e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31,
2010
Commission File Number
000-29472
Amkor Technology,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State of
incorporation)
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23-1722724
(I.R.S. Employer
Identification Number)
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1900 South Price Road
Chandler, AZ 85286
(480) 821-5000
(Address of principal executive
offices and zip code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule
12b-2 of the
Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2010, based upon the closing price of the common
stock as reported by the NASDAQ Global Select Market on that
date, was approximately $599.9 million.
The number of shares outstanding of each of the issuers
classes of common equity, as of January 31, 2011, was as
follows: 197,189,515 shares of Common Stock,
$0.001 par value.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the registrants Proxy Statement relating to
its 2011 Annual Meeting of Stockholders, to be filed
subsequently, are incorporated by reference into Part III
of this Report where indicated.
TABLE OF
CONTENTS
All references in this Annual Report to Amkor,
we, us, our or the
company are to Amkor Technology, Inc. and its
subsidiaries. We refer to the Republic of Korea, which is also
commonly known as South Korea, as
Korea. Amkor®,
Amkor
Technology®,
ChipArray®,
FlipStack®,
FusionQuad®,
MicroLeadFrame®,
TMV®,
and
Unitive®
are either trademarks or registered trademarks of Amkor
Technology, Inc. All other trademarks appearing herein are held
by their respective owners. Subsequent use of the above
trademarks in this report may occur without the respective
superscript symbols (TM or
®)
in order to facilitate the readability of the report and are not
a waiver of any rights that may be associated with the relevant
trademarks.
1
PART I
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This business section contains forward-looking statements. In
some cases, you can identify forward-looking statements by
terminology such as may, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential, continue, intend
or the negative of these terms or other comparable terminology.
Because such statements include risks and uncertainties, actual
results may differ materially from those anticipated in such
forward-looking statements. In evaluating these statements, you
should specifically consider various factors, including the
risks outlined under Risk Factors in Item 1A of
this Annual Report. These factors may cause our actual results
to differ materially from any forward-looking statement.
OVERVIEW
Amkor is one of the worlds leading providers of outsourced
semiconductor packaging (sometimes referred to as assembly) and
test services. Amkor pioneered the outsourcing of semiconductor
packaging and test services through a predecessor corporation 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 worlds leading semiconductor
companies, and collaborating with original equipment
manufacturers (OEMs) and material suppliers;
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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, Taiwan and
the United States (U.S.).
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Packaging and test are integral steps in the process of
manufacturing semiconductor devices. The semiconductor
manufacturing process begins with the fabrication of tiny
transistor elements into complex patterns of electronic
circuitry on silicon wafers, thereby creating large numbers of
individual semiconductor devices or integrated circuits on each
wafer (generally referred to as chips or
die). Each device on the wafer is tested and the
wafer is cut into pieces called chips. The chips are attached
through wire bonding to a substrate or leadframe, or to a
substrate in the case of flip chip interconnect and then encased
in a protective material. For a wafer-level package, the
electrical interconnections are created directly on the surface
of the wafer without a substrate or leadframe. The packages are
then tested using sophisticated equipment to ensure that each
packaged chip meets its design and performance specifications.
Our packages are designed based on application and chip specific
requirements including the type of interconnection technology
employed, size, thickness, and electrical, mechanical and
thermal performance. We are able to provide turnkey packaging
and test solutions including semiconductor wafer bump, wafer
probe, wafer backgrind, package design, assembly, test and drop
shipment services.
Our customers include, among others: Altera Corporation;
Broadcom Corporation; Infineon Technologies AG; International
Business Machines Corporation (IBM); LSI
Corporation; Qualcomm Incorporated; Sony Corporation; ST
Microelectronics, Pte.; Texas Instruments, Inc. and Toshiba
Corporation. The outsourced semiconductor packaging and test
market is very competitive. We also compete with the internal
semiconductor packaging and test capabilities of many of our
customers.
AVAILABLE
INFORMATION
Amkor files annual, quarterly and current reports, proxy
statements and other information with the U.S. Securities
and Exchange Commission (the SEC). You may read and
copy any document we file at the SECs Public Reference
Room, 100 F Street, NE, Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for information on the Public Reference Room. The SEC maintains
a web site that contains annual, quarterly and
2
current reports, proxy statements and other information that
issuers (including Amkor) file electronically with the SEC. The
SECs web site is
http://www.sec.gov.
Amkors web site is
http://www.amkor.com.
Amkor makes available free of charge through its web site,
our annual reports on
Form 10-K;
quarterly reports on
Form 10-Q;
current reports on
Form 8-K;
Forms 3, 4 and 5 filed on behalf of directors and executive
officers; and any amendments to those reports filed or furnished
pursuant to the Securities Exchange Act of 1934 as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the SEC. We also make available,
free of charge, through our web site, our Corporate Governance
Guidelines, the charters of the Audit Committee, Nominating and
Governance Committee and Compensation Committee of our Board of
Directors, our Code of Business Conduct and Ethical Guidelines,
our Code of Ethics for Directors and other information and
materials. The information on Amkors web site is not
incorporated by reference into this report.
INDUSTRY
BACKGROUND
Semiconductor devices are the essential building blocks used in
most electronic products. As electronic and semiconductor
devices have evolved, several important trends have emerged that
have fueled the growth of the overall semiconductor industry, as
well as the market for outsourced semiconductor packaging and
test services. These trends include:
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An increasing demand for mobile and internet-connected devices,
including world-wide adoption of mobile smart phones
that can access the web and provide multimedia capabilities. The
demand for digital video content has driven a range of higher
performance internet connected home and mobile consumer
electronics products including the new and rapidly growing
tablet category.
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Higher mobility, connectivity and digital content are driving
demand for new broadband wired and wireless networking equipment.
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The proliferation of semiconductor devices into well established
end products such as automotive systems due to increased use of
electronics for safety, navigation and entertainment systems.
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An overall increase in the semiconductor content within
electronic products in order to provide greater functionality
and higher levels of performance.
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Our business is impacted by market conditions in the
semiconductor industry, which is cyclical by nature and impacted
by broad economic factors, such as world-wide gross domestic
product and consumer spending. Historical trends indicate there
has been a strong correlation between world-wide gross domestic
product levels and semiconductor industry cycles.
Semiconductor companies outsource their packaging and test needs
to contract service providers such as Amkor for the following
reasons:
Contract
service providers have developed expertise in advanced packaging
and test technologies.
Semiconductor packaging and test technologies continue to become
more sophisticated, complex and customized due to increasing
demands for miniaturization, greater functionality and improved
thermal and electrical performance. This trend has led many
semiconductor companies to view packaging and test as enabling
technologies requiring sophisticated expertise and technological
innovation. Many of these companies are also relying on contract
service providers of packaging and test services as key sources
for new package designs and advanced interconnect technologies,
thereby enabling them to reduce their internal research and
development costs.
Contract
service providers offer a cost effective solution in a highly
cyclical, capital intensive industry.
The semiconductor industry is cyclical by nature and impacted by
broad economic factors, such as world-wide gross domestic
product and consumer spending. Semiconductor packaging and test
are complex processes requiring substantial investment in
specialized equipment, factories and human resources. As a
result of this cyclicality and the large investments required,
manufacturing facilities must operate at a high level of
utilization for an extended period of time to be cost effective.
Shorter product life cycles, coupled with the need to update or
replace packaging
3
and test equipment to accommodate new package types, makes it
more difficult for semiconductor companies to maintain cost
effective utilization of their packaging and test assets
throughout semiconductor industry cycles. Contract service
providers of packaging and test services, on the other hand, can
typically use their assets to support a broad range of
customers, potentially generating more efficient use of their
production assets and a more cost effective solution.
Contract
service providers can facilitate a more efficient supply chain
and thus help shorten
time-to-market
for new products.
We believe that semiconductor companies, together with their
customers, are seeking to shorten the
time-to-market
for their new products, and that having an effective supply
chain is a critical factor in facilitating timely and successful
product introductions. Semiconductor companies frequently do not
have sufficient time to develop their packaging and test
capabilities or deploy the equipment and expertise to implement
new packaging technology in volume. For this reason,
semiconductor companies are leveraging the resources and
capabilities of packaging and test companies to deliver their
new products to market more quickly.
The
availability of high quality packaging and test services from
contract service providers allows semiconductor manufacturers to
focus their resources on semiconductor design and wafer
fabrication.
As semiconductor process technology migrates to larger wafers
and smaller feature sizes, the cost of building a
state-of-the-art
wafer fabrication factory has risen significantly and can now be
several billions of dollars. The high cost of investing in next
generation silicon technology and equipment is causing many
semiconductor companies to adopt a fabless or
fab-lite strategy in which they reduce or eliminate
their investment in wafer fabrication and associated packaging
and test assets, thus increasing their reliance on outsourced
providers of semiconductor manufacturing services, including
packaging and test. Fabless semiconductor companies
do not have factories and focus exclusively on the semiconductor
design process and outsource virtually every step of the
manufacturing process.
COMPETITIVE
STRENGTHS AND STRATEGY
We believe we are well-positioned in the outsourced packaging
and test market. To build upon our industry position and to
remain one of the preferred providers of semiconductor
packaging and test services, we are pursuing the following
strategies:
Leading
Technology Innovator
We are a leader in developing advanced semiconductor packaging
and test solutions. We have designed and developed several
state-of-the-art
package formats and technologies including our
Package-on-Package
platform with Through Mold Via or TMV technology,
FusionQuad, flip chip ball grid array, copper pillar bumping and
fine pitch copper pillar flip chip packaging technologies. In
addition, we believe that as semiconductor technology continues
to achieve smaller device geometries with higher levels of speed
and performance, packages will increasingly require flip chip
and three dimensional or 3D stacking interconnect
solutions. We have been investing in our technology leadership
in electroplated wafer bumping, wafer-level processing and 3D
packaging technologies. We have also been a leader in developing
environmentally friendly integrated circuit packaging, which
involves the elimination of lead and certain other materials.
In the area of 3D packaging, Amkor has been a market and
technology leader in both stacked die such as stacked chip scale
packages and FlipStack and stacked package technologies such as
Package-on-Package
and TMV. The semiconductor industry is now entering a new period
of 3D packaging development where Through Silicon Via or
TSV interconnect technology will be used to create
3D integrated circuits. Amkor continues to invest in developing
the key processes and package assembly technologies required for
our customers to deliver 3D chip solutions to market. We have
established a leadership position in wafer thinning,
micro-bumping and TSV-based flip chip stacking technologies, and
we are leveraging our technology development relationships with
key customers in diverse applications to develop and deploy new
3D packaging technologies with high density TSV interconnections.
4
We provide a complete range of test engineering services from
test program development to full product characterization for
radio frequency mixed signal, logic and memory devices. Amkor is
a major provider of radio frequency test services and a leader
in strip test, an innovative parallel test solution that offers
customers lower cost, faster index time and improved yields.
We have approximately 400 employees engaged in research and
development focusing on the design and development of new
semiconductor packaging and test technologies.
Long-Standing
Relationships and Collaboration with Prominent Semiconductor
Companies
Our customers include most of the worlds largest
semiconductor companies and over the last four decades, Amkor
has developed long-standing relationships with many of these
companies. We believe that our production excellence has been a
key factor in our success in attracting and retaining customers.
We work with our customers and our suppliers to develop
proprietary process technologies to enhance our existing
capabilities, reduce
time-to-market,
increase quality and lower our costs.
We believe that our focus on research and product development
will enable us to enter new markets early, capture market share
and promote the adoption of our new package designs as industry
standards. We collaborate with customers and leading OEMs to
develop comprehensive package solutions that make it easier for
next-generation semiconductors to be designed into
next-generation end products. By collaborating with leading
semiconductor companies and OEM electronic companies, we gain
access to technology roadmaps for next generation semiconductor
designs and obtain the opportunity to develop new packages that
satisfy their future requirements.
Broad
Offering of Package Design, Packaging and Test
Services
Creating successful interconnect solutions for advanced
semiconductor devices often poses unique thermal, electrical and
other design challenges, and Amkor employs a large number of
package design engineers to solve these challenges. Amkor
produces hundreds of package types which encompass more than
1,000 unique products, representing one of the broadest package
offerings in the semiconductor industry. These package solutions
are driven by the needs of our customers for more electrical
connections, enhanced electrical or thermal performance, smaller
package size and lower cost.
We provide customers with a wide array of packaging solutions
including leadframe and substrate packages, using both wire bond
and flip chip interconnect technologies. We are a leading
provider of:
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Flip chip and wafer level packages where the die is connected
directly to the package substrate or system board. These
packages deliver improved electrical performance for use in
high-power and high-speed applications such as graphics
processors and microprocessors;
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Three dimensional packages such as
package-on-package
and stacked chip scale packages, in which the individual chips
or individual packages are stacked vertically to provide
integration of logic and memory, while preserving space on the
system board;
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Stacked chip scale packages which include high density memory
die stacks, typically with wire bond connections, and flip chip
plus wire bond stacks called FlipStack that integrate a wire
bond die on top of a flip chip die;
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Advanced leadframe packages, such as MicroLeadFrame and
FusionQuad, which are thinner and smaller than traditional
leadframe designs, and provide more leads and better thermal and
electrical characteristics.
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Multi-chip or
system-in-package
modules used in mobile phones and other handheld end-products;
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Packages for micro-electromechanical system devices, which are
used in a variety of end markets including automotive,
industrial and consumer electronics;
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Through Mold Via technology for higher stacked interconnect
densities in
Package-on-Package
applications that support next-generation high speed memory
interface standards; and
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Fine pitch copper pillar flip chip which creates
interconnections at fine pad pitches using fine pitch copper
pillar bumping and a newly developed assembly process to reduce
the number of substrate layers and facilitate very thin packages.
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We are expanding our copper wire bond capabilities in support of
both advanced and commodity packages, as some customers are
migrating to copper wire bond to mitigate their exposure to gold
prices. We also offer an extensive line of advanced probe and
final test services for analog, digital, logic, mixed signal and
radio frequency semiconductor devices. We believe that the
breadth of our design, packaging and test services is important
to customers seeking to limit the number of their suppliers.
Geographically
Diversified Operational Base
We have a broad and geographically diversified operational
footprint. Our operations comprise more than five million square
feet of manufacturing space strategically located in five
countries in many of the worlds important electronics
manufacturing regions. We believe that our scale and scope allow
us to provide cost effective solutions to our customers by:
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Offering capacity to absorb large orders and accommodate quick
turn-around times;
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Obtaining favorable pricing on materials and equipment, where
possible, by using our purchasing power and leading industry
position;
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Qualifying production of customer devices at multiple
manufacturing sites to mitigate the risks of supply disruptions;
and
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Providing capabilities and solutions for customer-specific
requirements.
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Competitive
Cost Structure and Disciplined Capital Investment
We believe that a competitive cost structure and disciplined
capital investment decisions are key factors for achieving
profitability and generating free cash flow. There has been a
continuous push throughout the entire semiconductor supply chain
for lower cost solutions. Some of our cost control efforts have
included: (1) increasing strip densities to drive higher
throughput; (2) developing smaller gold wire diameter
solutions; and (3) increasing labor productivity.
We operate in a cyclical industry. During an industry downturn,
similar to the downturn in the second half of 2008 and the first
half of 2009, we take actions to reduce our costs and drive
greater factory and administrative efficiencies. Cost control
efforts can include reducing labor costs by temporarily lowering
compensation, reducing employee and contractor headcount,
shortening work weeks and obtaining labor-related foreign
government subsidies.
PACKAGING
AND TEST SERVICES
The following table sets forth, for the periods indicated, the
amount of packaging and test net sales in millions of dollars
and the percentage of such net sales:
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Year Ended December 31,
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2010
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2009
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2008
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Packaging services
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Chip scale package
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$
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954
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32.5
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%
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$
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695
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31.9
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%
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$
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697
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26.2
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%
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Ball grid array
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747
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25.4
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%
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500
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23.0
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%
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751
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28.3
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%
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Leadframe
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761
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25.9
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%
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587
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26.9
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%
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753
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28.3
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%
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Other packaging
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188
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6.4
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%
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152
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7.0
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%
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144
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5.4
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%
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Total packaging services
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2,650
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90.2
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%
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1,934
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88.8
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%
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2,345
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88.2
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%
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Test services
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289
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9.8
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%
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245
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11.2
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%
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314
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11.8
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%
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Total net sales
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$
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2,939
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100.0
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%
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$
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2,179
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100.0
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%
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$
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2,659
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100.0
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%
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6
Packaging
Services
We offer a broad range of package formats and services designed
to provide our customers with a full array of packaging
solutions. Our package services are divided into three families:
chip scale package, ball grid array, and leadframe. We also
provide other packaging services such as wafer bumping which
supports our flip chip and wafer-level packages. The
differentiating characteristics of package formats can include:
(1) size, (2) number of electrical connections,
(3) thermal and electrical characteristics, (4) number
of chips incorporated, (5) types of interconnect
technologies employed, and (6) integration of active and
passive components.
The following table sets forth the various combinations of
interconnect technologies and package carriers, and some
characteristics, for each package family.
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Chip Scale Package
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Ball Grid Array
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Leadframe
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Interconnect Technology
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Wire Bond
Flip Chip
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Wire Bond
Flip Chip
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Wire Bond
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Package Carrier
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Substrate
Wafer Level
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Substrate
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Leadframe
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Characteristics
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Small Form Factor
Low to High I/O Density Medium to Low Power Consumption
2D and 3D Configurations
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Large Form Factor High I/O Density Medium to High Power
Consumption
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Variety of Form Factors
Low to Medium I/O Density Low Cost
Low to High Power Consumption
2D and 3D Configurations
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Interconnect
Technologies
Wire bonding and flip chip are the two interconnect technologies
used to connect the die to the package carrier.
Wire Bond: The die is mounted face up on the
substrate or leadframe and very fine gold or copper wires are
attached from the perimeter of the die to the substrate or
leadframe. Wire bonding is generally considered to be the most
cost-effective and flexible interconnect technology and is used
to assemble the majority of semiconductor packages.
Flip Chip: The interconnection between the die
and substrate is made through a conductive bump that
is placed directly on the die surface utilizing a process called
wafer bumping. The bumped die is then flipped over
and placed face down, with the bumps connecting directly to the
substrate. Flip chip packages provide a higher density
interconnection capability than wire bond, as flip chip
technology uses the surface area of the die, and sometimes the
perimeter as well, instead of just the perimeter used by wire
bond packages. Flip chip technology also provides enhanced
thermal and electrical performance, and enables smaller die and
thinner and smaller form factors (or physical package
dimensions).
Hybrid: Certain 3D and
system-in-package
applications may contain both wire bond and flip chip die in a
single package. These structures are commonly referred to as
FlipStack and are supported in both chip scale and ball grid
array package structures.
Package
Carrier
Leadframe: Leadframe packages utilize metal
(typically copper) as the package carrier and typically place
the electrical interconnect leads to the system board around the
perimeter of the package. Leadframe packages are used in
virtually every electronic device and remain the most practical
and cost-effective solution for many low to medium pin count
applications. Leadframe packages are typically not cost or form
factor effective for pin counts above 200. To address this
limitation, Amkor developed FusionQuad, a proprietary leadframe
package that integrates internal leads with perimeter leads to
enable pin counts up to 376.
Substrate: Substrate packages utilize a
laminate as the package carrier and have the electrical
interconnects to the system board on the bottom of the package
in the form of solder balls that are distributed across the
bottom surface of the package (called a ball grid
array format). The chip is attached to the substrate
through either
7
wirebond or flip chip technologies. Substrate packages were
developed to facilitate the higher number of interconnections
required by many advanced semiconductor devices.
Wafer-Level: Wafer-level packages do not use a
leadframe or substrate as the chip carrier. The interconnect
bumping process is carried out on the entire wafer at the chip
level using proprietary process technologies. The bumped wafer
is subsequently singulated into individual chips
(diced) and the wafer-level package is subsequently
attached directly to the system board.
Chip
Scale Packages
Chip scale packages are substrate-based packages where the
package size is not much larger than the chip itself, and which
have very small form factors and fine ball pitches (or distance
between balls). The size advantage provided by a chip scale
package has made this the package of choice for a wide variety
of applications that require very small form factors such as
wireless handsets and mobile consumer electronic devices.
Advances in packaging technology now allow the placement of two
or more chips on top of each other within a single package. This
concept, known as 3D packaging, permits a higher level of
semiconductor density and greater functionality. Some of our 3D
chip scale packages include:
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Stacked chip scale packages that contain two or more chips
placed on top of each other and are ideal for chipsets and
memory applications; and
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Package-on-package
solutions using extremely thin chip scale packages that are
stacked on top of each other, enabling the integration of logic
and memory in a single footprint, as well as multiple memory
applications.
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Our chip scale package family also includes
system-in-package
modules which integrate two or more chips and passive device
elements into a single package, thus enabling space and power
efficiency, high performance and lower production costs.
Ball Grid
Array Packages
Ball grid array packages are large form factor substrate-based
packages which are used where processing power and speed are
needed, and small form factors are not required. Ball grid array
packages are used for networking, storage, gaming, computing and
consumer applications.
Examples of ball grid array packages are:
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Flip chip ball grid array incorporates a face down bumped die
onto a substrate using a ball grid array format and is
increasingly being used in advanced silicon nodes enabling our
customers to implement more powerful new applications and
smaller devices; and
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Plastic ball grid array packages use wire bond technology in
applications requiring higher pin count than chip scale or
leadframe packages, but typically have lower interconnect
density than flip chip.
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Leadframe
Packages
Leadframe packages place the electrical interconnects to the
system board around the perimeter of the package. Wire bonding
technology is used to interconnect the chip to the leadframe
package carrier. Leadframe-based packages are the most widely
used package family in the semiconductor industry.
Traditional leadframe-based packages support a wide variety of
device types and applications. Two of our most popular
traditional leadframe package types are small outline integrated
circuit and quad flat package, commonly known as
dual or quad products, respectively,
based upon the number of sides from which the leads extend. The
traditional leadframe package family has evolved from
through hole design, where the leads are plugged
into holes on the circuit board to surface mount
design, where the leads are soldered to the surface of the
circuit board. We offer a wide range of lead counts and body
sizes to satisfy variations in the size of customers
semiconductor devices.
Through a process of continuous engineering and customization,
we have designed several advanced leadframe package types that
are thinner and smaller than traditional leadframe packages, and
which have the
8
ability to accommodate more leads on the perimeter of the
package. These advanced leadframe packages typically have
superior thermal and electrical characteristics, which allow
them to dissipate heat generated by high-powered semiconductor
devices while providing enhanced electrical connectivity. We are
developing increasingly smaller versions of these packages to
keep pace with continually shrinking semiconductor device sizes
and demand for miniaturization of portable electronic products.
One of our most successful advanced leadframe package offerings
is the MicroLeadFrame family of quad flat no lead packages.
Another is FusionQuad, which has both bottom and peripheral
leads that significantly reduce the package size.
Wafer
Bumping and Other Packaging Services
The other category of packaging services is largely comprised of
wafer bumping services. Wafer bumping is a preliminary step to
manufacturing both flip chip and wafer-level packages. Wafer
bumping consists of preparing the wafer for bumping and forming
or placing the bumps. Preparation may include cleaning, removing
insulating oxides, and providing a pad metallurgy that will
protect the interconnections while making good mechanical and
electrical connection between the bump and the substrate.
Test
Services
Amkor provides a complete range of semiconductor testing
services including wafer testing or probe, various types of
final testing, strip testing and complete
end-of-line
test services up to and including final shipping. We have
testing operations in our facilities in China, Japan, Korea, the
Philippines and Taiwan, which enables fast feedback, streamlined
logistics and shorter cycle times. We also offer many
specialized logistical services including security certification
and anti-counterfeit measures. In 2010, we tested
4.4 billion units. We tested 45%, 48% and 49% of the units
that we packaged in 2010, 2009 and 2008, respectively.
We test a variety of device types across all of our package
families including radio frequency, analog and mixed signal,
digital, power management, memory and various combinations such
as application-specific integrated circuits, multi chip modules,
system-in-package,
and stacked chips. Testing solutions vary depending upon the
complexity of the device. Specialized solutions are required for
packages that also process non-electric stimuli, including
sensors, accelerometers, gyrometers, haptics, pressure sensors
and various types of micro-electro-mechanical sensor devices.
Test
Development Services
We offer a full range of test software, hardware, integration
and product engineering services, and we support a range of
business models and test capabilities. Some customers develop
their test solutions and provide them to us, while other
customers need our engineering resources. We support a variety
of co-development and collaboration models.
Our test development centers are located in Korea, the
Philippines, China and the U.S., and provide complete solutions
covering product specific testing software, all necessary
hardware for handling and contacting, correlation, release to
mass production and post production support. In close proximity
to many of our customers design centers, our locations
offer same time zone and same language services.
Wafer
Test Services
Wafer test, also referred to as wafer probe, is performed after
wafer fabrication or wafer bumping to screen out defects prior
to packaging. A range of wafer test coverage can be deployed
depending on the cost and complexity of the die, the package and
the product. The range is from coarse level screening for major
defects all the way up to probing at high digital speeds, full
radio frequency transmit and receive, and multiple temperatures.
Wafer testing can involve a range of wafer mapping and
inspections.
Final
Test Services
After the assembly process, final test is performed to ensure
that the packaged device meets the customers requirements.
Final test spans a range of rigor and complexity depending on
the device and end market application. More rigorous types of
final test include testing multiple times under different
electrical and temperature
9
conditions, and before and after device reliability stresses,
such as burn-in. In addition to electrical testing, specialized
solutions are required for packages that also process
non-electric stimuli.
The electrical tests are a mix of functional, structural and
system-level tests depending on the customers requirements
and cost and reliability parameters. The electrical test
equipment we use includes commercially available automated test
equipment, customized and proprietary system level test
equipment and innovative types of low cost test equipment
developed by Amkor.
Principal
End Markets
The following table lists the major end markets that use our
products. The table also lists some of our applications and our
packages and test services used within these key end markets.
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Amkor Packages and
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End Market
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Applications
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Test Services
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Communications
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Handsets (Cell Phones,
Feature Phones, Smart
Phones)
Ethernet WiMax, 3G, 4G
Wireless LAN
Bluetooth
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Stacked Chip Scale Package ChipArray Ball Grid Array
Package-on-Package
Flip Stack Chip Scale Package Flip Chip Chip Scale Package
MicroLeadFrame
Radio Frequency Probe
System-on-Chip Test
Distributed Test for System-in-Package
System-Level Test
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Consumer
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Gaming
Television
Set Top boxes
Portable Media
Digital Cameras
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Flip Chip Ball Grid Array
Thin Quad Flat Pack
Plastic Ball Grid Array
ChipArray Ball Grid Array
MicroLeadFrame
Strip Test
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Computing
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Desk Top Computer
Laptop Computer
Notebook Computer
Netbook Computer
Tablets
Hard Disc Drive
Computer Server
Displays
Printers
Other Peripherals
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MicroLeadFrame
Plastic Ball Grid Array
Thin Quad Flat Pack
ChipArray Ball Grid Array
Flip Chip Chip Scale Package
High-Speed Digital Testing
System-Level Test
System-on-Chip Test
Distributed Test for System-in-Package
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Networking
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Servers
Routers
Switches
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Flip Chip Ball Grid Array
Plastic Ball Grid Array
ChipArray Ball Grid Array
High-Speed Digital Testing
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Other
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Automotive
Industrial
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Thin Shrink Small Outline Package
Small Outline Integrated Circuit Plastic Ball Grid Array
Thin Quad Flat Pack
Test Across Temperature
Burn-in Test
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10
For packaging and test segment information, see Note 17 to
our Consolidated Financial Statements in Part II,
Item 8 of this Annual Report.
RESEARCH
AND DEVELOPMENT
Our research efforts focus on developing new package solutions
and test services, and improving the efficiency and capabilities
of our existing production processes. We believe that technology
development is one of the key success differentiators in the
semiconductor packaging and test industry. By concentrating our
research and development on our customers needs for
innovative packages, increased performance and lower cost, we
gain opportunities to enter markets early, capture market share
and promote our new package offerings as industry standards. In
addition, we leverage our research and development by licensing
our leading edge technology, such as MicroLeadFrame, Fine
Pitch Copper Pillar, Through Mold Via, Lead Free Bumping and
FusionQuad.
Our key areas for research and development are:
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3D packaging;
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Advanced flip chip packaging;
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Advanced micro-electromechanical system packaging and testing;
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Copper Pillar bumping and packaging;
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Copper wire interconnects;
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Engineering and characterization tools;
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Laminate and leadframe packaging;
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Manufacturing cost reductions;
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Through Mold Via technology;
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Through Silicon Via technology;
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Wafer Level Fan Out technology; and
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Wafer level processing.
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We have key development partners within our customer and
supplier base. We work with our partners and allocate our
resources to develop applications that have promising potential
for a healthy return on investment.
As of December 31, 2010, we had approximately
400 employees engaged in research and development
activities. In 2010, 2009 and 2008, we spent $47.5 million,
$44.5 million and $56.2 million, respectively, on
research and development.
MARKETING
AND SALES
Our marketing and sales offices are located throughout the
world. Our support personnel manage and promote our packaging
and test services and provide key customer and technical support.
To provide comprehensive sales and customer service, we
typically assign our customers a direct support team consisting
of an account manager, technical program manager, test program
manager and both field and factory customer support
representatives. We also support our largest multinational
customers from multiple office locations to ensure that we are
aligned with their global operational and business requirements.
Our direct support teams are further supported by an extended
staff of product, process, quality and reliability engineers, as
well as marketing and advertising specialists, information
systems technicians and factory personnel. Together, these
direct and extended support teams deliver an array of services
to our customers. These services include:
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Managing and coordinating ongoing manufacturing activity;
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Providing information and expert advice on our portfolio of
packaging and test solutions and related trends;
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Managing the
start-up of
specific packaging and test programs;
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Working to improve our customers
time-to-market;
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Providing a continuous flow of information to our customers
regarding products and programs in process;
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Partnering with customers on design solutions;
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Researching and assisting in the resolution of technical and
logistical issues;
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Aligning our technologies and research and development
activities with the needs of our customers and OEMs;
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Providing guidance and solutions to customers in managing their
supply chains;
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Driving industry standards;
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Providing design and simulation services to ensure package
reliability; and
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Collaborating with our customers on continuous quality
improvement initiatives.
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Further, we implement direct electronic links with our customers
to:
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Achieve near real time and automated communications of order
fulfillment information, such as inventory control, production
schedules and engineering data, including production yields,
device specifications and quality indices; and
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Connect our customers to our sales and marketing personnel
world-wide and to our factories.
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SEASONALITY
Our sales have generally been higher in the second half of the
year than in the first half due to the effect of consumer buying
patterns in the U.S., Europe and Asia. In addition,
semiconductor companies in the U.S. generally reduce their
production during the holidays at the end of December which
results in a decrease in units for packaging and test services
during the first quarter. Our business is tied to market
conditions in the semiconductor industry which is highly
cyclical. The semiconductor industry has experienced significant
and sometimes prolonged cyclical downturns in the past. We
cannot predict the timing, strength or duration of any economic
slowdown or subsequent economic recovery.
CUSTOMERS
As of December 31, 2010, we had approximately 225
customers, including many of the largest semiconductor companies
in the world. The table below lists our top 25 customers in 2010
based on net sales:
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Altera Corporation
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Nordic Semiconductor ASA
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Analog Devices, Inc.
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NXP Semiconductors N.V.
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Atheros Communication, Inc.
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ON Semiconductor Corporation
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Atmel Corporation
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Panasonic Corporation
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Avago Technologies Limited
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Qualcomm Incorporated
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Broadcom Corporation
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RF Micro Devices, Inc.
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Entropic Communications, Inc.
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Samsung Electronics Co., Ltd
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Global Unichip Corporation
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Sony Corporation
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Infineon Technologies AG
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ST Microelectronics, Pte
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International Business Machines Corporation (IBM)
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Texas Instruments Incorporated
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LSI Corporation
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Toshiba Corporation
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Marvell Technology Group Ltd.
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Xilinx, Inc.
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Micron Technology, Inc.
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Our top 25 customers accounted for 80.1% of our net sales in
2010, and our ten largest customers accounted for approximately
54.2%, 53.4% and 49.8% of our net sales for the years ended
December 31, 2010, 2009 and 2008,
12
respectively. Qualcomm Incorporated accounted for more than 10%
of our consolidated net sales in 2009. No customer accounted for
more than 10% of our consolidated net sales in 2010 or 2008.
For segment information, see Note 17 to our Consolidated
Financial Statements in Part II, Item 8 of this Annual
Report.
MATERIALS
AND EQUIPMENT
Materials
Our materials are used primarily for packaging activities. Our
packaging operations depend upon obtaining adequate supplies of
materials on a timely basis. The principal materials used in our
packaging process are leadframes, laminate substrates, gold and
copper wire, mold compound, epoxy, tubes and trays. The silicon
wafer is generally consigned from the customer. We do not take
ownership of the customer consigned wafer and title and risk of
loss remains with the customer for these materials. Test
materials constitute a very small portion of our total test
cost. We purchase materials based on customer forecasts and our
customers are generally responsible for any unused materials
which we purchased based on such forecasts.
We work closely with our primary material suppliers to ensure
that materials are available and delivered on time. Moreover,
utilizing commodity managers to globally manage specific
commodities, we also negotiate world-wide pricing agreements
with our major suppliers to take advantage of the scale of our
operations. We are not dependent on any one supplier for a
substantial portion of our material requirements.
Equipment
Our ability to meet the changing demand from our customers for
manufacturing capacity requirements depends upon obtaining
packaging and test equipment in a timely manner. We work closely
with our main equipment suppliers to coordinate the ordering and
delivery of equipment to meet our expected capacity needs.
Packaging
Equipment
The primary types of equipment used in providing our packaging
services are wire bonders and die bonders. In addition, we
maintain a variety of other packaging equipment, including mold,
singulation, die attach, ball attach, and wafer backgrind, along
with numerous other types of manufacturing equipment. A
substantial portion of our packaging equipment base can
generally be used and adapted to support the manufacture of many
of our packages through the use of relatively low cost tooling.
We also purchase wafer bumping equipment to facilitate our flip
chip and wafer level packaging services. Wafer bump equipment
includes sputter and spin coaters, electroplating equipment and
reflow ovens. This equipment tends to have longer lead times for
order and installation than other packaging equipment and is
sold in relatively larger increments of capacity.
Test
Equipment
The primary equipment used in the testing process includes
tester, handler and probe equipment. Handlers are used to
transfer individual or small groups of packaged integrated
circuits to a tester. Testers are generally a more capital
intensive portion of the process and tend to have longer
delivery lead times than most other types of packaging and test
equipment. We focus our capital additions on standardized tester
platforms in order to maximize test equipment utilization.
ENVIRONMENTAL
MATTERS
The semiconductor packaging process uses chemicals, materials
and gases and generates byproducts that are subject to extensive
governmental regulations. For example, we produce liquid waste
when semiconductor wafers are diced into chips with the aid of
diamond saws, then cooled with running water. In addition,
semiconductor packages have historically utilized metallic
alloys containing lead (Pb) within the interconnect terminals
typically referred to as leads, pins or balls. The usage of lead
(Pb) has decreased over the past few years, as we have ramped
13
volume production of alternative lead (Pb)-free processes.
Federal, state and local regulations in the U.S., as well as
environmental regulations internationally, impose various
controls on the storage, handling, discharge and disposal of
chemicals and materials used in our manufacturing processes and
in the factories we occupy.
We are engaged in a continuing program to assure compliance with
federal, state and local environmental laws and regulations. We
currently do not expect that capital expenditures or other costs
attributable to compliance with environmental laws and
regulations will have a material adverse effect on our business,
liquidity, results of operations, financial condition or cash
flows.
COMPETITION
The subcontracted semiconductor packaging and test market is
very competitive. We face substantial competition from
established packaging and test service providers primarily
located in Asia, including companies with significant
manufacturing capacity, financial resources, research and
development operations, marketing and other capabilities. These
companies include:
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Advanced Semiconductor Engineering, Inc.,
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Siliconware Precision Industries Co., Ltd. and
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STATS ChipPAC Ltd.
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Such companies also have developed relationships with most of
the worlds largest semiconductor companies, including
current or potential customers of Amkor. We also compete with
the internal semiconductor packaging and test capabilities of
many of our customers. Our integrated device manufacturer
customers continually evaluate the outsourced services against
their own in-house package and test services and at times decide
to shift some or all of their outsourced packaging and test
services to internally sourced capacity.
The principal elements of competition in the semiconductor
packaging services market include:
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technical competence;
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quality;
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price;
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breadth of packaging services offered;
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new package design and implementation;
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cycle times;
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customer service; and
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available capacity.
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We believe that we generally compete favorably with respect to
each of these elements.
INTELLECTUAL
PROPERTY
We maintain an active program to protect and derive value from
our investment in technology and the associated intellectual
property rights. Intellectual property rights that apply to our
various products and services include patents, copyrights, trade
secrets and trademarks. We have filed and obtained a number of
patents in the U.S. and abroad the duration of which varies
depending on the jurisdiction in which the patent is filed.
While our patents are an important element of our intellectual
property strategy, as a whole, we are not materially dependent
on any one patent or any one technology. We expect to continue
to file patent applications when appropriate to protect our
proprietary technologies, but we cannot assure you that we will
receive patents from pending or future applications. In
addition, any patents we obtain may be challenged, invalidated
or circumvented and may not provide meaningful protection or
other commercial advantage to us.
We also protect certain details about our processes, products
and strategies as trade secrets, maintaining the confidentiality
of the information we believe provides us with a competitive
advantage. We have ongoing programs
14
designed to maintain the confidentiality of such information.
Further, to distinguish our products from our competitors
products, we have obtained certain trademarks and service marks.
We have promoted and will continue to promote our particular
brands through advertising and other marketing techniques.
EMPLOYEES
As of December 31, 2010, we had 19,900 full-time
employees. Of the total employee population, 14,700 were engaged
in manufacturing services, 3,100 were engaged in manufacturing
support, 400 were engaged in research and development, 200 were
engaged in marketing and sales and 1,500 were engaged in
administration, business management and finance. We believe that
our relations with our employees are good, and we have never
experienced a work stoppage in any of our factories. Our
employees in China, France, the Philippines, Taiwan and the
U.S. are not represented by any union. Certain employees in
our factories in Japan and Korea are members of a union, and
those that are members of a union are subject to collective
bargaining agreements.
The factors discussed below are cautionary statements that
identify important factors and risks that could cause actual
results to differ materially from those anticipated by the
forward-looking statements contained in this report. For more
information regarding the forward-looking statements contained
in this report, see the introductory paragraph to Part II,
Item 7 of this Annual Report. You should carefully consider
the risks and uncertainties described below, together with all
of the other information included in this report, in considering
our business and prospects. The risks and uncertainties
described below are not the only ones facing Amkor. Additional
risks and uncertainties not presently known to us may also
impair our business operations. The occurrence of any of the
following risks could affect our business, liquidity, results of
operations, financial condition or cash flows.
Dependence
on the Highly Cyclical Semiconductor and Electronic Products
Industries We Operate in Volatile Industries and
Industry Downturns and Declines in Global Economic and Financial
Conditions Could Harm Our Performance.
Our business is impacted by market conditions in the
semiconductor industry, which is cyclical by nature and impacted
by broad economic factors, such as world-wide gross domestic
product and consumer spending. The semiconductor industry has
experienced significant and sometimes prolonged downturns in the
past. For example, the recent financial crisis and global
recession resulted in a downturn in the semiconductor industry
that adversely affected our business and results of operations
in late 2008 and in 2009.
Since our business is, and will continue to be, dependent on the
requirements of semiconductor companies for subcontracted
packaging and test services, any downturn in the semiconductor
industry or any other industry that uses a significant number of
semiconductor devices, such as consumer electronic products,
telecommunication devices, or computing devices, could have a
material adverse effect on our business and operating results.
It is difficult to predict the timing, strength or duration of
any economic slowdown or subsequent economic recovery, which, in
turn, makes it more challenging for us to forecast our operating
results, make business decisions, and identify risks that may
affect our business, sources and uses of cash, financial
condition and results of operations. Additionally, if industry
conditions deteriorate, we could suffer significant losses, as
we have in the past, which could materially impact our business,
liquidity, results of operations, financial condition and cash
flows.
Fluctuations
in Operating Results and Cash Flows Our Operating
Results and Cash Flows Have Varied and May Vary Significantly as
a Result of Factors That We Cannot Control.
Many factors, including the impact of adverse economic
conditions, could have a material adverse effect on our net
sales, gross profit, operating results and cash flows, or lead
to significant variability of quarterly or annual operating
results. Our profitability and ability to generate cash from
operations is principally dependent upon demand for
semiconductors, the utilization of our capacity, semiconductor
package mix, the average selling price of our services, our
ability to manage our capital expenditures in response to market
conditions and our ability to control our costs including labor,
material, overhead and financing costs. The recent downturn in
demand for
15
semiconductors in late 2008 and in 2009 resulted in significant
declines in our operating results and cash flows as capacity
utilization declined.
Our operating results and cash flows have varied significantly
from period to period. Our net sales, gross profit, operating
income and cash flows have historically fluctuated significantly
as a result of many of the following factors, over which we have
little or no control and which we expect to continue to impact
our business:
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fluctuation in demand for semiconductors and conditions in the
semiconductor industry;
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changes in our capacity utilization rates;
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changes in average selling prices;
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changes in the mix of semiconductor packages;
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evolving package and test technology;
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absence of backlog and the short-term nature of our
customers commitments and the impact of these factors on
the timing and volume of orders relative to our production
capacity;
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changes in costs, availability and delivery times of raw
materials and components;
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changes in labor costs to perform our services;
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wage and commodity price inflation, including precious metals;
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the timing of expenditures in anticipation of future orders;
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changes in effective tax rates;
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the availability and cost of financing;
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intellectual property transactions and disputes;
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high leverage and restrictive covenants;
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warranty and product liability claims and the impact of quality
excursions and customer disputes and returns;
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costs associated with litigation judgments, indemnification
claims and settlements;
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international events, political instability, civil disturbances
or environmental or natural events, such as earthquakes, that
impact our operations;
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pandemic illnesses that may impact our labor force and our
ability to travel;
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difficulties integrating acquisitions and the failure of our
joint ventures to operate in accordance with business plans;
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our ability to attract and retain qualified employees to support
our global operations;
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loss of key personnel or the shortage of available skilled
workers;
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fluctuations in foreign exchange rates;
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delay, rescheduling and cancellation of large orders; and
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fluctuations in our manufacturing yields.
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It is often difficult to predict the impact of these factors
upon our results for a particular period. The downturn in the
global economy and the semiconductor industry increased the
risks associated with the foregoing factors as customer
forecasts became more volatile, and there was less visibility
regarding future demand and significantly increased uncertainty
regarding the economy, credit markets, and consumer demand.
These factors may have a material and adverse effect on our
business, liquidity, results of operations, financial condition
and cash flows, or lead to significant variability of quarterly
or annual operating results. In addition, these factors may
adversely affect
16
our credit ratings which could make it more difficult and
expensive for us to raise capital and could adversely affect the
price of our securities.
High
Fixed Costs Due to Our High Percentage of Fixed
Costs, We Will Be Unable to Maintain Our Gross Margin at Past
Levels if We Are Unable to Achieve Relatively High Capacity
Utilization Rates.
Our operations are characterized by relatively high fixed costs.
Our profitability depends in part not only on pricing levels for
our packaging and test services, but also on the utilization of
our human resources and packaging and test equipment. In
particular, increases or decreases in our capacity utilization
can significantly affect gross margins since the unit cost of
packaging and test services generally decreases as fixed costs
are allocated over a larger number of units. In periods of low
demand, we experience relatively low capacity utilization in our
operations, which lead to reduced margins during that period.
For example, we experienced lower than optimum utilization in
the three months ended December 31, 2008 and the first half
of 2009 due to a decline in world-wide demand for our packaging
and test services which impacted our gross margin. Although our
capacity utilization at times has been strong, we cannot assure
you that we will be able to achieve consistently high capacity
utilization, and if we fail to do so, our gross margins may
decrease. If our gross margins decrease, our business,
liquidity, results of operations, financial condition and cash
flows could be materially and adversely affected.
In addition, our fixed operating costs have increased in recent
years in part as a result of our efforts to expand our capacity
through significant capital additions. Forecasted customer
demand for which we have made capital investments may not
materialize, especially if industry conditions deteriorate. As a
result, our sales may not adequately cover our substantial fixed
costs resulting in reduced profit levels or causing significant
losses, both of which may adversely impact our liquidity,
results of operations, financial condition and cash flows.
Guidance
Our Failure to Meet Our Guidance or Analyst Projections Could
Adversely Impact the Trading Prices of Our
Securities.
We periodically provide guidance to investors with respect to
certain financial information for future periods. Securities
analysts also periodically publish their own projections with
respect to our future operating results. As discussed above
under Fluctuations in Operating Results and Cash
Flows Our Operating Results and Cash Flows Have
Varied and May Vary Significantly as a Result of Factors That We
Cannot Control, our operating results and cash flows vary
significantly and are difficult to accurately predict.
Volatility in customer forecasts and reduced visibility caused
by economic uncertainty and fluctuations in global consumer
demand make it particularly difficult to predict future results.
To the extent we fail to meet or exceed our own guidance or the
analyst projections for any reason, the trading prices of our
securities may be adversely impacted. Moreover, even if we do
meet or exceed that guidance or those projections, the analysts
and investors may not react favorably, and the trading prices of
our securities may be adversely impacted.
Declining
Average Selling Prices The Semiconductor Industry
Places Downward Pressure on the Prices of Our Packaging and Test
Services.
Prices for packaging and test services have generally declined
over time. Historically, we have been able to partially offset
the effect of price declines by successfully developing and
marketing new packages with higher prices, such as advanced
leadframe and laminate packages, by negotiating lower prices
with our material vendors, recovering material cost increases
from our customers, and by driving engineering and technological
changes in our packaging and test processes which resulted in
reduced manufacturing costs. We expect general downward pressure
on average selling prices for our packaging and test services in
the future. If we are unable to offset a decline in average
selling prices, by developing and marketing new packages with
higher prices, reducing our purchasing costs, recovering more of
our material cost increases from our customers and reducing our
manufacturing costs, our business, liquidity, results of
operations, financial condition and cash flows could be
materially adversely affected.
17
Decisions
by Our Integrated Device Manufacturer Customers to Curtail
Outsourcing May Adversely Affect Our Business.
Historically, we have been dependent on the trend in outsourcing
of packaging and test services by integrated device
manufacturers, or IDMs. Our IDM customers continually evaluate
the outsourced services against their own in-house packaging and
test services. As a result, at any time and for a variety of
reasons, IDMs may decide to shift some or all of their
outsourced packaging and test services to internally sourced
capacity.
The reasons IDMs may shift their internal capacity include:
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their desire to realize higher utilization of their existing
test and packaging capacity, especially during downturns in the
semiconductor industry;
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their unwillingness to disclose proprietary technology;
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their possession of more advanced packaging and test
technologies; and
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the guaranteed availability of their own packaging and test
capacity.
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Furthermore, to the extent we limit capacity commitments for
certain customers, these customers may begin to increase their
level of in-house packaging and test capabilities, which could
adversely impact our sales and profitability and make it more
difficult for us to regain their business when we have available
capacity. Any shift or a slowdown in this trend of outsourcing
packaging and test services is likely to adversely affect our
business, liquidity, results of operations, financial condition
and cash flows.
In a downturn in the semiconductor industry, IDMs could respond
by shifting some outsourced packaging and test services to
internally serviced capacity on a short term basis. If we
experience a significant loss of IDM business, it could have a
material adverse effect on our business, liquidity, results of
operations, financial condition and cash flows especially during
a prolonged industry downturn.
Our
Substantial Indebtedness Could Adversely Affect Our Financial
Condition and Prevent Us from Fulfilling Our
Obligations.
We have a significant amount of indebtedness. As of
December 31, 2010, our total debt balance was
$1,364.3 million, of which $150.1 million was
classified as a current liability. In addition, despite current
debt levels, the terms of the indentures governing our
indebtedness allow us or our subsidiaries to incur more debt,
subject to certain limitations. If new debt is added to our
consolidated debt level, the related risks that we now face
could intensify.
Our substantial indebtedness could:
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make it more difficult for us to satisfy our obligations with
respect to our indebtedness, including our obligations under our
indentures to purchase notes tendered as a result of a change in
control of Amkor;
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increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to fund future working capital, capital
expenditures, research and development and other general
corporate requirements;
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require us to dedicate a substantial portion of our cash flow
from operations to service payments on our debt;
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increase the volatility of the price of our common stock;
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limit our flexibility to react to changes in our business and
the industry in which we operate;
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place us at a competitive disadvantage to any of our competitors
that have less debt; and
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limit, along with the financial and other restrictive covenants
in our indebtedness, among other things, our ability to borrow
additional funds.
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18
We May
Have Difficulty Funding Liquidity Needs
We operate in a capital intensive industry. Servicing our
current and future customers requires that we incur significant
operating expenses and continue to make significant capital
expenditures, which are generally made in advance of the related
revenues and without any firm customer commitments. During 2010,
we had capital additions of $504.5 million and in 2011, we
currently expect to make capital additions of approximately
$500 million.
In addition, we have a significant level of debt, with
$1,364.3 million outstanding at December 31, 2010,
$150.1 million of which is current. The terms of such debt
require significant scheduled principal payments in the coming
years, including $150.1 million due in 2011,
$82.1 million due in 2012, $236.1 million due in 2013,
$281.6 million due in 2014, $5.1 million due in 2015
and $609.3 million due thereafter. The interest payments
required on our debt are also substantial. For example, in 2010,
we paid $96.6 million of interest. The sources funding our
operations, including making capital expenditures and servicing
principal and interest obligations with respect to our debt, are
cash flows from our operations, current cash and cash
equivalents, borrowings under available debt facilities, or
proceeds from any additional debt or equity financing. As of
December 31, 2010, we had cash and cash equivalents of
$405.0 million and availability of $99.6 million under
our $100.0 million senior secured revolving credit facility
which matures in April 2015.
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 will be sufficient to fund our working
capital, capital expenditure and debt service requirements for
at least the next twelve months. Thereafter, our liquidity will
continue to be affected by, among other things, the performance
of our business, our capital expenditure levels and our ability
to repay debt out of our operating cash flow or refinance the
debt with the proceeds of debt or equity offerings at or prior
to maturity. Moreover, the health of the worldwide banking
system and financial markets affects the liquidity in the global
economic environment. Volatility in fixed income, credit and
equity markets could make it difficult for us to maintain our
existing credit facilities or refinance our debt. If our
performance or access to the capital markets differs materially
from our expectations, our liquidity may be adversely impacted.
In addition, if we fail to 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 this Risk Factors
section, our liquidity would be adversely affected.
Our
Ability To Draw On Our Current Loan Facilities May Be Adversely
Affected by Conditions in the U.S. and International Capital
Markets.
If financial institutions that have extended credit commitments
to us are adversely affected by the conditions of the
U.S. and international capital and credit markets, they may
be unable to fund borrowings under their credit commitments to
us. For example, we currently have a $100.0 million
revolving credit facility with three banks in the U.S. If
any of these banks are adversely affected by capital and credit
market conditions and are unable to make loans to us when
requested, there could be a corresponding adverse impact on our
financial condition and our ability to borrow additional funds,
if needed, for working capital, capital expenditures,
acquisitions, research and development and other corporate
purposes.
Restrictive
Covenants in the Indentures and Agreements Governing Our Current
and Future Indebtedness Could Restrict Our Operating
Flexibility.
The indentures and agreements governing our existing debt, and
debt we may incur in the future, contain, or may contain,
affirmative and negative covenants that materially limit our
ability to take certain actions, including our ability to incur
debt, pay dividends and repurchase stock, make certain
investments and other payments, enter into certain mergers and
consolidations, engage in sale leaseback transactions and
encumber and dispose of assets. The $671.1 million
write-off of our goodwill at December 31, 2008 reduced our
ability to pay dividends and repurchase stock and subordinated
securities, including our convertible notes, due to defined
calculations which include net income. In addition, our future
debt agreements may contain financial covenants and ratios.
19
The breach of any of these covenants by us or the failure by us
to meet any of these financial ratios or conditions could result
in a default under any or all of such indebtedness. If a default
occurs under any such indebtedness, all of the outstanding
obligations thereunder could become immediately due and payable,
which could result in a default under our other outstanding debt
and could lead to an acceleration of obligations related to
other outstanding debt. The existence of such a default or event
of default could also preclude us from borrowing funds under our
revolving credit facilities. Our ability to comply with the
provisions of the indentures, credit facilities and other
agreements governing our outstanding debt and indebtedness we
may incur in the future can be affected by events beyond our
control and a default under any debt instrument, if not cured or
waived, could have a material adverse effect on us.
We
Have Significant Severance Plan Obligations Associated With Our
Manufacturing Operations in Korea Which Could Reduce Our Cash
Flow and Negatively Impact Our Financial
Condition.
We sponsor an accrued severance plan for our Korean subsidiary,
under which we have an accrued liability of $88.6 million
as of December 31, 2010. Under the Korean plan, eligible
employees are entitled to receive a lump sum payment upon
termination of their service based on their length of service,
seniority and rate of pay at the time of termination. Since our
severance plan obligation is significant, in the event of a
significant layoff or other reduction in our labor force in
Korea, payments under the plan could have a material adverse
effect on our liquidity, financial condition and cash flows. In
addition, existing tax laws in Korea limit our ability to
currently deduct severance expenses associated with the current
plan. These limitations are designed to encourage companies to
migrate to a defined contribution or defined benefit plan. If we
adopt a new plan retrospectively, we would be required to
significantly fund the existing liability, which could have a
material adverse effect on our liquidity, financial condition
and cash flows. If we do not adopt a new plan, we will have to
pay higher taxes which could adversely affect our liquidity,
financial condition and cash flows. See Note 13 to our
Consolidated Financial Statements in Part II, Item 8
to this Annual Report.
If We
Fail to Maintain an Effective System of Internal Controls, We
May Not be Able to Accurately Report Financial Results or
Prevent Fraud.
Effective internal controls are necessary to provide reliable
financial reports and to assist in the effective prevention of
fraud. Any inability to provide reliable financial reports or
prevent fraud could harm our business. We must annually evaluate
our internal procedures to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, which
requires management and our independent registered public
accounting firm to assess the effectiveness of internal control
over financial reporting.
As previously reported, we are implementing a new enterprise
resource planning (ERP) system in a multi-year
program on a world-wide basis. During 2010, we implemented
several significant ERP modules and expect to implement
additional ERP modules in the future. The implementation of the
ERP system represents a change in our internal control over
financial reporting. Although we continue to monitor and assess
our internal controls in the new ERP system environment as
changes are made and new modules are implemented, and have taken
additional steps to modify and enhance the design and
effectiveness of our internal control over financial reporting,
there is a risk that deficiencies may occur that could
constitute significant deficiencies or in the aggregate a
material weakness.
If we fail to remedy any deficiencies or maintain the adequacy
of our internal controls, we could be subject to regulatory
scrutiny, civil or criminal penalties or shareholder litigation.
In addition, failure to maintain adequate internal controls
could result in financial statements that do not accurately
reflect our operating results or financial condition.
We
Face Product Return and Liability Risks, the Risk of Economic
Damage Claims and the Risk of Negative Publicity if Our Packages
Fail.
Our packages are incorporated into a number of end products, and
our business is exposed to product return and liability risks,
the risk of economic damage claims and the risk of negative
publicity if our packages fail.
20
In addition, we are exposed to the product and economic
liability risks and the risk of negative publicity affecting our
customers. Our sales may decline if any of our customers are
sued on a product liability claim. We also may suffer a decline
in sales from the negative publicity associated with such a
lawsuit or with adverse public perceptions in general regarding
our customers products. Further, if our packages are
delivered with impurities or defects, we could incur additional
development, repair or replacement costs, suffer other economic
losses and our credibility and the markets acceptance of
our packages could be harmed.
Absence
of Backlog The Lack of Contractually Committed
Customer Demand May Adversely Affect Our Sales.
Our packaging and test business does not typically operate with
any material backlog. Our quarterly net sales from packaging and
test services are substantially dependent upon our
customers demand in that quarter. None of our customers
have committed to purchase any significant amount of packaging
or test services or to provide us with binding forecasts of
demand for packaging and test services for any future period, in
any material amount. In addition, our customers often reduce,
cancel or delay their purchases of packaging and test services
for a variety of reasons including industry-wide,
customer-specific and Amkor-related reasons. Since a large
portion of our costs is fixed and our expense levels are based
in part on our expectations of future revenues, we may not be
able to adjust costs in a timely manner to compensate for any
sales shortfall. If we are unable to do so, it would adversely
affect our margins, operating results, financial condition and
cash flows. If the decline in customer demand continues, our
business, liquidity, results of operations, financial condition
and cash flows will be materially and adversely affected.
Risks
Associated With International Operations We Depend
on Our Factories and Operations in China, Japan, Korea, the
Philippines and Taiwan. Many of Our Customers and
Vendors Operations Are Also Located Outside of the
U.S.
We provide packaging and test services through our factories and
other operations located in China, Japan, Korea, the Philippines
and Taiwan. Substantially all of our property, plant and
equipment is located outside of the United States. Moreover,
many of our customers and vendors operations are
located outside the U.S. The following are some of the
risks we face in doing business internationally:
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changes in consumer demand resulting from deteriorating
conditions in local economies;
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regulatory limitations imposed by foreign governments, including
limitations or taxes imposed on the payment of dividends and
other payments by
non-U.S. subsidiaries;
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fluctuations in currency exchange rates;
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political, military, civil unrest and terrorist risks,
particularly an increase in tensions between South Korea and
North Korea;
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disruptions or delays in shipments caused by customs brokers or
government agencies;
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changes in regulatory requirements, tariffs, customs, duties and
other restrictive trade barriers or policies;
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difficulties in staffing, retention and employee turnover and
managing foreign operations, including foreign labor
disruptions; and
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potentially adverse tax consequences resulting from changes in
tax laws in the foreign jurisdictions in which we operate.
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Changes
in the U.S. Tax Law Regarding Earnings Of Our Subsidiaries
Located Outside the U.S. Could Materially Affect Our Future
Results.
There have been proposals to change U.S. tax laws that
would significantly impact how U.S. corporations are taxed
on foreign earnings. We earn a substantial portion of our income
in foreign countries. Although we cannot predict whether or in
what form this proposed legislation will pass, if enacted it
could have a material adverse impact on our liquidity, results
of operations, financial condition and cash flows.
21
Our
Management Information Systems May Prove Inadequate
We Face Risks in Connection With Our Current Project to Install
a New Enterprise Resource Planning System For Our
Business.
We depend on our management information systems for many aspects
of our business. Some of our key software has been developed by
our own programmers, and this software may not be easily
integrated with other software and systems. We are making a
significant investment to implement a new enterprise resource
planning system to replace many of our existing systems. We face
risks in connection with our current project to install a new
enterprise resource system for our business. These risks include:
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we may face delays in the design and implementation of the
system;
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the cost of the system may exceed our plans and
expectations; and
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disruptions resulting from the implementation of the system may
impact our ability to process transactions and delay shipments
to customers, impact our results of operations or financial
condition, or harm our control environment.
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Our business could be materially and adversely affected if our
management information systems are disrupted or if we are unable
to improve, upgrade, integrate or expand upon our systems,
particularly in light of our intention to continue to implement
a new enterprise resource planning system over a multi-year
program on a company-wide basis.
We
Face Risks Trying to Attract and Retain Qualified Employees to
Support Our Operations.
Our success depends to a significant extent upon the continued
service of our key senior management and technical personnel,
any of whom may be difficult to replace. Competition for
qualified employees is intense, and our business could be
adversely affected by the loss of the services of any of our
existing key personnel, including senior management, as a result
of competition or for any other reason. We evaluate our
management team and engage in long-term succession planning in
order to ensure orderly replacement of key personnel. We do not
have employment agreements with our key employees, including
senior management or other contracts that would prevent our key
employees from working for our competitors in the event they
cease working for us. We cannot assure you that we will be
successful in our efforts to retain key employees or in hiring
and properly training sufficient numbers of qualified personnel
and in effectively managing our growth. Our inability to
attract, retain, motivate and train qualified new personnel
could have a material adverse effect on our business.
Difficulties
Consolidating and Evolving Our Operational
Capabilities We Face Challenges as We Integrate
Diverse Operations.
We have experienced, and expect to continue to experience,
change in the scope and complexity of our operations primarily
through facility consolidations, strategic acquisitions, joint
ventures and other partnering arrangements and may continue to
engage in such transactions in the future. For example, each
business we have acquired had, at the time of acquisition,
multiple systems for managing its own production, sales,
inventory and other operations. Migrating these businesses to
our systems typically is a slow, expensive process requiring us
to divert significant amounts of resources from multiple aspects
of our operations. These changes have strained our managerial,
financial, plant operations and other resources. Future
consolidations and expansions may result in inefficiencies as we
integrate operations and manage geographically diverse
operations.
Dependence
on Materials and Equipment Suppliers Our Business
May Suffer If the Cost, Quality or Supply of Materials or
Equipment Changes Adversely.
We obtain from various vendors the materials and equipment
required for the packaging and test services performed by our
factories. We source most of our materials, including critical
materials such as leadframes, laminate substrates and gold wire,
from a limited group of suppliers. Furthermore, we purchase the
majority of our materials on a purchase order basis. From time
to time, we enter into supply agreements, generally up to one
year in duration, to guarantee supply to meet projected demand.
Our business may be harmed if we cannot obtain materials and
other supplies from our vendors in a timely manner, in
sufficient quantities, in acceptable quality or at competitive
prices.
22
We purchase new packaging and test equipment to maintain and
expand our operations. From time to time, increased demand for
new equipment may cause lead times to extend beyond those
normally required by equipment vendors. For example, in the
past, increased demand for equipment caused some equipment
suppliers to only partially satisfy our equipment orders in the
normal time frame or to increase prices during market upturns
for the semiconductor industry. The unavailability of equipment
or failures to deliver equipment could delay or impair our
ability to meet customer orders. If we are unable to meet
customer orders, we could lose potential and existing customers.
Generally, we do not enter into binding, long-term equipment
purchase agreements and we acquire our equipment on a purchase
order basis, which exposes us to substantial risks. For example,
changes in foreign currency exchange rates could result in
increased prices for equipment purchased by us, which could have
a material adverse effect on our results of operations.
We are a large buyer of gold and other commodity materials
including substrates and copper. The prices of gold and other
commodities used in our business fluctuate. Historically, we
have been able to partially offset the effect of commodity price
increases through price adjustments to some customers and
changes in our product designs, such as shorter, thinner, gold
wire and migration to copper wire. However, we typically do not
have long-term contracts that permit us to impose a price
adjustment, and market conditions may limit our ability to do
so. Significant price increases may adversely impact our gross
margin in future quarters to the extent we are unable to pass
along past or future commodity price increases to our customers.
Loss
of Customers The Loss of Certain Customers May Have
a Significant Adverse Effect on Our Operations and Financial
Results.
The loss of a large customer or disruption of our strategic
partnerships or other commercial arrangements may result in a
decline in our sales and profitability. Although we have
approximately 225 customers, we have derived and expect to
continue to derive a large portion of our revenues from a small
group of customers during any particular period due in part to
the concentration of market share in the semiconductor industry.
Our ten largest customers together accounted for approximately
54.2%, 53.4% and 49.8% of our net sales in the years ended
December 31, 2010, 2009 and 2008, respectively. No customer
accounted for greater than 10% of our sales during 2010 or 2008.
A single customer accounted for more than 10% of our sales
during the year ended December 31, 2009.
The demand for our services from each customer is directly
dependent upon that customers level of business activity,
which could vary significantly from year to year. The loss of a
large customer may adversely affect our sales and profitability.
Our key customers typically operate in the cyclical
semiconductor business and, in the past, order levels have
varied significantly from period to period based on a number of
factors. Our business is likely to remain subject to this
variability in order levels, and we cannot assure you that these
key customers or any other customers will continue to place
orders with us in the future at the same levels as in past
periods.
The loss of one or more of our significant customers, or reduced
orders by any one of them and our inability to replace these
customers or make up for such orders could reduce our
profitability. For example, our facility in Iwate, Japan, is
primarily dedicated to a single customer, Toshiba Corporation.
We have also invested in an unconsolidated affiliate, J-Devices
Corporation, for which Toshiba is the primary customer. If we
were to lose Toshiba as a customer or if it were to materially
reduce its business with us, it could be difficult for us to
find one or more new customers to utilize the capacity, which
could have a material adverse effect on our operations and
financial results. In addition, we have a long term supply
agreement that expires in December 2013 with International
Business Machines, or IBM. If we were to lose IBM as a customer,
this could have a material adverse effect on our business,
liquidity, results of operations, financial condition and cash
flows.
Capital
Additions We Make Substantial Capital Additions To
Support the Demand Of Our Customers, Which May Adversely Affect
Our Business If the Demand Of Our Customers Does Not Develop As
We Expect or Is Adversely Affected.
We make significant capital additions in order to service the
demand of our customers. The amount of capital additions depends
on several factors, including the performance of our business,
our assessment of future industry and customer demand, our
capacity utilization levels and availability, our liquidity
position and the availability of
23
financing. Our ongoing capital addition requirements may strain
our cash and short-term asset balances, and, in periods when we
are expanding our capital base, we expect that depreciation
expense and factory operating expenses associated with our
capital additions to increase production capacity will put
downward pressure on our gross margin, at least over the near
term.
Furthermore, if we cannot generate or raise additional funds to
pay for capital additions, particularly in some of the advanced
packaging and bumping areas, as well as research and development
activities, our growth prospects and future profitability may be
adversely affected. Our ability to obtain external financing in
the future is subject to a variety of uncertainties, including:
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our future financial condition, results of operations and cash
flows;
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general market conditions for financing activities by
semiconductor companies;
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volatility in fixed income, credit and equity markets; and
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economic, political and other global conditions.
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The lead time needed to order, install and put into service
various capital additions is often significant, and, as a
result, we often need to commit to capital additions in advance
of our receipt of firm orders or advance deposits based on our
view of anticipated future demand with only very limited
visibility. Although we seek to limit our exposure in this
regard, in the past we have from time to time expended
significant capital for additions for which the anticipated
demand did not materialize for a variety of reasons, many of
which were outside of our control. To the extent this occurs in
the future, our business, liquidity, results of operations,
financial condition and cash flows could be materially and
adversely affected.
In addition, during periods where customer demand exceeds our
capacity, customers may transfer some or all of their business
to other suppliers who are able to support their needs. To the
extent this occurs, our business, liquidity, results of
operations, financial condition and cash flows could be
materially and adversely affected.
Impairment
Charges Any Impairment Charges Required Under U.S.
GAAP May Have a Material Adverse Effect on Our Net
Income.
Under U.S. GAAP, we review our long-lived assets including
property, plant and equipment, intellectual property, and other
intangibles for impairment when events or changes in
circumstances indicate the carrying value may not be
recoverable. Factors we consider include significant
under-performance relative to expected historical or projected
future operating results, significant negative industry or
economic trends and our market capitalization relative to net
book value. We may be required in the future to record a
significant charge to earnings in our financial statements
during the period in which any impairment of our long-lived
assets is determined. Such charges have had and could have a
significant adverse impact on our results of operations and our
operating flexibility under our debt covenants.
Litigation
Incident to Our Business Could Adversely Affect
Us.
We have been a party to various legal proceedings, including
those described in Note 15 to the Consolidated Financial
Statements in Part II, Item 8 of this Annual Report,
and may be a party to litigation in the future. If an
unfavorable ruling or outcome were to occur in this or future
litigation, there could be a material adverse impact on our
business, liquidity, results of operations, financial condition,
cash flows and the trading price of our securities.
We
Could Suffer Adverse Tax and Other Financial Consequences if
Taxing Authorities Do Not Agree with Our Interpretation of
Applicable Tax Laws.
Our corporate structure and operations are based, in part, on
interpretations of various tax laws, including withholding tax,
compliance with tax holiday requirements, application of changes
in tax law to our operations and other relevant laws of
applicable taxing jurisdictions. From time to time, the taxing
authorities of the relevant jurisdictions may conduct
examinations of our income tax returns and other regulatory
filings. We cannot assure you that the taxing authorities will
agree with our interpretations. To the extent they do not agree,
we may seek to enter into settlements with the taxing
authorities which require significant payments or otherwise
adversely affect
24
our results of operations or financial condition. We may also
appeal the taxing authorities determinations to the
appropriate governmental authorities, but we cannot be sure we
will prevail. If we do not prevail, we may have to make
significant payments or otherwise record charges (or reduce tax
assets) that adversely affect our results of operations,
financial condition and cash flows.
Intellectual
Property Our Business Will Suffer if We Are Not Able
to Develop New Proprietary Technology, Protect Our Proprietary
Technology and Operate Without Infringing the Proprietary Rights
of Others.
The complexity and breadth of semiconductor packaging and test
services are rapidly increasing. As a result, we expect that we
will need to develop, acquire and implement new manufacturing
processes and package design technologies and tools in order to
respond to competitive industry conditions and customer
requirements. Technological advances also typically lead to
rapid and significant price erosion and may make our existing
packages less competitive or our existing inventories obsolete.
If we cannot achieve advances in package design or obtain access
to advanced package designs developed by others, our business
could suffer.
The need to develop and maintain advanced packaging capabilities
and equipment could require significant research and development
and capital expenditures and acquisitions in future years. In
addition, converting to new package designs or process
methodologies could result in delays in producing new package
types, which could adversely affect our ability to meet customer
orders and adversely impact our business.
We maintain an active program to protect and derive value from
our investment in technology and the associated intellectual
property rights. Intellectual property rights that apply to our
various packages and services include patents, copyrights, trade
secrets and trademarks. We have filed for and have obtained a
number of patents in the U.S. and abroad the duration of
which varies depending on the jurisdiction in which the patent
was filed. While our patents are an important element of our
intellectual property strategy, as a whole, we are not
materially dependent on any one patent or any one technology.
The process of seeking patent protection takes a long time and
is expensive. There can be no assurance that patents will issue
from pending or future applications or that, if patents are
issued, the rights granted under the patents will provide us
with meaningful protection or any commercial advantage. Any
patents we do obtain may be challenged, invalidated or
circumvented and may not provide meaningful protection or other
commercial advantage to us.
Some of our technologies are not covered by any patent or patent
application. The confidentiality agreements on which we rely to
protect these technologies may be breached and may not be
adequate to protect our proprietary technologies. There can be
no assurance that other countries in which we market our
services will protect our intellectual property rights to the
same extent as the U.S.
Our competitors may develop, patent or gain access to know-how
and technology similar to our own. In addition, many of our
patents are subject to cross licenses, several of which are with
our competitors.
The semiconductor industry is characterized by frequent claims
regarding patent and other intellectual property rights. If any
third party makes an enforceable infringement claim against us
or our customers, we could be required to:
|
|
|
|
|
discontinue the use of certain processes;
|
|
|
|
cease to provide the services at issue;
|
|
|
|
pay substantial damages;
|
|
|
|
develop non-infringing technologies; or
|
|
|
|
acquire licenses to the technology we had allegedly infringed.
|
We may need to enforce our patents or other intellectual
property rights, including our rights under patent and
intellectual property licenses with third parties, or defend
ourselves against claimed infringement of the rights of others
through litigation, which could result in substantial cost and
diversion of our resources. Furthermore, if we fail to obtain
necessary licenses, our business could suffer. We have been
involved in legal proceedings involving the acquisition and
license of intellectual property rights, the enforcement of our
existing intellectual property rights
25
or the enforcement of the intellectual property rights of
others, including the arbitration proceeding filed against
Tessera, Inc. and complaint filed and ongoing proceeding against
Carsem (M) Sdn Bhd, Carsem Semiconductor Sdn Bhd, and
Carsem Inc., or collectively Carsem, both of which
are described in more detail in Note 15 to the Consolidated
Financial Statements in Part II, Item 8 of this Annual
Report. Unfavorable outcomes in any litigation matters involving
intellectual property could result in significant liabilities
and could have a material adverse effect on our business,
liquidity, results of operations, financial condition and cash
flows. The potential impact from the legal proceedings referred
to in this Annual Report on our results of operations, financial
condition and cash flows could change in the future.
Packaging
and Test Packaging and Test Processes Are Complex
and Our Production Yields and Customer Relationships May Suffer
from Defects in the Services We Provide.
Semiconductor packaging and test services are complex processes
that require significant technological and process expertise.
The packaging process is complex and involves a number of
precise steps. Defective packages primarily result from:
|
|
|
|
|
contaminants in the manufacturing environment;
|
|
|
|
human error;
|
|
|
|
equipment malfunction;
|
|
|
|
changing processes to address environmental requirements;
|
|
|
|
defective raw materials; or
|
|
|
|
defective plating services.
|
Testing is also complex and involves sophisticated equipment and
software. Similar to most software programs, these software
programs are complex and may contain programming errors or
bugs. The testing equipment is also subject to
malfunction. In addition, the testing process is subject to
operator error.
These and other factors have, from time to time, contributed to
lower production yields. They may also do so in the future,
particularly as we adjust our capacity or change our processing
steps. In addition, we must continue to expand our offering of
packages to be competitive. Our production yields on new
packages typically are significantly lower than our production
yields on our more established packages.
Our failure to maintain high standards or acceptable production
yields, if significant and prolonged, could result in loss of
customers, increased costs of production, delays, substantial
amounts of returned goods and claims by customers relating
thereto. Any of these problems could have a material adverse
effect on our business, liquidity, results of operations,
financial condition and cash flows.
In addition, in line with industry practice, new customers
usually require us to pass a lengthy and rigorous qualification
process that may take several months. If we fail to qualify
packages with potential customers or customers, our business,
results of operations, financial condition and cash flows could
be adversely affected.
Competition
We Compete Against Established Competitors in the Packaging and
Test Business as Well as Internal Customer
Capabilities.
The subcontracted semiconductor packaging and test market is
very competitive. We face substantial competition from
established packaging and test service providers primarily
located in Asia, including companies with significant processing
capacity, financial resources, research and development
operations, marketing and other capabilities. These companies
also have established relationships with many large
semiconductor companies that are our current or potential
customers. We also face competition from the internal
capabilities and capacity of many of our current and potential
IDM customers. In addition, we may in the future have to compete
with companies (including semiconductor foundries) that may
enter the market or offer new or emerging technologies that
compete with our packages and services.
26
We cannot assure you that we will be able to compete
successfully in the future against our existing or potential
competitors or that our customers will not rely on internal
sources for packaging and test services, or that our business,
liquidity, results of operations, financial condition and cash
flows will not be adversely affected by such increased
competition.
Environmental
Regulations Future Environmental Regulations Could
Place Additional Burdens on Our Manufacturing
Operations.
The semiconductor packaging process uses chemicals, materials
and gases and generates by products that are subject to
extensive governmental regulations. For example, at our foreign
facilities we produce liquid waste when semiconductor wafers are
diced into chips with the aid of diamond saws, then cooled with
running water. In addition, semiconductor packages have
historically utilized metallic alloys containing lead (Pb)
within the interconnect terminals typically referred to as
leads, pins or balls. Federal, state and local laws and
regulations in the U.S., as well as environmental laws and
regulations in foreign jurisdictions, impose various controls on
the storage, handling, discharge and disposal of chemicals used
in our production processes and on the factories we occupy and
are increasingly imposing restrictions on the materials
contained in semiconductor products. We may become liable under
environmental laws for the cost of cleanup of any disposal or
release of hazardous materials arising out of our former or
current operations, or otherwise as a result of the existence of
hazardous materials on our properties. In such an event, we
could be held liable for damages, including fines, penalties and
the cost of investigations and remedial actions, and could also
be subject to revocation of permits negatively affecting our
operations.
Public attention has focused on the environmental impact of
semiconductor operations and the risk to neighbors of chemical
releases from such operations and to the materials contained in
semiconductor products. For example, the European Unions
Restriction of Use of Certain Hazardous Substances in Electrical
and Electronic Equipment Directive imposes strict restrictions
on the use of lead and other hazardous substances in electrical
and electronic equipment. In response to this directive, and
similar laws and developing legislation in countries like China,
Japan and Korea, we have implemented changes in a number of our
manufacturing processes in an effort to achieve compliance
across all of our package types. Complying with existing and
possible future environmental laws and regulations, including
laws and regulations relating to climate change, may impose upon
us the need for additional capital equipment or other process
requirements, restrict our ability to expand our operations,
disrupt our operations, increase costs, subject us to liability
or cause us to curtail our operations.
Fire,
Flood or Other Calamity With Our Operations
Conducted in a Limited Number of Facilities, a Fire, Flood or
Other Calamity at one of Our Facilities Could Adversely Affect
Us.
We conduct our packaging and test operations at a limited number
of facilities. Significant damage or other impediments to any of
these facilities, whether as a result of fire, weather, the
outbreak of infectious diseases (such as SARs or flu), civil
strife, industrial strikes, breakdowns of equipment,
difficulties or delays in obtaining materials and equipment,
natural disasters, terrorist incidents, industrial accidents or
other causes could temporarily disrupt or even shut down our
operations, which would have a material adverse effect on our
business, financial condition and results of operations. In the
event of such a disruption or shutdown, we may be unable to
reallocate production to other facilities in a timely or
cost-effective manner (if at all) and may not have sufficient
capacity to service customer demands in our other facilities.
For example, our operations in Asia are vulnerable to regional
typhoons that can bring with them destructive winds and
torrential rains, which could in turn cause plant closures and
transportation interruptions. In addition, some of the processes
that we utilize in our operations place us at risk of fire and
other damage. For example, highly flammable gases are used in
the preparation of wafers holding semiconductor devices for flip
chip packaging. While we maintain insurance policies for various
types of property, casualty and other risks, we do not carry
insurance for all the above referred risks and with regard to
the insurance we do maintain, we cannot assure you that it would
be sufficient to cover all of our potential losses.
27
Continued
Control By Existing Stockholders Mr. James J.
Kim and Members of His Family Can
Substantially Control The Outcome of All Matters Requiring
Stockholder Approval.
As of February 24, 2011, Mr. James J. Kim, our
Executive Chairman of the Board of Directors, members of
Mr. Kims immediate family and affiliates owned
approximately 87,899,000 shares, or approximately 44%, of
our outstanding common stock. Approximately 13,351,000 of these
shares (the 2013 Convert Shares) were acquired upon
the conversion in January 2011 of all $100.0 million of our
6.25% Convertible Subordinated Notes due 2013. The Kim
family also has options to acquire approximately
903,000 shares and owns $150.0 million of our
6.0% Convertible Senior Subordinated Notes due 2014 (the
2014 Notes) that are convertible into approximately
49,595,000 shares of common stock (the 2014 Convert
Shares) at a conversion price of approximately $3.02 per
share. If the options are exercised and the 2014 Notes are
converted, the Kim family would own an aggregate of
approximately 138,397,000 shares, or approximately 56%, of
our outstanding common stock.
The 2013 Convert Shares and the 2014 Convert Shares are each
subject to separate voting agreements that require the Kim
family to vote these respective shares in a neutral
manner on all matters submitted to Amkor stockholders for
a vote, so that such 2013 Convert Shares and 2014 Convert Shares
are voted in the same proportion as all of the other outstanding
securities (excluding the other shares owned by the Kim family)
that are actually voted on a proposal submitted to Amkors
stockholders for approval. The Kim family is not required to
vote in a neutral manner any 2013 Convert Shares or
2014 Convert Shares that, when aggregated with all other voting
shares held by the Kim family, represent 41.6% or less of the
total then-outstanding voting shares of Amkor common stock. The
voting agreement for the 2013 Convert Shares terminates upon the
earliest of (i) December 1, 2013, (ii) at such
time as no principal amount of the 2013 Notes or any 2013
Convert Shares remain outstanding, (iii) a change of
control transaction (as defined in the voting agreement), or
(iv) the mutual agreement of the Kim family and Amkor. The
voting agreement for the 2014 Convert Shares terminates upon the
earliest of (i) such time as no principal amount of the
2014 Notes remains outstanding and the Kim family no longer
beneficially own any of the 2014 Convert Shares,
(ii) consummation of a change of control (as defined in the
voting agreement), or (iii) the mutual agreement of the Kim
family and Amkor.
Subject to the requirements imposed by the voting agreements
that the Kim family vote in a neutral manner any shares issued
upon conversion of their convertible notes, Mr. James J.
Kim and his family and affiliates, acting together, have the
ability to effectively determine matters (other than interested
party transactions) submitted for approval by our stockholders
by voting their shares, including the election of all of the
members of our Board of Directors. There is also the potential,
through the election of members of our Board of Directors, that
Mr. Kims family could substantially influence matters
decided upon by the Board of Directors. This concentration of
ownership may also have the effect of impeding a merger,
consolidation, takeover or other business consolidation
involving us, or discouraging a potential acquirer from making a
tender offer for our shares, and could also negatively affect
our stocks market price or decrease any premium over
market price that an acquirer might otherwise pay.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
28
We provide packaging and test services through our factories in
China, Japan, Korea, the Philippines, Taiwan and the
U.S. The size, location and manufacturing services provided
by each of our factories are set forth in the table below.
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
Factory Size
|
|
|
Location
|
|
(Square Feet)
|
|
Services
|
|
Korea
|
|
|
|
|
|
|
Seoul, Korea(1)
|
|
|
698,000
|
|
|
Packaging services; package and process development
|
Pupyong, Korea(1)
|
|
|
404,000
|
|
|
Packaging and test services
|
Gwangju, Korea(1)
|
|
|
1,007,000
|
|
|
Packaging and test services; wafer bump services
|
Philippines
|
|
|
|
|
|
|
Muntinlupa, Philippines(2)
|
|
|
749,000
|
|
|
Packaging and test services; package and process development
|
Province of Laguna, Philippines(2)
|
|
|
625,000
|
|
|
Packaging and test services
|
Taiwan
|
|
|
|
|
|
|
Lung Tan, Taiwan(1)
|
|
|
417,500
|
|
|
Packaging and test services; wafer bump services
|
Hsinchu, Taiwan(1)
|
|
|
426,000
|
|
|
Packaging and test services; wafer bump services
|
China
|
|
|
|
|
|
|
Shanghai, China(3)
|
|
|
953,000
|
|
|
Packaging and test services; wafer bump services
|
Japan
|
|
|
|
|
|
|
Kitakami, Japan(4)
|
|
|
211,000
|
|
|
Packaging and test services
|
United States
|
|
|
|
|
|
|
Chandler, AZ(5)
|
|
|
5,000
|
|
|
Test process development; package and process development
|
|
|
|
(1) |
|
Owned facility and land. |
|
(2) |
|
As a result of foreign ownership restrictions in the
Philippines, the land associated with our Philippine factories
is leased from realty companies in which we own a 40% interest.
We own buildings comprising 1,223,000 square feet and lease
the remaining 151,000 square feet from one of the
aforementioned realty companies. |
|
(3) |
|
We own buildings comprising 953,000 square feet, of which
approximately 530,000 square feet were facilitized with a
clean room manufacturing environment and equipment as of
December 31, 2010. All land is leased. During 2010, we
consolidated our China packaging and test services into one
facility and terminated the lease of our other facility. See
Note 18 to our Consolidated Financial Statements in
Part II, Item 8 of this Annual Report. |
|
(4) |
|
Leased facility. |
|
(5) |
|
Of the 5,000 square feet in the U.S., 2,000 square
feet is owned facility and land, and 3,000 square feet is
leased. |
We believe that our existing properties are in good condition
and suitable for the conduct of our business and that the
productive capacity of such properties is substantially being
utilized or we have plans to utilize it.
Our principal executive office and operational headquarters is
located in Chandler, Arizona. In addition to executive staff,
the Chandler, Arizona campus houses sales and customer service
for the southwest region, product management, finance,
information systems, planning and marketing. Our marketing and
sales office locations include sites in the U.S. (Chandler,
Arizona; Irvine, San Diego and Santa Clara,
California; Boston, Massachusetts; Greensboro, North Carolina;
and Dallas, Texas), China, France, Japan, Korea, the
Philippines, Singapore and Taiwan.
We also own a 165,000 square foot facility in Singapore
(land is leased) that is held for sale following the relocation
of operations to other locations in 2010. See Note 18 to
our Consolidated Financial Statements in Part II,
Item 8 of this Annual Report.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in various disputes and
litigation matters that arise in the ordinary course of our
business. These include disputes and lawsuits related to
intellectual property, acquisitions, licensing, contracts, tax,
regulatory, employee relations and other matters. For a
discussion of Legal Proceedings, see Note 15 to
our Consolidated Financial Statements in Part II,
Item 8 of this Annual Report.
29
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
LISTING
ON THE NASDAQ GLOBAL SELECT MARKET
Our common stock is traded on the NASDAQ Global Select Market
under the symbol AMKR. The following table sets
forth, for the periods indicated, the high and low sale prices
per share of our common stock as quoted on the NASDAQ Global
Select Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
7.55
|
|
|
$
|
5.47
|
|
Second Quarter
|
|
|
8.81
|
|
|
|
5.45
|
|
Third Quarter
|
|
|
6.80
|
|
|
|
5.05
|
|
Fourth Quarter
|
|
|
7.78
|
|
|
|
6.06
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
3.23
|
|
|
$
|
1.60
|
|
Second Quarter
|
|
|
5.02
|
|
|
|
2.55
|
|
Third Quarter
|
|
|
7.57
|
|
|
|
4.12
|
|
Fourth Quarter
|
|
|
7.70
|
|
|
|
5.33
|
|
There were approximately 331 holders of record of our common
stock as of January 31, 2011.
DIVIDEND
POLICY
Since our public offering in 1998, we have never paid a dividend
to our stockholders and we do not have any present plans for
doing so. In addition, our secured bank debt agreements and the
indentures governing our senior and senior subordinated notes
restrict our ability to pay dividends. Refer to the Liquidity
and Capital Resources Section in Item 7
Managements Discussion and Analysis.
RECENT
SALES OF UNREGISTERED SECURITIES
None.
EQUITY
COMPENSATION PLANS
The information required by this item regarding equity
compensation plans is set forth in Part III, Item 12
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters of this Annual
Report on
Form 10-K.
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
None.
30
PERFORMANCE
GRAPH(1)
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
Amkor Technology, Inc., The S&P 500 Index
And The PHLX Semiconductor Index
* $100 invested on
12/31/05 in
stock or index, including reinvestment of dividends. Fiscal year
ending December 31.
Copyright
©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
|
|
(1) |
|
The preceding Stock Performance Graph is not deemed filed with
the Securities and Exchange Commission and shall not be
incorporated by reference in any of our filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing. |
31
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following selected consolidated financial data as of
December 31, 2010 and 2009 and for the years ended
December 31, 2010, 2009 and 2008 have been derived from our
audited Consolidated Financial Statements included in this
Annual Report. The following selected consolidated financial
data for the years ended December, 31, 2007 and 2006, and as of
December 31, 2008, 2007 and 2006, have been derived from
audited financial statements not included herein and, where
applicable, such data was recast for the retrospective
application of new accounting guidance for noncontrolling
interests in a consolidated subsidiary, which we became subject
to beginning January 1, 2009. You should read the selected
consolidated financial data in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial
Statements, both of which are included in this Annual Report.
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,939,483
|
|
|
$
|
2,179,109
|
|
|
$
|
2,658,602
|
|
|
$
|
2,739,445
|
|
|
$
|
2,728,560
|
|
Cost of sales(a)
|
|
|
2,275,727
|
|
|
|
1,698,713
|
|
|
|
2,096,864
|
|
|
|
2,057,572
|
|
|
|
2,053,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
663,756
|
|
|
|
480,396
|
|
|
|
561,738
|
|
|
|
681,873
|
|
|
|
674,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
242,424
|
|
|
|
210,907
|
|
|
|
251,756
|
|
|
|
254,365
|
|
|
|
251,142
|
|
Research and development
|
|
|
47,534
|
|
|
|
44,453
|
|
|
|
56,227
|
|
|
|
41,650
|
|
|
|
38,735
|
|
Goodwill impairment(b)
|
|
|
|
|
|
|
|
|
|
|
671,117
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate and specialty test operations(c)
|
|
|
|
|
|
|
(281
|
)
|
|
|
(9,856
|
)
|
|
|
(4,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
289,958
|
|
|
|
255,079
|
|
|
|
969,244
|
|
|
|
291,182
|
|
|
|
289,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
373,798
|
|
|
|
225,317
|
|
|
|
(407,506
|
)
|
|
|
390,691
|
|
|
|
385,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
85,595
|
|
|
|
102,396
|
|
|
|
118,729
|
|
|
|
133,896
|
|
|
|
161,682
|
|
Interest expense, related party
|
|
|
15,250
|
|
|
|
13,000
|
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
6,477
|
|
Interest income
|
|
|
(2,950
|
)
|
|
|
(2,367
|
)
|
|
|
(8,749
|
)
|
|
|
(9,797
|
)
|
|
|
(6,875
|
)
|
Foreign currency loss (gain)(d)
|
|
|
13,756
|
|
|
|
3,339
|
|
|
|
(61,057
|
)
|
|
|
8,961
|
|
|
|
13,255
|
|
Loss (gain) on debt retirement, net(e)
|
|
|
18,042
|
|
|
|
(15,088
|
)
|
|
|
(35,987
|
)
|
|
|
15,876
|
|
|
|
27,389
|
|
Equity in earnings of unconsolidated affiliates(f)
|
|
|
(6,435
|
)
|
|
|
(2,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(619
|
)
|
|
|
(113
|
)
|
|
|
(1,004
|
)
|
|
|
668
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
122,639
|
|
|
|
98,794
|
|
|
|
18,182
|
|
|
|
155,854
|
|
|
|
202,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
251,159
|
|
|
|
126,523
|
|
|
|
(425,688
|
)
|
|
|
234,837
|
|
|
|
182,494
|
|
Income tax expense (benefit)(g)
|
|
|
19,012
|
|
|
|
(29,760
|
)
|
|
|
31,788
|
|
|
|
12,597
|
|
|
|
11,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
232,147
|
|
|
|
156,283
|
|
|
|
(457,476
|
)
|
|
|
222,240
|
|
|
|
171,286
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(176
|
)
|
|
|
(303
|
)
|
|
|
781
|
|
|
|
(2,376
|
)
|
|
|
(1,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor
|
|
$
|
231,971
|
|
|
$
|
155,980
|
|
|
$
|
(456,695
|
)
|
|
$
|
219,864
|
|
|
$
|
170,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
0.85
|
|
|
$
|
(2.50
|
)
|
|
$
|
1.22
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.91
|
|
|
$
|
0.67
|
|
|
$
|
(2.50
|
)
|
|
$
|
1.11
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing per common share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
183,312
|
|
|
|
183,067
|
|
|
|
182,734
|
|
|
|
180,597
|
|
|
|
177,682
|
|
Diluted
|
|
|
282,602
|
|
|
|
263,379
|
|
|
|
182,734
|
|
|
|
208,767
|
|
|
|
199,556
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
323,608
|
|
|
$
|
305,510
|
|
|
$
|
309,920
|
|
|
$
|
283,267
|
|
|
$
|
273,845
|
|
Purchases of property, plant and equipment
|
|
|
445,669
|
|
|
|
173,496
|
|
|
|
386,239
|
|
|
|
236,240
|
|
|
|
315,873
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
404,998
|
|
|
$
|
395,406
|
|
|
$
|
424,316
|
|
|
$
|
410,070
|
|
|
$
|
244,694
|
|
Working capital
|
|
|
289,859
|
|
|
|
327,088
|
|
|
|
306,174
|
|
|
|
310,341
|
|
|
|
215,095
|
|
Total assets
|
|
|
2,736,822
|
|
|
|
2,432,909
|
|
|
|
2,383,993
|
|
|
|
3,192,606
|
|
|
|
3,041,264
|
|
Total long-term debt
|
|
|
1,214,219
|
|
|
|
1,345,241
|
|
|
|
1,438,751
|
|
|
|
1,611,570
|
|
|
|
1,819,901
|
|
Total debt, including short-term borrowings and current portion
of long-term debt
|
|
|
1,364,300
|
|
|
|
1,434,185
|
|
|
|
1,493,360
|
|
|
|
1,764,059
|
|
|
|
2,005,315
|
|
Additional paid-in capital
|
|
|
1,504,927
|
|
|
|
1,500,246
|
|
|
|
1,496,976
|
|
|
|
1,482,186
|
|
|
|
1,441,194
|
|
Accumulated deficit
|
|
|
(890,270
|
)
|
|
|
(1,122,241
|
)
|
|
|
(1,278,221
|
)
|
|
|
(821,526
|
)
|
|
|
(1,041,390
|
)
|
Total Amkor stockholders equity
|
|
|
630,013
|
|
|
|
383,209
|
|
|
|
237,139
|
|
|
|
654,619
|
|
|
|
393,920
|
|
|
|
|
(a) |
|
During 2008, we recorded a charge of $61.4 million for
unpaid royalties relating to the resolution of a patent license
dispute, of which $49.0 million related to royalties for
periods prior to 2008. |
|
(b) |
|
At December 31, 2008, we recorded a non-cash charge of
$671.1 million to write off our remaining goodwill. |
|
(c) |
|
During 2009, we sold land and dormitory buildings in Korea and
recorded a gain of $0.3 million. During 2008, we sold land
and a warehouse in Korea and recorded a gain of
$9.9 million. In 2007, we recorded a gain of
$3.1 million in connection with the sale of real property
in Korea used for administrative purposes. During 2007, we
recognized a gain of $1.7 million related to an earn-out
provision on the sale of our Wichita, Kansas specialty test
operation. |
|
(d) |
|
We recognize foreign currency losses (gains) due to the
remeasurement of certain of our foreign currency denominated
monetary assets and liabilities. During 2008, the net foreign
currency gain of $61.1 million is primarily attributable to
the significant depreciation of the Korean won and the impact on
the remeasurement of our Korean severance obligation. |
|
(e) |
|
During 2010, we recorded a net loss of $18.0 million
related to several debt transactions. We recorded a net loss of
$17.7 million related to the tender offer to purchase
$125.7 million principal amount of our 9.25% Senior
Notes due 2016 and the repurchase of an aggregate
$411.8 million principal amount of our 7.125% Senior
Notes due in 2011 and our 7.75% Senior Notes due in 2013.
During 2009, we recorded a net gain of $15.1 million
related to the repurchase of an aggregate $289.3 million
principal amount of our 7.125% Senior Notes and
2.5% Convertible Senior Subordinated Notes due in 2011 and
our 7.75% Senior Notes due in 2013. During 2008, we
recorded a gain of $36.0 million related to the repurchase
of an aggregate $118.3 million principal amount of our
7.125% senior notes and 2.5% convertible senior
subordinated notes due 2011. In 2007, we recorded a loss of
$15.9 million related to the refinancing of a second lien
term loan. During 2006, we recorded a loss of $27.4 million
related to the tender offer to purchase $352.3 million
principal amount of our 9.25% senior notes due February
2008 and the repurchase of $178.1 million of our
10.5% senior subordinated notes due May 2009. |
|
(f) |
|
During 2009, we made a 30% equity investment in J-Devices
Corporation, which was accounted for using the equity method. We
recognized equity in earnings of $6.4 million and
$2.4 million during 2010 and 2009, respectively. |
|
(g) |
|
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. and our income is taxed in foreign
jurisdictions where we benefit from tax holidays or tax rates
lower than the U.S. statutory rate. In 2009, a
$25.6 million benefit for the release of a valuation
allowance in Korea is included in the income tax benefit. In
2008, the $671.1 million goodwill impairment charge did not
have a significant income tax benefit. Also, the 2008 income tax
provision included a charge of $8.3 million for the
establishment of a valuation allowance in Japan. |
33
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
This report contains forward-looking statements within the
meaning of the federal securities laws, including but not
limited to statements regarding: (1) the amount and timing
of our expected capital investments and focus on customer
requirements, investments in technology advancements and cost
reduction programs, (2) our ability to fund our operating
activities for the next twelve months, (3) the effect of
capacity utilization rates on our gross margin, (4) the
expiration of tax holidays in jurisdictions in which we operate
and expectations regarding our effective tax rate, (5) the
release of valuation allowances related to taxes in the future,
(6) the expected use of future cash flows, if any, for the
expansion of our business, capital expenditures and the
repayment of debt, (7) our repurchase or repayment of
outstanding debt in the future, (8) payment of dividends,
(9) compliance with our covenants, (10) expected
contributions to defined benefit pension plans,
(11) liability for unrecognized tax benefits,
(12) expectations regarding inventory levels and recovery
of related costs, (13) the effect of foreign currency
exchange rate exposure on our financial results, (14) the
volatility of the trading price of our common stock,
(15) changes to our internal controls related to
implementation of a new enterprise resource planning system, and
(16) other statements that are not historical facts. In
some cases, you can identify forward-looking statements by
terminology such as may, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential, continue, intend
or the negative of these terms or other comparable terminology.
Because such statements include risks and uncertainties, actual
results may differ materially from those anticipated in such
forward-looking statements as a result of certain factors,
including those set forth in the following discussion as well as
in Part I, Item 1A Risk Factors of this
Annual Report. The following discussion provides information and
analysis of our results of operations for the three years ended
December 31, 2010 and our liquidity and capital resources.
You should read the following discussion in conjunction with
Item 8, Financial Statements and Supplementary
Data in this Annual Report as well as other reports we
file with the Securities and Exchange Commission
(SEC).
Overview
Amkor is one of the worlds leading providers of outsourced
semiconductor packaging and test services. Packaging and test
are integral steps in the process of manufacturing semiconductor
devices. The semiconductor manufacturing process begins with the
fabrication of tiny transistor elements into complex patterns of
electronic circuitry on silicon wafers, thereby creating large
numbers of individual semiconductor devices or integrated
circuits on each wafer (generally referred to as
chips or die). Each device on the wafer
is tested and the wafer is cut into pieces called chips. The
chips are attached through wire bonding to a substrate or
leadframe, or to a substrate in the case of flip chip
interconnect, and then encased in a protective material. For a
wafer-level package, the electrical interconnections are created
directly on the surface of the wafer without a substrate or
leadframe. The packages are then tested using sophisticated
equipment to ensure that each packaged chip meets its design and
performance specifications.
Our packages are designed based on application and chip specific
requirements including the type of interconnection technology
employed, size, thickness, and electrical, mechanical and
thermal performance. We are able to provide turnkey packaging
and test solutions including semiconductor wafer bump, wafer
probe, wafer backgrind, package design, assembly, test and drop
shipment services.
Our customers include, among others: Altera Corporation;
Broadcom Corporation; Infineon Technologies, AG; International
Business Machines Corporation (IBM); LSI
Corporation; Qualcomm Incorporated; Sony Corporation; ST
Microelectronics, Pte.; Texas Instruments, Inc. and Toshiba
Corporation. The outsourced semiconductor packaging and test
market is very competitive. We also compete with the internal
semiconductor packaging and test capabilities of many of our
customers.
Since the second half of 2009, the semiconductor industry has
experienced increased consumer spending principally driven by
the recovery from the global economic downturn. Our net sales
increased $760.4 million or 34.9% to $2,939.5 million
in 2010 from $2,179.1 million in 2009. The growth was
driven by strong demand across all of our package families and
end markets, particularly in our core markets for wireless
communications, gaming and other consumer electronics. Our unit
demand increased to 9.8 billion units in 2010 compared to
7.7 billion units in 2009, principally driven by the
strength of leadframe and chip scale packaging services.
34
Gross margin for 2010 increased to 22.6% from 22.0% in 2009. The
increase in gross margin was primarily due to higher levels of
utilization and efficiencies driven by increased customer demand
for all of our packaging services and the corresponding increase
in net sales. Partially offsetting this increase were negative
impacts from an increase in manufacturing costs, unfavorable
foreign currency movements and higher gold prices. In addition,
during 2010 we recorded charges of $4.1 million in cost of
sales relating to workforce reduction programs and other
restructuring activity compared to $16.9 million during
2009.
Net income for 2010 was $232.0 million, or $0.91 per
diluted share, compared with net income in 2009 of
$156.0 million, or $0.67 per share. The increase was
primarily attributable to increased revenues and gross profit in
2010, and was partially offset by increased income tax expense
and a loss on debt retirement.
In 2010, our capital additions totaled $504.5 million or
17% of net sales compared to $197.7 million or 9% of net
sales in 2009. We expect our 2011 capital additions to be
approximately $500 million. Capital additions are generally
focused on specific customer requirements, technology
advancements and infrastructure projects. In 2010, 63% of our
capital additions spending went toward our packaging
capabilities, 19% for test, and 18% for research and development
and infrastructure projects.
We generated $96.9 million of free cash flow in the year
ended December 31, 2010, an increase of $8.7 million
from the prior year. Cash provided by operating activities was
$542.6 million for the year ended December 31, 2010,
compared with $261.7 million for the year ended
December 31, 2009. The increase is primarily attributable
to higher levels of demand and gross profit in 2010 as well as
payments of $160.8 million in the 2009 period for employee
benefit and separation payments and the resolution of a patent
license dispute. The increase in operating cash flow was
partially offset by higher purchases of property, plant and
equipment in 2010. We define free cash flow as net cash provided
by operating activities less investing activities related to the
acquisition of property, plant and equipment. Free cash flow is
not defined by U.S. generally accepted accounting
principles (U.S. GAAP) and a reconciliation of
free cash flow to net cash provided by operating activities is
set forth under the caption Cash Flows below. Please
see Liquidity and Capital Resources and Cash
Flows below for a further analysis of the change in our
balance sheet and cash flows during the year ended
December 31, 2010.
We believe our financial position and liquidity are sufficient
to fund our operating activities for at least the next twelve
months. At December 31, 2010, our cash and cash equivalents
totaled approximately $405.0 million, with an aggregate of
$150.1 million of debt maturities due through the end of
2011. In May 2010, we issued $345.0 million of our
7.375% Senior Notes due 2018. We used the net proceeds of
that note issuance, together with existing cash, to redeem in
full the $53.5 million outstanding principal amount of our
7.125% Senior Notes due 2011 and the $358.3 million
principal amount of our 7.75% Senior Notes due 2013, and to
pay related fees and expenses during the three months ended
June 30, 2010. In May 2010, we entered into a
$180.0 million, three-year secured term loan in Korea, the
proceeds of which were used to purchase $125.7 million of
our 9.25% Senior Notes due 2016. In July 2010, we repaid
$47.0 million of the Korean term loan. In September 2010,
we amended our $100.0 million senior secured revolving
credit facility and extended its term by two years to April
2015. In December 2010, we announced a call for redemption of
the entire $100.0 million aggregate principal amount of our
6.25% Convertible Subordinated Notes due December 2013 (the
December 2013 Notes). Holders of all
$100.0 million of the outstanding December 2013 Notes
converted their notes into an aggregate of
13,351,131 shares of our common stock in January 2011.
35
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross margin
|
|
|
22.6
|
%
|
|
|
22.0
|
%
|
|
|
21.1
|
%
|
Depreciation and amortization
|
|
|
11.0
|
%
|
|
|
14.0
|
%
|
|
|
11.7
|
%
|
Operating income (loss)
|
|
|
12.7
|
%
|
|
|
10.3
|
%
|
|
|
(15.3
|
)%
|
Income (loss) before income taxes
|
|
|
8.5
|
%
|
|
|
5.8
|
%
|
|
|
(16.0
|
)%
|
Net income (loss) attributable to Amkor
|
|
|
7.9
|
%
|
|
|
7.2
|
%
|
|
|
(17.2
|
)%
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Net sales
|
|
$
|
2,939,483
|
|
|
$
|
2,179,109
|
|
|
$
|
2,658,602
|
|
|
$
|
760,374
|
|
|
|
34.9
|
%
|
|
$
|
(479,493
|
)
|
|
|
(18.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging net sales
|
|
|
2,650,257
|
|
|
|
1,933,600
|
|
|
|
2,343,514
|
|
|
|
716,657
|
|
|
|
37.1
|
%
|
|
|
(409,914
|
)
|
|
|
(17.5
|
)%
|
Test net sales
|
|
|
288,871
|
|
|
|
245,237
|
|
|
|
314,299
|
|
|
|
43,634
|
|
|
|
17.8
|
%
|
|
|
(69,062
|
)
|
|
|
(22.0
|
)%
|
Net Sales. Net sales in 2010 increased
compared to 2009 primarily driven by the recovery of the
semiconductor industry and improved consumer spending across all
of our end markets, resulting in an increase in demand for
substantially all product lines in our packaging and test
services. Chip scale packages increased due to demand for flip
chip and 3-D
stacking technologies that support wireless data and smart
phones. Ball grid array packages increased as demand for gaming,
HDTVs, other consumer electronics and networking applications
increased. Net sales in 2009 decreased compared to 2008 due to
the general decline in demand and inventory management efforts
by our customers as a result of the global economic recession
and weakness in consumer spending. As a result, we experienced a
broad-based decline in demand across our packaging and test
business.
Packaging Net Sales. Packaging net sales in
2010 increased compared to 2009. Packaging unit volume increased
2.1 billion units in 2010 to 9.8 billion units,
compared to 7.7 billion units in 2009, primarily
attributable to increased demand for our leadframe and chip
scale packaging services. The increase in demand is due to the
recovery of the semiconductor industry and improved consumer
spending following the recent global economic downturn. Growth
in ball grid array and chip scale packaging solutions with
higher average sales prices per unit also contributed to the
overall growth in net sales from 2009. Packaging net sales in
2009 decreased compared to 2008 because of the broad-based
decline in demand across our package offerings. Packaging unit
volume decreased 0.9 billion units in 2009 to
7.7 billion units, compared to 8.6 billion units in
2008 due to the same broad-based decline in demand.
Test Net Sales. Test net sales in 2010
increased compared to 2009, while test net sales in 2009
decreased compared to 2008. The financial crisis and global
recession that began in 2008 caused a significant decrease in
demand for our services, including test, during the second half
of 2008 through the first half of 2009. Subsequently, in the
second half of 2009 and in 2010, demand increased due to the
recovery of the semiconductor industry and improved consumer
spending following the recent global economic downturn.
Cost
of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Cost of sales
|
|
$
|
2,275,727
|
|
|
$
|
1,698,713
|
|
|
$
|
2,096,864
|
|
|
$
|
577,014
|
|
|
|
34.0
|
%
|
|
$
|
(398,151
|
)
|
|
|
(19.0
|
)%
|
36
Our cost of sales consists principally of materials, labor,
depreciation and manufacturing overhead. Since a substantial
portion of the costs at our factories is fixed, relatively
modest increases or decreases in capacity utilization rates can
have a significant effect on our gross margin.
Material costs as a percentage of net sales increased to 42.6%
in 2010 from 39.7% in 2009 primarily due to a higher mix of ball
grid array packages with higher material content as a percentage
of net sales and the increased cost of gold used in many of our
wirebond packages. Material costs as a percentage of net sales
increased to 39.7% in 2009 from 38.0% in 2008 due to change in
mix to packages with higher material content as a percentage of
net sales.
As a percentage of net sales, labor costs decreased to 12.7% in
2010 from 13.5% in 2009. The decrease in labor costs as a
percentage of net sales was due primarily to higher levels of
utilization and efficiencies driven by increased customer demand
and the corresponding increase in net sales. Labor costs in
absolute dollars increased in 2010 partially due to an increase
in our global labor headcount to approximately
19,900 employees at December 31, 2010 compared to
18,200 employees at December 31, 2009, the restoration
in 2010 of the compensation cost reductions from 2009 and the
expiration of other temporary cost reduction initiatives, such
as foreign subsidy programs, which were available and utilized
in 2009. As substantially all of our manufacturing operations
workforce is paid in local currencies, labor costs were also
negatively impacted by foreign currency exchange rate movements
in 2010 compared to 2009. Labor costs in 2010 included a charge
of $3.7 million related to workforce reduction programs
associated with the wind-down and exit of manufacturing
operations in Singapore and special termination benefits related
to a voluntary early retirement program in Korea compared to a
$10.1 million charge in 2009 for workforce reduction
programs.
As a percentage of net sales, labor costs decreased to 13.5% in
2009 from 15.3% in 2008. The decrease in labor costs was due
primarily to savings from our workforce reduction activities and
other cost savings initiatives implemented during 2008 and 2009.
We also had a favorable foreign currency effect on labor costs
resulting from the depreciation of the Korean won and other
currencies against the U.S. dollar in 2008. In addition,
labor costs in 2009 included a charge of $10.1 million
related to workforce reduction programs and the wind-down and
exit of manufacturing operations in Singapore compared to
$12.2 million in 2008 for workforce reduction programs.
As a percentage of net sales, other manufacturing costs
decreased to 22.1% in 2010 from 24.7% in 2009 due to higher
levels of utilization and efficiencies driven by increased
customer demand and the corresponding increase in net sales. The
increase in other manufacturing costs in absolute dollars was
primarily attributable to higher levels of production in our
factories, resulting in increased costs for repairs and
maintenance, supplies, facilities, and utilities, and to
increased depreciation as a result of the higher level of
capital spending during 2010. The increase was partially offset
by a decrease in charges related to the wind-down and exit of
manufacturing operations in Singapore from $6.8 million in
2009 to $0.3 million in 2010, as well as a decrease in
asset impairment charges from $6.0 million in 2009 to
$1.4 million in 2010.
As a percentage of net sales, other manufacturing costs
decreased to 24.7% in 2009 from 25.6% in 2008. In 2009, we had
reductions in other manufacturing costs due to cost savings
initiatives and lower volumes such as a decrease in factory
supplies and repair and maintenance expenses. Included in other
manufacturing costs for 2008 is a charge of $61.4 million
for royalties related to the resolution of a patent license
dispute. Asset impairment charges included in 2009 were
$6.0 million compared to $12.1 million in 2008. In
2009, other manufacturing costs also include a charge of
$6.8 million related to the wind-down and exit of
manufacturing operations in Singapore.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Gross profit
|
|
$
|
663,756
|
|
|
$
|
480,396
|
|
|
$
|
561,738
|
|
|
$
|
183,360
|
|
|
$
|
(81,342
|
)
|
Gross margin
|
|
|
22.6
|
%
|
|
|
22.0
|
%
|
|
|
21.1
|
%
|
|
|
0.6
|
%
|
|
|
0.9
|
%
|
Gross profit and gross margin in 2010 increased compared to
2009. The increase was primarily due to higher levels of
utilization and efficiencies driven by increased customer demand
for all of our packaging and test services and the corresponding
increase in net sales. Several factors partially offset the
increase from customer demand. Our
37
material costs were impacted by a higher mix of ball grid array
packaging services with higher material content and the
increased cost of gold used in many of our wirebond packages. We
experienced increased labor costs to meet our customer demands,
including additional headcount and restoration of compensation
costs and other temporary cost reduction initiatives implemented
in 2009. Other manufacturing costs increased in support of
higher customer demand, including increased depreciation expense
resulting from increased investment and capital spending
activities. In addition, gross profit and gross margin were
negatively impacted by foreign currency exchange rate movements
in 2010.
Gross profit in 2009 decreased compared to 2008. Gross margin in
2009 increased from 2008. Included in cost of sales for 2008 are
$61.4 million for royalties related to the resolution of a
patent license dispute. Gross profit in 2009 included
$16.9 million related to workforce reduction programs and
the wind-down and exit of manufacturing operations in Singapore
compared to $12.2 million in 2008 for workforce reduction
programs. The decrease in gross profit due to lower volumes was
partially mitigated by cost controls and the favorable foreign
currency effect on labor costs due to the depreciation of the
Korean won.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Packaging gross profit
|
|
$
|
584,190
|
|
|
$
|
429,295
|
|
|
$
|
472,986
|
|
|
$
|
154,895
|
|
|
$
|
(43,691
|
)
|
Packaging gross margin
|
|
|
22.0
|
%
|
|
|
22.2
|
%
|
|
|
20.2
|
%
|
|
|
(0.2
|
) %
|
|
|
2.0
|
%
|
Packaging Gross Profit. Gross profit for
packaging in 2010 increased compared to 2009. Gross margin for
packaging in 2010 remained consistent with 2009. The increase in
gross profit was primarily attributable to increased customer
demand resulting from the recovery of the semiconductor
industry. Gross profit for packaging in 2009 decreased compared
to 2008. Packaging gross margin in 2009 increased compared to
2008. Included in cost of sales for 2008 is $61.4 million
for royalties related to the resolution of a patent license
dispute. The packaging gross profit decrease in 2009 was due to
the broad-based decline in product demand across our package
offerings partially offset by cost control and a favorable
foreign currency effect on labor costs due to the depreciation
of the Korean won.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Test gross profit
|
|
$
|
79,621
|
|
|
$
|
57,652
|
|
|
$
|
88,645
|
|
|
$
|
21,969
|
|
|
$
|
(30,993
|
)
|
Test gross margin
|
|
|
27.6
|
%
|
|
|
23.5
|
%
|
|
|
28.2
|
%
|
|
|
4.1
|
%
|
|
|
(4.7
|
) %
|
Test Gross Profit. Gross profit and gross
margin for test in 2010 increased compared to 2009. The increase
is attributable to increased customer demand and higher
utilization of our test assets. Costs of sales for test are
primarily fixed, with low material requirements. As utilization
rates increase, we benefit from a higher degree of operating
leverage. Gross profit and gross margin for test in 2009
decreased compared to 2008. The decrease was due to lower net
sales due to reduced demand partially offset by labor savings
from our workforce reduction activities and cost control
initiatives.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Selling, general and administrative
|
|
$
|
242,424
|
|
|
$
|
210,907
|
|
|
$
|
251,756
|
|
|
$
|
31,517
|
|
|
|
14.9
|
%
|
|
$
|
(40,849
|
)
|
|
|
(16.2
|
)%
|
Selling, general and administrative expenses in 2010 increased
compared to 2009. The increase was primarily driven by the
reinstatement of employee compensation and benefit costs that
had been reduced in 2009 as part of our cost reduction
initiatives during the global economic downturn, as well as an
increase in depreciation expense associated with the
implementation of our global enterprise resource planning
information system. Selling, general and administrative expenses
in 2009 decreased compared to 2008. The decrease was primarily
caused by lower salaries and benefits in both our factories and
corporate offices and other cost reduction initiatives.
38
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Research and development
|
|
$
|
47,534
|
|
|
$
|
44,453
|
|
|
$
|
56,227
|
|
|
$
|
3,081
|
|
|
|
6.9
|
%
|
|
$
|
(11,774
|
)
|
|
|
(20.9
|
)%
|
Research and development activities are currently focused on
developing new package interconnect solutions and test services
and improving the efficiency and capabilities of our existing
production processes. Our key areas for research and development
initiatives are focused on 3D packaging, advanced flip chip
packaging, advanced micro-electromechanical system packaging and
testing, fine pitch copper pillar bumping and packaging,
laminate and leadframe packaging, Through Mold Via and Through
Silicon Via technologies, wafer level fan out technology, wafer
level processing, and other manufacturing cost reduction
initiatives. Research and development expenses in 2010 increased
compared to 2009. As a percentage of net sales, research and
development expenses decreased to 1.6% in 2010 compared to 2.0%
in 2009. Increased research and development expenses were due to
increased activity and reinstatement of employee compensation
and benefit costs. During 2009 we recorded an impairment charge
of $2.6 million related to certain research and development
equipment, which did not recur in 2010.
Despite the global economic recession, we continued to invest in
research and development activities focused on advanced
laminate, flip chip and wafer level packaging services. Research
and development expenses in 2009 decreased compared to 2008. As
a percentage of net sales, research and development expenses
decreased to 2.0% in 2009 compared to 2.1% in 2008. The decrease
was primarily due to lower salaries and benefits partially
offset by a $2.6 million impairment charge in 2009 related
to certain research and development equipment.
Goodwill
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Goodwill impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
671,117
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
(671,117
|
)
|
|
|
(100.0
|
)%
|
We recorded a goodwill impairment charge in the amount of
$671.1 million in 2008 to write off the entire carrying
value of our goodwill. This non-cash charge had no impact on
liquidity or cash flows from operations.
Gain
on Sale of Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Gain on sale of real estate
|
|
$
|
|
|
|
$
|
(281
|
)
|
|
$
|
(9,856
|
)
|
|
$
|
(281
|
)
|
|
|
(100.0
|
)%
|
|
$
|
(9,575
|
)
|
|
|
(97.1
|
)%
|
During 2009, we sold land and dormitory buildings in Korea for
$0.8 million in proceeds and reported a gain of
$0.3 million, with no net tax effect. During 2008, we sold
land and a warehouse in Korea for $14.3 million in cash and
recorded a gain of $9.9 million, with no net tax effect.
Other
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Other expense, net
|
|
$
|
122,639
|
|
|
$
|
98,794
|
|
|
$
|
18,182
|
|
|
$
|
23,845
|
|
|
|
24.1
|
%
|
|
$
|
80,612
|
|
|
|
443.4
|
%
|
Other expense, net in 2010 increased compared to 2009. This
increase was driven by an increase in debt retirement costs.
During 2010, we recorded $18.0 million of debt retirement
costs related to the debt transactions described in the
Overview. During 2009, we recorded a net gain of
$15.1 million related to the repurchase of an aggregate
$289.3 million principal amount of our 7.125% Senior
Notes due 2011, our 2.5% Convertible Senior Subordinated
Notes due 2011 and our 7.75% Senior Notes due in 2013. Also
during 2010, we recorded a $13.8 million foreign currency
loss from the remeasurement of certain subsidiaries
balance sheet items compared to a $3.3 million foreign
currency loss in 2009. Partially offsetting the increase is a
reduction in net interest expense
39
of $15.1 million during 2010 compared with the prior year
resulting from our recent financing activities. In addition,
during 2010 we recorded $6.4 million in earnings from an
unconsolidated affiliate,
J-Devices
Corporation, compared to $2.4 million during 2009. Our
investment in the unconsolidated affiliate was made in October
2009.
Other expense, net in 2009 increased compared to 2008. This
increase was primarily the result of a $3.3 million foreign
currency loss recorded in 2009 compared to a $61.1 million
foreign currency gain recorded in 2008. In addition, in 2009, we
recognized a gain of $15.1 million related to the
repurchase of debt, compared to a gain of $36.0 million on
debt repurchases in 2008. The $9.6 million reduction in
interest expense in 2009, including related party interest
expense, is due to reduced debt and the refinancing of certain
debt with lower rate instruments. Interest expense in 2008 also
included $3.3 million of interest related to the resolution
of a patent license dispute that did not recur in 2009.
Income
Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 over 2009
|
|
2009 over 2008
|
|
|
(In thousands, except percentages)
|
|
Income tax expense (benefit)
|
|
$
|
19,012
|
|
|
$
|
(29,760
|
)
|
|
$
|
31,788
|
|
|
$
|
48,772
|
|
|
|
163.9
|
%
|
|
$
|
(61,548
|
)
|
|
|
(193.6
|
)%
|
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. and our income is taxed in
foreign jurisdictions where we benefit from tax holidays or tax
rates lower than the U.S. statutory rate. Income tax
expense in 2010 is attributable to profits in certain of our
taxable foreign jurisdictions, $5.4 million of net
additions to estimates of our uncertain tax positions, foreign
withholding taxes and minimum taxes partially offset by a
$3.0 million income tax benefit from the release of a
valuation allowance related to certain deferred tax assets in
Taiwan. The income tax benefit for 2009 included a
$25.6 million income tax benefit for the release of a
valuation allowance on the net deferred tax assets of our Korean
subsidiary, $9.4 million of income tax credits, and an
income tax benefit of $3.0 million related to changes in
estimates of our uncertain tax positions. These benefits were
partially offset by $6.2 million of income tax expense
attributable to income taxes in certain profitable foreign
jurisdictions, foreign withholding taxes and minimum taxes.
Income tax expense in 2008 is attributable to profits in certain
of our taxable foreign jurisdictions and changes in estimates of
our uncertain tax positions, as well as a charge of
$8.3 million for the establishment of a valuation allowance
related to certain deferred tax assets in Japan.
During 2010, our subsidiaries in China, Korea, the Philippines,
Singapore and Taiwan operated under tax holidays which will
expire in whole or in part at various dates through 2015. We
expect our effective tax rate to increase as the tax holidays
expire and income from these jurisdictions is subject to higher
statutory income tax rates. See Note 4 to our Consolidated
Financial Statements included in Item 8 of this Annual
Report for a further discussion of income tax holidays.
At December 31, 2010, we had U.S. net operating loss
carryforwards totaling $386.0 million which expire at
various times through 2030. Additionally, at December 31,
2010, we had $81.3 million of
non-U.S. net
operating loss carryforwards, which expire at various times
through 2020. We maintain a valuation allowance on all of our
U.S. net deferred tax assets, including our net operating
loss carryforwards, and on deferred tax assets in certain
foreign jurisdictions. We will release such valuation allowances
as the related tax benefits are realized on our tax returns or
when sufficient positive evidence exists to conclude that it is
more likely than not that the deferred tax assets will be
realized.
Quarterly
Results
The following table sets forth our unaudited consolidated
financial data for the last eight quarters ended
December 31, 2010. 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 crisis and global recession that began in 2008 caused
a significant decrease in demand for our services during the
first half of 2009. Since the second half of
40
2009, the semiconductor industry has experienced increased
consumer spending principally driven by the recovery from the
global economic downturn.
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 effect of
consumer buying patterns in the U.S., Europe and Asia.
Semiconductor companies in the U.S. generally reduce their
production during the holidays at the end of December which
results in a decrease in units 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
750,609
|
|
|
$
|
793,971
|
|
|
$
|
749,165
|
|
|
$
|
645,738
|
|
|
$
|
667,612
|
|
|
$
|
616,205
|
|
|
$
|
506,516
|
|
|
$
|
388,776
|
|
Cost of sales
|
|
|
591,266
|
|
|
|
605,713
|
|
|
|
569,966
|
|
|
|
508,782
|
|
|
|
492,258
|
|
|
|
461,589
|
|
|
|
404,129
|
|
|
|
340,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
159,343
|
|
|
|
188,258
|
|
|
|
179,199
|
|
|
|
136,956
|
|
|
|
175,354
|
|
|
|
154,616
|
|
|
|
102,387
|
|
|
|
48,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
62,037
|
|
|
|
57,735
|
|
|
|
66,356
|
|
|
|
56,296
|
|
|
|
54,640
|
|
|
|
53,473
|
|
|
|
52,445
|
|
|
|
50,068
|
|
Research and development
|
|
|
11,097
|
|
|
|
12,669
|
|
|
|
12,095
|
|
|
|
11,673
|
|
|
|
10,907
|
|
|
|
13,364
|
|
|
|
10,035
|
|
|
|
10,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
73,134
|
|
|
|
70,404
|
|
|
|
78,451
|
|
|
|
67,969
|
|
|
|
65,547
|
|
|
|
66,837
|
|
|
|
62,480
|
|
|
|
60,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
86,209
|
|
|
|
117,854
|
|
|
|
100,748
|
|
|
|
68,987
|
|
|
|
109,807
|
|
|
|
87,779
|
|
|
|
39,907
|
|
|
|
(12,176
|
)
|
Other expense, net
|
|
|
25,390
|
|
|
|
29,163
|
|
|
|
43,005
|
|
|
|
25,081
|
|
|
|
25,745
|
|
|
|
37,637
|
|
|
|
28,710
|
|
|
|
6,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
60,819
|
|
|
|
88,691
|
|
|
|
57,743
|
|
|
|
43,906
|
|
|
|
84,062
|
|
|
|
50,142
|
|
|
|
11,197
|
|
|
|
(18,878
|
)
|
Income tax expense (benefit)
|
|
|
10,058
|
|
|
|
10,321
|
|
|
|
(1,200
|
)
|
|
|
(167
|
)
|
|
|
(3,820
|
)
|
|
|
(30,854
|
)
|
|
|
1,833
|
|
|
|
3,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
50,761
|
|
|
|
78,370
|
|
|
|
58,943
|
|
|
|
44,073
|
|
|
|
87,882
|
|
|
|
80,996
|
|
|
|
9,364
|
|
|
|
(21,959
|
)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(157
|
)
|
|
|
(350
|
)
|
|
|
107
|
|
|
|
224
|
|
|
|
104
|
|
|
|
(133
|
)
|
|
|
(141
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor
|
|
$
|
50,604
|
|
|
$
|
78,020
|
|
|
$
|
59,050
|
|
|
$
|
44,297
|
|
|
$
|
87,986
|
|
|
$
|
80,863
|
|
|
$
|
9,223
|
|
|
$
|
(22,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.28
|
|
|
$
|
0.42
|
|
|
$
|
0.32
|
|
|
$
|
0.24
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.05
|
|
|
$
|
(0.12
|
)
|
Diluted
|
|
|
0.20
|
|
|
|
0.30
|
|
|
|
0.23
|
|
|
|
0.18
|
|
|
|
0.33
|
|
|
|
0.31
|
|
|
|
0.05
|
|
|
|
(0.12
|
)
|
Liquidity
and Capital Resources
We assess our liquidity based on our current expectations
regarding sales, operating expenses, capital spending and debt
service requirements. Based on this assessment, we believe that
our cash flow from operating activities together with existing
cash and cash equivalents and availability under our revolving
credit facility will be sufficient to fund our working capital,
capital expenditure and debt service requirements for at least
the next twelve months. Thereafter, our liquidity will continue
to be affected by, among other things, volatility in the global
economy and credit markets, the performance of our business, our
capital expenditure levels and our ability to either repay debt
out of operating cash flow or refinance at or prior to maturity
with the proceeds of debt or equity offerings. There is no
assurance that we will generate the necessary net income or
operating cash flows to meet the funding needs of our
41
business beyond the next twelve months due to a variety of
factors, including the cyclical nature of the semiconductor
industry and other factors discussed in Part I,
Item 1A Risk Factors.
Our primary source of cash and the source of funds for our
operations 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, 2010, we had cash and cash equivalents of
$405.0 million and availability of $99.6 million under
our $100.0 million first lien senior secured revolving
credit facility. Cash provided by operating activities was
$542.6 million for the year ended December 31, 2010
compared to $261.7 million for the year ended
December 31, 2009. We expect cash flows to be used in the
operation and expansion of our business, making capital
expenditures, paying principal and interest on our debt and for
other corporate purposes.
We operate in a capital intensive industry. Servicing our
current and future customers requires that we incur significant
operating expenses and make significant capital expenditures,
which are generally made in advance of the related revenues and
without any firm customer commitments.
We have a significant amount of indebtedness. Total debt
decreased to $1,364.3 million at December 31, 2010
from $1,434.2 million at December 31, 2009. Our
indebtedness requires us to dedicate a substantial portion of
our cash flow from operations to pay our debt. The interest
payments required on our debt are substantial.
During 2009, we implemented cost reduction measures including
lowering executive and other employee compensation, reducing
employee and contractor headcount, and shortening work weeks. As
capacity utilization increased in the second half of 2009 and
into 2010, labor and other overhead costs increased. During
2010, executive and other employee compensation has been
restored from reduced levels in 2009 and we have reversed other
temporary cost reduction initiatives.
We sponsor an accrued severance plan for our Korean subsidiary
which, under recently enacted tax laws in Korea, limits our
ability to currently deduct related severance expenses accrued
under that plan. The purpose of these limitations is to
encourage companies to migrate to a defined contribution or
defined benefit retirement plan. If we decide to adopt a new
plan, we would be required to fund a substantial portion of the
existing liability. Our Korean severance liability was
$88.6 million as of December 31, 2010.
Debt
Instruments and Related Covenants
In order to reduce leverage and future cash interest payments,
we may from time to time repurchase or call our outstanding
notes for cash or exchange shares of our common stock for our
outstanding notes. Any such transaction may be made in the open
market, through privately negotiated transactions or pursuant to
the terms of the indentures, and these transactions, are subject
to the terms of our indentures and other debt agreements, market
conditions, and other factors.
In March 2010, we entered into two term loans totaling
3.5 billion yen (approximately $39 million at
inception) with two Japanese banks. The proceeds of the term
loans were used to repay two revolving lines of credit in Japan
and for general corporate purposes.
In April 2010, we entered into a 1.5 billion Taiwan dollar
(approximately $47 million at inception) term loan with a
Taiwanese bank primarily to fund capital expenditures.
In May 2010, we issued $345.0 million of our
7.375% Senior Notes due 2018. We used the proceeds of that
note issuance, together with existing cash, to redeem in full
the $53.5 million outstanding principal amount of our
7.125% Senior Notes due 2011 and the $358.3 million
principal amount of our 7.75% Senior Notes due 2013, and to
pay related fees and expenses during the three months ended
June 30, 2010.
In May 2010, we entered into a $180.0 million, three-year
secured term loan in Korea, the proceeds of which were used to
purchase $125.7 million of our 9.25% Senior Notes due
2016. In July 2010, we repaid $47.0 million of the Korean
term loan.
In September 2010, we amended our $100.0 million senior
secured revolving credit facility and extended its term by two
years to April 2015.
42
Our December 2013 Notes became callable in December 2010. In
December, 2010, we announced a call for redemption of the entire
$100.0 million aggregate principal amount of the December
2013 Notes. Holders of all $100.0 million of the
outstanding December 2013 Notes converted their notes into an
aggregate of 13,351,131 shares of our common stock in
January 2011. Our 9.25% Senior Notes due 2016 will become
callable in June 2011.
The interest payments required on our debt are substantial. For
example, we paid $96.6 million of interest in 2010. We
refer you to Contractual Obligations below for a
summary of principal and interest payments.
Certain debt agreements have restrictions on dividend payments
and the repurchase of stock and subordinated securities,
including our convertible notes. These restrictions are
determined by defined calculations which include net income. The
$671.1 million write-off of our goodwill at
December 31, 2008 impacted these restrictions, which has
reduced our ability to pay dividends and repurchase stock and
subordinated securities, including our convertible notes. We
have never paid a dividend to our stockholders, and we do not
have any present plans for doing so. Amkor Technology, Inc. also
guarantees certain debt of our subsidiaries.
We were in compliance with all debt covenants at
December 31, 2010 and expect to remain in compliance with
these covenants for at least the next twelve months. Additional
information about our debt is available in Note 12 to our
Consolidated Financial Statements included in Item 8 of
this Annual Report.
Capital
Additions
In 2010, our capital additions totaled $504.5 million or
approximately 17% of net sales. Of this total, approximately 63%
of our spending went toward our packaging capabilities, 19% for
test, and 18% for research and development and infrastructure
projects. We expect that our 2011 capital additions will be
approximately $500 million. Ultimately, the amount of our
2011 capital additions will depend on several factors including,
among others, the performance of our business, the need for
additional capacity to service anticipated customer demand and
the availability of cash flow from operations or financing.
The following table reconciles our activity related to property,
plant and equipment purchases as presented on the Consolidated
Statement of Cash Flows to property, plant and equipment
additions as reflected in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Property, plant and equipment additions
|
|
$
|
504,463
|
|
|
$
|
197,742
|
|
|
$
|
341,734
|
|
Net change in related accounts payable and deposits
|
|
|
(58,794
|
)
|
|
|
(24,246
|
)
|
|
|
44,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
445,669
|
|
|
|
173,496
|
|
|
|
386,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows
Cash provided by operating activities was $542.6 million
for the year ended December 31, 2010 compared to
$261.7 million for the year ended December 31, 2009.
Free cash flow (which we define as net cash provided by
operating activities less purchases of property, plant and
equipment) increased by $8.7 million to $96.9 million
for the year ended December 31, 2010 compared to
$88.2 million for the year ended December 31, 2009.
Our free cash flow for the years ended December 31, 2010
and 2009 was predominantly used to reduce debt. Free cash flow
is not a U.S. GAAP measure. See below for a further
discussion of free cash flow and a reconciliation to
U.S. GAAP.
43
Net cash provided by (used in) operating, investing and
financing activities for each of the three years ended
December 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
$
|
542,595
|
|
|
$
|
261,725
|
|
|
$
|
605,818
|
|
Investing activities
|
|
|
(444,921
|
)
|
|
|
(240,878
|
)
|
|
|
(371,380
|
)
|
Financing activities
|
|
|
(89,857
|
)
|
|
|
(49,651
|
)
|
|
|
(223,625
|
)
|
Operating activities: Our cash flow from
operating activities in 2010 increased by $280.9 million
compared to 2009. Operating income for the year ended
December 31, 2010 adjusted for depreciation and
amortization, other operating activities and non-cash items
increased $195.7 million from 2009, largely as a result of
increased net sales. Interest expense, including related party
interest expense, for the year ended December 31, 2010
decreased by $14.6 million as compared with the year ended
December 31, 2009 as a result of reduced debt levels in
2010 and debt refinanced with lower interest rate instruments.
Operating cash flows in 2010 were reduced by $7.5 million
for prepayment fees in connection with debt repurchases.
Changes in assets and liabilities reduced operating cash flows
during 2010 by $35.2 million principally due to an increase
in accounts receivable, inventories, accounts payable and
accrued expenses reflecting an increase in customer demand and
increased business activity. Payments of $160.8 million for
employee benefit separation payments and the resolution of a
patent license dispute reduced 2009 operating cash flows.
Investing activities: Our cash flows used in
investing activities in 2010 increased by $204.0 million.
This increase was primarily due to a $272.2 million
increase in purchases of property, plant and equipment from
$173.5 million in 2009 to $445.7 million in 2010. Our
capital additions were primarily focused on incremental capacity
for advanced packaging services including chip scale, ball grid
array and bumping, specific customer requirements and other
technology advancements. In 2009, we invested $16.7 million
in an unconsolidated affiliate, J-Devices Corporation, and
purchased $44.7 million of equipment which we leased to
them.
Financing activities: Our net cash used in
financing activities in 2010 increased by $40.2 million.
Cash used in financing activities during 2010 consisted
principally of the repurchase of an aggregate
$537.5 million principal amount of our senior notes and
$99.9 million in repayments of our Korean term loans.
Financing cash flows in 2010 also included $6.7 million of
debt retirement costs for transactions classified as financing
activities. We also incurred $7.5 million in debt issuance
costs in 2010, primarily associated with the issuance of our
7.375% Senior Notes due 2018. Cash provided by financing
activities during 2010 included the issuance of
$345.0 million of our 7.375% Senior Notes due 2018 and
proceeds from a $180.0 million Korean term loan and a
Taiwanese term loan of approximately $47.0 million.
Cash provided by financing activities during 2009 included the
issuance of the $250.0 million convertible senior
subordinated notes due April 2014, $15.0 million received
from our working capital facility in China, and
$31.2 million net borrowings drawn on our revolver
facilities in Japan. We used $271.9 million in cash to
repurchase senior and convertible senior subordinated notes.
With respect to our foreign subsidiaries, we paid
$65.8 million in amortizing debt and other debt payments
during 2009. During 2009 we also incurred $8.5 million in
debt issuance costs related to the issuance of convertible notes
and the amendment and extension of our first lien revolving
credit facility.
We provide the following supplemental data to assist our
investors and analysts in understanding our liquidity and
capital resources. Free cash flow represents net cash provided
by operating activities less investing activities related to the
acquisition of property, plant and equipment. Free cash flow is
not defined by U.S. GAAP and our definition of free cash
flow may not be comparable to similar companies and should not
be considered a substitute
44
for cash flow measures in accordance with GAAP. We believe free
cash flow provides our investors and analysts useful information
to analyze our liquidity and capital resources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
542,595
|
|
|
$
|
261,725
|
|
|
$
|
605,818
|
|
Less purchases of property, plant and equipment
|
|
|
445,669
|
|
|
|
173,496
|
|
|
|
386,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
96,926
|
|
|
$
|
88,229
|
|
|
$
|
219,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2010, and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due for Year Ending December 31,
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Total debt(1)
|
|
$
|
1,364,300
|
|
|
$
|
150,081
|
|
|
$
|
82,132
|
|
|
$
|
236,065
|
|
|
$
|
281,636
|
|
|
$
|
5,103
|
|
|
$
|
609,283
|
|
Scheduled interest payment obligations(2)
|
|
|
423,026
|
|
|
|
83,874
|
|
|
|
80,208
|
|
|
|
75,193
|
|
|
|
57,996
|
|
|
|
49,922
|
|
|
|
75,833
|
|
Purchase obligations(3)
|
|
|
115,151
|
|
|
|
115,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
36,714
|
|
|
|
5,905
|
|
|
|
6,624
|
|
|
|
6,907
|
|
|
|
6,900
|
|
|
|
5,593
|
|
|
|
4,785
|
|
Severance obligations(4)
|
|
|
88,899
|
|
|
|
6,131
|
|
|
|
5,707
|
|
|
|
5,312
|
|
|
|
4,944
|
|
|
|
4,605
|
|
|
|
62,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,028,090
|
|
|
$
|
361,142
|
|
|
$
|
174,671
|
|
|
$
|
323,477
|
|
|
$
|
351,476
|
|
|
$
|
65,223
|
|
|
$
|
752,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total debt decreased $69.9 million from December 31,
2009. In April 2010, we entered into an approximately
$47.0 million term loan in Taiwan. In May 2010, we issued
$345.0 million of our 7.375% Senior Notes due 2018 and
we entered into a $180.0 million, three-year secured term
loan in Korea, $47.0 million of which was repaid in July
2010. Also in May 2010, we repurchased an aggregate
$537.5 million principal amount of our 7.125% Senior
Notes due 2011, 7.75% Senior Notes due 2013, and
9.25% Senior Notes due 2016. We repaid $52.9 million
of annual amortizing debt during 2010. |
|
|
|
Included in 2013 is $100.0 million of our 6.25% Convertible
Subordinated Notes due December 2013, which was converted into
common stock in January 2011, as discussed in Note 12 to
our Consolidated Financial Statements included in Item 8 of
this Annual Report. |
|
(2) |
|
Scheduled interest payment obligations were calculated using
stated coupon rates for fixed rate debt and interest rates
applicable at December 31, 2010 for variable rate debt. |
|
|
|
The table above is inclusive of $6.3 million in annual
interest payment obligations in 2011, 2012, and 2013 related to
our 6.25% Convertible Subordinated Notes due December 2013. Due
to the conversion of the debt in January 2011, as discussed in
Note 12, no further interest will be paid to holders of the
notes. |
|
(3) |
|
Represents capital-related purchase obligations in addition to
accounts payable outstanding at December 31, 2010 for 2010
capital additions. |
|
(4) |
|
Represents estimated benefit payments for our Korean subsidiary
severance plan. |
In addition to the obligations identified in the table above,
other non-current liabilities recorded in our Consolidated
Balance Sheet at December 31, 2010 include:
|
|
|
|
|
$21.0 million of foreign pension plan obligations for which
the timing and actual amount of funding required is uncertain.
We expect to contribute $3.5 million to the plans during
2011.
|
|
|
|
$4.5 million net liability associated with unrecognized tax
benefits. Due to the high degree of uncertainty regarding the
amount and the timing of any future cash outflows associated
with our unrecognized tax benefits, we are unable to reasonably
estimate the amount and period of ultimate settlement, if any,
with the various taxing authorities.
|
45
Off-Balance
Sheet Arrangements
As of December 31, 2010, we had no off-balance sheet
guarantees or other off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of SEC
Regulation S-K,
other than our operating leases. Operating lease commitments are
included in the contractual obligations table above.
Other
Contingencies
We refer you to Note 15 to our Consolidated Financial
Statements in Item 8 of this Annual Report for a discussion
of our contingencies related to litigation and other legal
matters. If an unfavorable ruling were to occur in these
matters, there exists the possibility of a material adverse
impact on our business, liquidity, results of operations,
financial position and cash flows in the period in which the
ruling occurs. The potential impact from the legal proceedings,
on our business, liquidity, results of operations, financial
position and cash flows, could change in the future.
Critical
Accounting Policies and Use of Estimates
We have identified the policies below as critical to our
business operations and the understanding of our results of
operations. A summary of our significant accounting policies
used in the preparation of our Consolidated Financial Statements
appears in Note 1 to our Consolidated Financial Statements
included in Item 8 of this Annual Report. Our preparation
of this Annual Report on
Form 10-K
requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial
statements and the reported amounts of revenue and expenses
during the reporting period. There can be no assurance that
actual results will not differ from those estimates.
We believe the following critical accounting policies, which
have been reviewed with the Audit Committee of our board of
directors, affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.
Revenue Recognition. 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. If the revenue recognition criteria
are not met, we defer the revenue. Deferred revenue generally
results from two types of transactions; customer advances and
invoicing at interim points prior to shipping. Customer advances
represent supply agreements with customers where we commit
capacity in exchange for customer prepayment of services. These
prepayments are deferred and recorded as customer advances
within accrued expenses and other non-current liabilities.
Deferred revenue also relates to contractual invoicing at
interim points prior to the shipment of the finished product.
The invoicing that is completed in advance of our revenue
recognition criteria being met is recorded as deferred revenue.
We do not take ownership of customer-supplied semiconductor
wafers. Title and risk of loss remain with the customer for
these materials. Accordingly, the cost of the customer-supplied
materials is not included in the Consolidated Financial
Statements.
An allowance for sales credits is recorded as a reduction to
sales and accounts receivable during the period of sale such
that accounts receivable is reported at its estimated net
realizable value. The allowance for sales credits is an estimate
of the future credits we will issue for billing adjustments
primarily for invoicing corrections and miscellaneous customer
claims and is estimated based upon recent credit issuance,
historical experience, as well as specific identification of
known or expected sales credits at the end of the reporting
period. Additionally, provisions are made for doubtful accounts
when there is doubt as to the collectibility of accounts
receivable. The allowance for doubtful accounts is recorded as
bad debt expense, classified as selling, general and
administrative expense. The allowance for doubtful accounts is
based upon specification of doubtful accounts considering the
age of the receivable balance, the customers historical
payment history and current credit worthiness as well as
specific identification of any known or expected collectability
issues.
Income Taxes. We operate in and file income
tax returns in various U.S. and
non-U.S. jurisdictions
which are subject to examination by tax authorities. The tax
returns for open years in all jurisdictions in which we do
business
46
are subject to change upon examination. We believe that we have
estimated and provided adequate accruals for potential
additional taxes and related interest expense that may
ultimately result from such examinations. We believe that any
additional taxes or related interest over the amounts accrued
will not have a material effect on our financial condition,
results of operations or cash flows. However, resolution of
these matters involves uncertainties and there are no assurances
that the outcomes will be favorable. In addition, changes in the
mix of income from our foreign subsidiaries, expiration of tax
holidays and changes in tax laws or regulations could result in
increased effective tax rates in the future.
Additionally, we record valuation allowances for deferred tax
assets for which it is more likely than not that the related tax
benefits will not be realized. U.S. GAAP requires companies
to weigh both positive and negative evidence in determining the
need for a valuation allowance for deferred tax assets. As a
result of net losses experienced in recent years in certain
jurisdictions, we have determined that a valuation allowance is
required for certain deferred tax assets including those related
to all of our net operating loss carryforwards in the
U.S. We will release such valuation allowances as the
related deferred tax benefits are realized on our tax returns or
when sufficient net positive evidence exists to conclude it is
more likely than not that the deferred tax assets will be
realized.
Valuation of Inventory. We order raw materials
based on customers forecasted demand. If our customers
change their forecasted requirements and we are unable to cancel
our raw materials order or if our vendors require that we order
a minimum quantity that exceeds the current forecasted demand,
we will experience a build-up in raw material inventory. We will
either seek to recover the cost of the materials from our
customers or utilize the inventory in production. However, we
may not be successful in recovering the cost from our customers
or be able to use the inventory in production and, accordingly,
if we believe that it is probable that we will not be able to
recover such costs we reduce the carrying value of our
inventory. Additionally, 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. When a
determination is made that the inventory will not be utilized in
production or is not saleable, it is written-off.
Inventories are stated at the lower of cost or market (net
realizable value). Cost is principally determined by standard
cost (on a
first-in,
first-out basis for raw materials and purchased components and
an average cost basis for
work-in-process)
or by the weighted moving average method (for commodities), both
which approximate actual cost. We review and set our standards
as needed, but at a minimum on an annual basis.
Long-lived Assets. Property, plant and
equipment are stated at cost. Depreciation is calculated by the
straight-line method over the estimated useful lives of
depreciable assets. Depreciable lives are as follows:
|
|
|
Land use rights
|
|
50 years
|
Buildings and improvements
|
|
10 to 25 years
|
Machinery and equipment
|
|
3 to 7 years
|
Software and computer equipment
|
|
3 to 5 years
|
Furniture, fixtures and other equipment
|
|
3 to 10 years
|
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.
We review long-lived assets, including property, plant and
equipment and finite-lived intangible assets, for impairment
whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. Recoverability of a
long-lived asset group held and used in operations 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 group. If such asset group is
considered to be impaired, the impairment loss is measured as
the amount by which the carrying amount of the asset group
exceeds its fair value. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Long-lived assets to be
disposed of are carried at the lower of cost or fair value less
the costs of disposal.
Legal Contingencies. We are subject to certain
legal proceedings, lawsuits and other claims. We assess the
likelihood of any adverse judgment or outcome related to these
matters, as well as potential ranges of probable
47
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.
Our assessment of required reserves may change in the future due
to new developments in each matter. The present legislative and
litigation environment is substantially uncertain, and it is
possible that our liquidity, results of operations, financial
position and cash flows could be materially and adversely
affected by an unfavorable outcome or settlement of our pending
litigation and other claims.
Recently
Adopted and Recently Issued Standards
For information regarding recently adopted and recently issued
accounting standards, see Note 2 to our Consolidated
Financial Statements included in Item 8 of this Annual
Report.
|
|
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; however, we continue to
evaluate the use of hedging instruments to manage market risk.
We have not entered into any derivative transactions during the
year ended December 31, 2010 and have no outstanding
contracts as of December 31, 2010.
Foreign
Currency Risks
We currently do not have forward contracts or other instruments
to reduce our exposure to foreign currency gains and losses,
although we do use natural hedging techniques to reduce foreign
currency rate risks.
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 our subsidiaries in China, Singapore and Taiwan. For
our subsidiaries and affiliate in Japan, 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. We performed a sensitivity
analysis of our foreign currency exposure as of
December 31, 2010, to assess the potential impact of
fluctuations in exchange rates for all foreign denominated
assets and liabilities. Assuming a 10% adverse movement for all
currencies against the U.S. dollar as of December 31,
2010, our income before income taxes for 2010 would have been
approximately $26 million lower.
In addition, we have foreign currency exchange rate exposure on
our results of operations. For the year ended December 31,
2010, approximately 89% of our net sales were denominated in
U.S. dollars. Our remaining net sales were principally
denominated in Japanese yen and Korean won for local country
sales. For the year ended December 31, 2010, approximately
58% of our cost of sales and operating expenses were denominated
in U.S. dollars and were largely for raw materials and
factory supplies. The remaining portion of our cost of sales and
operating expenses was principally denominated in the Asian
currency where our production facilities are located and largely
consisted of labor and utilities. To the extent that the
U.S. dollar weakens against these Asian-based currencies,
similar foreign currency denominated transactions in the future
will result in higher sales and higher operating expenses, with
operating expenses having the greater impact on our financial
results. Similarly, our sales and operating expenses will
decrease if the U.S. dollar strengthens against these
foreign currencies. We performed a sensitivity analysis of our
foreign currency exposure as of December 31, 2010 to assess
the potential impact of fluctuations in exchange rates for all
foreign denominated sales and expenses. Assuming a 10% adverse
movement from the year ended December 31, 2010 exchange
rates of the U.S. dollar compared to all of these
Asian-based currencies as of December 31, 2010, our
operating income for 2010 would have been approximately
$77 million lower.
48
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.
We have foreign currency exchange rate exposure on our
stockholders equity as a result of the translation of our
subsidiaries where the Japanese yen is the functional currency.
To the extent the U.S. dollar strengthens against the
Japanese yen, the translation of these foreign currency
denominated transactions will result in reduced sales, operating
expenses, assets and liabilities. Similarly, our sales,
operating expenses, assets and liabilities will increase if the
U.S. dollar weakens against the Japanese yen. The effect of
foreign exchange rate translation on our Consolidated Balance
Sheet for the years ended December 31, 2010 and 2009 was a
net foreign translation gain of $8.2 million and a loss of
$0.5 million, respectively, and was recognized as an
adjustment to equity through other comprehensive income.
Interest
Rate Risks
We have interest rate risk with respect to our long-term debt.
As of December 31, 2010, we had a total of
$1,364.3 million of debt of which 73.4% was fixed rate debt
and 26.6% was variable rate debt. Our variable rate debt is
principally related to our foreign borrowings and any amounts
outstanding under our $100.0 million revolving line of
credit, under which no amounts were drawn as of
December 31, 2010. The fixed rate debt consisted of senior
notes; senior subordinated notes and subordinated notes. As of
December 31, 2009, we had a total of $1,434.2 million
of debt of which 83.3% was fixed rate debt and 16.7% was
variable rate debt. Changes in interest rates have different
impacts on the 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 expense 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
generally 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, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2012
|
|
2013(1)
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
(In thousands)
|
|
$
|
42,579
|
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
250,000
|
|
|
$
|
|
|
|
$
|
609,283
|
|
|
$
|
1,001,862
|
|
|
$
|
1,431,057
|
|
Average interest rate
|
|
|
2.5
|
%
|
|
|
|
|
|
|
6.3
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
8.2
|
%
|
|
|
7.2
|
%
|
|
|
|
|
Variable rate debt
(In thousands)
|
|
$
|
107,502
|
|
|
$
|
82,132
|
|
|
$
|
136,065
|
|
|
$
|
31,636
|
|
|
$
|
5,103
|
|
|
$
|
|
|
|
$
|
362,438
|
|
|
$
|
375,174
|
|
Average interest rate
|
|
|
3.3
|
%
|
|
|
3.6
|
%
|
|
|
4.4
|
%
|
|
|
3.3
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
(1) |
|
Included in 2013 is $100.0 million of our 6.25% Convertible
Subordinated Notes due December 2013, which was converted into
common stock in January 2011, as discussed in Note 12 to
our Consolidated Financial Statements included in Item 8 of
this Annual Report. |
See Note 14 to our Consolidated Financial Statements
included in Item 8 of this Annual Report for a discussion
on the fair valuation of our debt instruments.
Equity
Price Risks
We have convertible notes that are convertible into our common
stock. 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.
49
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
We present the information required by Item 8 of
Form 10-K
here in the following order:
|
|
|
|
|
|
|
Page
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
95
|
|
50
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, 2010 and 2009, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2010 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, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys 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 Managements 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
Companys 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.
A companys 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 companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
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 24, 2011
51
AMKOR
TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
2,939,483
|
|
|
$
|
2,179,109
|
|
|
$
|
2,658,602
|
|
Cost of sales
|
|
|
2,275,727
|
|
|
|
1,698,713
|
|
|
|
2,096,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
663,756
|
|
|
|
480,396
|
|
|
|
561,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
242,424
|
|
|
|
210,907
|
|
|
|
251,756
|
|
Research and development
|
|
|
47,534
|
|
|
|
44,453
|
|
|
|
56,227
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
671,117
|
|
Gain on sale of real estate
|
|
|
|
|
|
|
(281
|
)
|
|
|
(9,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
289,958
|
|
|
|
255,079
|
|
|
|
969,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
373,798
|
|
|
|
225,317
|
|
|
|
(407,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
85,595
|
|
|
|
102,396
|
|
|
|
118,729
|
|
Interest expense, related party
|
|
|
15,250
|
|
|
|
13,000
|
|
|
|
6,250
|
|
Interest income
|
|
|
(2,950
|
)
|
|
|
(2,367
|
)
|
|
|
(8,749
|
)
|
Foreign currency loss (gain)
|
|
|
13,756
|
|
|
|
3,339
|
|
|
|
(61,057
|
)
|
Loss (gain) on debt retirement, net
|
|
|
18,042
|
|
|
|
(15,088
|
)
|
|
|
(35,987
|
)
|
Equity in earnings of unconsolidated affiliate
|
|
|
(6,435
|
)
|
|
|
(2,373
|
)
|
|
|
|
|
Other income, net
|
|
|
(619
|
)
|
|
|
(113
|
)
|
|
|
(1,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
122,639
|
|
|
|
98,794
|
|
|
|
18,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
251,159
|
|
|
|
126,523
|
|
|
|
(425,688
|
)
|
Income tax expense (benefit)
|
|
|
19,012
|
|
|
|
(29,760
|
)
|
|
|
31,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
232,147
|
|
|
|
156,283
|
|
|
|
(457,476
|
)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(176
|
)
|
|
|
(303
|
)
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor
|
|
$
|
231,971
|
|
|
$
|
155,980
|
|
|
$
|
(456,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Amkor per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
0.85
|
|
|
$
|
(2.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.91
|
|
|
$
|
0.67
|
|
|
$
|
(2.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing per common share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
183,312
|
|
|
|
183,067
|
|
|
|
182,734
|
|
Diluted
|
|
|
282,602
|
|
|
|
263,379
|
|
|
|
182,734
|
|
The accompanying notes are an integral part of these statements.
52
AMKOR
TECHNOLOGY, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
404,998
|
|
|
$
|
395,406
|
|
Restricted cash
|
|
|
17,782
|
|
|
|
2,679
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade, net of allowances
|
|
|
392,327
|
|
|
|
328,252
|
|
Other
|
|
|
17,970
|
|
|
|
18,666
|
|
Inventories
|
|
|
191,072
|
|
|
|
155,185
|
|
Other current assets
|
|
|
37,918
|
|
|
|
32,737
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,062,067
|
|
|
|
932,925
|
|
Property, plant and equipment, net
|
|
|
1,537,226
|
|
|
|
1,364,630
|
|
Intangibles, net
|
|
|
13,524
|
|
|
|
9,975
|
|
Investments
|
|
|
28,215
|
|
|
|
19,108
|
|
Restricted cash
|
|
|
1,945
|
|
|
|
6,795
|
|
Other assets
|
|
|
93,845
|
|
|
|
99,476
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,736,822
|
|
|
$
|
2,432,909
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
150,081
|
|
|
$
|
88,944
|
|
Trade accounts payable
|
|
|
443,333
|
|
|
|
361,263
|
|
Accrued expenses
|
|
|
178,794
|
|
|
|
155,630
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
772,208
|
|
|
|
605,837
|
|
Long-term debt
|
|
|
964,219
|
|
|
|
1,095,241
|
|
Long-term debt, related party
|
|
|
250,000
|
|
|
|
250,000
|
|
Pension and severance obligations
|
|
|
103,543
|
|
|
|
83,067
|
|
Other non-current liabilities
|
|
|
10,171
|
|
|
|
9,063
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,100,141
|
|
|
|
2,043,208
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 15)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Amkor stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000 shares
authorized, designated Series A, none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 500,000 shares
authorized, 183,467 and 183,171 shares issued, and 183,420
and 183,171 shares outstanding, in 2010 and 2009,
respectively
|
|
|
183
|
|
|
|
183
|
|
Additional paid-in capital
|
|
|
1,504,927
|
|
|
|
1,500,246
|
|
Accumulated deficit
|
|
|
(890,270
|
)
|
|
|
(1,122,241
|
)
|
Accumulated other comprehensive income
|
|
|
15,457
|
|
|
|
5,021
|
|
Treasury stock, at cost, 47 shares in 2010
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amkor stockholders equity:
|
|
|
630,013
|
|
|
|
383,209
|
|
Noncontrolling interests in subsidiaries
|
|
|
6,668
|
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
636,681
|
|
|
|
389,701
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,736,822
|
|
|
$
|
2,432,909
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total Amkor
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
Interest in
|
|
|
Total
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
In Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Cost
|
|
|
Equity
|
|
|
Subsidiaries
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2007
|
|
|
181,799
|
|
|
$
|
182
|
|
|
$
|
1,482,186
|
|
|
$
|
(821,526
|
)
|
|
$
|
(6,223
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
654,619
|
|
|
$
|
7,022
|
|
|
$
|
661,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,695
|
)
|
|
|
(781
|
)
|
|
|
(457,476
|
)
|
Unrealized loss on available for sale investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
Reclassification adjustment for losses included in income, net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
Pension liablility adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,623
|
|
|
|
|
|
|
|
|
|
|
|
20,623
|
|
|
|
|
|
|
|
20,623
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,801
|
|
|
|
|
|
|
|
|
|
|
|
3,801
|
|
|
|
(217
|
)
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432,271
|
)
|
|
|
(998
|
)
|
|
|
(433,269
|
)
|
Issuance of stock through employee stock purchase plan and stock
options
|
|
|
1,236
|
|
|
|
1
|
|
|
|
10,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,203
|
|
|
|
|
|
|
|
10,203
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,588
|
|
|
|
|
|
|
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
183,035
|
|
|
$
|
183
|
|
|
$
|
1,496,976
|
|
|
$
|
(1,278,221
|
)
|
|
$
|
18,201
|
|
|
|
|
|
|
$
|
|
|
|
$
|
237,139
|
|
|
$
|
6,024
|
|
|
$
|
243,163
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,980
|
|
|
|
303
|
|
|
|
156,283
|
|
Pension liablility adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,632
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,632
|
)
|
|
|
|
|
|
|
(12,632
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
|
(548
|
)
|
|
|
165
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,800
|
|
|
|
468
|
|
|
|
143,268
|
|
Issuance of stock through stock options
|
|
|
136
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
693
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,577
|
|
|
|
|
|
|
|
2,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
183,171
|
|
|
$
|
183
|
|
|
$
|
1,500,246
|
|
|
$
|
(1,122,241
|
)
|
|
$
|
5,021
|
|
|
|
|
|
|
$
|
|
|
|
$
|
383,209
|
|
|
$
|
6,492
|
|
|
$
|
389,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,971
|
|
|
|
176
|
|
|
|
232,147
|
|
Pension liablility adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
2,270
|
|
|
|
|
|
|
|
2,270
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,407
|
|
|
|
176
|
|
|
|
242,583
|
|
Treasury stock acquired through surrender of shares for tax
withholdings or forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(284
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
(284
|
)
|
Issuance of stock through employee stock compensation plans
|
|
|
296
|
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
1,166
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,515
|
|
|
|
|
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
183,467
|
|
|
$
|
183
|
|
|
$
|
1,504,927
|
|
|
$
|
(890,270
|
)
|
|
$
|
15,457
|
|
|
|
(47
|
)
|
|
$
|
(284
|
)
|
|
$
|
630,013
|
|
|
$
|
6,668
|
|
|
$
|
636,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
232,147
|
|
|
$
|
156,283
|
|
|
$
|
(457,476
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
323,608
|
|
|
|
305,510
|
|
|
|
309,920
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
671,117
|
|
Amortization of deferred debt issuance costs and discounts
|
|
|
4,458
|
|
|
|
4,780
|
|
|
|
4,717
|
|
Provision for accounts receivable
|
|
|
508
|
|
|
|
(80
|
)
|
|
|
265
|
|
Deferred income taxes
|
|
|
4,736
|
|
|
|
(30,599
|
)
|
|
|
8,811
|
|
Equity in earnings of unconsolidated affiliate
|
|
|
(6,435
|
)
|
|
|
(2,373
|
)
|
|
|
|
|
Loss (gain) on debt retirement, net
|
|
|
10,562
|
|
|
|
(15,088
|
)
|
|
|
(35,987
|
)
|
Loss on disposal of fixed assets, net
|
|
|
423
|
|
|
|
7,262
|
|
|
|
2,887
|
|
Stock-based compensation
|
|
|
3,515
|
|
|
|
2,577
|
|
|
|
4,588
|
|
Other, net
|
|
|
4,317
|
|
|
|
838
|
|
|
|
1,243
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(58,225
|
)
|
|
|
(68,912
|
)
|
|
|
144,942
|
|
Other receivables
|
|
|
203
|
|
|
|
(4,338
|
)
|
|
|
(9,070
|
)
|
Inventories
|
|
|
(34,882
|
)
|
|
|
(20,991
|
)
|
|
|
16,696
|
|
Other current assets
|
|
|
6,876
|
|
|
|
5,173
|
|
|
|
6,155
|
|
Other assets
|
|
|
(1,365
|
)
|
|
|
(1,214
|
)
|
|
|
2,922
|
|
Trade accounts payable
|
|
|
18,379
|
|
|
|
96,854
|
|
|
|
(81,598
|
)
|
Accrued expenses
|
|
|
18,019
|
|
|
|
(108,712
|
)
|
|
|
92,115
|
|
Other non-current liabilities
|
|
|
15,751
|
|
|
|
(65,245
|
)
|
|
|
(76,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
542,595
|
|
|
|
261,725
|
|
|
|
605,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(445,669
|
)
|
|
|
(173,496
|
)
|
|
|
(386,239
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
3,125
|
|
|
|
3,116
|
|
|
|
15,480
|
|
Investment in unconsolidated affiliate
|
|
|
|
|
|
|
(16,735
|
)
|
|
|
|
|
Purchase of equipment leased to unconsolidated affiliate
|
|
|
|
|
|
|
(44,681
|
)
|
|
|
|
|
Financing lease payment from unconsolidated affiliate
|
|
|
13,384
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
(10,253
|
)
|
|
|
(2,898
|
)
|
|
|
(2,242
|
)
|
Proceeds from sale of securities
|
|
|
|
|
|
|
|
|
|
|
2,460
|
|
Other investing activities
|
|
|
(5,508
|
)
|
|
|
(6,184
|
)
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(444,921
|
)
|
|
|
(240,878
|
)
|
|
|
(371,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities
|
|
|
3,261
|
|
|
|
41,410
|
|
|
|
619
|
|
Payments under revolving credit facilities
|
|
|
(34,253
|
)
|
|
|
(10,171
|
)
|
|
|
(633
|
)
|
Proceeds from issuance of short-term working capital facility
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
Payments of short-term working capital facility
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
611,007
|
|
|
|
100,000
|
|
|
|
|
|
Proceeds from issuance of long-term debt, related party
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
Payments of long-term debt, net of redemption premiums and
discounts
|
|
|
(663,433
|
)
|
|
|
(338,104
|
)
|
|
|
(233,814
|
)
|
Payments for debt issuance costs
|
|
|
(7,487
|
)
|
|
|
(8,479
|
)
|
|
|
|
|
Proceeds from issuance of stock through stock compensation plans
|
|
|
1,048
|
|
|
|
693
|
|
|
|
10,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(89,857
|
)
|
|
|
(49,651
|
)
|
|
|
(223,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
1,775
|
|
|
|
(106
|
)
|
|
|
3,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
9,592
|
|
|
|
(28,910
|
)
|
|
|
14,246
|
|
Cash and cash equivalents, beginning of period
|
|
|
395,406
|
|
|
|
424,316
|
|
|
|
410,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
404,998
|
|
|
$
|
395,406
|
|
|
$
|
424,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
96,642
|
|
|
$
|
116,223
|
|
|
$
|
121,297
|
|
Income taxes
|
|
|
5,906
|
|
|
|
11,991
|
|
|
|
21,997
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable for equipment leased to unconsolidated affiliate
|
|
|
|
|
|
|
44,681
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
55
AMKOR
TECHNOLOGY, INC.
|
|
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
Description
of Business
Amkor is one of the worlds leading providers of outsourced
semiconductor packaging (sometimes referred to as assembly) and
test services. Amkor pioneered the outsourcing of semiconductor
packaging and test services through a predecessor corporation in
1968 and over the years we have built a leading position by:
|
|
|
|
|
Designing and developing new package and test technologies;
|
|
|
|
Offering a broad portfolio of packaging and test technologies
and services;
|
|
|
|
Cultivating long-standing relationships with our customers,
which include many of the worlds leading semiconductor
companies, and collaborating with original equipment
manufacturers (OEMs);
|
|
|
|
Developing expertise in high-volume manufacturing
processes; and
|
|
|
|
Having a diversified operational scope, with research and
development, engineering and production capabilities in China,
Japan, Korea, the Philippines, 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. Our
investments in variable interest entities in which we are the
primary beneficiary are consolidated. We reflect the remaining
portion of variable interest entities and foreign subsidiaries
that are not wholly owned as noncontrolling interests.
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, for which we are
the primary beneficiary. As of December 31, 2010, the
combined book value of the assets and the liabilities associated
with these Philippine realty corporations included in our
Consolidated Balance Sheet was $18.1 million and
$0.5 million, respectively. The impact of consolidating
these variable interest entities on our Consolidated Statements
of Operations was not significant and other than our lease
payments, we have not provided any significant assistance or
other financial support to these variable interest entities for
the years ended December 31, 2010, 2009 or 2008. The
creditors of the Philippine realty corporations have no recourse
to our general credit.
Foreign
Currency Translation
The U.S. dollar is the functional currency of our
subsidiaries in China, Korea, the Philippines, Singapore, and
Taiwan, 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 which are 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 was the functional currency of our
subsidiaries in Taiwan prior to July 1, 2009. The asset and
liability amounts of these subsidiaries are translated
56
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 translation
adjustments are reported as a component of accumulated other
comprehensive income 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, 2010, our cash and cash equivalents were
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 our business or future
results and cause actual results to vary materially from
historical results include, but are not limited to, dependence
on the highly cyclical nature of the semiconductor industry,
fluctuations in operating results, 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, our ability to fund
liquidity needs, our ability to draw on our current loan
facilities, 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, proposed changes to
U.S. tax laws, our management information systems may prove
inadequate, attracting and retaining qualified employees,
difficulties consolidating and evolving our operational
capabilities, our dependence on materials and equipment
suppliers, loss of customers, our need for significant capital
expenditures, impairment charges, litigation incident to our
business, adverse tax consequences, the development of new
proprietary technology and the enforcement of intellectual
property rights by or against us, complexity of packaging and
test processes, competition, our need to comply with existing
and future environmental regulations, fire, flood or other
calamity and continued control by existing stockholders.
We believe that our cash flow from operating activities together
with existing cash and cash equivalents will be sufficient to
fund our working capital, capital expenditure and debt service
requirements for at least the next twelve months. Thereafter,
our liquidity will continue to be affected by, among other
things, volatility in the global economy and credit markets, the
performance of our business, our capital expenditure levels 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.
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.
57
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
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, an
amount in escrow related to an arbitration proceeding (see
Note 15) and foreign trade compliance requirements.
Restricted cash, non-current, consists of collateral for foreign
tax obligations.
Inventories
Inventories are stated at the lower of cost or market (net
realizable value). Cost is principally determined by standard
cost (on a
first-in,
first-out basis for raw materials and purchased components and
an average cost basis for
work-in-process)
or by the weighted moving average method (for commodities), both
which approximate actual cost. We review and set our standards
as needed, but at a minimum on an annual basis. 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. When a determination is made that the inventory
will not be utilized in production or is not saleable, it is
written-off.
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:
|
|
|
Land use rights
|
|
50 years
|
Buildings and improvements
|
|
10 to 25 years
|
Machinery and equipment
|
|
3 to 7 years
|
Software and computer equipment
|
|
3 to 5 years
|
Furniture, fixtures and other equipment
|
|
3 to 10 years
|
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 $317.7 million, $298.5 million and
$299.8 million for 2010, 2009 and 2008, respectively.
We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. Recoverability of a long-lived asset group
to be held and used in operations 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 group. If such asset group is considered to be impaired,
58
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
the impairment loss is measured as the amount by which the
carrying amount of the asset group 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.
Intangibles
and Goodwill
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 may 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 future cash flows. Amortization of finite-lived
assets was $5.9 million, $7.0 million and
$10.1 million for 2010, 2009 and 2008, respectively.
We previously had goodwill which was fully impaired and written
off in 2008.
Investments
On October 30, 2009, we acquired a 30% interest in an
assembly and test services business in Japan, J-Devices
Corporation (J-Devices). See Note 10 for
additional information. Our investment is accounted for as an
equity method investment. We evaluate the investment for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. To the extent
the book value of the investment exceeds its assessed fair
value, we will record an appropriate impairment charge.
Other
Non-current Assets
Other non-current assets consist principally of deferred income
tax assets, financing lease receivables (see Note 10),
deferred debt issuance costs, refundable security deposits and
prepaid pension assets.
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 4 for more
information.
Accumulated
Other Comprehensive Income
The components of accumulated other comprehensive income consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Unrealized foreign currency translation gains
|
|
$
|
20,167
|
|
|
$
|
12,001
|
|
Unrecognized pension costs
|
|
|
(4,710
|
)
|
|
|
(6,980
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
15,457
|
|
|
$
|
5,021
|
|
|
|
|
|
|
|
|
|
|
The unrecognized pension costs are net of deferred income tax
benefits of $1.0 million and $0.8 million at
December 31, 2010 and 2009, respectively. No income taxes
are provided on foreign currency translation gains as foreign
earnings are considered permanently invested.
Treasury
Stock
Treasury stock is acquired by us when certain restricted share
awards vest or are forfeited. At the vesting or retirement
eligibility date, a participant has a tax liability and,
pursuant to the recipients award agreement, we
59
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
withhold restricted shares to satisfy statutory minimum tax
withholding obligations. The withheld or forfeited restricted
shares are accounted for as treasury stock and carried at cost.
See Note 3 for more information.
Fair
Value Measurements
We apply fair value accounting for all financial assets and
liabilities that are recognized or disclosed at fair value in
the financial statements on a recurring or nonrecurring basis.
We define fair value as the price that would be received from
selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants at the
measurement date. See Note 14 for further discussion of
fair value measurements.
Revenue
Recognition
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. If the
revenue recognition criteria are not met, we defer the revenue.
Deferred revenue generally results from two types of
transactions: customer advances and invoicing at interim points
prior to shipment. Customer advances represent supply agreements
with customers where we commit capacity in exchange for customer
prepayment of services. These prepayments are deferred and
recorded as customer advances within accrued expenses and other
non-current liabilities. Deferred revenue also relates to
contractual invoicing at interim points prior to the shipment of
the finished product. The invoicing that is completed in advance
of our revenue recognition criteria being met is recorded as
deferred revenue.
We generally 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.
An allowance for sales credits is recorded as a reduction to
sales and accounts receivable during the period of sale such
that accounts receivable is reported at its estimated net
realizable value. The allowance for sales credits is an estimate
of the future credits we will issue for billing adjustments
primarily for invoicing corrections and miscellaneous customer
claims and is estimated based upon recent credit issuance,
historical experience, as well as specific identification of
known or expected sales credits at the end of the reporting
period. Additionally, provisions are made for doubtful accounts
when there is doubt as to the collectibility of accounts
receivable. The allowance for doubtful accounts is recorded as
bad debt expense and is classified as selling, general and
administrative expense. The allowance for doubtful accounts is
based upon specification of doubtful accounts considering the
age of the receivable balance, the customers historical
payment history and current credit worthiness as well as
specific identification of any known or expected collectability
issues.
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 cost 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 and maintenance
of research equipment, 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.
60
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 as well as net operating loss and
tax credit carryforwards. 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.
We recognize in our Consolidated Financial Statements the impact
of an income 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 4 for more information regarding
unrecognized income tax benefits.
|
|
2.
|
New
Accounting Standards
|
Recently
Adopted Standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements (ASU
2010-06).
ASU 2010-06
amended ASC 820 to clarify certain existing fair value
disclosures and require a number of additional disclosures. The
guidance in ASU
2010-06
clarified that disclosures should be presented separately for
each class of assets and liabilities measured at
fair value and provided guidance on how to determine the
appropriate classes of assets and liabilities to be presented.
ASU 2010-06
also clarified the requirement for entities to disclose
information about both the valuation techniques and inputs used
in estimating Level 2 and Level 3 fair value
measurements. In addition, ASU
2010-06
introduced new requirements to disclose the amounts (on a gross
basis) and reasons for any significant transfers between
Levels 1, 2, and 3 of the fair value hierarchy and present
information regarding the purchases, sales, issuances, and
settlements of Level 3 assets and liabilities on a gross
basis. With the exception of the requirement to present changes
in Level 3 measurements on a gross basis, which is delayed
until 2011, the guidance in ASU
2010-06
became effective for reporting periods beginning after
December 15, 2009. Our adoption of ASU
2010-06 on
January 1, 2010, did not have a material impact on our
financial statements. We are currently assessing the impact the
new disclosure guidance may have on our consolidated financial
statements upon adoption in 2011.
In December 2009, the FASB issued ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities (ASU
2009-17).
This ASU codified consolidation guidance previously issued in
June 2009 which applies to variable interest entities and will
affect the overall consolidation analysis under FASB
Interpretation No. 46(R). This standard was effective for
fiscal years beginning after November 15, 2009. Our
adoption of ASU
2009-17 on
January 1, 2010, did not have a material impact on our
financial statements.
In December 2009, the FASB issued ASU
2009-16,
Accounting for Transfers of Financial Assets (ASU
2009-16).
This ASU codified guidance previously issued in June 2009 which
amends existing derecognition guidance, eliminates the exemption
from consolidation for qualifying special-purpose entities, and
requires additional disclosures about a transferors
continuing involvement in transferred financial assets. This
standard
61
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
was effective for fiscal years beginning after November 15,
2009, and applies to financial asset transfers occurring on or
after the effective date. Our adoption of ASU
2009-16 on
January 1, 2010, did not have a material impact on our
financial statements.
|
|
3.
|
Share-Based
Compensation Plans
|
Beginning in 2006, all of our share-based compensation,
including grants of employee stock options, is measured at fair
value and expensed over the service period (generally the
vesting period). For all grants, the amount of compensation
expense to be recognized is adjusted for an estimated forfeiture
rate which is based on historical data. The following table
presents share-based compensation expense attributable to stock
options and restricted shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Stock options
|
|
$
|
2,473
|
|
|
$
|
2,577
|
|
|
$
|
4,588
|
|
Restricted shares
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
3,515
|
|
|
$
|
2,577
|
|
|
$
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents share-based compensation expense
included in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cost of sales
|
|
$
|
27
|
|
|
$
|
81
|
|
|
$
|
823
|
|
Selling, general, and administrative
|
|
|
3,053
|
|
|
|
2,097
|
|
|
|
3,087
|
|
Research and development
|
|
|
435
|
|
|
|
399
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
3,515
|
|
|
$
|
2,577
|
|
|
$
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Incentive Plans
2007 Equity Incentive Plan. On August 6,
2007, our 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 eligible for awards include employees, directors and
consultants who provide services to Amkor and its subsidiaries.
The effective date of this plan was January 1, 2008, and
there were originally 17,000,000 shares of our common stock
reserved for issuance under the 2007 Equity Incentive Plan.
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 options granted under the
Director Plan were automatic and non-discretionary. Each option
granted to a non-employee director vests over a three year
period.
62
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 plans, the respective plan termination
dates and shares available for grant as of December 31,
2010 is shown below.
|
|
|
|
|
|
|
2007 Equity
|
|
2003
|
Stock Plans
|
|
Incentive Plan
|
|
Inducement Plan
|
|
Contractual life (years)
|
|
10
|
|
10
|
Plan termination date
|
|
Board of Directors
Discretion
|
|
Board of Directors
Discretion
|
Shares available for grant at December 31, 2010 (in
thousands)
|
|
15,823
|
|
436
|
Stock
options
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 exercisable
pursuant to a two to five year vesting schedule and the term of
the options granted is no longer than ten years.
In order to calculate the fair value of stock options at the
date of grant, we use 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 is a summary of all option activity for the year
ended December 31, 2010:
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
(Years)
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2009
|
|
|
8,302
|
|
|
$
|
10.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
120
|
|
|
|
7.71
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(196
|
)
|
|
|
5.34
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(383
|
)
|
|
|
14.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
7,843
|
|
|
$
|
10.26
|
|
|
|
3.31
|
|
|
$
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest at December 31, 2010
|
|
|
7,787
|
|
|
$
|
10.27
|
|
|
|
3.28
|
|
|
$
|
3,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
7,108
|
|
|
$
|
10.40
|
|
|
|
2.87
|
|
|
$
|
3,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following assumptions were used to calculate weighted
average fair values of the options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Expected life (in years)
|
|
|
6.0
|
|
|
|
5.9
|
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
2.3
|
%
|
|
|
3.3
|
%
|
Volatility
|
|
|
71
|
%
|
|
|
76
|
%
|
|
|
77
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value per option granted
|
|
$
|
5.00
|
|
|
$
|
2.70
|
|
|
$
|
7.85
|
|
The intrinsic value of options exercised for the years ended
December 31, 2010, 2009 and 2008 was $0.3 million,
$0.2 million and $4.1 million, respectively. For the
years ended December 31, 2010, 2009 and 2008, cash received
under all share-based payment arrangements was
$1.0 million, $0.7 million and $10.2 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. Total
unrecognized compensation expense from stock options, including
any forfeiture estimate, was $3.2 million as of
December 31, 2010, which is expected to be recognized over
a weighted-average period of 1.6 years beginning
January 1, 2011. To the extent that the actual forfeiture
rate is different than what we have anticipated, the share-based
compensation expense related to these awards will be different
from our expectations.
Restricted
Shares
In February 2010, we granted 472,000 restricted shares to
employees under the 2007 Equity Incentive Plan. The restricted
shares vest ratably over four years, with 25% of the shares
vesting at the end of the first year, and
1/48th each
month thereafter, such that 100% of the shares will become
vested on the fourth anniversary of the award date, subject to
the recipients continued employment with us on the
applicable vesting dates. In addition, provided that the
restricted shares have not been forfeited earlier, the
restricted shares will vest upon the recipients death,
disability or retirement, or upon a change in control of Amkor.
Although ownership of the restricted shares does not transfer to
the recipients until the shares have vested, recipients have
voting and dividend rights on these shares from the date of
grant. The value of the restricted shares is determined based on
the fair market value of the underlying shares on the date of
the grant and is recognized ratably over the vesting period or
to the date on which the recipient becomes retirement eligible,
if shorter. Upon option exercise or the vesting of restricted
stock awards, we issue new shares of common stock.
The Equity Incentive Plan provides that when a recipients
age plus years of service equals or exceeds 75, the recipient
will be eligible to voluntarily retire and become fully vested
in their restricted shares upon retirement. Consequently, under
federal tax law, when a recipient becomes retirement eligible,
the employee is immediately taxable on 100% of their restricted
shares whether or not the recipient actually retires. Upon the
earlier of retirement eligibility or vesting of the restricted
shares, the recipient has a tax liability and pursuant to the
recipients award agreement, a portion of the restricted
shares are withheld to satisfy the recipients statutory
minimum tax withholding obligations. The shares withheld are
accounted for as treasury stock at cost, which is determined by
the closing stock price per share on the applicable date of
vesting or retirement eligibility.
64
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes our restricted share activity for
the year ended December 31, 2010:
Restricted
Shares
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(In thousands)
|
|
|
Fair Value
|
|
|
Nonvested at December 31, 2009
|
|
|
|
|
|
$
|
|
|
Awards granted
|
|
|
472
|
|
|
|
5.96
|
|
Awards vested
|
|
|
(81
|
)
|
|
|
5.96
|
|
Awards forfeited
|
|
|
(19
|
)
|
|
|
5.96
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
372
|
|
|
$
|
5.96
|
|
|
|
|
|
|
|
|
|
|
Awards vested include 81,000 shares for retirement eligible
recipients whose restricted shares are treated for accounting
and tax purposes as if vested when they meet the retirement
eligible date. The fair value of these shares upon vesting
during 2010 was $0.5 million. Of those 81,000 shares,
27,806 shares were withheld to satisfy tax withholding
obligations and are treated as treasury stock, at a cost of
$0.2 million.
The unrecognized compensation cost, including a forfeiture
estimate, was $1.5 million as of December 31, 2010,
which is expected to be recognized over a weighted average
period of approximately 2.9 years beginning January 1,
2011. To the extent that the actual forfeiture rate is different
than what we have anticipated, the share-based compensation
expense related to these awards will be different from our
expectations.
In February 2011, we granted 805,000 restricted shares to
employees under the 2007 Equity Incentive Plan. The restricted
shares vest over a four-year period and their valuation is
determined based on the fair market value of the underlying
shares on the date of grant.
Geographic sources of income (loss) before income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
(15,604
|
)
|
|
$
|
(45,512
|
)
|
|
$
|
(19,141
|
)
|
Foreign
|
|
|
266,763
|
|
|
|
172,035
|
|
|
|
(406,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes
|
|
$
|
251,159
|
|
|
$
|
126,523
|
|
|
$
|
(425,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision 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.
65
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
The components of the provision (benefit) for income taxes are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10
|
|
|
$
|
(1,882
|
)
|
|
$
|
272
|
|
State
|
|
|
|
|
|
|
316
|
|
|
|
|
|
Foreign
|
|
|
14,266
|
|
|
|
2,405
|
|
|
|
22,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,276
|
|
|
|
839
|
|
|
|
22,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,098
|
|
|
|
2,286
|
|
|
|
|
|
State
|
|
|
300
|
|
|
|
119
|
|
|
|
|
|
Foreign
|
|
|
2,338
|
|
|
|
(33,004
|
)
|
|
|
8,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,736
|
|
|
|
(30,599
|
)
|
|
|
8,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
19,012
|
|
|
$
|
(29,760
|
)
|
|
$
|
31,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the U.S. federal statutory
income tax rate of 35% and our income tax provision (benefit) is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
U.S. federal tax at 35%
|
|
$
|
87,929
|
|
|
$
|
44,257
|
|
|
$
|
(148,951
|
)
|
State taxes, net of federal benefit
|
|
|
523
|
|
|
|
884
|
|
|
|
843
|
|
Foreign (loss) income taxed at different rates
|
|
|
(80,461
|
)
|
|
|
(56,301
|
)
|
|
|
10,503
|
|
Foreign exchange loss (gain)
|
|
|
3,176
|
|
|
|
4,926
|
|
|
|
(54,238
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
231,185
|
|
Expiration of capital loss carryforward
|
|
|
|
|
|
|
22,714
|
|
|
|
34,518
|
|
Change in valuation allowance
|
|
|
15,004
|
|
|
|
(53,722
|
)
|
|
|
(29,165
|
)
|
Adjustments related to prior years
|
|
|
(4,281
|
)
|
|
|
12,198
|
|
|
|
(12,555
|
)
|
Income tax credits generated
|
|
|
(2,765
|
)
|
|
|
(9,377
|
)
|
|
|
(3,312
|
)
|
Repatriation of foreign earnings and profits
|
|
|
122
|
|
|
|
4,846
|
|
|
|
|
|
Other
|
|
|
(235
|
)
|
|
|
(185
|
)
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,012
|
|
|
$
|
(29,760
|
)
|
|
$
|
31,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, we recorded a $671.1 million goodwill impairment
charge which did not have a significant income tax benefit.
66
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following is a summary of the components of our deferred tax
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
163,661
|
|
|
$
|
154,351
|
|
Capital loss carryforwards
|
|
|
18,221
|
|
|
|
18,221
|
|
Income tax credits
|
|
|
22,366
|
|
|
|
24,582
|
|
Property, plant and equipment
|
|
|
20,065
|
|
|
|
18,253
|
|
Accrued liabilities
|
|
|
35,805
|
|
|
|
24,502
|
|
Unrealized foreign exchange loss
|
|
|
6,486
|
|
|
|
8,355
|
|
Other
|
|
|
17,522
|
|
|
|
22,530
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
284,126
|
|
|
|
270,794
|
|
Valuation allowance
|
|
|
(223,612
|
)
|
|
|
(208,925
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets net of valuation allowance
|
|
|
60,514
|
|
|
|
61,869
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3,460
|
|
|
|
4,484
|
|
Deferred gain
|
|
|
6,899
|
|
|
|
6,941
|
|
Other
|
|
|
7,478
|
|
|
|
5,642
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
17,837
|
|
|
|
17,067
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
42,677
|
|
|
$
|
44,802
|
|
|
|
|
|
|
|
|
|
|
Recognized as:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
8,438
|
|
|
$
|
9,677
|
|
Other assets
|
|
|
42,750
|
|
|
|
41,841
|
|
Other current liabilities
|
|
|
(5,683
|
)
|
|
|
(6,094
|
)
|
Other non-current liabilities
|
|
|
(2,828
|
)
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,677
|
|
|
$
|
44,802
|
|
|
|
|
|
|
|
|
|
|
In 2010, the valuation allowance on our deferred tax assets
increased by $14.7 million primarily as a result of an
increase associated with losses incurred in the U.S. and
certain foreign jurisdictions offset by a $3.0 million
decrease associated with the release of a valuation allowance on
certain net deferred tax assets in Taiwan. We released the
valuation allowance in Taiwan during the three months ended
June 30, 2010 because we believed that sufficient positive
evidence existed to support the conclusion that it is more
likely than not that we will realize the benefits of these
deferred tax assets. The positive evidence we considered was:
(i) the consistent profitability of these operations over a
two year period, which included the recent downturn in the
semiconductor industry in late 2008 and 2009; (ii) the
increase in profitability experienced in the second quarter of
2010 based on demand for the products from these operations; and
(iii) our expectation that we will realize substantially
all of the deferred tax assets over the next three years for
these operations.
In 2009, the valuation allowance on our deferred tax assets
decreased by $52.7 million primarily as a result of a
$25.6 million decrease associated with the release of a
valuation allowance on net deferred tax assets of our subsidiary
in Korea and a $22.7 million decrease associated with the
expiration of U.S. capital loss carryforwards.
67
AMKOR
TECHNOLOGY, INC.
Notes to
Consolidated Financial
Statements (Continued)
In 2008, the valuation allowance on our deferred tax assets
decreased by $29.4 million primarily as a result of a
$34.5 million decrease associated with the expiration of
U.S. capital loss carryforwards, partially offset by an
increase of $8.3 million for a valuation allowance
established against certain Japanese deferred tax assets.
At December 31, 2010, the valuation allowance included
amounts relating to tax benefits of tax deductions associated
with employee stock options. If