Item 1 “Business,” Item 6 “Selected Consolidated Financial Data” and Item 8 “Financial Statements and Supplemental Data” in this Annual Report as well as other reports we file with the SEC.
Overview
Amkor is one of the world’s largest subcontractors of semiconductor packaging and test services. Packaging and test are integral steps in the process of manufacturing semiconductor devices. The manufacturing 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 then probe tested to ensure the individual devices meet electrical specifications. The packaging process creates an electrical interconnect between the semiconductor chip and the system board. In packaging, fabricated semiconductor wafers are separated into individual chips. These chips are typically attached through wire bond or wafer bump technologies to a substrate or leadframe and then encased in a protective material. In the case of an advanced wafer level package, the package is assembled on the surface of a wafer.
Our packages are designed for application specific body size and electrical connection requirements 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 and performance specifications. Increasingly, packages are custom designed for specific chips and specific end-market applications. We are able to provide turnkey assembly and test solutions including semiconductor wafer bump, wafer probe, wafer backgrind, package design, assembly, test and drop shipment services.
Our net sales for each of 2007 and 2006 were $2.7 billion per year. Net income for 2007 was $219.9 million, or $1.11 per diluted share, compared with net income in 2006 of $170.1 million, or $0.90 per diluted share. 2007 net sales reflect the growth of our advanced packaging solutions and the benefit of our investments in flip chip and
wafer level packaging, 3D packaging and test. The strength in these areas was partially offset by a decrease in our traditional leadframe packaging services.
Favorable business conditions in our industry sector have allowed us to improve our product mix, benefit from relatively stable pricing and recover a portion of the increased costs of commodities from our customers. Gross margin for 2007 of 24.9% was up slightly from 24.7% in 2006.
Selling, general and administrative expenses in 2007 increased by 0.4% or $1.1 million over 2006 primarily as a result of additional costs associated with contracted services in conjunction with our ongoing global enterprise resource planning information systems implementation.
Net interest expense in 2007 decreased $30.9 million due to our continued focus to strengthen our liquidity by reducing debt as well as refinancing debt with lower interest rate instruments.
In 2007, our capital additions of $293.9 million focused on strategic growth areas of advanced laminate, test services, wafer bump and flip chip packaging capacity. We continue to manage our production lines, allocate assets and selectively expand our capacity. Our capital investments have been, and we expect will continue to be, primarily focused on increasing our advanced laminate, test services, wafer bump and flip chip packaging capacity. In addition, we continue to make investments in our information systems.
Due to improved operating results, cash provided by operating activities increased $79.8 million to $603.4 million for the year ended December 31, 2007 as compared to $523.6 million for the year ended December 31, 2006. Cash flow from operations generated during 2007 funded capital purchases of $236.2 million leaving $367.2 million of free cash flow (defined below). Please see the Liquidity and Capital Resources section below for a further analysis of the change in our balance sheet and cash flows during 2007.
Results of Operations
The following table sets forth certain operating data as a percentage of net sales for the periods indicated:
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Net Sales. Net sales increased $10.9 million, or 0.4%, to $2,739.4 million in 2007 from $2,728.6 million in 2006. The increase is principally a result of improved sales of our flip chip and 3D packages and test services in support of high-end wireless communications, computing and gaming applications. Partially offsetting this increase was decreased demand for modules and traditional leadframe packages.
Packaging Net Sales. Packaging net sales decreased $19.1 million, or 0.8%, to $2,430.4 million for 2007 from $2,449.4 million in 2006 due primarily to lower unit volumes, partially offset by improved product mix. The improvement in product mix reflected a shift from traditional leadframe packages to advanced technologies including flip chip and 3D packaging during the year. Packaging unit volume decreased to 8.7 billion units in 2007 from 8.8 billion units in 2006.
Test Net Sales. Test net sales increased $29.7 million, or 10.6%, to $309.6 million in 2007 from $280.0 million in 2006 principally due to an increase in the number of units tested in our test facilities.
Cost of Sales. Our cost of sales consists principally of materials, labor, depreciation and manufacturing overhead. Because a substantial portion of the costs at our factories is fixed, relatively modest increases or decreases in capacity utilization rates can have a significant effect on our gross margin.
Material costs as a percentage of net sales decreased from 38.8% for the year ended December 31, 2006 to 37.7% for the year ended December 31, 2007 due to change in mix to packages with lower material content as a percentage of net sales.
Labor costs in absolute dollars were up due to salary and benefit increases, partially offset by a reduction in headcount. As a percentage of net sales, labor costs increased to 16.0% for the year ended December 31, 2007 from 14.9% for the year ended December 31, 2006. The increase was due to increased salary and benefit costs and the weakening of the U.S. dollar against the Korean Won and Philippine Peso as a substantial portion of our work force is paid in local currencies.
As a percentage of net sales, other manufacturing costs decreased slightly to 21.4% for the year ended December 31, 2007 from 21.5% for the year ended December 31, 2006 due to increased overhead utilization and productivity. Other manufacturing costs in absolute dollars decreased principally as a result of a decrease in factory supplies and repairs and maintenance. This is partially offset by increases for depreciation costs as a result of our capital expenditures.
Stock-based compensation included in cost of sales was $1.3 million for the year ended December 31, 2007 compared to $2.5 million for the year ended December 31, 2006.
Gross Profit. Gross profit increased $6.9 million to $681.9 million, or 24.9% of net sales in 2007 from $675.0 million, or 24.7% of net sales, in 2006. The slight increase in gross profit and gross margin was due to increases in flip chip and 3D packages and test services partially offset by decreases in traditional leadframe packages.
Packaging Gross Profit. Gross profit for packaging decreased $8.6 million to $577.8 million, or 23.8% of packaging net sales, in 2007 from $586.3 million, or 23.9% of packaging net sales, in 2006. The packaging gross profit decrease was primarily due to a decrease in our traditional leadframe packages offset by favorable product mix, consisting of an increase in our advanced package technologies including flip chip and 3D packages.
Test Gross Profit. Gross profit for test in 2007 increased $13.9 million to $103.4 million, or 33.4% of test net sales from $89.6 million, or 32.0% of test net sales, in 2006. This increase was primarily due to increased volume and greater recovery of ancillary test services from our customers.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.1 million, or 0.4%, to $251.2 million for 2007, from $250.1 million for 2006. The increase was caused by an increase in contracted services in conjunction with our global enterprise resource planning information systems implementation as well as increased labor and benefit costs. Selling, general and administrative expenses for 2006 reflected higher spending for professional fees due to the stock option investigation and other related matters.
Research and Development. Research and development activities are currently focused on advanced laminate, flip chip and wafer level packaging services. Research and development expenses increased $2.9 million to $41.7 million, or 1.5% of net sales for 2007 from $38.7 million, or 1.4% of net sales in 2006. Our increase in our research and development expenses was primarily related to increased labor and benefits costs.
Gain on Sale of Specialty Test Operations. In October 2005, we divested a specialty test operation and recognized a gain of $4.4 million. In 2007, we recognized an additional gain of $1.7 million as a result of an earn-out provision provided in the asset purchase agreement.
Other (Income) Expense. Other expense, net decreased $46.7 million to $155.9 million, or 5.7% of net sales for 2007 from $202.6 million, or 7.4% of net sales in 2006. This decrease is primarily driven by the $30.9 million reduction in net interest expense due to our continued focus to strengthen our liquidity by reducing debt as well as refinancing debt with lower interest rate instruments. In addition, in 2007 we recognized $15.9 million in debt retirement costs compared to $27.4 million in 2006.
Income Tax Expense. In 2007, we recorded an income tax expense of $12.6 million reflecting an effective tax rate of 5.4% as compared to an income tax expense of $11.2 million in 2006 reflecting an effective tax rate of 6.1%. Generally, our effective tax rate is substantially below the U.S. federal tax rate of 35% because we have experienced taxable losses in the U.S. in recent years and our income is currently taxed in foreign jurisdictions where we benefit from tax holidays or tax rates lower than the U.S. statutory tax rate. Income tax expense primarily consists of taxes
related to our profitable foreign tax jurisdictions and foreign withholding taxes. In addition, continued profitability of our largest subsidiary in Taiwan enabled us to utilize all of its net operating loss carryforwards in 2007 and release its valuation allowance on all deferred tax assets. This benefited our overall effective tax rate by 7.6% in 2007.
At December 31, 2007, we had U.S. net operating loss carryforwards totaling $364.3 million, which expire at various times through 2027. At December 31, 2007, we continued to record a valuation allowance on a substantial portion of our deferred tax assets, including our net operating loss carryforwards, and will release such valuation allowance when sufficient net positive evidence exists to conclude that it is more likely than not the deferred tax assets will be realized.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Net Sales. Net sales increased $628.6 million, or 30%, to $2,728.6 million in 2006 from $2,100.0 million in 2005. The increase is principally driven by increased unit volume, product mix and to a lesser extent the impact of favorable pricing.
Packaging Net Sales. Packaging net sales increased $547.2 million, or 28.8%, to $2,449.4 million for 2006 from $1,902.2 million in 2005 principally driven by increased volume, improved product mix and, to a lesser extent, the impact of favorable pricing. Packaging unit volume increased to 8.8 billion units in 2006 from 7.5 billion units in 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 $81.9 million, or 41.3%, to $280.0 million in 2006 from $198.1 million in 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 in absolute dollars increased due to the volume increase, favorable product mix and firm pricing environment. Material costs as a percent of revenue decreased from 40.9% for the year ended December 31, 2005 to 38.8% for the year ended December 31, 2006 due to improving product mix, recovery of increasing commodity prices from our customers and higher average selling prices on some of our products.
Labor costs in absolute dollars were up due to increased volume and higher labor and benefit costs. However, as a percentage of net sales, labor declined to 14.9% for the year ended December 31, 2006 from 17.9% for the year ended December 31, 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. During 2006 we commenced operations in our new Singapore wafer bump factory and our new factory in Shanghai. Other manufacturing costs also increased for depreciation costs as a result of our capital expenditures, which are focused on increasing our wafer bump, flip chip, test and advanced laminate packaging capacity. As a percentage of net sales, other manufacturing costs decreased to 21.5% for the year ended December 31, 2006 from 24.3% for the year ended December 31, 2005 due to increased overhead utilization and productivity.
Stock-based compensation included in cost of sales was $2.5 million for the year ended December 31, 2006 due to the adoption of SFAS No. 123(R) compared to less than $0.2 million for the year ended December 31, 2005 which was accounted for under APB No. 25.
Gross Profit. Gross profit increased $319.2 million to $675.0 million, or 24.7% of net sales in 2006 from $355.8 million, or 16.9% of net sales, in 2005. The increase in gross profit and gross margin was due to higher unit sales, favorable mix, recovery of commodity price increases from our customers and a firm pricing environment.
Packaging Gross Profit. Gross profit for packaging increased $265.7 million to $586.3 million, or 23.9% of packaging net sales, in 2006 from $320.6 million, or 16.9% of packaging net sales, in 2005. The packaging gross
profit increase was primarily due to increased volume, favorable product mix, asset management and recovery of commodity price increases from our customers.
Test Gross Profit. Gross profit for test increased $54.2 million to $89.6 million, or 32.0% of test net sales, 2006 from $35.4 million, or 17.9% of test net sales, in 2005. This increase was primarily due to increased volume, favorable product mix, improved labor and overhead utilization, asset management and greater recovery of ancillary test services from our customers.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $6.8 million, or 2.8%, to $250.1 million for 2006, from $243.3 million for 2005. The increase was caused by $12.7 million in costs associated with professional fees incurred for the stock option investigation, financial statement restatement, the consent solicitation and other related financing activities. Also included is stock-based compensation related to the implementation in 2006 of SFAS No. 123(R) for $2.8 million. In addition we established an accrual 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 increased $27.8 million from 2005 to 2006. This increase is primarily driven by the debt retirement costs of $27.4 million.
Income Tax Expense. In 2006, we recorded an income tax expense of $11.2 million reflecting an effective tax rate of 6.1% as compared to an income tax benefit of $5.6 million in 2005 reflecting an effective tax rate of 3.8%. Our 2006 tax provision of $11.2 million primarily consists of taxes related to our profitable foreign tax jurisdictions and foreign withholding taxes. The income tax benefit in 2005 was driven by the finalization of our Internal Revenue Service (“IRS”) audits of our U.S. federal income tax returns for the years 2000 and 2001 ($3.4 million), the issuance of regulations by the IRS in January 2006 clarifying the tax status of certain of our foreign subsidiaries ($6.5 million), and the net release of other U.S. and foreign reserves applicable to prior years ($1.3 million). The income tax benefit in 2005 was partially offset by foreign withholding taxes and income taxes at our profitable foreign locations.
Quarterly Results
The following table sets forth our unaudited consolidated financial data for the last eight quarters ended December 31, 2007. Our results of operations have varied and may continue to vary from quarter to quarter and are not necessarily indicative of the results of any future period. The financial data reflects the January 2006 acquisition of substantially all of the remaining 40% interest in UST.
We believe that we have included all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of our selected quarterly data. You should read our selected quarterly data in conjunction with our Consolidated Financial Statements and the related notes, included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report.
Our net sales, gross profit and operating income are generally lower in the first quarter of the year as compared to the fourth quarter of the preceding year primarily due to the combined effect of holidays in the U.S. and Asia. Semiconductor companies in the U.S. generally reduce their production during the holidays at the end of December which results in a significant decrease in orders for packaging and test services during the first two weeks of January.
The calculation of basic and diluted per share amounts for each quarter is based on the weighted average shares outstanding for that period; consequently, the sum of the quarters may not necessarily be equal to the full year basic and diluted net income per share.
Liquidity and Capital Resources
We generated net income of $219.9 million and $170.1 million for the years ended December 31, 2007 and 2006, respectively. This compares to a net loss for the year ended December 31, 2005 of $137.2 million. Our operating activities provided cash totaling $603.4 million in 2007, $523.6 million in 2006 and $97.2 million in 2005. In 2007 and 2006, cash flow from operating activities was sufficient to fully cover cash used for investing activities as well as decrease our debt.
Although we have a significant level of debt, with $1,764.1 million outstanding at December 31, 2007, of which $152.5 million is current, we have continued to strengthen our liquidity by using existing cash to reduce our debt and by refinancing debt with lower interest rates and favorable terms as demonstrated by the following:
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February 2008, we repaid the remaining balance of $88.2 million of our 9.25% Senior Notes at the maturity date with cash on hand;
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November 2007, we used existing cash resources to repurchase $3.0 million of our 7.75% Senior notes due May 2013 and $10.0 million of our 9.25% Senior notes due June 2016;
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June 2007, we redeemed the remaining $21.9 million of the 2009 10.5% senior subordinated notes outstanding with cash on hand;
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April 2007, we refinanced our $300.0 million second lien term loan due in 2010 with a lower interest secured credit facility that amortizes in 28 equal quarterly payments through April 2014;
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March 2007, we used existing cash resources to retire the remaining $142.4 million in 5% convertible notes at maturity;
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June 2006, we repaid $132.0 million, from cash on hand, of our 5.75% convertible subordinated notes at the maturity date; and
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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.
We were in compliance with all debt covenants at December 31, 2007 and expect to remain in compliance with these covenants for at least the next twelve months. The interest payments required on our debt are substantial. For example, for the year ended December 31, 2007, we paid $136.0 million of interest. (See “Capital Additions and Contractual Obligations” below for a summary of principal and interest payments.)
In order to reduce leverage and future cash interest payments, we may from time to time repurchase our outstanding notes for cash or exchange shares of our common stock for our outstanding notes. Any such transactions may be made in the open market or through privately negotiated transactions and are subject to the terms of our indentures and other debt agreements, market conditions and other factors.
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 2007, we had capital additions of $293.9 million or 10.7% of net sales compared to 11.0% of net sales in 2006. In 2008 we currently anticipate making capital additions in the range of approximately 11% to 14% of net sales, of which 70% is expected to be in support of packaging, 20% for test and 10% for infrastructure.
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 financings. As of December 31, 2007, we had cash and cash equivalents of $410.1 million and $99.8 million available under our $100 million first lien 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 first lien senior secured revolving credit facility will be sufficient to fund our working capital, capital expenditure and debt service requirements for at least the next twelve months including the retirement of the remaining $88.2 million of our 9.25% Senior notes at maturity in February 2008. 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 at or prior to maturity with the proceeds of debt or equity offerings. 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 beyond the next twelve months due to a variety of factors, including the cyclical nature of the semiconductor industry and the other factors discussed in Part I, Item 1A
Item 7A.
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 historically been insignificant. We have not entered into any derivative transactions during the year-ended December 31, 2007.
Foreign Currency Risks
We currently do not enter into forward contracts or other instruments to reduce our exposure to foreign currency gains and losses. To the extent possible, we manage our foreign currency exposures by using natural hedging techniques to minimize the foreign currency rate risk.
The U.S. dollar is our reporting currency and the functional currency for the majority of our foreign subsidiaries including our largest subsidiaries in Korea and the Philippines and also for China and Singapore. For our subsidiaries in Japan and Taiwan, the local currency is the functional currency. We have foreign currency exchange rate risk associated with the remeasurement of monetary assets and monetary liabilities on our Consolidated Balance Sheet that are denominated in currencies other than the functional currency. The most significant foreign denominated monetary asset or liability is our Korean severance obligation which represents approximately 75% of the net monetary exposure. We performed a sensitivity analysis as of December 31, 2007, assuming a 10% adverse movement for all currencies against the U.S. dollar to assess the potential impact of fluctuations in exchange rates for all foreign denominated assets and liabilities. This sensitivity analysis would result in a decline of approximately $25.5 million on our income before income taxes and minority interests.
In addition, we have foreign currency exchange rate exposure on our results of operations. Approximately 84% of our net sales are denominated in U.S. dollars and the remaining currency exposure is principally Japanese yen, Korean won and Taiwanese dollar in support of local country sales. Approximately 53% our cost of sales and operating expenses are denominated in U.S. dollar and are largely expenditures for raw materials and factory supplies. The remaining currency exposures for cost of sales and operating expenses are principally denominated in the Asian currency where our production facilities are located and are largely for labor and utilities. To the extent that the U.S. dollar weakens against these Asian-based currencies, these foreign currency denominated transactions will result in higher sales and higher operating expenses. Similarly, our sales and operating expenses will decrease if the U.S. dollar strengthens against these foreign currencies. We performed a sensitivity analysis assuming a 10% adverse movement from 2007 exchange rates of the U.S. dollar compared to all these Asian-based currencies to assess the potential impact of fluctuations in exchange rates for all foreign denominated sales and expenses. This sensitivity analysis would result in a decline of approximately $64.4 million on our operating income.
There are inherent limitations in the sensitivity analysis presented, primarily due to the assumption that foreign exchange rate movements across multiple jurisdictions are similar and would be linear and instantaneous. As a result, the analysis is unable to reflect the potential effects of more complex market or other changes that could arise which may positively or negatively affect our results of operations.
Interest Rate Risks
We have interest rate risk with respect to our long-term debt. As of December 31, 2007, we had a total of $1,764.1 million of debt of which 81.8% was fixed rate debt and 18.2% was variable rate debt. Our variable rate debt principally relates to our foreign borrowings and any amount outstanding under our $100.0 million revolving line of credit, of which no amounts were drawn as of December 31, 2007. The fixed rate debt consisted of senior notes,
senior subordinated notes and subordinated notes. As of December 31, 2006, we had a total of $2,005.3 million of debt of which 80.9% was fixed rate debt and 19.1% 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 notes is also impacted by changes in the market price of our common stock.
The table below presents the interest rates, maturities and fair value of our fixed and variable rate debt as of December 31, 2007.
Equity Price Risks
We have convertible notes that are convertible into our common stock. We currently intend to repay our remaining convertible notes upon maturity, unless converted 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 8.
Item 8.
Financial Statements and Supplementary Data
We present the information required by Item 8 of Form 10-K here in the following order:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Amkor Technology, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Amkor Technology, Inc. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension plans in 2006. In addition, as discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s 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 company’s 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. Also, 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 or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
February 25, 2008
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
1.
Description of Business and Summary of Significant Accounting Policies
Description of Business
Amkor is one of the world’s largest subcontractors of semiconductor packaging (sometimes referred to as assembly) and test services. Amkor pioneered the outsourcing of semiconductor packaging and test services through a predecessor in 1968 and over the years we have built a leading position by:
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Designing and developing new package and test technologies;
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Offering a broad portfolio of packaging and test technologies and services;
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Cultivating long-standing relationships with our customers, which include many of the world’s leading semiconductor companies;
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Cultivating strategic relationships with leading electronics companies, who buy packaged chips from our customers, (also known as original equipment manufacturers (“OEMs”));
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Developing expertise in high-volume manufacturing processes; and
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Having a diversified operational scope, with production capabilities in China, Japan, Korea, the Philippines, Singapore, Taiwan and the United States (“U.S.”).
Basis of Presentation
The Consolidated Financial Statements include the accounts of Amkor Technology, Inc. and our subsidiaries (“Amkor”). The Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. Pursuant to Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities”, our investments in variable interest entities in which we are the primary beneficiary are consolidated.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Consolidation of Variable Interest Entities
We have variable interests in certain Philippine realty corporations in which we have a 40% ownership and from whom we lease land and buildings in the Philippines. As of December 31, 2007, the combined book value of the assets and the liabilities associated with these Philippine realty corporations included in our Consolidated Balance Sheet was $19.9 million and $0.4 million, respectively. The creditors of the Philippine realty corporations have no recourse to the general credit of Amkor, the primary beneficiary of these variable interest entities.
Foreign Currency Translation
The U.S. dollar is the functional currency of our subsidiaries in China, Korea, the Philippines and Singapore, and the foreign currency asset and liability amounts at these subsidiaries are remeasured into U.S. dollars at end-of-period exchange rates, except for nonmonetary items which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the period, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in other income (expense) in the period in which they occur.
The local currency is the functional currency of our subsidiaries in Japan and Taiwan, and the asset and liability amounts of these subsidiaries are translated into U.S. dollars at end-of-period exchange rates. Income and expenses are translated into U.S. dollars at average exchange rates in effect during the period. The resulting asset and liability
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
translation adjustments are reported as a component of accumulated other comprehensive loss in the stockholders’ equity section of the balance sheet. Assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency prior to translation into U.S. dollars and the resulting exchange gains or losses are included in other income (expense) in the period in which they occur.
Concentrations and Credit Risk
Financial instruments, for which we are subject to credit risk, consist principally of accounts receivable and cash and cash equivalents. With respect to accounts receivable, we mitigate our credit risk by selling primarily to well established companies, performing ongoing credit evaluations and making frequent contact with customers. We have historically mitigated our credit risk with respect to cash and cash equivalents through diversification of our holdings into various high quality mutual funds and bank deposit accounts. At December 31, 2007, our cash and cash equivalents are invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts.
Risks and Uncertainties
Our future results of operations involve a number of risks and uncertainties. Factors that could affect future results and cause actual results to vary materially from historical results include, but are not limited to, historical stock option practices, pending SEC investigation, fluctuations in operating results, dependence on the highly cyclical nature of the semiconductor industry, high fixed costs, our failure to meet guidance, declines in average selling prices, decisions by our integrated device manufacturer customers to curtail outsourcing, our substantial indebtedness, ability to fund liquidity needs, our restrictive covenants contained in the agreements governing our indebtedness, significant severance plan obligations, failure to maintain an effective system of internal controls, product return and liability risks, the absence of significant backlog in our business, our dependence on international operations and sales, our management information systems may prove inadequate, difficulties integrating acquisitions, difficulties expanding and evolving our operational capabilities, our dependence on materials and equipment suppliers, loss of customers, our need for significant capital expenditures, impairment charges, the increased litigation incident to our business, adverse tax consequences, rapid technological change, complexity of packaging and test process, competition, our need to comply with existing and future environmental regulations, the enforcement of intellectual property rights by or against us, fire, flood or other calamity and continued control by existing stockholders.
We are subject to certain legal proceedings, lawsuits and other claims, as discussed in Note 15. We assess the likelihood of any adverse judgment or outcome related to these matters, as well as potential ranges of probable losses. Our determination of the amount of reserves required, if any, for these contingencies is based on an analysis of each individual issue, often with the assistance of outside legal counsel. We record provisions in our Consolidated Financial Statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Our cash and cash equivalents consist of amounts invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts.
Restricted Cash
Restricted cash, current, consists of short-term cash equivalents used to collateralize our daily banking services. Restricted cash, non-current, collateralizes foreign tax obligations.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the weighted moving average method or by standard costing, both of which approximate actual cost. Cost is based on normal capacity utilization, with unrecoverable costs arising from underutilization of capacity expensed when incurred. We reduce the carrying value of our inventories for the cost of inventory we estimate is excess and obsolete based on the age of our inventories and forecasted demand we receive from our customers. When a determination is made that the inventory will not be utilized in production it is written-off and disposed.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated by the straight-line method over the estimated useful lives of depreciable assets which are as follows:
Cost and accumulated depreciation for property retired or disposed of are removed from the accounts and any resulting gain or loss is included in earnings. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense was $272.8 million, $263.3 million and $239.1 million for 2007, 2006 and 2005, respectively.
We review long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Recoverability of a long-lived asset is measured by a comparison of the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If such asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal.
Goodwill and Acquired Intangibles
Goodwill is recorded when the cost of an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Goodwill is tested for impairment at the reporting unit level. These tests are performed more frequently if warranted. Impairment losses are recorded when the carrying amount of goodwill exceeds its implied fair value.
Finite-lived intangible assets include customer relationship and supply agreements as well as patents and technology rights and are amortized on a straight-line basis over their estimated useful lives, generally for periods ranging from 5 to 10 years. We continually evaluate the reasonableness of the useful lives of these assets. Finite-lived intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amount many not be recoverable. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value determined by discounted cash flows. Amortization of finite-lived assets was $10.4 million, $9.6 million and $9.5 million for 2007, 2006 and 2005, respectively.
Other Non-current Assets
Other non-current assets consist principally of deferred income tax assets, deferred debt issuance costs and refundable security deposits.
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Notes to Consolidated Financial Statements - (Continued)
Other Non-current Liabilities
Other non-current liabilities consist primarily of customer advance payments, deferred revenue and liabilities associated with uncertain income tax positions. See Note 3 and Note 13 for more information.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss consisted of the following:
The unrecognized pension costs are net of deferred income taxes of $1.0 million and $0.8 million at December 31, 2007 and 2006, respectively. The unrealized gain on securities has no tax effect. No income taxes are provided on foreign currency translation gains as foreign earnings are considered permanently invested.
Revenue Recognition and Risk of Loss
We recognize revenue from our packaging and test services when there is evidence of a fixed arrangement, delivery has occurred or services have been rendered, fees are fixed or determinable and collectibility is reasonably assured. Generally these criteria are met and revenue is recognized upon shipment. Such policies are consistent with the provisions in Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements.
We do not take ownership of customer supplied semiconductor wafers. Title and risk of loss remains with the customer for these materials at all times. Accordingly, the cost of the customer supplied materials is not included in the Consolidated Financial Statements.
A sales allowance is recognized in the period of sale based upon historical experience. Additionally, provisions are made for doubtful accounts when there is doubt as to the collectibility of accounts receivable. Collectibility is assessed based on the age of the balance, the customer’s historical payment history and current credit worthiness.
Shipping and Handling Fees and Costs
Amounts billed to customers for shipping and handling are presented in net sales. Costs incurred for shipping and handling are included in costs of sales.
Research and Development Costs
Research and development expenses include costs attributable to the conduct of research and development programs primarily related to the development of new package designs and improving the efficiency and capabilities of our existing production processes. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on and maintenance of research equipment, fees under licensing agreements, services provided by outside contractors and the allocable portions of facility costs such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
Provision for Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be realized.
In determining the amount of the valuation allowance, we consider all available evidence of realization, as well as feasible tax planning strategies, in each taxing jurisdiction. If all or a portion of the remaining deferred tax assets will not be realized, the valuation allowance will be increased with a charge to income tax expense. Conversely, if we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. We monitor on an ongoing basis our ability to utilize our deferred tax assets and the continuing need for a related valuation allowance. At December 31, 2007, we have recorded a valuation allowance for a substantial portion of our deferred tax assets.
We have adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 requires that we recognize in our Consolidated Financial Statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. See Note 3 for more information.
New Accounting Standards
Recently Adopted Standards
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of SFAS No. 87, Employers’ Accounting for Pensions, SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits, SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, and SFAS No. 132(R), Employers’ Disclosure about Pensions and Other Postretirement Benefits (“SFAS No. 158”). SFAS No. 158 requires the recognition of the funded status of a defined benefit pension plan (other than a multi-employer plan) as an asset or liability in the statement of financial position and the recognition of changes in the funded status through comprehensive income in the year in which such changes occur. We adopted the recognition provisions of SFAS No. 158 and initially applied those to the funded status of our defined benefit pension plans as of December 31, 2006. The initial recognition of the funded status of our defined benefit pension plans resulted in a decrease in stockholders’ equity of $11.8 million, which was net of a tax benefit of $0.8 million.
SFAS No. 158 also requires that the funded status of a plan be measured as of the date of the year-end statement of financial position for fiscal years ending after December 15, 2008. We currently measure our funded status as of the balance sheet date. Accordingly, the adoption of the measurement provisions of SFAS No. 158 will have no impact on our financial statements. See Note 12 for further discussion.
In February 2006, FASB issued SFAS 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
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
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. We adopted the provisions of SFAS No. 155 on January 1, 2007. The adoption of this statement did not have an impact on our financial statements and disclosures.
In June 2006, the FASB ratified Emerging Issues Task Force (“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 entity’s 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 adopted the provisions of Issue No. 06-03 on January 1, 2007. We present applicable taxes on a net basis in our Consolidated Financial Statements. The adoption of Issue No. 06-03 did not have an impact on our financial statements and disclosures.
In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for uncertainty in income tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. FIN 48 requires that we recognize in our Consolidated Financial Statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosures. This interpretation is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of retained earnings. We adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have an impact on the opening balance of retained earnings. See Note 3 for more information.
Recently Issued Standards
In September 2006, the FASB 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. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), which would delay the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP 157-2 partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP 157-2. We will adopt SFAS No. 157 during 2008, except as it applies to those non-financial assets and non-financial liabilities as noted in FSP 157-2. The partial adoption of SFAS No. 157 is not expected to have a material impact on our financial statements and disclosures.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
issued for fiscal years beginning after November 15, 2007. We do not expect SFAS No. 159 to have a material impact on our financial statements and disclosures.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date of a controlling interest; and (3) expensing restructuring costs associated with an acquired business. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We expect SFAS No. 141(R) will have an impact on our accounting for future business combinations once adopted, but the effect is dependent upon the acquisitions that are made in the future.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160 requires (1) that non-controlling (minority) interests be reported as a component of shareholders’ equity, (2) that net income attributable to the parent and to the non-controlling interest be separately identified in the consolidated statement of operations, (3) that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (4) that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value and (5) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are currently evaluating the impact of this standard on our financial statements.
2.
Stock Compensation Plans
We account for our stock option plans in accordance with SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”). 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). We transitioned to SFAS No. 123(R) using the modified prospective method whereby compensation is recognized under SFAS N. 123(R) beginning January 1, 2006 and thereafter, with prior periods’ stock-based compensation still determined pursuant to APB No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), with pro forma disclosure provided as if SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), had been applied. We elected to adopt the alternative transition method provided in FSP No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, for calculating tax effects of equity-based compensation pursuant to SFAS No. 123(R). The SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R), and we applied the provisions of SAB 107 in our adoption of SFAS 123(R). Compensation expense is measured and recognized 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 ratably over the service period which is generally the vesting period of the award.
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 123. Compensation expense associated with the unvested portion of these options at January 1, 2006 is recognized ratably over the service period which is generally the remaining vesting period of the award.
For all grants, the amount of compensation expense to be recognized is adjusted for an estimated forfeiture rate which is based on historical data.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following table presents stock-based compensation expense included in the Consolidated Statements of Operations:
For the year ended December 31, 2006, stock-based compensation expense included $0.5 million of cash payments as a result of an offer to amend discussed in more detail below.
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 year ended December 31, 2005 (in thousands, except per share data):
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.
Stock Option Plans
Stock options are generally granted with an exercise price equal to the market price of the stock at the date of grant. Substantially all of the options granted are generally exercisable pursuant to a two to five-year vesting schedule and the term of the options granted is no longer than ten years.
2007 Equity Incentive Plan. On August 6, 2007, the shareholders approved the 2007 Equity Incentive Plan, (the “2007 Plan”) that provides for the grant of the following types of incentive awards: (i) stock options, (ii) restricted stock, (iii) restricted stock units, (iv) stock appreciation rights, (v) performance units and performance shares and (vi) other stock or cash awards. Those who will be eligible for awards include employees, directors and consultants who provide services to Amkor and its parent or subsidiaries. The effective date of this plan is January 1, 2008 and there are 17,000,000 shares of our common stock reserved for issuance under the 2007 Equity Incentive Plan.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
2003 Nonstatutory Inducement Grant Stock Plan. On September 9, 2003, we initiated the 2003 Nonstatutory Inducement Grant Stock Plan (the “2003 Plan”). The 2003 Plan generally provides for the grant to employees, directors and consultants of stock options and stock purchase rights and is generally used as an inducement benefit for the purpose of retaining new employees. There is a provision for an annual replenishment to bring the number of shares of common stock reserved for issuance under the plan up to 300,000 as of each January 1.
1998 Director Option Plan. The Director Plan terminated in January 2008. The option grants under the Director Plan were automatic and non-discretionary. Each option granted to a non-employee director vests over a three-year period.
1998 Stock Plan. The 1998 Stock Plan terminated in January 2008. The 1998 Stock Plan generally provided for grants to employees, directors and consultants of stock options and stock purchase rights. The options granted vest over a two to five year-period.
A summary of the stock option plans and the respective plan termination dates and shares available for grant as of December 31, 2007 is shown below.
In the fourth quarter of 2006, we extended an offer to amend the exercise price of certain options that were granted at a discount from fair market value as the holder may be subject to adverse tax consequences under Section 409A of the U.S. Internal Revenue Code. For each of the 735,000 options held by the 260 individuals accepting our offer to amend their options, a cash payment was made in January 2007 for the difference between the new exercise price per share of the amended option and the original exercise price per share. We recognized $0.5 million in compensation expense in 2006 related to this offer.
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 based on historical performance of our stock. 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:
The intrinsic value of options exercised for the year ended December 31, 2007, 2006 and 2005 was $12.2 million, $1.5 million and $0.1 million, respectively.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following is a summary of all option activity for the year ended December 31, 2007:
Total unrecognized compensation expense from stock options, excluding any forfeiture estimate, was $9.6 million as of December 31, 2007, which is expected to be recognized over a weighted-average period of 2.65 years beginning January 1, 2008.
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. For the year ended December 31, 2006 and 2005 we issued 999,981 and 992,952 shares, respectively, at an average fair value of $2.78 and $0.85, respectively.
We valued our ESPP purchase rights using the Black-Scholes option pricing model, which incorporated the assumptions noted in the table below. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant.
For the year ended December 31, 2007, 2006 and 2005, cash received under all share-based payment arrangements was $37.1 million, $5.0 million and $2.8 million, respectively. There was no tax benefit realized. The related cash receipts are included in financing activities in the accompanying Consolidated Statements of Cash Flows.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
3.
Income Taxes
Geographic sources of income (loss) before income taxes and minority interest are as follows:
The provision (benefit) for income taxes includes federal, state and foreign taxes currently payable and those deferred because of temporary differences between the financial statement and the tax bases of assets and liabilities.
The components of the provision (benefit) for income taxes are as follows:
The reconciliation between the U.S. federal statutory income tax rate of 35% and our income tax provision (benefit) is as follows:
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following is a summary of the components of our deferred tax assets and liabilities:
In 2007, the valuation allowance on our deferred tax assets decreased by $37.0 million primarily as a result of a $51.2 million decrease associated with the expiration of U.S. capital loss carryforwards and a $17.8 million decrease associated with the use of all remaining net operating loss carryforwards and the release of the valuation allowance on all deferred tax assets at our largest subsidiary in Taiwan because of sustained profitability. In addition, deferred tax assets of $7.6 million and a related valuation allowance of the same amount were reduced in 2007 in connection with the adoption of FIN 48. These decreases in our valuation allowance in 2007 were partially offset by an increase of $32.9 million on deferred tax assets recorded in 2007 in certain foreign jurisdictions that we presently forecast will become tax deductions beyond our tax holiday periods. We provided a full valuation allowance on these deferred tax assets primarily because we do not have sufficient positive evidence that it is more likely than not we will realize these tax benefits.
In 2006, the valuation allowance on our deferred tax assets decreased by $23.9 million, primarily as a result of a $14.5 million benefit relating to utilization of U.S. net operating loss carryforwards and a $6.4 million benefit relating to utilization of Taiwanese net operating loss carryforwards. In 2006, the current earnings and profits of our wholly-owned subsidiary in the Philippines was considered a deemed dividend for U.S. tax purposes resulting in use of U.S. net operating loss carryforwards which had no incremental effect on our consolidated provision. During 2005, the valuation allowance on our deferred tax assets increased by $75.0 million, resulting from a charge to establish a valuation allowance against the increase in our U.S., Taiwanese, Singaporean and Philippine net operating loss carryforwards, capital loss carryforwards, tax credits and other deferred tax assets.
At December 31, 2007, the valuation allowance includes amounts relating to the tax benefits of pre-acquisition net operating losses and credits. If these benefits are subsequently realized, they will be recorded to goodwill and non-current intangible assets in the amounts of $12.6 million and $2.5 million, respectively. At December 31, 2007, the valuation allowance includes amounts relating to tax benefits of the tax deduction associated with employee stock options. If these benefits are subsequently realized, they will be recorded to contributed capital in the amount
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
of $6.1 million. As a result of net operating loss carryforwards, we were not able to recognize the windfall tax benefits of stock option deductions in 2007 because the deductions did not reduce income tax payable.
As a result of certain capital investments, export commitments and employment levels, income from operations in Korea, the Philippines, China, Singapore and Taiwan is subject to reduced tax rates, and in some cases is exempt from taxes. In Korea, we have tax holidays resulting from our investment in the Kwangju, Seoul and Pupyong facilities. The Kwangju tax holiday provides a 100% tax exemption through 2010, followed by a 50% exemption through 2013. The Seoul and Pupyong tax holiday provides a 100% tax exemption through 2011, followed by a 50% exemption through 2014. After the holidays expire we will be subject to the Korean statutory rate which is currently 27.5%. In the Philippines, our operating locations operate in economic zones and in exchange for tax holidays, we have committed to certain export, capital investment and employment levels. For 2005 through 2007, certain qualifying Philippine operations benefited from a full tax holiday, expiring at various times through 2011, while the remaining operations benefited from a perpetual reduced tax rate of 5%. As a result of our 2001 investment in China, we expect to benefit from a 100% tax holiday for two years and then a 50% tax holiday for an additional three years. The tax holiday in China will commence on January 1, 2008. In October 2006, we were granted a ten year pioneer incentive award by the Singapore Economic Development Board. Singapore operations will benefit from a 100% tax holiday for up to ten years, beginning on January 1, 2007. We were granted a five year tax holiday on certain product lines in Taiwan beginning January 1, 2007. As a result of the net operating losses incurred by our foreign subsidiaries subject to tax holidays, we did not realize any benefits relating to such tax holidays in 2007, 2006 or 2005 in China, Korea and Singapore. In 2006, our Philippines operations recognized $2.1 million in tax benefits as a result of the tax holiday on certain qualifying operations. In 2007, our Philippines operations recognized $0.4 million in tax benefits and our Taiwan operations recognized $0.6 million in tax benefits as a result of the tax holiday on certain qualifying operations.
At December 31, 2007, we have U.S. and state net operating losses available to be carried forward totaling $364.3 million and $267.9 million, respectively, expiring in varying amounts through 2027. Additionally, as of December 31, 2007, our Philippines operations had $19.0 million of net operating losses available for carryforward. If these foreign net operating losses are not utilized, they will expire in varying amounts through 2010. The deferred tax asset associated with the Philippine losses has been reserved with a valuation allowance. Our subsidiary, Unitive Semiconductor Taiwan (“UST”), has $28.5 million of net operating losses available for carryforward which, if not utilized, will expire in varying amounts through 2012. The deferred tax asset associated with the UST losses has been reserved with a valuation allowance. Net operating losses generated in Singapore through 2006 are not available for carryforward to future periods in connection with the pioneer incentive award granted in October 2006. We also have U.S. capital loss carryforwards of $143.1 million which will expire in varying amounts in 2008 and 2009. U.S. capital loss carryforwards of $128.1 million expired as of December 31, 2007. The deferred tax assets associated with our U.S. and state net operating losses and capital losses available for carryforward have been fully reserved with a valuation allowance at December 31, 2007 and 2006. Also, our ability to utilize our U.S. net operating and capital loss carryforwards may be limited in the future if we experience an ownership change as defined by the Internal Revenue Code.
At December 31, 2007, we have various tax credits available to be carried forward including U.S foreign income tax credits totaling $7.0 million, expiring in 2016, Korean income tax credits totaling $7.9 million expiring in varying amounts through 2012, Taiwanese income tax credits in UST totaling $5.8 million expiring in varying amounts through 2011, and Taiwanese income tax credits in Amkor Technology Taiwan (“ATT”) totaling $2.5 million, expiring in varying amounts through 2011. The deferred tax assets associated with the U.S. foreign income tax credits, the Korean income tax credits, and the Taiwanese income tax credits in UST have been reserved with a valuation allowance.
Income taxes have not been provided on the undistributed earnings of our foreign subsidiaries (approximately $259.0 million at December 31, 2007) over which we have sufficient influence to control the distribution of such earnings and have determined that such earnings have been reinvested indefinitely. These earnings could become
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
subject to either or both federal income tax and foreign withholding tax if they are remitted as dividends, if foreign earnings are loaned to any of our domestic subsidiaries, or if we sell our investment in such subsidiaries. We estimate that repatriation of these foreign earnings would generate additional foreign withholding taxes of approximately $46.4 million. There would be no U.S. federal income tax since our U.S. net operating losses exceed the amount of undistributed foreign earnings.
At December 31, 2007 and 2006, current deferred tax assets of $7.7 million and $4.2 million, respectively, are included in other current assets and non-current deferred tax assets of $16.1 million and $3.4 million, respectively, are included in other assets in the Consolidated Balance Sheet. In addition, at December 31, 2007 and 2006, current deferred tax liabilities of $1.2 million and $0.0 million, respectively, are included in other current liabilities and non-current deferred tax liabilities of $1.6 million and $0.1 million, respectively, are included in other non-current liabilities in the Consolidated Balance Sheet.
We operate in and file income tax returns in various U.S. and foreign jurisdictions which are subject to examination by tax authorities. For our larger foreign operations, our tax returns have been examined through 2001 in the Philippines, through 2002 in China, through 2003 in Taiwan, through 2006 in Japan and have not been examined in Korea since incorporation in 1999 due to our tax holiday status. We remain subject to examination for years after 2005 in Japan, for years after 2003 in the U.S. (Federal), the Philippines, Taiwan and Singapore, for years after 2002 in China and for years after 2001 in Korea. Our tax returns for open years in all jurisdictions are subject to changes upon examination.
During 2003, the Internal Revenue Service (“IRS”) commenced an examination of our U.S. federal income tax returns relating to years 2000 and 2001. In September 2005, the Congressional Joint Committee on Taxation approved the settlement of our IRS examination of the years 2000 and 2001. As part of the settlement, we agreed to make certain adjustments to our U.S. federal income tax returns in the years 2000 through 2003 for local attribution of income resulting from inter-company transactions, including ownership and use of intellectual property, in various U.S. and foreign jurisdictions. The IRS adjustments for the years 2000 and 2001 lowered our U.S. net operating loss carryforwards by $29.2 million. As a result of the finalization of this IRS examination, we reduced our deferred tax assets by $25.0 million and our accrued income taxes by $28.4 million, resulting in a net tax benefit of $3.4 million recorded in 2005.
During 2005, the IRS also commenced an examination of our U.S. federal income tax returns relating to years 2002 and 2003. The IRS exam, a limited scope examination, primarily reviewing inter-company transfer pricing and cost sharing issues carried over from the 2000 and 2001 examination, was completed in 2006. Upon settlement of the exam, we agreed to four adjustments, lowering our U.S. net operating loss carryforwards by $49.3 million. There was no impact to our Consolidated Statements of Operations as we maintain a full valuation allowance against the related deferred tax assets.
We adopted the provisions of FIN 48 on January 1, 2007. We recognized no cumulative effect of the adoption of FIN 48 to the opening balance of retained earnings as a result of the implementation of FIN 48. The gross amount of unrecognized tax benefits upon adoption of FIN 48 was $11.8 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
Our unrecognized tax benefits include amounts that, if recognized, would increase deferred tax assets subject to a valuation allowance. Accordingly, these uncertain tax benefits, if recognized, would not affect the effective tax rate. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $1.9 million as of December 31, 2007.
The FIN 48 liability is $7.7 million as of December 31, 2007 and is reported as a component of other non-current liabilities. This liability does not generally represent future cash payments because of the interaction with other tax attributes available such as net operating loss or tax credit carryforwards. The unrecognized tax benefits in the table above includes the reduction of deferred tax assets, which are not included in the FIN 48 liability.
It is reasonably possible that the total amount of unrecognized tax benefits will decrease within 12 months due to statutes of limitations expiring in certain jurisdictions which would decrease our unrecognized tax benefits related to revenue attribution by up to $1.5 million.
We have recognized $0.2 million of interest and penalties in the Consolidated Statement of Operations for the year ended December 31, 2007 in connection with our unrecognized tax benefits. Interest and penalties are classified as income taxes in the financial statements. The total amount of interest and penalties included in other non-current liabilities in connection with our unrecognized tax benefits is $0.3 million as of December 31, 2007.
Our unrecognized tax benefits are subject to change as examinations of specific tax years are completed in the respective jurisdictions. We believe that any taxes, or related interest and penalties, 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 examinations to be completed in the near term would have a material favorable impact. However, tax return examinations involve uncertainties and there can be no assurances that the outcome of examinations will be favorable.
4.
Earnings Per Share
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 the year ended December 31, 2005 as a result of the potentially dilutive securities being antidilutive due to a net loss. The following table summarizes the computation of basic and diluted EPS:
AMKOR TECHNOLOGY, INC.
Notes to 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:
5.
Accounts Receivable, Trade
Accounts receivable, trade consists of the following:
6.
Inventories
Inventories consist of the following:
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
7.
Property, Plant and Equipment
Property, plant and equipment consists of the following:
The following table reconciles our activity related to property, plant and equipment payments as presented on the statement of cash flows to property, plant and equipment additions reflected on the balance sheet:
8.
Goodwill and Other Intangible Assets
The change in the carrying value of goodwill, all of which relates to our packaging services segment, is as follows:
In January 2006, we acquired an additional 39.6% of UST for $18.4 million which brings our combined ownership of UST to 99.6%. The majority of the purchase price was allocated to goodwill resulting in $17.9 million of goodwill acquired in 2006. In March 2007, we increased goodwill by $0.8 million for additional consideration paid with respect to an earn-out provision in connection with our investment in UST.
During the second quarters of 2007 and 2006, in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets, we performed our annual impairment test on goodwill and concluded that goodwill was not impaired.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
Intangibles as of December 31, 2007 consist of the following:
Intangibles as of December 31, 2006 consist of the following:
Amortization of identifiable intangible assets was $10.4 million, $9.6 million and $9.5 million in 2007, 2006 and 2005, respectively. Based on the amortizing assets recognized in our balance sheet at December 31, 2007, amortization for each of the next five fiscal years is estimated as follows:
9.
Investments
Investments include marketable securities and equity investments as follows:
We recognized impairment charges included in other (income) expense, net of $2.7 million, $3.2 million and $3.7 million related to our Dongbu Hitek investment in 2007, 2006 and 2005, respectively. For all years, these impairment charges were recognized as we believed the related decline in value, determined by quoted prices in active markets, was other than temporary.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
10.
Accrued Expenses
Accrued expenses consist of the following:
11.
Debt
Following is a summary of short-term borrowings and long-term debt:
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
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 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 LIBOR-based interest rate at December 31, 2007 was 6.20%; however, no borrowings were outstanding on this credit facility. As of December 31, 2007, 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. This 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 bore interest at a rate of LIBOR plus 450 basis points (9.87% at December 31, 2006); and would have matured in October 2010. The loan was secured by a second lien on substantially all of our U.S. subsidiaries’ assets, including a portion of the shares of certain of our foreign subsidiaries. The second lien term loan was refinanced and paid in full in April 2007 with the proceeds of the $300.0 million, 7-year secured credit facility with Woori Bank in Korea. In connection with the prepayment of the second lien term loan, we recorded a loss on debt retirement of $15.7 million in April 2007, which included $9.0 million in prepayment fees and $6.7 million of unamortized deferred debt issuance costs. This repayment transaction fully discharged all of our obligations under the second lien term loan and fully discharged all subsidiary guarantees and releases all the collateral securing the second lien term loan.
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. 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 the Consolidated Statements of Operations. On February 15, 2008, we repaid the remaining balance of $88.2 million at the maturity date with cash on hand.
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.
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 whereupon the notes become redeemable at specified prices. In November 2007, we repurchased in an open market transaction $3.0 million of these notes with cash on hand. We recorded a gain on extinguishment of $0.2 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 less than $0.1 million.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
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 2016 Notes at a specified price with the proceeds of certain equity offerings. After deducting fees to the underwriter, the net proceeds were used to purchase a portion of the 2008 Notes and to pay respective accrued interest and tender premiums. In November 2007, we repurchased in an open market transaction $10.0 million of these notes with cash on hand. We recorded a gain on extinguishment of less than $0.1 million which is included in debt retirement costs, net, which was more than offset by the write-off of a proportionate amount of our deferred debt issuance costs of $0.2 million.
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 May 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. In June 2007, we redeemed the remaining $21.9 million of the 2009 Notes outstanding with cash on hand and the indenture has been terminated. We recorded a charge of $0.2 million to write-off the unamortized deferred debt issuance costs in June 2007.
The senior notes contain a number of affirmative and negative covenants, which could restrict our operations.
Senior Subordinated and Subordinated Convertible Notes
In May 2006, we issued $190.0 million of our 2.5% Convertible Senior Subordinated Notes due May 2011 (the “May 2011 Notes”). The May 2011 Notes are convertible at any time, prior to the maturity date, into our common stock at a price of $14.59 per share, subject to adjustment. The May 2011 Notes are subordinate to the prior payment in full of all of our senior debt. After deducting fees to the underwriter, the net proceeds from the issuance of the May 2011 Notes were used to repurchase a portion of the 2009 Notes, pay respective accrued interest and call premiums. The senior subordinated notes contain a number of affirmative and negative covenants which could restrict our operations.
In March 2000, we issued $258.8 million of our 5.0% Convertible Subordinated Notes due March 2007 (the “2007 Notes”). The 2007 Notes were 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 June 2006, we repurchased $4.0 million of our 2007 Notes at 99.875%. In March 2007, we repaid the remaining balance of $142.4 million at the maturity date with cash on hand.
In November 2005, we issued $100.0 million of our 6.25% Convertible Subordinated Notes due December 2013 (the “December 2013 Notes”) in a private placement to Mr. James J. Kim, our Chairman and Chief Executive Officer, and certain Kim family members. The December 2013 Notes are presented as long-term debt, related party on the Consolidated Balance Sheets. The December 2013 Notes are convertible at any time prior to the maturity date 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 December 2013 Notes was $6.20 per share), subject to adjustment. The December 2013 Notes are subordinate to the prior payment in full of all of our senior and senior subordinated debt. The proceeds from the sale of the December 2013 Notes were used to purchase a portion of the 2006 Notes described above. The December 2013 Notes are not redeemable at our option until December 2010.
Debt of Subsidiaries
Secured Term Loans
In April 2007, Amkor Technology Korea, Inc., a Korean subsidiary (“ATK”), entered into a $300.0 million, 7-year secured term loan (“Term Loan”) with Woori Bank in Korea. The Term Loan is guaranteed on an unsecured
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
basis by Amkor Technology, Inc (“Amkor”). The Term Loan is secured by substantially all the land, factories and equipment located at our ATK facilities. The Term Loan bears interest at Woori’s base rate plus 50 basis points (6.58% as of December 31, 2007) and amortizes in 28 equal quarterly payments through April 2014. The proceeds of the Term Loan were used to refinance Amkor’s existing $300.0 million second lien term loan, due October 2010 (see above). We incurred $3.4 million in debt issuance costs in connection with the Woori loan, which amount was funded from cash on hand.
In June 2005, Unitive Semiconductor Taiwan, a Taiwanese subsidiary, entered into a New Taiwan Dollar (“NT$”) 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% (4.79% and 4.23% as of December 31, 2007 and December 31, 2006, respectively). Interest payments are due monthly and principal payments are due quarterly. The proceeds of the UST Note were used to satisfy notes previously held by Unitive Semiconductor Taiwan. 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.
In November 2005, Amkor Technology Taiwan, Inc., a Taiwanese subsidiary, entered into a 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% (4.11% and 3.22% as of December 31, 2007 and December 31, 2006, respectively). Interest payments are due quarterly and principal payments are due semi-annually. 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.
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, guaranteed by Amkor is secured by a monetary security deposit and certain equipment in our Singapore facility. In May 2004, our Chinese subsidiary entered into a $5.5 million credit facility secured with buildings at one of our Chinese production facilities and is payable ratably through January 2012. The interest rate for the Chinese financing at December 31, 2007 and December 31, 2006, was 6.73% and 6.14%, 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) that matures in September 2008. The line of credit accrues interest at the Tokyo Interbank Offering Rate (“TIBOR”) plus 0.6%. The interest rate at December 31, 2007 ranged from 1.27% to 1.34%, and December 31, 2006 ranged from 0.97% to 1.04%. There were no amounts drawn on the line of credit as of December 31, 2007. There was $7.6 million drawn on the line of credit as of December 31, 2006.
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 2008, that accrues interest at TIBOR plus 0.5%. The interest rate at
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
December 31, 2007 and at December 31, 2006 was 1.25% and 0.92%, respectively. There were no amounts outstanding as of December 31, 2007 and December 31, 2006.
In March 2007, our Philippine subsidiary renewed and increased a revolving line of credit from 795.0 million Philippine Peso (approximately $15.5 million) to 895.0 million Philippine peso (approximately $18.5 million), which expired December 31, 2007 and is not expected to be renewed. There were no amounts drawn on the line of credit in 2007 or outstanding at December 31, 2007 and December 31, 2006.
In January 2006, Amkor Assembly & Test (Shanghai) Co. Ltd., a Chinese subsidiary (“AATS”), entered into a $15.0 million working capital facility which accrued interest at LIBOR plus 1.25%, and was paid off at maturity in January 2007 with cash on hand. The borrowings outstanding as of December 31, 2006 were $15.0 million. At December 31, 2006, the interest rate ranged from 6.62% to 6.81% based on the dates of borrowing.
Unitive Semiconductor Taiwan had a revolving line of credit with a Taiwan bank for NT$60.0 million (approximately $1.9 million) that matured in June 2007. We renewed this facility for NT$20.0 million (approximately $0.6 million) in August 2007. The line of credit matures in June 2008 and accrues interest at a variable interest rate. The negotiated interest rate at December 31, 2007 and December 31, 2006 was 4.45% and 3.60%, respectively. There were no amounts drawn on the line of credit as of December 31, 2007 and December 31, 2006.
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 that matured in June 2007. The interest rate on this debt ranged from 3.14% to 4.5% as of December 31, 2006.
Interest expense related to short-term borrowings and long-term debt is presented net of interest income in the accompanying Consolidated Statements of Operations. Interest income for the year ended December 31, 2007, December 31, 2006 and December 31, 2005 was $9.8 million, $6.9 million and $5.3 million, respectively.
Compliance with Debt Covenants
Our secured bank debt agreements and the indentures governing our senior and senior subordinated notes restrict our ability to pay dividends. We were in compliance with all of our covenants as of December 31, 2007, 2006 and 2005.
Maturities
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
12.
Pension and Severance Plans
U.S. Defined Contribution Plan
We have a defined contribution plan covering substantially all U.S. employees. Eligible employees can contribute up to 60% of their salary, subject to annual Internal Revenue Service limitations. We match in cash 75% of the employee’s contributions up to a defined maximum on an annual basis. The expense for this plan was $1.9 million, $1.9 million and $2.2 million in 2007, 2006 and 2005, respectively.
Taiwan Defined Contribution Plan
We have a defined contribution plan under the Taiwanese Labor Pension Act in Taiwan whereby employees can contribute up to 6% of salary. We contribute no less than 6% of the employees’ salaries up to a defined maximum into their individual accounts. The expense for this plan was $1.4 million, $1.6 million and $0.9 million in 2007, 2006 and 2005, respectively.
Korean Severance Plans
Our Korean subsidiary participates in an accrued severance plan that covers employees and directors with at least one year of service. Eligible employees are entitled to receive a lump-sum payment upon termination of employment, based on their length of service, seniority and average monthly wages at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date.
Our contributions to the National Pension Plan of the Republic of Korea are deducted from accrued severance benefit liabilities. During 2006, we announced an early voluntary retirement program. All charges related to this program were paid as of December 31, 2006. See Note 19 for further discussion. The changes to our Korean severance accrual are as follows:
Foreign Defined Benefit Pension Plans
Our Philippine, Taiwanese and Japanese subsidiaries sponsor defined benefit plans (the “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.
We adopted the recognition provisions of SFAS No. 158 and initially applied them to the funded status of our defined benefit postretirement plans as of December 31, 2006. The initial recognition of the funded status of our defined benefit postretirement plans resulted in a decrease in other assets and total assets of $0.3 million; an increase in pension and severance obligations of $12.0 million; a decrease in other non-current liabilities of $0.4 million; an increase in total liabilities of $11.5 million; a decrease in stockholders’ equity of $11.8 million which was net of a tax benefit of $0.8 million; and a decrease in total liabilities and stockholders’ equity of $0.3 million.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following table sets forth the Plans’ benefit obligations, fair value of the Plans’ assets and the funded status of the Plans at December 31, 2007 and 2006.
The accumulated benefit obligation as of December 31, 2007 and 2006 was $38.9 million and $25.4 million, respectively.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following table sets forth, by component, the change in accumulated other comprehensive loss related to our Plans:
Information for pension plans with benefit obligations in excess of plan assets are as follows:
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following table sets forth the net periodic pension costs for each of the three years ended December 31, 2007.
The measurement date for determining the Plans’ assets and benefit obligations was December 31, each year. Discount rates were generally derived from yield curves constructed from foreign government bonds for which the timing and amount of cash outflows approximate the estimated payouts.
The expected rate of return assumption is based on weighted-average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets and include input from our actuaries. We have no control over the direction of our investments in our Taiwanese defined benefit plans as the local Labor Standards Law Fund mandates such contributions into a cash account balance at the Central Trust of China. The Japanese defined benefit pension plans are non-funded plans, and as such, no assets exist related to these plans. Our investment strategy for our Philippine defined benefit plan is long-term, sustained asset growth through low to medium risk investments. The current rate of return assumption targets an asset allocation strategy for our Philippine plan assets of 20% to 75% emerging market debt, 10% to 40% international equities (primarily U.S. and Europe) and 0% to 10% international fixed-income securities. The remainder of the portfolio will contain other investments such as short-term investments. At December 31, 2007, 2006 and 2005, Philippine plan assets included $0.9 million and $0.9 million and $0.6 million, respectively, of Amkor common stock.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The weighted average asset allocations for the Plans, by asset category, are as follows:
We contributed $7.4 million, $4.5 million and $4.6 million to the Plans during 2007, 2006 and 2005, respectively, and we expect to contribute $7.8 million during 2008. We closely monitor the funded status of the Plans with respect to legislative requirements. We intend to make at least the minimum contribution required by law each year.
The estimated future benefit payments related to our foreign defined benefit plans are as follows:
13.
Other Non-Current Liabilities
Other non-current liabilities consist of the following:
Customer advances relate to supply agreements with customers where we commit capacity in exchange for customer prepayment of services.
14.
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using available market information and appropriate methodologies; however, considerable judgment is required in interpreting market data to develop the estimates for fair value. Accordingly, these estimates are not necessarily indicative of the amounts that we could realize in a current market exchange. Certain of these financial instruments are with major financial institutions and expose us to market and credit risks and may at times be concentrated with certain counterparties or groups of counterparties. The creditworthiness of counterparties is continually reviewed and full performance is anticipated.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The carrying amounts reported in the balance sheet for accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The methods and assumptions used to estimate the fair value of other significant classes of financial instruments is set forth below:
Cash and Cash Equivalents. Our cash and cash equivalents are invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts. Cash and cash equivalents are due on demand or carry a maturity date of less than three months when purchased. No restrictions have been imposed on us regarding withdrawal of balances as a result of liquidity or other credit market issues affecting the money market funds we invest in or the counterparty financial institutions holding our deposits. The carrying amount of these financial instruments is a reasonable estimate of fair value.
Available for sale investments. Available for sale investments are recorded at market value. The fair value of these financial instruments is estimated based on market quotes in active markets.
Long-term debt. The carrying amount of our total long-term debt as of December 31, 2007 and 2006 was $1,764.1 million and $2,005.3 million, respectively. The fair value of our total long-term debt as of December 31, 2007 and 2006, based on available market quotes, was estimated to be $1,746.5 million and $2,000.6 million, respectively.
15.
Commitments and Contingencies
As of December 31, 2007, we have outstanding $0.2 million of standby letters of credit and have available an additional $24.8 million. Such standby letters of credit are used in our ordinary course of business and are collateralized by our cash balances.
We generally warrant that our services will be performed in a professional and workmanlike manner and in compliance with our customers’ specifications. We accrue costs for known warranty issues. Historically, our warranty costs have been immaterial.
Legal Proceedings
We are involved in claims and legal proceedings and we may become involved in other legal matters arising in the ordinary course of our business. We evaluate these claims and legal matters on a case-by-case basis to make a determination as to the impact, if any, on our business, liquidity, results of operations, financial condition or cash flows. Except as indicated below, we currently believe that the ultimate outcome of these claims and proceedings, individually and in the aggregate, will not have a material adverse impact on our financial position, results of operations or cash flows. Our evaluation of the potential impact of these claims and legal proceedings on our financial position, results of operations or cash flows could change in the future. We currently are party to the legal proceedings described below. Attorney fees related to legal matters are expensed as incurred.
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 subject matter of the arbitration is a license agreement (“Agreement”) entered into between Tessera and our predecessor in 1996. The Agreement pertains to certain patents and know-how relating to semiconductor packaging. In its Request, Tessera alleges breach of contract and asserts that Amkor owes Tessera royalties under the Agreement in an amount between $85 and $115 million for semiconductor packages assembled by us through 2005 and claimed additional royalties for all accused semiconductor packages that Amkor has assembled thereafter. Since its initial Request, Tessera has asserted royalty claims against additional package types assembled by us and updated their claims to reflect post 2005 packages. As a result, the aggregate royalty amounts alleged by Tessera to date, excluding interest, are substantially higher than $115 million. Tessera has identified a total of six United States patents (U.S. Patent Nos. 5,679,977, 5,852,326, 5,861,666, 6,133,627, 6,433,419 and 6,465,893), and unspecified
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
know-how as the basis for its claim that royalties are owed under the Agreement. In our Answer and Counterclaim, we denied that any royalties were owed, and asserted, among other defenses, that we are not using any of the licensed Tessera patents or know-how. The arbitration is currently set for a hearing to begin on March 31, 2008.
On April 17, 2007, Tessera sent us a notice of termination of the Agreement. We responded on April 20, 2007, denying that Tessera has the right to terminate the Agreement. The Arbitration Panel has denied Tessera’s pre-hearing motion to terminate the Agreement and deferred that issue until the hearing. Also on April 17, 2007, Tessera instituted an action in Federal District Court for the Eastern District of Texas against certain of Amkor’s customers, and on May 15, 2007, at Tessera’s request, the United States International Trade Commission (“ITC”) instituted an investigation of certain Amkor customers. Both the ITC investigation and the Texas action allege infringement of two of the same patents asserted by Tessera in this arbitration, and Tessera may seek to include in those actions some of the same products packaged by Amkor that are at issue in this arbitration. The Arbitration Panel has denied our pre-hearing motion to enjoin Tessera insofar as it is pursuing Amkor-assembled packages in the ITC investigation and deferred that issue until the hearing, but stated that it will decide all of the issues related to any dispute between Tessera and us that arises out of the Agreement, including whether the packages prepared by us for our customers utilize Tessera patents. Although Amkor has not been named as a respondent in the ITC investigation or a defendant in the Texas action, Amkor has received notification from certain customers of requests for indemnification in connection with Tessera’s claims in those actions. Amkor has not accepted such requests for indemnification.
Although we believe that we have meritorious defenses and counterclaims in this matter and will seek a judgment in our favor, it is not possible to predict the outcome of the arbitration or the total cost of resolving this controversy including the impact of possible future claims of additional royalties by Tessera. The final resolution of this controversy could result in significant liabilities in the form of a one-time payment, ongoing royalty obligations, or both, and could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows.
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. In August 2006 and again in November 2006, the plaintiffs amended the complaint. The plaintiffs added additional officer, director and former director defendants and alleged 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. On December 28, 2006, pursuant to motion by defendants, the U.S. District Court for the Eastern District of Pennsylvania transferred this action to the U.S. District Court for the District of Arizona.
On September 25, 2007, the U.S. District Court for the District of Arizona dismissed this case with prejudice. On October 23, 2007, plaintiffs filed a notice of appeal from the dismissal in the U.S. Circuit Court of Appeals for the Ninth Circuit. Although we believe that we have meritorious defenses in this matter and will continue to seek a judgment in our favor, it is not possible to predict the outcome of this litigation. An adverse decision in this matter could result in material liabilities and could have a material adverse effect on our liquidity, results of operations, financial condition and cash flows.
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 Amkor’s current and former officers and directors.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
Amkor is named as a nominal defendant. In September 2006 and again in November 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. The complaint includes claims for violation of Section 14(a) of the Exchange Act, 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. On August 29, 2007, the U.S. District Court for the District of Arizona granted our motion to dismiss this case.
On March 2, 2006, a purported shareholder derivative lawsuit entitled Khan v. Kim, et al. was filed in the Superior Court of the State of Arizona against certain of Amkor’s 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 was stayed pending resolution of the federal derivative suit referenced above, and in August 2007 was dismissed by the court without prejudice.
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 Amkor’s 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 contains allegations relating to option grants similar to those made in the previously filed federal shareholder derivative action referred to above. This action was stayed pending resolution of the federal derivative suit referenced above, and in December 2007 was dismissed by the court without prejudice.
The derivative complaints sought monetary damages, an order directing us 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 would deem just and proper. We do not know whether the plaintiffs will take further action in any of these cases.
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. The primary focus of the investigation appears to be activities during the period from June 2003 to July 2004. We believe that the investigation continues to relate primarily to transactions in our securities by certain individuals, and that the investigation may in part relate to whether tipping with respect to trading in our 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 Amkor’s Chief Executive Officer. Amkor has cooperated fully with the SEC on the formal investigation and the informal inquiry that preceded it. In October 2007, our former general counsel, whose employment with us terminated in March of 2005, was convicted of violating the securities laws for trading in Amkor securities on the basis of material non-public information. In April 2007, the SEC filed a civil action against our former general counsel based on substantially the same allegations that were charged in the criminal case.
As previously disclosed, 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 in 2006 that it expanded the scope of its investigation and requested that we provide documentation related to these matters. We provided the requested documentation and intend to continue to cooperate with the SEC. Amkor cannot predict the outcome of the investigation.
Amkor Technology, Inc. v. Motorola, Inc.
In August 2002, we filed a complaint against Motorola, Inc. (“Motorola”) in the Superior Court of Delaware seeking declaratory judgment relating to a controversy between us and Motorola concerning: (i) the assignment by
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
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 Citizen’s interest in U.S. Patents 5,241,133 and 5,216,278 (the “’133 and ’278 Patents”) which patents relate to ball grid array 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.
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 remain pending.
We and Motorola both filed motions for summary judgment on the remaining claims, and on October 6, 2003, the Superior Court of Delaware granted our motion for summary judgment. Motorola filed an appeal in the Supreme Court of Delaware and in May 2004, the Supreme Court reversed the Superior Court’s decision, and remanded for further development of the factual record. The bench trial in this matter was concluded on January 27, 2006 and in November 2007, the court ruled that the assignment by Citizen to Amkor was effective and that Amkor successfully acquired Citizen’s rights in the License Agreement and ’133 and ’278 patents. In December 2007, Motorola appealed the court’s ruling to the Supreme Court of Delaware.
Although we believe that we have meritorious claims in this matter and will continue to seek final judgment in our favor, as of the date of this Annual Report, it is not possible to predict the outcome of this litigation or the total cost of resolving this controversy, including the impact of possible future claims for royalties which may be made by Motorola if the final outcome is unfavorable. The final resolution of this controversy could result in potential liabilities that could have a material adverse effect on our financial condition, results of operations and cash flows.
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”), a predecessor to Dongbu Hitek Co., Ltd., and delivered to AME. AME transferred the parts to another Alcatel subsidiary, Alcatel Business Systems (“ABS”), which incorporated the parts into mobile 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 $74.2 million based on the spot exchange rate at December 31, 2007.) We denied all liability associated with this claim. On March 27, 2007, the French Supreme Court (the highest court in the French judicial system) issued a final non-appealable ruling in our favor that the Paris Commercial Court does not have jurisdiction over this matter. Based on this ruling, we do not anticipate any further proceedings in the French courts on this matter.
Arbitration. In December 2006, ABS filed a demand with the American Arbitration Association (“AAA”) for arbitration in Pennsylvania under the November 1999 agreement, which demand is based on substantially the same claims raised in the French lawsuit described above. The arbitration filed with the AAA in December 2006 remains pending, and is not affected by the French Supreme Court’s final ruling in our favor described above.
We previously entered into agreements with ASI whereby ASI agreed to indemnify us against all costs, liabilities, damages, expenses and judgments resulting from or arising out of the claims of AME, ABS and ABS’ insurer in the above matters. In January 2007, Dongbu Electronics (now known as Dongbu Hitek) (“Dongbu”), successor in interest to ASI, acknowledged that it is the indemnifying party with respect to claims against us in the now-ended French proceeding described above, and in this Arbitration matter, although Dongbu has subsequently questioned the scope of their indemnity obligation. We continue to believe that Dongbu is legally obligated to indemnify us for these claims and we are prepared to seek enforcement of their indemnification obligations. Although we believe that indemnification is available and that we have meritorious defenses to the underlying
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
claims, it is not possible to predict the outcome of this matter. If indemnification is not available to us, an adverse decision in this matter could have a material adverse effect on our liquidity, results of operations, financial condition and cash flows.
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 attorney’s 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. We filed a petition in November 2004 to have the ALJ’s 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 documents. On February 9, 2006, the ITC ordered a delay in issuance of the Final Determination, pending resolution of the third party discovery issues. The discovery issues are the subject of a subpoena enforcement action which is pending in the District Court for the District of Columbia. The case we filed in 2003 in the Northern District of California remains stayed pending completion of the ITC investigation.
Leases
Future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year are:
Rent expense amounted to $19.4 million, $16.7 million and $17.1 million for 2007, 2006 and 2005, respectively.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
16.
Related Party Transactions
We purchase leadframe inventory from Acqutek Semiconductor & Technology Co., Ltd. James J. Kim our Chairman and Chief Executive Officer, owns approximately 17.7% of Acqutek Semiconductor & Technology Co., Ltd. The purchases are arms length and on terms consistent with our non-related party vendors. During 2007, 2006 and 2005, purchases from Acqutek Semiconductor & Technology Co., Ltd. were $18.7 million, $16.7 million and $11.8 million, respectively. Amounts due to Acqutek Semiconductor & Technology Co., Ltd. at December 31, 2007 and 2006, were $1.9 million and $1.3 million, respectively.
Mr. JooHo Kim is an employee of Amkor and a brother of Mr. James J. Kim, our Chairman and Chief Executive Officer. Mr. JooHo Kim, together with his wife and children, own 96.1% of Jesung C&M, a company that provides cafeteria services to Amkor Technology Korea, Inc. The services provided by Jesung C&M are subject to competitive bid. During 2007, 2006 and 2005, purchases from Jesung C&M were $6.2 million, $6.5 million and $6.5 million, respectively. Amounts due to Jesung C&M at December 31, 2007 and 2006 were $0.5 million.
Previously, Mr. JooHo Kim owned with his children and other Kim Family members 58.11% of Anam Information Technology, Inc., a company that provided computer hardware and software components to ATK. Mr. JooHo Kim sold all of his shares in the fourth quarter of 2006. Other Kim Family members owned 48.3% as of December 31, 2006. As of September 30, 2006, a decision was made to discontinue using Anam Information Technology as a vendor. The services provided by Anam Information Technology were subject to competitive bid. During 2007, there were no purchases from Anam Information Technology. Purchases from Anam Information Technology during 2006 and 2005 were $0.3 million and $1.8 million, respectively. There were no amounts due to Anam Information Technology at December 31, 2007 and 2006.
17.
Business Segments, Customer Concentrations and Geographic Information
In accordance with SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information, we have determined we had two reportable segments, packaging and test. 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. The packaging process creates an electrical interconnect between the semiconductor chip and the system board. In packaging, fabricated semiconductor wafers are separated into individual chips. These chips are typically attached through wire bond or wafer bump technologies to a substrate or leadframe and then encased in a protective material. In the case of an advanced wafer level package, the package is assembled on the surface of a wafer. The packaged chips are then tested using sophisticated equipment to ensure that each packaged chip meets its design and performance specifications.
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 reflects other corporate
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
adjustments to net sales and gross profit and the property plant and equipment of our sales and corporate offices.
The following table presents net sales by country based on the location of our customer:
No customer exceeded 10% of consolidated net sales in 2007, 2006 or 2005.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
The following table presents property, plant and equipment, net, based on the physical location of the asset:
18.
Acquisitions
Acquisitions of Unitive, Inc. and Unitive Semiconductor Taiwan Corporation
In 2004, we acquired 100% of the capital stock of Unitive, based in North Carolina and approximately 60% of the capital stock of UST, a Taiwan-based venture owned by Unitive and various Taiwanese investors. In January 2006, we exercised an option to acquire an additional 39.6% of UST for $18.4 million in cash consideration, which brings our combined ownership of UST to 99.6%. Unitive and UST are providers of wafer level technologies and services for flip chip and wafer level packaging applications.
Both original transactions provided provisions for contingent, performance-based earn-outs which could increase the value of the transactions. With respect to Unitive, the earn-out lapsed with no additional consideration being paid to the former owners. With respect to UST, the earn-out was based on the performance of that subsidiary for the twelve month period ended January 31, 2007. In March 2007, we increased goodwill by $0.8 million for additional consideration paid with respect to the UST earn-out provision. As of December 31, 2007 and 2006, we reflect as a minority interest the 0.14% of UST which we do not own in our Consolidated Financial Statements.
19.
Restructuring and Reduction in Force
During the second quarter of 2007, we commenced a phased transition of wafer level processing production from our wafer bumping facility in North Carolina to our facility in Taiwan as part of our ongoing efforts to help our customers shorten time-to-market and get closer to the upstream production sources. The North Carolina facility will primarily focus on research and development activities after the transition is complete. We expect to complete the transition of production to Taiwan by the second quarter of 2008. In April 2007, the specific details surrounding the related reduction in force were communicated to the impacted employees at our North Carolina facility. The costs associated with this activity are accounted for in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (as amended). We recorded charges for termination benefits during 2007 of $0.9 million which were primarily included in cost of sales. The amount recorded in accrued expenses for termination benefits was $0.5 million as of December 31, 2007. We currently anticipate that an additional $0.1 million related to termination benefits will be charged primarily to cost of sales over the remaining employment service period through the second quarter of 2008. We anticipate total termination benefits of $1.0 million will be paid through the second quarter of 2008.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements - (Continued)
We contract excess manufacturing labor force at one of our Japanese subsidiaries to one of our customers for which we incur charges for wage and benefit costs in excess of the reimbursement from the customer. During 2007, 2006 and 2005, we recorded charges for costs in excess of the reimbursement from the customer of $2.3 million, $0.7 million and $3.8 million, respectively, which is primarily included in cost of sales. Amounts due from our customer at December 31, 2007 and 2006 were $0.4 million and $0.3 million, respectively.
During the third and fourth quarter of 2006 we implemented an early voluntary retirement program with special termination benefits to employees at our Korean subsidiary. We recorded a charge for the special termination benefits of $5.4 million, including $4.7 million charged to cost of sales and $0.7 million charged to selling, general and administrative expenses. All of these charges were paid as of December 31, 2006.
During 2005, we terminated the operations of Semisys, a Korean-based subsidiary which produced molds and other equipment used in semiconductor packaging. We recorded a charge of $3.0 million related to this shut-down, of which $2.4 million impacted gross profit and $0.6 million was recorded in selling, general and administrative expenses. The charges were related to the write-down of assets and the accrual of severance and other exit costs. All severance benefits were paid as of December 31, 2005.
During the third and fourth quarter of 2005, we charged $4.0 million to selling, general and administrative expenses associated with a reduction in force at our Chandler, Arizona corporate headquarters. All of these charges were paid as of December 31, 2006.
20.
Sale of Specialty Test Operations
In October 2005, we divested a specialty test operation based in Wichita, Kansas, which did not meet the definition of a discontinued operation. The selling price was $8.2 million, which included a $6.9 million cash payment at closing and a 5.0% note in the amount of $1.3 million due October 2011. A 15% discount of $0.4 million was recorded on the note at the time of sale which equates to an effective interest rate of 14.5%. We recognized a pre-tax gain of approximately $4.4 million in connection with this sale. During the third quarter of 2007, we recognized an additional gain of $1.7 million as a result of the receipt of payment on an earn-out provision provided in the asset purchase agreement.
At December 31, 2007 and 2006, the $1.3 million note receivable, reduced by the unamortized discount of $0.3 million, is included in other assets.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(a)
Column represents adjustments to the deferred tax asset valuation allowance as a result of business acquisitions. In addition, this column represents the sale of available for sale securities and stock option transactions in which the valuation allowance is adjusted directly through stockholders’ equity. For the year ended December 31, 2007, this column also includes a $7.6 million reduction in the valuation allowance associated with the adoption of FIN 48.
Item 9.
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports to the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007 and concluded those disclosure controls and procedures were effective as of that date.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
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 company’s 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.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007 based on criteria in Internal Control - Integrated Framework issued by the COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8.
Changes in Internal Control Over Financial Reporting
During the third quarter of 2007, we implemented several significant modules of SAP which is our new enterprise resource planning (“ERP”) system at our largest subsidiary. This completed another phase of a multi-year program to implement a fully integrated suite of SAP application software on a company-wide basis. During the third and fourth quarters of 2007, we finalized the design, documentation and testing of internal control processes and procedures relating to the new system relative to our evaluation of our internal control over financial reporting as of December 31, 2007. The implementation of the ERP system at our largest subsidiary resulted in changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended December 31, 2007.
Item 9B.
Item 9B.
Other Information
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this Item 10, with the exception of information relating to the Code of Business Conduct and Ethical Guidelines as disclosed below, is incorporated herein by reference from the material included under the captions “Election of Directors,” “Executive Officers,” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in our definitive proxy statement (to be filed pursuant to Regulation 14A) for our 2008 annual meeting of stockholders.
Additionally, our Code of Business Conduct and Ethical Guidelines, Corporate Governance Guidelines, and the charters of the Audit Committee, Nominating and Governance Committee and Compensation Committee are available and maintained on our web site (http://www.amkor.com).
Item 11.
Item 11.
Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the material included under the captions “Executive Compensation,” “Comp Committee Interlocks and Insider Participation,” and “Report of the Compensation Committee on Executive Compensation” in our definitive proxy statement (to be filed pursuant to Regulation 14A) for our 2008 annual meeting of stockholders.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
EQUITY COMPENSATION PLANS
The information required by this Item 12, with the exception of the equity compensation plan information presented below, is incorporated herein by reference to our Proxy Statement for its 2008 Annual Meeting of Stockholders.
The following table summarizes our equity compensation plans as of December 31, 2007:
(1)
As of December 31, 2007, a total of 91,666 shares were reserved for issuance under the 1998 Director Option Plan until the plan was terminated in January 2008.
(2)
As of December 31, 2007, a total of 6,495,873 shares were reserved for issuance under the 1998 Stock Plan Until the plan was terminated in January 2008.
(3)
As of December 31, 2007, a total of 380,000 shares were reserved for issuance under the 2003 Nonstatutory Inducement Grant Stock Plan, and there is a provision for an annual replenishment to bring the number of shares of common stock reserved for issuance under the plan up to 300,000 as of each January 1. On January 1, 2008, no additional shares were made available pursuant to the annual replenishment provision. On August 6, 2007, the stockholders approved the 2007 Equity Incentive Plan (“The Plan”). The Plan became effective January 1, 2008 and replaces all existing plans. The Plan has a reserve of 17,000,000 shares available for issuance as of January 1, 2008.
PART IV
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated herein by reference from the material included under the captions “Certain Relationships and Related Transactions,” and “Proposal One - Election of Directors” in our definitive proxy statement (to be filed pursuant to Regulation 14A) for our 2008 annual meeting of stockholders.
Item 14.
Item 14.
Principal Accountant Fees and Services
The information required by this Item 14 is incorporated herein by reference from the material included under “Proposal Two - Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive proxy statement (to be filed pursuant to Regulation 14A) for our 2008 annual meeting of stockholders.
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
(a) Financial Statements and Financial Statement Schedules
The financial statements and schedules filed as part of this Annual Report on Form 10-K are listed in the index under Item 8.
Exhibits
(1)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed October 6, 1997 (File No. 333-37235).
(2)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on October 6, 1997, as amended on October 27, 1997 (File No. 333-37235).
(3)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on October 6, 1997, as amended on March 31, 1998 (File No. 333-37235).
(4)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on April 8, 1998, as amended on August 26, 1998 (File No. 333-49645).
(5)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 17, 1999.
(6)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 15, 2001.
(7)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 14, 2001.
(8)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 14, 2002.
(9)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 14, 2002.
(10)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 27, 2003.
(11)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 9, 2003.
(12)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 3, 2003.
(13)
Incorporated by reference to the Company’s Registration Statement on Form S-4 filed on July 10, 2003.
(14)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 9, 2004.
(15)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 3, 2004.
(16)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 4, 2004.
(17)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 5, 2004.
(18)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 6, 2004.
(19)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 4, 2004.
(20)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 10, 2005.
(21)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 2, 2005.
(22)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 16, 2006.
(23)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 31, 2006.
(24)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 11, 2006.
(25)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 29, 2006.
(26)
Incorporated by reference to the Company’s Quarterly Report on Form 8-K filed on July 7, 2006.
(27)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on October 6, 2006.
(28)
Incorporated by reference to the Company’s Current Report on Form 8-K filed August 10, 2007.
(29)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 4, 2007.
(30)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 8, 2007.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed, on its behalf by the undersigned, thereunto duly authorized.
AMKOR TECHNOLOGY, INC.
By:
/s/ James J. Kim
James J. Kim
Chairman and Chief Executive Officer
Date: February 25, 2008
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James J. Kim and Joanne Solomon, and each of them, his attorneys-in-fact, and agents, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents of any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
(1)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed October 6, 1997 (File No. 333-37235).
(2)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on October 6, 1997, as amended on October 27, 1997 (File No. 333-37235).
(3)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on October 6, 1997, as amended on March 31, 1998 (File No. 333-37235).
(4)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on April 8, 1998, as amended on August 26, 1998 (File No. 333-49645).
(5)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 17, 1999.
(6)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 15, 2001.
(7)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 14, 2001.
(8)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 14, 2002.
(9)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 14, 2002.
(10)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 27, 2003.
(11)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 9, 2003.
(12)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 3, 2003.
(13)
Incorporated by reference to the Company’s Registration Statement on Form S-4 filed on July 10, 2003.
(14)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 9, 2004.
(15)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 3, 2004.
(16)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 4, 2004.
(17)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 5, 2004.
(18)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 6, 2004.
(19)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 4, 2004.
(20)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 10, 2005.
(21)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 2, 2005.
(22)
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 16, 2006.
(23)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 31, 2006.
(24)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 11, 2006.
(25)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 29, 2006.
(26)
Incorporated by reference to the Company’s Quarterly Report on Form 8-K filed on July 7, 2006.
(27)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on October 6, 2006.
(28)
Incorporated by reference to the Company’s Current Report on Form 8-K filed August 10, 2007.
(29)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed May 4, 2007.
(30)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 8, 2007.