Amkor Technology Reports Second Quarter 2010 Financial Results

CHANDLER, Ariz.--(BUSINESS WIRE)--Amkor Technology, Inc. (NASDAQ: AMKR), a leading provider of semiconductor assembly and test services, today announced financial results for the second quarter ended June 30, 2010, with net sales of $749 million, net income of $59 million, and earnings per diluted share of $0.23. Earnings per diluted share includes a $0.06 loss related to refinancings, partially offset by a $0.02 gain from the release of a tax valuation allowance.

“Our record-level net sales and solid gross margin in the second quarter exceeded our expectations”

“Our record-level net sales and solid gross margin in the second quarter exceeded our expectations,” said Ken Joyce, Amkor's president and chief executive officer. “Demand was broad-based across a wide range of applications, with notable growth in ball grid array and chip scale package solutions in support of our consumer and communications end markets. These results demonstrate the strength of our business model in servicing growing global demand for electronic devices that feature ever greater communication and computing capabilities and provide high speed mobile access to data-rich content.”

Select financial information for the second quarter 2010 is as follows:

Net Sales: $749 million, up 16% from $646 million in the prior quarter, and up 48% from $507 million in the second quarter of 2009
Gross Margin: 24%, compared to 21% in the prior quarter and 20% in the second quarter of 2009
Net Income: $59 million, up from $44 million in the prior quarter, and up from $9 million in the second quarter of 2009
Earnings Per Diluted Share: $0.23, up from $0.18 in the prior quarter, and up from $0.05 in the second quarter of 2009

“In order to lower our borrowing costs and mitigate future refinancing and liquidity risks, we extended the maturities of our nearest term notes and refinanced, at a lower interest rate, some of our highest cost debt,” said Joanne Solomon, Amkor’s executive vice president and chief financial officer. “We recognized a loss of approximately $18 million, with no net tax effect, or $0.06 per diluted share, due primarily to premiums paid to retire existing debt. We also recognized a gain of $5 million, or $0.02 per diluted share, from the release of a valuation allowance on certain deferred tax assets due to improved profitability in certain of our foreign operations.”

Unit shipments of 2.7 billion during the second quarter 2010 were up 11% from the first quarter, principally driven by strong demand for leadframe and chip scale packaging services. This unit growth and resulting high utilization drove the higher than expected gross margin.

“Capital additions were $158 million during the second quarter, in support of continued growth in our chip scale package, ball grid array and other advanced technologies,” continued Solomon. “Free cash flow for the second quarter was $11 million as a result of our higher level of investments for our customers.”

Cash and cash equivalents were $438 million, and total debt was $1.4 billion, at June 30, 2010.

Selected operating data for the second quarter 2010 is included in a section before the financial tables.

Business Outlook

“We continue to see solid demand across the business into 2011,” said Joyce. “To support our customers’ needs, we are expanding our capacity to meet that demand, including a nearly 200,000 square foot expansion of our K4 manufacturing site in Gwangju, South Korea. We are also investing to ramp advanced technologies, such as fine pitch copper pillar flip chip and through mold via. As such, we have increased our estimate of full year capital additions to around $500 million, or a capital intensity of between 16% and 17% of net sales, of which approximately $270 million is expected to be spent in the second half of 2010.”

Based upon the currently available information, we have the following expectations for the third quarter of 2010:

Net sales of $787 million to $817 million, up 5% to 9% from the prior quarter
Gross margin between 25% and 26%
Net income of $96 million to $113 million, or $0.36 to $0.42 per diluted share
Capital additions of approximately $195 million

Conference Call Information

Amkor will conduct a conference call on August 4, 2010, at 5:00 p.m. Eastern Daylight Time. This call is being webcast and can be accessed at Amkor’s web site: www.amkor.com. You may also access the call by dialing 877-941-2928. A replay of the call will be made available at Amkor’s web site or by dialing 800-406-7325 (access pass code #4327244). The webcast is also being distributed over Thomson Reuters’ Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through Thomson Reuters’ individual investor center at www.companyboardroom.com or by visiting any of the investor sites in Thomson Reuters’ Individual Investor Network. Institutional investors can access the call via Thomson Reuters’ password-protected event management site, Street Events (www.streetevents.com).

About Amkor

Amkor is a leading provider of semiconductor assembly and test services to semiconductor companies and electronics OEMs. More information on Amkor is available from the company’s SEC filings and on Amkor’s website: www.amkor.com.

Forward-Looking Statement Disclaimer

This press release contains forward-looking statements within the meaning of federal securities laws. All statements other than statements of historical fact are considered forward-looking statements including, without limitation, the following: statements regarding expected demand, the expected dollar amount and timing of our capital additions, our capacity expansion to meet customer demand, the investment in and ramp of advanced technologies, and the expected level of capital intensity, and the statements made regarding our current business outlook for the third quarter of 2010, including our expected net sales, gross margin, net income and capital additions. These forward-looking statements involve a number of risks, uncertainties, assumptions and other factors that could affect future results and cause actual results and events to differ materially from historical and expected results and those expressed or implied in the forward-looking statements, including, but not limited to, the following:

the highly unpredictable nature of the semiconductor industry;
the effect of the global economy on credit markets, financial institutions, customers, suppliers and consumers;
inability to achieve high capacity utilization rates;
volatility of consumer demand for products incorporating our semiconductor packages;
dependence on key customers;
weakness in the forecasts of our customers;
customer modification of and follow through with respect to forecasts provided to us;
curtailment of outsourcing by our customers;
our substantial indebtedness and restrictive covenants;
failure to realize sufficient cash flow to fund capital additions;
the effects of a recession or other downturn in the U.S. and other economies worldwide;
the highly unpredictable nature and costs of litigation and other legal activities and the risk of adverse results of such matters;
worldwide economic effects of terrorist attacks, natural disasters and military conflict;
our ability to control costs;
competitive pricing and declines in average selling prices;
timing and volume of orders relative to production capacity;
fluctuations in manufacturing yields;
competition;
dependence on international operations and sales;
dependence on raw material and equipment suppliers and changes in raw material and precious metal costs;
exchange rate fluctuations;
dependence on key personnel;
difficulties in managing growth;
enforcement of intellectual property rights;
environmental and other governmental regulations; and
technological challenges.

Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect our operating results and financial condition are discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2009 and in the company’s subsequent filings with the Securities and Exchange Commission made prior to or after the date hereof. Amkor undertakes no obligation to review or update any forward-looking statements to reflect events or circumstances occurring after the date of this press release.

AMKOR TECHNOLOGY, INC.
Selected Operating Data

Sales Data:	Q2 2010			Q1 2010			Q2 2009

Packaging services (in millions):
Chip scale package	$	234		$	205		$	164
Ball grid array		194			155			121
Leadframe		202			179			127
Other packaging		48			42			36
Packaging services		678			581			448
Test services		71			65			59
Total sales	$	749		$	646		$	507

Packaging services:
Chip scale package		31	%		31	%		32	%
Ball grid array		26	%		24	%		24	%
Leadframe		27	%		28	%		25	%
Other packaging		6	%		7	%		7	%
Packaging services		90	%		90	%		88	%
Test services		10	%		10	%		12	%
Total sales		100	%		100	%		100	%

Packaged units (in millions):
Chip scale package		580			455			412
Ball grid array		61			50			46
Leadframe		2,093			1,954			1,229
Other packaging		7			8			6
Total packaged units		2,741			2,467			1,693

Net sales from top ten customers		55	%		54	%		54	%
Capacity utilization		87	%		84	%		66	%

End Market Distribution Data (an approximation including representative devices and applications based on a sampling of our largest customers. Prior periods were revised for an expanded sampling methodology and refinement of our classifications):

Communications (cell phones, Ethernet, WiMAX, wireless LAN, Bluetooth)		34	%		37	%		39	%
Consumer (gaming, set top boxes, TV, portable media)		30	%		26	%		31	%
Computing (PCs, servers, displays, hard disk drive, printers, other peripherals)		14	%		14	%		12	%
Networking (infrastructure, routers, network servers)		13	%		14	%		12	%
Other (auto, industrial)		9	%		9	%		6	%
Total		100	%		100	%		100	%

AMKOR TECHNOLOGY, INC.
Selected Operating Data (continued)

	Q2 2010			Q1 2010			Q2 2009
Gross Margin Data:
Net sales		100	%		100	%		100	%
Cost of sales:
Materials		42	%		42	%		41	%
Labor		13	%		13	%		13	%
Other manufacturing		21	%		24	%		26	%
Gross margin		24	%		21	%		20	%

Packaging services gross margin		24	%		21	%		21	%
Test services gross margin		27	%		23	%		23	%

Earnings per Share Data:	(in millions, except per share data)

Net income (loss) attributable to Amkor - basic	$	59		$	44		$	9
Adjustment for dilutive securities on net income (loss):
Interest on 2.5% convertible notes due 2011, net of tax		-			-			-
Interest on 6.25% convertible notes due 2013, net of tax		2			2			-
Interest on 6.0% convertible notes due 2014, net of tax		4			4			4
Net income (loss) attributable to Amkor - diluted	$	65		$	50		$	13

Weighted average shares outstanding - basic		183			183			183
Effect of dilutive securities:
Stock options and unvested restricted shares		1			1			-
2.5% convertible notes due 2011		3			3			-
6.25% convertible notes due 2013		13			13			-
6.0% convertible notes due 2014		83			83			83
Weighted average shares outstanding - diluted		283			283			266

Net income (loss) attributable to Amkor per common share:
Basic	$	0.32		$	0.24		$	0.05
Diluted	$	0.23		$	0.18		$	0.05

Capital Investment Data:
Property, plant and equipment additions	$	158		$	73		$	27
Net change in related accounts payable and deposits		(82	)		(6	)		-
Purchases of property, plant and equipment	$	76		$	67		$	27
Depreciation and amortization	$	78		$	76		$	77

Free Cash Flow Data:
Net cash provided by operating activities	$	87		$	104		$	96
Less purchases of property, plant and equipment		(76	)		(67	)		(27	)
Free cash flow*	$	11		$	37		$	69

*We define free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Free cash flow is not defined by generally accepted accounting principles. However, we believe free cash flow to be relevant and useful information to our investors because it provides them with additional information in assessing our liquidity, capital resources and financial operating results. Our management uses free cash flow in evaluating our liquidity, our ability to service debt and our ability to fund capital additions. However, this measure should be considered in addition to, and not as a substitute for, or superior to, cash flows or other measures of financial performance prepared in accordance with generally accepted accounting principles, and our definition of free cash flow may not be comparable to similarly titled measures reported by other companies.

AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
	(In thousands, except per share data)

Net sales	$	749,165		$	506,516		$	1,394,903		$	895,292
Cost of sales		569,966			404,129			1,078,748			744,866
Gross profit		179,199			102,387			316,155			150,426

Operating expenses:
Selling, general and administrative		66,356			52,445			122,652			102,513
Research and development		12,095			10,035			23,768			20,182
Total operating expenses		78,451			62,480			146,420			122,695
Operating income		100,748			39,907			169,735			27,731
Other (income) expense:
Interest expense		24,410			27,438			46,779			54,015
Interest expense, related party		3,813			3,812			7,625			5,374
Interest income		(847	)		(612	)		(1,580	)		(1,044	)
Foreign currency (gain) loss		(421	)		5,970			554			(6,098	)
Loss (gain) on debt retirement, net		17,807			(7,888	)		17,807			(16,884	)
Equity in earnings of unconsolidated affiliate		(1,608	)		-			(2,709	)		-
Other (income) expense, net		(149	)		(10	)		(390	)		49
Total other expense, net		43,005			28,710			68,086			35,412

Income (loss) before income taxes		57,743			11,197			101,649			(7,681	)
Income tax (benefit) expense		(1,200	)		1,833			(1,367	)		4,914
Net income (loss)		58,943			9,364			103,016			(12,595	)
Net loss (income) attributable to noncontrolling interests		107			(141	)		331			(274	)
Net income (loss) attributable to Amkor	$	59,050		$	9,223		$	103,347		$	(12,869	)

Net income (loss) attributable to Amkor per common share:
Basic	$	0.32		$	0.05		$	0.56		$	(0.07	)
Diluted	$	0.23		$	0.05		$	0.41		$	(0.07	)

Shares used in computing per common share amounts:
Basic		183,274			183,036			183,250			183,036
Diluted		282,644			265,846			282,551			183,036

AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	June 30,			December 31,
	2010			2009
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	437,803		$	395,406
Restricted cash		2,679			2,679
Accounts receivable:
Trade, net of allowances		411,273			328,252
Other		15,310			18,666
Inventories		182,288			155,185
Other current assets		47,572			32,737
Total current assets		1,096,925			932,925

Property, plant and equipment, net		1,442,508			1,364,630
Intangibles, net		17,084			9,975
Investments		22,522			19,108
Restricted cash		12,923			6,795
Other assets		101,096			99,476
Total assets	$	2,693,058		$	2,432,909

LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	144,500		$	88,944
Trade accounts payable		489,850			361,263
Accrued expenses		169,766			155,630
Total current liabilities		804,116			605,837

Long-term debt		1,049,335			1,095,241
Long-term debt, related party		250,000			250,000
Pension and severance obligations		86,445			83,067
Other non-current liabilities		6,015			9,063
Total liabilities		2,195,911			2,043,208

Equity:
Amkor stockholders' equity:
Preferred stock		-			-
Common stock, $0.001 par value, 500,000 shares authorized, issued and outstanding of 183,367 in 2010 and 183,171 in 2009
		183			183
Additional paid-in capital		1,502,894			1,500,246
Accumulated deficit		(1,018,894	)		(1,122,241	)
Accumulated other comprehensive income		7,037			5,021
Treasury stock, at cost, 37 shares in 2010		(234	)		-
Total Amkor stockholders' equity		490,986			383,209
Noncontrolling interests in subsidiaries		6,161			6,492
Total equity		497,147			389,701
Total liabilities and equity	$	2,693,058		$	2,432,909

AMKOR TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Six Months Ended
	June 30,
	2010			2009
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	103,016		$	(12,595	)
Depreciation and amortization		154,406			156,507
Loss (gain) on debt retirement, net		10,562			(16,884	)
Other operating activities and non-cash items		(4,697	)		5,407
Changes in assets and liabilities		(72,779	)		(99,077	)
Net cash provided by operating activities		190,508			33,358

Cash flows from investing activities:
Purchases of property, plant and equipment		(142,928	)		(69,955	)
Proceeds from the sale of property, plant and equipment		1,062			687
Financing lease payment from unconsolidated affiliate		7,767			-
Other investing activities		(9,782	)		(3,086	)
Net cash used in investing activities		(143,881	)		(72,354	)

Cash flows from financing activities:
Borrowings under revolving credit facilities		3,261			-
Payments under revolving credit facilities		(34,253	)		-
Proceeds from issuance of short-term working capital facility		15,000			15,000
Payments of short-term working capital facility		(15,000	)	-
Proceeds from issuance of long-term debt		611,007			100,000
Proceeds from issuance of long-term debt, related party		-			150,000
Payments of long-term debt, net of redemption premiums and discounts		(577,259	)		(186,156	)
Payments for debt issuance costs		(7,579	)		(8,539	)
Proceeds from issuance of stock through share-based compensation plans		587			15
Net cash (used in) provided by financing activities		(4,236	)		70,320

Effect of exchange rate fluctuations on cash and cash equivalents		6			(346	)

Net increase in cash and cash equivalents		42,397			30,978
Cash and cash equivalents, beginning of period		395,406			424,316
Cash and cash equivalents, end of period	$	437,803		$	455,294