AMKOR TECHNOLOGY INC, 10-Q, 1998-06-12

AMKOR TECHNOLOGY INC
10-Q, 1998-06-12
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

FORM 10-Q
-------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

------------------

Commission File Number: 000-29472

AMKOR TECHNOLOGY, INC.
----------------------
(Exact name of registrant as specified in its charter)

Delaware
--------
(State or other jurisdiction of incorporation or organization)

------------------

23-1722724
----------
(I. R. S. - Employer Identification No.)

1345 Enterprise Drive, West Chester, Pennsylvania 19380
--------------------------------------------------------
(Address of principal executive offices)
----------------------------------------

(610) 431-9600
--------------
(Registrant's telephone number, including area code)

-------------------------

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.

Yes [ ] No [X]

The number of outstanding shares of the registrant's Common Stock as
of June 12, 1998 was 117,860,000.

<PAGE> 2
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, ---------------------------
1997 ACTUAL PRO FORMA (1)
------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . $ 90,917 $ 41,989 $ 6,289
Short-term investments . . . . . . . . . . . . 2,524 2,952 2,952
Accounts receivable --
Trade, net of allowance for doubtful
accounts of $4,234, $5,413 and $5,413 . . 102,804 103,390 103,390
Due from affiliates . . . . . . . . . . . . 14,431 14,923 14,923
Other . . . . . . . . . . . . . . . . . . . 4,879 10,222 10,222
Inventories . . . . . . . . . . . . . . . . . . 115,870 93,465 93,465
Other current assets . . . . . . . . . . . . . 26,997 32,282 32,282
-------- --------- ---------
Total current assets . . . . . . . . . 358,422 299,223 263,523
-------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . 427,061 433,226 433,226
-------- --------- ---------
INVESTMENTS:
AICL at equity . . . . . . . . . . . . . . . . 13,863 -- --
Other . . . . . . . . . . . . . . . . . . . . . 5,958 5,290 5,290
-------- --------- ---------
Total investments . . . . . . . . . . . 19,821 5,290 5,290
-------- --------- ---------
OTHER ASSETS:
Due from affiliates . . . . . . . . . . . . . . 29,186 24,348 24,348
Other . . . . . . . . . . . . . . . . . . . . . 21,102 24,801 26,301
-------- --------- ---------
50,288 49,149 50,649
-------- --------- ---------
Total assets . . . . . . . . . . . . . $855,592 $ 786,888 $ 752,688
======== ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term debt . . . . . . . . . . . . . . . $167,317 $ 120,173 $ 120,173
Trade accounts payable . . . . . . . . . . . . 113,037 105,913 105,913
Due to affiliates . . . . . . . . . . . . . . . 15,581 28,653 28,653
Bank overdraft . . . . . . . . . . . . . . . . 29,765 21,087 21,087
Accrued expenses . . . . . . . . . . . . . . . 43,973 64,371 64,371
Accrued income taxes . . . . . . . . . . . . . 26,968 34,652 34,652
-------- --------- ---------
Total current liabilities . . . . . . . 396,641 374,849 374,849
-------- --------- ---------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 196,934 197,859 197,859
-------- --------- ---------
DUE TO ANAM USA, INC. . . . . . . . . . . . . . 149,776 88,280 88,280
-------- --------- ---------
OTHER NONCURRENT LIABILITIES . . . . . . . . . . 12,084 15,582 15,582
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
MINORITY INTEREST . . . . . . . . . . . . . . . . 9,282 9,968 9,968
-------- --------- ---------
STOCKHOLDERS' EQUITY:
Amkor Technology, Inc. -- common stock . . . . 45 45 45
AK Industries, Inc. -- common stock . . . . . . 1 1 1
Additional paid-in capital . . . . . . . . . . 20,871 20,871 20,871
Retained earnings . . . . . . . . . . . . . . . 70,621 79,433 45,233
Unrealized losses on investments . . . . . . . -- -- --
Cumulative translation adjustment . . . . . . . (663) -- --
-------- --------- ---------
Total stockholders' equity . . . . . . . . 90,875 100,350 66,150
-------- --------- ---------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . . . $855,592 $ 786,888 $ 752,688
======== ========= =========
</TABLE>
(1) See Note 7 of Notes To Combined Financial Statements

The accompanying notes are an integral part of these statements.
<PAGE> 3
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1998
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C>
NET REVENUES . . . . . . . . . . . . . . $313,019 $371,733
COST OF REVENUES -- including purchases
from AICL . . . . . . . . . . . . . . 287,449 310,056
-------- --------
GROSS PROFIT . . . . . . . . . . . . . . 25,570 61,677
-------- --------
OPERATING EXPENSES:
Selling, general and administrative . . 20,608 28,715
Research and development . . . . . . . 1,485 2,057
-------- --------
Total operating expenses . . . . . . 22,093 30,772
-------- --------
OPERATING INCOME . . . . . . . . . . . . 3,477 30,905
-------- --------
OTHER (INCOME) EXPENSE:
Interest expense, net . . . . . . . . . 8,049 9,522
Foreign currency (gain) loss . . . . . (1,490) 2,747
Other expense, net . . . . . . . . . . 1,606 4,089
-------- --------
Total other expense . . . . . . . . 8,165 16,358
-------- --------
INCOME BEFORE INCOME TAXES, EQUITY IN
INCOME (LOSS) OF AICL AND MINORITY
INTEREST . . . . . . . . . . . . . . . (4,688) 14,547
PROVISION FOR INCOME TAXES . . . . . . . (1,497) 5,050
EQUITY IN INCOME (LOSS) OF AICL . . . . . -- --
MINORITY INTEREST . . . . . . . . . . . . 1,638 685
-------- --------
NET (LOSS) INCOME . . . . . . . . . . . . $(4,829) $ 8,812
======== ========
PRO FORMA DATA (UNAUDITED):
Historical income before income taxes,
equity in income (loss) of AICL and
minority interest . . . . . . . . . $(4,688) $ 14,547
Pro forma provision for income taxes . 62 4,222
-------- --------
Pro forma income before equity in
income (loss) of AICL and minority
interest . . . . . . . . . . . . . . (4,750) 10,325
Historical equity in income (loss) of
AICL . . . . . . . . . . . . . . . . -- --
Historical minority interest . . . . . 1,638 685
-------- --------
Pro forma net (loss) income . . . . . . $(6,388) $ 9,640
======== ========
Basic and diluted pro forma net (loss) income
per common share . . . . . . . . . . $ (.08) $ .12
======== ========
Shares used in computing pro forma net (loss)
income per common share . . . . . . . . 82,610 82,610
======== ========

</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
1997 1998
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ (4,829) $ 8,812
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization . . . . . . . . . . 19,622 27,139
Provision for accounts receivable . . . . . . . . 150 1,180
Provision for excess and obsolete
inventory . . . . . . . . . . . . . . . . . . . 1,850 7,200
Deferred income taxes . . . . . . . . . . . . . . 30 (3,419)
Equity (gain) loss of investees . . . . . . . . . (540) --
(Gain) loss on sale of investments . . . . . . . -- 1,034
Minority interest . . . . . . . . . . . . . . . . 1,637 685
Changes in assets and liabilities excluding
effects of acquisitions
Accounts receivable . . . . . . . . . . . . . . . 5,861 (566)
Proceeds from sale/(repurchase of) accounts
receivable . . . . . . . . . . . . . . . . . . -- (11,000)
Other receivables . . . . . . . . . . . . . . . . (373) (1,843)
Inventories . . . . . . . . . . . . . . . . . . . (11,608) 15,205
Due to/from affiliates, net . . . . . . . . . . . (17,212) 17,418
Other current assets . . . . . . . . . . . . . . (3,860) 1,609
Other non-current assets . . . . . . . . . . . . (4,456) (3,745)
Accounts payable . . . . . . . . . . . . . . . . 53,421 (824)
Accrued expenses . . . . . . . . . . . . . . . . (1,163) 20,398
Accrued taxes . . . . . . . . . . . . . . . . . . (2,117) 7,684
Other long-term liabilities . . . . . . . . . . . 520 23
Other, net . . . . . . . . . . . . . . . . . . . -- --
--------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . 36,933 86,990
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . (67,072) (33,685)

Sale of property, plant and equipment . . . . . . . -- 57
Purchases of investments and issuances of notes
receivable . . . . . . . . . . . . . . . . . . . (3,900) (428)
Proceeds from sale of investments . . . . . . . . . -- 668
--------- ---------
Net cash used in investing activities . . . . (70,972) (33,388)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdrafts and short-term
borrowings . . . . . . . . . . . . . . . . . . . 22,252 (47,410)
Proceeds from issuance of Anam USA, Inc. debt . . . 298,940 382,042
Payments of Anam USA, Inc. debt . . . . . . . . . . (279,056) (429,675)
Proceeds from issuance of long-term debt . . . . . -- 3,358
Payments of long-term debt . . . . . . . . . . . . (159) (10,845)
Distributions to stockholders . . . . . . . . . . . -- --
Change in division equity account . . . . . . . . . 3,651 --
--------- ---------
Net cash provided by (used in) financing activities 45,628 (102,530)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . 11,589 (48,928)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . 49,664 90,917
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . $ 61,253 $ 41,989
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . $ 9,589 $ 10,392
Income taxes . . . . . . . . . . . . . . . . . . 9 310

</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination

The combined financial statements of Amkor Technology, Inc. ("ATI") and its
subsidiaries and AK Industries, Inc. and its subsidiary ("Amkor" or the
"Company") include the accounts of the following (these companies are referred
to as the "Amkor Companies"):

- Amkor Electronics, Inc. ("AEI"), a U.S. S Corporation and its
wholly owned subsidiaries Amkor Receivables Corp and Amkor
Wafer Fabrication Services SARL (a French Limited Company).

- T.L. Limited ("TLL") (a British Cayman Island Corporation) and
its Philippine subsidiaries, Amkor Anam Advanced Packaging,
Inc. ("AAAP") (wholly owned) and Amkor/Anam Pilipinas, Inc.
("AAP") (which is currently owned 60% by TLL and 40% by Anam
Semiconductor Inc. which changed its name in 1998 from Anam
Industrial Co., Ltd. ("AICL") and its wholly-owned subsidiary
Automated MicroElectronics, Inc. ("AMI");

- C.I.L., Limited ("CIL") (a British Cayman Islands Corporation)
and its wholly-owned subsidiary Amkor/Anam Euroservices
S.A.R.L. ("AAES") (a French Corporation);

- Amkor Anam Test Services, Inc. (a U.S. Corporation); and

- The semiconductor packaging and test business unit of
Chamterry Enterprises, Ltd. ("Chamterry"). During the third
quarter of 1997 Chamterry transferred its customers to AEI and
CIL and ceased operations of its semiconductor and test
business unit.

- AK Industries, Inc. ("AKI") (a U.S. Corporation) and its
wholly-owned subsidiary, Amkor-Anam, Inc. (a U.S.
Corporation);

Prior to the Initial Public Offering, all of the Amkor Companies were
substantially wholly owned by Mr. and Mrs. James Kim or entities controlled by
members of Mr. James Kim's immediate family (the "Founding Stockholders"),
except for AAP which is 40% owned by AICL and one third of AEI and all of AKI
which were owned by trusts established for the benefit of other members of Mr.
James Kim's family ("Kim Family Trusts"). The Amkor Companies were an
interdependent group of companies involved in the same business under the
direction of common management. ATI was formed in September 1997 to facilitate
the Reorganization and consolidate the ownership of the Amkor Companies.
Beginning on April 14, 1998, the Amkor Companies began a reorganization under
ATI (the "Reorganization"). In connection with the Reorganization, AEI was
merged into ATI. Amkor International Holdings ("AIH") a newly formed Cayman
Islands holding company became a wholly owned subsidiary of ATI. AIH holds the
following entities: First Amkor Caymans, Inc. ("FACI"), a newly formed holding
company, and its subsidiaries AAAP and AAP and AAP's subsidiary AMI, TLL and
its subsidiary CIL and CIL's subsidiary AAES. The relative number of shares of
common stock issued by the Company in connection with each of the transactions
comprising the Reorganization was based upon the relative amounts of
stockholders' equity at December 31, 1997. In exchange for their interests in
AEI, Mr. and Mrs. James Kim and the Kim Family Trusts received two-thirds
(9,746,760 shares) and one-third (4,873,380 shares) of the ATI common stock
then outstanding, respectively. ATI then issued 67,989,851 shares of common
stock, representing approximately 82% of its shares immediately after the
Reorganization, in exchange for all of the outstanding shares of AIH and its
subsidiaries. Of such shares, 27,528,234 shares and, 36,376,617 shares were
gifted to Mr. and Mrs. James Kim and the Kim Family Trusts, respectively, such
that Mr. and Mrs. James Kim and the Kim Family Trusts own 45.1% and 49.9%,
respectively, of the ATI common shares outstanding after the Reorganization.
Following such transactions the Founding Stockholders beneficially owned a
majority of the outstanding shares of ATI common stock. In addition, ATI
acquired all of the stock of AKI from the Kim Family Trusts for $3,000.

<PAGE> 6

AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

Included within the Amkor Companies following the Reorganization are ATI, AIH
and its subsidiaries and AKI and its subsidiary. All of the subsidiaries are
wholly owned except for 40% of the common stock of AAP which is owned by AICL
(see Note 7), and a small number of shares of each of AAP, AAAP and AMI which
are required to be owned by directors of these companies pursuant to Philippine
law.

Except for the acquisition of the shares of AKI which has been accounted for
as a purchase transaction, the Reorganization described above was treated
similar to a pooling of interests as it represents an exchange of equity
interests among companies under common control. The purchase price for the AKI
stock, which represents the fair value of these shares, approximates the book
value of AKI. The financial statements are presented on a combined basis as a
result of the common ownership and business operations of all of the Amkor
Companies, including AKI. As a result of the acquisition of AKI, AKI became a
wholly owned subsidiary of ATI; accordingly, future financial statements will
be presented for ATI and its subsidiaries on a consolidated basis.

The financial statements reflect the elimination of all significant
intercompany accounts and transactions.

The investments in and the operating results of 20%- to 50%-owned companies
are included in the combined financial statements using the equity method of
accounting.

<PAGE> 7

AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

Basis of Presentation

The accompanying financial statements have been prepared on a going concern
basis which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. At December 31, 1997 the Company was not in
compliance with certain restrictive covenants of its principal long-term debt
agreements and, as a result, amounts due under these agreements were classified
as current liabilities in the combined balance sheet included in Amendment No.
1 to Form S-1 as filed with the Securities and Exchange Commission on May 1,
1998. The Company had not received any notification that the Company's
repayment obligations with respect to these loans had been accelerated as a
result of such covenant violations. However, there was no assurance that the
Company could generate sufficient cash flow from operations or other sources to
satisfy these liabilities should they become due before maturity. Consequently,
the report of the Company's independent public accountants included a paragraph
stating that there was a substantial doubt as to the ability of the Company to
continue as a going concern. As a result of the Initial Public Offering (see
Note 7), the Company used part of the net proceeds to repay these bank loans
and the paragraph discussed above was removed from the report of the
independent public accountants included in the Post-Effective Amendment No. 1
to Form S-1 as filed with the Securities and Exchange Commission on May 22,
1998.

Risks and Uncertainties

The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, dependence on the highly cyclical nature of both the
semiconductor and the personal computer industries, competitive pricing and
declines in average selling prices, dependence on the Company's relationship
with AICL (see Note 5), reliance on a small group of principal customers,
availability of manufacturing capacity, dependence on international operations
and sales, dependence on raw material and equipment suppliers, exchange rate
fluctuations, enforcement of intellectual property rights and fluctuations in
quarterly operating results.

2. INTERIM FINANCIAL STATEMENTS

The condensed financial statements and related disclosures as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 are unaudited,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, these financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the results for the interim
period. These financial statements should be read in conjunction with the
Company's Registration Statements on Form S-1 (File Nos. 333-49645 and
333-51521) filed with the Securities and Exchange Commission. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.

<PAGE> 8
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- ---------
(unaudited)
<S> <C> <C>

Land . . . . . . . . . . . . . . . . . $ 2,346 2,346
Building and improvements . . . . . . . 109,528 123,854
Machinery and equipment . . . . . . . . 448,032 473,082
Furniture, fixtures and other equipment 33,050 35,109
Construction in progress . . . . . . . 31,964 22,548
------ ------
624,920 656,939
Less -- Accumulated depreciation
and amortization . . . . . . . . . . 197,859 223,713
------- -------
$427,061 433,226
======== =======
</TABLE>

4. INVENTORIES

Inventories consist of raw materials and purchased components which are used
in the semiconductor packaging process. The Company's inventories are located
at its facilities in the Philippines or at AICL on a consignment basis.
Components of inventories follow:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- ----------
(unaudited)
<S> <C> <C>

Raw materials and purchased components. . $105,748 84,543
Work-in-process . . . . . . . . . . . . . 10,122 8,922
------ -------
$115,870 93,465
======== =======
</TABLE>

5. RELATIONSHIP WITH AICL

At December 31, 1997, the Company owned 8.1% of the outstanding stock of
AICL, and AICL owned 40% of AAP. On February 16, 1998, the Company sold its
investment in AICL common stock to AK Investments, Inc., a company owned by Mr.
Kim. After the Initial Public Offering (see Note 7) the Company intends to
purchase AICL's interest in AAP for approximately $34,000. In 1996 and 1997 and
the three months ended March 31, 1998, approximately 72%, 68% and 67%,
respectively, of the Company's net revenues (see Note 1) were derived from
services performed for the Company by AICL, a Korean public company in which
the Company and certain of the Company's principal stockholders hold a minority
interest. By the terms of a long-standing agreement, the Company has been
responsible for marketing and selling AICL's semiconductor packaging and test
services, except to customers in Korea and certain customers in Japan to whom
AICL has historically sold such services directly. The Company has worked
closely with AICL in developing new technologies and products. The Company has
recently entered into five-year supply agreements with AICL giving the Company
the first right to market and sell substantially all of AICL's packaging and
test services and the exclusive right to market and sell all of the wafer
output of AICL's new wafer foundry. The Company's business, financial condition
and operating results have been and will continue to be significantly dependent
on the ability of AICL to effectively provide the contracted services on a
cost-efficient and timely basis. The termination of the Company's relationship
with AICL for any reason, or any material adverse change in AICL's business
resulting from underutilization of its capacity, the level of its debt and its
guarantees of affiliate debt, labor disruptions, fluctuations in foreign
exchange rates, changes in governmental policies, economic or political
conditions in Korea or any other change could have a material adverse effect on
the Company's business, financial condition and results of operations.

<PAGE> 9
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

Historically, the Company has obtained a significant portion of its financing
from financing arrangements provided by Anam USA, Inc. ("AUSA"), AICL's
wholly-owned financing subsidiary. A majority of the amount due to AUSA
represents outstanding amounts under financing obtained by AUSA for the benefit
of the Company with the balance representing payables to AUSA for packaging and
service charges paid to AICL. Based on guarantees provided by AICL, AUSA
obtains for the benefit of the Company a continuous series of short- term
financing arrangements which generally are less than six months in duration,
and typically are less than two months in duration. Because of the short-term
nature of these loans, the flows of cash to and from AUSA under this
arrangement are significant. Purchases from AICL through AUSA were $354,062,
$460,282 and $527,858 for 1995, 1996 and 1997, respectively. Charges from AUSA
for interest and bank charges were $4,484, $7,074 and $6,002 for 1995, 1996 and
1997, respectively. Amounts payable to AICL and AUSA were $252,221, and
$156,350 at December 31, 1996 and 1997, respectively.

As of December 31, 1997, AICL and its consolidated subsidiaries were
contingently liable under guarantees in respect of debt of its non-consolidated
subsidiaries and affiliates in the aggregate amount of approximately W857
billion. As of December 31, 1997, such guarantees included those in respect of
all of AUSA's debt totaling $319,200, $176,250 of the Company's debt to banks
and the Company's obligations under a receivables sales arrangement. The
Company has met a significant portion of its financing needs through financing
arrangements obtained by AUSA for the benefit of the Company based on
guarantees provided by AICL. There can be no assurance that AUSA will be able
to obtain additional guarantees, if necessary, from AICL. Further, a
deterioration in AICL's financial condition could trigger defaults under AICL's
guarantees, causing acceleration of such loans. In addition, as an overseas
subsidiary of AICL, AUSA was formed with the approval of the Bank of Korea. If
the Bank of Korea were to withdraw such approval, or if AUSA otherwise ceased
operations for any reason, the Company and AICL would be required to meet their
financing needs through alternative arrangements. There can be no assurance
that the Company or AICL will be able to obtain alternative financing on
acceptable terms or at all. In addition, if any relevant subsidiaries or
affiliates of AICL were to fail to make interest or principal payments or

<PAGE> 10

AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

otherwise default under their debt obligations guaranteed by AICL, AICL could
be required under its guarantees to repay such debt, which event could have a
material adverse effect on its financial condition and results of operations.

6. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims incidental to the conduct of its
business. Based on consultation with legal counsel, management does not believe
that any claims to which the Company is a party will have a material adverse
effect on the Company's financial condition or results of operations.

The Company has various purchase commitments for materials, supplies and
capital equipment incidental to the ordinary conduct of business. As of March
31, 1998, the Company had commitments for capital equipment of approximately
$29 million. In the aggregate, such commitments are not at prices in excess of
current market.

7. SUBSEQUENT EVENTS

Reorganization -- On April 14, 1998, Mr. and Mrs. James Kim and the Kim
Family Trusts exchanged their interests in AEI for 9,746,766 shares and
4,873,383 shares of ATI common stock, respectively. On April 29, 1998, ATI
issued 67,989,851 shares of common stock in exchange for all of the outstanding
shares of AIH and its subsidiaries. Of such shares, 19,328,234 shares,
36,376,617 shares and 8,200,000 shares were gifted to Mr. and Mrs. James Kim,
the Kim Family Trusts and other members of Mr. Kim's immediate family,
respectively. In addition, ATI acquired all of the stock of AKI from the Kim
Family Trusts for $3,000. Except for the acquisition of the shares of AKI which
has been accounted for as a purchase transaction, the Reorganization described
above is treated similar to a pooling of interests as it represents an exchange
of equity interests among companies under common control. The purchase price
for the AKI stock, which represents the fair value of these shares,
approximates the book value of AKI. In conjunction with the reorganization,
AEI terminated its S Corporation status on April 28, 1998. Effective May 1,
1998, the profits of AEI became subject to federal and state income taxes at
the corporate level.

Initial Public Offering -- ATI filed an amended registration statement on
April 29, 1998 with the Securities and Exchange Commission. On May 6, 1998, ATI
completed its Initial Public Offering of 30,000,000 shares of its common stock
at a price to the public of $11.00 per share and $180,000 aggregate principal
amount of Convertible Notes ("Initial Public Offering"). Also on May 8, 1998,
ATI sold 5,250,000 additional shares of its common stock and $27,000 additional
principal amounts of Convertible Notes in conjunction with the underwriters'
over-allotment options. The net proceeds were approximately $559,757, after
deducting the underwriter discounts and estimated offering expenses. (See Note
1) The convertible notes 1) are convertible into ATI common stock at $13.50 per
share; 2) are callable in certain circumstances after three years; 3) are
unsecured and subordinate to senior debt; 4) carry a coupon rate of 5 3/4%; and
5) have a maturity of five years. Approximately $227,000 of the proceeds were
used to reduce short-term and long-term borrowings. Approximately $86,000 of
the proceeds were used to reduce amounts due to AUSA. In connection with the
Offerings, one existing stockholder sold approximately 5,000,000 of his shares.

The Company established stock option plans in 1998 pursuant to which
6,550,000 shares of common stock were reserved for future issuance upon the
exercise of stock options to be granted to employees,

<PAGE> 11
AMKOR TECHNOLOGY, INC. AND AK INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

consultants and directors. As of June 12, 1998, the Company has granted options
to purchase an aggregate of 3,150,500 shares under these plans. The options
will be issued at fair value and generally will vest over four years.

After the Initial Public Offering, the Company intends to purchase AICL's 40%
interest in AAP for approximately $34,000. The Company will account for this
transaction as a purchase which will result in the elimination of the minority
interest liability reflected on the combined balance sheet and result in
additional amortization of approximately $2,500 per year.

8. PRO FORMA ADJUSTMENTS

Statement of Income

Pro forma adjustments are presented to reflect a provision for income taxes
as if AEI had not been an S Corporation for all of the periods presented. Pro
forma net income per common share is based on the weighted average number of
shares outstanding as if the Exchange had occurred at the beginning of the
period presented.

Balance Sheet

As discussed in Note 7, the Company reorganized prior to the effective date
of the Initial Public Offering. AEI terminated its S Corporation status on
April 28, 1998 at which time additional deferred tax assets of $1,500 were
recorded for existing temporary differences between the book and tax bases of
assets and liabilities. If the termination of AEI's S Corporation status would
have occurred on March 31, 1998, AEI would have declared a distribution of
$35,700 of previously taxed income. The pro forma balance sheet is presented to
reflect these changes as if they occurred on March 31, 1998.

<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion contains forward-looking statements within the
meaning of the Federal securities laws, including statements regarding the
anticipated growth in the market for the Company's products, the Company's
anticipated capital expenditures and financing needs, the Company's expected
capacity utilization rates, the belief of the Company as to its future
operating performance and other statements that are not historical facts.
Because such statements include risks and uncertainties, actual results may
differ materially from those anticipated in such forward-looking statements as
a result of certain factors, including those set forth in the following
discussion as well as in "Factors That May Affect Operating Results". The
following discussion provides information and analysis of the Company's results
of operations for the three months ended March 31, 1998 and 1997 and its
liquidity and capital resources and should be read in conjunction with the
Combined Financial Statements and Notes. The operating results for interim
periods are not necessarily indicative of results for any subsequent period.

OVERVIEW

Background. The Company is the world's largest independent provider of
semiconductor packaging and test services. The Company believes that it is also
one of the leading developers of advanced semiconductor packaging and test
technology in the industry. The Company offers a complete and integrated set of
packaging and test services including integrated circuit ("IC") package design,
leadframe and substrate design, IC package assembly, final testing, burn-in,
reliability testing, and thermal and electrical characterization. The Company
recently began offering wafer fabrication services. The Company provides
packaging and test services through its three factories in the Philippines as
well as the four factories of Anam Semiconductors, Inc. (formerly Anam
Industrial Co. Ltd) (AICL) in Korea, and wafer fabrication services through
AICL's new wafer foundry, pursuant to the Supply Agreements between the Company
and AICL.

The Company was formed in September 1997 to consolidate the operations of the
Amkor Companies, including AEI which was incorporated in 1970. These companies
were under common management and in the same business prior to the Company's
formation. As a result of the Reorganization, the financial statements included
in this filing are presented on a combined basis. See notes 1 and 7 of Notes to
Combined Financial Statements. Prior to the Reorganization, AEI elected to be
taxed as an S Corporation under the Internal Revenue Code of 1986 and
comparable state tax laws. Accordingly, AEI did not recognize any provision for
federal income tax expense during the periods presented in the Combined
Financial Statements. The Combined Financial Statements include a pro forma
provision for income taxes which reflects the U.S. federal income taxes which
would have been recorded by the Company if AEI had not been an S Corporation
during these periods.

General. From 1995 to 1997, the Company's revenues increased from
approximately $932.4 million to $1.456 billion. This increase occurred
primarily as a result of increases in unit volumes, together with the shift in
the Company's product mix from traditional leadframe products to advanced
leadframe and laminate products, which were offset in part by decreasing
average selling prices. In order to meet customer demand, the Company has
invested significant resources to expand its capacity in the Philippines. In
1996 and the first six months of 1997, the Company incurred and expensed $15.5
million and $16.6 million, respectively, of pre-operating and start-up costs
and initial operating losses in connection with its newest factory, P3, in the
Philippines. This facility operated at substantially less than full capacity
during these periods while customers were completing qualification procedures
for BGA packages to be produced at the facility. The Company significantly
increased utilization of P3 during the last six months of 1997 and expects to
operate the facility with positive gross margins during 1998. See "Factors That
May Affect Operating Results -- Expansion of Manufacturing Capacity;
Profitability Affected by Capacity Utilization Rates."

The Company's results of operations are generally affected by the
capital-intensive nature of its business. In 1995, 1996, 1997 and the three
months ended March 31, 1998, the Company invested $123.6 million, $185.1
million, $179.0 million and $33.7 million, respectively, in property, plant and
equipment.
<PAGE> 13
Increases or decreases in capacity utilization rates can have a significant
effect on gross margins since the unit cost of packaging and test services
generally decrease as fixed charges, such as depreciation expense for the
equipment, are allocated over a larger number of units produced. In addition,
the Company's gross margin is significantly affected by fluctuations in service
charges paid to AICL pursuant to the Supply Agreements. Pricing arrangements
relating to packaging and test services provided by AICL to the Company are
subject to quarterly review and adjustment, and pricing arrangements relating
to wafer fabrication services provided by AICL are subject to annual review and
adjustment, in each case on the basis of factors such as changes in the
semiconductor market, forecasted demand, product mix and capacity utilization
and fluctuations in exchange rates, as well as the mutual long-term strategic
interest of the Company and AICL. The Company's results of operations are also
affected by declines over time in the average selling prices for particular
products. At times in the past the Company has been able to offset, at least in
part, the effect of such decline on its margins by successfully developing and
marketing new products with higher margins, such as advanced leadframe and
laminate products, and by taking advantage of economies of scale and higher
productivity resulting from volume production. However, there can be no
assurance that the Company will be successful at offsetting any such declines
in the future. See "Factors That May Affect Operating Results -- Expansion of
Manufacturing Capacity; Profitability Affected by Capacity Utilization Rates."

Due to the concentration of market share in the semiconductor industry, the
Company has been largely dependent upon a small group of customers for a
substantial portion of its business. In 1995, 1996, 1997 and the three months
ended March 31, 1998, 34.1%, 39.2%, 40.1%, and 34.9%, respectively, of the
Company's net revenues were derived from sales to the Company's top five
customers, with 13.3%, 23.5%, 23.4% and 19.2%, respectively, derived from sales
to Intel. See "Factors That May Affect Operating Results -- Customer
Concentration; Absence of Backlog."

Relationship with AICL. In 1996, 1997 and the three months ended March 31,
1998, approximately 72%, 68% and 67%, respectively, of the Company's revenues
were derived from sales of services performed for the Company by AICL. In
addition, substantially all of the revenues of AICL in 1996, 1997 and the three
months ended March 31, 1998 were derived from services sold by the Company.
Historically, AICL has directly sold packaging and test services in Japan and
Korea. The Company assumed substantially all of the marketing rights for
services in Japan in January 1998. Also, the Company recently began offering
wafer fabrication services through AICL's new deep submicron CMOS foundry which
is capable of producing up to 15,000 8" wafers per month. See "Factors That May
Affect Operating Results -- Risks Associated with New Wafer Fabrication
Business." The Company expects the proportion of its net revenues derived from
sales of services performed for the Company by AICL and the percentage of
AICL's revenues from services sold by the Company to increase as the Company
begins selling the wafer fabrication output of AICL's new wafer foundry and
with the Company's assumption from AICL of substantially all of the marketing
rights for Japan. The Company has a first right to substantially all of the
packaging and test service capacity of AICL and the exclusive right to all of
the wafer output of AICL's new wafer foundry.

The Supply Agreements between the Company and AICL generally provide, among
other things, for periodic price reviews and adjustments and coordination of
research and development efforts regarding package design and packaging and
testing processes and technologies. The Supply Agreements have a five year
initial term and thereafter may be terminated upon five years' notice. There
can be no assurance that AICL will not terminate either Supply Agreement upon
the expiration of such initial term, or that if it does terminate a Supply
Agreement, that the Company will be able to enter into a new agreement with
AICL on terms favorable to the Company or at all.

The Company expects that the businesses of the Company and AICL will continue
to remain highly interdependent by virtue of their supply relationship,
overlaps and family ties between their respective shareholders and management,
financial relationships, coordination of product and operation plans, joint
research and development activities and shared intellectual property rights. As
a result, the Company's business, financial condition and operating results
will continue to be significantly dependent on AICL, including without
limitation AICL's ability to effectively provide the contracted services on a
cost-efficient and timely basis as well as AICL's financial condition and
results of operations. The Company will
<PAGE> 14
continue to be controlled to a significant degree by James Kim and members of
his family, and Mr. Kim and other members of his family will also continue to
exercise significant influence over the management of AICL and its affiliates.
In addition, the Company and AICL will continue to have certain contractual and
other business relationships and may engage in transactions from time to time
that are material to the Company. Although any such material agreements and
transactions would require approval of the Company's Board of Directors, such
transactions will generally not require any additional approval by a separate
committee comprised of the disinterested members of the Board of Directors and
conflicts of interest may arise in certain circumstances. There can be no
assurance that such conflicts will not from time to time be resolved against
the interests of the Company. The Company currently has four directors, two of
whom are disinterested. Under Delaware corporate law, each director owes a duty
of loyalty and care to the Company, which if breached can result in personal
liability for the directors. In addition, the Company may agree to certain
changes in its contractual and other business relationships with AICL,
including pricing, manufacturing allocation, capacity utilization and capacity
expansion, among others, which in the judgment of the Company's management will
result in reduced short-term profitability for the Company in favor of
potential long-term benefits to the Company and AICL. There can be no assurance
that the Company's business, financial condition or results of operations will
not be adversely affected by any such decision. See "-- Liquidity and Capital
Resources" and "Factors That May Affect Operating Results -- Dependence on
Relationship with AICL; Potential Conflicts of Interest."

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of net
revenues for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . 91.8 83.4
----- -----
Gross profit . . . . . . . . . . . . . 8.2 16.6
Operating expenses:
Selling, general and administrative . . 6.6 7.7
Research and development . . . . . . . 0.5 0.6
----- -----
Total operating expenses . . . . . . 7.1 8.3
----- -----
Operating income . . . . . . . . . . . . 1.1 8.3
----- -----
Other (income) expense:
Interest expense, net . . . . . . . . . 2.6 2.6
Foreign currency (gain) loss . . . . . (0.5) 0.7
Other expense, net . . . . . . . . . . 0.5 1.1
----- -----
Total other expense . . . . . . . . 2.6 4.4
----- -----
(Loss) income before income taxes,
equity in income (loss) of AICL
and minority interest . . . . . . . . (1.5) 3.9
Provision for income taxes . . . . . . . (0.5) 1.3
Equity in income (loss) of AICL . . . . . - -
Minority interest . . . . . . . . . . . . 0.5 0.2
----- -----
Net (loss) income . . . . . . . . . . . . (1.5) 2.4
Pro forma adjustment for income taxes . . 0.5 (0.2)
----- -----
Pro forma net (loss) income . . . . . . . (2.0)% 2.6%
===== =====

</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

Net Revenues. The Company's net revenues consist of fees for the packaging
and testing of ICs which are consigned by customers to the Company's or AICL's
factories. The Company's net revenues increased 18.8% to $371.7 million for the
three months ended March 31, 1998, compared to $313.0 million for the same
period in 1997. The growth in revenues was attributable to a significant growth
in unit volumes of semiconductors packaged and tested by the Company. The
proportion of the Company's revenues derived from traditional leadframe
products declined in the first quarter of 1998 as compared to the corresponding
quarter in 1997 while revenues from laminate products and advanced leadframe
products increased during this period. Because the Company's advanced leadframe
and laminate products tend to have higher average selling prices than
traditional leadframe products, this change in the mix of products sold during
the first
<PAGE> 15
three months of 1998 helped to offset generally declining average selling
prices for the Company's products on an overall basis. Revenues from the
Company's wafer fabrication services accounted for less than 1% of total
revenues during the first quarter of 1998.

Gross Profit. Gross profit increased to $61.7 million, or 16.6% of net
revenues, for the three months ended March 31, 1998 from $25.6 million, or 8.2%
of net revenues, in the three months ended March 31, 1997 due primarily to
improved gross profit at the Company's newest factory, P3, compared with
negative gross profit for this factory in the three months ended March 31, 1997
while P3 was in its start-up phase. In addition, increased unit volumes during
the three months ended March 31, 1998 allowed the Company to improve volume
related margins. As a result of the devaluation of the Philippine peso, the
Company also was able to reduce certain peso denominated costs of its
Philippine factory operations, resulting in lower costs and improved gross
margins. The new supply agreement with AICL with respect to packaging and test
services, which went into effect on January 1, 1998, also provided the Company
with improved gross margins on products purchased from AICL during the three
months ended March 31, 1998 compared with the three months ended March 31,
1997.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $28.7 million, or 7.7% of net revenues,
during the three months ended March 31, 1998, compared to $20.6 million or 6.6%
of revenues during the three months ended March 31, 1997, as a result of growth
in the number of employees in the Company's marketing and sales support groups
of approximately 21% during 1997. Such growth has resulted in an overall
increase in personnel-related costs including salaries, benefits and payroll
taxes. The Company also incurred higher costs for office rental, depreciation
and other occupancy-related expenses in the first three months of 1998 as
compared to the first three months of 1997. The Company does not expect the
level of growth to continue in 1998.

Research and Development Expenses. Research and development expenses
increased 38.5% to $2.1 million during the three months ended March 31, 1998,
compared to $1.5 million for the same period in 1997. The increase was
primarily due to increased expenditures by the Company resulting from increased
headcount and corresponding payroll-related costs.

Other (Income) Expense. Other expense increased during the three months ended
March 31, 1998 to $16.4 million from $8.2 million for the same period in 1997.
The increase of $8.2 million was primarily attributable to an increase in
foreign exchange losses, a $1.5 million increase in interest expense and a $2.5
million increase in other expenses, net. Foreign exchange gains and losses
resulted from the change in the value of the Philippine peso relative to the
U.S. dollar which during the three months ended March 31, 1998 resulted in a
$2.7 million dollar foreign exchange loss consisting of realized and unrealized
losses. By comparison, changes in the value of the Philippine peso relative to
the U.S. dollar resulted in a foreign currency gain of $1.5 million for the
three months ended March 31, 1997. Interest expense, net for the first quarter
of 1998 increased $1.5 million compared to the corresponding period in 1997 due
to increased debt balances over the prior year. Other expense, net increased by
$2.5 million for the three months ended March 31, 1998 compared to the same
period in 1997 due primarily to financing costs associated with the accounts
receivable sale agreement entered into by the Company in July 1997 as well as
one-time bank charges incurred during the three months ended March 31, 1998.

Income Taxes. The Company's effective tax rate (after giving effect to the
pro forma adjustment for income taxes) for the three months ended March 31,
1998 was 29% as compared to 1.3% for the same period in 1997. The low effective
tax rate in 1997 was attributable to losses at the Company's subsidiary which
owns P3. The Company's subsidiary that owns P3 operates under a tax holiday
from Philippine income taxes until the end of 2002. To the extent P3 is
profitable, the Company's effective tax rate related to its Philippine
operations during the tax holiday will be less than the Philippine statutory
rate of 35%.

Equity in Income (Loss) of AICL. Equity in income (loss) of AICL represents
the Company's ownership interest in AICL. During the fourth quarter of 1997,
the Company wrote this investment down to its realizable value and recorded a
$17.3 million loss for 1997 resulting principally from the impairment in
<PAGE> 16
value in its investment in AICL. In February 1998, the Company sold its
investment in AICL for $13.9 million.

Minority Interest. Minority interest represents AICL's ownership interest in
the consolidated net income of Amkor/Anam Pilipinas, Inc. ("AAP") .
Accordingly, the Company recorded a minority interest expense in its combined
financial statements relating to the minority interest in the net income of
AAP. The Company has entered into an agreement with AICL to purchase AICL's 40%
interest in AAP and, as a result, the Company will own all of the common stock
of AAP. The acquisition of the minority interest will result in the
elimination of the minority interest liability and in additional amortization
of approximately $2.5 million per year.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had cash and cash equivalents of $42.0 million
and a working capital deficit of $75.6 million ($6.3 and $111.3 million,
respectively, on a pro forma basis, after giving effect to the termination of
AEI's S Corporation status and the distribution of undistributed earnings
through March 31, 1998). The Company's working capital deficit resulted
primarily from the significant amount of its short-term debt, primarily
incurred in connection with the expansion of its Philippine operations.

The Company used the net proceeds received from the Initial Public Offering
primarily to repay an aggregate of approximately $240 million of debt,
including the Non-Compliant Loans (as defined in "Factors That May Affect
Operating Results -- Risks Associated with Leverage" and $86 million of amounts
due to AUSA. In addition, the Company will use such net proceeds to repay $65
million of short-term loans and $8 million of term loans and will use $34
million of such net proceeds to repurchase AICL's 40% interest in AAP.
Following the application of the estimated net proceeds of the Initial Public
Offering to the Company together with repayments of debt prior to the Initial
Public Offering, the Company will have $54 million of short-term borrowing and
current portion of long-term debt, $244 million of long-term debt and no
amounts then due to AUSA. In addition, the remaining $213 million of such net
proceeds will be available for capital expenditures and working capital.

The Company has been investing significant amounts of capital to increase its
packaging and test services capacity, including the construction of P3, the
addition of capacity in the Company's other Philippine facilities and the
construction of a new manufacturing facility in the United States. Advanced
packaging processes are being developed at the U.S. facility and full scale
operations are expected to begin in 1999. In 1997 and the three months ended
March 31, 1998, the Company made capital expenditures of $179.0 million and
$33.7 million, respectively. Because the Company and AICL have added a
significant amount of packaging and test capacity in recent years, the Company
intends to decrease its level of capital expenditures in 1998. The Company
currently intends to spend approximately $90 million in capital expenditures in
1998, which will primarily be used for the construction of the new factory in
the U.S. and capacity expansion at the Company's existing facilities in the
Philippines to meet expected demand. The Company believes that expenditure
levels could increase substantially in 1999 to provide the Company with
adequate capacity.

The Company believes that its existing cash balances, cash flow from
operations, available equipment lease financing, bank borrowings and financing
obtained through AUSA will be sufficient to meet its anticipated cash
requirements including working capital and capital expenditures, for at least
the next 12 months. There can be no assurance, however, that lower than
expected revenues, increased expenses, increased costs associated with the
purchase or maintenance of capital equipment, decisions to increase planned
capacity or other events will not cause the Company to seek more capital, or to
seek capital sooner than currently expected. The timing and amount of the
Company's actual capital requirements cannot be precisely determined and will
depend on a number of factors, including demand for the Company's services,
availability of capital equipment, fluctuations in foreign currency exchange
rates, changes in semiconductor industry conditions and competitive factors.
There can be no assurance that such additional financing will be available when
needed or, if available, will be available on satisfactory terms. Failure to
obtain any such financing could have a material adverse effect on the Company.
In addition, if the
<PAGE> 17
Company obtains such financing by selling equity securities of the Company, the
Company's stockholders may experience significant dilution.

The Company historically has met a significant portion of its cash
requirements for working capital and capital expenditures from a combination of
cash from operating activities, short-term and long-term bank loans and
financing obtained for the benefit of the Company by AUSA, as well as financing
from a trade receivables securitization agreement. Cash provided by operating
activities in 1997 and the three months ended March 31, 1998 was $250.1 million
and $87.0 million, respectively. Cash used in financing activities was $16.0
million and $102.5 million for 1997 and the three months ended March 31, 1998,
respectively.

At March 31, 1998, the Company's debt consisted of $120.2 million of
borrowings classified as current liabilities, $197.9 million of long-term debt
and capital lease obligations and $88.3 million of amounts due to AUSA. As of
March 31, 1998, the Company had extended guarantees in respect of bank debt of
affiliates in the amount of $5.0 million and in respect of vendor obligations
of an affiliate in the amount of $5.7 million, which amount may vary over time.
At March 31, 1998, the Company had $172.2 million in borrowing facilities with
a number of domestic and foreign banks, of which $23.3 million remained unused.
Certain of the agreements with such banks require compliance with certain
financial covenants and restrictions, and are collateralized by assets of the
Company. These facilities are typically revolving lines of credit and working
capital facilities for one-year renewable periods and generally bear interest
at rates ranging from 8.5% to 21%. Long-term debt and capital lease obligations
outstanding at March 31, 1998 have various expiration dates through April 2004,
and accrue interest at rates ranging from 6.7% to 12.5%.

The Company has met a significant portion of its financing needs through
financing arrangements obtained by AUSA. A majority of the amount which was due
to AUSA represented outstanding amounts under financing obtained by AUSA for
the benefit of the Company, with the balance representing payables to AUSA for
packaging and service charges paid to AICL. Based on guarantees provided by
AICL, AUSA obtains for the benefit of the Company a continuous series of
short-term financing arrangements which generally are less than six months in
duration, and typically are less than two months in duration. Because of the
short term nature of these loans, the flows of cash to and from AUSA under this
arrangement have been significant. At March 31, 1998, the Company had utilized
$88.3 million of the approximately $108 million of credit facilities available
to the Company through AUSA. These credit facilities are with U.S. branches of
a number of banks located in Korea and have interest rates ranging from
approximately 10.05% to prime plus 8.5% (17% at March 31, 1998). Because of the
recent deterioration of the Korean economy, Korean banks have begun to raise
interest rates applicable to their lending. See "Factors That May Affect
Operating Results -- Dependence on International Operations and Sales;
Concentration of Operations in the Philippines and Korea -- Korea"and
"--Dependence on Relationship with AICL; Potential Conflicts of Interest." As
its credit lines have been renewed, AUSA has experienced a significant increase
in interest rates, and there can be no assurance that such increases will not
continue. The Company reimburses AUSA for certain of the interest charges
incurred by AUSA under these credit facilities. As an overseas subsidiary of
AICL, AUSA was formed with the approval of the Bank of Korea. If the Bank of
Korea were to withdraw such approval, or if AUSA otherwise ceased operations
for any reason, the Company and AICL would be required to meet their financing
needs through alternative arrangements. Although the Company believes that
alternative financing arrangements will be available in the future, there can
be no assurance that the Company or AICL will be able to obtain alternative
financing on acceptable terms or at all. AUSA has received commitments from its
banks indicating that they intend to renew the facilities when they expire
through at least April 1, 1999. AUSA has extended similar terms to the Company
with respect to amounts due to AUSA by the Company. Accordingly, amounts due to
AUSA are classified as non-current liabilities on the Company's balance sheet
at March 31, 1998.

At March 31, 1998, AICL guaranteed all of AUSA's debt of $318 million, the
Non-Compliant Loans of $154 million and the Company's obligations under a trade
receivables securitization agreement with a commercial financial institution,
whereby the financial institution has committed to purchase, with limited
recourse, all rights, title and interest in eligible receivables, as defined by
the agreement, up to $100 million ("Receivables Sale"). AICL currently has a
significant amount of debt relative to its equity and is contingently liable
under guarantees in respect of debt of its subsidiaries and affiliates,
including AUSA.
<PAGE> 18
As of December 31, 1997, AICL and its consolidated subsidiaries had guarantees
outstanding in respect of debt of its non-consolidated subsidiaries and
affiliates in the Anam Group in the aggregate amount of approximately W857
billion, including the guarantees of the Company's loans. As a result of its
relationship with AICL, the Company's business, financial condition and
operating results are significantly dependent on AICL. There can be no
assurance that AUSA will be able to obtain additional guarantees, if necessary,
from AICL. In addition, a deterioration in AICL's financial condition could
trigger defaults under AICL's guarantees, causing acceleration of such loans.
See "Factors That May Affect Operating Results -- Dependence on Relationship
with AICL; Potential Conflicts of Interest" and "Relationship with AICL"

Prior to the consummation of the Reorganization, AEI was treated for U.S.
federal and certain state tax purposes as an S Corporation under the Internal
Revenue Code of 1986 and comparable state tax laws. As a result, AEI did not
recognize U.S. federal corporate income taxes. Instead, up until the
termination of AEI's S Corporation status on April 28, 1998 (the "Termination
Date"), Mr. and Mrs. Kim and the trusts established for the benefit of other
members of Mr. James Kim's family (the "Kim Family Trusts") had been obligated
to pay U.S. federal and certain state income taxes on their allocable portion
of the income of AEI. The Company, Mr. and Mrs. Kim and the Kim Family Trusts
have entered into tax indemnification agreements providing that the Company
will be indemnified by such stockholders, with respect to their proportionate
share of any U.S. federal or state corporate income taxes attributable to the
failure of AEI to qualify as an S Corporation for any period or in any
jurisdiction for which S Corporation status was claimed through the Termination
Date. The tax indemnification agreements also provide that under certain
circumstances the Company will indemnify Mr. and Mrs. Kim and the Kim Family
Trusts if such stockholders are required to pay additional taxes or other
amounts attributable to taxable years on or before the Termination Date as to
which AEI filed or files tax returns claiming status as an S Corporation. AEI
has made various distributions to Mr. and Mrs. Kim and the Kim Family Trusts
which have enabled them to pay their income taxes on their allocable portions
of the income of AEI. Such distributions totaled approximately $5.0 million in
1997. No distributions were made to such stockholders in the first three months
of 1998. The Company declared additional distributions to such stockholders
immediately prior to the consummation of the Reorganization in an amount equal
to AEI's and Amkor Technology, Inc.'s cumulative net income in all periods
prior to the Termination Date less the aggregate amount of distributions
previously made to such stockholders. These final distributions are intended to
provide such stockholders with the balance of AEI's and Amkor Technology,
Inc.'s net income for which they have already recognized taxable income.
Through March 31, 1998, the amount of such undistributed net income was $35.7
million. Subsequent to March 31, 1998 aggregate distributions of $33.1 million
were made to such stockholders. See "Notes 1and 7 of Notes to Combined
Financial Statements.

FOREIGN CURRENCY TRANSLATION GAINS AND LOSSES

The Company's subsidiaries in the Philippines maintain their accounting
records in U.S. dollars. This is due to the fact that all sales, the majority
of all bank debt and all significant material and fixed asset purchases of such
subsidiaries are denominated in U.S. dollars. As a result, the Philippine
subsidiaries' exposure to changes in the Philippine peso/U.S. dollar exchange
rate relates primarily to certain receivables and advances and other assets
offset by payroll, pension and local liabilities. To minimize its foreign
exchange risk, the Company selectively hedges its net foreign currency exposure
through short-term (generally not more than 30 to 60 days) forward exchange
contracts. To date, the Company's hedging activity has been immaterial.
<PAGE> 19
FACTORS THAT MAY AFFECT OPERATING RESULTS

In addition to the factors discussed elsewhere in this form 10-Q and in the
Company's Registration Statements on Form S-1 (file Nos. 333-49645 and
333-51521) filed with the Securities and Exchange Commission, the following are
important factors which could cause actual results or events to differ
materially from those contained in any forward looking statements made by or on
behalf of the Company.

FLUCTUATIONS IN OPERATING RESULTS; DECLINES IN AVERAGE SELLING PRICES

The Company's operating results have varied significantly from period to
period. A variety of factors could materially and adversely affect the
Company's revenues, gross profit and operating income, or lead to significant
variability of quarterly or annual operating results. These factors include,
among others, the cyclical nature of both the semiconductor industry and the
markets addressed by end-users of semiconductors, the short-term nature of its
customers' commitments, timing and volume of orders relative to the Company's
production capacity, changes in capacity utilization, evolutions in the life
cycles of customers' products, rescheduling and cancellation of large orders,
rapid erosion of packaging selling prices, availability of manufacturing
capacity, allocation of production capacity between the Company's facilities
and those of AICL, fluctuations in package and test service charges paid to
AICL, changes in costs, availability and delivery times of labor, raw materials
and components, effectiveness in managing production processes, fluctuations in
manufacturing yields, changes in product mix, product obsolescence, timing of
expenditures in anticipation of future orders, availability of financing for
expansion, changes in interest expense, the ability to develop and implement
new technologies on a timely basis, competitive factors, changes in effective
tax rates, the loss of key personnel or the shortage of available skilled
workers, international political or economic events, currency and interest rate
fluctuations, environmental events, and intellectual property transactions and
disputes. Unfavorable changes in any of the above factors may adversely affect
the Company's business, financial condition and results of operations. In
addition, the Company increases its level of operating expenses and investment
in manufacturing capacity based on anticipated future growth in revenues. If
the Company's revenues do not grow as anticipated and the Company is not able
to decrease its expenses, the Company's business, financial condition and
operating results would be materially and adversely affected.

Beginning in the third quarter of 1996, intense competition in the
semiconductor industry worldwide resulted in decreases in the average selling
prices of many of the Company's lead frame packages. The Company expects that
average selling prices for its services will continue to decline in the future,
principally due to intense competitive conditions. A decline in average selling
prices of the Company's services, if not offset by reductions in the cost of
producing those services or by a shift to higher margin products, would
decrease the Company's gross margins and could materially and adversely affect
the Company's business, financial condition and results of operations.

DEPENDENCE ON THE HIGHLY CYCLICAL SEMICONDUCTOR AND PERSONAL COMPUTER
INDUSTRIES

The Company's business is substantially affected by market conditions in the
semiconductor industry, which is highly cyclical and, at various times, has
been subject to significant economic downturns characterized by reduced product
demand, rapid erosion of average selling prices and production overcapacity. In
addition, the markets for semiconductors are characterized by rapid
technological change, evolving industry standards, intense competition and
fluctuations in end-user demand. Because the Company's business will be
dependent on the requirements of semiconductor companies for independent
packaging, test and wafer fabrication services for the foreseeable future, any
future downturn in the semiconductor industry could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's operating results for 1997 and the first three months
of 1998 were adversely affected by a downturn in the semiconductor market. In
addition, a significant portion of the Company's net revenues from packaging
and test services depends on the packaging and testing of semiconductors used
in personal computer ("PC") products. The PC industry is subject to intense
competition, is highly volatile and is subject to significant shifts in demand.
As a result, any deterioration of business conditions in the PC industry could
have a material adverse effect on the Company.

<PAGE> 20
RISKS ASSOCIATED WITH LEVERAGE

The Company has historically operated with significant amounts of debt
relative to its equity. At March 31, 1998, the Company had outstanding $406.3
million in principal amount of indebtedness, including non-current amounts due
to AUSA and the Company has incurred prior to the Initial Public Offering and
intends to continue to incur additional bank debt in addition to the Company's
5 3/4% convertible subordinated notes due 2003 (the "Convertible Notes") issued
as part of the Initial Public Offering. In 1996 and 1997, the Company's
payments under long-term debt agreements (excluding payments to AUSA) were $3.1
million and $43.5 million, respectively. Following the application of the net
proceeds to the Company of the Initial Public Offering and repayments of debt
after December 31, 1997 and prior to the Initial Public Offering, the Company
will continue to have at least $298 million in principal amount of indebtedness
outstanding, including $54 million of short-term borrowings and current
portions of long-term debt.

The Company was not in compliance with certain covenants with respect to
certain of its loans, the aggregate outstanding amount of which was $154
million at March 31, 1998 (the "Non-Compliant Loans"). Such non-compliance in
turn triggered cross-defaults with respect to an additional $10 million of the
Company's loans. These loan covenants included restrictions on the ability of
one of the Company's subsidiaries to enter into transactions with affiliates,
requirements that the subsidiary maintain certain debt-to-equity ratios and
requirements that the subsidiary comply with certain notice requirements. As a
result of such non-compliance, these loans had been classified as current
liabilities in the Company's financial statements included herein, and the
report of the Company's independent public accountants with respect to such
financial statements previously contained a paragraph stating that there was
substantial doubt as to the ability of the Company to continue as a going
concern. The Company has eliminated such non-compliance and cross-defaults by
repaying such loans using part of the net proceeds to the Company from the
Initial Public Offering. Consequently, these loans have been classified as
non-current liabilities and this paragraph has been deleted from the report of
the Company's independent public accountants.

At March 31, 1998, the Company had also guaranteed borrowing facilities
available to companies affiliated with James Kim and other stockholders of the
Company totaling $10.7 million, of which $9.5 million was outstanding at March
31, 1998. At March 31, 1998, the Company had $100.4 million of stockholders'
equity and a working capital deficit of $75.6 million. On a pro forma basis,
after giving effect to the termination of AEI's S Corporation status and the
distribution of undistributed net income of AEI through March 31, 1998, the
Company had $66.2 million of stockholders' equity and a working capital deficit
of $111.3 million. On a pro forma as-adjusted basis, after giving effect to the
Initial Public Offering, the Company had $424.4 million of stockholders equity
and working capital of $162.2 million. See "-- Dependence on International
Operations and Sales; Concentration of Operations in the Philippines and
Korea."

DEPENDENCE ON RELATIONSHIP WITH AICL; POTENTIAL CONFLICTS OF INTEREST

AICL was founded in 1956 by Mr. H. S. Kim, who currently serves as the
honorary Chairman and a Representative Director of AICL. AICL is a member of
the Anam group of companies (the "Anam Group"), consisting principally of
companies in Korea in the electronics industries. The management of AICL and
the other companies in the Anam Group are influenced to a significant degree by
the family of H. S. Kim, which, together with the Company, collectively owned
approximately 40.7% of the outstanding common stock of AICL as of December 31,
1997. A significant portion of the shares owned by the Kim family are leveraged
and as a result of this, or for other reasons, the family's ownership could be
substantially reduced. James Kim, the founder of the Company and currently its
Chairman and Chief Executive Officer, is the eldest son of H. S. Kim. Since
January 1992, in addition to his other responsibilities, James Kim has been
serving as acting Chairman of the Anam Group and a director of AICL. Mr. In-Kil
Hwang, the President and a Representative Director of AICL, is the
brother-in-law of James Kim. In addition, four other members of Mr. Kim's
family are on the 13-member Board of Directors of AICL. After the Initial
Public Offering, James Kim and members of his family beneficially owned
approximately 65.8% of the outstanding Common Stock of the Company, and Mr. Kim
and other members of his family will continue to exercise significant control
over the Company.
<PAGE> 21
The businesses of the Company and AICL have been interdependent for many
years. In 1997 and the three months ended March 31, 1998, approximately 68% and
67%, respectively, of the Company's revenues were derived from sales of
services performed for the Company by AICL. In addition, substantially all of
the revenues of AICL in 1997 and the three months ended March 31, 1998 were
derived from services sold by the Company. The Company expects the proportion
of its revenues derived from sales of services performed for the Company by
AICL and the proportion of AICL's revenues from services sold by the Company to
increase as the Company begins selling the wafer fabrication output of AICL's
new wafer foundry and with the Company's assumption from AICL in January 1998
of substantially all of the marketing rights for the Japanese market. In the
event the ability of AICL to supply the Company were disrupted for any reason,
the Company's facilities in the Philippines would be able to fill only a small
portion of the resulting shortfall in capacity. In addition, there are
currently no significant third party suppliers of packaging and test services
from which the Company could fill its orders. As a result, the Company's
business, financial condition and operating results will continue to be
significantly dependent on the ability of AICL to effectively provide
contracted services on a cost-efficient and timely basis. The termination of
the Company's relationship with AICL for any reason, or any material adverse
change in AICL's business resulting from underutilization of its capacity, the
level of its debt and its guarantees of affiliate debt, labor disruptions,
fluctuations in foreign exchange rates, changes in governmental policies,
economic or political conditions in Korea or any other change, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company has recently entered into new supply agreements with AICL (the
"Supply Agreements"). Under the Supply Agreements, AICL has granted to the
Company a first right to substantially all of the packaging and test services
capacity of AICL and the exclusive right to all of the wafer output of its new
wafer foundry. The Company expects to continue to purchase substantially all of
AICL's packaging and test services, and to purchase all of AICL's wafer output,
under the Supply Agreements. Under the Supply Agreements, pricing arrangements
relating to packaging and test services provided by AICL to the Company are
subject to quarterly review and adjustment, and such arrangements relating to
the wafer output provided by AICL to the Company are subject to annual review
and adjustment, in each case on the basis of factors such as changes in the
semiconductor market, forecasted demand, product mix, capacity utilization and
fluctuations in exchange rates, as well as the mutual long-term strategic
interests of the Company and AICL. There can be no assurance that any new
pricing arrangements resulting from such review and adjustment will be
favorable to the Company. Pursuant to long-standing arrangements between AICL
and the Company's operating subsidiaries, sales from AICL to the Company will
continue to be made through AUSA, a wholly-owned financing subsidiary of AICL.
Under the Supply Agreements, the Company will continue to reimburse AUSA for
the financing costs incurred by it in connection with trade financing provided
to the Company. The Supply Agreements also provide that Amkor-Anam, Inc., a
subsidiary of the Company, will continue to provide raw material procurement
and related services to AICL on a fee basis. The Supply Agreements have a
five-year term and may be terminated by any party thereto upon five years'
written notice at any time after the expiration of such initial five-year term.
There can be no assurance that AICL will not terminate either Supply Agreement
upon the expiration of such initial term or, if it does terminate a Supply
Agreement, that the Company will be able to obtain a new agreement with AICL on
terms that are favorable to the Company or at all.

AICL's ability to continue to provide services to the Company will depend on
AICL's financial condition and performance. AICL currently has a significant
amount of debt relative to its equity, which debt the Company expects will
continue to increase in the foreseeable future. The Company is advised that
AICL, as a public company in Korea, has published its most recent consolidated
financial statements as of and for the year ended December 31, 1997. These
consolidated financial statements are prepared on the basis of Korean GAAP,
which differs significantly from U.S. GAAP. U.S. GAAP financial statements are
not available. The independent auditor's report regarding AICL includes an
explanatory paragraph regarding change in accounting principles, the impact of
the Korean economic situation on AICL and its ability to continue as a going
concern.
<PAGE> 22
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------
1996 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
INCOME STATEMENT DATA:
Sales . . . . . . . . . . . . . . . . . . W1,338,718 W1,786,457
Cost of sales . . . . . . . . . . . . . . 1,096,117 1,507,271
---------- ----------
Gross profit . . . . . . . . . . . . . . 242,601 279,186
Selling and administrative expenses . . . 77,754 103,158
---------- ----------
Operating income . . . . . . . . . . . . 164,847 176,028
Non-operating income:
Interest and dividend income . . . . . 38,569 47,592
Foreign exchange gains . . . . . . . . 10,420 122,507
Other . . . . . . . . . . . . . . . . 9,268 11,196
---------- ----------
58,257 181,295
---------- ----------
Non-operating expenses:
Interest expenses . . . . . . . . . . 138,657 160,658
Amortization of deferred charges . . . 2,861 33,891
Foreign exchange losses . . . . . . . 39,792 339,204
Loss from forward contract . . . . . . -- 94,644
Other . . . . . . . . . . . . . . . . 9,962 20,639
---------- ----------
191,272 649,036
---------- ----------
Ordinary income (loss) . . . . . . . . . 31,832 (291,713)
Extraordinary gains . . . . . . . . . . . 447 774
Extraordinary losses . . . . . . . . . . 11,072 1,812
---------- ----------
Net income (loss) before income taxes . . 21,207 (292,751)
Income taxes . . . . . . . . . . . . . . 17,363 7,922
---------- ----------
Net income (loss) after income taxes . . 3,844 (300,673)
Minority interests in losses (earnings) of
consolidated subsidiaries, net . . . . (8,569) 1,206
Amortization of consolidation adjustments,
net . . . . . . . . . . . . . . . . . . (5,326) (3,009)
Equity in earnings (losses) of
unconsolidated equity-method subsidiaries
and investees, net . . . . . . . . . . 666 (46,253)
---------- ----------
Net loss . . . . . . . . . . . . . . . . W (9,385) W (348,729)
========== ==========
<CAPTION>
As of
December 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and bank deposits . . . . . . . . . W 324,139 W 215,024
Accounts and notes receivable, net . . . 170,724 189,522
Inventory . . . . . . . . . . . . . . . . 214,494 260,302
Other current assets . . . . . . . . . . 145,302 241,965
---------- ----------
Total current assets . . . . . . . . . 854,659 906,813
---------- ----------
Property, plant and equipment, net . . . 994,931 2,159,466
Investments . . . . . . . . . . . . . . . 83,715 121,880
Long-term accounts receivable . . . . . . 198,251 203,739
Long-term loans . . . . . . . . . . . . . 747 258,322
Other long-term assets . . . . . . . . . 92,985 285,810
---------- ----------
Total long-term assets . . . . . . . . 1,370,629 3,029,217
---------- ----------
Total assets . . . . . . . . . . W2,225,288 W3,936,030
========== ==========

Short-term borrowings . . . . . . . . . . 1,050,405 1,720,916
Current maturities of long-term debt . . 85,252 120,913
Other current liabilities . . . . . . . . 190,989 282,653
---------- ----------
Total current liabilities . . . . . . 1,326,646 2,124,482
---------- ----------
Long-term debt, net of current maturities 475,045 736,784
Long-term capital lease obligations . . . 106,068 861,813
Other long-term liabilities . . . . . . . 67,672 111,017
---------- ----------
Total long-term liabilities . . . . . 648,785 1,709,614
---------- ----------
Total liabilities . . . . . . . . 1,975,431 3,834,096
---------- ----------
Minority interests . . . . . . . . . . . 21,600 25,160
Stockholders' equity . . . . . . . . . . 228,257 76,774
---------- ----------
Total liabilities and stockholders'
equity . . . . . . . . . . . . W2,225,288 W3,936,030
========== ==========
</TABLE>

A significant amount of the current and long-term liabilities of AICL are
denominated in U.S. dollars and other foreign currencies. At December 31, 1997,
the amount of U.S. dollar and other foreign currency denominated short-term
borrowings, current maturities of long-term debt, long-term debt (net of
current maturities) and long-term capital lease obligations were W1,222
billion, W59 billion, W159 billion and W834 billion, respectively. Due in part
to the significant depreciation of the won (for example, from a Market Average
Exchange Rate, as defined below, of W884 to $1.00 on December 31, 1996 to
W1,415 to $1.00 on December 31, 1997 and W1,418 to $1.00 on May 14, 1998)
resulting from the recent economic crisis in Korea, AICL's liabilities in won
terms and its leverage calculated in won have significantly increased in 1997.
The effect of this depreciation on AICL, however, has been mitigated by the
fact that substantial amounts of AICL's revenues are denominated in U.S.
dollars. The increase in AICL's liabilities
<PAGE> 23
was also attributable in part to additional financing obtained in connection
with the construction of its new wafer foundry. See "-- Risks Associated with
New Wafer Fabrication Business."

The recent economic crisis in Korea has also led to sharply higher interest
rates in Korea and reduced opportunities for refinancing or refunding maturing
debts as financial institutions in Korea, which are experiencing financial
difficulties, are increasingly looking to limit their lending, particularly to
highly leveraged companies, and to increase their reserves and provisions for
non-performing assets. These developments will result in higher interest rates
on loans to AICL and have otherwise made it more difficult for AICL to obtain
new financing. Therefore, there can be no assurance that AICL will be able to
refinance its existing loans or obtain new loans, or continue to make required
interest and principal payments on such loans or otherwise comply with the
terms of its loan agreements. Any inability of AICL to obtain financing or
generate cash flow from operations sufficient to fund its capital expenditure,
debt service and repayment and other working capital and liquidity requirements
could have a material adverse effect on AICL's ability to continue to provide
services and otherwise fulfill its obligations to the Company. See "-- Risks
Associated with Leverage" and "-- Dependence on International Operations and
Sales; Concentration of Operations in the Philippines and Korea."

As of December 31, 1997, AICL and its consolidated subsidiaries were
contingently liable under guarantees in respect of debt of AICL's
non-consolidated subsidiaries and affiliates in the Anam Group in the aggregate
amount of approximately W857 billion. As of such date, AICL had provided
guarantees for all of AUSA's debt of $319 million, the Non-Compliant Loans of
$176 million and the Company's obligations under a receivables sales
arrangement. The Company has met a significant portion of its financing needs
through financing arrangements obtained by AUSA for the benefit of the Company
based on guarantees provided by AICL. There can be no assurance that AUSA will
be able to obtain additional guarantees, if necessary, from AICL. Further, a
deterioration in AICL's financial condition could trigger defaults under AICL's
guarantees, causing acceleration of such loans. In addition, as an overseas
subsidiary of AICL, AUSA was formed with the approval of the Bank of Korea. If
the Bank of Korea were to withdraw such approval, or if AUSA otherwise ceased
operations for any reason, the Company and AICL would be required to meet their
financing needs through alternative arrangements. Although the Company believes
that alternative financing arrangements will be available in the future, there
can be no assurance that the Company or AICL will be able to obtain alternative
financing on acceptable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." In addition, if any relevant subsidiaries or affiliates of
AICL, certain of which may have greater exposure to domestic Korean economic
conditions than AICL, were to fail to make interest or principal payments or
otherwise default under their debt obligations guaranteed by AICL, AICL could
be required under its guarantees to repay such debt, which event could have a
material adverse effect on its financial condition and results of operations.

Historically, AICL has undertaken capacity expansion programs and other
capital expenditures primarily on the basis of forecasts of the Company and
business plans prepared jointly with the Company. The Supply Agreements
generally provide for continued capital investment by AICL based on the
Company's forecasts and operational plans prepared jointly by the Company and
AICL reflecting such forecasts. However, as a result of the recent
deterioration of the Korean economy, there can be no assurance that AICL will
be able to fund future capacity expansions and other capital investments
required to supply the Company with necessary packaging and test services and
wafer output on a timely and cost-efficient basis.

The Company and AICL have historically cooperated on the development of new
package designs and packaging and testing processes and technologies. The
Supply Agreements generally provide for continued cooperation between the
Company and AICL in research and development, as well as the cross-licensing of
intellectual property rights between the Company and AICL. If the Company's
relationship with AICL were terminated for any reason, the Company's research
and development capabilities and intellectual property position could be
materially and adversely affected.

The Company will continue to be controlled to a significant degree by James
Kim and members of his family for the foreseeable future, and Mr. Kim and other
members of his family will also continue to
<PAGE> 24
exercise significant influence over the management of AICL and its affiliates.
In addition, the Company and AICL will continue to have certain contractual and
other business relationships, including under the Supply Agreements, and may
engage in transactions from time to time that are material to the Company.
Although any such material agreements and transactions would require approval
of the Company's Board of Directors, such transactions generally will not
require any additional approval by a separate committee comprised of the
disinterested members of the Board of Directors and conflicts of interest may
arise in certain circumstances. There can be no assurance that such conflicts
will not from time to time be resolved against the interests of the Company.
The Company currently has four directors, two of whom are disinterested. Under
Delaware corporate law, each director owes a duty of loyalty and care to the
Company, which if breached can result in personal liability for the directors.
In addition, the Company may agree to certain changes in its contractual and
other business relationships with AICL, including pricing, manufacturing
allocation, capacity utilization and capacity expansion, among others, which in
the judgment of the Company's management will result in reduced short-term
profitability for the Company in favor of potential long-term benefits to the
Company and AICL. There can be no assurance that the Company's business,
financial condition or results of operations will not be adversely affected by
any such decision.

DEPENDENCE ON INTERNATIONAL OPERATIONS AND SALES; CONCENTRATION OF OPERATIONS
IN THE PHILIPPINES AND KOREA

All of the production facilities currently used to fill the Company's orders
are located in the Philippines and Korea and many of the Company's customers'
operations are located in countries outside of the United States. A substantial
portion of the Company's revenues are derived from sales to customers located
outside of the United States. In 1997 and the three months ended March 31,
1998, sales to such customers accounted for 28% and 31%, respectively, of the
Company's revenues. The Company expects sales outside of the United States to
continue to represent a significant portion of its future revenues. As a
result, the Company's business will continue to be subject to certain risks
generally associated with doing business abroad, such as foreign governmental
regulations, currency fluctuations, political unrest, disruptions or delays in
shipments, currency controls and fluctuations, changes in local economic
conditions and import and export controls, as well as changes in tax laws,
tariffs and freight rates. The Company has structured its global operations to
take advantage of lower tax rates in certain countries and tax incentives
extended to encourage investment. The Company's tax returns through 1993 in the
Philippines and through 1994 in the U.S. have been examined by the Philippine
and U.S. tax authorities, respectively. The recorded provisions for subsequent
open years are subject to changes upon examination by tax authorities of tax
returns for these years. Changes in the mix of income from the Company's
foreign subsidiaries, expiration of tax holidays and changes in tax laws and
regulations could result in increased effective tax rates for the Company.

Philippines

The Company's results of operations and growth will be influenced by the
political situation in the Philippines and by the general state of the
Philippine economy. Although the political and economic situation in the
Philippines has stabilized in recent years, it has historically been subject to
significant instability. Most recently, the devaluation of the Philippine peso
relative to the U.S. dollar beginning in July 1997 has led to instability in
the Philippine economy. Any future economic or political disruptions or
instability or low economic growth in the Philippines could have a material
adverse effect on the Company's business, financial condition and results of
operations. Because the functional currency of the Company's Philippine
operations is the U.S. dollar, the Company has recently benefited from cost
reductions relating to peso denominated expenditures, primarily payroll costs.
The Company believes that such devaluation of the Philippine peso will
eventually lead to inflation in the Philippines, which could offset any savings
achieved to date.

Korea

In 1997 and the three months ended March 31, 1998, approximately 68% and 67%,
respectively, of the Company's revenues were derived from sales of services
performed for the Company by AICL. The operations of AICL are subject to
certain risks. Relations between Korea and the Democratic People's
<PAGE> 25
Republic of Korea ("North Korea") have been tense over most of Korea's history.
Incidents affecting relations between the two Koreas continually occur. No
assurance can be given that the level of tensions with North Korea will not
increase or change abruptly as a result of current or future events, which
could have a material adverse effect on AICL's, and as a result the Company's,
business, financial condition and results of operations.

Since the beginning of 1997, Korea has experienced a significant increase in
the number and size of companies filing for corporate reorganization and
protection from their creditors. Such failures were caused by, among other
factors, excessive investments, high levels of indebtedness, weak export prices
and the Korean government's greater willingness to allow troubled corporations
to fail. As a result of such corporate failures, Korea's financial
institutions have experienced a sharp increase in non-performing loans. In
addition, declines in domestic stock prices have reduced the value of Korean
banks' assets. These developments have led international credit rating agencies
to downgrade the credit ratings of Korea, as well as various companies
(including AICL) and financial institutions in Korea.

During the same period, the value of the won relative to the U.S. dollar has
depreciated significantly. The base rate under the market average exchange rate
system, as announced by the Korea Financial Telecommunications and Clearings
Institute in Seoul, Korea (the " Market Average Exchange Rate") as of May 14,
1998 was W 1,418 to $1.00, as compared to the December 31, 1996 Market Average
Exchange Rate of W 884 to $1.00. Such depreciation of the won relative to the
U.S. dollar has increased the cost of imported goods and services, and the
value in won of Korea's public and private sector debt denominated in U.S.
dollars and other foreign currencies has also increased significantly. Korea's
foreign currency reserves also have declined significantly. Such developments
have also led to sharply higher domestic interest rates and reduced
opportunities for refinancing or refunding maturing debts as financial
institutions in Korea, which are experiencing financial difficulties, are
increasingly looking to limit their lending, in particular to highly leveraged
companies, and to increase their reserves and provisions for non-performing
assets.

In order to address the liquidity crisis and the deteriorating economic
situation in Korea, the Korean government concluded an agreement with the
International Monetary Fund on December 3, 1997 pursuant to which Korea is
eligible to receive loans and other financial support reported to amount to an
aggregate of approximately $58 billion (the "IMF Financial Aid Package").
Because there are conditions on the availability of loans and other financial
support under the IMF Financial Aid Package, there can be no assurance that
such conditions will be satisfied or that such loans and other financial
support will be available. In connection with the IMF Financial Aid Package,
the Korean government announced a comprehensive policy package (the "Reform
Policy") intended to address the structural weaknesses in the Korean economy
and the financial sector. While the Reform Policy is intended to alleviate the
current economic crisis in Korea and improve the Korean economy over time, the
immediate effects could include, among others, slower economic growth, a
reduction in the availability of credit to Korean companies, an increase in
interest rates, an increase in taxes, an increased rate of inflation due to the
depreciation of the won, an increase in the number of bankruptcies of Korean
companies, labor unrest and labor strikes resulting from a possible increase in
unemployment, and political unrest. These events could have a material adverse
effect on the Korean economy. Moreover, there can be no assurance that either
the IMF Financial Aid Package or the Reform Policy will be successful. In
addition, there can be no assurance that political pressure will not force the
Korean government to retreat from some or all of its announced Reform Policy or
that the Reform Policy will be implemented as currently contemplated.

The Korean government has stated that as of December 31, 1997 the total
amount of Korea's private and governmental external liabilities was $154.4
billion under IMF standards. As of December 31, 1997, the total amount of
foreign currency reserves held by Korea was $20.4 billion, of which the usable
portion (the total less amounts on deposit with overseas branches of Korean
financial institutions and swap positions between the Korean central bank and
other central banks) was $8.9 billion. Pursuant to an exchange offer concluded
in April 1998, the Korean financial institutions exchanged approximately $21.8
billion of their short-term foreign currency debt for longer term floating rate
loans guaranteed by the Korean government. In addition, the Korean government
raised approximately $4 billion through an international offering of its debt
securities in April 1998. Korean financial institutions and the Korean
corporate and public sectors continue to carry substantial amounts of debt
denominated in currencies other
<PAGE> 26
than the won, including short-term debt, and there can be no assurance that
there will be sufficient foreign currency reserves to repay this debt or that
this debt can be extended or refinanced.

Such recent and potential future developments relating to Korea, including
the continued deterioration of the Korean economy, could have a material
adverse effect on AICL's and the Company's business, financial condition and
results of operations. See "-- Dependence on Relationship with AICL; Potential
Conflicts of Interest."

CUSTOMER CONCENTRATION; ABSENCE OF BACKLOG

Due to the concentration of market share in the semiconductor industry, the
Company has been largely dependent on a small group of customers for a
substantial portion of its business. In 1997 and the three months ended March
31, 1998, 40.1% and 34.9%, respectively, of the Company's net revenues were
derived from sales to the Company's top five customers, with 23.4% and 19.2% of
the Company's net revenues, respectively, derived from sales to Intel
Corporation ("Intel"). The ability of the Company to maintain close,
satisfactory relationships with such customers is important to the ongoing
success and profitability of its business. The Company expects that it will
continue to be dependent upon a relatively limited number of customers for a
significant portion of its net revenues in future periods. None of the
Company's customers is presently obligated to purchase any amount of packaging
or test services or to provide the Company with binding forecasts of product
purchases for any period. In addition, the Company's new wafer fabrication
business will be significantly dependent upon Texas Instruments, Inc. ("TI").
The reduction, delay, or cancellation of orders from one of the Company's
significant customers, including Intel for packaging and test services or TI
for wafer fabrication services, could materially and adversely affect the
Company's business, financial condition and results of operations. Although the
Company has received forecasts from TI which indicate that TI will meet its
minimum purchase obligation during the second half of 1998, during the first
quarter of 1998 TI's orders were below such minimum purchase commitment due to
market conditions and issues encountered by TI in the transition of its
products to .18 micron technology. There can be no assurance that such
customers will not reduce, cancel or delay orders. See "-- Dependence on the
Highly Cyclical Semiconductor and Personal Computer Industries" and "-- Risks
Associated with New Wafer Fabrication Business."

All of the Company's customers operate in the cyclical semiconductor business
and may vary order levels significantly from period to period. In addition,
there can be no assurance that such customers or any other customers will
continue to place orders with the Company in the future at the same levels as
in prior periods. From time to time, semiconductor companies have experienced
reduced prices for some products, as well as delays or cancellations in orders.
There can be no assurance that, should these circumstances occur in the future,
they will not adversely affect the Company's business, financial condition and
results of operations. The loss of one or more of the Company's customers, or
reduced orders by any of its key customers, could adversely affect the
Company's business, financial condition and results of operations. The
Company's packaging and test business does not typically operate with any
material backlog, and the Company expects that in the future the Company's
packaging and test revenues in any quarter will continue to be substantially
dependent upon orders received in that quarter. The Company's expense levels
are based in part on its expectations of future revenues and the Company may be
unable to adjust costs in a timely manner to compensate for any revenue
shortfall.

EXPANSION OF MANUFACTURING CAPACITY; PROFITABILITY AFFECTED BY CAPACITY
UTILIZATION RATES

The Company believes that its competitive position depends substantially on
its ability to expand its manufacturing capacity. Accordingly, although the
Company currently has available manufacturing capacity, the Company expects to
continue to make significant investments to expand such capacity, particularly
through the acquisition of capital equipment and the training of new personnel.
There can be no assurance that the Company will be able to utilize such
capacity or to continue to expand its manufacturing capacity in a timely
manner, that the cost of such expansion will not exceed management's current
estimates or that such capacity will not exceed the demand for the Company's
services. In addition, expansion of the Company's manufacturing capacity will
continue to significantly increase its fixed costs, and the Company expects to
continue to incur substantial additional depreciation and other expenses in
<PAGE> 27
connection with the acquisition of new equipment and the construction of new
facilities. Increases or decreases in capacity utilization rates can have a
significant effect on gross margins since the unit cost of packaging and test
services generally decreases as fixed charges are allocated over a larger
number of units produced. Therefore, the Company's ability to maintain or
enhance its gross margins will continue to be dependent, in part, on its
ability to maintain high capacity utilization rates.

Capacity utilization rates may be affected by a number of factors and
circumstances, including overall industry conditions, operating efficiencies,
the level of customer orders, mechanical failure, disruption of operations due
to expansion of operations or relocation of equipment, fire or natural
disasters, employee strikes or work stoppages or other circumstances. Although
the Company has been able to maintain a high rate of capacity utilization in
recent years as a result of its close association with its customers, its
knowledge of the semiconductor market conditions, and its continued
improvements in operating efficiencies and equipment maintenance, there can be
no assurance that this high utilization rate will be sustained in the future.
The Company's inability to generate the additional orders necessary to fully
utilize its capacity would have a material adverse effect on the Company's
business, financial condition and results of operations. For example, in 1996
the Company's capacity utilization rates were negatively affected by an
unexpected downturn in the semiconductor industry. There can be no assurance
that the Company's utilization rates will not be adversely affected by future
declines in the semiconductor industry or for any other reason.

RISKS ASSOCIATED WITH NEW WAFER FABRICATION BUSINESS

The Company recently began providing wafer fabrication services, with
delivery of the first products from AICL's new foundry in January 1998. Neither
the Company nor AICL has significant experience in providing wafer fabrication
services, and there can be no assurance that the Company will not experience
difficulties in marketing and selling these services or that AICL will not
encounter operational difficulties such as lower than expected yields or longer
than anticipated production ramp-up, unexpected costs and other problems in
providing these services. If the Company or AICL encounters these or similar
difficulties, the Company's and AICL's businesses, financial condition and
results of operations could be materially adversely affected. In addition, TI
has transferred certain of its Complementary Metal Oxide Silicon ("CMOS")
processes to AICL and AICL is dependent upon TI's assistance for developing
other state-of-the-art wafer manufacturing processes. If AICL's relationship
with TI is disrupted for any reason, AICL's ability to produce wafers would be
adversely affected, thus negatively impacting the Company's ability to fulfill
its customers' orders for fabrication services, which could materially and
adversely affect the Company's business, financial condition and results of
operations. In addition, AICL's technology agreements with TI (the "TI
Technology Agreements") only cover .25 micron and .18 micron CMOS technology
and TI is not under any obligation to transfer any next-generation technology.
If AICL is not able to obtain such technology on commercially reasonable terms
or at all, the Company's ability to market AICL's wafer fabrication services
could be materially and adversely affected which could have a material adverse
effect on the Company's and AICL's business, results of operations and
financial condition.

The Company's right to the supply of wafers from AICL's foundry is subject to
an agreement (the "TI Manufacturing and Purchasing Agreement") among AICL, the
Company and TI, pursuant to which TI has agreed to purchase from the Company at
least 40% of the capacity of this foundry and under certain circumstances has
the right to purchase up to 70% of this capacity. As a result, the Company's
wafer fabrication business will be significantly dependent upon TI, which may
adversely affect the Company's ability to obtain additional customers. If the
Company is unable to sell substantially all of the output of AICL's wafer
foundry, its business, results of operations and financial condition could be
materially and adversely affected. Although the Company has received forecasts
from TI which indicate that TI will meet its minimum purchase obligation during
the second half of 1998, during the first quarter of 1998 TI's orders were
below such minimum purchase commitment and it is uncertain whether TI will meet
its purchase obligations in the second quarter of 1998 due to market conditions
and issues encountered by TI in the transition of its products to .18 micron
technology. Accordingly, there can be no assurance that TI will place orders
representing at least 40% of the capacity of this foundry during this period or
in the future. A failure by TI to comply with its minimum purchase obligations
or the cancellation of a significant wafer fabrication order by TI or any other
customer could have a material adverse effect on AICL's and the
<PAGE> 28
Company's business, financial condition and results of operations. The TI
Manufacturing and Purchasing Agreement terminates on December 31, 2007, unless
terminated sooner. The TI Manufacturing and Purchasing Agreement may be
terminated upon two years' prior notice by either AICL or TI if AICL and TI are
unable to successfully negotiate prior to June 30, 2000 an amendment to the TI
Technology Agreements or a new agreement with respect to AICL's use of TI's
next-generation CMOS technology. During such two-year period, TI would be
obligated to purchase a minimum of only 20% of the capacity of AICL's wafer
fabrication facility. In addition, the TI Manufacturing and Purchasing
Agreement may be terminated sooner upon, among other events, mutual written
consent, material breach of the agreement by either party, the inability of
either party to obtain any necessary government approvals, the failure of AICL
to protect TI's intellectual property and a change of control, bankruptcy,
liquidation or dissolution of AICL.

DEPENDENCE ON RAW MATERIALS SUPPLIERS AND SUBCONTRACTORS

The Company obtains the direct materials for the packaging and test services
of its factories and for the packaging and test services provided by AICL to
fill the Company's orders directly from vendors. To maintain competitive
manufacturing operations, the Company must obtain from its vendors, in a timely
manner, sufficient quantities of acceptable materials at expected prices. The
Company sources most of its raw materials, including critical materials such as
lead frames and laminate substrates, from a limited group of suppliers. The
Company purchases all of its materials on a purchase order basis and has no
long-term contracts with any of its suppliers. From time to time, vendors have
extended lead times or limited the supply of required materials to the Company
because of vendor capacity constraints and, consequently, the Company has
experienced difficulty in obtaining acceptable raw materials on a timely basis.
In addition, from time to time, the Company may reject materials that do not
meet its specifications, resulting in declines in output or yield. There can be
no assurance that the Company will be able to obtain sufficient quantities of
raw materials and other supplies of an acceptable quality. The Company's
business, financial condition and results of operations could be materially and
adversely affected if its ability to obtain sufficient quantities of raw
materials and other supplies in a timely manner were substantially diminished
or if there were significant increases in the costs of raw materials that the
Company could not pass on to its customers.

INTELLECTUAL PROPERTY

The Company currently holds 24 United States patents, five of which are
jointly held with AICL, related to various IC packaging technologies, in
addition to other pending patents. These patents will expire at various dates
from 2012 through 2016. With respect to development work undertaken jointly
with AICL, the Company and AICL share intellectual property rights under the
terms of the Supply Agreements between the Company and AICL. Such Supply
Agreements also provide for the cross-licensing of intellectual property rights
between the Company and AICL. In addition, the Company enters into agreements
with other developers of packaging technology to license or otherwise obtain
certain process or package technologies.

The Company expects to continue to file patent applications when appropriate
to protect its proprietary technologies; however, the Company believes that its
continued success depends primarily on factors such as the technological skills
and innovation of its personnel rather than on its patents. The process of
seeking patent protection can be expensive and time consuming. There can be no
assurance that patents will be issued from pending or future applications or
that, if patents are issued, they will not be challenged, invalidated or
circumvented, or that rights granted thereunder will provide meaningful
protection or other commercial advantage to the Company. Moreover, there can be
no assurance that any patent rights will be upheld in the future or that the
Company will be able to preserve any of its other intellectual property rights.

Although the Company is not currently a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and
other intellectual property rights. As is typical in the semiconductor
industry, the Company may receive communications from third parties asserting
patents on certain of the Company's technologies. In the event any third party
were to make a valid claim against the Company or AICL, the Company or AICL
could be required to discontinue the use of certain processes or
<PAGE> 29
cease the manufacture, use, import and sale of infringing products, to pay
substantial damages and to develop non-infringing technologies or to acquire
licenses to the alleged infringed technology. The Company's business, financial
condition and results of operations could be materially and adversely affected
by such developments. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may also be necessary to enforce patents
or other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. The failure to obtain
necessary licenses or the occurrence of litigation relating to patent
infringement or other intellectual property matters could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, AICL has obtained intellectual property for wafer
manufacturing primarily from TI. The licenses granted to AICL by TI under the
TI Technology Agreements are very limited. Although TI has granted to AICL a
license under TI's trade secret rights to use TI's technology in connection
with AICL's provision of wafer fabrication services, TI has not granted AICL a
license under its patents, copyrights and mask works to manufacture
semiconductors for third parties. Although TI has agreed that TI will not
assert a claim for patent, copyright or mask work right infringement against
AICL or the Company in connection with AICL's manufacture of semiconductor
products for third parties, TI has reserved the right to bring such
infringement claims against AICL's or the Company's customers with respect to
semiconductor products purchased from AICL or the Company. As a result, AICL's
and the Company's customers could be subject to patent litigation by TI and
others, and AICL and the Company could in turn be subject to litigation by such
customers and others, in connection with the sale of wafers produced by AICL.
Any such litigation could materially and adversely affect AICL's ability to
continue to manufacture wafers and AICL's and the Company's business, financial
condition and results of operations.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as part of this report:

Exhibit
Number Description of Exhibit
------ -------------------------------------------------

27.1 Financial Data Schedule.

- ------------

(b) The registrant did not file any reports on form 8-K during the quarter
ended March 31, 1998.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THERETO DULY AUTHORIZED.

Amkor Technology, Inc.
----------------------
(Registrant)

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Frank J. Marcucci Chief Financial Officer and Secretary (Principal June 12, 1998
--------------------------------------------------- Financial, Chief Accounting Officer and Duly
Frank J. Marcucci Authorized Officer)

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