e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form
10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2006
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 000-29472
AMKOR TECHNOLOGY,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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23-1722724
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(State of
incorporation)
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(I.R.S. Employer
Identification Number)
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1900
South Price Road
Chandler, AZ 85248
(480) 821-5000
(Address of principal executive
offices and zip code)
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 filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a nonaccelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b 2 of the Exchange
Act). Yes o No þ
The number of outstanding shares of the registrants Common
Stock as of October 31, 2006 was 178,109,034.
QUARTERLY
REPORT ON
FORM 10-Q
September 30, 2006
TABLE OF CONTENTS
1
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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AMKOR
TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months
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For the Nine Months
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Ended September 30,
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Ended September 30,
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2005
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2005
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2006
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(As restated)(1)
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2006
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(As restated)(1)
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(In thousands, except per share data)
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Net sales
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$
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713,829
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$
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549,641
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$
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2,045,549
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$
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1,456,457
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Cost of sales
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536,062
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459,342
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1,543,721
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1,256,357
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Gross profit
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177,767
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90,299
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501,828
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200,100
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Operating expenses:
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Selling, general and administrative
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68,477
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59,633
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187,648
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187,057
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Research and development
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9,653
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8,870
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29,398
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27,694
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Provision for legal settlements
and contingencies
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1,000
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50,000
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Total operating expenses
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78,130
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68,503
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218,046
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264,751
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Operating income (loss)
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99,637
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21,796
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283,782
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(64,651
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)
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Other (income) expense:
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Interest expense, net
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36,573
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40,859
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118,330
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122,767
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Interest expense, related party
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1,563
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4,914
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Foreign currency loss (gain), net
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6,465
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4,171
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11,472
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4,630
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Debt retirement costs, net
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27,389
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Other (income) expense, net
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(878
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)
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394
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1,497
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2,635
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Total other expense, net
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43,723
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45,424
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163,602
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130,032
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Income (loss) before income taxes
and minority interests
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55,914
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(23,628
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)
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120,180
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(194,683
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Income tax expense (benefit)
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2,881
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(2,865
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8,465
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(325
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Income (loss) before minority
interests
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53,033
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(20,763
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111,715
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(194,358
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Minority interests, net of tax
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(223
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1,250
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(678
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3,187
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Net income (loss)
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$
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52,810
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$
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(19,513
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$
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111,037
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$
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(191,171
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Income (loss) per common share:
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Basic
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$
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0.30
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$
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(0.11
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$
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0.63
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$
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(1.08
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Diluted
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$
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0.27
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$
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(0.11
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)
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$
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0.60
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$
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(1.08
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)
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Shares used in computing income
(loss) per common share:
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Basic
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178,108
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176,715
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177,537
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176,271
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Diluted
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204,482
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176,715
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197,539
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176,271
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(1) |
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See Note 2, Restatement of Consolidated Financial
Statements, Special Committee and Company Findings of the
Notes to Condensed Consolidated Financial Statements. |
The accompanying notes are an integral part of these statements.
2
AMKOR
TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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December 31,
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September 30,
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2005
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2006
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(As restated)(1)
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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190,567
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$
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206,575
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Restricted cash
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2,570
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Accounts receivable:
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Trade, net of allowance for
doubtful accounts of $4,775 and $4,947
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425,351
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381,495
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Other
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6,557
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5,089
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Inventories, net
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164,404
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138,109
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Other current assets
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38,679
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35,222
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Total current assets
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828,128
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766,490
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Property, plant and equipment, net
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1,456,553
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1,419,472
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Goodwill
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671,534
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653,717
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Intangibles, net
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32,068
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38,391
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Investments
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7,794
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9,668
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Restricted cash
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1,755
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1,747
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Other assets
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49,749
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65,606
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Total assets
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$
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3,047,581
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$
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2,955,091
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Current liabilities:
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Short-term borrowings and current
portion of long-term debt
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$
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200,552
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$
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184,389
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Trade accounts payable
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312,238
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326,712
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Accrued expenses
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170,346
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124,027
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Total current liabilities
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683,136
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635,128
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Long-term debt
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1,727,200
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1,856,247
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Long-term debt, related party
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100,000
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100,000
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Pension and severance obligations
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155,677
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129,752
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Other non-current liabilities
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30,933
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|
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6,109
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Total liabilities
|
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2,696,946
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2,727,236
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Commitments and contingencies (see
Note 13)
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Minority interests
|
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4,066
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3,950
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Stockholders equity:
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Preferred stock, $0.001 par
value, 10,000 shares authorized, designated Series A,
none issued
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Common stock, $0.001 par
value, 500,000 shares authorized, issued and outstanding of
178,096 in 2006 and 176,733 in 2005
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178
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178
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Additional paid-in capital
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|
1,440,035
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1,431,543
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Accumulated deficit
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(1,100,437
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)
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(1,211,474
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)
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Accumulated other comprehensive
income
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|
6,793
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|
|
|
3,658
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Total stockholders equity
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|
346,569
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223,905
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Total liabilities and
stockholders equity
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|
$
|
3,047,581
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$
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2,955,091
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(1) |
|
See Note 2, Restatement of Consolidated Financial
Statements, Special Committee and Company Findings of the
Notes to Condensed Consolidated Financial Statements. |
The accompanying notes are an integral part of these statements.
3
AMKOR
TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Nine Months Ended
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September 30,
|
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2005
|
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|
2006
|
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(As restated)(1)
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(In thousands)
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Cash flows from operating
activities:
|
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Net income (loss)
|
|
$
|
111,037
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|
$
|
(191,171
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)
|
Depreciation and amortization
|
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|
203,065
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|
|
|
184,711
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|
Other operating activities and
non-cash items
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|
56,889
|
|
|
|
6,944
|
|
Changes in assets and liabilities
|
|
|
9,665
|
|
|
|
(3,777
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)
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|
|
|
|
|
|
|
|
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Net cash provided by (used in)
operating activities
|
|
|
380,656
|
|
|
|
(3,293
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)
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|
|
|
|
|
|
|
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Cash flows from investing
activities:
|
|
|
|
|
|
|
|
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Payments for property, plant and
equipment
|
|
|
(252,401
|
)
|
|
|
(226,442
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)
|
Proceeds from the sale of
property, plant and equipment
|
|
|
2,524
|
|
|
|
530
|
|
Changes in restricted cash
|
|
|
(2,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(252,455
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)
|
|
|
(225,912
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
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Net change in bank overdrafts
|
|
|
|
|
|
|
(102
|
)
|
Borrowings under revolving credit
facilities
|
|
|
143,659
|
|
|
|
127,494
|
|
Payments under revolving credit
facilities
|
|
|
(134,419
|
)
|
|
|
(116,811
|
)
|
Proceeds from issuance of
long-term debt
|
|
|
590,000
|
|
|
|
43,586
|
|
Payments for debt issuance costs
|
|
|
(15,087
|
)
|
|
|
|
|
Payments on long-term debt
|
|
|
(734,861
|
)
|
|
|
(38,036
|
)
|
Proceeds from issuance of stock
through stock compensation plans
|
|
|
4,981
|
|
|
|
2,738
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(145,727
|
)
|
|
|
18,869
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
|
|
1,518
|
|
|
|
(2,430
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(16,008
|
)
|
|
|
(212,766
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
206,575
|
|
|
|
372,284
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
190,567
|
|
|
$
|
159,518
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
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|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
121,078
|
|
|
$
|
124,825
|
|
Income taxes
|
|
$
|
6,123
|
|
|
$
|
(501
|
)
|
Non cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Application of deposit upon
closing of acquisition of minority interest
|
|
$
|
17,822
|
|
|
$
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial
Statements, Special Committee and Company Findings of the
Notes to Condensed Consolidated Financial Statements. |
The accompanying notes are an integral part of these statements.
4
AMKOR
TECHNOLOGY, INC.
(unaudited)
|
|
1.
|
Interim
Financial Statements
|
Basis of Presentation. The condensed
consolidated financial statements and related disclosures as of
September 30, 2006 and for the three and nine months ended
September 30, 2006 and 2005 are unaudited, pursuant to the
rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In
our opinion, these financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary for
the fair presentation of the results for the interim periods.
These financial statements should be read in conjunction with
our latest annual report for the fiscal year ended
December 31, 2005 filed on Form
10-K/A with
the SEC. The results of operations for the three and nine months
ended September 30, 2006 are not necessarily indicative of
the results to be expected for the full year. Certain previously
reported amounts have been reclassified to conform to the
current presentation.
Use of Estimates. The condensed consolidated
financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America (U.S.), using managements best
estimates and judgments where appropriate. These estimates and
judgments affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date
of the financial statements. The estimates and judgments will
also affect the reported amounts for certain revenues and
expenses during the reporting period. Actual results could
differ materially from these estimates and judgments.
Restricted Cash. Restricted cash, current,
consists of short-term cash equivalents used to collateralize
our daily banking services. Restricted cash, noncurrent,
collateralizes foreign tax obligations.
New
Accounting Standards.
Recently
Issued Standards
In February 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 155, Accounting for Certain Hybrid
Financial Instruments (SFAS No. 155),
which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133) and SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
(SFAS No. 140). SFAS No. 155
simplifies the accounting for certain derivatives embedded in
other financial instruments by allowing them to be accounted for
as a whole if the holder elects to account for the whole
instrument on a fair value basis. SFAS No. 155 also
clarifies and amends certain other provisions of
SFAS No. 133 and SFAS No. 140.
SFAS No. 155 is effective for all financial
instruments acquired, issued or subject to a remeasurement event
occurring in fiscal years beginning after September 15,
2006. Earlier adoption is permitted, provided the Company has
not yet issued financial statements, including for interim
periods, for that fiscal year. We do not expect the adoption of
SFAS No. 155 will have a material impact on our
financial statements and disclosures.
In June 2006, the FASB ratified EITF Issue
No. 06-03
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross Versus Net Presentation)
(Issue
No. 06-03).
Under Issue
No. 06-03,
a company must disclose its accounting policy regarding the
gross or net presentation of certain taxes. If taxes included in
gross revenues are significant, a company must disclose the
amount of such taxes for each period for which an income
statement is presented (i.e., both interim and annual periods).
Taxes within the scope of this Issue are those that are imposed
on and concurrent with a specific revenue-producing transaction.
Taxes assessed on an entitys activities over a period of
time, such as gross receipts taxes, are not within the scope of
the issue. Issue
No. 06-03
is effective for the first annual or interim reporting period
beginning after December 15, 2006. We are currently
evaluating the impact of Issue
No. 06-03
to our financial statements and disclosures.
5
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2006, the FASB issued Interpretation No. 48
(FIN No. 48), Accounting for
Uncertainty in Income Taxes, which clarifies the accounting
for uncertainty in income taxes recognized in the financial
statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN No. 48
prescribes a two-step process to determine the amount of tax
benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained
upon examination. If the tax position is deemed
more-likely-than-not to be sustained, the tax
position is then measured to determine the amount of benefit to
recognize in the financial statements. The tax position is
measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate
settlement. FIN No. 48 is effective for fiscal years
beginning after December 15, 2006. We are currently
evaluating the impact of this standard on our financial
statements and disclosures.
The FASB has issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), which
provides guidance for using fair value to measure assets and
liabilities. The standard also responds to investors
requests for more information about (1) the extent to which
companies measure assets and liabilities at fair value,
(2) the information used to measure fair value, and
(3) the effect that fair value measurements have on
earnings. SFAS No. 157 will apply whenever another
standard requires (or permits) assets or liabilities to be
measured at fair value. The standard does not expand the use of
fair value to any new circumstances. SFAS No. 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years. We are currently evaluating the
impact of this standard on our financial statements and
disclosures.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans an amendment of FASB Statements
No. 87, 88, 106, and 132(R), which requires recognition of a net
liability or asset to report the funded status of defined
benefit pension and other postretirement plans on the balance
sheet and recognition (as a component of other comprehensive
income) of changes in the funded status in the year in which the
changes occur. Additionally, SFAS No. 158 requires
measurement of a plans assets and obligations as of the
balance sheet date and additional annual disclosures in the
notes to the financial statements. The recognition and
disclosure provisions of SFAS No. 158 are effective
for fiscal years ending after December 15, 2006, while the
requirement to measure a plans assets and obligations as
of the balance sheet date is effective for fiscal years ending
after December 15, 2008. We are currently evaluating the
impact the adoption of SFAS No. 158 will have on our
financial statements and disclosures.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements
(SAB No. 108). SAB No. 108
provides guidance on the consideration of the effects of prior
year misstatements in quantifying current year misstatements for
the purpose of a materiality assessment. SAB No. 108
establishes an approach that requires quantification of
financial statement errors based on the effects of each of the
companys balance sheet and statement of operations and the
related financial statement disclosures. Under certain
circumstances, SAB No. 108 permits existing public
companies to record the cumulative effect of initially applying
this approach in the first year ending after November 15,
2006 by recording the necessary correcting adjustments to the
carrying values of assets and liabilities as of the beginning of
that year with the offsetting adjustment recorded to the opening
balance of retained earnings. Additionally, the use of the
cumulative effect transition method requires detailed disclosure
of the nature and amount of each individual error being
corrected through the cumulative adjustment and how and when it
arose. SAB No. 108 will not have a material impact on
our consolidated balance sheet and statement of operations.
Recently
Adopted Standards
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an Amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that
abnormal amounts of idle facility expense, freight, handling
costs and wasted materials (spoilage) should be recognized as
current-period charges and requires the allocation of fixed
production overheads to inventory based on the normal capacity
of the production facilities. The guidance in this Statement is
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We adopted the provisions of
6
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 151 on January 1, 2006. The adoption of
this Statement did not have a material impact on our financial
statements and disclosures.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an Amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions.
SFAS No. 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of Accounting Principles Board
Opinion No. 29 and replaces it with an exception for
exchanges that do not have commercial substance.
SFAS No. 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange.
SFAS No. 153 is effective in fiscal years beginning
after June 15, 2005. We adopted the provisions of
SFAS No. 153 on January 1, 2006. The adoption of
this statement did not have a material impact on our financial
statements and disclosures.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS No. 154 replaces APB No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements and establishes
retrospective application as the required method for reporting a
change in accounting principle. SFAS No. 154 provides
guidance for determining whether retrospective application of a
change in accounting principle is impracticable and how to
report such a change. The reporting of a correction of an error
by restating previously issued financial statements is also
addressed. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We adopted the provisions of
SFAS No. 154 on January 1, 2006.
Effective January 1, 2006, we adopted
SFAS No. 123 (revised 2004), Share-Based Payments
(SFAS No. 123(R)), which revises
SFAS No. 123, Accounting for Stock-Based Compensation
and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees (see Note 4 for further discussion).
In November 2005, FASB issued FASB Staff Position
(FSP)
FAS 115-1/FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments
(FSP 115-1/124-1).
FSP 115-1/124-1
provides guidance on determining when investments in certain
debt and equity securities are considered impaired, whether that
impairment is
other-than-temporary,
and on measuring such impairment loss. FSP 115-1/124-1 also
includes accounting considerations subsequent to the recognition
of an
other-than-temporary
impairment and requires certain disclosures about unrealized
losses that have not been recognized as
other-than-temporary
impairments. This FSP is required to be applied to reporting
periods beginning after December 15, 2005. We adopted the
provisions FSP 115-1/124-1 on January 1, 2006. The adoption
of this FSP did not have a material impact on our financial
statements and disclosures.
|
|
2.
|
Restatement
of Consolidated Financial Statements, Special Committee and
Company Findings
|
As a result of a report by a third party financial analyst
issued on May 25, 2006, we commenced an initial review of
our historical stock option granting practices. This review
included a review of hard copy documents as well as a limited
set of electronic documents. Following this initial review, on
July 24, 2006 our Board of Directors established a Special
Committee comprised of independent directors to conduct a review
of our historical stock option granting practices during the
period from our initial public offering in 1998 through the
present.
Based on the findings of the Special Committee and our internal
review, we identified a number of occasions on which we used an
incorrect measurement date for financial accounting and
reporting purposes. In accordance with Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees,
and related interpretations (APB No. 25), with
respect to the period through December 31, 2005, we should
have recorded compensation expense in an amount per share
subject to each option to the extent that the fair market value
of our stock on the correct measurement date exceeded the
exercise price of the option. For periods commencing
January 1, 2006, compensation expense is recorded in
accordance with Statement of Financial Accounting Standards
No. 123(R) (revised), Share-Based Payment
(SFAS No. 123(R)). We have also
identified a number of other option grants for which we failed
to properly apply the provisions of APB No. 25 or Statement
of Financial Accounting Standards
7
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123) and related
interpretations of each pronouncement. In considering the causes
of the accounting errors set forth below, the Special Committee
concluded that the evidence does not support a finding of
intentional manipulation of stock option grant pricing by any
member of existing management. However, based on its review, the
Special Committee identified evidence that supports a finding of
intentional manipulation of stock option pricing with respect to
annual grants in 2001 and 2002 by a former executive and that
other former executives may have been aware of, or participated
in this conduct.
In addition, the Special Committee identified a number of other
factors related to our internal controls that contributed to the
accounting errors that led to the restatement. The financial
statement impact of these errors, by type, for the periods
indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Additional
|
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
Effect
|
|
|
Compensation
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002 1998
|
|
|
Expense
|
|
|
|
(In thousands)
|
|
|
Improper measurement dates for
annual stock option grants
|
|
$
|
299
|
|
|
$
|
255
|
|
|
$
|
7,577
|
|
|
$
|
6,453
|
|
|
$
|
80,984
|
|
|
$
|
95,568
|
|
Modifications to stock option
grants
|
|
|
|
|
|
|
9
|
|
|
|
(536
|
)
|
|
|
711
|
|
|
|
9,345
|
|
|
|
9,529
|
|
Improper measurement dates for
other stock option grants
|
|
|
80
|
|
|
|
64
|
|
|
|
217
|
|
|
|
102
|
|
|
|
1,625
|
|
|
|
2,088
|
|
Stock option grants to
non-employees
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
172
|
|
|
|
1,443
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional compensation expense
|
|
|
379
|
|
|
|
328
|
|
|
|
7,284
|
|
|
|
7,438
|
|
|
|
93,397
|
|
|
|
108,826
|
|
Tax related effects
|
|
|
129
|
|
|
|
18
|
|
|
|
144
|
|
|
|
198
|
|
|
|
(3,294
|
)
|
|
|
(2,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate restatement of net
income (loss)
|
|
$
|
508
|
|
|
$
|
346
|
|
|
$
|
7,428
|
|
|
$
|
7,636
|
|
|
$
|
90,103
|
|
|
$
|
106,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Improper Measurement Dates for Annual Stock Option
Grants. We determined that, in connection with
our annual stock option grants to employees in 1999, 2000, 2001,
2002 and 2004, the number of shares that an individual employee
was entitled to receive was not determined until after the
original grant date, and therefore the measurement date for such
options was subsequent to the original grant date. As a result,
we have restated our historical financial statements to increase
stock-based compensation expense by a total of
$95.6 million recognized over the applicable vesting
periods. For certain of these options forfeited in 2002 in
connection with an option exchange program (2002 Option
Exchange Program), the remaining compensation expense was
accelerated into 2002 for those options. For certain other
options, compensation expense was accelerated into 2004, in
connection with the acceleration of all unvested options as of
July 1, 2004 (2004 Accelerated Vesting). We
undertook the 2004 Accelerated Vesting program for the purpose
of enhancing employee morale, helping retain high potential
employees in the face of a downturn in industry conditions and
to avoid future compensation charges subsequent to the adoption
of SFAS No. 123(R).
Modifications to Stock Option Grants. We
determined that from 1998 through 2005, we had not properly
accounted for stock options modified for certain individuals who
held consulting, transition or advisory roles with us. These
included instances of continued vesting after an individual was
no longer required to provide substantive services to Amkor
after an individual converted from an employee to a consultant
or advisory role, and extensions of option vesting and exercise
periods. Some of these modifications were not identified in our
financial reporting processes and were therefore not properly
reflected in our financial statements. As a result, we have
restated our historical financial statements to increase
stock-based compensation expense by a total of $9.5 million
recognized as of the date of the respective modifications.
Improper Measurement Dates for Other Stock Option
Grants. We determined that from 1998 through
2005, we had not properly accounted for certain employee stock
options granted prior to obtaining authorization of the
8
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
grants. These options included those granted as of
November 9, 1998 in connection with the settlement of a
deferred compensation liability to employees that had not been
approved by our Board of Directors until November 10, 1998
as well as stock options granted to new hires and existing
employees in recognition of achievements, promotions, retentions
and other events. As a result of these errors, we have restated
our historical financial statements to increase stock-based
compensation expense by a total of $2.1 million recognized
over the applicable vesting periods. For certain of these option
grants, the recognition of this expense was also accelerated
under the 2002 Option Exchange Program or the 2004 Accelerated
Vesting, as described under Improper Measurement Dates for
Annual Stock Option Grants.
Stock Option Grants to Non-employees. We
determined that from 1998 to 2004, we had not properly accounted
for stock option grants issued to employees of an equity
affiliate, consultants, or other persons who did not meet the
definition of an employee. We erroneously accounted for such
grants in accordance with APB No. 25 rather than
SFAS No. 123 and related interpretations. As a result,
we have restated our historical financial statements to increase
stock-based compensation expense by a total of $1.6 million.
All of the foregoing charges were non-cash and had no impact on
our reported net sales or cash or cash equivalents. The
aggregate amount of the additional stock-based compensation
expense that we identified as a result of the stock option
review is approximately $108.8 million through
June 30, 2006.
Incremental stock-based compensation charges of
$108.8 million resulted in deferred income tax benefits of
$3.2 million. Such amount is nominal relative to the amount
of the incremental stock-based compensation charges as we
maintained a full valuation allowance against our domestic
deferred tax assets since 2002 coupled with the fact that
incremental stock-based compensation charges relating to our
foreign subsidiaries were not deductible for local tax purposes
during the relevant periods due to the absence of related
re-charge agreements with those subsidiaries. The
$3.2 million deferred tax benefit resulted primarily from
the write-off of stock-based compensation related deferred tax
assets to additional paid-in capital in 2002; such write-off had
originally been charged to income tax expense in 2002. We also
recorded payroll related taxes totaling $0.4 million
primarily relating to certain of our French employees.
As a result of our determination that the exercise prices of
certain option grants were below the market price of our stock
on the actual grant date, we evaluated whether the affected
employees would have any adverse tax consequences under
Section 409A of the Internal Revenue Code (the
IRC). Because Section 409A relates to the
employees income recognition as stock options vest, when
we accelerated the vesting of all unvested options in July 2004
(the 2004 Accelerated Vesting described under
Improper Measurement Dates for Annual Grants) the
impact of Section 409A was mitigated for substantially all
of our outstanding stock grants. For stock options granted
subsequent to the 2004 Accelerated Vesting, the impact of
Section 409A is not expected to materially impact our
employees and financial statements as a result of various
transition rules and potential remediation efforts. Further we
considered IRC Section 162(m) and its established
limitation thresholds relating to total remuneration and
concluded, for periods prior to June 30, 2006, that our tax
deductions related to stock-based compensation were not
materially changed as a result of any employee whose
remuneration changed as a result of receiving an option at less
than fair value.
As previously disclosed, we are the subject of an SEC
investigation concerning matters unrelated to our historical
stock option practices. The SEC recently informed us that it is
expanding the scope of its investigation and has requested that
we provide documentation related to our historical stock option
practices. We intend to continue to cooperate with the SEC. As a
result of the restatement, the related disclosures included in
the Notes to Condensed Consolidated Financial Statements have
been revised if indicated as restated.
9
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our historical financial statements for
the three and nine months ended September 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
549,641
|
|
|
|
|
|
|
$
|
549,641
|
|
|
$
|
1,456,457
|
|
|
$
|
|
|
|
$
|
1,456,457
|
|
Cost of sales
|
|
|
459,297
|
|
|
|
45
|
|
|
|
459,342
|
|
|
|
1,256,220
|
|
|
|
137
|
|
|
|
1,256,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
90,344
|
|
|
|
(45
|
)
|
|
|
90,299
|
|
|
|
200,237
|
|
|
|
(137
|
)
|
|
|
200,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
59,582
|
|
|
|
51
|
|
|
|
59,633
|
|
|
|
186,913
|
|
|
|
144
|
|
|
|
187,057
|
|
Research and development
|
|
|
8,870
|
|
|
|
|
|
|
|
8,870
|
|
|
|
27,694
|
|
|
|
|
|
|
|
27,694
|
|
Provision for legal settlements
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
68,452
|
|
|
|
51
|
|
|
|
68,503
|
|
|
|
264,607
|
|
|
|
144
|
|
|
|
264,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
21,892
|
|
|
|
(96
|
)
|
|
|
21,796
|
|
|
|
(64,370
|
)
|
|
|
(281
|
)
|
|
|
(64,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
40,859
|
|
|
|
|
|
|
|
40,859
|
|
|
|
122,767
|
|
|
|
|
|
|
|
122,767
|
|
Foreign currency loss
|
|
|
4,171
|
|
|
|
|
|
|
|
4,171
|
|
|
|
4,630
|
|
|
|
|
|
|
|
4,630
|
|
Other (income) expense, net
|
|
|
394
|
|
|
|
|
|
|
|
394
|
|
|
|
2,635
|
|
|
|
|
|
|
|
2,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
45,424
|
|
|
|
|
|
|
|
45,424
|
|
|
|
130,032
|
|
|
|
|
|
|
|
130,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
minority interests
|
|
|
(23,532
|
)
|
|
|
(96
|
)
|
|
|
(23,628
|
)
|
|
|
(194,402
|
)
|
|
|
(281
|
)
|
|
|
(194,683
|
)
|
Income tax expense
|
|
|
(2,865
|
)
|
|
|
|
|
|
|
(2,865
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interests
|
|
|
(20,667
|
)
|
|
|
(96
|
)
|
|
|
(20,763
|
)
|
|
|
(194,077
|
)
|
|
|
(281
|
)
|
|
|
(194,358
|
)
|
Minority interests, net of tax
|
|
|
1,250
|
|
|
|
|
|
|
|
1,250
|
|
|
|
3,187
|
|
|
|
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,417
|
)
|
|
$
|
(96
|
)
|
|
$
|
(19,513
|
)
|
|
$
|
(190,890
|
)
|
|
$
|
(281
|
)
|
|
$
|
(191,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
|
|
|
$
|
(0.11
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
|
|
|
$
|
(0.11
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing loss per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
176,715
|
|
|
|
|
|
|
|
176,715
|
|
|
|
176,271
|
|
|
|
|
|
|
|
176,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
176,715
|
|
|
|
|
|
|
|
176,715
|
|
|
|
176,271
|
|
|
|
|
|
|
|
176,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our historical financial statements for
each of the three years ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,099,949
|
|
|
$
|
|
|
|
$
|
2,099,949
|
|
|
$
|
1,901,279
|
|
|
$
|
|
|
|
$
|
1,901,279
|
|
|
$
|
1,603,768
|
|
|
$
|
|
|
|
$
|
1,603,768
|
|
Cost of sales
|
|
|
1,743,996
|
|
|
|
182
|
|
|
|
1,744,178
|
|
|
|
1,533,447
|
|
|
|
4,562
|
|
|
|
1,538,009
|
|
|
|
1,267,302
|
|
|
|
3,277
|
|
|
|
1,270,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
355,953
|
|
|
|
(182
|
)
|
|
|
355,771
|
|
|
|
367,832
|
|
|
|
(4,562
|
)
|
|
|
363,270
|
|
|
|
336,466
|
|
|
|
(3,277
|
)
|
|
|
333,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
243,155
|
|
|
|
164
|
|
|
|
243,319
|
|
|
|
221,915
|
|
|
|
2,866
|
|
|
|
224,781
|
|
|
|
183,291
|
|
|
|
3,963
|
|
|
|
187,254
|
|
Research and development
|
|
|
37,347
|
|
|
|
|
|
|
|
37,347
|
|
|
|
36,707
|
|
|
|
|
|
|
|
36,707
|
|
|
|
30,167
|
|
|
|
|
|
|
|
30,167
|
|
Provision for legal settlements and
contingencies
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of specialty test
operations
|
|
|
(4,408
|
)
|
|
|
|
|
|
|
(4,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
326,094
|
|
|
|
164
|
|
|
|
326,258
|
|
|
|
258,622
|
|
|
|
2,866
|
|
|
|
261,488
|
|
|
|
213,458
|
|
|
|
3,963
|
|
|
|
217,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
29,859
|
|
|
|
(346
|
)
|
|
|
29,513
|
|
|
|
109,210
|
|
|
|
(7,428
|
)
|
|
|
101,782
|
|
|
|
123,008
|
|
|
|
(7,240
|
)
|
|
|
115,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
party
|
|
|
521
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
165,351
|
|
|
|
|
|
|
|
165,351
|
|
|
|
148,902
|
|
|
|
|
|
|
|
148,902
|
|
|
|
140,281
|
|
|
|
|
|
|
|
140,281
|
|
Foreign currency (gain) loss
|
|
|
9,318
|
|
|
|
|
|
|
|
9,318
|
|
|
|
6,190
|
|
|
|
|
|
|
|
6,190
|
|
|
|
(3,022
|
)
|
|
|
|
|
|
|
(3,022
|
)
|
Other (income) expense, net
|
|
|
(444
|
)
|
|
|
|
|
|
|
(444
|
)
|
|
|
(24,444
|
)
|
|
|
|
|
|
|
(24,444
|
)
|
|
|
31,052
|
|
|
|
|
|
|
|
31,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
174,746
|
|
|
|
|
|
|
|
174,746
|
|
|
|
130,648
|
|
|
|
|
|
|
|
130,648
|
|
|
|
168,311
|
|
|
|
|
|
|
|
168,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, equity
investment losses, minority interests and discontinued operations
|
|
|
(144,887
|
)
|
|
|
(346
|
)
|
|
|
(145,233
|
)
|
|
|
(21,438
|
)
|
|
|
(7,428
|
)
|
|
|
(28,866
|
)
|
|
|
(45,303
|
)
|
|
|
(7,240
|
)
|
|
|
(52,543
|
)
|
Equity investment losses
|
|
|
(55
|
)
|
|
|
|
|
|
|
(55
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(3,290
|
)
|
|
|
|
|
|
|
(3,290
|
)
|
Minority interests
|
|
|
2,502
|
|
|
|
|
|
|
|
2,502
|
|
|
|
(904
|
)
|
|
|
|
|
|
|
(904
|
)
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes
|
|
|
(142,440
|
)
|
|
|
(346
|
)
|
|
|
(142,786
|
)
|
|
|
(22,344
|
)
|
|
|
(7,428
|
)
|
|
|
(29,772
|
)
|
|
|
(52,601
|
)
|
|
|
(7,240
|
)
|
|
|
(59,841
|
)
|
Income tax provision (benefit)
|
|
|
(5,551
|
)
|
|
|
|
|
|
|
(5,551
|
)
|
|
|
15,192
|
|
|
|
|
|
|
|
15,192
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(136,889
|
)
|
|
|
(346
|
)
|
|
|
(137,235
|
)
|
|
|
(37,536
|
)
|
|
|
(7,428
|
)
|
|
|
(44,964
|
)
|
|
|
(52,368
|
)
|
|
|
(7,240
|
)
|
|
|
(59,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,566
|
|
|
|
(396
|
)
|
|
|
54,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(136,889
|
)
|
|
$
|
(346
|
)
|
|
$
|
(137,235
|
)
|
|
$
|
(37,536
|
)
|
|
$
|
(7,428
|
)
|
|
$
|
(44,964
|
)
|
|
$
|
2,198
|
|
|
$
|
(7,636
|
)
|
|
$
|
(5,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.78
|
)
|
|
$
|
|
|
|
$
|
(0.78
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.35
|
)
|
From discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.32
|
|
|
|
|
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share
|
|
$
|
(0.78
|
)
|
|
$
|
|
|
|
$
|
(0.78
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
176,385
|
|
|
|
|
|
|
|
176,385
|
|
|
|
175,342
|
|
|
|
|
|
|
|
175,342
|
|
|
|
167,142
|
|
|
|
|
|
|
|
167,142
|
|
Diluted
|
|
|
176,385
|
|
|
|
|
|
|
|
176,385
|
|
|
|
175,342
|
|
|
|
|
|
|
|
175,342
|
|
|
|
167,142
|
|
|
|
|
|
|
|
167,142
|
|
11
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our consolidated balance sheets as of
December 31, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
206,575
|
|
|
$
|
|
|
|
$
|
206,575
|
|
|
$
|
372,284
|
|
|
$
|
|
|
|
$
|
372,284
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
doubtful accounts of $4,947 and $5,074
|
|
|
381,495
|
|
|
|
|
|
|
|
381,495
|
|
|
|
265,547
|
|
|
|
|
|
|
|
265,547
|
|
Other
|
|
|
5,089
|
|
|
|
|
|
|
|
5,089
|
|
|
|
3,948
|
|
|
|
|
|
|
|
3,948
|
|
Inventories, net
|
|
|
138,109
|
|
|
|
|
|
|
|
138,109
|
|
|
|
111,616
|
|
|
|
|
|
|
|
111,616
|
|
Other current assets
|
|
|
35,222
|
|
|
|
|
|
|
|
35,222
|
|
|
|
32,591
|
|
|
|
|
|
|
|
32,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
766,490
|
|
|
|
|
|
|
|
766,490
|
|
|
|
785,986
|
|
|
|
|
|
|
|
785,986
|
|
Property, plant and equipment, net
|
|
|
1,419,472
|
|
|
|
|
|
|
|
1,419,472
|
|
|
|
1,380,396
|
|
|
|
|
|
|
|
1,380,396
|
|
Goodwill
|
|
|
653,717
|
|
|
|
|
|
|
|
653,717
|
|
|
|
656,052
|
|
|
|
|
|
|
|
656,052
|
|
Intangibles, net
|
|
|
38,391
|
|
|
|
|
|
|
|
38,391
|
|
|
|
47,302
|
|
|
|
|
|
|
|
47,302
|
|
Investments
|
|
|
9,668
|
|
|
|
|
|
|
|
9,668
|
|
|
|
13,762
|
|
|
|
|
|
|
|
13,762
|
|
Other assets
|
|
|
67,353
|
|
|
|
|
|
|
|
67,353
|
|
|
|
81,870
|
|
|
|
|
|
|
|
81,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,955,091
|
|
|
$
|
|
|
|
$
|
2,955,091
|
|
|
$
|
2,965,368
|
|
|
$
|
|
|
|
$
|
2,965,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
portion of long-term debt
|
|
|
184,389
|
|
|
|
|
|
|
$
|
184,389
|
|
|
$
|
52,147
|
|
|
$
|
|
|
|
$
|
52,147
|
|
Trade accounts payable
|
|
|
326,712
|
|
|
|
|
|
|
|
326,712
|
|
|
|
211,808
|
|
|
|
|
|
|
|
211,808
|
|
Accrued expenses
|
|
|
123,631
|
|
|
|
396
|
|
|
|
124,027
|
|
|
|
175,075
|
|
|
|
378
|
|
|
|
175,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
634,732
|
|
|
|
396
|
|
|
|
635,128
|
|
|
|
439,030
|
|
|
|
378
|
|
|
|
439,408
|
|
Long-term debt, related party
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,856,247
|
|
|
|
|
|
|
|
1,856,247
|
|
|
|
2,040,813
|
|
|
|
|
|
|
|
2,040,813
|
|
Other non-current liabilities
|
|
|
135,861
|
|
|
|
|
|
|
|
135,861
|
|
|
|
109,317
|
|
|
|
|
|
|
|
109,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,726,840
|
|
|
|
396
|
|
|
|
2,727,236
|
|
|
|
2,589,160
|
|
|
|
378
|
|
|
|
2,589,538
|
|
Commitments and contingencies (see
Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
3,950
|
|
|
|
|
|
|
|
3,950
|
|
|
|
6,679
|
|
|
|
|
|
|
|
6,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par
value, 10,000 shares authorized designated Series A,
none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value, 500,000 shares authorized, issued and outstanding of
176,733 in 2005 and 175,718 in 2004
|
|
|
178
|
|
|
|
|
|
|
|
178
|
|
|
|
176
|
|
|
|
|
|
|
|
176
|
|
Additional paid-in capital
|
|
|
1,326,426
|
|
|
|
105,117
|
|
|
|
1,431,543
|
|
|
|
1,323,579
|
|
|
|
104,789
|
|
|
|
1,428,368
|
|
Accumulated deficit
|
|
|
(1,105,961
|
)
|
|
|
(105,513
|
)
|
|
|
(1,211,474
|
)
|
|
|
(969,072
|
)
|
|
|
(105,167
|
)
|
|
|
(1,074,239
|
)
|
Accumulated other comprehensive
income
|
|
|
3,658
|
|
|
|
|
|
|
|
3,658
|
|
|
|
14,846
|
|
|
|
|
|
|
|
14,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,301
|
|
|
|
(396
|
)
|
|
|
223,905
|
|
|
|
369,529
|
|
|
|
(378
|
)
|
|
|
369,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,955,091
|
|
|
$
|
|
|
|
$
|
2,955,091
|
|
|
$
|
2,965,368
|
|
|
$
|
|
|
|
$
|
2,965,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The additional non-cash charges for stock-based compensation
expense and related tax effects had no impact on our
consolidated statements of cash flows. We identified a
classification error relating to stock-based compensation in our
consolidated statements of cash flows and we increased net cash
provided by operating activities by less than $0.1 million
and $0.6 million for the year ended December 31, 2005
and 2004, respectively, offset by a similar decrease in net cash
used in financing activities.
The cumulative effect of the stock option errors prior to
January 1, 2003 increased additional paid-in capital by
$90.1 million, increased accumulated deficit by
$90.1 million and impacted total stockholders equity
by less than $0.1 million. Incremental stock-based
compensation charges, net of tax, totaled $61.6 million,
$15.8 million, $9.5 million, and $3.2 million for
the years ended December 31, 2002, 2001, 2000 and 1999.
Basic earnings per share (EPS) is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted EPS adjusts
net income and the outstanding shares for the dilutive effect of
stock options and convertible debt. The basic and diluted EPS
amounts are the same for each of the three and nine month
periods ended September 30, 2005, as a result of the
potentially dilutive securities being antidilutive due to net
losses. The following table summarizes the computation of basic
and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
2006
|
|
|
(As restated)
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income (loss) basic
|
|
$
|
52,810
|
|
|
$
|
(19,513
|
)
|
|
$
|
111,037
|
|
|
$
|
(191,171
|
)
|
Adjustment for dilutive securities
on net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 2.5% convertible
notes due 2011, net of tax
|
|
|
1,187
|
|
|
|
|
|
|
|
1,636
|
|
|
|
|
|
Interest on 6.25% convertible
notes due 2013, net of tax
|
|
|
1,563
|
|
|
|
|
|
|
|
4,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
diluted
|
|
$
|
55,560
|
|
|
$
|
(19,513
|
)
|
|
$
|
117,586
|
|
|
$
|
(191,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding basic
|
|
|
178,108
|
|
|
|
176,715
|
|
|
|
177,537
|
|
|
|
176,271
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
|
|
2.5% convertible notes due
2011
|
|
|
13,023
|
|
|
|
|
|
|
|
6,106
|
|
|
|
|
|
6.25% convertible notes due
2013
|
|
|
13,351
|
|
|
|
|
|
|
|
13,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding diluted
|
|
|
204,482
|
|
|
|
176,715
|
|
|
|
197,539
|
|
|
|
176,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.63
|
|
|
$
|
(1.08
|
)
|
Diluted
|
|
$
|
0.27
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.60
|
|
|
$
|
(1.08
|
)
|
13
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the potential shares of common
stock that were excluded from diluted EPS, because the effect of
including these potential shares was antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Stock options
|
|
|
14,223
|
|
|
|
17,051
|
|
|
|
12,652
|
|
|
|
17,051
|
|
5.0% convertible notes due
June 2006
|
|
|
2,484
|
|
|
|
2,554
|
|
|
|
2,484
|
|
|
|
2,554
|
|
5.75% convertible notes due
March 2007
|
|
|
|
|
|
|
6,657
|
|
|
|
2,095
|
|
|
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive shares
|
|
|
16,707
|
|
|
|
26,262
|
|
|
|
17,231
|
|
|
|
26,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options excluded from
diluted EPS because the exercise price was greater than the
average market price of the common shares
|
|
|
14,223
|
|
|
|
14,376
|
|
|
|
12,652
|
|
|
|
16,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Stock
Compensation Plans
|
Effective January 1, 2006, we adopted
SFAS No. 123(R)which revises SFAS No. 123
and supersedes APB Opinion No. 25.
SFAS No. 123(R) requires that all share-based payments
to employees, including grants of employee stock options, be
measured at fair value and expensed over the service period
(generally the vesting period). Upon adoption, we transitioned
to SFAS No. 123(R) using the modified prospective
method, whereby compensation cost is recognized beginning with
the first period that SFAS No. 123(R) is effective and
thereafter, with prior periods stock-based compensation
for option and employee stock purchase plan activity still
presented on a pro forma basis. We continue to use the
Black-Scholes option valuation model to value stock options.
Compensation expense is measured and recognized beginning in
2006 as follows:
Awards granted after December 31, 2005
Awards are measured at their fair value at the date of grant
under the provisions of SFAS No. 123(R) with the
resulting compensation expense recognized on a straight-line
basis over the vesting period of the award. However, if the
employee becomes eligible for retirement during the vesting
period, the compensation expense is recognized ratably only
until the retirement eligibility date. For employees eligible
for retirement on the date of grant, compensation expense is
recognized immediately.
Awards granted prior to December 31,
2005 Awards were measured at their fair value at
the date of original grant under the original provisions of
SFAS No. 123. Compensation expense associated with the
unvested portion of these options at January 1, 2006 is
recognized ratably over the remaining vesting period without
regard to the employees retirement eligibility. Upon
retirement, any unrecognized compensation expense will be
recognized immediately.
For all grants, the amount of compensation expense to be
recognized is adjusted for an estimated forfeiture rate which is
based on historical data. As a result of the adoption of
SFAS No. 123(R), we recognized compensation expense of
$1.2 million and $3.5 million, with no tax impact, for
the three and nine months ended September 30, 2006. The
adoption of SFAS No. 123(R) reduced our basic and
diluted earnings per share by less than $0.01 and $0.02 for the
three and nine months ended September 30, 2006,
respectively.
14
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents stock-based employee compensation
expense included in the condensed consolidated statement of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
2006
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Cost of sales
|
|
$
|
923
|
|
|
$
|
45
|
|
|
$
|
1,561
|
|
|
$
|
137
|
|
Selling, general, and
administrative
|
|
|
293
|
|
|
|
51
|
|
|
|
1,952
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
1,216
|
|
|
$
|
96
|
|
|
$
|
3,513
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under FASB Staff Position (FSP)
No. SFAS 123(R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment
Awards, entities may take up to one year from the later of
(1) the adoption of SFAS 123(R) or (2) the issuance of the FSP
(issued November 10, 2005), to elect whether to use the
simplified method, prescribed in the FSP, to compute their
beginning balance of the additional paid-in capital pool (APIC
pool) as of the adoption date of SFAS 123(R). We are currently
evaluating the FSP for purposes of computing our APIC pool.
Prior to January 1, 2006, as permitted under
SFAS No. 123, we applied APB Opinion No. 25 and
related interpretations in accounting for our stock-based
compensation plans. Under APB Opinion No. 25, compensation
expense was recognized for stock option grants if the exercise
price was below the fair value of the underlying stock at the
measurement date.
Had compensation costs been determined consistent with the
requirements of SFAS No. 123, pro forma net loss and
net loss per common share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2005
|
|
|
September 30, 2005
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands, except per share data)
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(19,513
|
)
|
|
$
|
(191,171
|
)
|
Add: Stock-based compensation
expense included in restated results
|
|
|
96
|
|
|
|
281
|
|
Deduct: Total stock-based employee
compensation determined under fair value based method, net of tax
|
|
|
(646
|
)
|
|
|
(1,854
|
)
|
|
|
|
|
|
|
|
|
|
Net loss, pro forma
|
|
$
|
(20,063
|
)
|
|
$
|
(192,744
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.11
|
)
|
|
$
|
(1.08
|
)
|
Pro forma
|
|
$
|
(0.11
|
)
|
|
$
|
(1.09
|
)
|
Pro forma compensation expense under SFAS No. 123 does
not include an upfront estimate of potential forfeitures, but
rather recognizes them as they occur and amortizes the
compensation expense for retirement eligible individuals over
the vesting period without consideration to acceleration of
vesting. These computational differences and the differences in
the terms and nature of 2006 stock-based compensation awards
create incomparability between the pro forma stock compensation
presented above and the stock compensation expense recognized in
2006.
15
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock Option Plans. Substantially all of the
options granted are generally exercisable pursuant to a two or
four-year vesting schedule and the term of the options granted
is no longer than ten years. A summary of the stock option plans
and the respective plan termination dates and shares available
for grant as of September 30, 2006 is shown below. For
additional information about our stock compensation plans, refer
to Note 13 of the Notes to Consolidated Financial
Statements in our Annual Report on
Form 10-K/A
for the year ended December 31, 2005.
|
|
|
|
|
|
|
|
|
1998 Director
|
|
1998 Stock
|
|
2003 Inducement
|
Stock Option Plans
|
|
Option Plan
|
|
Plan
|
|
Plan
|
|
Contractual Life (yrs)
|
|
10
|
|
10
|
|
10
|
Plan termination date
|
|
January 2008
|
|
January 2008
|
|
Board of Directors Discretion
|
Shares available for grant at
September 30, 2006
|
|
141,666
|
|
6,890,183
|
|
368,100
|
In order to calculate the fair value of stock options at the
date of grant, we used the Black-Scholes option pricing model.
Expected volatilities are weighted based on the historical
performance of our stock and implied volatilities. We also use
historical data to estimate the timing and amount of option
exercises and forfeitures within the valuation model. The
expected term of the options is based on evaluations of
historical and expected future employee exercise behavior and
represents the period of time that options granted are expected
to be outstanding. The risk-free interest rate for periods
within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
The following assumptions were used to calculate weighted
average fair values of the options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
2006
|
|
|
(As restated)
|
|
|
Expected life (in years)
|
|
|
5.8
|
|
|
|
5.8
|
|
|
|
5.8
|
|
|
|
5.8
|
|
Risk-free interest rate
|
|
|
4.9
|
%
|
|
|
4.0
|
%
|
|
|
4.6
|
%
|
|
|
4.0
|
%
|
Volatility
|
|
|
86
|
%
|
|
|
91
|
%
|
|
|
78
|
%
|
|
|
91
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair
value per option granted
|
|
$
|
4.35
|
|
|
$
|
3.84
|
|
|
$
|
4.82
|
|
|
$
|
3.26
|
|
Intrinsic value of options
exercised (in thousands)
|
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
1,500
|
|
|
$
|
6
|
|
The following is a summary of all option activity for the nine
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
(Years)
|
|
|
Value
|
|
|
Outstanding at December 31,
2005
|
|
|
16,369,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
894,475
|
|
|
$
|
6.89
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(375,660
|
)
|
|
$
|
5.86
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(1,696,013
|
)
|
|
$
|
10.84
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2006
|
|
|
15,192,796
|
|
|
$
|
10.39
|
|
|
|
6.03
|
|
|
$
|
1,281,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30,
2006
|
|
|
12,917,708
|
|
|
$
|
11.25
|
|
|
|
5.56
|
|
|
$
|
595,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest
at September 30, 2006
|
|
|
14,994,863
|
|
|
$
|
10.45
|
|
|
|
5.99
|
|
|
$
|
1,847,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total unrecognized compensation expense from stock options was
$8.8 million as of September 30, 2006, which is
expected to be recognized over a weighted-average period of
1.95 years.
For the nine months ended September 30, 2006 and 2005, cash
received from option exercises under all share-based payment
arrangements was $5.0 million and $2.7 million,
respectively. There was no tax benefit realized. The related
cash receipts are included in financing activities in the
accompanying Condensed Consolidated Statements of Cash Flows.
Employee Stock Purchase Plan (ESPP). A total
of 1,000,000 shares of common stock were available for sale
under the ESPP annually until the plan was terminated in April
2006. During 2006, we issued 999,981 shares under the plan
at a weighted average price of $2.78 per share.
We value our purchase rights using the Black-Scholes option
pricing model, which incorporates the assumptions noted in the
table below. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
Expected life (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
Volatility
|
|
|
91
|
%
|
|
|
91
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
5.
|
Comprehensive
Income (Loss)
|
The components of comprehensive income (loss) are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
2006
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
52,810
|
|
|
$
|
(19,513
|
)
|
|
$
|
111,037
|
|
|
$
|
(191,171
|
)
|
Unrealized gain (loss) on
investments, net of tax
|
|
|
2,018
|
|
|
|
(662
|
)
|
|
|
(553
|
)
|
|
|
(3,319
|
)
|
Reclassification adjustment for
investment losses included in net income (loss)
|
|
|
|
|
|
|
672
|
|
|
|
2,624
|
|
|
|
2,999
|
|
Foreign currency translation
adjustment, net of tax
|
|
|
(1,166
|
)
|
|
|
(7,901
|
)
|
|
|
1,064
|
|
|
|
(9,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
53,662
|
|
|
$
|
(27,404
|
)
|
|
$
|
114,172
|
|
|
$
|
(200,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We operate in and file income tax returns in various U.S. and
foreign jurisdictions that are subject to examination by tax
authorities. For our larger foreign operations, our tax returns
have been examined through 1999 in Korea, through 2001 in the
Philippines and through 2002 in Taiwan and Japan. Our
U.S. tax returns have been examined through 2003. Tax
returns for open years in all jurisdictions are subject to
change upon examination.
During 2005, the IRS commenced an examination of our
U.S. federal income tax returns for years 2002 and 2003,
which primarily focused on inter-company transfer pricing and
cost-sharing issues carried over from the 2000 and 2001
examinations. The IRS proposed four adjustments, and in 2005, we
agreed to three of them, lowering our
17
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. net operating loss carryforwards at December 31,
2005 by $36.1 million. In May 2006, we reached an agreement
with the IRS on the last adjustment, further reducing our net
operating loss carryforwards by $10.0 million. Because we
maintain a full valuation allowance on our U.S. net
operating loss carryforwards, these adjustments had no impact on
our consolidated financial condition or results of operations.
Our estimated tax liability is subject to change as examinations
of our tax returns are completed by the tax authorities in the
respective jurisdictions. We believe that any additional taxes
or related interest over the amounts accrued will not have a
material effect on our financial condition, results of
operations or cash flows, nor do we expect that such
examinations will result in a material favorable impact.
However, resolution of these matters involves uncertainties and
there are no assurances that the outcome will be favorable.
Income tax expense for the three and nine months ended
September 30, 2006 and 2005 is attributable to foreign
withholding taxes and income taxes at certain of our profitable
foreign operations. We anticipate an effective income tax rate
of approximately 7.0% for the twelve months ending
December 31, 2006, which reflects the utilization of U.S.
and foreign net operating loss carryforwards and tax holidays in
certain foreign jurisdictions. At September 30, 2006, we
had U.S. net operating loss carryforwards totaling
$349.8 million, which expire at various times through 2025.
Additionally, at September 30, 2006, we had
$64.9 million of
non-U.S. operating
loss carryforwards, which expire at various times through 2011.
We maintain a full valuation allowance on substantially all of
our deferred tax assets, including our net operating loss
carryforwards, and we will release such valuation allowance as
the related tax benefits are realized on our tax returns or once
we achieve sustained profitable operations.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Raw materials and purchased
components, net of reserves of $27.4 million and
$23.7 million, respectively
|
|
$
|
122,173
|
|
|
$
|
106,308
|
|
Work-in-process
|
|
|
38,453
|
|
|
|
30,124
|
|
Finished goods
|
|
|
3,778
|
|
|
|
1,677
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
164,404
|
|
|
$
|
138,109
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Property,
Plant and Equipment
|
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
110,595
|
|
|
$
|
111,451
|
|
Land use rights
|
|
|
19,945
|
|
|
|
19,945
|
|
Buildings and improvements
|
|
|
787,984
|
|
|
|
655,042
|
|
Machinery and equipment
|
|
|
2,073,844
|
|
|
|
1,958,181
|
|
Furniture, fixtures and other
equipment
|
|
|
139,747
|
|
|
|
140,163
|
|
Construction in progress
|
|
|
9,004
|
|
|
|
103,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,141,119
|
|
|
|
2,988,221
|
|
Less Accumulated
depreciation and amortization
|
|
|
(1,684,566
|
)
|
|
|
(1,568,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,456,553
|
|
|
$
|
1,419,472
|
|
|
|
|
|
|
|
|
|
|
18
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Construction in progress at December 31, 2005, includes
$95.4 million, related to the facility in Shanghai, China.
During the second quarter of 2006, the facility in Shanghai,
China was completed and moved out of construction in progress.
Associated with this facility, we have rights to use the land on
which the building is located for a period of 50 years.
The following table reconciles our activity related to property,
plant and equipment as presented on the Condensed Consolidated
Statements of Cash Flows to property, plant and equipment
additions as reflected in the Condensed Consolidated Balance
Sheets:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Payments for property, plant, and
equipment
|
|
$
|
252,401
|
|
|
$
|
226,442
|
|
Increase (decrease) in property,
plant, and equipment in accounts payable, accrued expenses and
deposits, net
|
|
|
(8,234
|
)
|
|
|
7,243
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
additions
|
|
$
|
244,167
|
|
|
$
|
233,685
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Goodwill
and Other Intangibles Assets
|
The change in the carrying value of goodwill, all of which
relates to our packaging services segment, is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31,
2005
|
|
$
|
653,717
|
|
Additions
|
|
|
17,822
|
|
Translation adjustments
|
|
|
(5
|
)
|
|
|
|
|
|
Balance as of September 30,
2006
|
|
$
|
671,534
|
|
|
|
|
|
|
In January 2006, we acquired an additional 39.6% of Unitive
Semiconductor Taiwan (UST) for $18.4 million,
which was funded out of an escrow set up in December 2005. The
majority of the purchase price was allocated to goodwill
resulting in $17.8 million in additions during the first
quarter of 2006. We acquired additional shares later in the
first quarter of 2006 resulting in our combined ownership in UST
of 99.86% as of September 30, 2006.
During the second quarter of 2006, in accordance with the
provisions of FASB Statement No. 142, Goodwill and Other
Intangible Assets, we performed the annual impairment test
on goodwill and as the fair value of our packaging services
segment exceeded its carrying value, we concluded that goodwill
was not impaired.
Intangibles as of September 30, 2006 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Patents and technology rights
|
|
$
|
74,348
|
|
|
$
|
(47,989
|
)
|
|
$
|
26,359
|
|
Customer relationship and supply
agreements
|
|
|
8,858
|
|
|
|
(3,149
|
)
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,206
|
|
|
$
|
(51,138
|
)
|
|
$
|
32,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangibles as of December 31, 2005 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Patents and technology rights
|
|
$
|
73,573
|
|
|
$
|
(41,839
|
)
|
|
$
|
31,734
|
|
Customer relationship and supply
agreements
|
|
|
8,858
|
|
|
|
(2,201
|
)
|
|
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,431
|
|
|
$
|
(44,040
|
)
|
|
$
|
38,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of identifiable intangible assets was
$2.4 million for the three months ended September 30,
2006 and 2005. Amortization of identifiable intangible assets
was $7.1 million for the nine months ended
September 30, 2006 and 2005.
Based on the amortizing assets recognized in our balance sheet
at September 30, 2006, amortization for each of the next
five fiscal years is estimated as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2006 Remaining
|
|
$
|
2,511
|
|
2007
|
|
|
9,552
|
|
2008
|
|
|
9,426
|
|
2009
|
|
|
4,776
|
|
2010
|
|
|
2,730
|
|
Investments include non-current marketable securities and equity
investments as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Marketable securities classified
as available for sale:
|
|
|
|
|
|
|
|
|
Dongbu Electronics, Inc.
(ownership of 1% at September 30, 2006 and 2% at
December 31, 2005)
|
|
$
|
7,754
|
|
|
$
|
8,879
|
|
Other marketable securities
classified as available for sale
|
|
|
31
|
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
7,785
|
|
|
|
9,593
|
|
Equity method investments
|
|
|
9
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,794
|
|
|
$
|
9,668
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2006, we recognized impairment
charges totaling $3.2 million on the investment in Dongbu
Electronics, Inc. These charges were recognized as we believed
the related decline in value was other than temporary. As of
September 30, 2006, the stock price for Dongbu Electronics
recovered and we recorded $2.0 million of unrealized gains,
which is included in other comprehensive income.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
September 30,
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
Accrued interest
|
|
$
|
35,390
|
|
|
$
|
34,545
|
|
Accrued payroll
|
|
|
43,698
|
|
|
|
26,339
|
|
Customer advances
|
|
|
16,523
|
|
|
|
2,526
|
|
Accrued income taxes
|
|
|
5,122
|
|
|
|
2,776
|
|
Other accrued expenses
|
|
|
69,613
|
|
|
|
57,841
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,346
|
|
|
$
|
124,027
|
|
|
|
|
|
|
|
|
|
|
20
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following is a summary of short-term borrowings and long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Debt of Amkor Technology, Inc.
|
|
|
|
|
|
|
|
|
Senior secured credit facilities:
|
|
|
|
|
|
|
|
|
$100.0 million revolving
credit facility, LIBOR plus 1.5% 2.25%, due November
2009
|
|
$
|
|
|
|
$
|
|
|
Second lien term loan, LIBOR plus
4.5%, due October 2010
|
|
|
300,000
|
|
|
|
300,000
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
9.25% Senior notes due
February 2008
|
|
|
88,206
|
|
|
|
470,500
|
|
7.125% Senior notes due March
2011
|
|
|
248,821
|
|
|
|
248,658
|
|
7.75% Senior notes due May
2013
|
|
|
425,000
|
|
|
|
425,000
|
|
9.25% Senior notes due June
2016
|
|
|
400,000
|
|
|
|
|
|
Senior Subordinated Notes:
|
|
|
|
|
|
|
|
|
10.5% Senior subordinated
notes due May 2009
|
|
|
21,882
|
|
|
|
200,000
|
|
2.5% Convertible senior
subordinated notes due May 2011
|
|
|
190,000
|
|
|
|
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
5.75% Convertible
subordinated notes due June 2006, convertible at $35.00 per
share
|
|
|
|
|
|
|
133,000
|
|
5.0% Convertible subordinated
notes due March 2007, convertible at $57.34 per share
|
|
|
142,422
|
|
|
|
146,422
|
|
6.25% Convertible
subordinated notes due December 2013, convertible at
$7.49 per share, related party
|
|
|
100,000
|
|
|
|
100,000
|
|
Notes Payable and Other Debt
|
|
|
|
|
|
|
823
|
|
Debt of Subsidiaries
|
|
|
|
|
|
|
|
|
Secured Term Loans:
|
|
|
|
|
|
|
|
|
Term loan, Taiwan
90-Day
Commercial Paper primary market rate plus 1.2%, due November 2010
|
|
|
50,244
|
|
|
|
55,586
|
|
Term loan, Taiwan
90-Day
Commercial Paper secondary market rate plus 2.25%, due June 2008
|
|
|
9,102
|
|
|
|
11,329
|
|
Secured Equipment and Property
Financing
|
|
|
14,497
|
|
|
|
20,454
|
|
Revolving Credit Facilities
|
|
|
36,279
|
|
|
|
26,501
|
|
Other Debt
|
|
|
1,299
|
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
2,027,752
|
|
|
|
2,140,636
|
|
Less: Short-term borrowings and
current portion of long-term debt
|
|
|
(200,552
|
)
|
|
|
(184,389
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt (including related
party)
|
|
$
|
1,827,200
|
|
|
$
|
1,956,247
|
|
|
|
|
|
|
|
|
|
|
Debt
of Amkor Technology Inc.
Senior
Secured Credit Facilities
In November 2005, we entered into a $100.0 million first
lien revolving credit facility available through November 2009,
with a letter of credit sub-limit of $25.0 million.
Interest is charged under the credit facility at a
21
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
floating rate based on the base rate in effect from time to time
plus the applicable margins which range from 0.0% to 0.5% for
base rate revolving loans, or LIBOR plus 1.5% to 2.25% for LIBOR
revolving loans. The interest rate at September 30, 2006,
and December 31, 2005, was 6.87% and 5.89%, respectively;
however, no borrowings were outstanding under this credit
facility. Amkor, along with Unitive Inc. (Unitive)
and Unitive Electronics, Inc. (UEI), are
co-borrowers and guarantors under the facility and each granted
a first priority lien on substantially all of their assets,
excluding inter-company loans and the capital stock of foreign
subsidiaries and certain domestic subsidiaries. As of
September 30, 2006, we had utilized $0.2 million of
the available letter of credit sub-limit, and had
$99.8 million available under this facility. The borrowing
base for the revolving credit facility is based on the valuation
of our eligible accounts receivable. We incur commitment fees on
the unused amounts of the revolving credit facility ranging from
0.25% to 0.50%, based on our liquidity. The $100.0 million
credit facility replaced our prior $30.0 million senior
secured revolving credit facility which we entered into in June
2004. This new facility includes a number of affirmative and
negative covenants, which could restrict our operations. If we
were to default under the first lien revolving credit facility,
we would not be permitted to draw additional amounts, and the
banks could accelerate our obligation to pay all outstanding
amounts.
In October 2004, we entered into a $300.0 million second
lien term loan with a group of institutional lenders. The term
loan bears interest at a rate of LIBOR plus 450 basis points
(9.9% and 8.88% at September 30, 2006 and December 31,
2005, respectively); and matures in October 2010. Guardian
Assets, Inc., Unitive, UEI, Amkor International Holdings, LLC
(AIH) are guarantors of the second lien term loan.
The second lien term loans are secured by a second lien on
substantially all of our U.S. assets, including the shares
of certain of our U.S. subsidiaries and a portion of the
shares of some of our foreign subsidiaries. We do not have the
option to prepay the second lien term loan until October 2006.
If we were to elect to prepay the loan, we would be required to
pay a prepayment premium, initially set at 3% of the principal
amount prepaid. The second lien term loan agreements contain a
number of affirmative and negative covenants which could
restrict our operations. If we were to default under the
facility, the lenders could accelerate our obligation to pay all
outstanding amounts.
Senior
and Senior Subordinated Notes
In February 2001, we issued $500.0 million of 9.25% Senior
Notes due February 2008 (the 2008 Notes). As of
December 31, 2005, we had purchased $29.5 million of
these notes. In January 2006, we purchased an additional
$30.0 million of these notes and recorded a gain on
extinguishment of $0.7 million which is included in debt
retirement costs, net, which was partially offset by the
write-off of a proportionate amount of our deferred debt
issuance costs of $0.2 million. A portion of the 2008 Notes
are not redeemable prior to their maturity. In April 2006, we
announced a tender offer for the 2008 Notes. We used the net
proceeds from the 2016 Notes (described below) to purchase
$352.3 million in notes tendered. We recorded a
$20.2 million loss on extinguishment related to premiums
paid for the purchase of the 2008 Notes and a $2.2 million
charge for the associated unamortized deferred debt issuance
costs. Both charges are included in debt retirement costs, net.
In March 2004, we issued $250.0 million of
7.125% Senior Notes due March 2011 (the 2011
Notes). The 2011 Notes were priced at 99.321%, yielding an
effective interest rate of 7.25%. The 2011 Notes are redeemable
by us at any time provided we pay the holders a
make-whole premium. Prior to March 15, 2007, we
may redeem up to 35% of the aggregate principal amount of the
notes from the proceeds of one or more equity offerings at a
price of 107.125% of the principal amount plus accrued and
unpaid interest.
In May 2003, we issued $425.0 million of 7.75% Senior
Notes due May 2013 (the 2013 Notes). The 2013 Notes
are not redeemable at our option until May 2008.
In May 2006, we issued $400.0 million of 9.25% Senior
Notes due June 2016 (the 2016 Notes). The Notes are
redeemable by us prior to June 1, 2011 provided we pay the
holders a make-whole premium. After June 1,
2011, the 2016 Notes are redeemable at specified prices. In
addition, prior to June 1, 2009, we may redeem up to 35% of
the notes at a specified price with the proceeds of certain
equity offerings. After deducting fees to the
22
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
underwriter, the net proceeds were used to purchase a portion of
the 2008 Notes, pay respective accrued interest and tender
premiums.
In May 1999, we issued $200.0 million of 10.5% Senior
Subordinated Notes due May 2009 (the 2009 Notes). In
June 2006, we used the proceeds from the 2011 Notes (described
below) in connection with a partial call of the 2009 Notes for
which $178.1 million of the 2009 Notes were repurchased. We
recorded a $3.1 million loss on extinguishment related to
premiums paid for the purchase of the 2009 Notes and a
$2.2 million charge for the associated unamortized deferred
debt issuance costs. Both charges are included in debt
retirement costs, net. As of September 30, 2006, the 2009
Notes were redeemable at our option at a price of 101.25% of the
principal of the notes plus accrued and unpaid interest.
In May 2006, we issued $190.0 million of our 2.5%
Convertible Senior Subordinated Notes due 2011 (the 2011
Notes). The 2011 Notes are convertible into our common
stock at a price of $14.59 per share, subject to
adjustment. The notes are subordinated to the prior payment in
full of all of our senior subordinated debt. After deducting
fees to the underwriter, the net proceeds from the issuance of
the 2011 Notes were used to repurchase a portion of the 2009
Notes, pay respective accrued interest and call premiums.
The senior and senior subordinated notes contain a number of
affirmative and negative covenants, which could restrict our
operations. As discussed in Note 17 Subsidiary
Guarantors, Unitive, UEI and AIH, guarantee the senior and
senior subordinated notes. We are in the process of
consolidating these subsidiaries, and we expect that, before the
end of 2006, all of the guarantees of the senior and senior
subordinated notes will terminate or be released in accordance
with the terms of the indentures governing the notes in
connection with such consolidation, although there can be no
assurances that we will accomplish this.
Subordinated
Notes
In May 2001, we issued $250.0 million of our 5.75%
Convertible Subordinated Notes due June 2006 (the 2006
Notes). In November 2003, we purchased $17.0 million
of the 2006 Notes with the proceeds of an equity offering. In
November 2005, we purchased an additional $100.0 million of
the 2006 Notes with proceeds from the issuance of
$100.0 million of 6.25% Convertible Subordinated Notes
due December 2013 described below. We purchased such 2006 Notes
on the open market at 99.125% and recorded a gain on
extinguishment of $0.9 million which was partially offset
by the write-off of a proportionate amount of our deferred debt
issuance costs of $0.3 million. In January 2006, we
purchased an additional $1.0 million of the 2006 Notes at
99.25%. In June 2006, we repaid the remaining balance of
$132.0 million at the maturity date with cash on hand.
In March 2000, we issued $258.8 million of our 5.0%
Convertible Subordinated Notes due March 2007 (the 2007
Notes). The 2007 Notes are convertible into our common
stock at any time at a conversion price of $57.34 per
share, subject to adjustment. The notes are subordinated to the
prior payment in full of all of our senior and senior
subordinated debt. In November 2003, we repurchased
$112.3 million of our 2007 Notes with the proceeds of an
equity offering. In 2003, we recorded a $2.5 million loss
on extinguishment related to premiums paid for the purchase of
the 2007 Notes and a $2.2 million charge for the associated
unamortized deferred debt issuance costs. In June 2006, we
repurchased $4.0 million of our 2007 Notes at 99.875%. As
of September 30, 2006, the 2007 Notes were redeemable at
our option at a price of 100.714% of the principal of the notes
plus accrued and unpaid interest.
In November 2005, we issued $100.0 million of our 6.25%
Convertible Subordinated Notes due December 2013 (the 2013
Notes) in a private placement to James J. Kim, Chairman
and Chief Executive Officer, and certain Kim family members. The
2013 Notes are convertible into our common stock at an initial
price of $7.49 per share (the market price of our common
stock on the date of issuance of the 2013 Notes was
$6.20 per share), subject to adjustment. The 2013 Notes are
subordinated to the prior payment in full of all of our senior
and senior subordinated debt. In March 2006, we filed a
registration statement with the SEC registering the notes and
the shares of common stock issuable upon conversion, pursuant to
the requirements of a registration rights agreement. The
proceeds from
23
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the sale of the 2013 Notes were used to purchase a portion of
the 2006 Notes described above. The notes are not redeemable at
our option until 2010.
Debt
of Subsidiaries
Secured
Term Loans
In September 2005, Amkor Technology Taiwan, Inc.
(ATT) entered into a short-term interim financing
arrangement with two Taiwanese banks for New Taiwan
(NT) $1.0 billion (approximately
$30.0 million) (the Bridge Loan) in connection
with a syndication loan led by the same lenders. In November
2005, ATT finalized the NT$1.8 billion (approximately
$53.5 million) syndication loan due November 2010 (the
Syndication Loan), which accrues interest at the
Taiwan
90-Day
Commercial Paper Primary Market rate plus 1.2%. At
September 30, 2006, and December 31, 2005, the
interest rate was 3.18% and 3.0%, respectively. A portion of the
Syndication Loan was used to pay off the Bridge Loan. Amkor has
guaranteed the repayment of this loan. The agreement governing
the Syndication Loan includes a number of affirmative, negative
and financial covenants, which could restrict our operations. If
we were to default under the facility, the lenders could
accelerate our obligation to pay all outstanding amounts.
In June 2005, UST entered into a NT$400.0 million
(approximately $12.2 million) term loan due June 20,
2008 (the UST Note), which accrues interest at the
Taiwan
90-Day
Commercial Paper Secondary Market rate plus 2.25% (4.15% and
3.97% as of September 30, 2006 and December 31, 2005).
The proceeds of the UST Note were used to satisfy notes
previously held by UST. Amkor has guaranteed the repayment of
this loan. The agreement governing the UST Note includes a
number of affirmative and negative covenants which could
restrict our operations. If we were to default under the
facility, the lenders could accelerate our obligation to pay all
outstanding amounts.
Secured
Equipment and Property Financing
Our secured equipment and property financing consists of loans
secured with specific assets at our Japanese, Singaporean and
Chinese subsidiaries. Our credit facility in Japan provides for
equipment financing on a three-year basis for each piece of
equipment purchased. The Japanese facility accrues interest at
3.59% on all outstanding balances and has maturities at various
times between 2006 and 2008. In December 2005, our Singaporean
subsidiary entered into a loan with a finance company for
$10.0 million, which accrues interest at 4.86% and is due
December 2008. The loan is guaranteed by Amkor and is secured by
a security deposit and certain of the subsidiarys
equipment. In May 2004, our Chinese subsidiary entered into a
$5.5 million financing secured with certain building
improvements at one of our Chinese production facilities and is
payable ratably through January 2012. The interest rate for the
Chinese financing at September 30, 2006, and
December 31, 2005, was 6.14%, and 5.58%, respectively.
These equipment and property financings contain affirmative and
negative covenants, which could restrict our operations, and, if
we were to default on our obligations under these financings,
the lenders could accelerate our obligation to repay amounts
borrowed under such facilities.
Revolving
Credit Facilities
Amkor Iwate Corporation, a Japanese subsidiary
(AIC), has a revolving line of credit with a
Japanese bank for 2.5 billion Japanese yen (approximately
$21.2 million), maturing in September 2007, that accrues
interest at the Tokyo Interbank Offering Rate
(TIBOR) plus 0.6%. The interest rate at
September 30, 2006 and December 31, 2005 was 0.97% and
0.66%, respectively. Amounts drawn on the line of credit were
$21.3 million and $21.2 million at September 30,
2006 and December 31, 2005, respectively.
Additionally, AIC has a revolving line of credit at a Japanese
bank for 300.0 million Japanese yen (approximately
$2.5 million), maturing in June 2007, that accrues interest
at TIBOR plus 0.5%. The interest rate at
24
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2006 and December 31, 2005 was 0.87% and
0.56%, respectively. There were no amounts drawn on the line of
credit as of September 30, 2006 and December 31, 2005,
respectively.
In September 2005, our Philippine subsidiary entered into a
one-year revolving line of credit that accrues interest at LIBOR
plus 1.0% (5.2% at December 31, 2005). In January 2006, we
repaid all amounts outstanding under the Philippine revolving
line of credit, and replaced it with a new revolving line of
credit for $5.0 million, maturing in September 2006, that
accrues interest at LIBOR plus 1.0%. This line of credit was
absorbed by the line of credit entered into in April 2006. In
April 2006, our Philippine subsidiary renewed and increased its
revolving line of credit from 500.0 million Philippine peso
(approximately $9.8 million) to 795.0 million
Philippine peso (approximately $15.5 million), maturing
March 2007, that accrues interest at LIBOR plus 1.0% (6.32% at
September 30, 2006). There were no amounts outstanding at
September 30, 2006.
In January 2006, Amkor Assembly & Test (Shanghai) Co.
Ltd., a Chinese subsidiary (AATS), entered into a
$15.0 million working capital facility which bears interest
at LIBOR plus 1.25%, maturing in January 2007. The borrowings to
date of $15.0 million were used to support working capital.
At September 30, 2006, the interest rate ranged from 6.47%
to 6.81% based on the dates of borrowing.
These lines of credit contain certain affirmative and negative
covenants, which could restrict our operations. If we were to
default on our obligations under any of these lines of credit,
we would not be permitted to draw additional amounts, and the
lenders could accelerate our obligation to pay all outstanding
amounts.
Other
Debt
Other debt includes debt related to our Taiwanese subsidiaries
with fixed and variable interest rates maturing in 2007.
Interest rates on this debt ranged from 3.08% to 4.5% as of
September 30, 2006 and ranged from 2.67% to 3.10% as of
December 31, 2005.
Compliance
with Debt Covenants
Due to the delay in filing our
Form 10-Q
for the quarter ended June 30, 2006, we were not in
compliance with our covenants under all of our debt obligations
as of September 30, 2006. On August 11, 2006, we
received a letter dated August 10, 2006 from U.S. Bank
National Association (US Bank) as trustee for the
holders of our 5% Convertible Subordinated Notes due 2007,
10.5% Senior Subordinated Notes due 2009, 9.25% Senior
Notes due 2008, 9.25% Senior Notes due 2016,
6.25% Convertible Subordinated Notes Due 2013, 7.75% Senior
Notes due 2013 and 2.5% Convertible Senior Subordinated
Notes due 2011 stating that US Bank, as trustee, had not
received our financial statements for the quarter ended
June 30, 2006 and that we had 60 days from the date of
the letter to file our Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 30, 2006 or it will be
considered an Event of Default under the indentures
governing each of the above-listed notes.
On August 11, 2006, we received a letter dated
August 11, 2006 from Wells Fargo Bank National Association
(Wells Fargo), as trustee for our 7.125% Senior
Notes due 2011, stating that we failed to file our Quarterly
Report on Form
10-Q for the
fiscal quarter ended June 30, 2006, demanding that we
immediately file such quarterly report and indicating that
unless we file a
Form 10-Q
within 60 days after the date of such letter, it will ripen
into an Event of Default under the indenture
governing our 7.125% Senior Notes due 2011.
If an Event of Default were to occur under any of
the notes described above, the trustees or holders of at least
25% in aggregate principal amount of such series then
outstanding could attempt to declare all related unpaid
principal and premium, if any, and accrued interest on such
series of notes then outstanding to be immediately due and
payable. As of August 31, 2006, there is approximately
$1.62 billion of aggregate unpaid principal outstanding of
the above mentioned notes.
25
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On September 14, 2006, we commenced the solicitation of
consents from the holders of the following series of our notes:
(i) $400.0 million aggregate outstanding principal
amount of 9.25% Senior Notes due 2016,
(ii) $250.0 million aggregate outstanding principal
amount of 7.125% Senior Notes due 2011,
(iii) $425.0 million aggregate outstanding principal
amount of 7.75% Senior Notes due 2013,
(iv) approximately $88.2 million aggregate outstanding
principal amount of 9.25% Senior Notes due 2008,
(v) approximately $21.9 million aggregate outstanding
principal amount of 10.5% Senior Subordinated Notes due
2009, (vi) approximately $142.4 million aggregate
outstanding principal amount of 5% Convertible Subordinated
Notes due 2007, and (vii) $190.0 million aggregate
outstanding principal amount of 2.50% Convertible Senior
Subordinated Notes due 2011.
In each case, we were seeking consents for a waiver of certain
defaults and events of default, and the consequences thereof,
that may have occurred or may occur under the indenture
governing each series of notes from our failure to file with the
Securities and Exchange Commission and deliver to the trustee
and the holders of such series of notes any reports or other
information, including a quarterly report on
Form 10-Q
for the quarter ended June 30, 2006, and the waiver of the
application of certain provisions of the indentures governing
each series of notes. On October 6, 2006, with the filing
of our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006, our Annual Report on
Form 10-K/A
for the year ended December 31, 2005 and our Quarterly
Report on Form
10-Q/A for
the quarter ended March 31, 2006, we have cured all alleged
defaults outlined in the US Bank and Wells Fargo letters
described above. Accordingly, we terminated all consent
solicitations with respect to our outstanding notes and did not
pay any consent fees under any such consent solicitation.
|
|
13.
|
Other
Non-Current Liabilities
|
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Customer advances
|
|
$
|
26,764
|
|
|
$
|
714
|
|
Other non-current liabilities
|
|
|
4,169
|
|
|
|
5,395
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,933
|
|
|
$
|
6,109
|
|
|
|
|
|
|
|
|
|
|
Customer advances relate to supply agreements with customers
that guarantee capacity in exchange for customer prepayment of
services.
26
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Pension
and Severance Plans
|
Our Philippine, Taiwanese and Japanese subsidiaries sponsor
defined benefit plans that cover substantially all of their
respective employees who are not covered by statutory plans.
Charges to expense are based upon costs computed by independent
actuaries. The components of net periodic pension cost for these
defined benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Components of net periodic pension
cost and total pension expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,102
|
|
|
$
|
1,395
|
|
|
$
|
3,285
|
|
|
$
|
4,278
|
|
Interest cost
|
|
|
713
|
|
|
|
507
|
|
|
|
2,080
|
|
|
|
1,552
|
|
Expected return on plan assets
|
|
|
(405
|
)
|
|
|
(304
|
)
|
|
|
(1,181
|
)
|
|
|
(928
|
)
|
Amortization of transitional
obligation
|
|
|
27
|
|
|
|
28
|
|
|
|
83
|
|
|
|
88
|
|
Amortization of prior service cost
|
|
|
7
|
|
|
|
8
|
|
|
|
20
|
|
|
|
25
|
|
Recognized actuarial (gain)/loss
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense
|
|
$
|
1,444
|
|
|
$
|
1,646
|
|
|
$
|
4,287
|
|
|
$
|
5,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2006,
$0.6 million and $1.6 million, respectively, was
contributed to fund the pension plans. In 2006, we anticipate
contributing an additional $6.2 million to fund the pension
plans.
Our Korean subsidiary participates in an accrued severance plan
that covers employees and directors with one year or more of
service. Eligible plan participants are entitled to receive a
lump-sum payment upon termination of their employment, based on
their length of service and rate of pay at the time of
termination. Accrued severance benefits are estimated assuming
all eligible employees were to terminate their employment at the
balance sheet date. The contributions to the national pension
fund made under the National Pension Plan of the Republic of
Korea are deducted from accrued severance benefit liabilities.
For the three months ended September 30, 2006 and 2005, the
provision recorded for severance benefits was $7.6 million
and $5.9 million, respectively. For the nine months ended
September 30, 2006 and 2005, the provision recorded for
severance benefits was $24.7 million and
$19.6 million, respectively. The balance recorded in other
non-current liabilities for accrued severance at our Korean
subsidiary was $141.1 million, of which $4.0 million
is included in accrued expenses, and $116.4 million at
September 30, 2006 and December 31, 2005, respectively.
|
|
15.
|
Commitments
and Contingencies
|
Indemnifications
and Guarantees
We have indemnified members of our Board of Directors and our
corporate officers against any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that the individual is or
was a director or officer of the company. The individuals are
indemnified, to the fullest extent permitted by law, against
related expenses, judgments, fines and any amounts paid in
settlement. We also maintain directors and officers insurance
coverage in order to mitigate our exposure to these
indemnification obligations. The maximum amount of future
payments is generally unlimited. There is no amount recorded for
these indemnifications at September 30, 2006 and
December 31, 2005. Due to the nature of these
indemnifications, it is not possible to make a reasonable
estimate of the maximum potential loss or range of loss. No
assets are held as collateral and no specific recourse
provisions exist related to these indemnifications.
27
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of September 30, 2006, we have outstanding
$0.2 million of standby letters of credit under our
$100.0 million first lien revolving credit facility and
have available an additional $24.8 million.
Our standard terms and conditions provide for a ninety-day
warranty on our services. Our warranty activity has historically
been immaterial.
Legal
Proceedings
We are currently a party to various legal proceedings, including
those noted below. While we currently believe that the ultimate
outcome of these proceedings, individually and in the aggregate,
will not have a material adverse effect on our financial
position, results of operations or cash flows, litigation and
other legal proceedings are subject to inherent uncertainties.
If an unfavorable ruling or outcome were to occur, there exists
the possibility of a material adverse impact on our results of
operations, financial condition or cash flows. An unfavorable
ruling or outcome could also have a negative impact on the
trading price of our securities. The estimate of the potential
impact from the following legal proceedings on our financial
condition, results of operations or cash flows could change in
the future. We record provisions in our consolidated financial
statements for pending litigation and other legal proceedings
when we determine that an unfavorable outcome is probable and
the amount of the loss can be reasonably estimated. During the
three months ended September 30, 2006 and 2005, no
provision was recorded related to legal matters. During the nine
months ended September 30, 2006 and 2005, we recorded a
provision of $1.0 million and $50.0 million,
respectively related to the epoxy mold compound litigation
discussed below.
Epoxy
Mold Compound Litigation
Much of our recent litigation related to an allegedly defective
epoxy mold compound, formerly used in some of our packaging
services, which was alleged to have been responsible for certain
semiconductor chip failures. As previously disclosed, the cases
of Fujitsu Limited v. Cirrus Logic, Inc., et al.,
Seagate Technology LLC v. Atmel Corporation, et al.,
Fairchild Semiconductor Corporation v. Sumitomo Bakelite
Singapore Pte. Ltd., et al., Maxtor Corporation v.
Koninklijke Philips Electronics N.V., et al., and Maxim
Integrated Products, Inc. v. Amkor Technology, Inc.,
et al. have each been resolved through trial or
settlement, with a complete dismissal or release of all claims.
Other customers of ours have made inquiries in the past about
the epoxy mold compound, which was widely used in the
semiconductor industry, and no assurance can be given that
claims similar to those already asserted will not be made
against us by other customers in the future.
Other
Litigation
Amkor
Technology, Inc. v. Motorola, Inc.
In August 2002, we filed a complaint against Motorola, Inc.
(Motorola) seeking declaratory judgment relating to
a controversy between us and Motorola concerning: (i) the
assignment by Citizen Watch Co., Ltd. (Citizen) to
us of a Patent License Agreement dated January 25, 1996
between Motorola and Citizen (the License Agreement)
and concurrent assignment by Citizen to us of Citizens
interest in U.S. Patents 5,241,133 and 5,216,278 (the
133 and 278 Patents) which patents
relate to BGA packages; and (ii) our obligation to make
certain payments pursuant to an immunity agreement (the
Immunity Agreement) dated June 30, 1993 between
us and Motorola, pending in the Superior Court of the State of
Delaware in and for New Castle County.
We and Motorola resolved the controversy with respect to all
issues relating to the Immunity Agreement, and all claims and
counterclaims filed by the parties in the case relating to the
Immunity Agreement were dismissed or otherwise disposed of
without further litigation. The claims relating to the License
Agreement and the 133 and 278 Patents remained
pending.
We and Motorola both filed motions for summary judgment on the
remaining claims, and oral arguments were heard in September
2003. On October 6, 2003, the Superior Court of Delaware
ruled in favor of us and issued an Opinion and Order granting
our motion for summary judgment and denying Motorolas
motion for summary
28
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
judgment. Motorola filed an appeal in the Supreme Court of
Delaware. In May 2004, the Supreme Court reversed the Superior
Courts decision, and remanded for further development of
the factual record. The bench trial in this matter was concluded
on January 27, 2006. Post-trial briefs were submitted and
post-trial oral arguments were heard by the Court in April 2006.
Additional post-trial oral arguments were heard by the Court on
September 11, 2006. A decision from the Court is still
pending.
Alcatel
Business Systems v. Amkor Technology, Inc., Anam
Semiconductor, Inc.
On November 5, 1999, we agreed to sell certain
semiconductor parts to Alcatel Microelectronics,
N.V. (AME), a subsidiary of Alcatel S.A. The
parts were manufactured for us by Anam Semiconductor, Inc.
(ASI) and delivered to AME. AME transferred the
parts to another Alcatel subsidiary, Alcatel Business Systems
(ABS), which incorporated the parts into cellular
phone products. In early 2001, a dispute arose as to whether the
parts sold by us were defective.
Paris Commercial Court. On March 18,
2002, ABS and its insurer filed suit against us and ASI in the
Paris Commercial Court of France, claiming damages of
approximately 50.4 million Euros (approximately
$63.9 million based on the spot exchange rate at
September 30, 2006.) We have denied all liability and have
not established a loss accrual associated with this claim.
Additionally, we have entered into a written agreement with ASI
whereby ASI has agreed to indemnify us fully against any and all
loss related to the claims of AME, ABS and ABS insurer.
The Paris Commercial Court commenced a special proceeding before
a technical expert to report on the facts of the dispute. The
report of the court-appointed expert was put forth on
December 31, 2003. The report does not specifically
allocate liability to any particular party. On May 18,
2004, the Paris Commercial Court of France declared that it did
not have jurisdiction over the matter. The Court of Appeal of
Paris heard the appeal regarding jurisdiction during October
2004, confirmed the first tier ruling and dismissed the appeal
on November 3, 2004. A motion was filed by ABS and its
insurer before the French Supreme Court to challenge the lack of
jurisdiction ruling and a brief was filed by ABS and its insurer
in June 2005. We filed a response brief before the French
Supreme Court in August 2005.
Arbitration. In response to the French lawsuit
described above, on May 22, 2002, we filed a petition to
compel arbitration in the United States District Court for the
Eastern District of Pennsylvania against ABS, AME and ABS
insurer, claiming that the dispute is subject to the arbitration
clause of the November 5, 1999 agreement between us and
AME. ABS and ABS insurer have refused to arbitrate and
continue to challenge the lack of jurisdiction ruling. The
arbitration proceeding has been stayed pending resolution of the
French lawsuit described above.
Amkor
Technology, Inc. v. Carsem (M) Sdn Bhd, Carsem
Semiconductor Sdn Bhd, and Carsem Inc.
In November 2003, we filed a complaint against Carsem
(M) Sdn Bhd, Carsem Semiconductor Sdn Bhd, and Carsem Inc.
(collectively Carsem) with the International Trade
Commission (ITC) in Washington, D.C., alleging
infringement of our United States Patent Nos. 6,433,277;
6,455,356 and 6,630,728 (collectively the Amkor
Patents) and seeking an exclusionary order barring the
importation by Carsem of infringing products. Subsequently, we
filed a complaint in the Northern District of California,
alleging infringement of the Amkor Patents and seeking an
injunction enjoining Carsem from further infringing the Amkor
Patents, treble damages plus interest, costs and attorneys
fees. We allege that by making, using, selling, offering for
sale, or importing into the U.S. the Carsem Dual and Quad
Flat No-Lead Package, Carsem has infringed on one or more of our
MicroLeadFrame®
packaging technology claims in the Amkor Patents. The District
Court action had been stayed pending resolution of the ITC case.
The ITC Administrative Law Judge (ALJ) conducted an
evidentiary hearing during July and August of 2004 in Washington
D.C. and issued an initial determination that Carsem infringed
some of our patent claims relating to our
MicroLeadFrame®
package technology, that some of our 21 asserted patent claims
are valid, and that all of our asserted patent claims are
enforceable. However, the ALJ did not find a statutory violation
of the Tariff Act.
29
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We filed a petition in November 2004 to have the ALJs
ruling reviewed by the full International Trade Commission. The
ITC ordered a new claims construction related to various
disputed claim terms and remanded the case to the ALJ for
further proceedings. On November 9, 2005, the ALJ issued an
Initial Determination that Carsem infringed some of our patent
claims and ruled that Carsem violated Section 337 of the
Tariff Act. The ITC subsequently authorized the ALJ to reopen
the record on certain discovery issues related to third party
conception documents. On February 9, 2006, the ITC ordered
a delay in issuance of the Final Determination, pending
resolution of the discovery issues related to third party
conception documents. The discovery issues are the subject of a
subpoena enforcement action which is pending in the District
Court for the District of Columbia; a schedule has not yet been
established for that action. The case we filed in 2003 in the
Northern District of California remains stayed pending
completion of the ITC investigation.
Tessera,
Inc. v. Amkor Technology, Inc.
On March 2, 2006, Tessera, Inc. filed a Request for
Arbitration (the Request) with the International
Court of Arbitration of the International Chamber of Commerce,
captioned Tessera, Inc. v. Amkor Technology, Inc.
The Request seeks substantial monetary damages and claims, among
other things, that Amkor is in breach of its license agreement
with Tessera as a result of Amkors failure to pay Tessera
royalties allegedly due on certain packages Amkor assembles for
some of its customers. The Request seeks monetary damages in the
amount of approximately $100 million. We dispute the claims
in the Request, and have denied all liability. We believe we
have meritorious defenses in this matter, and intend to defend
ourselves vigorously and seek judgment in our favor in due
course.
Securities
Class Action Litigation
On January 23, 2006, a purported securities class action
suit entitled Nathan Weiss et al. v. Amkor
Technology, Inc. et al., was filed in
U.S. District Court for the Eastern District of
Pennsylvania against Amkor and certain of its current and former
officers. Subsequently, other law firms filed two similar cases,
which were consolidated with the initial complaint. On
August 15, 2006, plaintiffs filed an amended complaint
adding additional officer, director and former director
defendants and alleging improprieties in certain option grants.
The amended complaint further alleges that defendants improperly
recorded and accounted for the options in violation of generally
accepted accounting principles and made materially false and
misleading statements and omissions in its disclosures in
violation of the federal securities laws, during the period from
July 2001 to July 2006. The amended complaint seeks
certification as a class action pursuant to Fed. R. Civ.
Proc. 23, compensatory damages, costs and expenses, and
such other further relief as the Court deems just and proper.
Shareholder
Derivative Lawsuits
On February 23, 2006, a purported shareholder derivative
lawsuit entitled Scimeca v. Kim, et al. was
filed in the U.S. District Court for the District of
Arizona against certain of Amkors current and former
officers and directors. Amkor is named as a nominal defendant.
The complaint includes claims for breach of fiduciary duty,
abuse of control, waste of corporate assets, unjust enrichment
and mismanagement, and is generally based on the same
allegations as in the securities class action litigation
described above. In September 2006, the plaintiff amended the
complaint to add allegations relating to option grants and added
additional defendants, including the remaining members of the
current board, former board members, and former officers.
On March 2, 2006, a purported shareholder derivative
lawsuit entitled Kahn v. Kim, et al. was filed
in the Superior Court of the State of Arizona against certain of
Amkors current and former officers and directors. Amkor is
named as a nominal defendant. The complaint includes claims for
breach of fiduciary duty and unjust enrichment, and is based on
allegations similar to those made in the previously filed
federal shareholder derivative action. This action has been
stayed pending resolution of the federal derivative suit
referenced above.
On or about October 10, 2006, a purported shareholder
derivative lawsuit entitled Feldgus v. Kim,
et al. was filed in the Superior Court of the State of
Arizona against certain of Amkors current and former
officers and
30
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
directors. Amkor is named as a nominal defendant. The complaint
includes claims for breach of fiduciary duty and unjust
enrichment and contains allegations relating to option grants
similar to those made in the previously filed federal
shareholder derivative action referred to above.
The derivative complaints seek monetary damages, an order
directing the Company to take all necessary actions to improve
corporate governance as may be necessary, equitable
and/or
injunctive relief as permitted by law, disgorgement,
restitution, costs, fees, expenses and such other relief as the
Court deems just and proper.
Other
Legal Matters
Securities
and Exchange Commission Investigation
In August 2005, the Securities and Exchange Commission
(SEC) issued a formal order of investigation
regarding certain activities with respect to Amkor securities.
As previously announced, the primary focus of the investigation
appears to be activities during the period from June 2003 to
July 2004. Amkor believes that the investigation continues to
relate primarily to transactions in the Companys
securities by certain individuals, and that the investigation
may in part relate to whether tipping with respect to trading in
Amkor securities occurred. The matters at issue involve
activities with respect to Amkor securities during the subject
period by certain insiders or former insiders and persons or
entities associated with them, including activities by or on
behalf of certain current and former members of the Board of
Directors and Amkors Chief Executive Officer. Amkor has
cooperated fully with the SEC on the formal investigation and
the informal inquiry that preceded it. Amkor cannot predict the
outcome of the investigation.
As described in Note 2, Restatement of Consolidated
Financial Statement, Special Committee and Company
Finding, in July 2006, the Board of Directors established
a Special Committee to review our historical stock option
practices and informed the SEC of these efforts. The SEC
informed us that it is expanding the scope of its investigation
and has requested that we provide documentation related to these
matters. We intend to continue to cooperate with the SEC.
Listing
on The NASDAQ Stock Market
On August 14, 2006, we received a written Staff
Determination notice from the NASDAQ Stock Market stating that
we are not in compliance with NASDAQs Marketplace
Rule 4310(c)(14) because we have not timely filed our
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006, and that, therefore,
Amkors securities are subject to delisting. On
August 21, 2006, we appealed the Staffs delisting
determination to the NASDAQ Listings Qualifications Panel
(Panel) and requested an oral hearing before the
Panel. On August 24, 2006, the NASDAQ Staff confirmed that
our appeal had stayed the delisting action pending a final
written decision by the Panel. A hearing before the Panel
occurred on September 26, 2006. Subsequent to the filing
of our June 30, 2006 Quarterly Report on
Form 10-Q,
the Panel, on October 18, 2006, informed us of their
finding that we are in compliance with all applicable NASDAQ
listing standards, and granted our request for continued listing
on the NASDAQ Stock Market.
|
|
16.
|
Related
Party Transactions
|
In November 2005, we sold $100.0 million of our 6.25%
Convertible Subordinated Notes due 2013 in a private placement
to James J. Kim, Chairman and Chief Executive Officer, and
certain Kim family trusts. The 2013 Notes are convertible into
Amkors common stock and are subordinated to the prior
payment in full of all of Amkors senior and senior
subordinated debt. In March 2006, we filed a registration
statement with the SEC to affect the registration of the notes
and the common stock issuable upon conversion of the notes. See
Note 12 for additional information.
Mr. JooHo Kim is an employee of Amkor and a brother of
Mr. James J. Kim, our Chairman and CEO. Mr. JooHo Kim
owns, together with other Kim family members, 58.11% of Anam
Information Technology, Inc., a
31
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
company that provided computer hardware and software components
to Amkor Technology Korea, Inc. (a subsidiary of Amkor). As of
September 30, 2006, services are no longer being provided.
For the three months ended September 30, 2006 and 2005,
purchases from Anam Information Technology, Inc. were less than
$0.1 million and $1.0 million, respectively. For the
nine months ended September 30, 2006 and 2005, purchases
from Anam Information Technology, Inc. were $0.3 million
and $1.6 million, respectively. Amounts due to Anam
Information Technology, Inc. at September 30, 2006, and
December 31, 2005 were less than $0.1 million and
$0.3 million, respectively.
Mr. JooHo Kim, together with his wife and children, owns
96.1% of Jesung C&M, a company that provides cafeteria
services to Amkor Technology Korea, Inc. For each of the three
months ended September 30, 2006 and 2005, purchases from
Jesung C&M were $1.6 million. For each of the nine
months ended September 30, 2006 and 2005, purchases from
Jesung C&M were $4.9 million. Amounts due to Jesung
C&M at September 30, 2006 and December 31, 2005
were $0.5 million.
Dongan Engineering Co., Ltd. was 100% owned by Mr. JooCheon
Kim, a brother of Mr. James J. Kim, until the third quarter
of 2005. There is no longer any related party ownership.
Mr. JooCheon Kim is not an employee of Amkor. Dongan
Engineering Co., Ltd. provides, construction and maintenance
services to Amkor Technology Korea, Inc. and Amkor Technology
Philippines, Inc. subsidiaries of Amkor. For the three and nine
months ended September 30, 2005, purchases from Dongan
Engineering Co., Ltd. were $0.1 million and
$0.5 million, respectively.
We purchase leadframe inventory from Acqutek
Semiconductor & Technology Co., Ltd. Mr. James
J. Kims ownership in Acqutek Semiconductor &
Technology Co., Ltd. is approximately 17.7%. For the three
months ended September 30, 2006 and 2005, purchases from
Acqutek Semiconductor & Technology Co., Ltd. were
$4.3 million and $3.1 million, respectively. For the
nine months ended September 30, 2006 and 2005, purchases
from Acqutek Semiconductor & Technology Co., Ltd. were
$11.7 million and $8.3 million, respectively. Amounts
due to Acqutek Semiconductor & Technology Co., Ltd. at
September 30, 2006 and December 31, 2005 were
$2.0 million and $1.4 million, respectively.
As of September 30, 2006, we were owed $0.3 million
from members of the Kim family for reimbursement of personal
travel costs.
We lease office space in West Chester, Pennsylvania from trusts
related to Mr. James J. Kim. Amounts paid for this lease
for the three months ended September 30, 2006 and 2005 were
less than $0.1 million. Amounts paid for this lease for the
nine months ended September 30, 2006 and 2005 were less
than $0.1 million and $1.3 million, respectively. We
vacated a portion of this space in connection with the move of
our corporate headquarters to Arizona. We currently lease
approximately 2,700 square feet of office space from these
trusts. The sublease income has been assigned to the trusts as
part of vacating the office space effective July 1, 2005.
For the three and nine months ended September 30, 2005, our
sublease income includes $0.1 million and
$0.4 million, respectively, from related parties.
In accordance with SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information, in the
second quarter of 2006 we determined we had two reportable
segments, packaging and test. Due to the expansion of our test
operations, we no longer met the aggregation criteria under
which packaging and test were previously considered a single
reportable segment. We have included all prior period
comparative information on the basis of the current reportable
segments. Packaging and test are integral parts of the process
of manufacturing semiconductor devices and our customers will
engage with us for both packaging and test services or just
packaging or test services. Our packaging services process
creates an electrical interconnect between the semiconductor
chip and the system board through wire bonding or bumping
technologies. In packaging, individual chips are separated from
the fabricated semiconductor wafers, attached to a substrate and
then encased in a protective material to
32
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provide optimal electrical connectivity and thermal performance.
Our test services include the probing of fabricated wafers and
testing of packaged chips using sophisticated equipment to
ensure that design specifications are satisfied.
The accounting policies for segment reporting are the same as
those for our consolidated financial statements. We evaluate our
operating segments based on gross margin and gross property,
plant and equipment. We do not specifically identify and
allocate total assets by operating segment. Summarized financial
information concerning reportable segments is shown in the
following table. The other column includes other
corporate adjustments, sales office and corporate property,
plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
|
Test
|
|
|
Other
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
640,885
|
|
|
$
|
73,120
|
|
|
$
|
(176
|
)
|
|
$
|
713,829
|
|
Gross profit
|
|
|
155,144
|
|
|
|
22,815
|
|
|
|
(192
|
)
|
|
|
177,767
|
|
Three Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
497,225
|
|
|
|
52,511
|
|
|
|
(95
|
)
|
|
|
549,641
|
|
Gross profit, as restated
|
|
|
79,488
|
|
|
|
10,852
|
|
|
|
(41
|
)
|
|
|
90,299
|
|
Nine Months Ended
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,841,102
|
|
|
|
205,042
|
|
|
|
(595
|
)
|
|
|
2,045,549
|
|
Gross profit
|
|
|
437,559
|
|
|
|
64,900
|
|
|
|
(633
|
)
|
|
|
501,826
|
|
Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,320,496
|
|
|
|
135,963
|
|
|
|
(2
|
)
|
|
|
1,456,457
|
|
Gross profit, as restated
|
|
|
183,681
|
|
|
|
16,339
|
|
|
|
80
|
|
|
|
200,100
|
|
Gross Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
2,444,106
|
|
|
|
584,203
|
|
|
|
112,810
|
|
|
|
3,141,119
|
|
December 31, 2005
|
|
|
2,363,332
|
|
|
|
516,883
|
|
|
|
108,006
|
|
|
|
2,988,221
|
|
|
|
18.
|
Subsidiary
Guarantors
|
As of September 30, 2006, payment obligations under our
senior and senior subordinated notes, excluding the 2011 Notes
(see Note 12), totaling $1,183.9 million are fully and
unconditionally guaranteed by certain of our wholly-owned
subsidiaries. The subsidiaries that guarantee our senior and
senior subordinated notes as of September 30, 2006, consist
of Unitive, UEI and AIH. During the second quarter of 2006, we
entered into supplemental indentures on our senior and senior
subordinated notes that reflect the release from guarantee of
P-Four LLC
as a result of that entitys liquidation. The supplemental
indentures also released Amkor Technology Limited and Amkor
Technology Philippines from their prior guarantees. All prior
period comparable information has been retrospectively adjusted
to reflect the guarantors as defined in the supplemental
indenture. We are in the process of consolidating a number of
our subsidiaries, and we expect that before the end of 2006, all
of the remaining guarantees of the senior and senior
subordinated notes will terminate or be released in accordance
with the terms of the related indentures governing the notes in
connection with such consolidation, although there can be no
assurances that we will accomplish this.
Presented below is condensed consolidating financial information
for the parent, Amkor Technology, Inc., the currently existing
guarantor subsidiaries and the non-guarantor subsidiaries.
Investments in subsidiaries are accounted for by the parent and
subsidiaries on the equity method of accounting. Earnings of
subsidiaries are, therefore, reflected in the parents and
guarantor subsidiaries investments in subsidiaries
accounts. The elimination columns eliminate investments in
subsidiaries and inter-company balances and transactions.
Separate financial statements and other disclosures concerning
the guarantor subsidiaries are not presented because the
33
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
guarantor subsidiaries are wholly-owned and have unconditionally
guaranteed the senior notes and senior subordinated notes on a
joint and several basis. There are no restrictions on the
ability of any guarantor subsidiary to directly or indirectly
make distributions to us.
Condensed
Consolidating Statement of Operations
For the three months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
584,172
|
|
|
$
|
6,858
|
|
|
$
|
457,167
|
|
|
$
|
(334,368
|
)
|
|
$
|
713,829
|
|
Cost of sales
|
|
|
514,020
|
|
|
|
8,752
|
|
|
|
344,367
|
|
|
|
(331,077
|
)
|
|
|
536,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
70,152
|
|
|
|
(1,894
|
)
|
|
|
112,800
|
|
|
|
(3,291
|
)
|
|
|
177,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
36,498
|
|
|
|
1,775
|
|
|
|
33,495
|
|
|
|
(3,291
|
)
|
|
|
68,477
|
|
Research and development
|
|
|
4,312
|
|
|
|
166
|
|
|
|
5,175
|
|
|
|
|
|
|
|
9,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,810
|
|
|
|
1,941
|
|
|
|
38,670
|
|
|
|
(3,291
|
)
|
|
|
78,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
29,342
|
|
|
|
(3,835
|
)
|
|
|
74,130
|
|
|
|
|
|
|
|
99,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
16,825
|
|
|
|
169
|
|
|
|
19,579
|
|
|
|
|
|
|
|
36,573
|
|
Interest expense, related party
|
|
|
1,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
Foreign currency loss (gain), net
|
|
|
29
|
|
|
|
|
|
|
|
6,436
|
|
|
|
|
|
|
|
6,465
|
|
Other (income) expense, net
|
|
|
(40,795
|
)
|
|
|
(45,130
|
)
|
|
|
(752
|
)
|
|
|
85,779
|
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(22,378
|
)
|
|
|
(44,961
|
)
|
|
|
25,263
|
|
|
|
85,779
|
|
|
|
43,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interests
|
|
|
51,720
|
|
|
|
41,126
|
|
|
|
48,867
|
|
|
|
(85,779
|
)
|
|
|
55,914
|
|
Income tax expense (benefit)
|
|
|
(1,090
|
)
|
|
|
(12
|
)
|
|
|
3,983
|
|
|
|
|
|
|
|
2,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interests
|
|
|
52,810
|
|
|
|
41,138
|
|
|
|
44,884
|
|
|
|
(85,779
|
)
|
|
|
53,033
|
|
Minority interests, net of tax
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
52,810
|
|
|
$
|
41,138
|
|
|
$
|
44,661
|
|
|
$
|
(85,779
|
)
|
|
$
|
52,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations
For the three months ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
378,005
|
|
|
$
|
5,272
|
|
|
$
|
434,077
|
|
|
$
|
(267,713
|
)
|
|
$
|
549,641
|
|
Cost of sales
|
|
|
337,933
|
|
|
|
6,082
|
|
|
|
380,062
|
|
|
|
(264,735
|
)
|
|
|
459,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
40,072
|
|
|
|
(810
|
)
|
|
|
54,015
|
|
|
|
(2,978
|
)
|
|
|
90,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
23,639
|
|
|
|
1,794
|
|
|
|
37,179
|
|
|
|
(2,979
|
)
|
|
|
59,633
|
|
Research and development
|
|
|
(3,286
|
)
|
|
|
77
|
|
|
|
12,079
|
|
|
|
|
|
|
|
8,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
20,353
|
|
|
|
1,871
|
|
|
|
49,258
|
|
|
|
(2,979
|
)
|
|
|
68,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
19,719
|
|
|
|
(2,681
|
)
|
|
|
4,757
|
|
|
|
1
|
|
|
|
21,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
23,853
|
|
|
|
170
|
|
|
|
16,836
|
|
|
|
|
|
|
|
40,859
|
|
Foreign currency loss (gain), net
|
|
|
5,226
|
|
|
|
2
|
|
|
|
(1,057
|
)
|
|
|
|
|
|
|
4,171
|
|
Other (income) expense, net
|
|
|
11,898
|
|
|
|
1,313
|
|
|
|
(368
|
)
|
|
|
(12,449
|
)
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
40,977
|
|
|
|
1,485
|
|
|
|
15,411
|
|
|
|
(12,449
|
)
|
|
|
45,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interests
|
|
|
(21,258
|
)
|
|
|
(4,166
|
)
|
|
|
(10,654
|
)
|
|
|
12,450
|
|
|
|
(23,628
|
)
|
Income tax expense
|
|
|
(1,745
|
)
|
|
|
41
|
|
|
|
(1,161
|
)
|
|
|
|
|
|
|
(2,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interests
|
|
|
(19,513
|
)
|
|
|
(4,207
|
)
|
|
|
(9,493
|
)
|
|
|
12,450
|
|
|
|
(20,763
|
)
|
Minority interests, net of tax
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,513
|
)
|
|
$
|
(4,207
|
)
|
|
$
|
(8,243
|
)
|
|
$
|
12,450
|
|
|
$
|
(19,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
1,672,915
|
|
|
$
|
19,604
|
|
|
$
|
1,294,209
|
|
|
$
|
(941,179
|
)
|
|
$
|
2,045,549
|
|
Cost of sales
|
|
|
1,439,856
|
|
|
|
22,282
|
|
|
|
1,011,514
|
|
|
|
(929,931
|
)
|
|
|
1,543,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
233,059
|
|
|
|
(2,678
|
)
|
|
|
282,695
|
|
|
|
(11,248
|
)
|
|
|
501,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
104,106
|
|
|
|
5,429
|
|
|
|
89,361
|
|
|
|
(11,248
|
)
|
|
|
187,648
|
|
Research and development
|
|
|
4,128
|
|
|
|
415
|
|
|
|
24,855
|
|
|
|
|
|
|
|
29,398
|
|
Provision for legal settlements
and contingencies
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
109,234
|
|
|
|
5,844
|
|
|
|
114,216
|
|
|
|
(11,248
|
)
|
|
|
218,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
123,825
|
|
|
|
(8,522
|
)
|
|
|
168,479
|
|
|
|
|
|
|
|
283,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
59,440
|
|
|
|
493
|
|
|
|
58,397
|
|
|
|
|
|
|
|
118,330
|
|
Interest expense, related party
|
|
|
4,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,914
|
|
Foreign currency loss (gain), net
|
|
|
(2,183
|
)
|
|
|
|
|
|
|
13,655
|
|
|
|
|
|
|
|
11,472
|
|
Debt retirement costs, net
|
|
|
27,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,389
|
|
Other (income) expense, net
|
|
|
(78,509
|
)
|
|
|
(61,372
|
)
|
|
|
(3,952
|
)
|
|
|
145,330
|
|
|
|
1,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
11,051
|
|
|
|
(60,879
|
)
|
|
|
68,100
|
|
|
|
145,330
|
|
|
|
163,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interests
|
|
|
112,774
|
|
|
|
52,357
|
|
|
|
100,379
|
|
|
|
(145,330
|
)
|
|
|
120,180
|
|
Income tax expense
|
|
|
1,737
|
|
|
|
|
|
|
|
6,728
|
|
|
|
|
|
|
|
8,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interests
|
|
|
111,037
|
|
|
|
52,357
|
|
|
|
93,651
|
|
|
|
(145,330
|
)
|
|
|
111,715
|
|
Minority interests, net of tax
|
|
|
|
|
|
|
|
|
|
|
(678
|
)
|
|
|
|
|
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
111,037
|
|
|
$
|
52,357
|
|
|
$
|
92,973
|
|
|
$
|
(145,330
|
)
|
|
$
|
111,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations
For the nine months ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
989,778
|
|
|
$
|
13,887
|
|
|
$
|
1,159,179
|
|
|
$
|
(706,387
|
)
|
|
$
|
1,456,457
|
|
Cost of sales
|
|
|
886,446
|
|
|
|
16,250
|
|
|
|
1,050,834
|
|
|
|
(697,173
|
)
|
|
|
1,256,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
103,332
|
|
|
|
(2,363
|
)
|
|
|
108,345
|
|
|
|
(9,214
|
)
|
|
|
200,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
89,909
|
|
|
|
4,493
|
|
|
|
101,870
|
|
|
|
(9,215
|
)
|
|
|
187,057
|
|
Research and development
|
|
|
(2,114
|
)
|
|
|
208
|
|
|
|
29,600
|
|
|
|
|
|
|
|
27,694
|
|
Provision for legal settlements
and contingencies
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
137,795
|
|
|
|
4,701
|
|
|
|
131,470
|
|
|
|
(9,215
|
)
|
|
|
264,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(34,463
|
)
|
|
|
(7,064
|
)
|
|
|
(23,125
|
)
|
|
|
1
|
|
|
|
(64,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
72,242
|
|
|
|
430
|
|
|
|
50,095
|
|
|
|
|
|
|
|
122,767
|
|
Foreign currency loss, net
|
|
|
5,530
|
|
|
|
65
|
|
|
|
(965
|
)
|
|
|
|
|
|
|
4,630
|
|
Other (income) expense, net
|
|
|
79,788
|
|
|
|
27,548
|
|
|
|
23,501
|
|
|
|
(128,202
|
)
|
|
|
2,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
157,560
|
|
|
|
28,043
|
|
|
|
72,631
|
|
|
|
(128,202
|
)
|
|
|
130,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interests
|
|
|
(192,023
|
)
|
|
|
(35,107
|
)
|
|
|
(95,756
|
)
|
|
|
128,203
|
|
|
|
(194,683
|
)
|
Income tax expense
|
|
|
(852
|
)
|
|
|
76
|
|
|
|
451
|
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interests
|
|
|
(191,171
|
)
|
|
|
(35,183
|
)
|
|
|
(96,207
|
)
|
|
|
128,203
|
|
|
|
(194,358
|
)
|
Minority interests, net of tax
|
|
|
|
|
|
|
|
|
|
|
3,187
|
|
|
|
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(191,171
|
)
|
|
$
|
(35,183
|
)
|
|
$
|
(93,020
|
)
|
|
$
|
128,203
|
|
|
$
|
(191,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,282
|
|
|
$
|
3,944
|
|
|
$
|
96,341
|
|
|
$
|
|
|
|
$
|
190,567
|
|
Restricted cash
|
|
|
2,445
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
2,570
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance
|
|
|
316,508
|
|
|
|
3,373
|
|
|
|
105,470
|
|
|
|
|
|
|
|
425,351
|
|
Other
|
|
|
2,894
|
|
|
|
|
|
|
|
3,663
|
|
|
|
|
|
|
|
6,557
|
|
Inventories, net
|
|
|
115,158
|
|
|
|
975
|
|
|
|
48,271
|
|
|
|
|
|
|
|
164,404
|
|
Other current assets
|
|
|
6,473
|
|
|
|
723
|
|
|
|
31,483
|
|
|
|
|
|
|
|
38,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
533,760
|
|
|
|
9,140
|
|
|
|
285,228
|
|
|
|
|
|
|
|
828,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
|
|
|
1,078,762
|
|
|
|
(367
|
)
|
|
|
(1,078,395
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
36,280
|
|
|
|
21,064
|
|
|
|
1,399,209
|
|
|
|
|
|
|
|
1,456,553
|
|
Goodwill
|
|
|
37,188
|
|
|
|
7,905
|
|
|
|
626,441
|
|
|
|
|
|
|
|
671,534
|
|
Intangibles, net
|
|
|
14,074
|
|
|
|
3,706
|
|
|
|
14,288
|
|
|
|
|
|
|
|
32,068
|
|
Investments
|
|
|
753,788
|
|
|
|
549,625
|
|
|
|
691,212
|
|
|
|
(1,986,831
|
)
|
|
|
7,794
|
|
Restricted Cash
|
|
|
|
|
|
|
|
|
|
|
1,755
|
|
|
|
|
|
|
|
1,755
|
|
Other assets
|
|
|
31,536
|
|
|
|
(790
|
)
|
|
|
19,003
|
|
|
|
|
|
|
|
49,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,485,388
|
|
|
|
590,283
|
|
|
|
1,958,741
|
|
|
|
(1,986,831
|
)
|
|
|
3,047,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings and current
portion of long-term debt
|
|
|
142,423
|
|
|
|
|
|
|
|
58,129
|
|
|
|
|
|
|
|
200,552
|
|
Other current liabilities
|
|
|
209,697
|
|
|
|
4,376
|
|
|
|
264,918
|
|
|
|
|
|
|
|
478,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
352,120
|
|
|
|
4,376
|
|
|
|
323,047
|
|
|
|
|
|
|
|
679,543
|
|
Long-term debt
|
|
|
1,673,909
|
|
|
|
|
|
|
|
53,291
|
|
|
|
|
|
|
|
1,727,200
|
|
Long-term debt, related party
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Other noncurrent liabilities
|
|
|
12,790
|
|
|
|
90
|
|
|
|
177,323
|
|
|
|
|
|
|
|
190,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,138,819
|
|
|
|
4,466
|
|
|
|
553,661
|
|
|
|
|
|
|
|
2,696,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
4,066
|
|
|
|
|
|
|
|
4,066
|
|
Total stockholders equity
|
|
|
346,569
|
|
|
|
585,817
|
|
|
|
1,401,014
|
|
|
|
(1,986,831
|
)
|
|
|
346,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,485,388
|
|
|
$
|
590,283
|
|
|
$
|
1,958,741
|
|
|
$
|
(1,986,831
|
)
|
|
$
|
3,047,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
106,833
|
|
|
$
|
3,244
|
|
|
$
|
96,498
|
|
|
$
|
|
|
|
$
|
206,575
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance
|
|
|
263,022
|
|
|
|
3,279
|
|
|
|
115,194
|
|
|
|
|
|
|
|
381,495
|
|
Other
|
|
|
4,489
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
5,089
|
|
Inventories, net
|
|
|
94,813
|
|
|
|
598
|
|
|
|
42,698
|
|
|
|
|
|
|
|
138,109
|
|
Other current assets
|
|
|
4,049
|
|
|
|
198
|
|
|
|
30,975
|
|
|
|
|
|
|
|
35,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
473,206
|
|
|
|
7,319
|
|
|
|
285,965
|
|
|
|
|
|
|
|
766,490
|
|
Intercompany
|
|
|
1,211,929
|
|
|
|
10,317
|
|
|
|
(1,222,246
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
41,574
|
|
|
|
18,453
|
|
|
|
1,359,445
|
|
|
|
|
|
|
|
1,419,472
|
|
Goodwill
|
|
|
37,188
|
|
|
|
7,905
|
|
|
|
608,624
|
|
|
|
|
|
|
|
653,717
|
|
Intangibles, net
|
|
|
16,763
|
|
|
|
4,059
|
|
|
|
17,569
|
|
|
|
|
|
|
|
38,391
|
|
Investments
|
|
|
629,599
|
|
|
|
742,083
|
|
|
|
846,366
|
|
|
|
(2,208,380
|
)
|
|
|
9,668
|
|
Changes in restricted cash
|
|
|
|
|
|
|
|
|
|
|
1,747
|
|
|
|
|
|
|
|
1,747
|
|
Other assets
|
|
|
45,624
|
|
|
|
510
|
|
|
|
19,472
|
|
|
|
|
|
|
|
65,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,455,883
|
|
|
|
790,646
|
|
|
|
1,916,942
|
|
|
|
(2,208,380
|
)
|
|
|
2,955,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings and current
portion of long-term debt
|
|
|
133,823
|
|
|
|
|
|
|
|
50,566
|
|
|
|
|
|
|
|
184,389
|
|
Other current liabilities
|
|
|
206,579
|
|
|
|
3,040
|
|
|
|
241,120
|
|
|
|
|
|
|
|
450,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
340,402
|
|
|
|
3,040
|
|
|
|
291,686
|
|
|
|
|
|
|
|
635,128
|
|
Long-term debt
|
|
|
1,790,579
|
|
|
|
|
|
|
|
65,668
|
|
|
|
|
|
|
|
1,856,247
|
|
Long-term debt, related party
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Other noncurrent liabilities
|
|
|
997
|
|
|
|
15
|
|
|
|
134,849
|
|
|
|
|
|
|
|
135,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,231,978
|
|
|
|
3,055
|
|
|
|
492,203
|
|
|
|
|
|
|
|
2,727,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
Minority interests
|
|
|
|
|
|
|
|
|
|
|
3,950
|
|
|
|
|
|
|
|
3,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
223,905
|
|
|
|
787,591
|
|
|
|
1,420,789
|
|
|
|
(2,208,380
|
)
|
|
|
223,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,455,883
|
|
|
$
|
790,646
|
|
|
$
|
1,916,942
|
|
|
$
|
(2,208,380
|
)
|
|
$
|
2,955,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash flows provided by
operating activities
|
|
$
|
64,287
|
|
|
$
|
9,864
|
|
|
$
|
285,292
|
|
|
|
21,213
|
|
|
$
|
380,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and
equipment
|
|
|
(8,728
|
)
|
|
|
(5,980
|
)
|
|
|
(237,693
|
)
|
|
|
|
|
|
|
(252,401
|
)
|
Proceeds from the sale of
property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
2,524
|
|
|
|
|
|
|
|
2,524
|
|
Restricted cash
|
|
|
(2,445
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,578
|
)
|
Other investing activities
|
|
|
(21,307
|
)
|
|
|
(3,051
|
)
|
|
|
(98,543
|
)
|
|
|
122,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(32,480
|
)
|
|
|
(9,164
|
)
|
|
|
(333,712
|
)
|
|
|
122,901
|
|
|
|
(252,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit
facilities
|
|
|
|
|
|
|
|
|
|
|
143,659
|
|
|
|
|
|
|
|
143,659
|
|
Payments under revolving credit
facilities
|
|
|
|
|
|
|
|
|
|
|
(134,419
|
)
|
|
|
|
|
|
|
(134,419
|
)
|
Proceeds from issuance of
long-term debt
|
|
|
590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590,000
|
|
Payments for debt issuance costs
|
|
|
(15,048
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(15,087
|
)
|
Payments on long-term debt
|
|
|
(720,214
|
)
|
|
|
|
|
|
|
(14,647
|
)
|
|
|
|
|
|
|
(734,861
|
)
|
Proceeds from issuance of stock
through stock compensation plans
|
|
|
4,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,981
|
|
Other financing activities
|
|
|
91,907
|
|
|
|
|
|
|
|
52,207
|
|
|
|
(144,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(48,374
|
)
|
|
|
|
|
|
|
46,761
|
|
|
|
(144,114
|
)
|
|
|
(145,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate
fluctuations on cash and cash equivalents
|
|
|
16
|
|
|
|
|
|
|
|
1,502
|
|
|
|
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(16,551
|
)
|
|
|
700
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
(16,008
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
106,833
|
|
|
|
3,244
|
|
|
|
96,498
|
|
|
|
|
|
|
|
206,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
90,282
|
|
|
$
|
3,944
|
|
|
$
|
96,341
|
|
|
$
|
|
|
|
$
|
190,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
AMKOR
TECHNOLOGY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
For the nine months ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
(In thousands)
|
|
|
Net cash flows provided by (used
in) operating activities
|
|
$
|
(47,786
|
)
|
|
$
|
(11,877
|
)
|
|
$
|
93,540
|
|
|
$
|
(37,170
|
)
|
|
$
|
(3,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of plant, property and
equipment
|
|
|
(6,041
|
)
|
|
|
(5,328
|
)
|
|
|
(215,073
|
)
|
|
|
|
|
|
|
(226,442
|
)
|
Proceeds from sale of property,
plant and equipment
|
|
|
|
|
|
|
51
|
|
|
|
479
|
|
|
|
|
|
|
|
530
|
|
Other investing activities
|
|
|
(153,380
|
)
|
|
|
18,369
|
|
|
|
111,651
|
|
|
|
23,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(159,421
|
)
|
|
|
13,092
|
|
|
|
(102,943
|
)
|
|
|
23,360
|
|
|
|
(225,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in bank overdrafts and
revolving credit facilities
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
Borrowings under revolving credit
facilities
|
|
|
|
|
|
|
|
|
|
|
127,494
|
|
|
|
|
|
|
|
127,494
|
|
Payments under revolving credit
facilities
|
|
|
|
|
|
|
|
|
|
|
(116,811
|
)
|
|
|
|
|
|
|
(116,811
|
)
|
Proceeds from issuance of
long-term debt
|
|
|
|
|
|
|
|
|
|
|
43,586
|
|
|
|
|
|
|
|
43,586
|
|
Payments for debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(15,516
|
)
|
|
|
(821
|
)
|
|
|
(21,699
|
)
|
|
|
|
|
|
|
(38,036
|
)
|
Proceeds from issuance of stock
through stock compensation plan
|
|
|
2,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,738
|
|
Other financing activities
|
|
|
24,389
|
|
|
|
|
|
|
|
(38,199
|
)
|
|
|
13,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
11,509
|
|
|
|
(821
|
)
|
|
|
(5,629
|
)
|
|
|
13,810
|
|
|
|
18,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate
fluctuations on cash and cash equivalents related
|
|
|
(40
|
)
|
|
|
|
|
|
|
(2,390
|
)
|
|
|
|
|
|
|
(2,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(195,738
|
)
|
|
|
394
|
|
|
|
(17,422
|
)
|
|
|
|
|
|
|
(212,766
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
267,692
|
|
|
|
2,359
|
|
|
|
102,233
|
|
|
|
|
|
|
|
372,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
71,954
|
|
|
$
|
2,753
|
|
|
$
|
84,811
|
|
|
$
|
|
|
|
$
|
159,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements
within the meaning of the federal securities laws, including but
not limited to statements regarding: trends in outsourcing and
reductions in inventory, demand and selling prices for our
services and products; construction of our new facilities in
Singapore and China; future capacity utilization rates, revenue,
gross margins and operating performance; our ability to focus
capital investments on increasing wafer bumping, flip chip, test
and advanced laminate packaging capacity; entry into supply
agreements with customers and forecast customer demand;
anticipated tax rate; sufficient cash flows and liquidity to
fund working capital, estimated capital expenditures of
$300 million, and debt service requirements; our
substantial indebtedness; the continued service of key senior
management and technical personnel; increase in the scope and
growth of our operations and ability to implement expansion
plans; our ability to offset an increase in fixed commodity
prices; the favorable outcome of litigation proceedings; our
ability to comply with environmental regulations and foreign
laws; our ability to quickly respond to a natural disaster or
terrorist attack; the condition, growth and cyclical nature of
the semiconductor industry; our contractual obligations; and
other statements that are not historical facts. In some cases,
you can identify forward-looking statements by terminology such
as may, will, should,
expects, plans, anticipates,
believes, estimates,
predicts, potential,
continue, intend or the negative of
these terms or other comparable terminology. Because such
statements include risks and uncertainties, actual results may
differ materially from those anticipated in such
forward looking statements as a result of certain
factors, including those set forth in the following discussion
as well as in Risk Factors that May Affect Future
Operating Performance set forth in this quarterly report
on
Form 10-Q
in Part II, Item 1A Risk Factors. The
following discussion provides information and analysis of our
results of operations for the three and nine months ended
September 30, 2006 and our liquidity and capital resources.
You should read the following discussion in conjunction with our
condensed consolidated financial statements and the related
notes included elsewhere in this quarterly report, as well as
other reports we file with the Securities and Exchange
Commission.
Restatement
of Consolidated Financial Statements, Special Committee and
Company Findings
As a result of a report by a third party financial analyst
issued on May 25, 2006, we commenced an initial review of
our historical stock option granting practices. This review
included a review of hard copy documents as well as a limited
set of electronic documents. Following this initial review, on
July 24, 2006 our Board of Directors established a Special
Committee comprised of independent directors to conduct a review
of our historical stock option granting practices during the
period from our initial public offering in 1998 through the
present.
Based on the findings of the Special Committee and our internal
review, we identified a number of occasions on which we used an
incorrect measurement date for financial accounting and
reporting purposes. In accordance with Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees
and related interpretations, with respect to the period
through December 31, 2005, we should have recorded
compensation expense in an amount per share subject to each
option to the extent that the fair market value of our stock on
the correct measurement date exceeded the exercise price of the
option. For periods commencing January 1, 2006,
compensation expense is recorded in accordance with Statement of
Financial Accounting Standards No. 123(R)(revised),
Share-Based Payment. We have also identified a number of
other option grants for which we failed to properly apply the
provisions of APB No. 25 or SFAS No. 123 and
related interpretations of each pronouncement. In considering
the causes of the accounting errors set forth below, the Special
Committee concluded that the evidence does not support a finding
of intentional manipulation of stock option grant pricing by any
member of existing management. However, based on its review, the
Special Committee identified evidence that supports a finding of
intentional manipulation of stock option pricing with respect to
annual grants in 2001 and 2002 by a former executive and that
other former executives may have been aware of, or participated
in this conduct. In addition the Special Committee
42
identified a number of other factors related to our internal
controls that contributed to the accounting errors that led to
the restatement. The financial statement impact of these errors,
by type, for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Additional
|
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
Effect
|
|
|
Compensation
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002 1998
|
|
|
Expense
|
|
|
|
(In thousands)
|
|
|
Improper measurement dates for
annual stock option grants
|
|
$
|
299
|
|
|
$
|
255
|
|
|
$
|
7,577
|
|
|
$
|
6,453
|
|
|
$
|
80,984
|
|
|
$
|
95,568
|
|
Modifications to stock option
grants
|
|
|
|
|
|
|
9
|
|
|
|
(536
|
)
|
|
|
711
|
|
|
|
9,345
|
|
|
|
9,529
|
|
Improper measurement dates for
other stock option grants
|
|
|
80
|
|
|
|
64
|
|
|
|
217
|
|
|
|
102
|
|
|
|
1,625
|
|
|
|
2,088
|
|
Stock option grants to
non-employees
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
172
|
|
|
|
1,443
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional compensation expense
|
|
|
379
|
|
|
|
328
|
|
|
|
7,284
|
|
|
|
7,438
|
|
|
|
93,397
|
|
|
|
108,826
|
|
Tax related effects
|
|
|
129
|
|
|
|
18
|
|
|
|
144
|
|
|
|
198
|
|
|
|
(3,294
|
)
|
|
|
(2,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate restatement of net
income (loss)
|
|
$
|
508
|
|
|
$
|
346
|
|
|
$
|
7,428
|
|
|
$
|
7,636
|
|
|
$
|
90,103
|
|
|
$
|
106,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Improper Measurement Dates for Annual Stock Option
Grants. We determined that, in connection with
our annual stock option grants to employees in 1999, 2000, 2001,
2002 and 2004, the number of shares that an individual employee
was entitled to receive was not determined until after the
original grant date, and therefore the measurement date for such
options was subsequent to the original grant date. As a result,
we have restated our historical financial statements to increase
stock-based compensation expense by a total of
$95.6 million recognized over the applicable vesting
periods. For certain of these options forfeited in 2002 in
connection with an option exchange program (2002 Option
Exchange Program), the remaining compensation expense was
accelerated into 2002. For certain other options, compensation
expense was accelerated into 2004, in connection with the
acceleration of all unvested options as of July 1, 2004
(2004 Accelerated Vesting). We undertook the 2004
Accelerated Vesting program for the purpose of enhancing
employee morale, helping retain high potential employees in the
face of a downturn in industry conditions and to avoid future
compensation charges subsequent to the adoption of
SFAS No. 123(R).
Modifications to Stock Option Grants. We
determined that from 1998 through 2005, we had not properly
accounted for stock options modified for certain individuals who
held consulting, transition or advisory roles with us. These
included instances of continued vesting after an individual was
no longer required to provide substantive services to Amkor
after an individual converted from an employee to a consultant
or advisory role, and extensions of option vesting and exercise
periods. Some of these modifications were not identified in our
financial reporting processes and were therefore not properly
reflected in our financial statements. As a result, we have
restated our historical financial statements to increase
stock-based compensation expense by a total of $9.5 million
recognized as of the date of the respective modifications.
Improper Measurement Dates for Other Stock Option
Grants. We determined that from 1998 through
2005, we had not properly accounted for certain employee stock
options granted prior to obtaining authorization of the grants.
These options included those granted as of November 9, 1998
in connection with the settlement of a deferred compensation
liability to employees that had not been approved by our Board
of Directors until November 10, 1998 as well as stock
options granted to new hires and existing employees in
recognition of achievements, promotions, retentions and other
events. As a result of these errors, we have restated our
historical financial statements to increase stock-based
compensation expense by a total of $2.1 million recognized
over the applicable vesting periods. For certain of these option
grants, the recognition of this expense was also accelerated
under the 2002 Option Exchange Program or the 2004 Accelerated
Vesting, as described under Improper Measurement Dates for
Annual Stock Option Grants.
43
Stock Option Grants to Non-employees. We
determined that from 1998 to 2004, we had not properly accounted
for stock option grants issued to employees of an equity
affiliate, consultants, or other persons who did not meet the
definition of an employee. We erroneously accounted for such
grants in accordance with APB No. 25 rather than
SFAS No. 123 and related interpretations. As a result,
we have restated our historical financial statements to increase
stock-based compensation expense by a total of $1.6 million.
All of the foregoing charges were non-cash and had no impact on
our reported net sales or cash or cash equivalents. The
aggregate amount of the additional stock-based compensation
expense that we identified as a result of the stock option
review is approximately $108.8 million through
June 30, 2006.
Incremental stock-based compensation charges of
$108.8 million resulted in deferred income tax benefits of
$3.2 million. Such amount is nominal relative to the amount
of the incremental stock-based compensation charges as we
maintained a full valuation allowance against our domestic
deferred tax assets since 2002 coupled with the fact that
incremental stock-based compensation charges relating to our
foreign subsidiaries were not deductible for local tax purposes
during the relevant periods due to the absence of related
re-charge agreements with those subsidiaries. The
$3.2 million deferred tax benefit resulted primarily from
the write-off of stock-based compensation related deferred tax
assets to additional paid-in capital in 2002; such write-off had
originally been charged to income tax expense in 2002. We also
recorded payroll related taxes totaling $0.4 million
primarily relating to certain of our French employees.
As a result of our determination that the exercise prices of
certain option grants were below the market price of our stock
on the actual grant date, we evaluated whether the affected
employees would have any adverse tax consequences under
Section 409A of the Internal Revenue Code (the
IRC). Because Section 409A relates to the
employees income recognition as stock options vest, when
we accelerated the vesting of all unvested options in July 2004
(the 2004 Accelerated Vesting described under
Improper Measurement Dates for Annual Grants) the
impact of Section 409A was mitigated for substantially all
of our outstanding stock grants. For stock options granted
subsequent to the 2004 Accelerated Vesting, the impact of
Section 409A is not expected to materially impact our
employees and financial statements as a result of various
transition rules and potential remediation efforts. Further we
considered IRC Section 162 (m) and its established
limitation thresholds relating to total remuneration and
concluded, for periods prior to June 30, 2006, that our tax
deductions related to stock-based compensation were not
materially changed as a result of any employee whose
remuneration changed as a result of receiving an option at less
than fair value.
As previously disclosed, we are the subject of an SEC
investigation concerning matters unrelated to our historical
stock option practices. The SEC recently informed us that it is
expanding the scope of its investigation and has requested that
we provide documentation related to our historical stock option
practices. We intend to continue to cooperate with the SEC. As a
result of the restatement, the related disclosures included in
Managements Discussion and Analysis of Financial Condition
and Results or Operations have been revised if indicated as
restated.
As a result of the findings of the Special Committee as well as
our internal review, we concluded that we needed to amend our
Annual Report on
Form 10-K
for the year ended December 31, 2005, originally filed on
March 16, 2006, to restate our consolidated financial
statements for the years ended December 31, 2005, 2004 and
2003 and the related disclosures as well as
Managements Report on Internal Control Over
Financial Reporting as of December 31, 2005. The
Annual Report on
Form 10-K/A
also includes the restatement of selected consolidated financial
data as of and for the years ended December 31, 2005, 2004,
2003, 2002 and 2001, and the unaudited quarterly financial data
for each of the quarters in the years ended December 31,
2005 and 2004. We also concluded that we needed to amend the
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 originally filed on
May 9, 2006, to restate our condensed consolidated
financial statements for the quarters ended March 31, 2006
and 2005 and the related disclosures. We have restated the
June 30, 2005 financial statements in our Quarterly Report
on Form 10-Q
for the quarter ended June 30, 2006. We have restated the
September 30, 2005 financial statements included in this
Form 10-Q.
We have not amended and we do not intend to amend any of our
other previously filed annual reports on
Form 10-K
or quarterly reports on
Form 10-Q
for the periods affected by the restatement or adjustments other
than (i) the amended Quarterly Report on
Form 10-Q/A
for the quarter ended March 31, 2006 and (ii) the
amended Annual Report on
Form 10-K/A
for the year ended December 31, 2005.
44
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our historical financial statements for
the three and nine months ended September 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2005
|
|
|
For the Nine Months Ended September 30, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
549,641
|
|
|
|
|
|
|
$
|
549,641
|
|
|
$
|
1,456,457
|
|
|
$
|
|
|
|
$
|
1,456,457
|
|
Cost of sales
|
|
|
459,297
|
|
|
|
45
|
|
|
|
459,342
|
|
|
|
1,256,220
|
|
|
|
137
|
|
|
|
1,256,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
90,344
|
|
|
|
(45
|
)
|
|
|
90,299
|
|
|
|
200,237
|
|
|
|
(137
|
)
|
|
|
200,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
59,582
|
|
|
|
51
|
|
|
|
59,633
|
|
|
|
186,913
|
|
|
|
144
|
|
|
|
187,057
|
|
Research and development
|
|
|
8,870
|
|
|
|
|
|
|
|
8,870
|
|
|
|
27,694
|
|
|
|
|
|
|
|
27,694
|
|
Provision for legal settlements
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
68,452
|
|
|
|
51
|
|
|
|
68,503
|
|
|
|
264,607
|
|
|
|
144
|
|
|
|
264,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
21,892
|
|
|
|
(96
|
)
|
|
|
21,796
|
|
|
|
(64,370
|
)
|
|
|
(281
|
)
|
|
|
(64,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
40,859
|
|
|
|
|
|
|
|
40,859
|
|
|
|
122,767
|
|
|
|
|
|
|
|
122,767
|
|
Foreign currency loss
|
|
|
4,171
|
|
|
|
|
|
|
|
4,171
|
|
|
|
4,630
|
|
|
|
|
|
|
|
4,630
|
|
Other (income) expense, net
|
|
|
394
|
|
|
|
|
|
|
|
394
|
|
|
|
2,635
|
|
|
|
|
|
|
|
2,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
45,424
|
|
|
|
|
|
|
|
45,424
|
|
|
|
130,032
|
|
|
|
|
|
|
|
130,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
minority interests
|
|
|
(23,532
|
)
|
|
|
(96
|
)
|
|
|
(23,628
|
)
|
|
|
(194,402
|
)
|
|
|
(281
|
)
|
|
|
(194,683
|
)
|
Income tax expense
|
|
|
(2,865
|
)
|
|
|
|
|
|
|
(2,865
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interests
|
|
|
(20,667
|
)
|
|
|
(96
|
)
|
|
|
(20,763
|
)
|
|
|
(194,077
|
)
|
|
|
(281
|
)
|
|
|
(194,358
|
)
|
Minority interests, net of tax
|
|
|
1,250
|
|
|
|
|
|
|
|
1,250
|
|
|
|
3,187
|
|
|
|
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,417
|
)
|
|
$
|
(96
|
)
|
|
$
|
(19,513
|
)
|
|
$
|
(190,890
|
)
|
|
$
|
(281
|
)
|
|
$
|
(191,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
|
|
|
$
|
(0.11
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
|
|
|
$
|
(0.11
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing loss per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
176,715
|
|
|
|
|
|
|
|
176,715
|
|
|
|
176,271
|
|
|
|
|
|
|
|
176,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
176,715
|
|
|
|
|
|
|
|
176,715
|
|
|
|
176,271
|
|
|
|
|
|
|
|
176,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our historical financial statements for
each of the three years ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,099,949
|
|
|
$
|
|
|
|
$
|
2,099,949
|
|
|
$
|
1,901,279
|
|
|
$
|
|
|
|
$
|
1,901,279
|
|
|
$
|
1,603,768
|
|
|
$
|
|
|
|
$
|
1,603,768
|
|
Cost of sales
|
|
|
1,743,996
|
|
|
|
182
|
|
|
|
1,744,178
|
|
|
|
1,533,447
|
|
|
|
4,562
|
|
|
|
1,538,009
|
|
|
|
1,267,302
|
|
|
|
3,277
|
|
|
|
1,270,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
355,953
|
|
|
|
(182
|
)
|
|
|
355,771
|
|
|
|
367,832
|
|
|
|
(4,562
|
)
|
|
|
363,270
|
|
|
|
336,466
|
|
|
|
(3,277
|
)
|
|
|
333,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
243,155
|
|
|
|
164
|
|
|
|
243,319
|
|
|
|
221,915
|
|
|
|
2,866
|
|
|
|
224,781
|
|
|
|
183,291
|
|
|
|
3,963
|
|
|
|
187,254
|
|
Research and development
|
|
|
37,347
|
|
|
|
|
|
|
|
37,347
|
|
|
|
36,707
|
|
|
|
|
|
|
|
36,707
|
|
|
|
30,167
|
|
|
|
|
|
|
|
30,167
|
|
Provision for legal settlements and
contingencies
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of specialty test
operations
|
|
|
(4,408
|
)
|
|
|
|
|
|
|
(4,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
326,094
|
|
|
|
164
|
|
|
|
326,258
|
|
|
|
258,622
|
|
|
|
2,866
|
|
|
|
261,488
|
|
|
|
213,458
|
|
|
|
3,963
|
|
|
|
217,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
29,859
|
|
|
|
(346
|
)
|
|
|
29,513
|
|
|
|
109,210
|
|
|
|
(7,428
|
)
|
|
|
101,782
|
|
|
|
123,008
|
|
|
|
(7,240
|
)
|
|
|
115,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, related party
|
|
|
521
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
165,351
|
|
|
|
|
|
|
|
165,351
|
|
|
|
148,902
|
|
|
|
|
|
|
|
148,902
|
|
|
|
140,281
|
|
|
|
|
|
|
|
140,281
|
|
Foreign currency (gain) loss
|
|
|
9,318
|
|
|
|
|
|
|
|
9,318
|
|
|
|
6,190
|
|
|
|
|
|
|
|
6,190
|
|
|
|
(3,022
|
)
|
|
|
|
|
|
|
(3,022
|
)
|
Other (income) expense, net
|
|
|
(444
|
)
|
|
|
|
|
|
|
(444
|
)
|
|
|
(24,444
|
)
|
|
|
|
|
|
|
(24,444
|
)
|
|
|
31,052
|
|
|
|
|
|
|
|
31,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
174,746
|
|
|
|
|
|
|
|
174,746
|
|
|
|
130,648
|
|
|
|
|
|
|
|
130,648
|
|
|
|
168,311
|
|
|
|
|
|
|
|
168,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, equity
investment losses, minority interests and discontinued operations
|
|
|
(144,887
|
)
|
|
|
(346
|
)
|
|
|
(145,233
|
)
|
|
|
(21,438
|
)
|
|
|
(7,428
|
)
|
|
|
(28,866
|
)
|
|
|
(45,303
|
)
|
|
|
(7,240
|
)
|
|
|
(52,543
|
)
|
Equity investment losses
|
|
|
(55
|
)
|
|
|
|
|
|
|
(55
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(3,290
|
)
|
|
|
|
|
|
|
(3,290
|
)
|
Minority interests
|
|
|
2,502
|
|
|
|
|
|
|
|
2,502
|
|
|
|
(904
|
)
|
|
|
|
|
|
|
(904
|
)
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes
|
|
|
(142,440
|
)
|
|
|
(346
|
)
|
|
|
(142,786
|
)
|
|
|
(22,344
|
)
|
|
|
(7,428
|
)
|
|
|
(29,772
|
)
|
|
|
(52,601
|
)
|
|
|
(7,240
|
)
|
|
|
(59,841
|
)
|
Income tax provision (benefit)
|
|
|
(5,551
|
)
|
|
|
|
|
|
|
(5,551
|
)
|
|
|
15,192
|
|
|
|
|
|
|
|
15,192
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(136,889
|
)
|
|
|
(346
|
)
|
|
|
(137,235
|
)
|
|
|
(37,536
|
)
|
|
|
(7,428
|
)
|
|
|
(44,964
|
)
|
|
|
(52,368
|
)
|
|
|
(7,240
|
)
|
|
|
(59,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,566
|
|
|
|
(396
|
)
|
|
|
54,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(136,889
|
)
|
|
$
|
(346
|
)
|
|
$
|
(137,235
|
)
|
|
$
|
(37,536
|
)
|
|
$
|
(7,428
|
)
|
|
$
|
(44,964
|
)
|
|
$
|
2,198
|
|
|
$
|
(7,636
|
)
|
|
$
|
(5,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.78
|
)
|
|
$
|
|
|
|
$
|
(0.78
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.35
|
)
|
From discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.32
|
|
|
|
|
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share
|
|
$
|
(0.78
|
)
|
|
$
|
|
|
|
$
|
(0.78
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
176,385
|
|
|
|
|
|
|
|
176,385
|
|
|
|
175,342
|
|
|
|
|
|
|
|
175,342
|
|
|
|
167,142
|
|
|
|
|
|
|
|
167,142
|
|
Diluted
|
|
|
176,385
|
|
|
|
|
|
|
|
176,385
|
|
|
|
175,342
|
|
|
|
|
|
|
|
175,342
|
|
|
|
167,142
|
|
|
|
|
|
|
|
167,142
|
|
46
The following table sets forth the impact of the additional
non-cash charges for stock-based compensation expense and
related tax effects on our consolidated balance sheets as of
December 31, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
206,575
|
|
|
$
|
|
|
|
$
|
206,575
|
|
|
$
|
372,284
|
|
|
$
|
|
|
|
$
|
372,284
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
doubtful accounts of $4,947 and $5,074
|
|
|
381,495
|
|
|
|
|
|
|
|
381,495
|
|
|
|
265,547
|
|
|
|
|
|
|
|
265,547
|
|
Other
|
|
|
5,089
|
|
|
|
|
|
|
|
5,089
|
|
|
|
3,948
|
|
|
|
|
|
|
|
3,948
|
|
Inventories, net
|
|
|
138,109
|
|
|
|
|
|
|
|
138,109
|
|
|
|
111,616
|
|
|
|
|
|
|
|
111,616
|
|
Other current assets
|
|
|
35,222
|
|
|
|
|
|
|
|
35,222
|
|
|
|
32,591
|
|
|
|
|
|
|
|
32,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
766,490
|
|
|
|
|
|
|
|
766,490
|
|
|
|
785,986
|
|
|
|
|
|
|
|
785,986
|
|
Property, plant and equipment, net
|
|
|
1,419,472
|
|
|
|
|
|
|
|
1,419,472
|
|
|
|
1,380,396
|
|
|
|
|
|
|
|
1,380,396
|
|
Goodwill
|
|
|
653,717
|
|
|
|
|
|
|
|
653,717
|
|
|
|
656,052
|
|
|
|
|
|
|
|
656,052
|
|
Intangibles, net
|
|
|
38,391
|
|
|
|
|
|
|
|
38,391
|
|
|
|
47,302
|
|
|
|
|
|
|
|
47,302
|
|
Investments
|
|
|
9,668
|
|
|
|
|
|
|
|
9,668
|
|
|
|
13,762
|
|
|
|
|
|
|
|
13,762
|
|
Other assets
|
|
|
67,353
|
|
|
|
|
|
|
|
67,353
|
|
|
|
81,870
|
|
|
|
|
|
|
|
81,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,955,091
|
|
|
$
|
|
|
|
$
|
2,955,091
|
|
|
$
|
2,965,368
|
|
|
$
|
|
|
|
$
|
2,965,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
portion of long-term debt
|
|
|
184,389
|
|
|
|
|
|
|
$
|
184,389
|
|
|
$
|
52,147
|
|
|
$
|
|
|
|
$
|
52,147
|
|
Trade accounts payable
|
|
|
326,712
|
|
|
|
|
|
|
|
326,712
|
|
|
|
211,808
|
|
|
|
|
|
|
|
211,808
|
|
Accrued expenses
|
|
|
123,631
|
|
|
|
396
|
|
|
|
124,027
|
|
|
|
175,075
|
|
|
|
378
|
|
|
|
175,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
634,732
|
|
|
|
396
|
|
|
|
635,128
|
|
|
|
439,030
|
|
|
|
378
|
|
|
|
439,408
|
|
Long-term debt, related party
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,856,247
|
|
|
|
|
|
|
|
1,856,247
|
|
|
|
2,040,813
|
|
|
|
|
|
|
|
2,040,813
|
|
Other non-current liabilities
|
|
|
135,861
|
|
|
|
|
|
|
|
135,861
|
|
|
|
109,317
|
|
|
|
|
|
|
|
109,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,726,840
|
|
|
|
396
|
|
|
|
2,727,236
|
|
|
|
2,589,160
|
|
|
|
378
|
|
|
|
2,589,538
|
|
Commitments and contingencies (see
Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
3,950
|
|
|
|
|
|
|
|
3,950
|
|
|
|
6,679
|
|
|
|
|
|
|
|
6,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par
value, 10,000 shares authorized designated Series A,
none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value, 500,000 shares authorized, issued and outstanding of
176,733 in 2005 and 175,718 in 2004
|
|
|
178
|
|
|
|
|
|
|
|
178
|
|
|
|
176
|
|
|
|
|
|
|
|
176
|
|
Additional paid-in capital
|
|
|
1,326,426
|
|
|
|
105,117
|
|
|
|
1,431,543
|
|
|
|
1,323,579
|
|
|
|
104,789
|
|
|
|
1,428,368
|
|
Accumulated deficit
|
|
|
(1,105,961
|
)
|
|
|
(105,513
|
)
|
|
|
(1,211,474
|
)
|
|
|
(969,072
|
)
|
|
|
(105,167
|
)
|
|
|
(1,074,239
|
)
|
Accumulated other comprehensive
income
|
|
|
3,658
|
|
|
|
|
|
|
|
3,658
|
|
|
|
14,846
|
|
|
|
|
|
|
|
14,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,301
|
|
|
|
(396
|
)
|
|
|
223,905
|
|
|
|
369,529
|
|
|
|
(378
|
)
|
|
|
369,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,955,091
|
|
|
$
|
|
|
|
$
|
2,955,091
|
|
|
$
|
2,965,368
|
|
|
$
|
|
|
|
$
|
2,965,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The additional non-cash charges for stock-based compensation
expense and related tax effects had no impact on our
consolidated statements of cash flows. We identified a
classification error relating to stock-based compensation in our
consolidated statements of cash flows and we increased net cash
provided by operating activities by less than $0.1 million
and $0.6 million for the year ended December 31, 2005
and 2004, respectively, offset by a similar decrease in net cash
used in financing activities.
Of the aggregate $108.8 million of non-cash charges for
additional stock-based compensation expense, approximately
$90.1 million relates to fiscal years prior to
January 1, 2003. The impact of these charges including the
related tax effects, for each of the five years ended
December 31, 2002 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
1,406,178
|
|
|
$
|
1,336,674
|
|
|
$
|
2,009,701
|
|
|
$
|
1,617,235
|
|
|
$
|
1,452,285
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
1,406,178
|
|
|
|
1,336,674
|
|
|
|
2,009,701
|
|
|
|
1,617,235
|
|
|
|
1,452,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
95,615
|
|
|
$
|
52,251
|
|
|
$
|
567,381
|
|
|
$
|
319,877
|
|
|
$
|
243,479
|
|
Adjustment
|
|
|
(10,316
|
)
|
|
|
(4,820
|
)
|
|
|
(2,540
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
85,299
|
|
|
|
47,431
|
|
|
|
564,841
|
|
|
|
319,868
|
|
|
|
243,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
(416,920
|
)
|
|
$
|
(277,148
|
)
|
|
$
|
297,746
|
|
|
$
|
156,478
|
|
|
$
|
122,625
|
|
Adjustment
|
|
|
(52,929
|
)
|
|
|
(22,045
|
)
|
|
|
(13,077
|
)
|
|
|
(4,493
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
(469,849
|
)
|
|
|
(299,193
|
)
|
|
|
284,669
|
|
|
|
151,985
|
|
|
|
122,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
(835,089
|
)
|
|
$
|
(456,487
|
)
|
|
$
|
137,801
|
|
|
$
|
65,999
|
|
|
$
|
70,496
|
|
Adjustment
|
|
|
(61,352
|
)
|
|
|
(15,590
|
)
|
|
|
(9,311
|
)
|
|
|
(3,169
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
(896,441
|
)
|
|
|
(472,077
|
)
|
|
|
128,490
|
|
|
|
62,830
|
|
|
|
70,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
8,330
|
|
|
$
|
5,626
|
|
|
$
|
16,352
|
|
|
$
|
10,720
|
|
|
$
|
4,964
|
|
Adjustment
|
|
|
(250
|
)
|
|
|
(223
|
)
|
|
|
(185
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
8,080
|
|
|
|
5,403
|
|
|
|
16,167
|
|
|
|
10,713
|
|
|
|
4,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
(826,759
|
)
|
|
$
|
(450,861
|
)
|
|
$
|
154,153
|
|
|
$
|
76,719
|
|
|
$
|
75,460
|
|
Adjustment
|
|
|
(61,602
|
)
|
|
|
(15,813
|
)
|
|
|
(9,496
|
)
|
|
|
(3,176
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
(888,361
|
)
|
|
|
(466,674
|
)
|
|
|
144,657
|
|
|
|
73,543
|
|
|
|
75,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic income (loss) per common
share as restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(5.46
|
)
|
|
$
|
(3.00
|
)
|
|
$
|
0.88
|
|
|
$
|
0.53
|
|
|
$
|
0.66
|
|
From discontinued operations
|
|
|
0.05
|
|
|
|
0.03
|
|
|
|
0.11
|
|
|
|
0.09
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5.41
|
)
|
|
$
|
(2.97
|
)
|
|
$
|
0.99
|
|
|
$
|
0.62
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common
share as restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(5.46
|
)
|
|
$
|
(3.00
|
)
|
|
$
|
0.85
|
|
|
$
|
0.53
|
|
|
$
|
0.66
|
|
From discontinued operations
|
|
|
0.05
|
|
|
|
0.03
|
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5.41
|
)
|
|
$
|
(2.97
|
)
|
|
$
|
0.96
|
|
|
$
|
0.61
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
Other Assets (Deferred Tax Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
67,601
|
|
|
$
|
114,178
|
|
|
$
|
197,186
|
|
|
$
|
101,897
|
|
|
$
|
63,009
|
|
|
$
|
34,932
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
13,197
|
|
|
|
6,881
|
|
|
|
1,725
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
$
|
67,601
|
|
|
$
|
114,178
|
|
|
$
|
210,383
|
|
|
$
|
108,778
|
|
|
$
|
64,734
|
|
|
$
|
34,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
170,145
|
|
|
$
|
184,223
|
|
|
$
|
145,544
|
|
|
$
|
147,352
|
|
|
$
|
88,577
|
|
|
$
|
77,004
|
|
Adjustment
|
|
|
236
|
|
|
|
38
|
|
|
|
4
|
|
|
|
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
$
|
170,381
|
|
|
$
|
184,261
|
|
|
$
|
145,548
|
|
|
$
|
147,352
|
|
|
$
|
88,407
|
|
|
$
|
77,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
1,317,164
|
|
|
$
|
1,170,227
|
|
|
$
|
1,123,541
|
|
|
$
|
975,026
|
|
|
$
|
551,964
|
|
|
$
|
381,061
|
|
Adjustment
|
|
|
97,505
|
|
|
|
90,067
|
|
|
|
41,694
|
|
|
|
19,569
|
|
|
|
5,087
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
$
|
1,414,669
|
|
|
$
|
1,260,294
|
|
|
$
|
1,165,235
|
|
|
$
|
994,595
|
|
|
$
|
557,051
|
|
|
$
|
381,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
(931,536
|
)
|
|
$
|
(933,734
|
)
|
|
$
|
(106,975
|
)
|
|
$
|
343,886
|
|
|
$
|
189,733
|
|
|
$
|
109,738
|
|
Adjustment
|
|
|
(97,739
|
)
|
|
|
(90,103
|
)
|
|
|
(28,501
|
)
|
|
|
(12,688
|
)
|
|
|
(3,192
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
$
|
(1,029,275
|
)
|
|
$
|
(1,023,837
|
)
|
|
$
|
(135,476
|
)
|
|
$
|
331,198
|
|
|
$
|
186,541
|
|
|
$
|
109,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
401,004
|
|
|
$
|
231,367
|
|
|
$
|
1,008,717
|
|
|
$
|
1,314,834
|
|
|
$
|
737,741
|
|
|
$
|
490,361
|
|
Adjustment
|
|
|
(234
|
)
|
|
|
(36
|
)
|
|
|
13,193
|
|
|
|
6,881
|
|
|
|
1,895
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
$
|
400,770
|
|
|
$
|
231,331
|
|
|
$
|
1,021,910
|
|
|
$
|
1,321,715
|
|
|
$
|
739,636
|
|
|
$
|
490,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Results
of Operations
Overview
Amkor is one of the worlds largest subcontractors of
semiconductor packaging and test services. Packaging and test
are integral parts of the process of manufacturing semiconductor
devices. This process begins with silicon wafers and involves
the fabrication of electronic circuitry into complex patterns,
thus creating large numbers of individual chips on the wafers.
The fabricated wafers are probed to ensure the individual
devices meet design specifications. The packaging process
creates an electrical interconnect between the semiconductor
chip and the system board through wire bonding or bumping
technologies. In packaging, individual chips are separated from
the fabricated semiconductor wafers, attached to a substrate and
then encased in a protective material to provide optimal
electrical connectivity and thermal performance. The packaged
chips are then tested using sophisticated equipment to ensure
that each packaged chip meets its design specifications.
Increasingly, packages are custom designed for specific chips
and specific end-market applications. We are able to provide
turnkey solutions including semiconductor wafer bumping, wafer
probe, wafer backgrind, package design, packaging, test and drop
shipment services.
Our third quarter net income was $52.8 million, or
$0.27 per diluted share, versus a net loss in the third
quarter of 2005 of $(19.5) million, or ($0.11) per share.
In the three months ended September 30, 2006, sales
increased $164.2 million or 29.9% to $713.8 million
from $549.6 million in the three months ended
September 30, 2005. The sales growth was driven by strong
demand for high performance applications, cell phones and other
portable devices. During the third quarter of 2006, we
experienced strong growth in flip chip and 3D packaging services
and test services which is consistent with the investments we
made in these areas over the past two years.
Favorable business conditions in our sector have allowed us to
improve our product mix, selectively increase prices, and
recover increases in commodity costs from some of our customers.
These factors, offset by an increase in factory labor and
overhead costs, have enabled us to achieve a gross margin for
the third quarter of 2006 of 24.9% compared to 16.4% for the
third quarter of 2005. Our third quarter performance reflected
strength in our core packaging and test operations, successful
execution of production ramps, continued strong adoption of flip
chip, wafer bumping, other advanced packaging, and a stable
pricing environment.
During the quarter we commenced operations in our new Singapore
wafer bump factory and our new factory in Shanghai. Fixed costs
associated with these new factories should be absorbed as we
build revenue over the next several quarters.
Our capacity utilization in the third quarter of 2006 remained
high. We have an ongoing effort to manage our production lines,
allocate assets and expand capacity in a financially-disciplined
manner. For 2006, our product line capital investments have
been, and will continue to be, primarily focused on increasing
our wafer bumping, flip chip, test and advanced laminate
packaging capacity. In addition we continue to make selected
investments in our information systems in support of
increasingly complex supply chains. Beginning in 2005 and
continuing into 2006, we entered into several supply agreements
with customers that guarantee capacity in exchange for customer
prepayment of services. In most cases, customers forfeit the
prepayment if the capacity is not utilized per contract terms.
Customer advances of $16.5 million and $26.8 million
are included in accrued expenses and other non-current
liabilities, respectively, as of September 30, 2006.
Third quarter selling, general and administrative expenses
increased by $8.8 million or 14.8%, due to additional costs
associated with professional fees incurred for the stock option
investigation, financial statement restatement and related
financing activities partially offset by our focus on cost
reduction initiatives.
Third quarter 2006 capital additions totaled $47.9 million.
We expect that our full year 2006 capital additions will be
approximately $300 million, which is subject to adjustment
based on business conditions. Our 2006 capital additions budget
remains focused on strategic growth areas of wafer level
processing, test and flip chip packaging and also includes
approximately $50 million for facilities equipment,
principally for our new facility in China and our new wafer
bumping and test facility in Singapore.
50
Due to improved operating results, cash provided by operating
activities increased $384.0 million to $380.7 million
for the nine months ended September 30, 2006 as compared to
cash used in operating activities during the nine months ended
September 30, 2005 of $3.3 million. Cash flow from
operations generated during the nine months ended
September 30, 2006 funded capital purchases of
$252.4 million leaving $128.3 million to repay debt.
Please see the Liquidity and Capital Resources section below for
a further analysis of the change in our balance sheet and cash
flows during the first half of 2006.
The following table sets forth certain operating data as a
percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
(As restated)
|
|
|
2006
|
|
|
(As restated)
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross profit
|
|
|
24.9
|
%
|
|
|
16.4
|
%
|
|
|
24.5
|
%
|
|
|
13.7
|
%
|
Operating income (loss)
|
|
|
14.0
|
%
|
|
|
4.0
|
%
|
|
|
13.9
|
%
|
|
|
(4.4
|
)%
|
Income (loss) before income taxes
and minority interests
|
|
|
7.8
|
%
|
|
|
(4.3
|
)%
|
|
|
5.9
|
%
|
|
|
(13.4
|
)%
|
Net income (loss)
|
|
|
7.4
|
%
|
|
|
(3.6
|
)%
|
|
|
5.4
|
%
|
|
|
(13.1
|
)%
|
Three
Months Ended September 30, 2006 Compared to Three Months
Ended September 30, 2005
Net Sales. Sales increased
$164.2 million, or 29.9%, to $713.8 million in the
three months ended September 30, 2006 from
$549.6 million in the three months ended September 30,
2005 principally driven by increased unit volume, product mix,
and, to a lesser extent, the impact of favorable pricing
discussed above in the Overview.
Packaging Net Sales. Packaging net sales
increased $143.7 million, or 28.9%, to $640.9 million
in the three months ended September 30, 2006 from
$497.2 million in the three months ended September 30,
2005 principally driven by improved product mix, increased
volume and, to a lesser extent, the impact of favorable pricing.
Packaging unit volume increased to 2.2 billion units in the
third quarter of 2006 from 2.0 billion units in the third
quarter of 2005. The improvement in product mix is principally
driven by our flip chip packaging services. The increase in unit
volume is principally attributed to growth in our
MicroLeadFrame®
packages, other Leadframe packages, chip scale packages and
System-in-Package
modules.
Test Net Sales. Test net sales increased
$20.6 million, or 39.2%, to $73.1 million in the three
months ended September 30, 2006 from $52.5 million in
the three months ended September 30, 2005 principally due
to the production ramp of our new test facility in Singapore, an
increase in units in our other test facilities, and product mix.
Cost of Sales. Our cost of sales consists
principally of materials, labor, depreciation and manufacturing
overhead. Because a substantial portion of our costs at our
factories is fixed, relatively insignificant increases or
decreases in capacity utilization rates can have a significant
effect on our gross margin.
Material costs increased due to the volume increase and
increasing commodity prices. Material costs as a percent of
revenue decreased from 41.3% for the three months ended
September 30, 2005 to 39.2% for the three months ended
September 30, 2006 due to recovery of increasing commodity
prices from some of our customers, improving the product mix,
and higher average selling prices on some of our products.
Labor costs in absolute dollars were up due to increased volume,
increased headcount at our newer factories, and higher labor and
benefit costs at our other factories. However, as a percentage
of net sales, labor declined to 14.4% for the three months ended
September 30, 2006 from 18.3% for the three months ended
September 30, 2005 due to increased labor utilization and
productivity.
Other manufacturing costs increased as a result of the increased
volume and added costs associated with our newer factories. This
includes increased depreciation costs as a result of our capital
expenditures, which are focused on increasing our wafer bumping,
flip chip, test and advanced laminate packaging capacity. As a
percentage of net
51
sales, other manufacturing costs decreased to 21.5% for the
three months ended September 30, 2006 from 24.2% for the
three months ended September 30, 2005 due to increased
overhead utilization and productivity.
Stock-based compensation included in cost of sales was
$0.9 million for the three months ended September 30,
2006 due to the adoption of SFAS No. 123(R) compared
to less than $0.1 million for the three months ended
September 30, 2005 which was accounted for under APB
No. 25.
Gross Profit. Gross profit increased
$87.5 million to $177.8 million, or 24.9% of net sales
in the three months ended September 30, 2006 from
$90.3 million, or 16.4% of net sales, in the three months
ended September 30, 2005. The increase in gross profit and
gross margin was due to higher unit sales, favorable mix,
recovery of commodity price increases from some of our
customers, improved factory labor and overhead utilization and
productivity.
Packaging Gross Profit. Gross profit for
packaging increased $75.6 million to $155.1 million,
or 24.2% of packaging net sales, in the three months ended
September 30, 2006 from $79.5 million, or 16.0% of
packaging net sales, in the three months ended
September 30, 2005. The packaging gross profit increase was
primarily due to favorable product mix, higher unit sales, asset
management, recovery of commodity price increases from some of
our customers, improved factory labor and overhead utilization
and productivity.
Test Gross Profit. Gross profit for test
increased $11.9 million to $22.8 million, or 31.2% of
test net sales, in the three months ended September 30,
2006 from $10.9 million, or 20.8% of test net sales, in the
three months ended September 30, 2005. This increase was
primarily due to increased volume, improved labor and overhead
utilization, asset management, and greater recovery of ancillary
test services from some of our customers.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses increased $8.8 million, or 14.8%, to
$68.4 million for the three months ended September 30,
2006, from $59.6 million for the three months ended
September 30, 2005. The increase was caused by an
additional $10.2 million in costs associated with
professional fees incurred for the stock option investigation,
financial statement restatement, the consent solicitation and
other financing activities. We anticipate incurring an
additional $5.0 million in costs related to these matters
in the fourth quarter of 2006. Also included is stock-based
compensation related to the implementation of
SFAS No. 123(R) for $0.3 million and an accrual
established for employee incentive and performance bonuses.
These additional costs are partially offset by our continued
focus on cost reduction initiatives and a reduction in corporate
salary costs due to headcount reductions in the third and fourth
quarters of 2005.
Other (Income) Expense. Other expenses, net
decreased $1.7 million from the three months ended
September 30, 2005 to the three months ended
September 30, 2006. This decrease is primarily driven by
the decrease in interest expense of $2.7 million due to our
continued focus to strengthen our liquidity by reducing debt as
well as structuring financings to have lower interest rates.
Income Tax Expense. Income tax expense for the
three months ended September 30, 2006 and 2005 is
attributable to foreign withholding taxes and income taxes at
certain of our profitable foreign operations. For the full year
of 2006, we anticipate an effective income tax rate of
approximately 7.0%, which reflects the utilization of U.S. and
foreign net operating loss carryforwards and tax holidays in
certain foreign jurisdictions. At September 30, 2006, we
had U.S. net operating loss carryforwards totaling
$349.8 million, which expire at various times through 2025.
Additionally, we had $64.9 million of
non-U.S. operating
loss carryforwards, which expire at various times through 2011.
We maintain a full valuation allowance on substantially all of
our deferred tax assets, including our net operating loss
carryforwards, and will release such valuation allowance as the
related deferred tax benefits are realized on our tax returns or
once we achieve sustained profitable operations.
Nine
Months Ended September 30, 2006 Compared to Nine Months
Ended September 30, 2005
Net Sales. Net sales increased
$589.0 million, or 40.4%, to $2,045.5 million for the
nine months ended September 30, 2006 from
$1,456.5 million for the nine months ended
September 30, 2005, principally driven by increased unit
volume and, to a lesser extent, the impact of pricing and mix
discussed above in the Overview.
52
Packaging Net Sales. Packaging net sales
increased $520.6 million, or 39.4%, to
$1,841.1 million in the nine months ended
September 30, 2006 from $1,320.5 million in the nine
months ended September 30, 2005 principally driven by
increased unit volume and, to a lesser extent, the impact of
pricing and mix. Packaging unit volume increased to
6.6 billion units in the nine months ended
September 30, 2006 from 5.4 billion units in the 2005
period. The increase in unit volume is principally attributed to
growth in our
MicroLeadFrame®
package, other Leadframe packages, 3D packages and
System-in-Package
products. We also experienced an increase in volume in our wafer
bumping facilities in support of the flip chip turnkey solutions
provided to customers.
Test Net Sales. Test net sales increased
$69.0 million, or 50.7%, to $205.0 million in the nine
months ended September 30, 2006 from $136.0 million in
the nine months ended September 30, 2005, principally due
to the production ramp of our new test facility in Singapore, an
increase in test units in our other test facilities, and to a
lesser extent, a favorable pricing environment and product mix.
Cost of Sales. Our cost of sales consists
principally of materials, labor, depreciation and manufacturing
overhead. Because a substantial portion of our costs at our
factories is fixed, relatively insignificant increases or
decreases in capacity utilization rates can have a significant
effect on our gross margin.
Material costs increased due to the volume increase and
increasing commodity prices. Material costs as a percent of
revenue decreased from 41.0% for the nine months ended
September 30, 2005 to 39.2% for the nine months ended
September 30, 2006 due to recovery of increasing commodity
prices from some of our customers, improving the product mix,
and higher average selling prices on some of our products.
Labor costs in absolute dollars were up due to increased volume,
increased headcount at our newer factories, and higher labor and
benefit costs at our other factories. However, as a percentage
of net sales, labor dropped to 14.8% for the nine months ended
September 30, 2006, from 19.5% for the nine months ended
September 30, 2005, due to increased labor utilization and
productivity.
Other manufacturing costs increased as a result of the increased
volume and added costs associated with our newer factories. This
includes increased depreciation costs as a result of our capital
expenditures which are focused on increasing our wafer bumping,
flip chip, test and advanced laminate packaging capacity. As a
percentage of net revenues, other manufacturing costs decreased
to 21.5% for the nine months ended September 30, 2006, from
26.0% for the nine months ended September 30, 2005, due to
increased overhead utilization and productivity. This
improvement was partially offset by a $4.1 million
impairment charge primarily related to our decision to close
down a camera module line in Korea, where we have not achieved
targeted returns and associated cash flows.
Stock-based compensation included in cost of sales amount to
$1.6 million for the nine months ended September 30,
2006 due to the adoption of SFAS No. 123(R), compared
to $0.1 million for the nine months ended
September 30, 2005 which was accounted for under APB
No. 25.
Gross Profit. Gross profit increased
$301.7 million to $501.8 million, or 24.5% of net
sales in the nine months ended September 30, 2006 from
$200.1 million, or 13.7% of net sales, in the nine months
ended September 30, 2005. This increase in margin was due
to higher unit sales, favorable mix, recovery of commodity price
increases from some of our customers, improved factory labor and
overhead utilization and productivity.
Packaging Gross Profit. Gross profit for
packaging increased $253.9 million to $437.6 million,
or 23.8% of packaging net sales, in the nine months ended
September 30, 2006 from $183.7 million, or 13.9% of
packaging net sales, in the nine months ended September 30,
2005. The packaging gross profit increase was primarily due to
increased higher unit sales, favorable product mix to higher
margin 3-D
advanced packages and flip chip packages, recovery of commodity
price increases from some of our customers, improved factory
labor and overhead utilization and productivity.
Test Gross Profit. Gross profit for test
increased $48.6 million to $64.9 million, or 31.7% of
test net sales, in the nine months ended September 30, 2006
from $16.3 million, or 12.0% of test net sales, in the
three months ended September 30, 2005. This increase was
primarily due to increased volume, improved labor and overhead
utilization and asset management, and greater recovery of
ancillary test services from some of our customers.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses increased $0.5 million, or 0.3%, to
$187.6 million for the nine months ended September 30,
2006, from $187.1 million
53
for the nine months ended September 30 ,2005. The decrease
was led by our continued focus on cost reduction initiatives and
a reduction in corporate salary costs due to headcount
reductions in the third and fourth quarters of 2005. These
corporate reductions were offset by $10.2 million in costs
associated with professional fees incurred for the stock option
investigation, financial statement restatement, the consent
solicitation and other financing activities. We anticipate
incurring an additional $5.0 million in costs related to
these matters in the fourth quarter of 2006. In addition the
nine months ended September 30, 2006 includes stock-based
compensation related to the implementation of
SFAS No. 123(R) of $2.0 million and an accrual
established for employee incentive and performance bonuses.
Provision for Legal Settlements and Contingencies. In the first
quarter of 2005, we recorded a $50.0 million provision for
legal settlements and contingencies related to the mold compound
litigation. Of that amount, $48.0 million was paid out in
2005, with the remaining reserved for the last outstanding
litigation regarding the allegedly defective epoxy mold. We
settled this case on April 27, 2006 for $3.0 million
and recorded an additional provision of $1.0 million in our
financial statements for the nine months ended
September 30, 2006.
Other (Income) Expense. Other expenses, net,
increased $33.6 million to $163.6 million, or 8.0% of
net sales, for the nine months ended September 30, 2006
from $130.0 million, or 8.9% of net sales, for the nine
months ended September 30, 2005. The net increase is
primarily driven by the debt retirement costs of
$27.4 million (see note 12 to the Condensed
Consolidated Financial Statements) and the $6.8 million
increase in foreign currency losses from the nine months ended
September 30, 2005 to the nine months ended
September 30, 2006 primarily in Korea and Taiwan.
Income Tax Expense. The income tax expense for
the nine months ended September 30, 2006 and 2005 is
attributable to foreign withholding taxes and income taxes at
certain of our profitable foreign operations. For the full year
2006, we anticipate an effective income tax rate of
approximately 7.0%, which reflects the utilization of U.S. and
foreign net operating loss carryforwards and tax holidays in
certain foreign jurisdictions. At September 30, 2006, we
had U.S. net operating loss carryforwards totaling
$349.8 million, which expire at various times through 2025.
Additionally, we had $64.9 million of
non-U.S. net
operating loss carryforwards, which expire at various times
through 2011.
We maintain a full valuation allowance on substantially all of
our deferred tax assets, including our net operating loss
carryforwards, and will release such valuation allowance as the
related deferred tax benefits are realized on our tax returns or
once we achieve sustained profitable operations.
Liquidity
and Capital Resources
We have taken several steps to strengthen our liquidity. In May
2006, we issued $400 million of 9.25% senior notes due
June 2016 and $190 million of 2.5% senior subordinated
convertible notes due May 2011 to refinance existing
indebtedness. The senior notes due June 2016 refinanced the
majority of our 9.25% senior notes due February 2008. After
deducting fees to the underwriter, the net proceeds were used in
connection with the tender offer to repurchase the senior notes
due February 2008 for which $352.3 million notes were
tendered and repurchased along with payments of
$20.2 million for tender premiums and other retirement
costs and $9.1 million for accrued interest. The remaining
proceeds of $10.9 million increased our cash on hand. The
senior subordinated convertible notes due May 2011 refinanced
the majority of our 10.5% senior subordinated notes due May
2009. After deducting fees to the underwriter, the net proceeds
were used in connection with a partial call of the senior
subordinated notes due May 2009 for which $178.1 million
notes were repurchased along with payments of $3.1 million
for call premiums and $3.1 million for accrued interest. We
also repaid $132.0 million of our 5.75% convertible
subordinated notes due June 2006.
We have a significant level of debt, with $2,027.8 million
outstanding at September 30, 2006, of which
$200.6 million is current. The terms of such debt require
significant scheduled principal payments in the coming years,
including $32.1 million during the remainder of 2006,
$176.1 million in 2007, $109.4 million in 2008,
$33.7 million in 2009, $311.8 million in 2010 and
$1,364.7 million thereafter. The interest payments required
on our debt are also substantial. For example, in the nine
months ended September 30, 2006, we paid
$121.1 million of interest. (See Capital Additions
and Contractual Obligations below for a summary of
principal and interest payments.)
54
We operate in a capital intensive industry. 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 any firm customer commitments. During 2005,
we had capital additions of $294.8 million and in 2006 we
currently anticipate making capital additions of approximately
$300 million, which estimate is subject to adjustment based
on business conditions. Our 2006 capital additions budget
remains focused on strategic growth areas of wafer level
processing, test and flip chip packaging and also includes
approximately $50 million for equipment, principally for
our new wafer bumping and test facility in Singapore and our new
packaging and test factory in China.
In connection with an early retirement program in Korea, we
expect to make a cash payment of approximately $9.0 million
in the fourth quarter of 2006 of which $4.0 million was
accrued as of September 30, 2006 principally as part of the
normal and recurring accrual of severance obligations. The
majority of the remaining charge will be accrued during the
fourth quarter.
The source of funds for our operations, including making capital
expenditures and servicing principal and interest obligations
with respect to our debt, are cash flows from our operations,
current cash and cash equivalents, borrowings under available
debt facilities, or proceeds from any additional debt or equity
financing. As of September 30, 2006, we had cash and cash
equivalents of $190.6 million and $99.8 million
available under our senior secured revolving credit facility.
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 senior
secured revolving credit facility will be sufficient to fund our
working capital, capital expenditure and debt service
requirements through September 30, 2007, including retiring
the remaining $142.4 million of our 5.0% convertible
subordinated notes at maturity in March 2007. Thereafter, our
liquidity will continue to be affected by, among other things,
the performance of our business, our capital expenditure levels
and our ability to either repay debt out of operating cash flow
or refinance debt with the proceeds of debt or equity offerings
at or prior to maturity. If our performance or access to the
capital markets differs materially from our expectations, our
liquidity may be adversely impacted.
There is no assurance that we will generate the necessary net
income or operating cash flows to meet the funding needs of our
business in the future due to a variety of factors, including
the cyclical nature of the semiconductor industry and the other
factors discussed in Part II, Item 1A Risk
Factors. If we are unable to do so, our liquidity would be
adversely affected and we would consider taking a variety of
actions, including: reducing our operating expenses (including
closing facilities and reducing the size of our work force) and
capital additions to levels appropriate to support our incoming
business, raising additional equity, borrowing additional funds,
refinancing existing indebtedness or taking other actions. There
can be no assurance, however, that we will be able to
successfully take any of these actions, including adjusting our
expenses sufficiently or in a timely manner, or raising
additional equity, increasing borrowings or completing
refinancings on any terms or on terms which are acceptable to
us. Our inability to take these actions as and when necessary
would materially adversely affect our liquidity, results of
operations and financial condition.
Many of our debt agreements restrict our ability to pay
dividends. We have never paid a dividend to our shareholders and
we do not anticipate paying any cash dividends in the
foreseeable future. We expect cash flows, if any, to be used in
the operation and expansion of our business and the repayment of
debt.
Cash
flows
Cash provided by operating activities was $380.7 million
for the nine months ended September 30, 2006 compared to
cash used in operating activities during the nine months ended
September 30, 2005 of $3.3 million. Cash from
operations increased by $384.0 million for the nine months
ended September 30, 2006 principally as a result of our
generating $111.0 million in net income for the nine months
ended September 30, 2006 compared to a net loss of
$191.2 million in the prior year. Similarly, free cash flow
increased by $358.0 million to $128.3 million for the
nine months ended September 30, 2006 compared to
($229.7) million for the nine months ended
September 30, 2005 (see below). Our free cash flow of
$128.3 million for the nine months ended September 30,
2006 was used to repay debt.
55
Net cash provided by (used in) operating, investing and
financing activities for the nine months ended
September 30, 2006 and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
$
|
380,656
|
|
|
$
|
(3,293
|
)
|
Investing activities
|
|
|
(252,455
|
)
|
|
|
(225,912
|
)
|
Financing activities
|
|
|
(145,727
|
)
|
|
|
18,869
|
|
Operating activities: Our cash flows from
operating activities for the nine months ended
September 30, 2006 increased $383.9 million over the
nine months ended September 30, 2005. This increase was
primarily a result of an increase in net income of
$302.2 million over the comparable prior year period as
discussed above in Results of Operations.
Adjustments to reconcile net income to cash flow from operating
activities increased by $81.7 million driven by a loss on
debt retirement of $27.4 million, $18.4 million
increase in depreciation and amortization expenses reflecting
higher levels of capital additions, $7.7 million increase
in loss on disposal of assets and asset impairments, and
$7.0 million increase in provisions for accounts receivable
and inventory as a result of higher sales. Cash flows resulting
from changes in assets and liabilities increased by
$13.3 million during the nine months ended
September 30, 2006 compared with the nine months ended
September 30, 2005. This increase in changes in assets and
liabilities for the nine months ended September 30, 2006 is
primarily attributed to a $39.8 million increase in
unearned revenue associated with customer advance payments and a
$59.0 million increase in accrued expenses and long-term
liabilities partially offset by a $34.2 million increase in
inventory, a $43.5 million increase in accounts receivable
and a $10.1 million decrease in accounts payable.
Investing activities: Our cash flows used in
investing activities for the nine months ended
September 30, 2006 increased by $26.5 million over the
comparable prior year period primarily due to a
$26.0 million increase in payments for property, plant and
equipment from $226.4 million in the nine months ended
September 30, 2005 to $252.4 million in the nine
months ended September 30, 2006. The increase is
attributable to selective capacity expansion, including the
expansion of our facilities in China and Singapore, as described
above.
Financing activities: Our net cash used in
financing activities for the nine months ended
September 30, 2006 was $145.7 million, compared with
$(18.9) million for the nine months ended
September 30, 2005. The net cash used in financing
activities for the nine months ended September 30, 2006 is
primarily driven by the repayment of the $132.0 million of
our 5.75% convertible subordinated notes at maturity in
June 2006. Our refinancing activities are described above in
Liquidity and Capital Resources.
We provide the following supplemental data to assist our
investors and analysts in understanding our liquidity and
capital resources. Free cash flow represents net cash provided
by (used in) operating activities less investing activities
related to the acquisition of property, plant and equipment.
Free cash flow is not defined by generally accepted accounting
principles (GAAP) and our definition of free cash
flow may not be comparable to similar companies and should not
be considered a substitute for cash flow measures in accordance
with GAAP. We believe free cash flow provides our investors and
analysts useful information to analyze our liquidity and capital
resources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
140,850
|
|
|
$
|
14,420
|
|
|
$
|
380,656
|
|
|
$
|
(3,293
|
)
|
Less purchases of property, plant
and equipment
|
|
|
(82,932
|
)
|
|
|
(102,045
|
)
|
|
|
(252,401
|
)
|
|
|
(226,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
57,918
|
|
|
$
|
(87,625
|
)
|
|
$
|
128,255
|
|
|
$
|
(229,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Instruments and Related Covenants
We now have, and for the foreseeable future will continue to
have, a significant amount of indebtedness. Our indebtedness
requires us to dedicate a substantial portion of our cash flow
from operations to service payments on
56
our debt. (See table included in Capital Additions and
Contractual Obligations below). Amkor Technology, Inc.
also guarantees certain debt of our subsidiaries. Debt decreased
slightly to $2,027.8 million as of September 30, 2006
from $2,140.6 million at December 31, 2005.
Due to the delay in filing our
Form 10-Q
for the Quarter ended June 30, 2006, we were not in
compliance with our debt covenants contained in our loan
agreements at September 30, 2006. Additional details about
our debt are available in Note 12 accompanying the unaudited
condensed consolidating financial statements included within
Part I, Item 1 of this quarterly report.
On August 11, 2006, we received a letter dated
August 10, 2006 from U.S. Bank National Association
(US Bank) as trustee for the holders of our
5% Convertible Subordinated Notes due 2007,
10.5% Senior Subordinated Notes due 2009, 9.25% Senior
Notes due 2008, 9.25% Senior Notes due 2016,
6.25% Convertible Subordinated Notes Due 2013,
7.75% Senior Notes due 2013 and 2.5% Convertible
Senior Subordinated Notes due 2011 stating that US Bank, as
trustee, had not received our financial statements for the
fiscal quarter ended June 30, 2006 and that we have
60 days from the date of the letter to file our Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2006 or it will be considered an
Event of Default under the indentures governing each
of the above-listed notes.
On August 11, 2006, we received a letter dated
August 11, 2006 from Wells Fargo Bank National Association
(Wells Fargo), as trustee for our 7.125% Senior
Notes due 2011, stating that we failed to file our Quarterly
Report on
Form 10-Q
for the fiscal quarter ended June 30, 2006, demanding that
we immediately file such quarterly report and indicating that
unless we file a
Form 10-Q
within 60 days after the date of such letter, it will ripen
into an Event of Default under the indenture
governing our 7.125% Senior Notes due 2011.
If an Event of Default were to occur under any of
the notes described above, the trustees or holders of at least
25% in aggregate principal amount of such series then
outstanding could attempt to declare all related unpaid
principal and premium, if any, and accrued interest on such
series of notes then outstanding to be immediately due and
payable. As of August 31, 2006, there was approximately
$1.62 billion of aggregate unpaid principal outstanding of
the above mentioned notes.
On September 14, 2006, we commenced the solicitation of
consents from the holders of the following series of our notes:
(i) $400.0 million aggregate outstanding principal
amount of 9.25% Senior Notes due 2016 (issued in May 2006),
(ii) $250.0 million aggregate outstanding principal
amount of 7.125% Senior Notes due 2011,
(iii) $425.0 million aggregate outstanding principal
amount of 7.75% Senior Notes due 2013,
(iv) approximately $88.2 million aggregate outstanding
principal amount of 9.25% Senior Notes due 2008,
(v) approximately $21.9 million aggregate outstanding
principal amount of 10.5% Senior Subordinated Notes due
2009, (vi) approximately $142.4 million aggregate
outstanding principal amount of 5% Convertible Subordinated
Notes due 2007, and (vii) $190.0 million aggregate
outstanding principal amount of 2.50% Convertible Senior
Subordinated Notes due 2011 (issued in May 2006).
In each case, we were seeking consents for a waiver of certain
defaults and events of default, and the consequences thereof,
that may have occurred or may occur under the indenture
governing each series of notes from our failure to file with the
Securities and Exchange Commission and deliver to the trustee
and the holders of such series of notes any reports or other
information, including a quarterly report on
Form 10-Q
for the quarter ended June 30, 2006, and the waiver of the
application of certain provisions of the indentures governing
each series of notes. On October 6, 2006, with the filing
of our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006, our Annual Report on
Form 10-K/A
for the year ended December 31, 2005 and our Quarterly
Report on Form
10-Q/A for
the quarter ended March 31, 2006, we have cured all alleged
defaults outlined in the US Bank and Wells Fargo letters
described above. Accordingly, we have terminated all consent
solicitations with respect to our outstanding notes and will not
be paying any consent fees under any such consent solicitation.
Capital
Additions and Contractual Obligations
Our capital additions were $244.2 million for the nine
months ended September 30, 2006. We expect that our full
year 2006 capital additions will be approximately
$300 million, as discussed above in the
Overview. Ultimately, the amount of our 2006 capital
additions will depend on several factors including, among
others, the performance of our business, the need for additional
capacity to service anticipated customer demand and the
57
availability of suitable cash flow from operations or financing.
The following table reconciles our activity related to property,
plant and equipment payments as presented on the cash flow
statement to property, plant and equipment additions as
reflected in the balance sheets:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Payments for property, plant, and
equipment
|
|
$
|
252,401
|
|
|
$
|
226,442
|
|
Increase (decrease) in property,
plant, and equipment in accounts payable, accrued expenses and
deposits, net
|
|
|
(8,234
|
)
|
|
|
7,243
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
additions
|
|
$
|
244,167
|
|
|
$
|
233,685
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our contractual obligations at
September 30, 2006, and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods. The following table, as of September 30, 2006,
reflects an update of only the material changes to the similar
table presented in our
Form 10K/A
at December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2006 Remaining
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Total debt(1)
|
|
$
|
2,027,752
|
|
|
$
|
32,080
|
|
|
$
|
176,134
|
|
|
$
|
109,391
|
|
|
$
|
33,654
|
|
|
$
|
311,810
|
|
|
$
|
1,364,683
|
|
Scheduled interest payment
obligations(2)
|
|
|
866,245
|
|
|
|
38,092
|
|
|
|
141,990
|
|
|
|
132,453
|
|
|
|
129,833
|
|
|
|
123,641
|
|
|
|
300,236
|
|
Purchase obligations(3)
|
|
|
46,852
|
|
|
|
46,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,940,849
|
|
|
$
|
117,024
|
|
|
$
|
318,124
|
|
|
$
|
241,844
|
|
|
$
|
163,487
|
|
|
$
|
435,451
|
|
|
$
|
1,664,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The decrease in our total debt from the Annual Report on
Form 10-K/A
as of December 31, 2005, is primarily driven by the
repayment of $132.0 million of our 5.75% convertible
subordinated notes at maturity.
|
|
(2)
|
Scheduled interest payment obligations were calculated using
stated coupon rates for fixed rate debt and interest rates
applicable at September 30, 2006 for variable rate debt.
|
|
(3)
|
Includes $43.2 million of capital-related purchase
obligations.
|
Off-Balance
Sheet Arrangements
We had no off-balance sheet guarantees or other off-balance
sheet arrangements as of September 30, 2006.
Contingencies,
Indemnifications and Guarantees
Details about the companys contingencies, indemnifications
and guarantees are available in Note 15 and Note 18
accompanying the unaudited condensed consolidating financial
statements included within Part I, Item 1 of this
report.
Critical
Accounting Policies
Our critical accounting policies are disclosed in our Annual
Report on
Form 10-K/A
for the fiscal year ended December 31, 2005. During the
nine months ended September 30, 2006, there have been no
significant changes in our critical accounting policies.
New
Accounting Pronouncements
For information regarding recent accounting pronouncements, see
Note 1 to the Condensed Consolidated Financial Statements
within Part I, Item 1 of this quarterly report.
58
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market
Risk Sensitivity
We are exposed to market risks, primarily related to foreign
currency and interest rate fluctuations. In the normal course of
business, we employ established policies and procedures to
manage the exposure to fluctuations in foreign currency values
and changes in interest rates. Our use of derivative
instruments, including forward exchange contracts, has been
historically insignificant, and it is expected that our use of
derivative instruments will continue to be minimal.
Foreign
Currency Risks
Our primary exposures to foreign currency fluctuations are
associated with transactions and related assets and liabilities
denominated in the Philippine peso, Korean won, Japanese yen,
Taiwan dollar, Chinese renminbi, Singapore dollar and Euro. The
objective in managing these foreign currency exposures is to
minimize the risk through minimizing the level of activity and
financial instruments denominated in those currencies. Our
foreign currency financial instruments primarily consist of
cash, trade receivables, investments, deferred taxes, trade
payables, accrued expenses and debt.
For an entity with various financial instruments denominated in
a foreign currency in a net asset position, an increase in the
exchange rate would result in less net assets when converted to
U.S. dollars. Conversely, for an entity with various
financial instruments denominated in a foreign currency in a net
liability position, a decrease in the exchange rate would result
in more net liabilities when converted to U.S. dollars.
Changes period over period are caused by changes in our net
asset or net liability position and changes in currency exchange
rates. Based on our portfolio of foreign currency based
financial instruments at September 30, 2006 and
December 31, 2005, a 20% increase (decrease) in the foreign
currency to U.S. dollar spot exchange rate would result in
the following foreign currency risk for our entities in a net
asset (liability) position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chart of Foreign Currency Risk
|
|
|
|
Philippine
|
|
|
Korean
|
|
|
Taiwanese
|
|
|
Japanese
|
|
|
Chinese
|
|
|
Singapore
|
|
|
|
|
|
|
Peso
|
|
|
Won
|
|
|
Dollar
|
|
|
Yen
|
|
|
Renminbi
|
|
|
Dollar
|
|
|
Euro
|
|
|
|
(In thousands)
|
|
|
As of September 30, 2006
|
|
$
|
(4,924
|
)
|
|
$
|
(6,062
|
)
|
|
$
|
(11,327
|
)
|
|
$
|
1,090
|
|
|
$
|
(2,667
|
)
|
|
$
|
(1,024
|
)
|
|
$
|
(11
|
)
|
As of December 31, 2005
|
|
|
(3,817
|
)
|
|
|
(1,989
|
)
|
|
|
(9,310
|
)
|
|
|
1,552
|
|
|
|
(1,846
|
)
|
|
|
(551
|
)
|
|
|
(246
|
)
|
Interest
Rate Risks
We have interest rate risk with respect to our long-term debt.
As of September 30, 2006, we had a total of
$2,027.8 million of debt of which 80.1% was fixed rate debt
and 19.9% was variable rate debt. Our variable rate debt
principally relates to our second lien term loan, foreign
borrowings and any amounts outstanding under our
$100.0 million revolving line of credit, of which no
amounts were drawn as of September 30, 2006 but which had
been reduced by $0.2 million related to outstanding letters
of credit at that date. The fixed rate debt consists of senior
notes, senior subordinated notes, convertible subordinated notes
and foreign debt. As of December 31, 2005, we had a total
of $2,140.6 million of debt of which 81.9% was fixed rate
debt and 18.1% was variable rate debt. Changes in interest rates
have different impacts on our fixed and variable rate portions
of our debt portfolio. A change in interest rates on the fixed
portion of the debt portfolio impacts the fair value of the
instrument but has no impact on interest incurred or cash flows.
A change in interest rates on the variable portion of the debt
portfolio impacts the interest incurred and cash flows but does
not impact the fair value of the instrument. The fair value of
the convertible subordinated notes is also impacted by changes
in the market price of our common stock.
The table below presents the average interest rates, maturities
and fair value of our fixed and variable rate debt as of
September 30, 2006.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
$
|
853
|
|
|
$
|
145,796
|
|
|
$
|
91,539
|
|
|
$
|
21,882
|
|
|
$
|
|
|
|
$
|
1,363,820
|
|
|
$
|
1,623,890
|
|
|
$
|
1,506,168
|
|
Average interest rate
|
|
|
4.7
|
%
|
|
|
5.0
|
%
|
|
|
9.1
|
%
|
|
|
10.5
|
%
|
|
|
|
|
|
|
7.2
|
%
|
|
|
7.2
|
%
|
|
|
|
|
Variable rate debt
|
|
$
|
31,227
|
|
|
$
|
30,338
|
|
|
$
|
17,852
|
|
|
$
|
11,772
|
|
|
$
|
311,810
|
|
|
$
|
863
|
|
|
$
|
403,862
|
|
|
$
|
412,868
|
|
Average interest rate
|
|
|
1.8
|
%
|
|
|
4.9
|
%
|
|
|
3.6
|
%
|
|
|
3.3
|
%
|
|
|
9.6
|
%
|
|
|
6.1
|
%
|
|
|
8.2
|
%
|
|
|
|
|
Equity
Price Risks
We have convertible subordinated notes, as described above, that
are convertible into our common stock. We currently intend to
repay our remaining convertible subordinated notes upon
maturity, unless converted, repurchased or refinanced. If
investors were to decide to convert their notes to common stock,
our future earnings would benefit from a reduction in interest
expense and our common stock outstanding would be increased. If
we paid a premium to induce such conversion, our earnings could
include an additional charge.
Further, the trading price of our common stock has been and is
likely to continue to be highly volatile and could be subject to
wide fluctuations. Such fluctuations could impact our decision
or ability to utilize the equity markets as a potential source
of our funding needs in the future.
|
|
Item 4.
|
Controls
and Procedures
|
Restatement
of Consolidated Financial Statements, Special Committee and
Company Findings
As a result of a report by a third party financial analyst
issued on May 25, 2006, we commenced an initial review of
our historical stock option granting practices. This review
included a review of hard copy documents as well as a limited
set of electronic documents. Following this initial review, on
July 24, 2006 our Board of Directors established a Special
Committee comprised of independent directors to conduct a review
of our historical stock option granting practices during the
period from our initial public offering in 1998 through the
present.
Based on the findings of the Special Committee and our internal
review, we identified a number of occasions on which we used an
incorrect measurement date for financial accounting and
reporting purposes. In accordance with Accounting Principles
Board No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB
No. 25), with respect to the period through
December 31, 2005, we should have recorded compensation
expense in an amount per share subject to each option to the
extent that the fair market value of our stock on the correct
measurement date exceeded the exercise price of the option. For
periods commencing January 1, 2006, compensation expense is
recorded in accordance with Statement of Financial Accounting
Standards No. 123(R) (revised), Share-Based Payment
(SFAS No. 123(R)). We have also identified
a number of other option grants for which we failed to properly
apply the provisions of APB No. 25 or Statement of
Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation
(SFAS No. 123) and related interpretations
of each pronouncement. In considering the causes of the
accounting errors set forth below, the Special Committee
concluded that the evidence does not support a finding of
intentional manipulation of stock option grant pricing by any
member of existing management. However, based on its review, the
Special Committee identified evidence that supports a finding of
intentional manipulation of stock option pricing with respect to
the annual grants in 2001 and 2002 by a former executive and
that other former executives may have been aware of, or
participated in, this conduct. In addition, the Special
Committee identified a number of other factors related to our
internal controls that
60
contributed to the accounting errors that led to this
restatement. The financial statement impact of these errors, by
type, for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Additional
|
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
Effect
|
|
|
Compensation
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002 - 1998
|
|
|
Expense
|
|
|
|
(In thousands)
|
|
|
Improper measurement dates for
annual stock option grants
|
|
$
|
299
|
|
|
$
|
255
|
|
|
$
|
7,577
|
|
|
$
|
6,453
|
|
|
$
|
80,984
|
|
|
$
|
95,568
|
|
Modifications to stock option
grants
|
|
|
|
|
|
|
9
|
|
|
|
(536
|
)
|
|
|
711
|
|
|
|
9,345
|
|
|
|
9,529
|
|
Improper measurement dates for
other stock option grants
|
|
|
80
|
|
|
|
64
|
|
|
|
217
|
|
|
|
102
|
|
|
|
1,625
|
|
|
|
2,088
|
|
Stock option grants to
non-employees
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
172
|
|
|
|
1,443
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional compensation expense
|
|
|
379
|
|
|
|
328
|
|
|
|
7,284
|
|
|
|
7,438
|
|
|
|
93,397
|
|
|
|
108,826
|
|
Tax related effects
|
|
|
129
|
|
|
|
18
|
|
|
|
144
|
|
|
|
198
|
|
|
|
(3,294
|
)
|
|
|
(2,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate restatement of net
income (loss)
|
|
$
|
508
|
|
|
$
|
346
|
|
|
$
|
7,428
|
|
|
$
|
7,636
|
|
|
$
|
90,103
|
|
|
$
|
106,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Improper Measurement Dates for Annual Stock Option
Grants. We determined that, in connection with
our annual stock option grants to employees in 1999, 2000, 2001,
2002 and 2004, the number of shares that an individual employee
was entitled to receive was not determined until after the
original grant date, and therefore the measurement date for such
options was subsequent to the original grant date. As a result,
we have restated our historical financial statements to increase
stock-based compensation expense by a total of
$95.6 million recognized over the applicable vesting
periods. For certain of these options forfeited in 2002 in
connection with an option exchange program (2002 Option
Exchange Program), the remaining compensation expense was
accelerated into 2002. For certain other options, compensation
expense was accelerated into 2004, in connection with the
acceleration of all unvested options as of July 1, 2004
(2004 Accelerated Vesting). We undertook the 2004
Accelerated Vesting program for the purpose of enhancing
employee morale, helping retain high potential employees in the
face of a downturn in industry conditions and to avoid future
compensation charges subsequent to the adoption of
SFAS No. 123(R).
Modifications to Stock Option Grants. We
determined that from 1998 through 2005, we had not properly
accounted for stock options modified for certain individuals who
held consulting, transition or advisory roles with us. These
included instances of continued vesting after an individual was
no longer required to provide substantive services to Amkor
after an individual converted from an employee to a consultant
or advisory role, and extensions of option vesting and exercise
periods. Some of these modifications were not identified in our
financial reporting processes and were therefore not properly
reflected in our financial statements. As a result, we have
restated our historical financial statements to increase
stock-based compensation expense by a total of $9.5 million
recognized as of the date of the respective modifications.
Improper Measurement Dates for Other Stock Option
Grants. We determined that from 1998 through
2005, we had not properly accounted for certain employee stock
options granted prior to obtaining authorization of the grants.
These options included those granted as of November 9, 1998
in connection with the settlement of a deferred compensation
liability to employees that had not been approved by our Board
of Directors until November 10, 1998 as well as stock
options granted to new hires and existing employees in
recognition of achievements, promotions, retentions and other
events. As a result of these errors, we have restated our
historical financial statements to increase stock-based
compensation expense by a total of $2.1 million recognized
over the applicable vesting periods. For certain of these option
grants, the recognition of this expense was also accelerated
under the 2002 Option Exchange Program or the 2004 Accelerated
Vesting, as described under Improper Measurement Dates for
Annual Stock Option Grants.
Stock Option Grants to Non-employees. We
determined that from 1998 to 2004, we had not properly accounted
for stock option grants issued to employees of an equity
affiliate, consultants, or other persons who did not meet the
definition of an employee. We erroneously accounted for such
grants in accordance with APB No. 25
61
rather than SFAS No. 123 and related interpretations.
As a result, we have restated our historical financial
statements to increase stock-based compensation expense by a
total of $1.6 million.
All of the foregoing charges were non-cash and had no impact on
our reported net sales or cash or cash equivalents. The
aggregate amount of the additional stock-based compensation
expense that we identified as a result of the stock option
review is approximately $108.8 million through
June 30, 2006.
As a result of the findings of the Special Committee as well as
our internal review, we concluded that we needed to amend our
Annual Report on
Form 10-K
for the year ended December 31, 2005, filed on
March 16, 2006, to restate our consolidated financial
statements for the years ended December 31, 2005, 2004 and
2003 and the related disclosures. The amended Annual Report on
Form 10-K/A
also includes the restatement of selected consolidated financial
data as of and for the years ended December 31, 2005, 2004,
2003, 2002 and 2001, which is included in Item 6 of the
Annual Report, and the unaudited quarterly financial data for
each of the quarters in the years ended December 31, 2005
and 2004, which is included in Item 7 of the Annual Report.
We also concluded that we needed to amend our Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2006 originally filed on
May 9, 2006 to restate our condensed consolidated financial
statements for the quarters ended March 31, 2006 and 2005
and the related disclosures. We restated our June 30, 2005
financial statements in our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006. We have restated the
September 30, 2005 financial statements included in this
Form 10-Q.
Additionally, in Managements Report on Internal Control
Over Financial Reporting included in our original Annual Report
on
Form 10-K
for the year ended December 31, 2005, our management,
including our principal executive officer and principal
financial officer, concluded that we maintained effective
control over financial reporting as of December 31, 2005.
Our principal executive officer and principal financial officer
subsequently concluded that the material weaknesses described
below existed as of December 31, 2005. As a result, we
concluded that we did not maintain effective internal control
over financial reporting as of December 31, 2005, based on
the criteria in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Accordingly, Managements Report on Internal Control Over
Financial Reporting has also been restated.
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our principal
executive officer and principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and 15d- 15
(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act)) as of September 30, 2006.
As a result of the material weaknesses described below, our
principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures were not
effective as of September 30, 2006.
Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or
62
detected. We identified the following material weaknesses in our
internal control over financial reporting as of
September 30, 2006:
1. We did not maintain effective governance and oversight,
controls to prevent or detect instances of management override,
and risk assessment procedures. Specifically, we failed to
establish effective governance and oversight by the Compensation
Committee of the Board of Directors of our activities related to
the granting of stock options. Additionally, controls were not
effective in adequately identifying, assessing and addressing
significant risks associated with the granting of stock options
that could impact our financial reporting. Finally, our controls
were not adequate to prevent or detect instances of potential
misconduct by members of senior management. This control
deficiency resulted in the following findings of the Special
Committee:
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There is evidence that supports a finding of intentional
manipulation of stock option pricing and associated stock-based
compensation by a former executive, including the preparation of
Compensation Committee meeting minutes that misrepresented the
actions taken at certain Compensation Committee meetings.
Additionally, there is some evidence that supports a finding
that two other former executives may have been aware of, or
participated in, this conduct;
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Compensation Committee policies and procedures were inadequate
and we failed to verify purported actions of the Compensation
Committee and ensure that actions at such meetings were
accurately and timely documented and periodically reported to
the Board of Directors;
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Our Human Resources personnel were inappropriately allowed to
control and administer our stock option grant process without
adequate input or supervision;
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We failed to recognize stock option grant practices as a
significant risk and to assure that managers and other personnel
involved in the stock option grant process understood their
appropriate roles and responsibilities and the consequences of
their actions; and
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We failed to assure that our personnel received adequate
supervision and training on how to comply with the requirements
of generally accepted accounting principles applicable to stock
options.
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There is evidence that Compensation Committee meeting minutes
prepared by a former executive misrepresented certain actions
taken by the Compensation Committee and that such meeting
minutes were provided to our independent registered public
accounting firm in connection with their audits of our
consolidated financial statements.
This control deficiency, and related findings of the Special
Committee, resulted in the restatement of our consolidated
financial statements for each of the years ended
December 31, 2005, 2004 and 2003, for each of the quarters
of 2005 and 2004, as well as for the first quarter of 2006.
Additionally, this control deficiency could result in
misstatements of our financial statement accounts and
disclosures that would result in a material misstatement of the
annual or interim consolidated financial statements that would
not be prevented or detected. Accordingly, our management has
determined that this control deficiency constitutes a material
weakness. This material weakness also contributed to the
existence of the following additional material weakness.
2. We did not maintain effective controls over our
accounting for and disclosure of our stock-based compensation
expense. Specifically, effective controls, including monitoring,
were not maintained to ensure the existence, completeness,
accuracy, valuation and presentation of activity related to our
granting and modification of stock options. This control
deficiency resulted in the misstatement of our stock-based
compensation expense and additional paid-in capital accounts and
related disclosures, and in the restatement of our consolidated
financial statements for each of the years ended
December 31, 2005, 2004 and 2003, for each of the quarters
of 2005 and 2004, as well as for the first quarter of 2006.
Additionally, this control deficiency could result in
misstatements of the aforementioned accounts and disclosures
that would result in a material misstatement of our annual or
interim consolidated financial statements that would not be
prevented or detected. Accordingly, our management has
determined that this control deficiency constitutes a material
weakness.
63
Changes
in Internal Control Over Financial Reporting
The Special Committee issued a report to our Board of Directors
in October 2006 and, while we commenced remediation of the
material weaknesses described above, remediation and testing of
new control procedures is not complete. However management is
committed to remediating the material weaknesses by implementing
changes to our internal control over financial reporting. Our
Board of Directors has approved additional control procedures to
remediate the material weaknesses including the following:
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Creation and implementation of formal, documented stock option
grant procedures and practices to ensure systematic approval and
execution of stock option grants and the proper recording of
such grants in our stock administration records and financial
statements;
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Establishment of additional training for personnel and directors
in areas associated with the stock option granting processes and
other compensation practices to increase competency levels of
the personnel involved; and
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Improvement in the manner of documenting the actions of the
Compensation Committee and ensuring the timely reporting of
Compensation Committee actions to the Board of Directors.
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PART II.
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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Information about legal proceedings is set forth in Note 15 to
the Condensed Consolidated Financial Statements included in this
quarterly report.
RISK
FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
The factors discussed below are cautionary statements that
identify important factors that could cause actual results to
differ materially from those anticipated by the forward-looking
statements contained in this quarterly report on
Form 10-Q.
For more information regarding the forward-looking statements
contained in this report, see the introductory paragraph to
Part I, Item 2 of this quarterly report. You should
carefully consider the risks and uncertainties described below,
together with all of the other information included in this
quarterly report, in considering our business and prospects. The
risks and uncertainties described below are not the only ones
facing Amkor. Additional risks and uncertainties not presently
known to us also may impair our business operations. The
occurrence of any of the following risks could adversely affect
our business, financial condition or results of operations.
The
matters relating to the Special Committees review of our
historical stock option granting practices and the restatement
of our consolidated financial statements has resulted in
expanded litigation and regulatory proceedings against us and
may result in future litigation, which could have a material
adverse effect on us.
On July 24, 2006, we established a Special Committee,
consisting of independent members of the Board of Directors, to
conduct a review of our historical stock option granting
practices during the period from our initial public offering on
May 1, 1998 through the present. As described in
Part I, Item 2, the Special Committee has identified a
number of occasions on which the measurement date used for
financial accounting and reporting purposes for stock options
granted to certain of our employees was different from the
actual grant date. To correct these accounting errors, we
amended our Annual Report on
Form 10-K
for the year ended December 31, 2005 and our Quarterly
Report on
Form 10-Q
for the three months ended March 31, 2006, to restate the
consolidated financial statements contained in those reports.
The review of our historical stock option granting practices,
related activities and the resulting restatements, have required
us to incur substantial expenses for legal, accounting, tax and
other professional services and have diverted our
managements attention from our business and could in the
future adversely affect our business, financial condition,
results of operations and cash flows.
64
Our historical stock option granting practices and the
restatement of our prior financial statements have exposed us to
greater risks associated with litigation and regulatory
proceedings. As described in Note 15 to our condensed
consolidated financial statements, the complaints in several of
our existing litigation matters were recently amended to include
allegations relating to stock option grants. In addition, the
scope of the existing SEC investigation that began in August
2005 has been expanded to include an investigation into our
historical stock option grant practices. We cannot assure you
that this current litigation, the SEC investigation or any
future litigation or regulatory action will result in the same
conclusions reached by the Special Committee. The conduct and
resolution of these matters will be time consuming, expensive
and distracting from the conduct of our business. Furthermore,
if we are subject to adverse findings in any of these matters,
we could be required to pay damages or penalties or have other
remedies imposed upon us which could have a material adverse
effect on our business, financial condition, results of
operations and cash flows.
We could also become subject to litigation brought on behalf of
purchasers of the debt securities issued in our May 2006 public
offering because of the subsequent restatement of the
consolidated financial statements contained in the related
registration statements as a result of the stock option
accounting errors mentioned above.
Finally, as a result of our delayed filing of
Form 10-Q
for the quarter ended June 30, 2006, we will be ineligible
to register our securities on
Form S-3
for sale by us or resale by others until we have timely filed
all periodic reports under the Securities Exchange Act of 1934
for one year from the date the
Form 10-Q
for the quarter ended June 30, 2006 was due. We may use
Form S-1
to raise capital or complete acquisitions, which could increase
transaction costs and adversely impact our ability to raise
capital or complete acquisitions of other companies in a timely
manner.
Pending
SEC Investigation The Pending SEC Investigation
Could Adversely Affect Our Business and the Trading Price of Our
Securities.
In August 2005, the SEC issued a formal order of investigation
regarding certain activities with respect to Amkor securities.
We previously announced that the primary focus of the
investigation appears to be activities during the period from
June 2003 to July 2004. We believe that the investigation in
part relates to transactions in Amkors securities by
certain individuals, and that the investigation may in part
relate to whether tipping with respect to trading in Amkor
securities occurred. The matters at issue involve activities
with respect to Amkor securities during the subject period by
certain insiders or former insiders and persons or entities
associated with them, including activities by or on behalf of
certain current and former members of the Board of Directors and
Amkors Chief Executive Officer.
In July 2006, the Board of Directors established a Special
Committee to review Amkors historical stock option
practices and informed the SEC of these efforts. The SEC
informed us that it is expanding the scope of its investigation
and has requested that Amkor provide documentation related to
these matters. We have cooperated fully with the SEC on the
formal investigation and the informal inquiry that preceded it.
We cannot predict the outcome of the investigation. In the event
that the investigation leads to SEC action against any current
or former officer or director of Amkor, or Amkor itself, our
business (including our ability to complete financing
transactions) or the trading price of our securities may be
adversely impacted. In addition, if the SEC investigation
continues for a prolonged period of time, it may have the same
impact regardless of the ultimate outcome of the investigation.
Dependence
on the Highly Cyclical Semiconductor and Electronic Products
Industries We Operate in Volatile Industries, and
Industry Downturns Harm Our Performance.
Our business is tied to market conditions in the semiconductor
industry, which is cyclical by nature. The semiconductor
industry has experienced significant, and sometimes prolonged,
downturns. Because our business is, and will continue to be,
dependent on the requirements of semiconductor companies for
subcontracted packaging and test services, any downturn in the
semiconductor industry or any other industry that uses a
significant number of semiconductor devices, such as consumer
electronic products, telecommunication devices, or computing
devices could have a material adverse effect on our business and
operating results. If current industry conditions deteriorate,
we could suffer significant losses, as we have in the past,
which could materially impact our business, results of
operations and financial condition.
65
High
Fixed Costs Due to Our High Percentage of Fixed
Costs, We Will Be Unable to Maintain Our Gross Margin at Past
Levels if We Are Unable to Achieve Relatively High Capacity
Utilization Rates.
Our operations are characterized by relatively high fixed costs.
Our profitability depends in part not only on pricing levels for
our products and services, but also on the utilization rates for
our testing and packaging equipment, commonly referred to as
capacity utilization rates. In particular, increases
or decreases in our capacity utilization rates can significantly
affect gross margins since the unit cost of testing and
packaging services generally decreases as fixed costs are
allocated over a larger number of units. In periods of low
demand, we experience relatively low capacity utilization rates
in our operations, which lead to reduced margins during that
period. During most of 2005, we experienced lower than optimum
utilization rates in our operations due to a decline in
worldwide demand for our testing and packaging services, which
led to significantly reduced margins during that period.
Although our capacity utilization rates have improved recently,
we cannot assure you that we will be able to continue to achieve
or maintain relatively high capacity utilization rates, and if
we fail to do so, our gross margins may decrease. If our gross
margins decrease, our results of operations and financial
condition could be materially adversely affected.
In addition, our fixed operating costs have increased in part as
a result of our efforts to expand our capacity through
acquisitions, including the acquisition of certain operations
and assets in Shanghai, China and Singapore from IBM and Xin
Development Co., Ltd. in May 2004, and the acquisition of
capital stock of Unitive and UST in August 2004. We are also
expending significant capital resources in connection with the
opening of a wafer bumping facility in Singapore in 2006, which
will further increase our fixed costs. In the event that
forecasted customer demand for which we have made and, on a more
limited basis, expect to make advance capital expenditures does
not materialize, our sales may not adequately cover our
substantial fixed costs resulting in reduced profit levels or
causing significant losses both of which may adversely impact
our liquidity, results of operations and financial condition.
Additionally, we could suffer significant losses if current
industry conditions deteriorate, which could materially impact
our business including our liquidity.
Fluctuations
in Operating Results and Cash Flows Our Operating
Results and Cash Flows Have Varied and May Vary Significantly as
a Result of Factors That We Cannot Control.
Many factors could materially and adversely affect our net
sales, gross profit, operating results and cash flows, or lead
to significant variability of quarterly or annual operating
results. Our profitability and ability to generate cash from
operations is principally dependent upon demand for
semiconductors, the utilization of our capacity, semiconductor
package mix, the average selling price of our services and our
ability to control our costs including labor, material, overhead
and financing costs.
Our operating results and cash flows have varied significantly
from period to period. Our net sales, gross margins, operating
income and cash flows have historically fluctuated significantly
as a result of the following factors, many of which we have
little or no control over and which we expect to continue to
impact our business:
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fluctuation in demand for semiconductors and conditions in the
semiconductor industry;
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changes in our capacity utilization;
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changes in average selling prices;
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changes in the mix of semiconductor packages;
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evolving package and test technology;
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absence of backlog and the short-term nature of our
customers commitments and the impact of these factors on
the timing and volume of orders relative to our production
capacity;
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changes in costs, availability and delivery times of raw
materials and components;
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changes in labor costs to perform our services;
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the timing of expenditures in anticipation of future orders;
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changes in effective tax rates;
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the availability and cost of financing;
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intellectual property transactions and disputes;
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high leverage and restrictive covenants;
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warranty and product liability claims;
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costs associated with litigation judgments and settlements;
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international events or environmental or natural events, such as
earthquakes, that impact our operations;
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difficulties integrating acquisitions; and
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our ability to attract qualified employees to support our
geographic expansion.
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We have historically been unable to accurately predict the
impact of these factors upon our results for a particular
period. These factors, as well as the factors set forth below
which have not significantly impacted our recent historical
results, may impair our future business operations and may
materially and adversely affect our net sales, gross profit,
operating results and cash flows, or lead to significant
variability of quarterly or annual operating results:
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loss of key personnel or the shortage of available skilled
workers;
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rescheduling and cancellation of large orders; and
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fluctuations in our manufacturing yields.
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Guidance
Our Failure to Meet Our Guidance or Analyst Projections Could
Adversely Impact the Trading Prices of Our
Securities.
We periodically provide guidance to investors with respect to
certain financial information for future periods. Securities
analysts also periodically publish their own projections with
respect to our future operating results. As discussed above
under Fluctuations in Operating Results and Cash
Flows Our Operating Results and Cash Flows Have
Varied and May Vary Significantly as a Result of Factors That We
Cannot Control, our operating results and cash flow vary
significantly and are difficult to accurately predict. To the
extent we fail to meet or exceed our own guidance or the analyst
projections for any reason, the trading prices of our securities
may be adversely impacted. Moreover, even if we do meet or
exceed that guidance or those projections, the analysts and
investors may not react favorably and the trading prices of our
securities may be adversely impacted.
Declining
Average Selling Prices The Semiconductor Industry
Places Downward Pressure on the Prices of Our
Products.
Prices for packaging and test services have generally declined
over time. Historically, we have been able to partially offset
the effect of price declines by successfully developing and
marketing new packages with higher prices, such as advanced
leadframe and laminate packages, by negotiating lower prices
with our material vendors, recovering material cost increases
from some of our customers, and by driving engineering and
technological changes in our packaging and test processes which
resulted in reduced manufacturing costs. Although the average
selling prices of some of our products have increased in recent
periods, we expect general downward pressure on average selling
prices for our packaging and test services in the future. If we
are unable to offset a decline in average selling prices,
including developing and marketing new packages with higher
prices, reducing our purchasing costs, recovering more of our
material cost increases from our customers and reducing our
manufacturing costs, our future operating results will suffer.
Decisions
by Our IDM Customers to Curtail Outsourcing May Adversely Affect
Our Business.
Historically, we have been dependent on the trend in outsourcing
of packaging and test services by integrated device
manufacturers (IDM). Our IDM customers continually
evaluate the outsourced services against their own in-house
packaging and test services. As a result, at any time, and for a
variety of reasons, IDMs may decide to shift some or all of
their outsourced packaging and test services to internally
sourced capacity.
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The reasons IDMs may shift their internal capacity include:
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their desire to realize higher utilization of their existing
test and packaging capacity, especially during downturns in the
semiconductor industry;
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their unwillingness to disclose proprietary technology;
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their possession of more advanced packaging and testing
technologies; and
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the guaranteed availability of their own packaging and test
capacity.
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Furthermore, to the extent we continue to limit capacity
commitments for certain customers, these customers may begin to
increase their level of in-house packaging and test
capabilities, which could adversely impact our sales and
profitability and make it more difficult for us to regain their
business when we have available capacity. Any shift or a
slowdown in this trend of outsourcing packaging and test
services is likely to adversely affect our business, financial
condition and results of operations.
In a downturn in the semiconductor industry, IDMs may be
especially likely to respond by shifting some outsourced
packaging and test services to internally serviced capacity on a
short term basis. This would have a material adverse effect on
our business, financial condition and results of operations,
especially during a prolonged industry downturn.
High
Leverage and Restrictive Covenants Our Substantial
Indebtedness Could Adversely Affect Our Financial Condition and
Prevent Us from Fulfilling Our Obligations.
Substantial Leverage. We now have, and for the
foreseeable future will continue to have, a significant amount
of indebtedness. As of September 30, 2006, our total debt
balance was $2,027.8 million, of which $200.6 million
was classified as a current liability. In addition, despite
current debt levels, the terms of the indentures governing our
indebtedness allow us or our subsidiaries to incur more debt,
subject to certain limitations. If new debt is added to our
consolidated debt level, the related risks that we now face
could intensify.
Covenants in the agreements governing our existing debt, and
debt we may incur in the future, may materially restrict our
operations, including our ability to incur debt, pay dividends,
make certain investments and payments, and encumber or dispose
of assets. The agreements also impose affirmative covenants on
us including financial reporting obligations. In addition,
financial covenants contained in agreements relating to our
existing and future debt could lead to a default in the event
our results of operations do not meet our plans and we are
unable to amend such financial covenants. Bondholder groups may
be aggressive and may attempt to call defaults for technical
violations of covenants that have little or nothing to do with
our financial performance in an effort to extract consent fees
from us or to force a refinancing. A default and acceleration
under one debt instrument may also trigger cross-acceleration
under our other debt instruments. A default or event of default
under one or more of our revolving credit facilities would also
preclude us from borrowing additional funds under such
facilities. An event of default under any debt instrument, if
not cured or waived, could have a material adverse effect on us.
For example, on August 11, 2006, we received a letter dated
August 10, 2006 from U.S. Bank National Association
(US Bank) as trustee for the holders of our
5% Convertible Subordinated Notes due 2007,
10.5% Senior Subordinated Notes due 2009, 9.25% Senior
Notes due 2008, 9.25% Senior Notes due 2016,
6.25% Convertible Subordinated Notes Due 2013,
7.75% Senior Notes due 2013 and 2.5% Convertible
Senior Subordinated Notes due 2011 stating that US Bank, as
trustee, had not received our financial statements for the
quarter ended June 30, 2006 and that we have 60 days
from the date of the letter to file our Quarterly Report on Form
10-Q for the
fiscal quarter ended June 30, 2006 or it will be considered
an Event of Default under the indentures governing
each of the above-listed notes. On the same day, we received a
letter from Wells Fargo Bank National Association (Wells
Fargo), as trustee for our 7.125% Senior Notes due 2011,
stating that we failed to file our Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 30, 2006, demanding that
we immediately file such quarterly report and indicating that
unless we file a
Form 10-Q
within 60 days after the date of such letter, it will ripen
into an Event of Default under the indenture
governing our 7.125% Senior Notes due 2011.
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We cured the alleged defaults described the US Bank and Wells
Fargo letters by filing our Quarterly Report for the quarter
ended June 30, 2006 within the 60 day period and
avoided the occurrence of an alleged Event of
Default. However, had we not filed on Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006 within
the requisite period, the bondholders may have been able to
accelerate all outstanding amounts under the above listed notes,
which could have resulted in a material adverse effect.
Our substantial indebtedness could:
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make it more difficult for us to satisfy our obligations with
respect to our indebtedness;
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increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to fund future working capital, capital
expenditures, research and development and other general
corporate requirements;
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require us to dedicate a substantial portion of our cash flow
from operations to service payments on our debt;
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limit our flexibility to react to changes in our business and
the industry in which we operate;
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place us at a competitive disadvantage to any of our competitors
that have less debt; and
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limit, along with the financial and other restrictive covenants
in our indebtedness, among other things, our ability to borrow
additional funds.
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History
of Losses.
Although we achieved net income and positive operating cash flow
in the first half of 2006, we have had net losses in four of the
previous five years and negative operating cash flow in several
previous quarters. There is no assurance that we will be able to
sustain our current profitability or avoid net losses in the
future.
Ability
to Fund Liquidity Needs.
We operate in a capital intensive
industry. 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
any firm customer commitments. During 2005, we had capital
additions of $294.8 million and in 2006 we currently
anticipate making capital additions of approximately
$300 million, which estimate is subject to adjustment based
on business conditions. In addition, we have a significant level
of debt, with $2,027.8 million outstanding at
September 30, 2006, $200.6 million of which is
current. The terms of such debt require significant scheduled
principal payments in the coming years, including
$32.1 million due during the remainder of 2006,
$176.1 million due in 2007, $109.4 million due in
2008, $33.7 million due in 2009, $311.8 million due in
2010 and $1,364.7 million due thereafter. The interest
payments required on our debt are also substantial. For example,
for the nine months ended September 30, 2006, our total
interest paid was $121.1 million. (See Part I,
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
Capital Additions and Contractual Obligations for a
summary of principal and interest payments.) The source of funds
to fund our operations, including making capital expenditures
and servicing principal and interest obligations with respect to
our debt, are cash flows from our operations, current cash and
cash equivalents, borrowings under available debt facilities, or
proceeds from any additional debt or equity financing. As of
September 30, 2006, we had cash and cash equivalents of
$190.6 million and $99.8 million available under our
senior secured revolving credit facility.
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 senior
secured revolving credit facility will be sufficient to fund our
working capital, capital expenditure and debt service
requirements through September 30, 2007, including retiring
the remaining $142.4 million of our 5.0% convertible
subordinated notes at maturity in March 2007. Thereafter, our
liquidity will continue to be affected by, among other things,
the performance of our business, our capital expenditure levels
and our ability to repay debt out of our operating cash
69
flow or refinance the debt with the proceeds of debt or equity
offerings at or prior to maturity. If our performance or access
to the capital markets differs materially from our expectations,
our liquidity may be adversely impacted.
There is no assurance that we will generate the necessary net
income or operating cash flows to meet the funding needs of our
business in the future due to a variety of factors, including
the cyclical nature of the semiconductor industry and the other
factors discussed in this Risk Factors section. If
we are unable to do so, our liquidity would be adversely
affected and we would consider taking a variety of actions,
including: reducing our operating expenses (including closing
facilities and reducing the size of our work force) and capital
additions to levels appropriate to support our incoming
business, raising additional equity, borrowing additional funds,
refinancing existing indebtedness or taking other actions. There
can be no assurance, however, that we will be able to
successfully take any of these actions, including adjusting our
expenses sufficiently or in a timely manner, or raising
additional equity, increasing borrowings or completing
refinancings on any terms or on terms that are acceptable to us.
Our inability to take these actions as and when necessary would
materially adversely affect our liquidity, results of operations
and financial condition.
Absence
of Backlog The Lack of Contractually Committed
Customer Demand May Adversely Affect Our Sales.
Our packaging and test business does not typically operate with
any material backlog. Our quarterly net sales from packaging and
test services are substantially dependent upon our
customers demand in that quarter. None of our customers
have committed to purchase any significant amount of packaging
or test services or to provide us with binding forecasts of
demand for packaging and test services for any future period, in
any material amount. In addition, our customers often reduce,
cancel or delay their purchases of packaging and test services
for a variety of reasons including industry-wide,
customer-specific and Amkor-related reasons. Recently, our
customers demand for our services has increased; however,
we cannot predict if this demand trend will continue and the
forecasted demand will materialize. Because a large portion of
our costs is fixed and our expense levels are based in part on
our expectations of future revenues, we may not be able to
adjust costs in a timely manner to compensate for any sales
shortfall. If we are unable to do so, it would adversely affect
our margins, operating results, cash flows and financial
condition. If customer demand does not materialize as
anticipated, our net sales, margins, operating results, cash
flows and financial condition will be materially and adversely
affected.
Risks
Associated With International Operations We Depend
on Our Factories and Operations in China, Japan, Korea, the
Philippines, Singapore and Taiwan. Many of Our Customers
and Vendors Operations Are Also Located Outside of the
U.S.
We provide packaging and test services through our factories and
other operations located in the China, Japan, Korea, the
Philippines, Singapore and Taiwan. Moreover, many of our
customers and vendors operations are located outside
the U.S. The following are some of the risks inherent in
doing business internationally:
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regulatory limitations imposed by foreign governments;
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fluctuations in currency exchange rates;
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political, military and terrorist risks;
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disruptions or delays in shipments caused by customs brokers or
government agencies;
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unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;
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difficulties in staffing and managing foreign
operations; and
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potentially adverse tax consequences resulting from changes in
tax laws.
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Difficulties
Expanding and Evolving Our Operational Capabilities
We Face Challenges as We Integrate New and Diverse Operations
and Try to Attract Qualified Employees to Support Our
Operations.
We have experienced, and expect to continue to experience,
growth in the scope and complexity of our operations. For
example, each business we have acquired had, at the time of
acquisition, multiple systems for
70
managing its own production, sales, inventory and other
operations. Migrating these businesses to our systems typically
is a slow, expensive process requiring us to divert significant
amounts of resources from multiple aspects of our operations.
This growth has strained our managerial, financial, plant
operations and other resources. Future expansions may result in
inefficiencies as we integrate new operations and manage
geographically diverse operations. Our success depends to a
significant extent upon the continued service of our key senior
management and technical personnel, any of whom may be difficult
to replace. Competition for qualified employees is intense, and
our business could be adversely affected by the loss of the
services of any of our existing key personnel, including senior
management, as a result of competition or for any other reason.
Additionally, as part of our ongoing strategic planning, we
evaluate our management team and engage in long-term succession
planning in order to ensure orderly replacement of key
personnel. We cannot assure you that we will be successful in
these efforts or in hiring and properly training sufficient
numbers of qualified personnel and in effectively managing our
growth. Our inability to attract, retain, motivate and train
qualified new personnel could have a material adverse effect on
our business.
Dependence
on Materials and Equipment Suppliers Our Business
May Suffer If The Cost, Quality or Supply of Materials or
Equipment Changes Adversely.
We obtain from various vendors the materials and equipment
required for the packaging and test services performed by our
factories. We source most of our materials, including critical
materials such as leadframes, laminate substrates and gold wire,
from a limited group of suppliers. Furthermore, we purchase the
majority of our materials on a purchase order basis. From time
to time, we enter into supply agreements, generally up to one
year in duration, to guarantee supply to meet projected demand.
Our business may be harmed if we cannot obtain materials and
other supplies from our vendors in a timely manner, in
sufficient quantities, in acceptable quality or at competitive
prices.
We need to purchase new packaging and testing equipment if we
decide to expand our operations (sometimes in anticipation of
expected market demand), to manufacture some new types of
packaging, perform some different testing or to replace
equipment that breaks down or wears out. From time to time,
increased demand for new equipment may cause lead times to
extend beyond those normally required by equipment vendors. For
example, in the past, increased demand for equipment caused some
equipment suppliers to only partially satisfy our equipment
orders in the normal lead time frame or increase prices during
market upturns for the semiconductor industry. The
unavailability of equipment or failures to deliver equipment
could delay implementation of our future expansion plans and
impair our ability to meet customer orders. If we are unable to
implement our future expansion plans or meet customer orders, we
could lose potential and existing customers. Generally, we do
not enter into binding, long-term equipment purchase agreements
and we acquire our equipment on a purchase order basis, which
exposes us to substantial risks. For example, sudden changes in
foreign currency exchange rates, particularly the US dollar and
Japanese yen, could result in increased prices for equipment
purchased by us, which could have a material adverse effect on
our results of operations.
We are a large buyer of gold and other commodity materials
including substrates and copper. The price of gold and other
commodities used in our business has been increasing in recent
quarters. This price increase may continue. We have been able to
partially offset the effect of commodity price increases through
price adjustments to some customers and changes in our product
designs. These price increases did, however, adversely impact
our gross margin in the quarter ended September 30, 2006
and may continue to do so in future quarters to the extent we
are unable to pass along past or future commodity price
increases to many of our customers.
Loss
of Customers The Loss of Certain Customers May Have
a Significant Adverse Effect on the Operations and Financial
Results.
The loss of a large customer or disruption of our strategic
partnerships or other commercial arrangements may result in a
decline in our sales and profitability. Although we have over
200 customers, we have derived and expect to continue to derive
a large portion of our revenues from a small group of customers
during any particular period due in part to the concentration of
market share in the semiconductor industry. Our five largest
customers together accounted for approximately 23.8%, 25.2% and
26.0% of our net sales in the first three quarters of 2006, and
the fiscal years 2005 and 2004, respectively. No customer
accounts for more than 10% of our net sales.
71
The demand for our services from each customer is directly
dependent upon that customers level of business activity,
which could vary significantly from year to year. The loss of a
large customer may adversely affect our sales and profitability.
Our key customers typically operate in the cyclical
semiconductor business and, in the past, have varied, and may
vary in the future, order levels significantly from period to
period based on industry-, customer- or Amkor-specific factors.
We cannot assure you that these customers or any other customers
will continue to place orders with us in the future at the same
levels as in past periods. The loss of one or more of our
significant customers, or reduced orders by any one of them, and
our inability to replace these customers or make up for such
orders could reduce our profitability. For example, our facility
in Iwate, Japan, is primarily dedicated to a single customer,
Toshiba Corporation. If we were to lose Toshiba as a customer or
if it were to materially reduce its business with us, it could
be difficult for us to find one or more new customers to utilize
the capacity, which could have a material adverse effect on our
operations and financial results.
Capital
Additions We Believe We Need To Make Substantial
Capital Additions, Which May Adversely Affect Our Business If
Our Business Does Not Develop As We Expect.
We believe that our business requires us to make significant
capital additions in order to capitalize on what we believe is
an overall trend to outsource packaging and test services. The
amount of capital additions will depend on several factors,
including the performance of our business, our assessment of
future industry and customer demand, our capacity utilization
levels and availability, our liquidity position and the
availability of financing. Our ongoing capital addition
requirements may strain our cash and short-term asset balances,
and we expect that depreciation expense and factory operating
expenses associated with our recent capital additions to
increase production capacity will put downward pressure on our
gross margin, at least over the near term.
Furthermore, if we cannot generate or borrow additional funds to
pay for capital additions as well as research and development
activities, our growth prospects and future profitability may be
adversely affected. Our ability to obtain external financing in
the future is subject to a variety of uncertainties, including:
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our future financial condition, results of operations and cash
flows;
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general market conditions for financing activities by
semiconductor companies; and
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economic, political and other global conditions.
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The lead time needed to order, install and put into service
various capital additions is often significant, and as a result
we often need to commit to capital additions in advance of our
receipt of firm orders or advance deposits based on our view of
anticipated future demand with only very limited visibility.
Although we seek to limit our exposure in this regard, in the
past we have often expended significant capital for additions
for which the anticipated demand did not materialize for a
variety of reasons, many of which were outside of our control.
To the extent this occurs in the future, our margins, liquidity,
results of operations and financial condition could be
materially adversely affected.
Impairment
Charges Any Impairment Charges Required Under
GAAP May Have a Material Adverse Effect on Our Net
Income.
Under GAAP, we are required to review our long-lived assets for
impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. In addition, goodwill and
other intangible assets with indefinite lives are required to be
tested for impairment at least annually. We may be required in
the future to record a significant charge to earnings in our
financial statements during the period in which any impairment
of our long-lived assets is determined. Such charges have a
significant adverse impact on our results of operations and
financial condition.
Increased
Litigation Incident to Our Business Our Business May
Suffer as a Result of Our Involvement in Various
Lawsuits.
We are currently a party to various legal proceedings, including
those described in note 15 to the Condensed Consolidated
Financial Statements in this quarterly report on
Form 10-Q.
Much of our recent increase in litigation related to an
allegedly defective epoxy compound, formerly used in some of our
products, which was alleged to
72
have been responsible for certain semiconductor chip failures.
We have recently settled the last outstanding mold compound
litigation. However, if other customers were to make similar
claims, there exists the possibility of a material adverse
impact on our operating results in the period in which the
ruling occurs. We are engaged in an arbitration proceeding
entitled Tessera, Inc. v. Amkor Technology, Inc. We
were recently named as a party in a purported securities class
action suit entitled Nathan Weiss et al. v. Amkor
Technology, Inc. et al. (and several similar cases
which have now been consolidated), and in purported shareholder
derivative lawsuits entitled Scimeca v. Kim, et al.
and Kahn v. Kim, et al. These cases are described in
greater detail in Note 15 to the Condensed Consolidated
Financial Statements in this quarterly report on
Form 10-Q.
While we currently believe that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a
material adverse effect on our financial position, results of
operations or cash flows, litigation and other legal proceedings
are subject to inherent uncertainties. If an unfavorable ruling
or outcome were to occur, there exists the possibility of a
material adverse impact on our results of operations, financial
condition or cash flows. An unfavorable ruling or outcome could
also have a negative impact on the trading price of our
securities. The estimate of the potential impact from the legal
proceedings referred to in this quarterly report on our
financial condition, results of operations or cash flows could
change in the future.
We
Could Suffer Adverse Tax and Other Financial Consequences if
Taxing Authorities Do Not Agree with Our Interpretation of
Applicable Tax Laws.
The Companys corporate structure and operations are based,
in part, on interpretations of various tax laws, including
withholding tax and other relevant laws of applicable taxing
jurisdictions. From time to time, the taxing authorities of the
relevant jurisdictions may conduct examinations of our income
tax returns. We cannot assure you that the taxing authorities
will agree with our interpretations. To the extent they do not
agree, we may seek to enter into settlements with the taxing
authorities which require significant payments or otherwise
adversely affect our results of operations or financial
condition. We may also appeal the taxing authorities
determinations to the appropriate governmental authorities, but
we can not be sure we will prevail. If we do not prevail, we may
have to make significant payments or otherwise record charges
(or reduce tax assets) that adversely affect our results of
operations or financial condition.
For example, during 2003 the Internal Revenue Service
(IRS) conducted an examination of our
U.S. federal income tax returns relating to years 2000 and
2001, which resulted in a settlement pursuant to which various
adjustments were made, including reductions in our U.S. net
operating loss carryforwards. In addition, during 2005, the IRS
conducted a limited scope examination of our U.S. federal
income tax returns relating to years 2002 and 2003, primarily
reviewing inter-company transfer pricing and cost-sharing issues
carried over from the 2000 and 2001 examination cycle, as a
result of which we agreed to further reductions in our net
operating loss carryforwards. Future examinations by the taxing
authorities in the United States or other jurisdictions may
result in additional adverse tax consequences. Our tax
examinations and the related adjustments are described in
greater detail in Note 6 to the Condensed Consolidated
Financial Statements above.
Rapid
Technological Change Our Business Will Suffer If We
Cannot Keep Up With Technological Advances in Our
Industry.
The complexity and breadth of semiconductor packaging and test
services are rapidly increasing. As a result, we expect that we
will need to offer more advanced package designs in order to
respond to competitive industry conditions and customer
requirements. Our success depends upon our ability to acquire,
develop and implement new manufacturing processes and package
design technologies and tools. The need to develop and maintain
advanced packaging capabilities and equipment could require
significant research and development and capital expenditures
and acquisitions in future years. In addition, converting to new
package designs or process methodologies could result in delays
in producing new package types, which could adversely affect our
ability to meet customer orders and adversely impact our
business.
Technological advances also typically lead to rapid and
significant price erosion and may make our existing products
less competitive or our existing inventories obsolete. If we
cannot achieve advances in package design or obtain access to
advanced package designs developed by others, our business could
suffer.
73
Packaging
and Testing The Packaging and Testing Process Is
Complex and Our Production Yields and Customer Relationships May
Suffer from Defects in the Services We Provide.
Semiconductor packaging and testing are complex processes that
require significant technological and process expertise. The
packaging process is complex and involves a number of precise
steps. Defective packages primarily result from:
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contaminants in the manufacturing environment;
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human error;
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equipment malfunction;
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changing processes to address environmental requirements;
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defective raw materials; or
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defective plating services.
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Testing is also complex and involves sophisticated equipment and
software. Similar to most software programs, these software
programs are complex and may contain programming errors or
bugs. The testing equipment is also subject to
malfunction. In addition, the testing process is subject to
operator error by our employees who operate our testing
equipment and related software.
These and other factors have, from time to time, contributed to
lower production yields. They may also do so in the future,
particularly as we expand our capacity or change our processing
steps. In addition, to be competitive we must continue to expand
our offering of packages. Our production yields on new packages
typically are significantly lower than our production yields on
our more established packages.
Our failure to maintain high standards or acceptable production
yields, if significant and prolonged, could result in loss of
customers, increased costs of production, delays, substantial
amounts of returned goods and claims by customers relating
thereto. Any of these problems could have a material adverse
effect on our business, financial condition and results of
operations.
In addition, in line with industry practice, new customers
usually require us to pass a lengthy and rigorous qualification
process that may take as long as six months, at a significant
cost to the customer. If we fail to qualify packages with
potential customers or customers with which we have recently
become qualified do not use our services, our operating results
and financial condition could be adversely affected.
Competition
We Compete Against Established Competitors in the Packaging and
Test Business as Well as Internal Customer
Capabilities.
The subcontracted semiconductor packaging and test market is
very competitive. We face substantial competition from
established packaging and test service providers primarily
located in Asia, including companies with significant processing
capacity, financial resources, research and development
operations, marketing and other capabilities. These companies
also have established relationships with many large
semiconductor companies that are our current or potential
customers.
We also face competition from the internal capabilities and
capacity of many of our current and potential IDM customers.
In addition, we may in the future to compete with a number of
companies that may enter the market and with companies that may
offer new or emerging technologies that compete with our
products and services.
We cannot assure you that we will be able to compete
successfully in the future against our existing or potential
competitors or that our customers will not rely on internal
sources for test and packaging services, or that our business,
financial condition and results of operations will not be
adversely affected by such increased competition.
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Environmental
Regulations Future Environmental Regulations Could
Place Additional Burdens on Our Manufacturing
Operations.
The semiconductor packaging process uses chemicals and gases and
generates byproducts that are subject to extensive governmental
regulations. For example, at our foreign facilities we produce
liquid waste when silicon wafers are diced into chips with the
aid of diamond saws, then cooled with running water. Federal,
state and local regulations in the U.S., as well as
international environmental regulations, impose various controls
on the storage, handling, discharge and disposal of chemicals
used in our production processes and on the factories we occupy
and are increasingly imposing restrictions on the materials
contained in packaging products.
Increasingly, public attention has focused on the environmental
impact of semiconductor operations and the risk to neighbors of
chemical releases from such operations and to the materials
contained in semiconductor products. For example, the European
Unions recently enacted Directives on Waste Electrical and
Electronic Equipment (WEEE), and Restriction of Use
of Certain Hazardous Substances (RoHS) impose strict
restrictions on the use of lead and other hazardous substances
in electrical and electronic equipment. WEEE and RoHS became
effective on July 1, 2006. In response to these directives,
we have implemented changes in a number of our manufacturing
processes in an effort to achieve RoHS compliance across all of
our package types. Complying with existing and future
environmental regulations may impose upon us the need for
additional capital equipment or other process requirements,
restrict our ability to expand our operations, disrupt our
operations, subject us to liability or cause us to curtail our
operations.
Intellectual
Property We May Become Involved in Intellectual
Property Litigation.
We maintain an active program to protect our investment in
technology by augmenting and enforcing our intellectual property
rights. Intellectual property rights that apply to our various
products and services include patents, copyrights, trade secrets
and trademarks. We have filed and obtained a number of patents
in the U.S. and abroad the duration of which varies depending on
the jurisdiction in which the patent is filed. While our patents
are an important element of our intellectual property strategy
and our success, as a whole we are not materially dependent on
any one patent or any one technology. We expect to continue to
file patent applications when appropriate to protect our
proprietary technologies, but we cannot assure you that we will
receive patents from pending or future applications.
Any patents we do obtain may be challenged, invalidated or
circumvented and may not provide meaningful protection or other
commercial advantage to us. In fact, the semiconductor industry
is characterized by frequent claims regarding patent and other
intellectual property rights. If any third party makes an
enforceable infringement claim against us, we could be required
to:
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discontinue the use of certain processes;
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cease to provide the services at issue;
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pay substantial damages;
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develop non-infringing technologies; or
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acquire licenses to the technology we had allegedly infringed.
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We may need to enforce our patents or other intellectual
property rights or defend ourselves against claimed infringement
of the rights of others through litigation, which could result
in substantial cost and diversion of our resources. Furthermore,
if we fail to obtain necessary licenses, our business could
suffer. We are currently involved in two legal proceedings
involving the acquisition of intellectual property rights, or
the enforcement of our existing intellectual property rights. We
refer you to the matters of Amkor Technology, Inc. v.
Carsem, et al., and Amkor Technology, Inc. v.
Motorola, Inc., which are described in more detail in
Note 15 to the Condensed Consolidated Financial Statements
included in this quarterly report.
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Fire,
Flood or Other Calamity With Our Operations
Conducted in a Limited Number of Facilities, a Fire, Flood or
Other Calamity at one of Our Facilities Could Adversely Affect
Us.
We conduct our packaging and testing operations at a limited
number of facilities. Significant damage or other impediments to
any of these facilities, whether as a result of fire, weather,
disease, civil strife, industrial strikes, breakdowns of
equipment, difficulties or delays in obtaining materials and
equipment, natural disasters, terrorist incidents, industrial
accidents or other causes could temporarily disrupt or even shut
down our operations, which would have a material adverse effect
on our business, financial condition and results of operations.
In the event of such a disruption or shutdown, we may be unable
to reallocate production to other facilities in a timely or
cost-effective manner (if at all) and may not have sufficient
capacity to service customer demands in our other facilities.
For example, our operations in Asia are vulnerable to regional
typhoons that can bring with them destructive winds and
torrential rains, which could in turn cause plant closures and
transportation interruptions. In addition, some of the processes
that we utilize in our operations place us at risk of fire and
other damage. For example, highly flammable gases are used in
the preparation of wafers holding semiconductor devices for
flip-chip packaging. While we maintain insurance policies for
various types of property, casualty and other risks, we do not
carry insurance for all the above referred risks and with regard
to the insurance we do maintain, we cannot assure you that it
would be sufficient to cover all of our potential losses.
SARS,
Avian Flu and Other Contagious Diseases Any
Recurrence of SARS or Outbreak of Avian Flu or Other Contagious
Disease May Have an Adverse Effect on the Economies and
Financial Markets of Certain Asian Countries and May Adversely
Affect Our Results of Operations.
In the first half of 2003, various countries encountered an
outbreak of severe acute respiratory syndrome, or SARS, which is
a highly contagious form of atypical pneumonia. In addition,
there have been outbreaks of avian flu and other contagious
diseases in various parts of the world. There is no guarantee
that an outbreak of SARS, avian flu or other contagious disease
will not occur again in the future (and maybe with much more
widespread and devastating effects) and that any such future
outbreak of SARS, avian flu or other contagious disease, or the
measures taken by the governments of the affected countries
against such potential outbreaks, will not seriously disrupt our
production operations or those of our suppliers and customers,
including by resulting in quarantines or closures. In the event
of such a facility quarantine or closure, if we were unable to
quickly identify alternate manufacturing facilities, this would
have a material adverse effect on our financial condition and
results of operations, as would the inability of our suppliers
to continue to supply us and our customers continuing to
purchase from us.
Continued
Control By Existing Stockholders Mr. James J.
Kim and Members of His Family Can Substantially Control The
Outcome of All Matters Requiring Stockholder
Approval.
As of September 30, 2006, Mr. James J. Kim, our Chief
Executive Officer and Chairman of the Board, and certain Family
trusts beneficially owned approximately 46% of our outstanding
common stock. This percentage includes beneficial ownership of
the securities underlying our 6.25% convertible subordinated
notes due 2013. Mr. James J. Kims family, acting
together, have the ability to effectively determine matters
(other than interested party transactions) submitted for
approval by our stockholders by voting their shares, including
the election of all of the members of our Board of Directors.
There is also the potential, through the election of members of
our Board of Directors, that Mr. Kims family could
substantially influence matters decided upon by the Board of
Directors. This concentration of ownership may also have the
effect of impeding a merger, consolidation, takeover or other
business consolidation involving us, or discouraging a potential
acquirer from making a tender offer for our shares, and could
also negatively affect our stocks market price or decrease
any premium over market price that an acquirer might otherwise
pay.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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None
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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At our Annual Meeting of Stockholders held on August 8,
2006, the following proposals were adopted by the margins
indicated.
1. To elect a Board of Directors to hold office until the
next Annual Meeting of Stockholders or until their respective
successors have been elected or appointed.
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Number of Shares
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Voted For
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Withheld
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|
James J. Kim
|
|
|
156,218,892
|
|
|
|
1,289,393
|
|
Roger A. Carolin
|
|
|
156,626,186
|
|
|
|
882,099
|
|
Winston J. Churchill
|
|
|
156,149,396
|
|
|
|
1,358,889
|
|
Gregory K. Hinckley
|
|
|
156,647,089
|
|
|
|
861,196
|
|
John T. Kim
|
|
|
156,345,755
|
|
|
|
1,162,530
|
|
Constantine N. Papadakis
|
|
|
156,062,846
|
|
|
|
1,445,439
|
|
James W. Zug
|
|
|
156,624,573
|
|
|
|
883,712
|
|
2. To ratify the appointment of PricewaterhouseCoopers LLP
as our independent registered public accounting firm for the
fiscal year ending December 31, 2006. Votes totaled
156,644,330 for, 168,348 against, and 695,607 abstain.
77
The following exhibits are filed as part of this report:
|
|
|
|
|
Exhibit
|
|
Description of
|
Number
|
|
Exhibit
|
|
|
4
|
.1
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor Technology, Inc.
(Amkor), Amkor International Holdings
(AIH), Amkor Technology Limited (ATL),
Amkor Technology Philippines, Inc. (ATP) and
U.S. Bank National Association
(U.S. Bank), as Trustee, to Indenture, dated as
of May 13, 1999, among Amkor and U.S. Bank (as
successor to State Street Bank and Trust Company), regarding
Amkors
101/2% Senior
Subordinated Notes due 2009, incorporated by reference to the
Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.2
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
February 20, 2001, among Amkor and U.S. Bank (as
successor to State Street Bank and Trust Company), regarding
Amkors
91/4% Senior
Notes due 2008, incorporated by reference to the Companys
Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.3
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
May 8, 2003, among Amkor and U.S. Bank, regarding
Amkors 7.75% Senior Notes due 2013, incorporated by
reference to the Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.4
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and Wells
Fargo Bank, N.A., as Trustee, to Indenture, dated as of
March 12, 2004, among Amkor and Wells Fargo Bank, N.A.,
regarding Amkors
71/8% Senior
Notes due 2011, incorporated by reference to the Companys
Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.5
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
May 26, 2006, among Amkor and U.S. Bank, regarding
Amkors 9.25% Senior Notes due 2016, incorporated by
reference to the Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
10
|
.1
|
|
Limited Waiver of Loan and
Security Agreement, dated as of September 25, 2006, among
Amkor Technology, Inc. and its Subsidiaries party thereto, the
Lenders party thereto, and Bank of America, N.A., as
Administrative Agent, incorporated by reference to the
Companys Current Report on
Form 8-K
filed with the Commission on September 29, 2006.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings
to Fixed Charges.
|
|
31
|
.1
|
|
Certification of James J. Kim,
Chief Executive Officer of Amkor Technology, Inc., pursuant to
Rule 13a 14(a) under the Securities Exchange
Act of 1934.
|
|
31
|
.2
|
|
Certification of Kenneth T. Joyce,
Chief Financial Officer of Amkor Technology, Inc., pursuant to
Rule 13a 14(a) under the Securities Exchange
Act of 1934.
|
|
32
|
|
|
Certification of Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
78
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 thereto duly authorized.
AMKOR TECHNOLOGY, INC.
Kenneth T. Joyce
Chief Financial Officer
(Principal Financial, Chief Accounting Officer
and Duly Authorized Officer)
Date: November 8, 2006
79
EXHIBIT
INDEX
|
|
|
|
|
Exhibit
|
|
Description of
|
Number
|
|
Exhibit
|
|
|
4
|
.1
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor Technology, Inc.
(Amkor), Amkor International Holdings
(AIH), Amkor Technology Limited (ATL),
Amkor Technology Philippines, Inc. (ATP) and
U.S. Bank National Association
(U.S. Bank), as Trustee, to Indenture, dated as
of May 13, 1999, among Amkor and U.S. Bank (as
successor to State Street Bank and Trust Company), regarding
Amkors
101/2% Senior
Subordinated Notes due 2009, incorporated by reference to the
Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.2
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
February 20, 2001, among Amkor and U.S. Bank (as
successor to State Street Bank and Trust Company), regarding
Amkors
91/4% Senior
Notes due 2008, incorporated by reference to the Companys
Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.3
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
May 8, 2003, among Amkor and U.S. Bank, regarding
Amkors 7.75% Senior Notes due 2013, incorporated by
reference to the Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.4
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and Wells
Fargo Bank, N.A., as Trustee, to Indenture, dated as of
March 12, 2004, among Amkor and Wells Fargo Bank, N.A.,
regarding Amkors
71/8% Senior
Notes due 2011, incorporated by reference to the Companys
Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
4
|
.5
|
|
Supplemental Indenture, dated as
of June 30, 2006, among Amkor, AIH, ATL, ATP and
U.S. Bank, as Trustee, to Indenture, dated as of
May 26, 2006, among Amkor and U.S. Bank, regarding
Amkors 9.25% Senior Notes due 2016, incorporated by
reference to the Companys Current Report on
Form 8-K
filed with the Commission on July 7, 2006.
|
|
10
|
.1
|
|
Limited Waiver of Loan and
Security Agreement, dated as of September 25, 2006, among
Amkor Technology, Inc. and its Subsidiaries party thereto, the
Lenders party thereto, and Bank of America, N.A., as
Administrative Agent, incorporated by reference to the
Companys Current Report on
Form 8-K
filed with the Commission on September 29, 2006.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings
to Fixed Charges.
|
|
31
|
.1
|
|
Certification of James J. Kim,
Chief Executive Officer of Amkor Technology, Inc., pursuant to
Rule 13a 14(a) under the Securities Exchange
Act of 1934.
|
|
31
|
.2
|
|
Certification of Kenneth T. Joyce,
Chief Financial Officer of Amkor Technology, Inc., pursuant to
Rule 13a 14(a) under the Securities Exchange
Act of 1934.
|
|
32
|
|
|
Certification of Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|