| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR | |
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2006 | |
| OR | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR | |
| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of Each Class Ordinary Shares | Name of Each Exchange on which Registered The Nasdaq Global Market* |
| Large accelerated filer ___ | Accelerated filer Ö | Non-accelerated filer ___ |
| (a) | Report of Independent Registered Public Accounting Firm dated April 30, 2007 (page F-1). |
| (b) | Consolidated Balance Sheets of the Company and subsidiaries as of December 31, 2005 and 2006 (page F-3). |
| (c) | Consolidated Statements of Income of the Company and subsidiaries for the years ended December 31, 2004, 2005 and 2006 (page F-4). |
| (d) | Consolidated Statements of Changes in Shareholders’ Equity of the Company and subsidiaries for the years ended December 31, 2004, 2005 and 2006 (page F-6). |
| (e) | Consolidated Statements of Cash Flows of the Company and subsidiaries for the years ended December 31, 2004, 2005 and 2006 (page F-7). |
| (f) | Notes to Consolidated Financial Statements of the Company and subsidiaries (page F-10). |
| 1. | (a) | Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 1(a) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| 4. | (a) | Asset Purchase Agreement by and among Flextronics Manufacturing (M) Sdn Bhd, as Buyer, ASE Electronics (M) Sdn. Bhd. as Company, dated as of October 3, 2005 (incorporated by reference to Exhibit 4(a) to the Company's annual report on Form 20-F for the year ended December 31, 2005). |
| (b) | Commission Agreement dated as of August 1, 2005 between ASE Electronics (M) Sdn. Bhd. and Gardex International Limited (incorporated by reference to Exhibit 4(d) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (c) | Commission Agreement dated as of August 1, 2005 between ASE Test, Inc. and Gardex International Limited (incorporated by reference to Exhibit 4(e) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (d) | Commission Agreement dated as of January 1, 2006 between ASE Electronics (M) Sdn. Bhd. and Gardex International Limited (incorporated by reference to Exhibit 4(f) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (e) | Commission Agreement dated as of January 1, 2006 between ASE Test, Inc. and Gardex International Limited (incorporated by reference to Exhibit 4(g) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (f) | Land Lease Agreement dated as of January 1, 1997 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economic Affairs (incorporated by reference to Exhibit 4(h) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| (g) | Land Lease Agreement dated as of January 1, 2002 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economic Affairs (incorporated by reference to Exhibit 4(i) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| (h) | Land Lease Agreement dated as of April 16, 2000 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economic Affairs (incorporated by reference to Exhibit 4(j) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| (i) | Land Lease Agreement dated as of May 1, 2000 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economic Affairs (incorporated by reference to Exhibit 4(k) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| (j) | Land Lease Agreement dated as of April 1, 2004 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economic Affairs (incorporated by reference to Exhibit 4(l) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| (k) | First Amendment to Lease Agreement dated June 7, 2000 between ISE Labs, Inc. and RND Funding Company, Inc. (incorporated by reference to Exhibit 4(j) to the Company’s annual report on Form 20-F for the year ended December 31, 2000). |
| (l) | Sublease Agreement dated June 2000 between ISE Labs, Inc. and Cirrus Logic, Inc. (incorporated by reference to Exhibit 4(n) to the Company’s annual report on Form 20-F for the year ended December 31, 2000). |
| (m) | Land Lease Agreement dated as of April 27, 2005 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economics Affairs (incorporated by reference to Exhibit 4(o) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (n) | Land Lease Agreement dated as of March 1, 2006 between ASE Test Taiwan and Nantze Export Processing Zone Administration of Ministry of Economics Affairs (incorporated by reference to Exhibit 4(p) to the Company’s annual report on Form 20-F for the year ended December 31, 2005). |
| (o) | Office Building Lease Agreement between ISE Labs, Inc. and JER/BRE Austin Tech L.P. dated October 4, 2001 (incorporated by reference to Exhibit 10.46 to ASE Inc.’s Registration Statement on Form F-3 filed on May 30, 2002). |
| (p) | Sublease Agreement dated May 5, 2004 between Apple Computer Limited and ASE Singapore Pte. Ltd. (incorporated by reference to Exhibit 4(s) to the Company’s annual report on Form 20-F for the year ended December 31, 2003). |
| 8. | (a) | List of Subsidiaries.* |
| 12. | (a) | Certification of Jason C.S. Chang, Chief Executive Officer of ASE Test Limited, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| (b) | Certification of Kenneth Hsiang, Chief Financial Officer of ASE Test Limited, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| 13. | (a) | Certification of the Chief Executive Officer and the Chief Financial Officer of ASE Test Limited for the purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code. |
| ASE TEST LIMITED | |||
| By: | /s/ Jason C.S. Chang | ||
| Name: Jason C.S. Chang | |||
| Title: Chief Executive Officer | |||
Page | |
Consolidated Financial Statements of ASE Test Limited and Subsidiaries | |
| F-1 | |
| F-3 | |
| F-4 | |
| F-6 | |
| F-7 | |
| F-10 |
ASSETS | 2005 | 2006 | LIABILITIES AND SHAREHOLDERS’ EQUITY | 2005 | 2006 | ||||||||||||
| Cash (Notes 2 and 4) | $ | 138,211 | $ | 89,715 | Financial liabilities at fair value through profit | ||||||||||||
| Financial assets at fair value through profit or | or loss (Notes 2, 3, 5 and 17) | $ | 172 | $ | 262 | ||||||||||||
loss (Notes 2, 3, 5 and 17) | 176 | - | Notes and accounts payable | 12,758 | 12,251 | ||||||||||||
| Available-for-sale financial assets - current | Payable to related parties (Note 18) | 10,347 | 5,137 | ||||||||||||||
(Notes 2, 6 and 17) | - | 89,341 | Payable for property, plant and equipment | 10,737 | 8,769 | ||||||||||||
| Notes and accounts receivable, net (Notes 2 and 7) | 77,334 | 57,875 | Income tax payable (Note 2) | 635 | 8,316 | ||||||||||||
| Receivables from related parties (Note 18) | 20,277 | 14,618 | Current portion of long-term debts (Notes 12, 17, | ||||||||||||||
| Inventories, net (Notes 2 and 8) | 21,239 | 16,935 | 19 and 20) | 49,743 | 34,418 | ||||||||||||
| Deferred income tax assets, net (Notes 2 and 16) | 8,933 | 23,561 | Accrued expenses (Note 14) | 37,986 | 21,725 | ||||||||||||
| Pledged time deposit (Note 19) | 1,902 | - | Other (Note 3) | 5,841 | 11,838 | ||||||||||||
| Prepayments and other (Note 3) | 17,415 | 13,509 | |||||||||||||||
| Total current liabilities | 128,219 | 102,716 | |||||||||||||||
| Total current assets | 285,487 | 305,554 | |||||||||||||||
| LONG-TERM DEBTS (Notes 12, 17, 19 and 20) | 245,303 | 85,706 | |||||||||||||||
| LONG-TERM INVESTMENTS | |||||||||||||||||
| Available-for-sale financial assets (Notes 2, 3, 6 | ACCRUED PENSION COST (Notes 2 and 14) | 6,412 | 6,648 | ||||||||||||||
and 17) | 81,251 | 204,851 | |||||||||||||||
| Equity method investments (Notes 2, 3 and 9) | 57,974 | 75,979 | DEFERRED INCOME TAX LIABILITIES (Notes 2 and 16) | - | 608 | ||||||||||||
| Financial assets carried at cost (Notes 2 and 3) | 1,000 | 1,000 | |||||||||||||||
| OTHER LIABILITIES | 2,200 | 5,622 | |||||||||||||||
140,225 | 281,830 | ||||||||||||||||
| Total liabilities | 382,134 | 201,300 | |||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | |||||||||||||||||
| (Notes 2, 10, 15, 18, 19, 20, 21, 22 and 23) | 430,079 | 389,435 | SHAREHOLDERS' EQUITY (Notes 1, 2 and 13) | ||||||||||||||
| Capital stock - $0.25 par value | |||||||||||||||||
| GOODWILL (Notes 2, 3 and 11) | 20,646 | 20,646 | Authorized - 600,000 thousand shares | ||||||||||||||
| Issued and outstanding - 100,059 thousand shares | |||||||||||||||||
| OTHER ASSETS | in 2005 and 100,138 thousand shares in 2006 | 25,015 | 25,035 | ||||||||||||||
| Deferred income tax assets, net (Notes 2 and 16) | 30,964 | 13,123 | Additional paid-in capital | 455,059 | 455,717 | ||||||||||||
| Deferred charges, net (Note 2) | 10,492 | 5,733 | Retained earnings | 125,954 | 276,723 | ||||||||||||
| Other (Notes 17 and 19) | 22,446 | 28,107 | Unrealized gain on financial instruments | - | 123,962 | ||||||||||||
| Cumulative translation adjustments | (47,823 | ) | (38,309 | ) | |||||||||||||
| Total other assets | 63,902 | 46,963 | |||||||||||||||
| Total shareholders’ equity | 558,205 | 843,128 | |||||||||||||||
| TOTAL | $ | 940,339 | $ | 1,044,428 | TOTAL | $ | 940,339 | $ | 1,044,428 | ||||||||
2004 | 2005 | 2006 | ||||||||||
| NET REVENUES (Notes 2, 18 and 22) | $ | 427,763 | $ | 420,929 | $ | |||||||
| COST OF REVENUES (Notes 15, 18 and 20) | 340,663 | 330,786 | 322,654 | |||||||||
| GROSS PROFIT | 87,100 | 90,143 | 195,052 | |||||||||
| OPERATING EXPENSES (Notes 15, 18 and 20) | ||||||||||||
| Selling (Note 2) | 11,393 | 11,235 | 8,149 | |||||||||
| General and administrative | 42,474 | 39,891 | 33,931 | |||||||||
| Research and development (Note 2) | 23,223 | 24,993 | 20,714 | |||||||||
| Total operating expenses | 77,090 | 76,119 | 62,794 | |||||||||
| INCOME FROM OPERATIONS | 10,010 | 14,024 | 132,258 | |||||||||
| NON-OPERATING INCOME (EXPENSES) | ||||||||||||
| Interest income | 578 | 1,598 | 3,369 | |||||||||
| Interest expense (Notes 2 and 10) | (6,765 | ) | (12,744 | ) | (13,165 | ) | ||||||
| Equity in earnings of equity method investees (Notes 2 and 9) | 9,844 | 6,637 | 18,005 | |||||||||
| Impairment loss on assets (Notes 2, 3 and 11) | (26,500 | ) | - | - | ||||||||
| Gain (Loss) on valuation of financial assets, net (Notes 2, 3 and 5) | 314 | 685 | (961 | ) | ||||||||
| Loss on valuation of financial liabilities, net (Notes 2, 3 and 5) | - | - | (770 | ) | ||||||||
| Foreign exchange gain (loss), net (Notes 2 and 3) | (139 | ) | 703 | 294 | ||||||||
| Gain on insurance settlement and impairment recovery (Note 21) | - | - | 32,145 | |||||||||
| Loss on fire damage (Note 21) | - | (51,224 | ) | - | ||||||||
| Other | (380 | ) | (3,465 | ) | (7,839 | ) | ||||||
| Net non-operating income (expenses) | (23,048 | ) | (57,810 | ) | 31,078 | |||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX | (13,038 | ) | (43,786 | ) | 163,336 | |||||||
| INCOME TAX EXPENSE (BENEFIT) (Notes 2 and 16) | (21,209 | ) | 2,537 | 12,567 | ||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 8,171 | (46,323 | ) | 150,769 | ||||||||
2004 | 2005 | 2006 | ||||||||||
| DISCONTINUED OPERATIONS (Note 23) | ||||||||||||
| Income from discontinued operations, net of income tax expense of $21 in 2004 and $66 in 2005 | $ | 16,968 | $ | 3,929 | $ | - | ||||||
| Gain on disposal of discontinued operations, net of income tax expense of $59 in 2005 | - | 6,910 | - | |||||||||
16,968 | 10,839 | - | ||||||||||
| NET INCOME (LOSS) | $ | 25,139 | $ | (35,484 | ) | $ | 150,769 | |||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||
| Basic | ||||||||||||
| Earnings (loss) from continuing operations | $ | 0.08 | $ | (0.46 | ) | $ | 1.51 | |||||
| Earnings from discontinued operations | 0.17 | 0.11 | - | |||||||||
| $ | 0.25 | $ | (0.35 | ) | $ | 1.51 | ||||||
| Diluted | $ | 0.25 | $ | (0.35 | ) | $ | 1.50 | |||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||
| Basic | 100,037,524 | 100,059,031 | 100,081,418 | |||||||||
| Diluted | 100,111,113 | 100,059,031 | 100,338,261 | |||||||||
Capital Stock | ||||||||||||||||||||||||||||||||
Additional Paid-in Capital | Earnings | Unrealized Gain (Loss) on Financial Instruments | Net Loss not Recognized in Periodic Pension Cost | Cumulative Translation Adjustments | Total Shareholders' Equity | |||||||||||||||||||||||||||
| BALANCE, JANUARY 1, 2004 | 99,546,216 | $ | 24,887 | $ | 450,635 | $ | $ | (400 | ) | $ | (578 | ) | $ | (64,856 | ) | $ | ||||||||||||||||
| Issuance of shares under stock option plans | 512,815 | 128 | 4,424 | - | - | - | - | 4,552 | ||||||||||||||||||||||||
| Net income in 2004 | - | - | - | 25,139 | - | - | - | 25,139 | ||||||||||||||||||||||||
| Reversal of unrealized loss on financial instruments | - | - | - | - | 340 | - | - | 340 | ||||||||||||||||||||||||
| Reversal of net loss not recognized in periodic pension cost | - | - | - | - | - | 578 | - | 578 | ||||||||||||||||||||||||
| Translation adjustments | - | - | - | - | - | - | 22,995 | 22,995 | ||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2004 | 100,059,031 | 25,015 | 455,059 | 161,438 | (60 | ) | - | (41,861 | ) | 599,591 | ||||||||||||||||||||||
| Net loss in 2005 | - | - | - | (35,484 | ) | - | - | - | (35,484 | ) | ||||||||||||||||||||||
| Reversal of unrealized loss on financial instruments | - | - | - | - | 60 | - | - | 60 | ||||||||||||||||||||||||
| Translation adjustments | - | - | - | - | - | - | (5,962 | ) | (5,962 | ) | ||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2005 | 100,059,031 | 25,015 | 455,059 | 125,954 | - | - | (47,823 | ) | 558,205 | |||||||||||||||||||||||
| Effect of initial adoption of ROC SFAS No. 34 | - | - | - | - | 83,751 | - | - | 83,751 | ||||||||||||||||||||||||
| Issuance of shares under stock option plans | 79,201 | 20 | 658 | - | - | - | - | 678 | ||||||||||||||||||||||||
| Net income in 2006 | - | - | - | 150,769 | - | - | - | 150,769 | ||||||||||||||||||||||||
| Unrealized gain on financial instruments | - | - | - | - | 40,211 | - | - | 40,211 | ||||||||||||||||||||||||
| Translation adjustments | - | - | - | - | - | - | 9,514 | 9,514 | ||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2006 | 100,138,232 | $ | 25,035 | $ | 455,717 | $ | 276,723 | $ | 123,962 | $ | - | $ | (38,309 | ) | $ | 843,128 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income (loss) | $ | 25,139 | $ | (35,484 | ) | $ | 150,769 | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 164,908 | 154,302 | 120,638 | |||||||||
| Impairment loss on assets | 26,500 | - | - | |||||||||
| Loss on fire damage (gain on insurance settlement and impairment recovery) | - | 42,086 | (32,145 | ) | ||||||||
| Provision (reversal) for doubtful accounts and sales allowances | 2,491 | 1,422 | (2,081 | ) | ||||||||
| Allowance for inventory obsolescence | 914 | 959 | 4,845 | |||||||||
| Equity in earnings of equity method investees | (9,844 | ) | (6,637 | ) | (18,005 | ) | ||||||
| Gain on disposal of discontinued operations | - | (6,910 | ) | - | ||||||||
| Loss (gain) on disposal of assets | 34 | 3,542 | (960 | ) | ||||||||
| Deferred income taxes | (20,597 | ) | 3,947 | 3,821 | ||||||||
| Other | (219 | ) | 2,450 | 7,389 | ||||||||
| Changes in operating assets and liabilities | ||||||||||||
| Financial instruments at fair value through profit or loss | (104 | ) | 166 | 266 | ||||||||
| Notes and accounts receivable | (9,123 | ) | 10,446 | 21,540 | ||||||||
| Receivable from related parties | 1,565 | (11,758 | ) | 2,185 | ||||||||
| Inventories | (23,161 | ) | 16,009 | (541 | ) | |||||||
| Prepayments and other | (6,723 | ) | (1,695 | ) | (6,853 | ) | ||||||
| Notes and accounts payable | (4,123 | ) | (5,733 | ) | (507 | ) | ||||||
| Payable to related parties | 3,841 | (268 | ) | (3,627 | ) | |||||||
| Income tax payable | (971 | ) | (2,571 | ) | 7,681 | |||||||
| Accrued pension cost | 1,868 | 1,293 | 236 | |||||||||
| Accrued expenses and other | 1,317 | 4,498 | (1,876 | ) | ||||||||
| Net cash provided by operating activities | 153,712 | 170,064 | 252,775 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Acquisitions of available-for-sale financial assets-current | (24,524 | ) | (3,117 | ) | (154,865 | ) | ||||||
| Proceeds from sale of available-for-sale financial assets-current | 10,524 | 23,562 | 65,924 | |||||||||
| Acquisition of property, plant and equipment | (228,610 | ) | (66,116 | ) | (76,005 | ) | ||||||
| Proceeds from sale of property, plant and equipment | 28,671 | 48,174 | 22,135 | |||||||||
| Acquisition of long-term investments in shares of stock | (19,613 | ) | - | - | ||||||||
| Increase in pledged time deposits | (288 | ) | (332 | ) | (1,368 | ) | ||||||
| Proceeds from disposal of discontinued operations | - | 17,316 | 1,800 | |||||||||
| Increase in other assets | (19,781 | ) | (6,077 | ) | (6,137 | ) | ||||||
2004 | 2005 | 2006 | ||||||||||
| Proceeds from insurance claims | $ | - | $ | 369 | $ | 26,920 | ||||||
| Net cash provided by (used in) investing activities | (253,621 | ) | 13,779 | (121,596 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from issuance of shares | 5,488 | - | 678 | |||||||||
| Increase (decrease) in short-term borrowings | 18,693 | (35,789 | ) | - | ||||||||
| Increase (decrease) in commercial paper | 9,935 | (28,474 | ) | - | ||||||||
| Proceeds from long-term debts | 121,511 | 138,113 | - | |||||||||
| Repayments of long-term debts | (86,252 | ) | (162,694 | ) | (188,104 | ) | ||||||
| Collection of accounts receivable sold | - | 4,397 | 516 | |||||||||
| Increase in other liabilities | - | - | 2,523 | |||||||||
| Net cash provided by (used in) financing activities | 69,375 | (84,447 | ) | (184,387 | ) | |||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (926 | ) | (674 | ) | 4,712 | |||||||
| NET INCREASE (DECREASE) IN CASH | (31,460 | ) | 98,722 | (48,496 | ) | |||||||
| CASH , BEGINNING OF YEAR | 70,949 | 39,489 | 138,211 | |||||||||
| CASH , END OF YEAR | $ | 39,489 | $ | 138,211 | $ | 89,715 | ||||||
| SUPPLEMENTAL INFORMATION | ||||||||||||
| Interest paid (excluding capitalized interest) | $ | 6,795 | $ | 12,267 | $ | 14,403 | ||||||
| Income tax paid | $ | 243 | $ | 219 | $ | 1,708 | ||||||
| Cash paid for acquisition of property, plant and equipment | ||||||||||||
| Acquisition of property, plant and equipment | $ | 210,656 | $ | 47,875 | $ | 87,408 | ||||||
| Decrease in payable | 25,338 | 21,410 | 990 | |||||||||
| Increase in capital lease obligation | (7,384 | ) | (3,169 | ) | (12,393 | ) | ||||||
| $ | 228,610 | $ | 66,116 | $ | 76,005 | |||||||
| Cash received from sales of property, plant and equipment | ||||||||||||
| Sales price | $ | 31,530 | $ | 50,795 | $ | 20,002 | ||||||
| Decrease (increase) in receivable | (2,859 | ) | 3,018 | 2,133 | ||||||||
| Proceeds from disposal of discontinued operations | - | (5,639 | ) | - | ||||||||
| $ | 28,671 | $ | 48,174 | $ | 22,135 | |||||||
2004 | 2005 | 2006 | ||||||||||
| Cash received from disposal of discontinued operations | ||||||||||||
| Sales price | $ | - | $ | 19,116 | $ | - | ||||||
| Decrease (increase) in receivable | - | (1,800 | ) | 1,800 | ||||||||
| $ | - | $ | 17,316 | $ | 1,800 | |||||||
| Cash received from issuance of ordinary shares | ||||||||||||
| Issuance of ordinary shares, net of issuance cost | $ | 4,552 | $ | - | $ | 678 | ||||||
| Decrease in receivable for issuance of ordinary shares | 936 | - | - | |||||||||
| $ | 5,488 | $ | - | $ | 678 | |||||||
Overview |
| ASE Test Limited (“ASE Test” or the “Company”) is a Singapore holding company which, through an exchange of its shares with its parent company, Advanced Semiconductor Engineering, Inc. (“ASE Inc.”), and other individuals, acquired substantially all of the shares of ASE Test, Inc. in May 1996. The exchange was accounted for as a reorganization of companies under common control. Since June 1996, the Company’s shares have been traded on the NASDAQ Global Market in the United States under the symbol “ASTSF”. |
| J & R Holding Limited, a shareholder of the Company, offered 6,000,000 and 5,000,000 shares of the Company’s common stock in December 1997 and February 1999, respectively, in the form of Taiwan Depositary Receipts (“TDRs”). The TDRs are traded on the Taiwan Stock Exchange under the symbol “9101” and each TDR represents 0.0125 share of the Company’s stock. |
| Set forth below is a brief overview of the Company’s organization structure. |
| The Company has four direct subsidiaries: |
| ASE Holdings (Singapore) Pte Ltd. has a wholly-owned subsidiary, ASE Electronics (M) Sdn. Bhd. (“ASE Test Malaysia”) (incorporated in Malaysia in February 1991), which is engaged in the packaging and testing of semiconductors. ASE Test Malaysia disposed of its camera module operations on October 3, 2005 (See Note 23). |
| ASE Test Holdings has a wholly-owned subsidiary, ISE Labs, Inc. (“ISE Labs”) (incorporated in California, United States in November 1983). ISE Labs and its wholly-owned subsidiaries, ISE Labs Hong Kong Limited, which was dissolved in 2005, ASE Singapore Pte Ltd., ISE Technology, Inc. and Digital Testing Services Inc., are engaged in the front-end engineering testing and final testing of semiconductors. |
| As of December 31, 2005 and 2006, the Company had approximately 5,600 and 5,300 employees, respectively. |
| The accompanying consolidated financial statements have been prepared in conformity with the Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China (“ROC GAAP”). Under these law, guidelines and principles, the Company should reasonably estimate the amounts of allowances for doubtful accounts, allowance for sales discounts, inventory obsolescence, depreciation of property, plant, and equipment, loss on impairment of assets, pension costs, gain (loss) on valuation of financial instruments and valuation allowance for deferred income tax assets. Actual results may differ from these estimates. Significant accounting policies are summarized as follows: |
Basis of Presentation |
| The Company prepares its consolidated financial statements using the aforementioned law, guidelines and principles with a reconciliation to accounting principles generally accepted in the United States of America (“U.S. GAAP”) (See Note 24) to be consistent with the basis of presentation of the consolidated financial statements of ASE Inc. The accompanying consolidated balance sheets are presented as of December 31, 2005 and 2006 and the accompanying consolidated statements of income, changes in shareholders’ equity and cash flows are presented for the three years ended December 31, 2004, 2005 and 2006. |
Basis of Consolidation |
| The consolidated financial statements include the accounts of the Company and all of the aforementioned subsidiaries. |
| All significant intercompany accounts and transactions have been eliminated. |
Current and Noncurrent Assets and Liabilities |
| Current assets include cash, financial assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. |
Financial Assets / Liabilities at Fair Value Through Profit or Loss |
| Financial instruments at fair value through profit or loss consist of financial assets or financial liabilities held or incurred for trading purposes. These financial instruments are initially recognized at fair value, with associated transaction costs expensed as incurred. The financial instruments are subsequently remeasured at fair value, and changes in fair value are recognized in current income (loss). A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting. |
Derivatives which do not qualify for hedge accounting are recorded as financial assets or liabilities at fair value through profit or loss. Fair values of derivatives with no active market are estimated using valuation techniques. |
Available-for-Sale Financial Assets |
| Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value of financial assets are reported in a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. |
Fair values of beneficiary certificates of open-end mutual funds and publicly traded stocks are determined using the net asset value and closing-price at the balance sheet date, respectively. |
| If certain objective evidence indicates that such available-for-sale financial asset is impaired, a loss is recognized currently. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity. |
Revenue Recognition, Accounts Receivable and Allowances for Doubtful Accounts and Sales Allowances |
| Revenues from semiconductor packaging services are recognized upon shipment. Revenues from semiconductor testing services are recognized upon completion of the services or shipment. The Company does not take ownership of: (i) bare semiconductor wafers received from customers that the Company packages into finished semiconductors, and (ii) packaged semiconductors received from customers that the Company tests as to whether they meet certain performance specifications. The title and risk of loss remain with the customer for those bare semiconductors and/or packaged semiconductors. Accordingly, costs of customer-supplied semiconductor materials are not included in the accompanying consolidated financial statements. Other criteria the Company uses to determine when to recognize revenue are: (i) existence of persuasive evidence of an arrangement, (ii) the selling price is fixed or determinable and (iii) collectibility is reasonably assured. |
| Revenues are determined using the fair value taking into account related sales discounts agreed to by the Company and customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received. |
| Allowance for doubtful accounts is provided based on an evaluation of the collectibility of receivables. The Company determines the amount of allowance for doubtful accounts by examining the aging analysis of the outstanding accounts receivable and current trends in the credit quality of its customers. An appropriate sales allowance, based on historical experience, is also recognized in the same period the sale is recognized. |
Accounts Receivable Securitization |
| Accounts receivable securitization is the transfer of a designated pool of accounts receivable to a bank, which in turn issues beneficial securities or asset-backed securities based on the accounts receivable. Under ROC Statement of Financial Accounting Standards (“ROC SFAS”) No. 33, “Accounting for Transfers of Financial Assets and Extinguishments of Liabilities”, such transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The difference between the book value of accounts receivable and total proceeds received is recorded as a gain or loss on disposal of financial assets. |
Inventories |
| Inventories including raw materials (materials received from customers for processing, mainly semiconductor wafers are excluded from inventories as title and risk of loss remain with the customers), supplies and spare parts, finished goods and work in process are stated at the lower of cost or market value. Market value represents net realizable value for finished goods and work in process, and replacement cost for raw materials, supplies and spare parts. |
| Raw materials, supplies and spare parts are recorded at moving average cost or weighted average cost; others are recorded at standard cost and adjusted to the approximate weighted average cost at the balance sheet date. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses. |
Equity Method Investments |
| Investments in companies of which the Company owns at least 20% of the outstanding voting shares or where the Company exercises significant influence over the investee company’s operating and financial policy decisions are accounted for using the equity method. Prior to January 1, 2006, the difference, if any, between the cost of investment and the Company’s proportionate equity in the fair value of the net assets of the investees at the time of investments or at the time the equity method of accounting is first applied to a particular investment, was amortized on the straight-line method over 10 years. Effective January 1, 2006, pursuant to the revised ROC SFAS No. 5, “Long-term Investments under Equity Method” (“ROC SFAS No. 5”), the cost of an investment shall be analyzed and the difference between the cost of investment and the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. The accounting treatment for the investment premiums acquired before January 1, 2006 is the same as that for goodwill which is no longer being amortized. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. |
Financial Assets Carried at Cost |
| Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at their original cost, such as non-publicly traded stocks. The costs of financial assets sold are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed. |
Property, Plant and Equipment |
| Property, plant and equipment, except for machinery and equipment under operating leases, are stated at cost less accumulated depreciation and accumulated impairment. Machinery and equipment held under capital leases are recorded as an asset and an obligation at an amount equal to the lower of: (i) present value at the beginning of the lease term of the minimum lease payments during the lease term (including the payment called for under any bargain purchase option); or (ii) fair value of the leased machinery and equipment at the inception of the lease. Machinery in transit, construction in progress and prepayments under construction are stated at cost. These include the cost of machinery, construction, down payments and other direct costs plus interest charges attributable to the borrowings used to finance the acquisitions of these assets. Major overhauls and improvements are capitalized, while maintenance and repairs are expensed as incurred. |
| Depreciation is computed using the straight-line method over estimated service lives, which range as follows: buildings and improvements, 2 to 40 years; machinery and equipment, 2 to 6 years; furniture and fixtures, 2 to 8 years; and leased assets, 2 to 6 years. Leasehold improvements and improvements on building and business flats are amortized on a straight-line basis over the shorter of the useful life of the improvements or the lease term of the building. In the event that an asset depreciated to its residual value is still in service, its residual value is depreciated over its re-estimated service life. |
| When property, plant and equipment are retired or disposed of, their costs and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income. |
Asset Impairment |
| The Company evaluates whether or not there are indications that assets (primarily property, plant and equipment, deferred charges and goodwill) may be impaired on the balance sheet date. If there are indications, the Company estimates the recoverable amount for the asset. If an asset’s recoverable amount is lower than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount by recording a charge to the accumulated impairment account of the asset and such a reduction is recognized as impairment loss in current period income. When the recoverable amount subsequently increases, then the impairment loss previously recognized would be reversed and recorded as a gain. However, the carrying |
Deferred Charges |
| Deferred charges consist of certain intangibles and other assets, including tools, utility, telecommunications and computer network systems. The amounts are amortized over the following periods: tools, 2 years; utility, telecommunications and computer network systems, 2 - 5 years; and others, 2 - 5 years. |
Goodwill |
| Goodwill represents the excess of the consideration paid for an acquisition over the fair value of identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations-Accounting Treatment under Purchase Method” (“ROC SFAS No. 25”), goodwill is no longer amortized and instead is tested for impairment annually. |
Employee Stock Options |
All stock-based compensation for awards granted or modified after January 1, 2004 is accounted for by an interpretation issued by the Accounting Research and Development Foundation （“ARDF”） of the ROC. The compensation cost is measured based on the intrinsic value method, for which the compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. Total compensation cost is recognized over the requisite service or vesting period. |
Pension Costs |
| For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations. Pension costs include service cost, interest, amortization of unrecognized net obligation and expected return on plan assets. |
| For employees under defined contribution pension plans, pension costs are recorded based on the actual contribution made to employees’ personal pension accounts. |
Shipping and Handling Costs |
| Shipping and handling costs are recorded as selling expenses and the amounts in 2004, 2005 and 2006 were $1,705 thousand, $1,382 thousand and $1,498 thousand, respectively. |
Research and Development Costs |
| Research and development costs are charged to expense as incurred. |
Income Taxes |
| The Company uses an inter-period tax allocation method for income tax. Tax effects of deductible temporary differences, unused tax credits and operating loss carryforward are recognized as deferred income tax assets, while taxable temporary differences are recognized as deferred income tax liabilities. A valuation allowance is provided to the extent that it is more likely than not that deferred income tax assets will not be realized. |
| Tax credits of ASE Test, Inc. from investments in machinery and equipment, research and development and employees’ training costs are recognized in the year acquired and expensed. Capital allowances of ASE Test Malaysia from investment in industrial buildings, machinery and equipment are recognized in the year in which they are acquired. |
| Adjustments of prior years’ income taxes are added to or deducted from the current year’s tax provision. |
| Income taxes on undistributed earnings (10%) of ASE Test, Inc., the Company’s Taiwan based subsidiary, are recorded as an expense in the year of shareholders’ approval. |
Foreign Currency Transactions and Translation of Foreign-currency Financial Statements |
| The functional and reporting currency of ASE Test is U.S. dollar, while the functional currencies of its major subsidiaries, ASE Test, Inc., ASE Test Malaysia and ISE Labs, Inc. are their local currencies, namely, New Taiwan dollar, Malaysia Ringgit and U.S. dollar, respectively. Foreign currency transactions, except for derivative transactions, are recorded in the local currencies at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when foreign-currency assets and liabilities denominated in foreign-currencies are settled are credited or charged to income in the year of settlement. At the end of year, monetary assets and liabilities denominated in foreign-currencies are revalued at the prevailing exchange rates and the resulting gains or losses are recognized in current period income. |
| The financial statements of the Company’s subsidiaries are translated into U.S. dollars at the end of year using the following rates: Assets and liabilities, current rates at the balance sheet date; shareholders’ equity, historical rates; and income and expenses, average rates during the year. The net resulting translation adjustment is reported as a separate component of shareholders’ equity. |
Recent Accounting Pronouncements |
In July 2006, the ROC ARDF issued ROC SFAS No. 37, “Intangible Assets”, which is required to be applied by the Company on January 1, 2007. The standard provides guidance on initial recognition and measurement, amortization, presentation and disclosure of intangible assets. An intangible asset should be measured initially at cost. For an intangible asset of a finite useful life; the carrying amount shall be amortized over its useful life. On the other hand, for an intangible asset with an indefinite useful life, the carrying amount shall not be amortized. Intangible assets shall be evaluated for impairment at least annually as required by ROC SFAS No. 35, “Accounting for Impairment of Assets” (“ROC SFAS No. 35”). The Company does not expect the adoption of the standard on January 1, 2007 to have a significant impact on its results of operations and financial position. |
In November 2006, the ROC ARDF issued ROC SFAS No. 38, “Non-current Assets Held for Sale and Discontinued Operations” (“ROC SFAS No. 38”), which is also required to be applied by the Company on January 1, 2007. Under ROC SFAS No. 38, assets classified as held-for-sale shall be measured at the lower of carrying amounts or fair values and ceased to be depreciated or amortized. Any impairment loss shall be recognized in current earnings. Assets classified as held-for-sale shall be presented separately on the balance sheet. ROC SFAS No. 38 also requires the Company to disclose information of discontinued operations separately on the statements of income and cash flows or in a footnote. The Company does not expect the adoption of the standard on January 1, 2007 to have a significant impact on its results of operations and financial position. |
| In March 2007, the ROC ARDF issued an interpretation which requires ROC companies to recognize compensation expenses for bonuses paid to employees, directors and supervisors beginning January 1, 2008. Such bonuses are currently recorded as appropriations of earnings under ROC GAAP. On March 30, 2007, the ROC Financial Supervisory Commission also issued an interpretation which requires that bonuses granted to employees, directors and supervisors in the form of shares be valued at fair market value for purposes of compensation expenses. |
Reclassifications |
| Certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006. |
| On January 1, 2006, the Company adopted the newly released ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” (“ROC SFAS No. 34”) and No. 36, “Financial Instruments: Disclosure and Presentation” (“ROC SFAS No. 36”) and other revisions of previously released SFASs. |
| The Company had categorized its financial assets and liabilities upon initial adoption of the newly released SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; on the other hand, the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity. |
| Upon adoption of ROC SFAS No. 34 and No. 36 in January, carrying amounts of the available-for-sale financial assets were adjusted to fair value, and the Company recognized $83,751 thousand of unrealized gains as a separate component of shareholders’ equity as at January 1, 2006. Besides, there was no effect on net income for the year ended December 31, 2006. |
| Effective January 1, 2006, the Company adopted the newly revised ROC SFAS No. 5 and No. 25, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such a change in accounting principle resulted in an increase in net income of $4,966 thousand and basic earnings per share (after income tax) of $0.05 for the year ended December 31, 2006. |
| Upon the adoption of ROC SFAS No. 34, certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 were reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006. The previously issued consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 were not required to be restated. |
| Certain accounting policies prior to the adoption of the newly released SFASs are summarized as follows: |
| 1) | Short-term investments |
| Short-term investments were recorded at historical cost and were carried at the lower of cost or market value as of the balance sheet date. An allowance or decline in value was provided and is charged to current income when the aggregate carrying amount of the investments exceeded the aggregate market value. A reversal of the allowance was recorded for a subsequent recovery in the aggregate market value. |
| 2) | Long-term Investments |
| Investments in companies wherein the Company did not exercise significant influence were carried at the lower of cost or market value. Allowances for decline in market value and unrealized loss on long-term investments in shares of stock (a deduction account in shareholders’ equity) were |
| 3) | Derivative financial instruments |
| (a) | Forward exchange contracts |
| Premiums or discounts on foreign currency forward exchange contracts which had been acquired to manage the risk associated with assets and liabilities denominated in foreign currencies arising from the difference between the forward rate and the spot rate at the date of each contract were deferred and amortized using the straight-line method over the contract periods. At year end, balances of the forward exchange receivables or payables were restated based on prevailing exchange rates and the resulting gain or loss was credited or charged to income. Any exchange gain or loss when the contract was settled was also credited or charged to income. In addition, the receivables and payables related to the forward contracts are netted with the resulting amount presented as either an other current asset or other current liability. |
| (b) | Option contracts |
| Written option contracts to purchase or sell foreign currencies entered into for hedging purposes are not recorded as assets or liabilities on the contract dates. Gains or losses upon settlement were credited or charged to income. Amounts received or paid were amortized over each contract period. At year end, the outstanding written option contracts were marked to market with charges to current income. |
| When the Company had a legally enforceable right to set off the recognized amount and intends either to settle on a net basis, or to realize the asset and the liability simultaneously, the difference between receivables and payables was accounted for as either a current asset or current liability; otherwise, the receivables and payables should be accounted for as an other current asset and other current liability, respectively. |
| Certain accounts in the consolidated financial statements as of December 31, 2005 and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the account balances of certain accounts are summarized as follows: |
Before Reclassification | After Reclassification | |||||||
Balance sheet as of December 31, 2005 | ||||||||
Prepayments and other current assets | $ | 17,591 | $ | 17,415 | ||||
Long-term investments | 140,225 | - | ||||||
Other current liabilities | 6,013 | 5,841 | ||||||
Financial assets at fair value through profit or loss | - | 176 | ||||||
Available-for-sale financial assets – noncurrent | - | 81,251 | ||||||
Equity method investments | - | 57,974 | ||||||
Financial assets carried at cost-noncurrent | - | 1,000 | ||||||
Financial liabilities at fair value through profit or loss | - | 172 | ||||||
Statement of income for 2005 | ||||||||
Foreign exchange gain, net | 1,388 | 703 | ||||||
Gain on valuation of financial assets, net | - | 685 | ||||||
Before Reclassification | After Reclassification | |||||||
Statement of income for 2004 | ||||||||
Foreign exchange gain (loss), net | $ | 175 | $ | (139 | ) | |||
Gain on valuation of financial assets, net | - | 314 | ||||||
December 31 | ||||||||
2005 | 2006 | |||||||
Cash on hand | $ | 22 | $ | 21 | ||||
Checking and saving accounts | 77,382 | 62,162 | ||||||
Time deposits | 60,807 | 27,532 | ||||||
| $ | 138,211 | $ | 89,715 | |||||
December 31 | ||||||||
2005 | 2006 | |||||||
Financial assets held for trading | ||||||||
Forward exchange contracts | $ | 176 | $ | - | ||||
Financial liabilities incurred for trading | ||||||||
Forward exchange contracts | $ | 172 | $ | 262 | ||||
| The Company entered into derivative contracts during the years ended December 31, 2005 and 2006 to manage exposures to foreign exchange rate risk. The derivative contracts entered into by the Company did not qualify for hedge accounting prescribed by ROC SFAS No. 34 and therefore were classified as financial instruments at fair value through profit or loss. |
| Outstanding put forward contracts as of December 31, 2005 and 2006: |
Currency | Maturity Date | Contract Amount (in Thousands) |
December 31, 2005 | ||
| USD/JPY | 2006/03/02 | USD 172 / JPY 20,000 |
December 31, 2006 | ||
| USD/NTD | 2007/01/22~2007/03/01 | USD 42,000/NTD 1,352,500 |
| For the years ended December 31, 2005 and 2006, financial instruments held or incurred for trading purposes resulted in net gains of $685 thousand and net losses of $1,731 thousand, respectively. |
December 31 | ||||||||
2005 | 2006 | |||||||
Current | ||||||||
Open-end mutual funds | $ | - | $ | 89,341 | ||||
Noncurrent | ||||||||
Publicly-traded stocks | $ | 81,251 | $ | 204,851 | ||||
| As of December 31, 2005 and 2006, the Company held 180,132,187 shares of common stock of ASE Inc. With respect to the trust arrangement, in order to comply with applicable Singapore laws, which provide that the Company may not acquire, directly or indirectly, shares in its parent company, ASE Inc., a trust was established jointly by ASE Inc. and the Company to hold and dispose of the ASE Inc. shares acquired by the Company in connection with the merger (Note 9). Pursuant to the trust agreement, the Company’s rights with respect to the ASE Inc. shares held in trust are limited to the right to receive the proceeds from the sale of the shares and any cash dividends declared while the shares remain in trust. The trustee is authorized to sell the shares, subject to market conditions, when such shares become available for resale under ROC law and in accordance with volume limitations under ROC law, at its sole discretion; provided such shares are sold (i) in compliance with ROC laws and regulations, (ii) in an orderly manner in order to minimize the impact on the trading price of the shares, and (iii) in a manner consistent with its fiduciary duties owed to the Company. |
December 31 | ||||||||
2005 | 2006 | |||||||
Notes receivable | $ | 68 | $ | 180 | ||||
Accounts receivable | 82,744 | 60,017 | ||||||
Allowance for doubtful accounts (Note 2) | (5,023 | ) | (2,175 | ) | ||||
Allowance for sales allowances (Note 2) | (455 | ) | (147 | ) | ||||
| $ | 77,334 | $ | 57,875 | |||||
| The changes in allowances for sales allowances and doubtful accounts are as follows: |
Doubtful | Sales | |||||||
Accounts | Allowances | |||||||
Balance at January 1, 2004 | $ | 2,386 | $ | 880 | ||||
Additions | 2,391 | 100 | ||||||
Write-offs | (233 | ) | (111 | ) | ||||
Balance at December 31, 2004 | 4,544 | 869 | ||||||
Additions | 1,109 | 313 | ||||||
Write-offs | (630 | ) | (727 | ) | ||||
Balance at December 31, 2005 | 5,023 | 455 | ||||||
Additions | 56 | - | ||||||
Reversal | (1,932 | ) | (205 | ) | ||||
Write-offs | (972 | ) | (103 | ) | ||||
Balance at December 31, 2006 | $ | 2,175 | $ | 147 | ||||
| In November 2005, ASE Test, Inc. and its parent company, ASE Inc., entered into a $100 million, three-year revolving accounts receivable securitization agreement with a bank and the credit line was increased to $200 million in June, 2006. |
| Under the agreement, ASE Test, Inc. and ASE Inc. transferred a pool of accounts receivable to the bank, who issued securities backed by these accounts receivable. Proceeds received from the bank were the net carrying value of the pool of accounts receivable, less a deferred purchase price receivable at 20% of accounts receivable sold, guarantee deposit, program fee and other related expenses. The Company lost control of these accounts receivable at the time of transfer to the bank, and therefore the transaction was accounted for as a sale of accounts receivable, for which the book value of the accounts receivable was derecognized and the difference between the book value and the proceeds received was recorded as a non-operating loss. The loss on sale of accounts receivable was $74 thousand and $1,028 thousand for the years ended December 31, 2005 and 2006, respectively. |
| After the transfer of the accounts receivable, the Company continues to service, administer, and collect these accounts receivable on behalf of the bank. The Company collects on the initial receivables and transfers certain new accounts receivable having similar value to replace the collected receivables. Collected receivables not yet replaced by new accounts receivable due to timing difference are recorded as other current liability on the balance sheet, which amounted to $4,397 thousand and $4,913 thousand as of December 31, 2005 and 2006, respectively. Total accounts receivable sold was $9,525 thousand and $12,463 thousand as of December 31, 2005 and 2006, respectively. |
December 31 | ||||||||
2005 | 2006 | |||||||
Raw materials | $ | 9,334 | $ | 10,304 | ||||
Work in process | 4,272 | 2,333 | ||||||
Finished goods | 2,393 | 1,831 | ||||||
Supplies and spare parts | 6,460 | 5,810 | ||||||
Supplies in transit | 434 | 694 | ||||||
| 22,893 | 20,972 | |||||||
Allowance for obsolescence | (1,654 | ) | (4,037 | ) | ||||
| $ | 21,239 | $ | 16,935 | |||||
| The changes in allowance for obsolescence are as follows: |
Balance at January 1, 2004 | $ | 876 | ||
Additions | 914 | |||
Write-offs | (1,150 | ) | ||
Balance at December 31, 2004 | 640 | |||
Additions | 2,204 | |||
Write-offs | (1,190 | ) | ||
Balance at December 31, 2005 | 1,654 | |||
Additions | 4,845 | |||
Write-offs | (2,462 | ) | ||
Balance at December 31, 2006 | $ | 4,037 |
| The investment in ASE Investment (Labuan) Inc. (incorporated in Malaysia in June 1999) was made in connection with the acquisition of the operation of the Motorola Semiconductor Products Sector Businesses in Paju, Korea. As of December 31, 2005 and 2006, the Company held a 30% ownership interest in ASE Investment (Labuan) Inc. at a carrying amount of $57,974 thousand and $75,979 thousand, respectively. |
| Investment income under the equity method was as follows: |
2004 | 2005 | 2006 | ||||||||||
ASE Investment (Labuan) Inc. | $ | 3,569 | $ | 6,637 | $ | 18,005 | ||||||
ASE Material Inc. | 1,068 | - | - | |||||||||
ASE (Chung Li) Inc. | 5,207 | - | - | |||||||||
| $ | 9,844 | $ | 6,637 | $ | 18,005 | |||||||
| ASE Material Inc. and ASE (Chung Li) Inc. were merged into ASE Inc. and the Company received ASE Inc.’s shares in exchange for its ownership interest in the two companies. |
December 31 | ||||||||
2005 | 2006 | |||||||
Cost | ||||||||
Buildings and improvements | $ | 113,688 | $ | 114,296 | ||||
Machinery and equipment | 1,001,430 | 927,249 | ||||||
Furniture and fixtures | 19,091 | 18,964 | ||||||
Leased assets - machinery and equipment | 10,464 | 23,259 | ||||||
Machinery in transit and prepayments | 15,137 | 8,515 | ||||||
Construction in progress | 372 | 12 | ||||||
1,160,182 | 1,092,295 | |||||||
Accumulated depreciation | ||||||||
Buildings and improvements | 46,713 | 52,700 | ||||||
Machinery and equipment | 634,835 | 630,496 | ||||||
Furniture and fixtures | 13,310 | 14,581 | ||||||
Leased assets - machinery and equipment | 2,074 | 5,083 | ||||||
696,932 | 702,860 | |||||||
Accumulated impairment | ||||||||
Buildings and improvements | 402 | - | ||||||
Machinery and equipment | 28,549 | - | ||||||
Furniture and fixtures | 271 | - | ||||||
Machinery in transit and prepayments | 3,834 | - | ||||||
Construction in progress | 115 | - | ||||||
33,171 | - | |||||||
| $ | 430,079 | $ | 389,435 | |||||
| Capitalized interest consists of the following: |
2004 | 2005 | 2006 | ||||||||||
Total interest expense including capitalized interest | $ | 9,609 | $ | 13,622 | $ | 13,568 | ||||||
Less: capitalized interest | 2,844 | 878 | 403 | |||||||||
Interest expense | $ | 6,765 | $ | 12,744 | $ | 13,165 | ||||||
Capitalization rate | 2.46-3.93 | % | 2.32-3.94 | % | 1.75-5.67 | % | ||||||
| The Company adopted ROC SFAS No. 35 on December 31, 2004, and recognized an impairment loss on goodwill of $26,500 thousand, which was determined based on the amount by which the carrying amount of the cash-generating unit exceeded its recoverable amount. The Company identified the goodwill related to the cash generating unit of ISE Labs. The recoverable amount was the “value-in-use” of ISE Labs, which was determined based on six-years of projected cash flows, discounted at a rate of 9.58%. The Company attributed the impairment of goodwill associated with the acquisition of ISE Labs primarily to a downward revision in the forecasted revenue of ISE Labs. The reduction in forecasted revenues was made in response to company estimates and industry trend data that suggested the outlook for semiconductor industry, and ISE Labs in particular, was less favorable than in prior years, including the year in which the Company acquired its interest in ISE Labs. The Company performed its annual goodwill impairment test on December 31, 2005 and 2006, and found no impairment. As described in Note 2, the goodwill was no longer amortized under ROC SFAS No. 25 after January 1, 2006. Amortization of the goodwill is reflected in general and administrative expenses in the consolidated statements of income and was $10,105 thousand and $4,966 thousand for each of the years ended December 31, 2004 and 2005. |
December 31 | ||||||||
2005 | 2006 | |||||||
Bank loans | $ | 288,094 | $ | 105,039 | ||||
Capital lease obligation (Note 20) | 6,952 | 15,085 | ||||||
| 295,046 | 120,124 | |||||||
Less: Current portion | (49,743 | ) | (34,418 | ) | ||||
| $ | 245,303 | $ | 85,706 | |||||
| a. | Bank loans |
December 31 | ||||||||
2005 | 2006 | |||||||
ASE Test, Inc. | ||||||||
Repayment at maturity in August 2007, interest at 1.98% and 2.25% as of December 31, 2005 and 2006, respectively | $ | 15,216 | $ | 15,339 | ||||
Repayable by December 2009 in quarterly installments, interest at 2.50% and 2.69% as of December 31, 2005 and 2006, respectively | 7,273 | 5,640 | ||||||
Repayable by May 2008 in semi-annual installments, interest at 3.10% as of December 31, 2005 and 2006, respectively | 7,303 | 3,682 | ||||||
Others, repaid in 2006, interest from 2.50% to 3.70% as of December 31, 2005 | 48,107 | - | ||||||
77,899 | 24,661 | |||||||
December 31 | ||||||||
2005 | 2006 | |||||||
| ISE Labs | ||||||||
Repayable by March 2009 in quarterly installments, interest at 4.70% and 6.10% as of December 31, 2005 and 2006, respectively | $ | 1,745 | $ | 1,235 | ||||
Repayable by July 2009 in quarterly installments, interest at 4.20% and 6.10% as of December 31, 2005 and 2006, respectively | 1,523 | 1,143 | ||||||
| Repaid in September 2006, interest at 5.25% as of December 31, 2005 | 607 | - | ||||||
3,875 | 2,378 | |||||||
| ASE Test Malaysia | ||||||||
Repaid in March 2006, interest from 5.00% to 5.29% as of December 31, 2005 | 13,320 | - | ||||||
| ASE Test Finance | ||||||||
Repayable in semi-annual installments from August 2008 to August 2010, interest at 5.45% and 6.23% as of December 31, 2005 and 2006, respectively | 78,000 | 78,000 | ||||||
| Repaid in December 2006, interest at 5.73% as of December 31, 2005 | 115,000 | - | ||||||
193,000 | 78,000 | |||||||
| $ | 288,094 | $ | 105,039 | |||||
| Bank loans obtained by ASE Test Finance were restricted for the use in the redemption of ASE Test Finance’s and the Company’s loans. The Company and ASE Inc. provided guarantees for ASE Test Finance’s payment obligations under the $78,000 thousand loan. Under the guaranty, the Company is required to maintain certain financial ratios and the tangible net worth of the Company shall not be less than $450 million at any time. |
| Several loan agreements specify the following non-financial covenants: |
| Without the prior written consent from the majority of the banks, the Company should not: |
| a) | Pledge its assets, assume liabilities or dispose of assets in excess of 20% of total assets, unless the transaction involves a transfer of assets between affiliates. Assets in exchange for other comparable or superior as to type are excluded from this covenant; or |
| b) | Merge with any other entity or make investments in excess of $100 million or acquire material assets from another entity. |
| The abovementioned bank loan contracts have variable interest rates and are subject to adjustments by banks or changes in prime rate. In addition, several of the loan agreements have default provisions, whereby a default under one loan agreement may also trigger cross-defaults under other loan agreements. |
| As of December 31, 2005 and 2006, the Company was in compliance with its financial and non-financial covenants. |
| Long-term debt by currencies other than U.S. dollars as of December 31, 2005 and 2006 is as follows: |
December 31 | |||
2005 | 2006 | ||
| (In thousands) | (In thousands) | ||
New Taiwan dollars | NT$ 2,559,760 | NT$ 803,845 | |
| Such amounts have been translated into U.S. dollars at the spot rates quoted by the Bank of Taiwan of NT$32.86 to US$1 and NT$32.596 to US$1 as of December 31, 2005 and 2006, respectively. |
| As of December 31, 2006, the maturities of long-term debts are as follows: |
2007 | $ | 34,418 | ||
2008 | 20,564 | |||
2009 | 33,940 | |||
2010 | 31,202 | |||
| $ | 120,124 |
| As stipulated by the Company Law of the ROC, the Company's subsidiary in the ROC is required to make an appropriation for legal capital reserve at 10% of net income as determined in accordance with ROC GAAP. Use of the legal capital reserve is restricted to certain purposes, including the offset of a deficit, and the transfer of up to 50% of the legal capital reserve to capital stock when the legal capital reserve has reached 50% of total capital stock. As of December 31, 2006, the legal capital reserve approximated US$26,770 thousand and was not available for distribution. |
| As of December 31, 2006, the Company had three stock option plans, the 1999, 2000 and 2004 Option Plans. Stock options granted under these plans are exercisable for ordinary shares of the Company and vest ratably over a period of three or five years. The options expire five or ten years from the date of grant. |
| Information regarding stock options granted or modified after January 1, 2004 is presented below: |
ASE Test |
2004 | 2005 | 2006 | ||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||
Average | Weighted | Average | Weighted | Average | Weighted | |||||||||||||||||||||||||||||||
Exercise | Average | Exercise | Average | Exercise | Average | |||||||||||||||||||||||||||||||
Number of | Price | Grant Date | Number of | Price | Grant Date | Number of | Price | Grant Date | ||||||||||||||||||||||||||||
Shares | Per Share | Fair Value | Shares | Per Share | Fair Value | Shares | Per Share | Fair Value | ||||||||||||||||||||||||||||
Beginning outstanding balance | - | $ | - | 260,000 | $ | 6.18 | 292,500 | $ | 6.21 | |||||||||||||||||||||||||||
| Options granted | 260,000 | 6.18 | $ | 6.18 | 32,500 | 6.50 | $ | 6.50 | 130,000 | 9.60 | $ | 9.60 | ||||||||||||||||||||||||
| Options exercised | - | - | - | - | (9,000 | ) | 6.10 | |||||||||||||||||||||||||||||
| Options forfeited | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Options expired | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Ending outstanding balance | 260,000 | 6.18 | 292,500 | 6.21 | 413,500 | 7.28 | ||||||||||||||||||||||||||||||
| Options outstanding on December 31, 2006, the related weighted average exercise price and remaining contractual life information are as follows: |
Outstanding Shares | Exercisable Shares | Weighted Average Remaining Life (Years) | ||||||||||||
Options with exercise price of: | ||||||||||||||
| $5.50 | 60,000 | 24,000 | 7.6 | |||||||||||
| $6.10 | 51,000 | 15,000 | 7.8 | |||||||||||
| $6.50 | 172,500 | 76,500 | 7.6 | |||||||||||
| $9.79 | 115,000 | 11,500 | 9.3 | |||||||||||
| $8.10 | 15,000 | 7,500 | 9.6 | |||||||||||
413,500 | 134,500 | |||||||||||||
| The Company has computed, for pro forma disclosure purposes, the fair value of options granted using the Black-Scholes option pricing model with the following assumptions: |
2004 | 2005 | 2006 | |
Risk-free interest rate | 3.50%-3.88% | 3.88% | 4.88% |
Expected life | 5 years | 5 years | 3-5 years |
Expected volatility | 78.28% | 59.06% | 59.95-62.03% |
Expected dividend | 0% | 0% | 0% |
ASE Inc. |
| ASE Inc., the parent company, has two option plans, which were adopted in 2002 and 2004. Under the terms of the plans, stock options are granted to employees including those of the Company. The option rights expire ten years from the date of grant. On the second anniversary of the grant date, 40% of the options become vested and the remaining options vest ratably over a period of three years thereafter. |
| Information regarding the ASE Inc.’s stock option plans for the Company and its subsidiaries is as follows: |
2004 | 2005 | 2006 | ||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||
Average | Weighted | Average | Weighted | Average | Weighted | |||||||||||||||||||||||||||||||
Exercise | Average | Exercise | Average | Exercise | Average | |||||||||||||||||||||||||||||||
Number of | Price | Grant Date | Number of | Price | Grant Date | Number of | Price | Grant Date | ||||||||||||||||||||||||||||
Shares | Per Share | Fair Value | Shares | Per Share | Fair Value | Shares | Per Share | Fair Value | ||||||||||||||||||||||||||||
Beginning outstanding balance | 38,852,400 | $ | 0.58 | 61,752,100 | $ | 0.60 | 52,926,580 | $ | 0.60 | |||||||||||||||||||||||||||
| Options granted | 25,499,500 | 0.79 | $ | 0.79 | 3,000,000 | 0.57 | $ | 0.57 | - | - | $ | - | ||||||||||||||||||||||||
| Options forfeited | (2,261,800 | ) | 0.58 | (5,126,800 | ) | 0.58 | (2,489,000 | ) | 0.62 | |||||||||||||||||||||||||||
| Options expired | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Options exercised | (338,000 | ) | 0.56 | (6,698,720 | ) | 0.49 | (9,908,710 | ) | 0.58 | |||||||||||||||||||||||||||
Ending outstanding balance | 61,752,100 | 0.67 | 52,926,580 | 0.60 | 40,528,870 | 0.61 | ||||||||||||||||||||||||||||||
| Options outstanding on December 31, 2006, the related weighted average exercise price and remaining contractual life information are as follows: |
Outstanding Shares | Exercisable Shares | Weighted Average Remaining Life (Years) | ||||||||||||
Options with exercise price | ||||||||||||||
| $0.49 | 15,222,300 | 9,936,500 | 6.0 | |||||||||||
| $0.64 | 4,327,170 | 2,302,690 | 6.6 | |||||||||||
| $0.70 | 18,564,400 | 7,372,700 | 7.5 | |||||||||||
| $0.57 | 2,415,000 | - | 8.4 | |||||||||||
40,528,870 | 19,611,890 | |||||||||||||
| The fair value of the common stock options issued was determined using a Black-Scholes option pricing model with the following assumptions: |
2004 | 2005 | |
Risk-free interest rate | 2.50% | 1.80% |
Expected life | 5 years | 5 years |
Expected volatility | 59% | 47% |
Expected dividend | 3% | 3% |
| For purposes of pro forma disclosure, the estimated fair values of the options are amortized to expense ratably over the option vesting periods. Had the Company recorded compensation costs based on the estimated grant date fair value, the Company’s net income (loss) and earnings (loss) per share (in U.S. dollars) would have been as follows: |
2004 | 2005 | 2006 | ||||||||||
Net income (loss) | $ | 25,139 | $ | (35,484 | ) | $ | 150,769 | |||||
Stock-based compensation expense (net of related tax effect) | ||||||||||||
From the Company | (97 | ) | (209 | ) | (317 | ) | ||||||
From ASE Inc. | (2,407 | ) | (9,084 | ) | (8,486 | ) | ||||||
Pro forma net income (loss) | $ | 22,635 | $ | (44,777 | ) | $ | 141,966 | |||||
Basic EPS As reported | $ | 0.25 | $ | (0.35 | ) | $ | 1.51 | |||||
Pro forma | $ | 0.23 | $ | (0.45 | ) | $ | 1.42 | |||||
Diluted EPS As reported | $ | 0.25 | $ | (0.35 | ) | $ | 1.50 | |||||
Pro forma | $ | 0.23 | $ | (0.45 | ) | $ | 1.41 | |||||
| The Labor Pension Act (the “Act”), which took effect in the ROC on July 1, 2005, provides for a pension mechanism that is deemed a defined contribution pension plan. The employees who were subject to the Labor Standards Law of the ROC before the enforcement of this Act may choose to be subject to the pension mechanism under this Act or may continue to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law before July 1, 2005, work for the same company after July 1, 2005 and choose to be subject to the pension mechanism under the Act, their service years as of July 1, 2005 will be retained. Under the Act, the rate of an employer’s monthly contribution to the employees’ personal pension accounts should not be less than 6% of each employee’s monthly salary or wage. Thus, since July 1, 2005, ASE Test, Inc. has made monthly contributions based on each employee’s salary or wage to personal pension accounts, and recognized pension costs of $885 thousand and $1,984 thousand for each year ended December 31, 2005 and 2006. |
| ASE Test, Inc. has a defined benefit pension plan for its regular employees. Retirement benefits are based on the length of service and average salaries or wages of the last six months before retirement. ASE Test, Inc. makes monthly contributions, at 2% of salaries and wages, to plan assets which are in the name of, and are administered by, the employee pension plan committee and are deposited in the Central Trust of China (the “CTC”), an ROC government agency. Besides, ASE Test, Inc. also accrued pension cost of executive managers. Pension cost for executive managers was $11 thousand and $288 thousand in 2005 and 2006, respectively. As of December 31, 2005 and 2006, accrued pension cost of aforementioned plan was $11 thousand and $299 thousand, respectively. |
| ISE Labs, Inc. has a defined contribution plan (“401k plan”) for eligible employees. This plan permits employees to make contributions up to the maximum limits allowable under the U.S. Internal Revenue Code Section 401k. ASE Test Malaysia and ASE Singapore Pte Ltd. also have a defined contribution plan. The Company has no other post-retirement or post-employment benefit plans. |
| As of December 31, 2006, allocations by investment type of the plan assets deposited in the CTC are as follows: |
Type of Investment | Allocation (%) | |||
Cash | 46 | |||
Notes | 18 | |||
Equity | 17 | |||
Bond | 10 | |||
Other | 9 | |||
| 100 | ||||
| Information about the defined benefit plans for ASE Test Inc. is summarized as follows: |
| a. | Components of net periodic pension cost for the year: |
2004 | 2005 | 2006 | ||||||||||
| Service cost | $ | 1,906 | $ | 1,705 | $ | 301 | ||||||
| Interest | 349 | 373 | 308 | |||||||||
| Projected return on plan assets | (78 | ) | (117 | ) | (109 | ) | ||||||
| Amortization | 172 | 69 | 11 | |||||||||
| Net periodic pension cost | $ | 2,349 | $ | 2,030 | $ | 511 | ||||||
| b. | Reconciliation of funded status of the plan and accrued pension cost at December 31, 2004, 2005 and 2006: |
December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
| Vested benefit obligation | $ | 38 | $ | 16 | $ | 98 | ||||||
| Non-vested benefit obligation | 6,978 | 6,424 | 7,255 | |||||||||
| Accumulated benefit obligation | 7,016 | 6,440 | 7,353 | |||||||||
| Additional benefits based on future salaries | 5,644 | 4,638 | 5,140 | |||||||||
| Projected benefit obligation | 12,660 | 11,078 | 12,493 | |||||||||
| Fair value of plan assets | (3,154 | ) | (3,668 | ) | (4,318 | ) | ||||||
| Funded status | 9,506 | 7,410 | 8,175 | |||||||||
| Unrecognized net transition obligation | (163 | ) | (148 | ) | (138 | ) | ||||||
| Unrecognized actuarial loss | (4,172 | ) | (814 | ) | (1,646 | ) | ||||||
| Accrued expense | (52 | ) | (47 | ) | (42 | ) | ||||||
| Accrued pension cost | $ | 5,119 | $ | 6,401 | $ | 6,349 | ||||||
| Vested obligation | $ | 42 | $ | 17 | $ | 98 | ||||||
| c. Actuarial assumption | |||
| Discount rate | 3.25% | 2.75% | 2.25% |
| Increase in future salary level | 3.00% | 2.5-3.0% | 2.5-3.0% |
| Expected rate of return on plan assets | 3.25% | 2.75% | 2.50% |
| d. | ASE Test, Inc. expects to make contributions of $554 thousand to its defined pension plan in 2007. |
| e | Expected benefit payments: |
Year of Payments | ||||
2007 | $ | 105 | ||
2008 | 8 | |||
2009 | 58 | |||
2010 | 42 | |||
2011 | 52 | |||
2012 and thereafter | 1,483 | |||
| Plan assets and obligations reflected herein were measured as of December 31, 2006. |
2004 | 2005 | 2006 | ||||||||||||||||||||||||||||||||||
Cost of | Operating | Cost of | Operating | Cost of | Operating | |||||||||||||||||||||||||||||||
Revenues | Expenses | Total | Revenues | Expenses | Total | Revenues | Expenses | Total | ||||||||||||||||||||||||||||
| Employees benefits | ||||||||||||||||||||||||||||||||||||
| Salary | $ | 63,555 | $ | 19,393 | $ | 82,948 | $ | 51,573 | $ | 20,350 | $ | 71,923 | $ | 58,183 | $ | 22,111 | $ | 80,294 | ||||||||||||||||||
| Insurance | 4,281 | 1,575 | 5,856 | 3,561 | 1,360 | 4,921 | 4,129 | 1,826 | 5,955 | |||||||||||||||||||||||||||
| Pension costs | 4,019 | 1,397 | 5,416 | 3,864 | 1,477 | 5,341 | 3,584 | 1,500 | 5,084 | |||||||||||||||||||||||||||
| Other | 5,829 | 1,668 | 7,497 | 7,619 | 2,009 | 9,628 | 5,831 | 1,314 | 7,145 | |||||||||||||||||||||||||||
| $ | 77,684 | $ | 24,033 | $ | 101,717 | $ | 66,617 | $ | 25,196 | $ | 91,813 | $ | 71,727 | $ | 26,751 | $ | 98,478 | |||||||||||||||||||
| Depreciation | $ | 141,839 | $ | 2,441 | $ | 144,280 | $ | 138,084 | $ | 2,691 | $ | 140,775 | $ | 110,830 | $ | 2,732 | $ | 113,562 | ||||||||||||||||||
| Amortization | 9,339 | 11,289 | 20,628 | 6,875 | 6,652 | 13,527 | 5,276 | 1,800 | 7,076 | |||||||||||||||||||||||||||
16. | INCOME TAX |
| a. | Income tax expense (benefit) attributable to continuing operations is summarized as follows: |
2004 | 2005 | 2006 | ||||||||||
Tax expense (benefit) based on pre-tax accounting income (loss) from continuing operations at statutory rate | $ | 10,478 | $ | (4,169 | ) | $ | 38,973 | |||||
Add (deduct) tax effects of: | ||||||||||||
Permanent differences | ||||||||||||
Tax-exempt income - tax holiday | (6,146 | ) | - | (6,450 | ) | |||||||
Other | (937 | ) | 181 | (40 | ) | |||||||
Temporary differences | ||||||||||||
Depreciation and capital allowance | (1,501 | ) | 1,035 | (11,569 | ) | |||||||
Depreciation | (945 | ) | (597 | ) | 5,995 | |||||||
Other | 3,028 | 53 | 2,089 | |||||||||
| 3,977 | (3,497 | ) | 28,998 | |||||||||
2004 | 2005 | 2006 | ||||||||||
Loss carryforward | $ | - | $ | 7,101 | $ | (5,356 | ) | |||||
Income taxes on undistributed earnings | 2,244 | 2,369 | - | |||||||||
Credits for investments, investment in machinery and equipment, and research and development | (4,494 | ) | (5,637 | ) | (14,802 | ) | ||||||
Net change in deferred income tax for the year | (22,936 | ) | 4,991 | 3,821 | ||||||||
Adjustment of prior years’ income tax | - | (2,790 | ) | (94 | ) | |||||||
Income tax expense (benefit) | $ | (21,209 | ) | $ | 2,537 | $ | 12,567 | |||||
| (Concluded) |
2004 | 2005 | 2006 | ||||||||||
Domestic entity | $ | 509 | $ | 1,079 | $ | 3,580 | ||||||
Foreign entities | �� | |||||||||||
ASE Test, Inc. (25% statutory rate) | 8,708 | (4,314 | ) | 32,090 | ||||||||
ASE Test Malaysia (28% statutory rate) | 1,765 | 745 | 3,646 | |||||||||
ISE Labs (federal tax rate 35% and state tax rate 6%) | (504 | ) | (1,679 | ) | (343 | ) | ||||||
| $ | 10,478 | $ | (4,169 | ) | $ | 38,973 | ||||||
| b. | Deferred income tax assets and liabilities are summarized as follows: |
December 31 | ||||||||
2005 | 2006 | |||||||
| Current deferred income tax assets | ||||||||
Unused tax credits | $ | 9,267 | $ | 22,639 | ||||
Loss carryforward | 4,067 | - | ||||||
Other | 1,880 | 1,241 | ||||||
| 15,214 | 23,880 | |||||||
Less : valuation allowance | (6,281 | ) | (319 | ) | ||||
| $ | 8,933 | $ | 23,561 | |||||
December 31 | ||||||||
2005 | 2006 | |||||||
Noncurrent deferred income tax assets | ||||||||
Unused tax credits | $ | 29,528 | $ | 9,706 | ||||
Tax effect of unabsorbed capital allowance | 10,263 | 6,284 | ||||||
Loss carryforward | 9,294 | 8,196 | ||||||
Other | (2,818 | ) | (17 | ) | ||||
| 46,267 | 24,169 | |||||||
Less : valuation allowance | (15,303 | ) | (11,046 | ) | ||||
| $ | 30,964 | $ | 13,123 | |||||
Noncurrent deferred income tax liabilities | $ | - | $ | 608 | ||||
| c. | As of December 31, 2006, unused tax credits which can be utilized to offset future income tax, are set forth below: |
Year of Expiry | ||||
| 2007 | $ | 10,045 | ||
| 2008 | 9,883 | |||
| 2009 | 2,392 | |||
| 2010 | 2,578 | |||
| 2011 and thereafter | 7,447 | |||
| $ | 32,345 | |||
| a. | Fair values of financial instruments were as follows: |
December 31 | ||||||||||||||||
2005 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Non-derivative financial instruments | ||||||||||||||||
Assets | ||||||||||||||||
Available-for-sale financial assets-current | $ | - | $ | - | $ | 89,341 | $ | 89,341 | ||||||||
Available-for-sale financial assets-noncurrent | 81,251 | 165,002 | 204,851 | 204,851 | ||||||||||||
Pledged time deposit ( included in other assets ) | 2,006 | 2,006 | 5,276 | 5,276 | ||||||||||||
Liabilities | ||||||||||||||||
Long-term debts (including current portion) | 295,046 | 295,046 | 120,124 | 120,124 | ||||||||||||
Derivative financial instruments | ||||||||||||||||
Financial currency forward contracts | 4 | 4 | (262 | ) | (262 | ) | ||||||||||
| b. | Methods and assumptions used in the determination of fair values of financial instruments were as below： |
| 1) | The aforementioned financial instruments do not include cash, notes and accounts receivable, receivables from related parties, pledged time deposit-current, notes and accounts payable, payable to related parties, accrued expenses and payables for property, plant and equipment. These financial instruments’ carrying amounts approximate their fair values. |
| 2) | Fair values of available-for-sale financial assets are determined based on their quoted market prices. Fair values of derivatives were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. |
| 3) | The carrying amount of pledged time deposit reflects its fair value. |
| 4) | Fair values of long-term debts were based on the present value of expected cash flows discounted at current interest rates of similar long-term debts. The carrying amount of long-term debts approximates their fair value. |
| c. | The Company recognized $314 thousand and $685 thousand of gains for the years ended December 31, 2004 and 2005, respectively, and $1,731 thousand of losses for the year ended December 31, 2006 for the changes in fair value of derivatives determined using valuation techniques. |
| d. | As of December 31, 2005 and 2006, financial assets exposed to fair value interest rate risk were $5,031 thousand and $6,081 thousand, respectively, financial liabilities exposed to fair value interest rate risk were $20,644 thousand and $1,781 thousand, respectively. Financial assets exposed to cash flow interest rate risk were $77,439 thousand and $62,088 thousand, respectively, and financial liabilities exposed to cash flow interest rate risk were $267,096 thousand and $101,358 thousand, respectively. |
| e. | For the years ended December 31, 2004, 2005 and 2006, the Company recognized interest income of $578 thousand, $1,598 thousand and $3,369 thousand, and interest expense (including capitalized interest) of $9,609 thousand, $13,622 thousand and $13,568 thousand, respectively, for those financial assets or liabilities that are not categorized as financial assets or liabilities at fair value through profit and loss. |
| f. | The derivative instruments employed by the Company is to mitigate risks arising from the ordinary business operation. All derivative transactions engaged by the Company should be designated into two purposes: hedging and speculating which are governed by separated internal guidelines and controls. Derivative transactions enter for hedging purposes must hedge the risk against fluctuation in foreign exchange and interest rates arising from operating activities. The currency and the amount of derivative instruments held by the Company must match the Company’s assets and liabilities. |
| g. | Information about financial risk |
| 1) | Market risk |
| 2) | Credit risk |
| 3) | Liquidity risk |
| 4) | Cash flow interest rate risk |
| a. | Related parties |
Related Parties | Relationship | ||
| ASE Inc. | Parent company | ||
| ASE Korea, Inc. | Affiliate | ||
| Hung Ching Development & Construction Co. (“HCDC”) | Affiliate | ||
| ASE (Shanghai) Inc. | Affiliate | ||
| ASE (U.S.) Inc. | Affiliate (starting August, 2004) | ||
| ASE Japan Co., Ltd. (“ASE Japan”) | Affiliate (starting May, 2004) | ||
| ASE Material Inc. | Affiliate (merged into ASE Inc. in August, 2004) | ||
| ASE Electronics, Inc. (“ASEE”) | Affiliate (starting August, 2006) |
| b. | Significant related party transactions: |
2004 | 2005 | 2006 | ||||||||||
1) Revenue | ||||||||||||
| ASE Inc. | $ | 16,760 | $ | 44,552 | $ | 45,086 | ||||||
| Other | 446 | - | - | |||||||||
| $ | 17,206 | $ | 44,552 | $ | 45,086 | |||||||
2004 | 2005 | 2006 | ||||||||||
2) Purchase of machinery and equipment | ||||||||||||
| ASE Korea, Inc. | $ | 146 | $ | 990 | $ | 7,144 | ||||||
| ASE Inc. | - | 1,124 | 4,716 | |||||||||
| ASE (Chung Li) Inc. | 1,235 | - | - | |||||||||
| Other | 4 | - | - | |||||||||
| $ | 1,385 | $ | 2,114 | $ | 11,860 | |||||||
3) Purchase of buildings - HCDC | $ | 2,995 | $ | 7,293 | $ | - | ||||||
4) Purchase of raw materials | ||||||||||||
| ASE Inc. | $ | 2,650 | $ | 5,577 | $ | 3,123 | ||||||
| ASE Material Inc. | 3,353 | - | - | |||||||||
| Other | - | 4 | 1,041 | |||||||||
| $ | 6,003 | $ | 5,581 | $ | 4,164 | |||||||
5) Sale of property, plant and equipment | ||||||||||||
| ASE Korea, Inc. | $ | 2,943 | $ | 14,119 | $ | 5,067 | ||||||
| ASE Inc. | 9,790 | 1,598 | 337 | |||||||||
| ASE Japan | - | 1,540 | 1,194 | |||||||||
| Other | �� | 1,046 | 55 | - | ||||||||
| $ | 13,779 | $ | 17,312 | $ | 6,598 | |||||||
| c. | Balances at year end: |
December 31 | ||||||||
2005 | 2006 | |||||||
Receivable | ||||||||
| ASE Inc. | $ | 16,394 | $ | 13,811 | ||||
| ASE Korea, Inc. | 3,416 | 73 | ||||||
| Other | 467 | 734 | ||||||
| $ | 20,277 | $ | 14,618 | |||||
Payable | ||||||||
| ASE Inc. | $ | 9,082 | $ | 4,207 | ||||
| ASEE | - | 565 | ||||||
| Other | 1,265 | 365 | ||||||
| $ | 10,347 | $ | 5,137 | |||||
| The following assets have been pledged or mortgaged as collaterals for bank loans and as guarantees for the employment of foreign labor and the lease of office buildings: |
December 31 | ||||||||
2005 | 2006 | |||||||
Machinery and equipment, net | $ | 28,021 | $ | 7,326 | ||||
Pledged time deposit | 3,908 | 5,276 | ||||||
| $ | 31,929 | $ | 12,602 | |||||
| Included in other assets-other are $2,006 thousand and $5,276 thousand of time deposit which have been pledged as collateral as of December 31, 2005 and 2006, respectively. |
| a. | Lease commitments |
| 1) | Operating leases |
| $ | 20,081 | |||
2008 | 7,701 | |||
2009 | 5,144 | |||
2010 | 3,215 | |||
2011 and thereafter | 655 | |||
| Total minimum lease payments | $ | 36,796 |
| 2) | Capital leases |
2007 | $ | 14,591 | ||
2008 | 847 | |||
2009 | 36 | |||
2010 | 3 | |||
Total minimum lease payments | 15,477 | |||
Less: Imputed interest | (392 | ) | ||
Present value of future lease obligations | 15,085 | |||
Capital lease obligation, current | (14,225 | ) | ||
Capital lease obligation, long-term | $ | 860 |
| b. | The Company had unused letters of credit of $43 thousand as of December 31, 2006. |
| c. | The Company had commitments to certain vendors to purchase property, plant and equipment of approximately $52,000 thousand, and had prepaid $360 thousand as of December 31, 2006. |
| d. | At December 31, 2006, the Company did not have any significant unasserted claims or pending litigations. |
| a. | Geographical information, net revenues |
2004 | 2005 | 2006 | ||||||||||||||||||||||
Area | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| North America | $ | 236,527 | 55 | $ | 260,224 | 62 | $ | 320,895 | 62 | |||||||||||||||
| Asia | 152,485 | 36 | 104,179 | 25 | 114,235 | 22 | ||||||||||||||||||
| Europe | 38,740 | 9 | 56,526 | 13 | 82,558 | 16 | ||||||||||||||||||
| Australia | 11 | - | - | - | 18 | - | ||||||||||||||||||
| $ | 427,763 | 100 | $ | 420,929 | 100 | $ | 517,706 | 100 | ||||||||||||||||
| b. | Geographical information- long-lived assets |
December 31 | ||||||||||||||||
2005 | 2006 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
| Asia | ||||||||||||||||
| Taiwan | $ | 306,060 | 71 | $ | 282,309 | 73 | ||||||||||
| Malaysia | 76,194 | 18 | 56,300 | 14 | ||||||||||||
| Singapore | 36,847 | 8 | 38,222 | 10 | ||||||||||||
| United States | 10,978 | 3 | 12,604 | 3 | ||||||||||||
| $ | 430,079 | 100 | $ | 389,435 | 100 | |||||||||||
| c. | Major customers |
| d. | Operating segment information |
Testing | Packaging | Other | Total | |||||||||||||
2004 | ||||||||||||||||
Revenue from external customers | $ | 343,116 | $ | 84,647 | $ | - | $ | 427,763 | ||||||||
Interest income | 154 | 83 | 341 | 578 | ||||||||||||
Interest expense | (1,069 | ) | (255 | ) | (5,441 | ) | (6,765 | ) | ||||||||
Net interest expense | (915 | ) | (172 | ) | (5,100 | ) | (6,187 | ) | ||||||||
Depreciation and amortization | 138,328 | 18,601 | - | 156,929 | ||||||||||||
Impairment loss on assets | (26,500 | ) | - | - | (26,500 | ) | ||||||||||
Segment profit (loss) | (6,248 | ) | (10,456 | ) | 3,666 | (13,038 | ) | |||||||||
Segment assets | 782,089 | 149,820 | 151,200 | 1,083,109 | ||||||||||||
Expenditures for segment assets | 174,382 | 36,274 | - | 210,656 | ||||||||||||
Goodwill | 25,612 | - | - | 25,612 | ||||||||||||
Testing | Packaging | Other | Total | |||||||||||||
2005 | ||||||||||||||||
Revenue from external customers | $ | 346,639 | $ | 74,290 | $ | - | $ | 420,929 | ||||||||
Interest income | 868 | 574 | 156 | 1,598 | ||||||||||||
Interest expense | (3,418 | ) | (427 | ) | (8,899 | ) | (12,744 | ) | ||||||||
Net interest revenue (expense) | (2,550 | ) | 147 | (8,743 | ) | (11,146 | ) | |||||||||
Depreciation and amortization | 134,383 | 15,239 | - | 149,622 | ||||||||||||
Loss on fire damage | (51,224 | ) | - | - | (51,224 | ) | ||||||||||
Segment loss | (31,709 | ) | (9,372 | ) | (2,705 | ) | (43,786 | ) | ||||||||
Segment assets | 669,190 | 125,561 | 145,588 | 940,339 | ||||||||||||
Expenditures for segment assets | 48,844 | 1,842 | - | 50,686 | ||||||||||||
Goodwill | 20,646 | - | - | 20,646 | ||||||||||||
2006 | ||||||||||||||||
Revenue from external customers | 423,341 | 94,365 | - | 517,706 | ||||||||||||
Interest income | 1,379 | 1,432 | 558 | 3,369 | ||||||||||||
Interest expense | (2,302 | ) | (117 | ) | (10,746 | ) | (13,165 | ) | ||||||||
Net interest expense | (923 | ) | 1,315 | (10,188 | ) | (9,796 | ) | |||||||||
Depreciation and amortization | 108,410 | 12,228 | - | 120,638 | ||||||||||||
Gain on insurance settlement and impairment recovery | 32,145 | - | - | 32,145 | ||||||||||||
Segment profit | 149,369 | 8,040 | 5,927 | 163,336 | ||||||||||||
Segment assets | 682,364 | 83,605 | 278,459 | 1,044,428 | ||||||||||||
Expenditures for segment assets | 85,038 | 2,370 | - | 87,408 | ||||||||||||
Goodwill | 20,646 | - | - | 20,646 | ||||||||||||
| (Concluded) |
2004 | From January 1, 2005 to October 3, 2005 | |||||||
| Net revenues | $ | 193,375 | $ | 66,493 | ||||
| Cost of revenues | 173,389 | 59,819 | ||||||
| Gross profit | 19,986 | 6,674 | ||||||
| Operating expenses | 2,229 | 1,422 | ||||||
| Non-operating expenses | 768 | 1,257 | ||||||
Income from discontinued operations before income tax | 16,989 | 3,995 | ||||||
| Income tax expense | 21 | 66 | ||||||
| Income from discontinued operations | 16,968 | 3,929 | ||||||
2004 | From January 1, 2005 to October 3, 2005 | |||||||
| Gain on disposal of assets | $ | - | $ | 6,969 | ||||
| Income tax expense | - | 59 | ||||||
| Gain on disposal of discontinued operations | - | 6,910 | ||||||
| Total | $ | 16,968 | $ | 10,839 | ||||
| (Concluded) |
24. | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA |
| a. | Pension benefits |
| b. | Marketable securities |
| c. | Bonuses to employees, directors and supervisors |
2004 | 2005 | 2006 | ||||||||||
Cost of revenues | $ | 2,591 | $ | (1,546 | ) | $ | 8,079 | |||||
Selling, general and administrative expenses | 1,080 | (1,420 | ) | 3,872 | ||||||||
Research and development | 418 | (236 | ) | 1,235 | ||||||||
| $ | 4,089 | $ | (3,202 | ) | $ | 13,186 | ||||||
| d. | Depreciation of buildings |
| e. | Depreciation on the excess of book value on transfer of buildings between related parties |
| f. | Impairment of long-lived assets |
| g. | Derivative financial instruments |
| h. | Stock-based compensation |
| i. | Goodwill |
| j. | Undistributed earnings tax |
| k. | Investments in parent company accounted for as treasury stock |
| l. | Earnings per share |
2004 | 2005 | 2006 | ||||||||||
Net income (loss) | ||||||||||||
Net income (loss) based on ROC GAAP | $ | 25,139 | $ | (35,484 | ) | $ | 150,769 | |||||
Adjustments: | ||||||||||||
a. Pension benefits | 7 | 7 | 11 | |||||||||
c. Bonuses to employees, directors and supervisors | (4,089 | ) | 3,202 | (13,186 | ) | |||||||
d. Depreciation of buildings | (489 | ) | (582 | ) | (664 | ) | ||||||
| e. Depreciation on the excess of book value of buildings transferred between related parties | 13 | 13 | 13 | |||||||||
f. Impairment loss reversal | ||||||||||||
Recoverable amount | - | - | (5,641 | ) | ||||||||
Depreciation on recoverable amount | - | - | 791 | |||||||||
Income tax effect | - | - | 1,212 | |||||||||
h. Stock option compensation | ||||||||||||
Stock option compensation from ASE Inc. | 1,856 | (7,423 | ) | (3,750 | ) | |||||||
Stock option compensation from the Company | - | - | (3,682 | ) | ||||||||
Cumulative effect of a change in accounting principle for adopting U.S. SFAS No. 123R | - | - | 381 | |||||||||
i. Goodwill | ||||||||||||
Amortization | ||||||||||||
- Consolidated subsidiary | 10,105 | 4,966 | - | |||||||||
- Equity-method investee | 348 | 348 | - | |||||||||
| Impairment | (15,000 | ) | - | - | ||||||||
j. Undistributed earnings tax | - | - | (8,936 | ) | ||||||||
k. Cash dividend from investment in parent company accounted for as treasury stock | - | (493 | ) | - | ||||||||
| (7,249 | ) | 38 | (33,451 | ) | ||||||||
Net income (loss) based on U.S. GAAP | $ | 17,890 | $ | (35,446 | ) | $ | 117,318 | |||||
Earnings (loss) per share based on U.S. GAAP (in U.S. dollars) | ||||||||||||
Basic and diluted | $ | 0.18 | $ | (0.35 | ) | $ | 1.17 | |||||
Number of shares based on U.S. GAAP (Note 25d) | ||||||||||||
Basic | 100,037,524 | 100,059,031 | 100,081,418 | |||||||||
Diluted | 100,111,113 | 100,059,031 | 100,234,402 | |||||||||
Shareholders’ equity | ||||||||||||
Shareholders’ equity based on ROC GAAP | $ | 599,591 | $ | 558,205 | $ | 843,128 | ||||||
Adjustments: | ||||||||||||
a. Pension benefits and additional liability | ||||||||||||
Pension benefits | (44 | ) | (37 | ) | (26 | ) | ||||||
Unrecognized pension cost on adoption of U.S. SFAS No. 158 | - | - | (1,712 | ) | ||||||||
c. Bonuses to employees, directors and supervisors | (4,758 | ) | - | (8,843 | ) | |||||||
d. Depreciation of buildings | (2,118 | ) | (2,700 | ) | (3,364 | ) | ||||||
2004 | 2005 | 2006 | ||||||||||
e. Depreciation on the excess of book value of buildings transferred between related parties | $ | (518 | ) | $ | (505 | ) | $ | (492 | ) | |||
f. Impairment loss reversal, net | - | - | (3,638 | ) | ||||||||
i. Goodwill | ||||||||||||
Amortization | ||||||||||||
- Consolidated subsidiary | 30,315 | 35,281 | 35,281 | |||||||||
- Equity-method investee | 1,044 | 1,392 | 1,392 | |||||||||
Impairment | (15,000 | ) | (15,000 | ) | (15,000 | ) | ||||||
j. Undistributed earnings tax | - | - | (8,936 | ) | ||||||||
k. Investment in parent company accounted for as treasury stock | (81,362 | ) | (81,422 | ) | (81,422 | ) | ||||||
k. Unrealized gain on investment in parent company accounted for as treasury stock | - | - | (123,429 | ) | ||||||||
Cumulative translation adjustments on U.S. GAAP adjustments | 60 | 242 | 172 | |||||||||
Net decrease in shareholders’ equity | (72,381 | ) | (62,749 | ) | (210,017 | ) | ||||||
Shareholders’ equity based on U.S. GAAP | $ | 527,210 | $ | 495,456 | $ | 633,111 | ||||||
Changes in shareholders’ equity based on U.S. GAAP | ||||||||||||
Balance, beginning of year | $ | 562,499 | $ | 527,210 | $ | 495,456 | ||||||
Net income (loss) for the year | 17,890 | (35,446 | ) | 117,318 | ||||||||
Issuance of new shares under stock option plans | 4,552 | - | 678 | |||||||||
Unrecognized pension cost | 646 | - | - | |||||||||
Adjustment of pension cost upon adoption of U.S. SFAS No. 158 | - | - | (1,712 | ) | ||||||||
ASE Inc. shares to be distributed as bonus to employees | 1,525 | 1,556 | 4,343 | |||||||||
Stock option compensation | (1,856 | ) | 7,423 | 7,051 | ||||||||
Cumulative translation adjustments for subsidiaries | 22,976 | (5,780 | ) | 9,444 | ||||||||
Unrealized gain on financial instruments | 400 | - | 533 | |||||||||
Long-term investment in parent company accounted for as treasury stock | (81,422 | ) | - | - | ||||||||
Cash dividend income from the parent company | - | 493 | - | |||||||||
Balance, end of year | $ | 527,210 | $ | 495,456 | $ | 633,111 | ||||||
2005 | 2006 | |||||||
Available-for-sale financial assets - noncurrent | ||||||||
As reported | $ | 81,251 | $ | 204,851 | ||||
U.S. GAAP adjustments | ||||||||
Treasury stock | (81,422 | ) | (81,422 | ) | ||||
2005 | 2006 | |||||||
Effect of change in exchange rate | $ | 171 | $ | - | ||||
Unrealized gain on financial instruments | - | (123,429 | ) | |||||
As adjusted | $ | - | $ | - | ||||
Equity method investments | ||||||||
As reported | $ | 57,974 | $ | 75,979 | ||||
U.S. GAAP adjustment | ||||||||
Goodwill amortization | 1,392 | 1,392 | ||||||
As adjusted | $ | 59,366 | $ | 77,371 | ||||
Building and improvements | ||||||||
As reported | $ | 66,573 | $ | 61,596 | ||||
U.S. GAAP adjustments | ||||||||
Effect of adjustments on depreciation of buildings | (2,700 | ) | (3,364 | ) | ||||
Excess of adjustments on buildings transferred between related parties | (505 | ) | (492 | ) | ||||
Effect of change in exchange rate | 131 | 134 | ||||||
As adjusted | $ | 63,499 | $ | 57,874 | ||||
Machinery and equipment | ||||||||
As reported | $ | 338,046 | $ | 296,753 | ||||
U.S. GAAP adjustment | ||||||||
Impairment recovery | - | (5,641 | ) | |||||
Depreciation | - | 791 | ||||||
As adjusted | $ | 338,046 | $ | 291,903 | ||||
Goodwill | ||||||||
As reported | $ | 20,646 | $ | 20,646 | ||||
U.S. GAAP adjustments | ||||||||
Goodwill impairment | (15,000 | ) | (15,000 | ) | ||||
Goodwill amortization | 35,281 | 35,281 | ||||||
As adjusted | $ | 40,927 | $ | 40,927 | ||||
Deferred income tax assets - noncurrent | ||||||||
As reported | $ | 30,964 | $ | 13,123 | ||||
U.S. GAAP adjustments | ||||||||
Undistributed earnings tax | - | (8,936 | ) | |||||
Effect of impairment recovery | - | 1,212 | ||||||
Effect of change in exchange rate | - | 36 | ||||||
As adjusted | $ | 30,964 | $ | 5,435 | ||||
2005 | 2006 | |||||||
Accrued expenses | ||||||||
As reported | $ | 37,986 | $ | 21,725 | ||||
U.S. GAAP adjustments | ||||||||
Bonus to employees, directors and supervisors | - | 8,843 | ||||||
Effect of change in exchange rate | 9 | (53 | ) | |||||
As adjusted | $ | 37,995 | $ | 30,515 | ||||
Accrued pension cost | ||||||||
As reported | $ | 6,412 | $ | 6,648 | ||||
U.S. GAAP adjustments | ||||||||
Pension benefits | 37 | 26 | ||||||
Unrecognized pension cost on adoption of U.S. SFAS No. 158 | - | 1,712 | ||||||
Effect of change in exchange rate | 51 | 51 | ||||||
As adjusted | $ | 6,500 | $ | 8,437 | ||||
| a. | Recently issued accounting standards |
| b. | Pension |
2004 | 2005 | 2006 | ||||||||||
| Components of net periodic pension cost | ||||||||||||
Service cost | $ | 1,906 | $ | 1,705 | $ | 301 | ||||||
Interest cost | 349 | 373 | 308 | |||||||||
Expected return on plan assets | (78 | ) | (117 | ) | (109 | ) | ||||||
Amortization of prior service cost | 165 | 59 | - | |||||||||
Net periodic pension cost | $ | 2,342 | $ | 2,020 | $ | 500 | ||||||
Change in benefit obligation | ||||||||||||
Benefit obligation at beginning of year | $ | 10,855 | $ | 12,660 | $ | 11,078 | ||||||
Service cost | 1,906 | 1,705 | 301 | |||||||||
Interest cost | 349 | 373 | 308 | |||||||||
Actuarial gain (loss) | (1,038 | ) | (3,325 | ) | 815 | |||||||
Benefits paid | (163 | ) | - | (95 | ) | |||||||
Exchange difference | 751 | (335 | ) | 86 | ||||||||
Benefit obligation at end of year | 12,660 | 11,078 | 12,493 | |||||||||
Change in plan assets | ||||||||||||
Fair value of plan assets at beginning of year | 2,386 | 3,154 | 3,668 | |||||||||
Employer contribution | 554 | 570 | 620 | |||||||||
Actual return on plan assets | 32 | 49 | 97 | |||||||||
Benefits paid | - | - | (95 | ) | ||||||||
Exchange difference | 182 | (105 | ) | 28 | ||||||||
3,154 | 3,668 | 4,318 | ||||||||||
Funded status | 9,506 | 7,410 | 8,175 | |||||||||
Unrecognized actuarial loss | (4,240 | ) | (874 | ) | - | |||||||
Accrued expense | (52 | ) | (47 | ) | (37 | ) | ||||||
Net amount recognized (recognized as accrued pension cost) | $ | 5,214 | $ | 6,489 | $ | 8,138 | ||||||
Actuarial assumptions: | ||||||||||||
Discount rate | 3.25 | % | 2.75 | % | 2.25 | % | ||||||
Rate of compensation increase | 3.00 | % | 2.5%-3.0 | % | 2.5%-3.0 | % | ||||||
Expected return on plan assets | 3.25 | % | 2.75 | % | 2.50 | % | ||||||
| c. | Income tax (benefit) |
2004 | 2005 | 2006 | ||||||||||
Tax expense (benefit) based on pre-tax accounting income (loss) from continuing operations at statutory rate | $ | 9,920 | $ | (4,481 | ) | $ | 33,818 | |||||
| Add (deduct) tax effects of: | ||||||||||||
| Permanent differences | ||||||||||||
| Bonuses to directors, supervisors and employees | 1,022 | (801 | ) | 3,297 | ||||||||
| Stock option compensation | (464 | ) | 1,113 | 1,858 | ||||||||
| Tax-exempt income - tax holiday | (6,146 | ) | - | (6,450 | ) | |||||||
| Other | (937 | ) | 181 | (40 | ) | |||||||
2004 | 2005 | 2006 | ||||||||||
| Deferred | $ | (26,848 | ) | $ | (155 | ) | $ | (15,678 | ) | |||
| Loss carryforward | - | 7,101 | (5,356 | ) | ||||||||
| Income taxes on undistributed earnings | 2,244 | 2,369 | 8,936 | |||||||||
| Adjustment of prior years’ income tax | - | (2,790 | ) | (94 | ) | |||||||
| Income tax expense (benefit) | $ | (21,209 | ) | $ | 2,537 | $ | 20,291 | |||||
2004 | 2005 | 2006 | ||||||||||
Domestic entity | $ | 509 | $ | 1,079 | $ | 3,580 | ||||||
Foreign entities | ||||||||||||
ASE Test, Inc. (25% statutory rate) | 8,150 | (4,626 | ) | 26,935 | ||||||||
ASE Test Malaysia (28% statutory rate) | 1,765 | 745 | 3,646 | |||||||||
ISE Labs (federal tax rate 35% and state tax rate 6%) | (504 | ) | (1,679 | ) | (343 | ) | ||||||
| $ | 9,920 | $ | (4,481 | ) | $ | 33,818 | ||||||
2005 | 2006 | |||||||
Current deferred income tax assets | ||||||||
Unused tax credits | $ | 9,267 | $ | 22,639 | ||||
Loss carryforward | 4,067 | - | ||||||
Other | 1,880 | 1,241 | ||||||
| 15,214 | 23,880 | |||||||
Less: valuation allowance | (6,281 | ) | (319 | ) | ||||
| $ | 8,933 | $ | 23,561 | |||||
Noncurrent deferred income tax assets | ||||||||
Unused tax credits | $ | 29,528 | $ | 2,018 | ||||
Tax effect of unabsorbed capital allowance | 10,263 | 6,284 | ||||||
Loss carryforward | 9,294 | 8,196 | ||||||
Other | (2,818 | ) | (17 | ) | ||||
| 46,267 | 16,481 | |||||||
Less: valuation allowance | (15,303 | ) | (11,046 | ) | ||||
| $ | 30,964 | $ | 5,435 | |||||
Noncurrent deferred income tax liabilities | $ | - | $ | 608 | ||||
| d. | Earnings (loss) per share |
2004 | 2005 | 2006 | ||||||||||
Net income (loss) under U.S. GAAP | ||||||||||||
| Income (loss) from continuing operations | $ | 922 | $ | (46,285 | ) | $ | 116,937 | |||||
| Discontinued operations | 16,968 | 10,839 | - | |||||||||
| Cumulative effect of a change in accounting principle, net of tax | - | - | 381 | |||||||||
| $ | 17,890 | $ | (35,446 | ) | $ | 117,318 | ||||||
Weighted average number of shares, as adjusted - denominator | ||||||||||||
Basic | 100,037,524 | 100,059,031 | 100,081,418 | |||||||||
Effect of dilutive securities | 73,589 | - | 152,984 | |||||||||
Diluted | 100,111,113 | 100,059,031 | 100,234,402 | |||||||||
Earnings (loss) per share (in U.S. dollars) | ||||||||||||
| Basic | ||||||||||||
Earnings (loss) from continuing operations | $ | 0.01 | $ | (0.46 | ) | $ | 1.17 | |||||
Earnings from discontinued operations | 0.17 | 0.11 | - | |||||||||
Earnings from cumulative effect of a change in accounting principle | - | - | - | |||||||||
| $ | 0.18 | $ | (0.35 | ) | $ | 1.17 | ||||||
| Diluted | ||||||||||||
Earnings (loss) from continuing operations | $ | 0.01 | $ | (0.46 | ) | $ | 1.17 | |||||
Earnings from discontinued operations | 0.17 | 0.11 | - | |||||||||
Earnings from cumulative effect of a change in accounting principle | - | - | - | |||||||||
| $ | 0.18 | $ | (0.35 | ) | $ | 1.17 | ||||||
| e. | Stock option plans |
Weighted | |||||||||||||||
Average | Weighted | Aggregate | |||||||||||||
Exercise | Average | Intrinsic | |||||||||||||
Number of | Price | Grant Date | Value (In | ||||||||||||
Shares | Per Share | Fair Value | thousands) | ||||||||||||
Beginning outstanding balance - January 1, 2004 | 13,301,418 | 11.80 | |||||||||||||
Options granted | 260,000 | 6.18 | $ | 6.18 | |||||||||||
Options exercised | (512,815 | ) | 8.90 | ||||||||||||
Options forfeited | (417,815 | ) | 11.82 | ||||||||||||
Options expired | (1,753,340 | ) | 20.00 | ||||||||||||
Ending outstanding balance - December 31, 2004 | 10,877,448 | 10.48 | |||||||||||||
Options granted | 32,500 | 6.50 | $ | 6.50 | |||||||||||
Options exercised | - | - | |||||||||||||
Options forfeited | (358,884 | ) | 10.97 | ||||||||||||
Options expired | (60,000 | ) | 25.00 | ||||||||||||
Ending outstanding balance - December 31, 2005 | 10,491,064 | 10.37 | |||||||||||||
Options granted | 130,000 | 9.60 | $ | 9.60 | |||||||||||
Options exercised | (79,201 | ) | 8.56 | ||||||||||||
Options forfeited | (216,825 | ) | 11.60 | ||||||||||||
Options expired | - | - | |||||||||||||
Ending outstanding balance - December 31, 2006 | 10,325,038 | 10.34 | $ | 16,660 | |||||||||||
Ending exercisable balance - December 31, 2006 | 9,025,838 | 10.18 | $ | 15,479 | |||||||||||
Outstanding | Exercisable | |||||||||||||||||||||||||
Number of Shares | Weighted Average Price | Weighted Average Remaining Life (Years) | Number of Shares | Weighted Average Price | Weighted Average Remaining Life (Years) | |||||||||||||||||||||
| Options with exercise price of: | ||||||||||||||||||||||||||
| $20-$25 | 596,900 | $ | 22.35 | 2.93 | 596,900 | $ | 22.35 | 2.94 | ||||||||||||||||||
| $11.5-$12.95 | 2,139,450 | 12.81 | 6.48 | 1,176,450 | 12.70 | 6.69 | ||||||||||||||||||||
| $5.5-$9.79 | 7,588,688 | 8.70 | 4.34 | 7,252,488 | 8.77 | 4.17 | ||||||||||||||||||||
10,325,038 | 4.74 | 9,025,838 | 4.39 | |||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||
Risk-free interest rate | 3.50-3.88% | 3.88% | 4.88% | |||||||||
Expected life | 5 years | 5 years | 3-5 years | |||||||||
Expected volatility | 78.28% | 59.06% | 59.95%-62.03% | |||||||||
Expected dividend | 0% | 0% | 0% | |||||||||
Weighted | |||||||||||||||
Average | Weighted | Aggregate | |||||||||||||
Exercise | Average | Intrinsic | |||||||||||||
Number of | Price | Grant Date | Value (In | ||||||||||||
Shares | Per Share | Fair Value | thousands) | ||||||||||||
Beginning outstanding balance - January 1, 2004 | 38,852,400 | $ | 0.58 | ||||||||||||
Options granted | 25,499,500 | 0.79 | $ | 0.79 | |||||||||||
Options forfeited | (2,261,800 | ) | 0.58 | ||||||||||||
Options expired | - | - | |||||||||||||
Options exercised | (338,000 | ) | 0.56 | ||||||||||||
Ending outstanding balance - December 31, 2004 | 61,752,100 | 0.60 | |||||||||||||
Options granted | 3,000,000 | 0.57 | $ | 0.57 | |||||||||||
Options forfeited | (5,126,800 | ) | 0.58 | ||||||||||||
Options expired | - | - | |||||||||||||
Options exercised | (6,698,720 | ) | 0.49 | ||||||||||||
Ending outstanding balance - December 31, 2005 | 52,926,580 | 0.60 | |||||||||||||
Options granted | - | - | $ | - | |||||||||||
Options forfeited | (2,489,000 | ) | 0.62 | ||||||||||||
Options expired | - | - | |||||||||||||
Options exercised | (9,908,710 | ) | 0.58 | ||||||||||||
Ending outstanding balance - December 31, 2006 | 40,528,870 | 0.61 | $ | 21,392 | |||||||||||
Ending exercisable balance - December 31, 2006 | 19,611,890 | 0.59 | $ | $10,736 | |||||||||||
Outstanding | Exercisable | |||||||||||||||||
Number of Shares | Weighted Average Remaining Life (Years) | Number of Shares | Weighted Average Remaining Life (Years) | |||||||||||||||
| Options with exercise price | ||||||||||||||||||
$0.49 | 15,222,300 | 6.0 | 9,936,500 | 6.0 | ||||||||||||||
$0.64 | 4,327,170 | 6.6 | 2,302,690 | 6.6 | ||||||||||||||
$0.70 | 18,564,400 | 7.5 | 7,372,700 | 7.5 | ||||||||||||||
$0.57 | 2,415,000 | 8.4 | - | - | ||||||||||||||
40,528,870 | 6.9 | 19,611,890 | 6.6 | |||||||||||||||
2004 | 2005 | |||||||
Risk-free interest rate | 2.50% | 1.80% | ||||||
Expected life | 5 years | 5 years | ||||||
Expected dividend | 3.00% | 3.00% | ||||||
Expected volatility | 59% | 47% | ||||||
2004 | 2005 | |||||||
Net income (loss) based on U.S. GAAP | $ | 17,890 | $ | (35,446 | ) | |||
Stock-based compensation expense (net of related tax effect) | ||||||||
From the Company | (13,998 | ) | (10,525 | ) | ||||
From ASE Inc. | (836 | ) | (1,660 | ) | ||||
Pro forma net income (loss) | $ | 3,056 | $ | (47,631 | ) | |||
Basic earnings (loss) per share | ||||||||
As reported | $ | 0.18 | $ | (0.35 | ) | |||
Pro forma | $ | 0.03 | $ | (0.48 | ) | |||
Diluted earnings (loss) per share | ||||||||
As reported | $ | 0.18 | $ | (0.35 | ) | |||
Pro forma | $ | 0.03 | $ | (0.48 | ) | |||
| f. | According to U.S. SFAS No. 130, “Reporting Comprehensive Income”, the statements of comprehensive income (loss) for the years ended December 31, 2004, 2005 and 2006 are presented below: |
2004 | 2005 | 2006 | ||||||||||
Net income (loss) based on U.S. GAAP | $ | 17,890 | $ | (35,446 | ) | $ | 117,318 | |||||
Translation adjustment on subsidiaries | 22,976 | (5,780 | ) | 9,444 | ||||||||
Unrecognized pension cost | 646 | - | - | |||||||||
Unrealized gain on financial instruments | 400 | - | 533 | |||||||||
Comprehensive income (loss) | $ | 41,912 | $ | (41,226 | ) | $ | 127,295 | |||||
| g. | Goodwill |
