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AMKOR TECHNOLOGY INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Amkor is one of the world's leading providers of outsourced semiconductor packaging and test services. Our financial goals are sales growth and improved profitability, and we are focusing on the following strategies to achieve these goals: leveraging our investment in services for advanced technologies, improving utilization of existing assets and selectively growing our scale and scope through strategic investments. We are an industry leader in developing and commercializing cost-effective advanced packaging and test technologies. These advanced technology solutions provide increased value to our customers while typically generating gross margins above the corporate average. This is particularly true in the mobile device market, where growth has outpaced the industry rate. In the advanced packaging and test area, we look for opportunities where we can recover our investment over one to two years. As leading edge customers transition to newer packaging and test equipment and platforms, capacity frees up that can be used without significant additional investment to serve other customers. As part of our strategy, we are focused on developing a second wave of customers in order to more effectively utilize these assets. For example, we have a concerted effort to increase our sales to Chinese and Taiwanese fabless chip companies, since they dominate the mid-tier and entry-level segments of the mobile device market where most of the growth is occurring. We are also continuing efforts to seek out and engage new customers in the analog area for our mainstream wirebond technologies. Another area of expanded emphasis is the automotive market where semiconductor content continues to grow. These efforts to enlarge our customer base will continue during 2014 as we target these and other customers to grow our revenue and improve the overall utilization of our assets. From time to time, we also see attractive opportunities to grow our customer base and expand markets. For example, in 2009 we invested in J-Devices Corporation, a joint venture to provide semiconductor packaging and test services in Japan. In 2013, we increased our investment in J-Devices to 60%. In July 2013, we acquired Toshiba's power discrete semiconductor packaging and test business in Malaysia. The financial results of this entity have been included in our Consolidated Financial Statements from the date of acquisition. In addition to adding a new revenue stream from our existing customer, Toshiba, we are attracting other power discrete customers. We believe that selective growth through joint ventures, acquisitions and other strategic investments can help diversify our revenue streams, improve our profits and continue our technological leadership. We expect to continue to evaluate similar opportunities. Our IDM customers include: Intel Corporation; Micron Technology, Inc.; STMicroelectronics N.V.; Texas Instruments Incorporated and Toshiba Corporation. Our fabless customers include: Altera Corporation; Broadcom Corporation; LSI Corporation and Qualcomm Incorporated. Our contract foundry customers include: GlobalFoundries Inc. and Taiwan Semiconductor Manufacturing Company Limited. Our business is impacted by market conditions in the semiconductor industry, which is cyclical and impacted by broad economic factors, such as world-wide gross domestic product and consumer spending. Historical trends indicate there has been a strong correlation between world-wide gross domestic product levels, consumer spending and semiconductor industry cycles. The semiconductor industry has experienced significant and sometimes prolonged cyclical downturns in the past. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery. Our net sales, gross profit, operating income, cash flows, liquidity and capital resources have historically fluctuated significantly from quarter to quarter as a result of many factors, including the seasonality of our business, the cyclical nature of the semiconductor industry and other factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q. We operate in a capital intensive industry and have a significant level of debt. Servicing our current and future customers requires that we incur significant operating expenses and continue to make significant capital expenditures, which are generally made in advance of the related revenues and without firm customer commitments. We fund our operations, including capital expenditures and debt service requirements, with cash flows from operations, existing cash and cash equivalents, borrowings under available credit facilities and proceeds from any additional financing. Maintaining an - 22--------------------------------------------------------------------------------- Table of Contents appropriate level of liquidity is important to our business and depends on, among other things, the performance of our business, our capital expenditure levels and our ability to repay debt out of our operating cash flows or proceeds from debt or equity financings. Financial Highlights Our net sales increased $21.4 million or 2.9% to $767.5 million for the three months ended June 30, 2014, from $746.1 million for the three months ended June 30, 2013. The increase was driven by incremental business from our newly acquired power discrete business in Malaysia, the ramp of a fingerprint sensor product to high volume and strong demand for wafer services and NAND memory supporting mobile communications. These increases were partially offset by lower net sales for other services related to mobile communications products. Gross margin for the three months ended June 30, 2014, increased to 19.6% from 18.5% for the three months ended June 30, 2013. The increase in gross margin was attributable to higher net sales of products with lower material costs as a percentage of net sales and lower costs for gold. These increases in gross margin were partially offset by increases in manufacturing overhead costs and higher depreciation expense. On June 30, 2014, we completed the sale of our wholly-owned subsidiary in Japan to J-Devices, our 60% equity-method joint venture in Japan. As a result of this transaction, we recognized a net gain of $9.2 million, which included the release of accumulated foreign currency translation adjustments associated with the sold entity. J-Devices also recognized a gain of $14.7 million on the transaction as the fair value of the net assets acquired exceeded the purchase price, which resulted in an increase in our equity in earnings of J-Devices by $8.8 million. The combined net gain we recognized for the three months ended June 30, 2014, was $18.0 million. Our capital expenditures totaled $230.4 million for the six months ended June 30, 2014, compared to $222.7 million for the six months ended June 30, 2013. Our spending was primarily focused on investments in advanced packaging and test equipment supporting mobile communications products. Net cash provided by operating activities was $235.3 million for the six months ended June 30, 2014, compared to $200.9 million for the six months ended June 30, 2013. The increase is primarily attributable to improved profitability. - 23- -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth certain operating data as a percentage of net sales for the periods indicated: For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Materials 37.2 % 41.7 % 37.0 % 42.1 % Labor 14.0 % 14.0 % 14.3 % 14.4 % Other manufacturing costs 29.2 % 25.8 % 29.6 % 25.8 % Gross margin 19.6 % 18.5 % 19.1 % 17.7 % Operating income 7.9 % 7.8 % 7.3 % 6.9 % Income before taxes and equity in earnings of unconsolidated affiliate 5.6 % 2.5 % 4.3 % 2.5 % Net income attributable to Amkor 6.5 % 4.0 % 4.8 % 3.0 % Net Sales For the Three Months Ended For theSix Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Net sales $ 767,459 $ 746,059 $ 21,400 2.9 % $ 1,463,503 $ 1,433,588 $ 29,915 2.1 % The increase in net sales for the three and six months ended June 30, 2014, compared to the three and six months ended June 30, 2013, was primarily driven by incremental business from our newly acquired power discrete business in Malaysia, the ramp of a fingerprint sensor product to high volume and strong demand for wafer services and NAND memory supporting mobile communications. These increases were partially offset by lower net sales for other services related to mobile communications products. Gross Margin For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Gross profit $ 150,714 $ 138,379 $ 12,335 $ 279,534 $ 253,332 $ 26,202 Gross margin 19.6 % 18.5 % 1.1 % 19.1 % 17.7 % 1.4 % Our cost of sales consists principally of materials, labor, depreciation and manufacturing overhead. Since a substantial portion of the costs at our factories is fixed, relatively modest increases or decreases in capacity utilization rates can have a significant effect on our gross margin. Gross margin for the three and six months ended June 30, 2014, increased compared to the three and six months ended June 30, 2013. The increase in gross margin was attributable to higher net sales of products with lower material costs as a percentage of net sales and lower costs for gold, which is used in many of our wirebond products. These increases in gross margin were partially offset by increases in manufacturing overhead costs and higher depreciation expense. - 24--------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative Expenses For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Selling, general and administrative $ 67,674 $ 65,618 $ 2,056 3.1 % $ 130,098 $ 125,177 $ 4,921 3.9 % Selling, general and administrative expenses for the three and six months ended June 30, 2014, increased compared to the three and six months ended June 30, 2013. The increase was attributable to incremental costs from our newly acquired power discrete business in Malaysia and higher employee incentive compensation costs, partially offset by lower professional fees associated with acquisitions and investments. Research and Development For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Research and development $ 22,079 $ 14,308 $ 7,771 54.3 % $ 43,124 $ 28,614 $ 14,510 50.7 % Research and development activities are focused on developing new packaging and test services and improving the efficiency and capabilities of our existing production processes. Areas of focus include 2.5D and 3D packaging, including embedded die, silicon interposers and through silicon via technologies, fine pitch copper pillar packaging and wafer-level processing in support of advanced wafer nodes. The increase in research and development expenses for the three and six months ended June 30, 2014, compared to the three and six months ended June 30, 2013, was driven by expanded development activities related to 20 nanometer chipsets with strategic customers, increased depreciation expense from research and development investments and higher employee compensation costs. Other Income and Expense For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Interest expense, including related party $ 23,779 $ 26,931 $ (3,152 ) (11.7 )% $ 48,743 $ 52,501 $ (3,758 ) (7.2 )% Other (income) expense, net (5,699 ) 12,876 (18,575 ) >(100)% (5,663 ) 10,654 (16,317 ) >(100)% Total other expense, net $ 18,080 $ 39,807 $ (21,727 ) (54.6 )% $ 43,080 $ 63,155 $ (20,075 ) (31.8 )% Interest expense for the three and six months ended June 30, 2014, decreased primarily as a result of the June 2013 exchange of $193.7 million and the April 2014 conversion of $56.3 million of our 6.0% Convertible senior subordinated notes for shares of our common stock. Other (income) expense, net for the three and six months ended June 30, 2013, included a charge of $11.6 million related to the June 2013 cash payment we made to holders of the convertible notes. Other (income) expense, net for the three and six months ended June 30, 2014, included a $9.2 million net gain on the sale of a subsidiary to J-Devices. This gain was partially offset by foreign currency losses at various Asian subsidiaries due to unfavorable exchange rate movements. - 25--------------------------------------------------------------------------------- Table of Contents Income Tax Expense (Benefit) For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, except percentages) Income tax expense (benefit) $ 12,511 $ (10,238 ) $ 22,749 >(100)% $ 17,440 $ (6,209 ) $ 23,649 >(100)% Generally, our effective tax rate is below the U.S. federal tax rate of 35% because we have experienced losses in the U.S. and our income is taxed in foreign jurisdictions where we benefit from tax holidays or tax rates lower than the U.S. statutory rate. Our income tax expense for the three and six months ended June 30, 2014, was attributable to income tax on profits earned in certain foreign jurisdictions and foreign withholding taxes. During the three and six months ended June 30, 2013, we recorded discrete income tax benefits of $8.6 million for the reversal of a deferred tax liability associated with the undistributed earnings of our investment in J-Devices and $6.6 million for the release of a valuation allowance on deferred tax assets at one of our foreign jurisdictions, which more than offset our income tax on profits earned in certain foreign jurisdictions and foreign withholding taxes. During 2014 and 2013, our subsidiaries in Korea, Malaysia, the Philippines and Taiwan operated under tax holidays which will continue to expire in whole or in part at various dates through 2022. We expect our effective tax rate to increase as the tax holidays expire as income earned in these jurisdictions will then be subject to higher statutory income tax rates. Equity in Earnings of J-Devices For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change (In thousands, exceptpercentages) Equity in earnings of J-Devices $ 20,036 $ 1,445 $ 18,591 >100% 25,797 1,500 24,297 >100% Our equity in earnings of J-Devices for the three and six months ended June 30, 2014, increased compared to the three and six months ended June 30, 2013. This increase was partially due to $8.8 million of additional equity in earnings resulting from the gain on J-Devices' purchase of our subsidiary in Japan. In addition, the increase was attributable to $8.1 million from the settlement of a take or pay arrangement under a manufacturing services agreement. The remaining increase was due to higher operating income as a result of J-Devices' strategy of consolidating its activities into a reduced number of facilities in order to improve asset utilization and the company's acquisition of three packaging and test facilities in June 2013. The increase in our equity in earnings of J-Devices for the six months ended June 30, 2014 was also attributable to an increase in our ownership interest in J-Devices from 30% to 60% in April 2013. Liquidity and Capital Resources We assess our liquidity based on our current expectations regarding sales, operating expenses, capital spending and debt service requirements. Based on this assessment, we believe that our cash flow from operating activities, together with existing cash and cash equivalents and availability under our revolving credit facilities, will be sufficient to fund our working capital, capital expenditure and debt service requirements for at least the next twelve months. Thereafter, our liquidity will continue to be affected by, among other things, volatility in the global economy and credit markets, the performance of our business, our capital expenditure levels, other uses of our cash including the final amount of payments due in our pending patent license litigation, any purchases of stock under our stock repurchase program, any acquisitions or investments in joint ventures and our ability to either repay debt out of operating cash flow or refinance it at or prior to maturity with the proceeds of debt or equity offerings. There can be no assurance that we will generate the necessary net income or operating cash flows, or be able to borrow sufficient funds, to meet the funding needs of our business beyond the next twelve months due to a variety of factors, including the cyclical nature of the semiconductor industry and other factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q. - 26--------------------------------------------------------------------------------- Table of Contents Our primary source of cash and the source of funds for our operations are cash flows from operations, current cash and cash equivalents, borrowings under available debt facilities and proceeds from any additional debt or equity financings. As of June 30, 2014, we had cash and cash equivalents of $525.9 million. Included in our cash balance as of June 30, 2014, is $295.9 million held offshore by our foreign subsidiaries. If we were to distribute this offshore cash to the U.S. as repatriated earnings of our foreign subsidiaries, we would incur foreign withholding taxes; however, we would not incur a significant amount of U.S. federal income taxes, due to the availability of tax loss carryovers and foreign tax credits. As of June 30, 2014, we had availability of $149.7 million under our $150.0 million first lien senior secured revolving credit facility. Our foreign subsidiaries had $65.0 million available to be drawn under secured revolving credit facilities for general corporate purposes, general working capital purposes and capital expenditures and $220.0 million available to be borrowed under secured term loan credit facilities for general working capital purposes, capital expenditures and repayment of inter-company debt. As of June 30, 2014 we had $1,536.1 million of debt. Our scheduled principal repayments on debt include $5.0 million due in 2014, $5.0 million due in 2015, $70.0 million due in 2016, $110.0 million due in 2017, $345.0 million due in 2018 and $995.0 million due thereafter. In April 2014, holders of our 6.0% Convertible senior subordinated notes due April 2014 converted the remaining outstanding principal amount of $56.4 million into 18.6 million shares of our common stock, and we repaid $60.0 million of a foreign secured term loan credit facility maturing in July 2017. We were in compliance with all of our debt covenants at June 30, 2014, and we expect to remain in compliance with these covenants for at least the next twelve months. In order to reduce leverage and future cash interest payments, we may from time to time repurchase our outstanding notes for cash or exchange shares of our common stock for our outstanding notes. Any such transaction may be made in the open market, through privately negotiated transactions or otherwise and is subject to the terms of our indentures and other debt agreements, market conditions and other factors. Certain debt agreements have restrictions on dividend payments and the repurchase of stock and subordinated securities. These restrictions are determined by calculations based upon cumulative net income. We have never paid a dividend to our stockholders, and we do not have any present plans for doing so. Amkor Technology, Inc. also guarantees certain debt of our subsidiaries. We sponsor an accrued severance plan for our subsidiary in Korea, which under existing tax laws in Korea, limits our ability to currently deduct related severance expenses accrued under that plan. The purpose of these limitations is to encourage companies to migrate to a defined contribution or defined benefit plan. If we retain our existing severance plan, the deduction for severance expenses will be limited to severance payments made to retired employees, which results in a larger current income tax liability in Korea. If we decide to adopt a new plan, we would be required to fund a significant portion of the existing liability, which would provide a current tax deduction upon funding. Our Korean severance liability was $152.3 million as of June 30, 2014. We refer you to Note 17 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the pending litigation relating to Amkor's license agreement with Tessera. We expect to use cash on hand, proceeds from borrowings under our existing lines of credit or other sources to make any payments that become due in connection with our pending patent license litigation. We operate in a capital intensive industry. Servicing our current and future customers may require that we incur significant operating expenses and make significant investments in equipment and facilities, which are generally made in advance of the related revenues and without any firm customer commitments. Our Board of Directors previously authorized the repurchase of up to $300.0 million of our common stock, exclusive of any fees, commissions or other expenses. At June 30, 2014, approximately $91.6 million was available to repurchase common stock pursuant to the stock repurchase program. The purchase of stock may be made in the open market or through privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will depend upon a variety of factors including economic and market conditions, the cash needs and investment opportunities for the business, price, applicable legal requirements and other factors. We have not purchased any stock under the plan since 2012. - 27--------------------------------------------------------------------------------- Table of Contents Investments We make significant capital expenditures in order to service the demand of our customers. During the six months ended June 30, 2014, our capital expenditures totaled $230.4 million. Our spending was primarily focused on investments in packaging and test equipment supporting mobile communications products. We have recently increased our forecast of 2014 capital expenditures to approximately $675 million in response to increased market demand and to capture certain growth opportunities related to mobile communications. Ultimately, the amount of our 2014 capital expenditures will depend on several factors including, among others, the timing and implementation of any capital projects under review, the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity to service anticipated customer demand and the availability of cash flows from operations or financing. During 2013, we purchased land in anticipation of building a new factory and research and development center in Korea. The agreement to purchase the land for the facility is subject to our compliance with various construction, investment, hiring, regulatory and other requirements. Over the next several years, we expect to spend around $300 million to $350 million for the construction of the facility. We anticipate beginning construction of our new factory and research and development center in the second half of 2014. Construction work is planned to continue through 2015 and into 2016. There can be no assurance that the new facility will proceed at all, or that the actual scope, costs, timeline or benefits of the project will be consistent with our current expectations. In October 2014, we expect to exercise our option to increase our 60% ownership in J-Devices to 66%, and in 2015, we expect to exercise our option to increase our ownership to 80%, subject to market and other conditions at the time of exercise. If we exercise our 80% option as planned, certain governance restrictions will lapse, and we will then begin consolidating J-Devices' results. The exercise price for all options is payable in cash and is determined using a formula based upon the net book value and a multiple of earnings before interest, taxes, depreciation and amortization of J-Devices. In addition, we are subject to risks associated with our capital expenditures, including those discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under the caption "Capital Expenditures - We Make Substantial Investments in Equipment and Facilities To Support the Demand Of Our Customers, Which May Adversely Affect Our Business If the Demand Of Our Customers Does Not Develop As We Expect or Is Adversely Affected." Contractual Obligations The following table summarizes our contractual obligations at June 30, 2014, and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Payments Due for Year Ending December 31, 2014 - Total Remaining 2015 2016 2017 2018 Thereafter (In thousands) Total debt $ 1,530,000 $ 5,000 $ 5,000 $ 70,000 $ 110,000 $ 345,000 $ 995,000 Scheduled interest payment obligations (1) 604,136 47,752 95,066 93,647 89,423 75,445 202,803 Purchase obligations (2) 227,789 207,582 4,051 2,479 2,479 4,916 6,282 Operating lease obligations 61,286 8,976 15,386 6,409 6,322 5,955 18,238 Severance obligations (3) 152,278 5,897 10,680 9,843 9,079 8,386 108,393 Total contractual obligations $ 2,575,489 $ 275,207 $ 130,183 $ 182,378 $ 217,303 $ 439,702 $ 1,330,716 (1) Scheduled interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at June 30, 2014, for variable rate debt. (2) Represents purchase obligations for capital expenditures and long-term supply contracts outstanding at June 30, 2014. (3) Represents estimated benefit payments for our Korean subsidiary severance plan. - 28--------------------------------------------------------------------------------- Table of Contents In addition to the obligations identified in the table above, other non-current liabilities recorded in our Consolidated Balance Sheets at June 30, 2014, include: • $19.3 million of net foreign pension plan obligations and $1.8 million for employee-related liabilities, for which the timing and actual amount of our future cash flow is uncertain. • $6.4 million net liability associated with unrecognized tax benefits. Due to the uncertainty regarding the amount and the timing of any future cash outflows associated with our unrecognized tax benefits, we are unable to reasonably estimate the amount and period of ultimate settlement, if any, with the various taxing authorities. Off-Balance Sheet Arrangements As of June 30, 2014, we had no off-balance sheet guarantees or other off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, other than our operating lease obligations described above in "Contractual Obligations." Contingencies, Indemnifications and Guarantees We refer you to Note 17 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of our contingencies related to litigation and other legal matters. If an unfavorable ruling were to occur in these matters, there exists the possibility of a material adverse impact on our business, liquidity, results of operations, financial position and cash flows in the period in which the ruling occurs. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position and cash flows could change in the future. Critical Accounting Policies Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013. During the three months ended June 30, 2014, there have been no significant changes in our critical accounting policies as reported in our 2013 Annual Report on Form 10-K. New Accounting Pronouncements For information regarding recent accounting pronouncements, we refer you to Note 2 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Cash Flows Net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2014 and 2013, were as follows: For the Six Months Ended June 30, 2014 2013 (In thousands) Operating activities $ 235,253 $ 200,850 Investing activities (244,885 ) (258,142 ) Financing activities (74,943 ) 277,852 Operating activities: Our cash flow provided by operating activities for the six months ended June 30, 2014, increased by $34.4 million compared to the six months ended June 30, 2013. The increase is primarily attributable to improved profitability. - 29--------------------------------------------------------------------------------- Table of Contents Investing activities: Our cash flows used in investing activities for the six months ended June 30, 2014, decreased by $13.3 million compared to the six months ended June 30, 2013. The net cash used in investing activities for the six months ended June 30, 2014, reflected purchases of property, plant and equipment and cash transferred on the sale of our subsidiary to J-Devices, net of proceeds. The net cash used in investing activities for the six months ended June 30, 2013, reflected purchases of property, plant and equipment and a payment for an investment in J-Devices, offset by proceeds from the January 2013 sale of office space and land located in Chandler, Arizona. Financing activities: The net cash used in financing activities for the six months ended June 30, 2014, was driven by our repayment of borrowings at our subsidiary in Korea and the final payment for our newly acquired power discrete business in Malaysia. The net cash provided by financing activities for the six months ended June 30, 2013, primarily resulted from the issuance of senior notes and borrowings at our subsidiary in Korea. We provide the following supplemental data to assist our investors and analysts in understanding our liquidity and capital resources. 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 U.S. GAAP. 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, free cash flow has certain limitations, including that it does not represent the residual cash flow available for discretionary expenditures since other, non-discretionary expenditures, such as mandatory debt service, are not deducted from the measure. The amount of mandatory versus discretionary expenditures can vary significantly between periods. This measure should be considered in addition to, and not as a substitute for, or superior to, other measures of liquidity or financial performance prepared in accordance with U.S. GAAP, such as net cash provided by operating activities. Furthermore, our definition of free cash flow may not be comparable to similarly titled measures reported by other companies. Our free cash flow was $4.9 million for the six months ended June 30, 2014, primarily due to improved profitability. For the Six Months Ended June 30, 2014 2013 (In thousands)Net cash provided by operating activities $ 235,253 $ 200,850 Purchases of property, plant and equipment (230,392 ) (222,674 ) Free cash flow $ 4,861 $ (21,824 ) |