian Business The results of operations of the Malaysian business, acquired in June 2000, have been included with those of the Company for periods subsequent to the date of acquisition. Set forth below is the unaudited pro forma combined summary of operations of the Company for the six months ended June 30, 2000, (in thousands, except for per share amounts). Six months ended June 30, 2000 ---------------- Net sales $277,658 Net income 11,534 Earnings per share Basic 0.23 -------- Diluted 0.22 -------- Shares used in per share calculation: Basic 49,516 -------- Diluted 53,456 -------- Note 6: 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 (loss) 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 common and all potentially dilutive common shares 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 convertible securities. Following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the periods presented below. Three months ended:
September 30, 2001 September 30, 2000 Per-Share Income Per-Share Loss Shares Amount (Loss) Shares Amount ------ ------ ------ ------ ------ ------ (In thousands, except per share amounts) Basic EPS: Income (loss) per share available to common stockholder before extraordinary item ...................... $(16,441) 68,889 $(0.24) $ 292 60,295 $ 0.00 Diluted EPS: Income (loss) per share available to common stockholder before extraordinary item ...................... $(16,441) 68,889 $(0.24) $ 292 60,295 $ 0.00 Basic EPS: Extraordinary item ......................... $ - 68,889 $ - $(2,390) 60,295 $(0.04) Diluted EPS: Extraordinary item ......................... $ - 68,889 $ - $(2,390) 60,295 $(0.04) Basic EPS: Net Income (loss) per share available to common stockholders ........ $(16,441) 68,889 $(0.24) $(2,098) 60,295 $(0.03) Diluted EPS Net Income (loss) per share available to common stockholders. ....... $(16,441) 68,889 $(0.24) $(2,098) 60,295 $(0.03)
Nine months ended:
September 30, 2001 September 30, 2000 Per-Share Income Per-Share Loss Shares Amount (Loss) Shares Amount ------ ------ ------ ------ ------ ------ (In thousands, except per share amounts) Basic EPS: Income (loss) per share available to common stockholder before extraordinary item ...................... $(33,621) 68,714 $(0.49) $ 2,550 53,162 $ 0.05 Diluted EPS: Income (loss) per share available to common stockholder before extraordinary item ...................... $(33,621) 68,714 $(0.49) $ 2,550 56,827 $ 0.04 Basic EPS: Extraordinary item ......................... $ - 68,714 $ - $(2,390) 53,162 $(0.04) Diluted EPS: Extraordinary item ......................... $ - 68,714 $ - $(2,390) 56,827 $(0.04)
Basic EPS: Net Income (loss) per share available to common stockholders $(33,621) 68,714 $(0.49) $ 160 53,162 $ 0.00 Diluted EPS Net Income (loss) per share available to common stockholders. $(33,621) 68,714 $(0.49) $ 160 56,827 $ 0.00
For the three-month and nine-month periods ended September 30, 2001, all of the stock options and convertible subordinated notes were excluded from diluted earnings per share since their effect would be antidilutive. At September 30, 2001 and 2000, stock options outstanding were 7,340,340 and 1,912,742 respectively. Note 7: Supplemental Condensed Consolidating Financial Statements of Guarantor/Non-Guarantor Entities In connection with the recapitalization, ChipPAC International Company Limited, ("CP Int'l"), issued $150.0 million aggregate principal amount of Senior Subordinated Notes, (which notes have the same terms and are issued under the same indentures as the Additional Senior Subordinated Notes mentioned in Note 4), which are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by the parent company, ChipPAC, Inc. 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"), will not provide guarantees (the "Non-Guarantor Subsidiaries"). The following is consolidating and financial information for CP Int'l, CPI, CPM 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. 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. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS September 30, 2001 (In thousands) (Unaudited)
Parent Guarantor Issuer Other Non Guarantor CPI CP Int'l Guarantor CPS Eliminations Consolidated --------- --------- --------- ------------ ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,084 $ 18,330 $ 4,473 $ 2,021 $ -- $ 25,908 Intercompany accounts receivable 11,774 58,127 20,097 15,897 (105,895) -- Accounts receivable from customers 38 12 34,169 -- -- 34,219 Inventories -- -- 7,762 3,155 -- 10,917 Prepaid expenses and other current assets 266 -- 6,433 1,835 -- 8,534 --------- --------- --------- ------------ ----------- ------------ Total current assets 13,162 76,469 72,934 22,908 (105,895) 79,578 Property, plant and equipment, net 5,459 -- 234,768 96,400 -- 336,627 Intercompany loans receivable -- 352,500 -- -- (352,500) -- Investment in subsidiaries 5,327 -- 46,674 -- (52,001) -- Other non current assets 6,755 14,448 24,251 788 -- 46,242 --------- --------- --------- ------------ ----------- ------------ Total assets $ 30,703 $ 443,417 $ 378,627 $ 120,096 $ (510,396) $ 462,447 ========= ========= ========= ============ =========== ============ Liabilities and Stockholders' Equity (Deficit) Current liabilities: Intercompany accounts payable $ 20 $ 4,205 $ 76,794 $ 24,876 $ (105,895) $ -- Bank borrowings -- 28,367 -- -- -- 28,367 Accounts payable 983 55 19,801 7,729 -- 28,568 Accrued expense and other liabilities 2,108 6,518 13,850 6,174 -- 28,650 Current portion of long-term debt -- -- -- -- -- -- --------- --------- --------- ------------ ----------- ------------ Total current liabilities 3,111 39,145 110,445 38,779 (105,895) 85,585 Long- term debt, less current portion -- 283,627 -- -- -- 283,627 Convertible subordinated note -- 50,000 -- -- -- 50,000 Intercompany loans payable -- -- 318,500 34,000 (352,500) -- Other long-term liabilities -- -- 6,474 -- -- 6,474 --------- --------- --------- ------------ ----------- ------------ Total liabilities 3,111 372,772 435,419 72,779 (458,395) 425,686 --------- --------- --------- ------------ ----------- ------------ Stockholders' equity (deficit): Common stock 693 -- -- -- -- 693 Additional paid in capital 110,024 81,671 20,352 101,633 (203,656) 110,024 Receivable from stockholders (1,093) -- -- -- -- (1,093) Accumulated deficit (82,032) (11,026) (85,849) (54,780) 151,655 (82,032) Accumulated other comprehensive income -- -- 8,705 464 -- 9,169 --------- --------- --------- ------------ ----------- ------------ Total stockholders' equity (deficit) 27,592 70,645 (56,792) 47,317 (52,001) 36,761 --------- --------- --------- ------------ ----------- ------------ Total liabilities and stockholders' equity (deficit) $ 30,703 $ 443,417 $ 378,627 $ 120,096 $ (510,396) $ 462,447 ========= ========= ========= ============ =========== ============
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2001 (In thousands) (Unaudited)
Parent Guarantor Issuer Other Non Guarantor CPI CP Int'l Guarantor CPS Eliminations Consolidated --------- --------- --------- ------------ ----------- ------------ Intercompany revenue $ 18,427 $ -- $ -- $ 41,800 $ (60,227) $ -- Customer Revenue -- -- 251,891 3 -- 251,894 --------- --------- --------- ------------ ----------- ------------ Revenue 18,427 -- 251,891 41,803 (60,227) 251,894 Cost of revenue -- -- 247,847 39,068 (60,227) 226,688 --------- --------- --------- ------------ ----------- ------------ Gross profit 18,427 -- 4,044 2,735 -- 25,206 --------- --------- --------- ------------ ----------- ------------ Operating expenses: Selling, general & administrative 13,740 198 9,063 2,600 25,601 Research & development 3,370 -- 7,313 -- 10,683 --------- --------- --------- ------------ ----------- ------------ 17,110 198 16,376 2,600 -- 36,284 --------- --------- --------- ------------ ----------- ------------ Operating income (loss) 1,317 (198) (12,332) 135 -- (11,078) Non-operating (income) expense: Interest income (33) (25,752) (372) (109) 25,877 (389) Interest expense -- 27,732 23,298 2,580 (25,877) 27,733 Loss from investment in subsidiaries 34,914 -- 2,367 -- (37,281) -- Foreign currency (gains) losses -- -- (254) 15 -- (239) Other (income) expense, net (56) -- (227) 16 -- (267) --------- --------- --------- ------------ ----------- ------------ Non-operating expense 34,825 1,980 24,812 2,502 (37,281) 26,838 --------- --------- --------- ------------ ----------- ------------ Loss before income taxes 33,508 2,178 37,144 2,367 (37,281) 37,916 Provision for (benefit from) income taxes 113 371 (4,779) -- -- (4,295) --------- --------- --------- ------------ ----------- ------------ Net loss $ 33,621 $ 2,549 $ 32,365 $ 2,367 $ (37,281) $ 33,621 ========= ========= ========= ============ =========== ============
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Nine Months Ended September 30, 2001 (In thousands) (Unaudited)
Parent Non- Guarantor Issuer Other Guarantor CPI CP Int'l Guarantors CPS Eliminations Consolidated --- -------- ---------- --- ------------ ------------ Cash flows from operating activities: Net loss $(33,621) $ (2,549) $(32,365) $(2,367) $ 37,281 $(33,621) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,362 - 35,622 7,193 - 44,177 Debt issue amortization - 1,522 - - - 1,522 (Gain) loss on sale of equipment - - 18 2 - 20 Changes in assets and liabilities: Intercompany accounts receivable (3,713) (39,072) 5,289 (7,593) 45,089 - Accounts receivable 7 (12) 11,670 20 - 11,685 Inventories - - 10,110 223 - 10,333 Prepaid expenses and other current assets 143 - (8,865) 1,163 - (7,559) Other non current assets - - - - - - Intercompany accounts payable 21 1,717 45,955 (2,604) (45,089) - Accounts payable (26) 55 (27,452) 1,328 - (26,095) Accrued expenses and other current liabilities (4,242) 9,504 (29,702) 607 - (23,833) Other long-term liabilities - - - (507) - (507) -------- -------- -------- ------- -------- -------- Net cash provided by (used in) operating activities (40,069) (28,835) 10,280 (2,535) 37,281 (23,878) -------- -------- -------- ------- -------- -------- Cash flows used in investing activities: Acquisition of property, plant and equipment (3,860) - (21,034) (9,082) - (33,976) Proceeds from sale of equipment 2,129 - (1,743) 146 - 532 Investment in subsidiaries 39,059 - (1,778) - (37,281) - -------- -------- -------- ------- -------- ------- Net cash provided by (used) in investing activities 37,328 - (24,555) (8,936) (37,281) (33,444) -------- -------- -------- ------- -------- ------- Cash flows provided by financing activities: Advances (to) from affiliates (19,341) 6,479 3,427 9,435 - - Net proceeds (repayments) from short-term loans 18,714 (4,533) - (2) - 14,179 Net proceeds (repayment) of long-term debt - (14,773) - - - (14,773) Net proceeds from debt issuance - 60,703 - - - 60,703 Net proceeds from issuance of common stock 4,271 - - - - 4,271 -------- -------- -------- ------- -------- -------- Net cash provided by financing activities 3,644 47,876 3,427 9,433 - 64,380 -------- -------- -------- ------- -------- -------- Net increase (decrease) in cash 903 19,041 (10,848) (2,038) - 7,058 Cash and cash equivalents at beginning of period 181 (711) 15,321 4,059 - 18,850 -------- -------- -------- ------- -------- -------- Cash and cash equivalents at end of period $ 1,084 $ 18,330 $ 4,473 $ 2,021 $ - $ 25,908 ======== ======== ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2000 (In thousands) (Unaudited)
Parent Guarantor Issuer Other Non Guarantor CPI CP Int'l Guarantor CPS Eliminations Consolidated --------- ----------- ------------ ------------- -------------- ------------- Assets Current assets: Cash and cash equivalents $ 181 $ (711) $ 15,321 $ 4,059 $ - $ 18,850 Intercompany accounts receivable 8,062 19,055 25,386 8,304 (60,808) - Accounts receivable from customers 45 - 45,839 20 - 45,904 Inventories - - 17,872 3,378 - 21,250 Prepaid expenses and other current assets 407 - 3,315 2,998 - 6,720 -------- --------- --------- --------- ---------- --------- Total current assets 8,695 18,344 107,733 18,760 (60,808) 92,724 Property, plant and equipment, net 3,752 - 239,002 91,979 - 334,733 Intercompany loans receivable - 352,500 - - (352,500) - Other non current assets 51,674 11,673 91,869 176 (113,604) 41,788 -------- --------- --------- --------- ---------- --------- Total assets $ 64,121 $ 382,517 $ 438,603 $ 110,915 $ (526,912) $ 469,245 ======== ========= ========= ========= ========== ========= Liabilities and Stockholders' Equity Current liabilities: Intercompany accounts payable $ - $ 2,488 $ 30,840 $ 27,480 $ (60,808) $ - Bank borrowings - 7,800 - - - 7,800 Accounts payable 1,009 - 47,253 6,401 - 54,663 Accrued expense and other liabilities 6,346 8,817 23,349 5,388 - 43,900 Current portion of long-term debt - 6,800 - - - 6,800 -------- --------- --------- --------- ---------- --------- Total current liabilities 7,355 25,905 101,442 39,268 (60,808) 113,162 Long- term debt, less current portion - 283,400 - - - 283,400 Intercompany loans payable - - 318,500 34,000 (352,500) - Other long-term liabilities 240 - 6,748 - - 6,986 -------- --------- --------- --------- ---------- --------- Total liabilities 7,595 309,305 426,690 73,268 (413,308) 403,548 -------- --------- --------- --------- ---------- --------- Stockholders' equity Common stock 685 - - - - 685 Additional paid in capital 105,756 81,689 54,636 89,596 (225,921) 105,756 Receivable from stockholders (1,505) - - - - (1,505) Accumulated deficit (48,411) (8,477) (51,427) (52,413) 112,317 (48,411) Accumulated other comprehensive income - - 8,705 464 - 9,169 -------- --------- --------- --------- ---------- --------- Total stockholders' equity 56,526 73,212 11,913 37,646 (113,604) 65,697 -------- --------- --------- --------- ---------- --------- Total liabilities and stockholders' equity $ 64,121 $ 382,517 $ 438,603 $ 110,915 $ (526,912) $ 469,245 ======== ========= ========= ========= ========== =========
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2000 (In thousands) (Unaudited)
Parent Non- Guarantor Issuer Guarantor --------- -------- Other --------- CPI CP Int'l Guarantors CPS Eliminations Consolidated --------- -------- ---------- --------- ------------ ------------ Revenue: Intercompany revenue .............. $ 21,206 -- $ 8,306 $61,309 $(90,821) -- Customer revenue .................. -- -- 362,217 26 -- $362,243 -------- ------- -------- ------- -------- ------- Revenue ........................... 21,206 -- 370,523 61,335 (90,821) 362,243 Cost of revenue ..................... 662 -- 296,884 52,182 (69,615) 280,113 -------- ------- -------- ------ -------- ------- Gross profit ........................ 20,544 -- 73,639 9,153 (21,206) 82,130 Operating expenses: Selling, general & administrative ................... 17,273 $ 30 26,204 1,706 (21,206) 24,007 Research & development ............ 3,749 -- 4,214 18 -- 7,981 -------- ------- -------- ------- -------- -------- Total operating expenses .......... 21,022 30 30,418 1,724 (21,206) 31,988 -------- ------- -------- ------- -------- -------- Operating income (loss). ............ (478) (30) 43,221 7,429 -- 50,142 Non-operating (Income) Expense: Interest expense .................. -- 29,926 43,688 2,580 (46,264) 29,930 Interest income ................... (81) (22,976) (23,697) (63) 46,264 (553) Foreign currency (gains) losses ........................... -- -- (867) 71 -- (796) (Income) loss from investment in subsidiaries ..................... (21,525) ( 2,856) (41,875) -- 66,256 -- Other (income) expenses, net .................... 7,864 -- (371) (599) -- 6,894 -------- ------- -------- ------- -------- -------- Non-operating (income) expenses ......................... (13,742) 4,094 (23,122) 1,989 66,256 35,475 -------- ------- -------- ------- -------- -------- Income (loss) before income taxes ....................... 13,264 (4,124) 66,343 5,440 (66,256) 14,667 Provision for (benefit from) income taxes ................. 3,917 242 4,696 442 ( 6,367) 2,930 -------- ------- -------- ------- -------- -------- Income (loss) before extraordinary item ................ $ 9,347 $(4,366) $ 61,647 $ 4,998 $(59,889) $ 11,737 Extraordinary item: Loss from early Extinquishment of debt, Net of related income Tax benefit ...................... -- 2,390 -- -- -- 2,390 -------- ------- -------- ------- ------- -------- Net income (loss) ................... $ 9,347 $ (6,756) $ 61,647 $ 4,998 $(59,889) $ 9,347 ======== ======= ======== ======= ======= ======== Accretion of dividends on mandatorily redeemable preferred stock ........ (8,197) -- -- -- -- (8,197) Accretion of recorded value of the Intel warrant ..................... (990) -- -- -- -- (990) -------- ------- -------- ------- -------- -------- Net income (loss) available to common stockholders ............... $ 160 $ (6,756) $ 61,647 $ 4,998 $(59,889) $ 160 ======== ======== ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements. ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2000 (In thousands) (Unaudited)
Parent Non- Guarantor Issuer Guarantor --------- -------- Other --------- CPI CP Int'l Guarantors CPS Eliminations Consolidated --------- -------- ---------- --------- ------------- ------------ Cash flows from operating activities: Net Income (loss) ......................... $ 9,347 $(6,756) $ 61,647 $4,998 $ (59,889) $ 9,347 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization .............................. 1,542 -- 22,186 8,636 -- 32,364 Debt issue amortization .................. -- 1,485 -- -- -- 1,485 Foreign currency (gains) losses .......... -- -- (467) -- -- (467) (Gain) loss on sales of equipment......... -- -- 165 (184) -- (19) Changes in assets and liabilities: Intercompany accounts receivable ......... 2,912 (25,360) 8,876 (6,541) 20,113 -- Accounts receivable ...................... (36) -- (16,313) -- -- (16,349) Inventories............................... -- -- 4,879 (2,611) -- 2,268 Prepaid expenses and other assets ........ (2,080) (620) (6,217) (447) -- (9,364) Intercompany accounts payable ............ 28 58 25,134 (5,107) (20,113) -- Accounts payable ......................... 457 33 (11,729) 4,165 -- (7,074) Accrued expenses & other liabilities ..... 3,019 (4,496) (16,746) 1,626 -- (16,597) Other long-term liabilities .............. -- -- 2,753 -- -- 2,753 ------- ------- -------- ------ --------- -------- Net cash provided by (used in) operating activities .............................. 15,189 (35,656) 74,168 4,535 (59,889) (1,653) ------- ------- -------- ------ --------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment ........................... (1,097) -- (49,929) (10,066) -- (61,092) Proceeds from sales of equipment ......... 79 -- 21,614 (1,495) -- 20,198 Malaysian acquisition. ................... -- -- (54,835) -- -- (54,835) Investments in subsidiaries .............. (26,504) -- (33,385) -- 59,889 -- ------- ------- -------- ------ --------- -------- Net cash used in investing activities .... (27,522) -- (116,535) (11,561) 59,889 (95,729) ------- ------- -------- ------ --------- -------- Cash flows from financing activities: Net proceeds from short-term loans ....... (225) 29,810 -- -- -- 29,585 Net proceeds from long-term loans ........ -- (11,474) -- -- -- (11,474) Intercompany loan (advances) payments .... -- (52,500) 52,500 -- -- -- Intercompany capital contributions ....... (64,451) 67,001 (10,414) 7,864 -- -- Net proceeds from common stock issuance ................................ 77,972 -- -- -- -- 77,972 ------- ------- -------- ------ --------- -------- Net cash provided by financing activities .............................. 13,296 32,837 42,086 7,864 -- 96,083 ------- ------- -------- ------ --------- -------- Net increase (decrease) in cash ............ 963 (2,819) (281) 838 -- (1,299) Cash and equivalents at beginning of period ..................................... 1,007 3,474 22,273 5,363 -- 32,117 ------- ------- -------- ------ --------- -------- Cash and equivalents at end of period ...... $ 1,970 $ 655 $21,992 $6,201 $ -- $ 30,818 ======= ======= ======= ====== ========= ========
The accompanying notes are an integral part of these financial statements. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations All references are to ChipPAC's fiscal quarters ended September 30, 2001 and September 30, 2000, unless otherwise indicated. This quarterly report on Form 10-Q contains forward-looking statements, including, without limitation, statements concerning the conditions in the semiconductor and semiconductor capital equipment industries, our operations, economic performance and financial condition, including in particular statements relating to our business and growth strategy, sales of new products and services, cost-cutting measures and product development efforts. The words "believe," "expect," "anticipate," "intend" and other similar expressions generally identify forward-looking statements. Potential investors are cautioned not to place undue reliance on these forward-looking statements, which 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, without limitation, those identified in Exhibit 99.1 filed with our annual report on Form 10-K for the year ended December 31, 2000 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. We have experienced and expect to continue to experience significant fluctuations in our quarterly results of operations. Our expense levels are based, in part, on expectations of future revenues. If revenue levels in a particular quarter do not meet expectations, operating results are adversely affected. A variety of factors could have an influence on the level of our revenues in a particular quarter. These factors include political unrest, general economic conditions, the cyclical nature of the semiconductor industry, the risk that factors which allowed us to experience relatively good performance in industry downturns may not protect us in future downturns, the timing of the receipt of orders from major customers, customer cancellations or delays of shipments, specific feature requests by customers, production delays or manufacturing inefficiencies, exchange rate fluctuations, management decisions to commence or discontinue product lines, our ability to design, introduce and manufacture new products on a cost effective and timely basis, the introduction of new products by ourselves or our competitors, the timing of research and development expenditures, expenses attendant to acquisitions and strategic alliances, our ability to control expenses and the future development of marketing and service capabilities. In light of these risks and uncertainties, there can be no assurance that the matters referred to in the forward-looking statements contained in this quarterly report will in fact occur. Three and nine months ended September 30, 2001 compared to three and nine months ended September 30, 2000: Revenue Revenues were $74.7 million and $251.9 million in the three and nine months ended September 30, 2001, respectively, a decrease of 52.1% and 30.5% over the prior year periods, respectively. The drop in revenue is a product of lower end- market demand for our customers' products. Gross Profit Gross profit during the three months and nine months ended September 30, 2001 was $2.0 million and $25.2 million, respectively, and decreased 94.3% and 69.3%, respectively, over the comparable prior year periods. The majority of the decrease was caused by soft demand leading to lower equipment utilization and lower average selling prices in the three and nine months ended September 30, 2001 compared to the same periods in 2000. Although reductions in force, furloughs, plant shutdown days and other cost saving methods were used in the three and nine months ended September 30, 2001, they were insufficient to offset the decline in revenue. Selling, General, and Administrative Selling, general, and administrative expenses were $5.9 million and $25.6 million in the three and nine months ended September 30, 2001, respectively, a decrease of 39.2% from the three months ended September 30, 2000 and an increase of 6.6% over the nine month period ending September 30, 2000. Total selling, general, and administrative expenses for the three months ended September 30, 2001 were lower by $1.6 million or 21.4% from the quarter ended June 30, 2001. In the second half of 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 and maintaining employees in the areas of administration, sales, and marketing which did not occur in the quarter ended September 30, 2001. In addition, we recorded expenses associated with reduction in force and furlough costs of $3.0 million, that occurred in the nine months ended September 30, 2001 or will occur in future 2001 periods with no comparable costs in 2000. Research and Development Research and development expense increased to $3.3 million and $10.7 million in the three and nine months ended September 30, 2001. This represents a 17.4% and 33.9% increase, respectively, over the prior year periods. The increases were mainly due to expenses in the three and nine months ended September 30, 2001 on Power packaging technology and processes that did not occur in the same period in 2000 plus additional spending on flip-chip technology development. Interest Expense Total outstanding interest bearing debt increased to $362.0 million at September 30, 2001 compared to $320.1 million at September 30, 2000. The increase in debt was primarily due to purchases of capital equipment relating to business expansion offset by reductions due to debt pay down following our initial public offering in August 2000. Related interest expense was $9.4 million and $27.7 million for the three and nine months ended September 30, 2001, a decrease of 10.7% and 7.3% compared to the prior year periods. The reduction in interest expense was primarily due to reduced interest rates on our debt and lower average outstanding balance during the comparison periods. Foreign Currency Losses (Gains) Net foreign currency losses (gains) were $0.02 million and ($0.24) million during the three and nine months ended September 30, 2001, respectively, compared to net (gains) of ($0.11) million and ($0.80) million during the three and nine months ended September 30, 2000, respectively. The gains and losses are primarily due to the fluctuations between the exchange rate of the United States Dollar and the South Korean Won related to long-term pension benefits payable to our Korean employees. Other (Income) and Expenses Other (Income) and Expenses, net, was $(0.04) million and $7.9 million for the three months ended September 30, 2001 and 2000, respectively. Other Expenses for September 30, 2000 includes the one-time payment of $8.0 million, paid to Bain Capital and SXI Group in exchange for the termination of an advisory agreement which was entered into during our recapitalization in 1999. There were no equivalent expenditures related to this one-time payment in the three months or nine months period ended September 30, 2001. Accretion of Dividends and Recorded Value of the Intel Warrant Accretion of dividends on preferred stock and recorded value of the Intel Warrant was $0 in the three and nine months ended September 30, 2001, a 100% decrease compared to $3.7 million and $9.2 million in the three and nine months ended September 30, 2000, respectively. All preferred stock was redeemed or converted to non-dividend bearing common shares subsequent to our Initial Public Offering in August 2000. The Intel Warrant expired unexercised in February 2001. Income Taxes Income tax expense (benefit) for the three months and nine months ended September 30, 2001 was approximately $0 million and $(4.3) million, respectively, compared to $1.0 million and $2.9 million for the same periods ended September 30, 2000, respectively, for an effective tax rates of approximately 7.0% in the year 2001 and 20.0% in the year 2000. Concurrently with our recapitalization on August 5, 1999, the company was reorganized and as a result now has operations and earnings in jurisdictions with relatively low income tax rates, or where we enjoy tax holidays or other similar tax benefits. Income tax expenses (benefits) are recorded to the extent management believes they will be usable in the future. Net (Loss) Income Available to Common Shareholders As a result of the items above, net (loss) available to common stockholders increased to ($16.4) million and ($33.6) million in the three and nine months ended September 30, 2001 compared to net (loss) income of ($2.1) million and $0.2 million for the three months and nine months ended September 30, 2000, respectively. Liquidity and Capital Resources At September 30, 2001 we continued to have a borrowing capacity of $50.0 million for working capital and general corporate purposes under the revolving credit line portion of our senior credit facilities. In connection with our June 30, 2000 acquisition of Intersil Corporation's Malaysian business, we obtained the ability to increase our revolving credit line by $25.0 million without further consent from our existing lenders. This additional capacity has not been activated. 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 of our senior credit facilities. We were able to borrow and repay under the capital expenditure line until July 31, 2001. Amounts that we have repaid or will repay under the capital expenditure line after July 31, 2001 will not be available to us as future credit facilities. The final maturity for both these facilities is July 31, 2005. Our ongoing primary cash needs are for operations and equipment purchases. As of September 30 2001, we had borrowings of $28.4 million on our revolving line of credit. We have spent $8.1 million on capital expenditures during the three months ended September 30, 2001. We spent $24.7 million in capital expenditures during the three months ended September 30, 2000. Under the terms of the agreement relating to our acquisition of the Malaysian business, during the period from June 1, 2000 to June 30, 2003, Intersil is entitled to receive additional contingent incentive payments based upon the achievement of milestones relating to the transfer of business currently subcontracted by Intersil to a third party. 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 September 30, 2001 we have paid Intersil $ 4.7 million and accrued an additional $1.5 million of payments under this arrangement. In June 2001, we issued $50.0 million of convertible subordinated notes and $15.0 million of senior subordinated notes. A majority of these funds were used to pay down our term loans and revolving loans. As of September 30, 2001, our debt consisted of $362.0 million of borrowings, which was comprised of $28.4 million of revolving loans, $118.6 million in term loans, $165.0 million of senior subordinated notes and $50.0 million of convertible subordinated notes. Our debt instruments require that we meet specified financial tests, including, without limitation, a maximum leverage ratio, a minimum interest coverage ratio and minimum fixed charge coverage ratio. In conjunction with our $65.0 million private placement in June 2001, the lendors of our senior credit facility amended the financial tests for the period July 1, 2001 through December 31, 2004. These debt instruments also contain covenants restricting our operations. There were no violations of these covenants through September 30, 2001. The weakness in demand expected in 2001 for packaging and test services has and is expected to continue to adversely affect our cash flow from operations. We believe that our existing cash balances, cash flows from operations, available equipment lease financing, available borrowings under our senior credit facilities and the net proceeds from our completed initial public offering, concurrent private placement of stock and subsequent private placement of notes will be sufficient to meet our projected capital expenditures, working capital and other cash requirements for the next twelve months. In addition, at present, our customers have much lower than normal visibility into the future. According to current projections, we might violate certain covenants in the fourth quarter of 2001. We are in discussions with the banks to obtain a waiver, if necessary. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on us. We may require capital sooner than currently expected. We cannot assure you that additional financing will be available when we need it or, if available, that it will be available on satisfactory terms. In addition, the terms of our secured bank facility, senior notes and senior subordinated notes significantly reduce our ability to incur additional debt. Failure to obtain any such required additional financing could have a material adverse effect on our company. Item 3: Quantitative and Qualitative Disclosure about Market Risk We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We have no derivative financial instruments. We have long-term debt that carries fixed and variable interest rates. A fluctuation in interest rates of 1% would increase our annual interest charge by approximately $2.9 million. 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 our Korean and Chinese subsidiaries. Factors Affecting Future Results For a statement of the factors which may affect our future results, we refer you to the Risk Factors in Exhibit 99.1, filed with our annual report on Form 10-K for the year ended December 31, 2000. PART II. OTHER INFORMATION Item 1. 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 2. Changes in Securities and Use of Proceeds On June 22, 2001, ChipPAC sold $50 million aggregate principal amount of its 8% Convertible Subordinated Notes due 2011 to Citicorp Mezzanine III, L.P. for an aggregate purchase price of $50 million. These convertible notes may be converted into shares of our Class A common stock at any time prior to the maturity date, unless previously redeemed or purchased, at a conversion price of $9.96 per share, subject to adjustment in certain circumstances. The Convertible Notes are currently convertible into 5,020,080 shares of Class A common stock. This offering was exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D of the Securities Act. Also on June 22, 2001, ChipPAC sold $15 million aggregate principal amount of its 12-3/4% Senior Subordinated Notes due 2009 to Citicorp Capital Investors, Limited for an aggregate purchase price of $14.7 million. This offering was exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D of the Securities Act. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description 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, as amended and restated as of June 30, 2000, 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.* 10.1.1 Amendment No. 1, dated as of March 13, 2001, to the Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, 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. 10.1.2 Amendment No. 2, dated as of June 8, 2001, to the Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, 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 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.+* 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.** 10.21.1 Amendment No. 1 to the 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.** 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. 1 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 (incorporated by reference to the Company's annual report on Form 10-K for the period ended December 31, 2000). 10.41 Employment letter agreement, dated as of March 18, 1998 between ChipPAC, Inc. and Gregory Bronzovic (incorporated by reference to the Company's annual report on Form 10-K for the period ended December 31, 2000). 10.42 Employment letter agreement, dated as of April 16, 1999 between ChipPAC, Inc. and Robert Bowden (incorporated by reference to the Company's annual report on Form 10-K for the period ended December 31, 2000). 10.43 Employment letter agreement, dated as of September 2, 1998 between ChipPAC, Inc. and Marcos Karnezos (incorporated by reference to the Company's annual report on Form 10-K for the period ended December 31, 2000). 10.44 Indenture, dated as of June 15, 2001, by and among ChipPAC, Inc. and Firstar Bank, N.A. as trustee (incorporated by reference to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001). 10.45 Registration Rights Agreement, dated June 22, 2001, by and between ChipPAC International Company Limited and Citicorp Capital Investors Limited (incorporated by reference to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001). 10.46 Registration Rights Agreement, dated June 22, 2001, by and between ChipPAC, Inc. and Citicorp Mezzanine III, L.P. (incorporated by reference to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001). 99.1 Risk Factors (incorporated by reference to the Company's annual report on Form 10-K for the period ended December 31, 2000). ----------------------- * Incorporated by reference to the Company's registration statement on Form S-4 (No. 333-91641). ** Incorporated by reference to the Company's registration statement on Form S-1 (No. 333-39428). + Confidential treatment has been granted as to certain portions of these exhibits, which are incorporated by reference. (b) Reports on Form 8-K. None. -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements 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. CHIPPAC, INC. (Registrant) /s/ Robert Krakauer -------------------------------------------- ROBERT KRAKAUER (as Registrant and Chief Financial Officer) /s/ Michael G. Potter -------------------------------------------- MICHAEL G. POTTER Controller (as Principle Accounting Officer) November 14, 2001 --------------------------------------------------------------------------------