<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
March 10, 2000
---------------------
Date of Report (Date of earliest event reported)
AMKOR TECHNOLOGY, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware
---------------------
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-29472 23-1722724
- -------------------- ------------------------------------
(Commission File No.) (IRS Employer Identification Number)
</TABLE>
1345 Enterprise Drive
West Chester, PA 19380
(610) 431-9600
---------------------
(Address of Principal Executive Offices)
---------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. OTHER EVENTS
TABLE OF CONTENTS
a) Our Acquisition of Anam Semiconductor, Inc.'s ("ASI") ASI's Packaging
and Test Business and Investment in ASI
b) Financial Data of Amkor and ASI
1) Unaudited Pro Forma Consolidated Financial Data of Amkor
2) Selected Historical Consolidated Financial Data of Amkor
3) Selected Historical Financial Data of K1, K2 and K3
4) Selected Historical Financial Data of ASI
5) Unaudited Pro Forma Consolidated Financial Data of ASI
c) Management's Discussion and Analysis of Financial Condition and
Results of Operations
d) Risk Factors
e) Consolidated Financial Statements
References in this report to "won" or "W" are to the currency of the
Republic of Korea. The won has historically fluctuated significantly against the
U.S. dollar and other foreign currencies in recent years. Unless otherwise
indicated, all conversions of U.S. dollars to won and vice versa have been made
at an exchange rate of W1,135 to $1.00, the base rate under the market average
exchange rate system, as announced by the Korea Financial Telecommunications and
Clearing Institute in Seoul, Korea (the "Market Average Exchange Rate"), on
December 31, 1999. On February 29, 2000, the Market Average Exchange Rate was
W1,132 to U.S.$1.00. No representation is made that the won or U.S. dollar
amounts referred to herein could have been or could be converted into U.S.
dollars or won, as the case may be, at any particular rate or at all.
a) Our Proposed Acquisition of ASI's Packaging and Test Business and
Investment in ASI
PROPOSED ACQUISITION
We have agreed with ASI, subject to certain conditions, to purchase ASI's
packaging and test business, which consists primarily of its K1, K2 and K3
factories. The purchase price for these assets will be approximately $950.0
million. The table below provides selected information about these factories:
<TABLE>
<CAPTION>
APPROXIMATE
FACTORY SIZE
FACTORY LOCATION EMPLOYEES (SQUARE FEET) SERVICES
------- -------------- --------- ------------- ---------------------------------
<S> <C> <C> <C> <C>
K1................. Seoul, Korea 3,300 646,000 lead frame packaging and package
and process development
K2................. Pucheon, Korea 1,800 264,000 lead frame and laminates
packaging services
K3................. Pupyong, Korea 1,500 404,000 advanced lead frame packaging and
test services
</TABLE>
In connection with our acquisition of K1, K2 and K3, we will acquire all of
ASI's patents, patent applications and other intellectual property rights
related to its packaging and test business. We also plan to retain the
approximately 6,600 Korean employees currently working at K1, K2 and K3. We
intend to complete the acquisition during the second quarter of 2000.
PROPOSED INVESTMENT
In October 1999, we purchased 10 million shares of ASI's common stock at a
price of W5,000 per share, for approximately $41.6 million. As a result of this
investment and the conversion of ASI's debt to equity by ASI's creditor banks,
we now own approximately 18% of ASI's voting stock. We have also agreed to make
a $459.0 million additional investment in ASI, subject to certain conditions. We
have agreed to invest $309.0 million of this additional investment at the time
we acquire K1, K2 and K3, with the remaining $150.0 million to be invested in
three installments: $30.0 million by June 30, 2000, $60.0 million by August 31,
2000 and $60.0 million by October 31, 2000. However, we have the right to
accelerate this investment. Of this $459.0 million investment, $109.0 million
will be invested at a purchase price of W8,000 per share and the remaining
$350.0 million will be invested at W18,000 per share. As of February 28, 2000,
the closing price of ASI's common stock on the Korea Stock Exchange was W10,100
per share. As of March 10, 2000, the closing price of ASI's common stock on the
Korea Stock Exchange was W14,200. Our investment will fulfill our prior
obligation to invest $150.0 million in ASI. Based upon an exchange rate of
W1,135 per $1.00 at December 31, 1999, we would purchase a total of
approximately 37.5 million shares for this $459.0 million investment in ASI. If
we acquire this number of shares of ASI's common stock, assuming ASI's creditor
banks convert an additional W150 billion (approximately $132.0 million) of their
ASI debt to equity in connection with our acquisition and investment, we will
own approximately 43% of ASI's outstanding voting stock.
PROPOSED FINANCING
We intend to finance the purchase of K1, K2 and K3 and the investment in
ASI with our proposed private placement of Series A preferred stock,
approximately $600.0 million of new secured bank debt, a proposed issuance of
$425.0 million of convertible subordinated notes and cash on hand.
In November 1999, we secured a commitment from a group of institutional
investors to provide $410.0 million in equity financing for use in connection
with our proposed acquisition of K1, K2 and K3.
<PAGE> 3
If we consummate our acquisition of K1, K2 and K3, we would issue to these
investors a total of 2,050,000 shares of Series A preferred stock, convertible
into an aggregate of 20,500,000 shares of our common stock. In addition, we
would issue warrants for an aggregate of 3,895,000 million shares of our common
stock with a strike price of $27.50 per share to the Series A preferred stock
investors. These warrants would expire four years after the date we issue them.
For a more complete description of the rights and privileges of the Series A
preferred stock, as well as a description of ancillary agreements that we would
enter into with the Series A preferred stock investors, see "Proposed Private
Placement of Series A Preferred Stock."
We expect to borrow $600.0 million in term loans under a new $800.0 million
secured credit facility, which will include a $200.0 million revolving credit
line to be provided by a syndicate of institutional lenders. We are currently in
the process of negotiating the terms of the facility to be provided by a
syndicate of institution lenders. The initial borrowing under the facility will
be subject to the consummation of our proposed acquisition of K1, K2 and K3 and
other related transactions. The facility will provide for amortization of the
drawn amount over a five-year period and quarterly principal and interest
payments. We will be required to make mandatory prepayments under the facility
out of a portion of any excess cash flow, the net proceeds of any asset sales
and the net proceeds of any issuance of debt or equity securities, subject to
certain exceptions. We expect that the agreement governing the facility will
include certain financial covenants, as well as covenants restricting our
ability to incur debt, pay dividends, make certain investments and payments, and
encumber or dispose of assets. We expect that our obligations under the facility
will be guaranteed by certain of our subsidiaries and will be secured by a
pledge of the domestic assets of our company and our subsidiaries, a pledge of
the shares of certain of our subsidiaries and a pledge of certain intercompany
indebtedness.
The closing of our proposed private placement of Series A preferred stock
and our proposed new secured bank financing is expected to take place
concurrently with, and is conditioned upon, the closing of our acquisition of
K1, K2 and K3 and our investment in ASI. We cannot assure you that any of these
transactions will occur.
RELATIONSHIP WITH ASI FOLLOWING OUR ACQUISITION OF ASI'S PACKAGING AND TEST
BUSINESS AND OUR INVESTMENT IN ASI
If we complete our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, we expect to continue to have certain contractual and other
business relationships with ASI, including under our wafer fabrication services
supply agreement with ASI. Under this supply agreement, we will continue
to have the exclusive right to all of the wafer output of ASI's wafer
fabrication facility. The supply agreement has a five-year term, expiring
November 1, 2002, and may be terminated by either party upon five years' written
notice after completion of the initial five year term. The supply agreement may
also be terminated upon breach or insolvency of either party. The supply
agreement generally provides for continued cooperation between our company and
ASI in research and development.
Concurrent with the completion of our proposed acquisition of K1, K2 and
K3, we will enter into a transition services agreement with ASI. Pursuant to
this agreement, we will provide many of the same services to ASI's wafer
fabrication business that had been provided by ASI's packaging and test business
prior to its acquisition by us, including human resources, accounting and
general administrative services and customer services.
Following our proposed investment in ASI and the anticipated conversion of
additional ASI debt to equity by ASI's creditor banks, we will own approximately
43% of ASI's outstanding voting stock. Accordingly, we will report ASI's
financial results in our financial statements through the equity method of
accounting. If ASI's results of operations are adversely affected for any
reason, our results of operations will suffer as well. Financial or other
problems affecting ASI could also lead to a complete loss of our investment in
ASI. In addition, under proposed changes in U.S. GAAP, we could be required to
consolidate ASI's financial results with ours. In such an event, adverse changes
in any line item of ASI's financial statements would adversely affect the
corresponding line items in our consolidated financial statements.
<PAGE> 4
Our company and ASI will also continue to have close ties due to our
overlapping ownership and management. We expect that Mr. James Kim will continue
to serve as Chairman and as a Director of ASI and as our Chairman and Chief
Executive Officer. The Kim family currently beneficially owns approximately 59%
of our outstanding common stock and approximately 11% of ASI's voting stock. If
we complete our proposed private placement of Series A preferred stock, our
proposed investment in ASI and if ASI's creditor banks convert additional ASI
debt into equity, the Kim family will beneficially own approximately 51% of our
outstanding voting stock and approximately 6% of ASI's voting stock. Even though
the Kim family's direct ownership of ASI and our company will be reduced, we
believe that the Kim family will continue to exercise significant influence over
our company, ASI and its affiliates.
We have also entered into agreements with ASI and Texas Instruments
relating to our wafer fabrication business. For information on these agreements,
see "Business -- Wafer Fabrication Services" in our report on Form 10-K for the
year ended December 31, 1998.
We may engage in other transactions with ASI from time to time that are
material to us. The indentures governing our senior subordinated notes, our
subordinated notes and our convertible subordinated notes, as well as the
agreements relating to our new secured bank debt, restrict our ability to enter
into transactions with ASI and other affiliates.
PROPOSED PRIVATE PLACEMENT OF SERIES A PREFERRED STOCK
In November, 1999 we secured a commitment from a group of investors to
provide $410.0 million in equity financing for use in connection with our
proposed acquisition of K1, K2 and K3 and proposed investment in ASI. The
following discussion assumes that we have consummated these transactions.
SERIES A PREFERRED STOCK
We would issue to these investors 2,050,000 shares of Series A preferred
stock, convertible into an aggregate of 20,500,000 shares of our common stock.
The Series A preferred stock would be convertible at any time at the election of
the holder, and would convert automatically upon the earlier of (i) such time
that the fair market value of our common stock exceeded predetermined levels for
30 consecutive trading days or (ii) five years after the first issue date of the
Series A preferred stock. Holders of the Series A preferred stock would be
entitled to receive dividends as may from time to time be declared by the Board
of Directors out of funds legally available therefor and prior to payment of
dividends to holders of common stock. In the event of a liquidation, dissolution
or winding up of our Company, holders of Series A preferred stock would be
entitled to receive $200 per share, or an aggregate of $410.0 million (assuming
issuance of 2,050,000 shares of Series A preferred stock) prior to and in
preference of the holders of common stock. After the Series A preferred stock
liquidation preference is paid, the holders of common stock would be entitled to
share equally and ratably in the remaining assets of the Company, if any.
Holders of Series A preferred stock would be entitled to vote on all
matters on which the holders of common stock are entitled to vote and have the
number of votes equal to the number of shares of common stock into which their
shares of Series A preferred stock are convertible. In addition, the holders of
the Series A preferred stock would be entitled to a class vote to approve (i)
changes to our Certificate of Incorporation or Bylaws if such change would
directly and adversely affect the rights of the Series A preferred stock or (ii)
authorization of any class of stock having preference or priority to the rights
of the Series A preferred stock. Finally, for so long as at least 500,000 shares
of Series A preferred stock remain outstanding, the holders of the Series A
preferred stock will be entitled to elect one member of our Board of Directors.
WARRANTS
We would issue warrants for an aggregate of 3,895,000 shares of common
stock with a strike price of $27.50 per share to the Series A preferred stock
investors. These warrants would expire four years after the date we issue them.
STOCKHOLDER RIGHTS AGREEMENT
We would enter into an agreement with the Series A preferred stock
investors relating to their rights and obligations as stockholders. The
agreement would include the following provisions:
- Registration Rights: Holders of the Series A preferred stock and warrants
issued with respect thereto would be entitled to certain rights with
respect to the registration of the resale of shares of common stock
issued on conversion or exercise thereof (the "Registrable Securities")
under the Securities Act. We will have an obligation to register part or
all of these shares after the first anniversary of the date we first
issue the Series A preferred stock on up to four occasions if the holders
of at least 20% of the Registrable Securities request that we do so,
provided that we have not already caused a registration statement to go
effective within the last nine months. In addition, we shall extend to
the holders of Registrable Securities the right to include their
securities in registrations initiated by us. These registration rights
would expire six years after we issue the Series A preferred stock.
- Preemptive Rights: We would extend to the holders of at least 750,000
shares of Registrable Securities the right to purchase up to their
pro-rata amount of new securities that we issue, subject to various
exceptions, until five years after we issue the Series A preferred stock.
<PAGE> 5
- Board Observation Rights: We would extend to two investors observation
rights to Board of Directors meetings for so long as each investor holds
at least 1,250,000 Registrable Securities.
- Restrictions on Transfer: The holders of Registrable Securities would
agree to limitations on their ability to transfer our securities under
certain circumstances.
- Company Right of First Refusal: The holders of Registrable Securities
would agree to grant us a right of first refusal to acquire shares of our
capital stock held by them on the terms they would propose to transfer
such securities to third parties.
CO-SALE AGREEMENT
We would enter into an agreement with the Series A preferred stock
investors and certain of our existing stockholders to provide the Series A
preferred stock investors with co-sale rights with respect to prospective
transfers of our securities by the existing stockholders.
b) Financial Data of Amkor and ASI
1) Unaudited Pro Forma Consolidated Financial Data of Amkor
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF AMKOR
The unaudited pro forma consolidated balance sheet as of December 31, 1999
appearing below gives effect to the following proposed transactions as if they
had occurred on December 31, 1999:
- our proposed $410.0 million private placement of our Series A preferred
stock;
- our proposed incurrence of $600.0 million of new secured bank debt;
- our proposed issuance of $425.0 million of convertible subordinated
notes;
- our proposed acquisition of K1, K2 and K3 for $950.0 million;
- our proposed $459.0 million equity investment in ASI;
- ASI's use of the net proceeds from its proposed sale of K1, K2 and K3 and
our proposed investment, principally to repay outstanding debt; and
- the proposed conversion of W150 billion (approximately $132 million) of
ASI's debt to equity by ASI's creditor banks.
The unaudited pro forma, consolidated income statement for the year ended
December 31, 1999 appearing below gives effect to the above proposed and the
following historical transactions for the year ended December 31, 1999 appearing
below as if they occurred on January 1, 1999:
- our acquisition of K4 in May 1999 for $582.0 million and our incurrence
of $625.0 million of long-term debt in connection with that acquisition;
- our W50 billion (approximately $41.6 million) equity investment in ASI in
October 1999;
- the conversion of W98 billion (approximately $82 million) of ASI's debt
into equity by ASI's creditor banks in October 1999; and
- ASI's use of the net proceeds from its sale of K4, principally to repay
outstanding debt.
The unaudited pro forma consolidated financial information appearing below
is not necessarily indicative of the results of operations and financial
condition that we would have achieved if the completed and proposed transactions
described above had actually been consummated on such dates, nor are they
necessarily indicative of the future results and financial condition we will
achieve if the proposed transactions are consummated. In addition, while we
expect that the proposed transactions described above will be consummated on the
terms described in this report, these transactions may not be consummated on
those terms, or at all. Accordingly, our future results and financial condition
could vary significantly from the unaudited pro forma consolidated financial
information appearing below.
We have used the purchase method of accounting in accordance with APB
Opinion No. 16 "Business Combinations" to prepare the accompanying unaudited pro
forma consolidated financial information. Under this method of accounting, we
allocated (1) the $575.0 million aggregate purchase price of K4, plus $7.0
million of assumed employee benefit liabilities and (2) the $950.0 million
aggregate purchase price of K1, K2 and K3, to specific assets acquired based on
their estimated fair values. The purchase price does not include $20.3 million
of transaction expenses incurred in connection with the acquisition of K4 or the
$30.0 million of estimated transaction fees and expenses expected to be incurred
in connection with our proposed acquisition of K1, K2 and K3 and related
financing. The balance of the purchase price both of K4 and of K1, K2 and K3
represents the excess of cost over net assets acquired. We have estimated the
preliminary fair value of K1, K2 and K3 assets based primarily on our knowledge
of this business and on information furnished by ASI. We will determine the
final allocation of the purchase price after the consummation of the acquisition
of K1, K2 and K3 based upon the receipt of an appraisal. We will not complete
all of the work required to fully evaluate the assets acquired by the time of
the closing of the acquisitions. Accordingly, we may not finalize purchase
accounting adjustments for up to one year after the closing of our acquisition
of K1, K2 and K3.
We have used the equity method of accounting in accordance with APB Opinion
No. 18 to prepare the accompanying unaudited pro forma financial information to
give effect to our investment in ASI. Under this method of accounting, our
investment in ASI is carried at cost plus or minus our equity in all increases
or decreases in the investee's net assets after the date of investment. Under
the equity method, net income and stockholders' equity of the investor should be
the same as if the investor fully consolidated the investee. Accordingly, we
have included in the unaudited pro forma consolidated income statement for the
year ended December 31, 1999 the equity in the loss of ASI, including
amortization of the excess of the cost of our investment over the underlying
equity in the net assets at the date of investment.
We have prepared the unaudited pro forma consolidated financial information
in accordance with U.S. GAAP. These principles require us to make extensive use
of estimates and assumptions that affect: (1) the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and (2) the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
<PAGE> 6
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
ACQUISITION PRO FORMA
OF K1, K2 ADJUSTMENTS
K1, K2 AND K3 AND FOR
AMKOR AND K3 OUR INVESTMENT PROPOSED PRO FORMA
HISTORICAL HISTORICAL IN ASI FINANCING AS ADJUSTED
---------- ---------- ----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 98,045 $ -- $ -- $ (90,986)(a) $ 7,059
Short-term investments.................. 136,595 -- -- -- 136,595
Accounts receivable:
Trade................................. 157,281 3,416 (3,416)(b) 71,500(e) 228,781
Due from affiliates................... 6,278 304,762 (304,762)(b) -- 6,278
Other................................. 6,469 3,653 (3,653)(b) -- 6,469
Inventories............................. 91,465 7,984 -- -- 99,449
Other current assets.................... 11,117 2,666 (2,666)(b) -- 11,117
---------- --------- --------- ---------- ----------
Total current assets........... 507,250 322,481 (314,497) (19,486) 495,748
---------- --------- --------- ---------- ----------
Property, plant and equipment, net...... 859,768 404,384 20,616(c) -- 1,284,768
---------- --------- --------- ---------- ----------
Investments............................. 63,672 -- 459,000(j) -- 522,672
---------- --------- --------- ---------- ----------
Other assets:
Due from affiliates................... 27,858 277 (277)(b) -- 27,858
Excess of cost over net assets
acquired............................ 233,532 -- 517,016(d) -- 750,548
Deferred income taxes................. -- 41,656 (41,656)(b) -- --
Other................................. 63,009 4,953 (4,953)(b) 30,000(f) 93,009
---------- --------- --------- ---------- ----------
Total other assets............. 324,399 46,886 470,130 30,000 871,415
---------- --------- --------- ---------- ----------
Total assets................... $1,755,089 $ 773,751 $ 635,249 $ 10,514 $3,174,603
========== ========= ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdraft.......................... $ 16,209 $ -- $ -- $ -- $ 16,209
Short-term borrowings and current
portion of long-term debt............. 6,465 -- -- (6,465)(k) --
Trade accounts payable.................. 122,147 51,360 (51,360)(b) -- 122,147
Due to affiliates....................... 37,913 14,788 (14,788)(b) -- 37,913
Accrued expenses........................ 88,577 13,845 (13,845)(b) -- 88,577
Accrued income taxes.................... 41,587 -- -- -- 41,587
---------- --------- --------- ---------- ----------
Total current liabilities...... 312,898 79,993 (79,993) (6,465) 306,433
Long-term debt.......................... 9,021 -- -- 600,000(g) 600,000
(9,021)(k) --
Due to affiliates....................... -- 124,294 (124,294) -- --
Senior and senior subordinated notes.... 625,000 -- -- -- 625,000
Convertible subordinated notes.......... 53,435 -- -- 425,000(h) 478,435
Other noncurrent liabilities............ 16,994 45,122 (45,122)(b) -- 16,994
---------- --------- --------- ---------- ----------
Total liabilities.............. 1,017,348 249,409 (249,409) 1,009,514 2,026,862
---------- --------- --------- ---------- ----------
Stockholders' equity:
Common stock.......................... 131 -- -- -- 131
Preferred stock....................... -- -- -- 2(i) 2
Warrants to purchase common stock..... -- -- -- 35,000(i) 35,000
Additional paid-in capital............ 551,964 -- -- 374,998(i) 926,962
Receivable from stockholders.......... (3,276) -- -- -- (3,276)
Retained earnings..................... 189,733 -- -- -- 189,733
Unrealized losses..................... (811) -- -- -- (811)
Net assets (liabilities).............. -- 524,342 (524,342)(b) -- --
---------- --------- --------- ---------- ----------
Total stockholders' equity..... 737,741 524,342 (524,342) 410,000 1,147,741
---------- --------- --------- ---------- ----------
Total liabilities and
stockholders' equity......... $1,755,089 $ 773,751 $(773,751) $1,428,535 $3,174,603
========== ========= ========= ========== ==========
</TABLE>
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(a) Represents net cash to be used to acquire K1, K2 and K3, to make the
additional investment in ASI and to pay transaction fees and expenses.
<PAGE> 7
(b) Represents the elimination of those assets and liabilities of K1, K2 and K3
that we will not acquire or assume as part of our proposed acquisition of
K1, K2 and K3.
(c) Represents the excess of the fair value over the book value of the
property, plant and equipment acquired.
(d) Represents the excess of the purchase price for K1, K2 and K3 over the
estimated fair values of the net assets acquired.
(e) Represents the repurchase of accounts receivable to retire our accounts
receivable sales agreement.
(f) Represents transaction fees and expenses, which have been recorded as
deferred financing costs and will be amortized over the debt's term.
(g) Represents the financing of the transactions with $600.0 million of new
secured bank debt.
(h) Represents the proposed issuance of $425.0 million of convertible
subordinated notes.
(i) Represents the issuance of 2,050,000 shares of Series A preferred stock at
$200 per share (convertible into 20,500,000 shares of common stock at
$20.00 per share) and the fair value of the related warrants to purchase
3,895,000 shares of common stock at $27.50 per share.
(j) Represents our additional $459.0 million investment in ASI.
(k) Represents the paydown of existing debt.
<PAGE> 8
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
PRO FORMA ACQUISITION
ADJUSTMENT OF K1, K2
FOR K1, K2 AND K3 AND OUR PRO FORMA
AMKOR K4 ACQUISITION AND K3 INVESTMENT ADJUSTMENT FOR PRO FORMA
HISTORICAL HISTORICAL OF K4 HISTORICAL IN ASI PROPOSED FINANCING AS ADJUSTED
---------- ---------- ------------ ---------- -------------- ------------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $1,909,972 $ 42,582 $(39,353)(a) $435,659 $(407,751)(a) $ -- $1,941,109
Cost of revenues --
including purchases
from ASI.................. 1,577,226 30,725 (39,353)(a) 289,233 (407,751)(a) -- 1,472,235
10,751(b) 51,881(b) --
(4,792)(c) (35,685)(c) --
---------- -------- -------- -------- --------- -------- ----------
Gross profit............ 332,746 11,857 (5,959) 146,426 (16,196) -- 468,874
---------- -------- -------- -------- --------- -------- ----------
Operating expenses:
Selling, general and
administrative.......... 145,233 2,344 -- 16,120 -- -- 163,697
Research and
development............. 11,436 536 -- 3,383 -- -- 15,355
---------- -------- -------- -------- --------- -------- ----------
Total operating
expenses............ 156,669 2,880 -- 19,503 -- -- 179,052
---------- -------- -------- -------- --------- -------- ----------
Operating income........ 176,077 8,977 (5,959) 126,923 (16,196) -- 289,822
---------- -------- -------- -------- --------- -------- ----------
Other (income) expense:
Interest expense, net..... 45,364 24,492 (1,319)(d) (19,091) 19,091(d) 79,420(g) 152,690
-- -- -- -- -- 1,733(h) --
4,549(h) --
(1,549)(h) --
Foreign currency (gain)
loss.................... 308 (16,665) 16,665(d) (582) 582(d) -- 308
Other (income) expense,
net..................... 25,117 113 -- 1,449 -- (4,280)(i) 22,399
---------- -------- -------- -------- --------- -------- ----------
Total other (income)
expense............. 70,789 7,940 15,346 (18,224) 19,673 79,873 175,397
---------- -------- -------- -------- --------- -------- ----------
Income (loss) before
income taxes and
minority interest..... 105,288 1,037 (21,305) 145,147 (35,869) (79,873) 114,425
Provision for (benefit
from) income taxes........ 26,600 -- (5,937)(e) 46,376 (46,376)(f) (182) 20,481
Equity in loss of
investees................. (1,969) -- -- -- (69,971)(j) -- (71,940)
---------- -------- -------- -------- --------- -------- ----------
Net income.............. $ 76,719 $ 1,037 $(15,368) $ 98,771 $ (59,464) $(79,691) $ 22,004
========== ======== ======== ======== ========= ======== ==========
Basic net income
per common share........ $ .64 $ .18
========== ==========
Diluted net income
per common share........ $ .63 $ .16
========== ==========
Shares used in computing
basic net income per
common share............ 119,341 119,341
Shares used in computing
diluted net income per
common share(k).......... 135,067 141,339
</TABLE>
- ---------------
(a) We have eliminated the processing charges that we have paid to ASI for
services performed for us at the K4 and the K1, K2 and K3 facilities under
our supply agreements. Because we currently sell substantially all of K4's
and K1, K2 and K3's services, the net revenue from the sale of these
services to our customers is already reflected in our historical net
revenues.
(b) Represents the amortization of goodwill related to our acquisition of K4 and
our acquisition of K1, K2 and K3, assuming a ten-year life.
(c) Represents change in depreciation expense based on adjusted book values of
acquired property, plant and equipment of K4 and of K1, K2 and K3.
(d) Represents the elimination of interest expense and foreign currency losses
related to the debt of K4 and of K1, K2 and K3 which we have not assumed as
part of the acquisition of K4 and will not assume as part of our acquisition
of K1, K2 and K3. As it relates to the Acquisition of K4, interest expense,
net includes (1) interest expense of $22.2 million on $625 million of senior
and senior subordinated notes at an assumed weighted average interest rate
of 9.65%, (2) $1.0 million of amortization of debt issuance costs, which are
amortized over the life of the respective debt, and (3) net of $24.5 million
of the K4 interest eliminated.
(e) Represents an income tax benefit due to the pro forma adjustments for
interest expense.
<PAGE> 9
(f) Represents the elimination of income tax expenses at K1, K2 and K3 due to
the fact that profits of K1, K2 and K3 will be subject to a tax holiday in
Korea.
(g) Represents (1) interest expense on $600.0 million of new secured bank debt
and on $425.0 million of convertible notes at an assumed weighted average
interest rate of 7.23% and (2) $5.3 million of amortization of debt issuance
costs, which are amortized over the life of the respective debt.
(h) Represents the net interest on funds used to finance the following: (1) our
$41.6 million investment in ASI made in October 1999; (2) cash used to pay
down $15.5 million of our existing debt offset by interest expense
foregone on the same debt and (3) cash used to repurchase accounts
receivable of $71.5 million and to fund transaction costs and expenses.
(i) Represents fees paid by us under our accounts receivable sale agreement.
(j) Represents our equity in the loss of ASI, including $51.5 million of
amortization of the difference between the cost of our investment
over the underlying equity in net assets of ASI, assuming that the
investment occurred on January 1, 1999.
(k) Shares used in computing the diluted pro forma as adjusted net income per
common share for the year ended December 31, 1999 give effect to the
conversion into common stock of our Series A preferred stock we intend to
issue in a private placement and the exercise of outstanding stock options.
On a pro forma as adjusted basis, the conversion of convertible subordinated
notes is not dilutive.
<PAGE> 10
2) SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AMKOR
We have derived the selected historical consolidated financial data
presented below for, and as of the end of, each of the years in the five-year
period ended December 31, 1999 from our consolidated financial statements.
Arthur Andersen LLP, independent public accountants, has audited the
consolidated financial statements as of December 31, 1998 and 1999 and for each
of the years in the three-year period ended December 31, 1999. Their report on
these consolidated financial statements, together with such consolidated
financial statements and the notes thereto, are included elsewhere in this
report. We have derived the selected consolidated financial data presented below
as of December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995
and 1996 from audited consolidated financial statements which are not presented
in this report. You should read the selected consolidated financial data set
forth below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the related notes, included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
-------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.............................................. $932,382 $1,171,001 $1,455,761 $1,567,983 $ 1,909,972
Cost of revenues -- including purchases from ASI.......... 783,335 1,022,078 1,242,669 1,307,150 1,577,226
-------- ---------- ---------- ---------- -----------
Gross profit.............................................. 149,047 148,923 213,092 260,833 332,746
-------- ---------- ---------- ---------- -----------
Operating expenses:
Selling, general and administrative..................... 55,459 66,625 103,726 119,846 145,233
Research and development................................ 8,733 10,930 8,525 8,251 11,436
-------- ---------- ---------- ---------- -----------
Total operating expenses............................ 64,192 77,555 112,251 128,097 156,669
-------- ---------- ---------- ---------- -----------
Operating income.......................................... 84,855 71,368 100,841 132,736 176,077
-------- ---------- ---------- ---------- -----------
Other (income) expense:
Interest expense, net................................... 9,797 22,245 32,241 18,005 45,364
Foreign currency (gain) loss............................ 1,512 2,961 (835) 4,493 308
Other (income) expense, net(a).......................... 6,523 3,150 8,429 9,503 25,117
-------- ---------- ---------- ---------- -----------
Total other (income) expense........................ 17,832 28,356 39,835 32,001 70,789
-------- ---------- ---------- ---------- -----------
Income before income taxes, equity in income (loss) of
investees and minority interest......................... 67,023 43,012 61,006 100,735 105,288
Provision for income taxes(b)............................. 6,384 7,876 7,078 24,716 26,600
Equity in income (loss) of interests(c)................... 2,808 (1,266) (17,291) -- (1,969)
Minority interest(d)...................................... 1,515 948 (6,644) 559 --
-------- ---------- ---------- ---------- -----------
Net income(b)............................................. $ 61,932 $ 32,922 $ 43,281 $ 75,460 $ 76,719
======== ========== ========== ========== ===========
Basic net income per common share......................... $ .75 $ .40 $ .52 $ .71 .64
======== ========== ========== ========== ===========
Diluted net income per common share....................... $ .75 $ .40 $ .52 $ .70 .63
======== ========== ========== ========== ===========
Pro Forma Data (Unaudited)(b):
Historical income before income taxes, equity in income
(loss) of ASI and minority interest..................... $ 67,023 $ 43,012 $ 61,006 $ 100,735
Pro forma provision for income taxes(b)................... 16,784 10,776 10,691 29,216
-------- ---------- ---------- ----------
Pro forma income before equity in income (loss) of
investees and minority interest......................... 50,239 32,236 50,315 71,519
Historical equity in income (loss)of investees(c)......... 2,808 (1,266) (17,291) --
Historical minority interest.............................. 1,515 948 (6,644) 599
-------- ---------- ---------- ----------
Pro forma net income...................................... $ 51,532 $ 30,022 $ 39,668 $ 70,960
======== ========== ========== ==========
Basic pro forma net income per common share............... $ .62 $ .36 $ .48 $ .67
======== ========== ========== ==========
Diluted pro forma net income per common share............. $ .62 $ .36 $ .48 $ .66
======== ========== ========== ==========
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
-------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Shares used in computing basic pro forma net income per
common share............................................ 82,610 82,610 82,610 106,221 119,341
Shares used in computing pro forma diluted net income per
common share............................................ 82,610 82,610 82,610 116,596 135,067
OTHER FINANCIAL DATA:
EBITDA(e)................................................. $104,946 $ 126,043 $ 174,276 $ 241,252 $ 346,495
Depreciation and amortization............................. 26,614 57,825 81,864 119,239 180,332
Capital expenditures...................................... 123,645 185,112 178,990 107,889 242,390
Ratio of earnings to fixed charges(f)..................... 4.6x 2.4x 2.5x 4.4x 2.6x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 91,151 $ 49,664 $ 90,917 $ 227,587 $ 98,045
Short term investments...................................... 0 881 2,521 1,000 136,595
Working capital (deficit)................................... 111,192 36,785 (38,219) 191,383 194,352
Total assets................................................ 626,379 804,864 855,592 1,003,597 1,755,089
Total long-term debt........................................ 326,422 402,338 346,710 221,846 687,456
Total debt, including short-term borrowings and current
portion of long-term debt................................. 411,542 594,151 514,027 260,503 693,921
Stockholders' equity........................................ 45,289 45,812 90,875 490,361 737,741
</TABLE>
- ---------------
(a) In 1999 we recognized a pre-tax loss of $17.4 million as a result of the
early conversion of $153.6 million principal amount of our 5 3/4%
convertible subordinate notes due 2003.
(b) Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Internal Revenue Code of 1986 and
comparable state tax laws. As a result AEI did not recognize any provision
for federal income tax expense during the periods presented. The pro forma
provision for income taxes reflects the U.S. federal income taxes that would
have been recorded if AEI had been a C Corporation during these periods.
(c) In 1997, we recognized a loss of $17.3 million resulting principally from
the impairment of value of our prior investment in ASI, which we sold in
February, 1998.
(d) Represents ASI's 40% interest in the earnings of Amkor/Anam Pilipinas, Inc.
("AAP"), one of our subsidiaries in the Philippines. We purchased ASI's
interest in AAP with a portion of the proceeds from our initial public
offering in May 1998.
(e) We have calculated EBITDA by adding: (1) income before income taxes, equity
in income (loss) of investees and minority interest, (2) foreign currency
(gain) loss, (3) interest expense, net; (4) non-cash other (income)
expense, net and (5) depreciation and amortization. We have included data
concerning EBITDA because we understand that investors use it to evaluate
our historical ability to service debt. EBITDA is not determined in
accordance with U.S. GAAP. EBITDA is not indicative of cash flows from
operating activities, and you should not consider EBITDA in isolation, or
as an alternative to, or more meaningful than, measures of performance
determined in accordance with U.S. GAAP. In addition, EBITDA, as defined
here, may not be comparable to similarly titled measures used by other
companies.
(f) We have calculated the ratio of earnings to fixed charges by dividing (1)
the sum of (x) income (loss) before income taxes, equity in income (loss) of
investees and minority interest plus (y) fixed charges by (2) fixed charges.
Fixed charges consist of interest expense plus one-third of rental expense.
We believe that one-third of rental expense is representative of the
interest factor of rental payments under our operating leases.
<PAGE> 12
3) SELECTED HISTORICAL FINANCIAL DATA OF K1, K2 AND K3
The following table sets forth selected historical income statement and
other financial data of K1, K2 and K3 determined in accordance with U.S. GAAP.
We have derived the selected financial data of K1, K2 and K3 presented below for
each of the years in the three-year period ended December 31, 1999 and as of the
end of each of the years in the three-year period ended December 31, 1999, from
the financial statements of K1, K2 and K3. Samil Accounting Corporation,
independent public accountants, has audited the financial statements as of
December 31, 1997, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999. Their report on these financial statements
together with such audited financial statements and the related notes, are
included elsewhere in this report under the title "Seongsu, Pucheon and Pupyong
Packaging Business of Anam Semiconductor, Inc."
You should read the following table in conjunction with the financial
statements of K1, K2 and K3 and the related notes, included elsewhere in this
report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues(a)........................................... $ 599,575 $409,929 $435,659
Cost of revenues.......................................... 408,435 283,995 289,233
--------- -------- --------
Gross profit.............................................. 191,140 125,934 146,426
--------- -------- --------
Operating expenses:
Selling, general and administrative..................... 45,850 34,567 16,120
Research and development................................ 1,894 1,267 3,383
--------- -------- --------
Total operating expenses........................ 47,744 35,834 19,503
--------- -------- --------
Operating income.......................................... 143,396 90,100 126,923
--------- -------- --------
Other (income) expense:
Interest expense (income), net(b)....................... 5,508 15,882 (19,091)
Foreign currency (gain) loss(c)......................... 70,470 (2,396) (582)
Other (income) expense, net............................. (4,987) (7,541) 1,449
--------- -------- --------
Total other (income) expense.................... 70,991 5,945 (18,224)
--------- -------- --------
Income before income taxes................................ 72,405 84,155 145,147
Provision for (benefit from) income taxes................. (50,452) 30,289 46,376
--------- -------- --------
Net income................................................ $ 122,857 $ 53,866 $ 98,771
========= ======== ========
OTHER FINANCIAL DATA:
EBITDA(d)................................................. $ 264,917 $234,822 $258,926
Depreciation and amortization............................. 116,534 137,181 133,452
Capital expenditures...................................... 145,642 24,345 39,281
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(151,903) $ 6,485 $242,488
Total assets.............................................. 830,633 661,471 773,751
Long-term debt............................................ 181,214 160,032 124,294
Total debt, including short-term borrowings and current
maturities of long-term debt............................ 341,203 197,285 139,082
Net assets................................................ 317,698 365,325 524,342
</TABLE>
<PAGE> 13
- ---------------
(a) Substantially all of K1, K2 and K3's net revenues represent processing
charges that we have paid to K1, K2 and K3 for services performed under our
supply agreements. Because we currently sell substantially all of K1, K2
and K3's services, the net revenues from the sale of K1, K2 and K3 services
to our customers are already reflected in our historical net revenues.
(b) Represents interest expense (income), net on debt of ASI attributable to
K1, K2 and K3's business, based on assumptions deemed reasonable by ASI's
management.
(c) The foreign currency gain in 1997 and foreign currency loss in 1998 are
primarily attributable to the effects of fluctuations in the Korean won
relative to the U.S. dollar on Korean won denominated debt and on foreign
currency forward contracts.
(d) EBITDA is calculated by adding: (1) income before income taxes, (2) foreign
currency (gain) loss, (3) interest expense, net; (4) non-cash other (income)
expense, net and (5) depreciation and amortization. We have included data
concerning EBITDA because we understand that investors use it to evaluate
historical ability to service debt. EBITDA is not determined in accordance
with U.S. GAAP. EBITDA is not indicative of cash flows from operating
activities, and you should not consider EBITDA in isolation, or as an
alternative to, or more meaningful than, measures of performance determined
in accordance with U.S. GAAP. In addition, EBITDA, as defined here, may not
be comparable to similarly titled measures used by other companies.
<PAGE> 14
4) SELECTED HISTORICAL FINANCIAL DATA OF ASI
The following table sets forth the selected historical consolidated
financial data of ASI determined in accordance with U.S. GAAP. We have derived
the selected financial data of ASI presented below for each of the years in the
three-year period ended December 31, 1999 and as of the end of each of the years
in the three-year period ended December 31, 1999, from the consolidated
financial statements of ASI. Samil Accounting Corporation, independent public
accountants, has audited the consolidated financial statements of ASI as of
December 31, 1997, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999. Their report on these consolidated financial
statements, which is based in part on the reports of other independent
accountants, together with such audited consolidated financial statements and
the related notes, are included elsewhere in this report.
The selected income statement data of ASI appearing below, as well as ASI's
consolidated income statements included in this report, present the packaging
and test business of ASI on a discontinued operations basis to reflect the sale
of K4 and the proposed sale of K1, K2 and K3 to our company.
You should read the following table in conjunction with the consolidated
financial statements of ASI and the related notes, included elsewhere in this
report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues(a)...................................... $ 406,937 $ 221,098 $ 285,925
Cost of revenues(b).................................. 314,666 230,478 239,632
---------- ---------- ----------
Gross profit (loss).................................. 92,271 (9,380) 46,293
---------- ---------- ----------
Operating expenses:
Selling, general and administrative................ 84,564 27,328 25,168
Impairment of long-lived assets(c)................. 15,942 273,937 --
Research and development........................... -- 2,064 87
---------- ---------- ----------
Total operating expenses................... 100,506 303,329 25,255
---------- ---------- ----------
Operating income (loss).............................. (8,235) (312,709) 21,038
---------- ---------- ----------
Other (income) expense:
Interest expense, net.............................. 123,781 207,084 179,413
Foreign currency (gain) loss(d).................... (159,897) 142,605 33,198
Impairment loss on loans to affiliates(e).......... -- 122,188 22,646
Guarantee obligation loss(f)....................... -- 97,344 --
Loss on valuation of inventories................... 543 15,140 2,041
Loss (gain) from disposal of investments........... (4,972) (23,082) 601
Other (income) expense, net........................ 4,598 12,808 (24,889)
---------- ---------- ----------
Total other (income) expense............... (35,947) 574,087 213,010
---------- ---------- ----------
Income (loss) from continuing operations before
income taxes, equity in loss of affiliates and
minority interest.................................. 27,712 (886,796) (191,972)
Equity in loss of unconsolidated affiliates.......... (18,137) (66,792) (31,787)
Minority Interest.................................... (1,720) (2,035) --
---------- ---------- ----------
Income (loss) from continuing operations before
income taxes....................................... 7,855 (955,623) (223,759)
Provision (benefit) for income taxes................. 109,894 1,542 (54,000)
---------- ---------- ----------
Income (loss) from continuing operations............. (102,039) (957,165) (169,759)
Discontinued Operations:
Income from discontinued packaging and test
operations (net of income taxes of $0, $0,
$12,408)(g)..................................... 143,469 109,632 130,064
Gain on sale of K4 (net of income taxes of $0, $0,
$14,268)........................................ -- -- 149,560
---------- ---------- ----------
Net income (loss).................................... $ 41,430 $ (847,533) $ 109,865
========== ========== ==========
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $ (984,190) $ (221,798) $ 10,081
Total assets......................................... 2,922,114 1,878,950 1,487,469
Long-term debt(e).................................... 1,096,398 1,892,428 1,304,765
Total debt, including short-term borrowings and
current maturities of long-term debt............... 2,336,674 2,134,494 1,447,975
Net assets (liabilities)............................. 248,795 (615,806) (297,750)
</TABLE>
- ---------------
(a) In 1997, ASI's revenues included approximately $232.6 million from
construction services related to Anam Engineering and Construction Co.,
Ltd. ("Anam Construction"). Anam Construction became insolvent in 1998 and
filed for corporate reorganization. Consequently, ASI deconsolidated Anam
Construction starting in 1998. Revenues related to CMOS wafers manufactured
by ASI were $97.1 million in 1998 and $264.2 million in 1999. Remaining
revenues in 1998 related principally to Anam Instruments Co., Ltd., which
was accounted for using the equity method in 1999 as a result of a decrease
in ASI's ownership percentage.
(b) In January 1998, ASI commenced commercial operations in its wafer
fabrication facility and ramped up operations during that year. As a result,
ASI was not able to fully absorb its fixed manufacturing costs and realized
a $38.9 million loss at the gross profit line.
(c) ASI recognized an impairment loss of $273.9 million related to the wafer
fabrication facility in 1998.
(d) The foreign currency gain in 1997 and loss in 1998 are primarily
attributable to the effects of fluctuations in the Korean won relative to
the U.S. dollar on Korean won denominated debt and on foreign currency
forward contracts.
(e) In 1998 ASI determined that several affiliated companies facing financial
difficulties would not be able to satisfy their obligations to ASI and an
impairment loss was recognized in the amount of $122.2 million and $22.6
million in 1998 and 1999, respectively.
(f) In 1998 ASI recognized a loss related to guarantees provided to affiliated
companies in the amount of $97.3 million.
(g) Represents income from discontinued packaging and test operations (K4 and
K1, K2 and K3).
<PAGE> 16
5) Unaudited Pro Forma Consolidated Financial Data of ASI
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF ASI
The unaudited pro forma consolidated balance sheet of ASI as of December
31, 1999 appearing below gives effect to the following proposed transactions as
if they had occurred on December 31, 1999:
- ASI's proposed sale of K1, K2 and K3 for $950.0 million;
- our proposed $459.0 million equity investment in ASI;
- ASI's use of the net proceeds from its proposed sale of K1, K2 and K3 and
our proposed investment, principally to repay outstanding debt; and
- the proposed conversion of W150 billion (approximately $132 million at
the exchange rate in effect as of December 31, 1999) of ASI's debt to
equity by ASI's creditor banks:
In addition, the unaudited pro forma consolidated income statement of ASI
for the year ended December 31, 1999 appearing below gives effect to the above
proposed and the following historical transactions as if they had occurred on
January 1, 1999:
- ASI's sale of K4 to our company in May 1999 for $582.0 million;
- our W50 billion (approximately $41.6 million) equity investment in ASI in
October 1999;
- the conversion of W98 billion (approximately $82 million) of ASI's debt
into equity by ASI's creditor banks in October 1999; and
- ASI's use of the net proceeds from its sale of K4, principally to repay
outstanding debt.
The unaudited pro forma consolidated financial information of ASI appearing
below is not necessarily indicative of the results of operations and financial
condition that ASI would have achieved if the completed and proposed
transactions described above had actually been consummated on such dates, nor
are they necessarily indicative of the future results and financial condition
ASI will achieve if the proposed transactions are consummated. In addition,
while ASI expects that the proposed transactions described above will be
consummated on the terms described in this offering memorandum, these
transactions may not be consummated on those terms, or at all. Accordingly,
ASI's future results and financial condition could vary significantly from the
unaudited pro forma consolidated financial information appearing below.
The unaudited pro forma consolidated financial information of ASI appearing
below is based on financial statements prepared in accordance with U.S. GAAP.
These principles require the extensive use of estimates and assumptions that
affect: (1) the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and (2) the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
<PAGE> 17
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF ASI
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASI PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
----------- ----------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................................ $ 285,925 $ $ 285,925
Cost of sales.................................... 239,632 239,632
----------- ----------- ------------
Gross profit..................................... 46,293 -- 46,293
----------- ----------- ------------
Operating expenses
Research and development....................... 87 87
Provision for doubtful accounts................ 901 901
Selling and administrative expenses............ 24,267 24,267
----------- ----------- ------------
Total operating expenses............... 25,255 -- 25,255
----------- ----------- ------------
Operating income................................. 21,038 -- 21,038
----------- ----------- ------------
Other (income) expense
Interest income................................ (5,902) (5,902)
Interest expense............................... 185,315 (150,657)(a) 34,658
Foreign currency (gains) loss.................. 33,198 (25,972)(b) 7,226
Loss (gain) from disposal of investments....... 601 601
Loss on valuation of inventories............... 2,041 2,041
Impairment loss on loans to affiliates......... 22,646 22,646
Other, net..................................... (24,889) (24,889)
----------- ----------- ------------
Total other (income) expense........... 213,010 (176,629) 36,381
----------- ----------- ------------
Income (loss) from continuing operations before
income taxes, equity in loss of affiliates..... (191,972) 176,629 (15,343)
Equity in loss of unconsolidated affiliates...... 31,787 -- 31,787
----------- ----------- ------------
Income (loss) from continuing operations before
income taxes................................... (223,759) 176,629 (47,130)
Provision (benefit) for income taxes............. (54,000) 54,402(c) 402
----------- ----------- ------------
Income (loss) from continuing operations......... $ (169,759) $ 122,227 $ (47,532)
=========== =========== ============
PER SHARE DATA:
Basic income (loss) from continuing operations
per common share............................ $ (5.82) $ (0.43)
=========== =========== ============
Diluted income (loss) from continuing operation
per common share............................ $ (5.82) $ (0.43)
=========== =========== ============
Shares used in computing basic net income
(loss) per common share..................... 29,208,739 81,007,520(d) 110,216,259
=========== =========== ============
Shares used in computing diluted net income
(loss) per common share..................... 32,444,636 81,007,520(d) 113,452,206
=========== =========== ============
</TABLE>
- ---------------
(a) Represents the elimination of interest expense related to debt which was
assumed to be paid off and the conversion of debt to equity as follows:
<TABLE>
<S> <C>
Conversion of debt to equity in October 1999.............. $ 82,200
Net cash proceeds from sale of K4 used for debt payment in
May 1999............................................... 520,100
Proposed conversion of debt to equity by ASI's creditor
banks.................................................. 125,400
Portion of proposed equity investment by Amkor to be used
to repay debt.......................................... 309,000
Net cash proceeds from the proposed sale of K1, K2 and K3
available for debt payment............................. 650,000
----------
Total debt assumed to be paid on January 1,
1999............................................. $1,686,700
==========
</TABLE>
(b) Represents the elimination of foreign currency (gain) loss related to won
currency debt which is assumed to be paid off.
<PAGE> 18
(c) Represents income tax expense due to the pro forma adjustments.
(d) Represents adjustments for the number of common shares as follows:
<TABLE>
<S> <C>
Proposed equity investment by Amkor......................... 37,708,974
Proposed debt to equity conversion by creditor banks........ 18,750,000
Increase in the number of shares related to Amkor's equity
investment in October 1999................................ 8,273,973
Increase in the number of shares related to debt to equity
conversion in October 1999................................ 16,274,573
-----------
Total number of shares adjusted................... 81,007,520
===========
</TABLE>
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF ASI
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASI PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets:
Cash and cash equivalents......................... $ 56,469 $ 184,900(a) $ 241,369
Restricted cash................................... 41,086 (2,881)(b) 38,205
Bank deposits..................................... 105,414 105,414
Accounts and notes receivable
Trade, net of allowance for doubtful
accounts..................................... 3,416 3,416
Due from affiliates, net of allowance for
doubtful accounts............................ 29,377 29,377
Other.......................................... 22,797 22,797
Short-term loans to affiliates, net............... 4,464 4,464
Inventories....................................... 41,949 (7,984)(b) 33,965
Other current assets.............................. 6,894 6,894
---------- ----------- ----------
Total current assets...................... 311,866 174,035 485,901
Non-current bank deposits........................... 204 204
Restricted cash..................................... 73 73
Investments
Available for sale................................ 28,128 28,128
Affiliated companies.............................. 18,550 18,550
Long-term receivables
Due from affiliate................................ 250 250
Others............................................ 2,906 2,906
Property, plant and equipment, less accumulated
depreciation...................................... 1,037,935 (398,932)(b) 639,003
Deferred tax asset-noncurrent....................... 53,212 53,212
Other assets........................................ 34,345 (5,690)(b) 28,655
---------- ----------- ----------
Total assets.............................. $1,487,469 $ (230,587) $1,256,882
========== =========== ==========
Current liabilities:
Short-term borrowings............................. $ 69,328 $ $ 69,328
Current portion of long-term debt................. 73,882 (73,882)(d) --
Trade accounts and notes payable.................. 48,902 48,902
Other accounts payable............................ 77,141 77,141
Accrued expenses.................................. 3,850 3,850
Forward contract liability........................ 15,364 15,364
Other current liabilities......................... 13,318 13,318
---------- ----------- ----------
Total current liabilities................. 301,785 (73,882) 227,903
Long-term debt, net of current portion and discounts
on debentures..................................... 875,175 (606,911)(d) 268,264
Long-term obligations under capital leases, net of
current portion................................... 429,590 (410,207)(d) 19,383
Accrued severance benefits, net..................... 48,757 (45,100)(c) 3,657
Liability for loss contingency...................... 129,912 (117,000)(e) 12,912
Other long-term liabilities......................... -- --
---------- ----------- ----------
Total liabilities......................... 1,785,219 (1,253,100) 532,119
---------- ----------- ----------
Total stockholders' equity................ (297,750) 1,022,513(f) 724,763
---------- ----------- ----------
Total liabilities and stockholders'
equity.................................. $1,487,469 $ (230,587) $1,256,882
========== =========== ==========
</TABLE>
<PAGE> 20
- ---------------
(a) Represents the amount to be used for purposes other than the repayment of
debt (see note (d) below).
(b) Represents the assets of K1, K2 and K3 to be sold.
(c) Represents severance benefits to be paid upon sale of K1, K2 and K3.
(d) Represents payment of debt and the proposed conversion of debt to
equity as follows:
<TABLE>
<S> <C>
Proposed conversion of debt to equity by ASI's creditor
banks..................................................... $ 132,000
Portion of proposed equity investment by Amkor to be used
to repay debt............................................. 309,000
Net cash proceeds from the proposed sale of K1, K2 and K3
available for debt payment................................ 650,000*
----------
Total debt assumed to be paid on December 31,
1999............................................ $1,091,000
==========
</TABLE>
<TABLE>
<S> <C> <C>
(*) Proposed sale price..................................... $ 950,000
Less:
- Related taxes....................................... (103,000)
- Severance payment................................... (45,100)
- Payment for guarantee obligation (see (e) below).... (117,000)
- Other operational needs............................. (34,900)
---------
$ 650,000
=========
</TABLE>
(e) Represents the amount to be used for the payment to eliminate guarantee
obligations provided for Anam Construction and Anam Electronics Co., Ltd.
(f) Represents the proposed conversion of approximately $132 million of
ASI's debt to equity by ASI's creditor banks, our proposed $459.0
million equity investment in ASI and a remainder which is principally
comprised of gain on the proposed sale of K1, K2 and K3, net of
related tax expense.
<PAGE> 21
c) 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: (1) the
anticipated growth in the market for our products, (2) our anticipated capital
expenditures and financing needs, (3) our expected capacity utilization rates,
(4) our belief as to our future operating performance, (5) statements regarding
future won/dollar exchange rates, (6) statements regarding the future of our
relationship with ASI and (7) 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 "Risk Factors" and "Business." The following discussion provides
information and analysis of our results of operations for the three years ended
December 31, 1999 and our liquidity and capital resources. You should read the
following discussion in conjunction with "Selected Historical Consolidated
Financial Data of Amkor" and our consolidated financial statements and the
related notes, included elsewhere in this report.
OVERVIEW
From 1995 to 1999, our net revenues increased from $932.4 million to
$1,910.0 million. We generate revenues primarily from the sale of semiconductor
packaging and test services. Historically we performed these services at our
three factories in the Philippines and subcontracted for additional services
with ASI which operated four packaging and test facilities in Korea. In May
1999, we acquired K4, one of ASI's packaging and test facilities, and we intend
to acquire ASI's remaining packaging and test facilities, K1, K2, and K3 during
the second quarter of 2000. Since 1998, we have also generated revenue by
marketing the wafer fabrication services performed by the wafer fabrication
facility owned by ASI. If we complete our proposed acquisition of K1, K2 and K3,
we will no longer depend upon ASI for packaging or test services, but we will
continue to market ASI's wafer fabrication services.
Historically, prices for our packaging and test services and wafer
fabrication services have declined over time. Beginning in 1997, a worldwide
slowdown in demand for semiconductor devices led to excess capacity and
increased competition. As a result, price declines in 1998 accelerated. From
1996 through 1999, we were able to partially offset the effect of price declines
by successfully developing and marketing new packages with higher prices, such
as advanced leadframe and laminate packages. We cannot assure you that we will
be able to offset any such price declines in the future. In addition, beginning
in the third quarter of 1999, demand for packaging and test services increased
significantly, which reduced the decline in average selling prices.
We depend on a small group of customers for a substantial portion of our
revenues. In 1997, 1998 and 1999, we derived 40.1%, 35.3% and 30.6,
respectively, of our net revenues from sales to five packaging and test
customers, with 23.4%, 20.6% and 14.1% of our net revenues, respectively,
derived from sales to Intel Corporation. In addition, during 1998 and 1999, we
derived 7.4% and 15.3%, respectively, of our net revenues from wafer fabrication
services, and we derived substantially all of these revenues from Texas
Instruments.
Historically, our cost of revenues has consisted principally of: (1)
service charges paid to ASI for packaging and test services performed for us,
(2) costs of materials and (3) labor and other costs at our factories in the
Philippines and at K4 after our acquisition of that factory in May 1999. Service
charges paid to ASI and our gross margins on sales of services performed by ASI
have been set in accordance with our supply agreements with ASI, which provide
for periodic pricing adjustments based on changes in forecasted demand, product
mix, capacity utilization and fluctuations in exchange rates, as well as our
mutual long-term strategic interests. Fluctuations in service charges we pay to
ASI have historically had a significant effect on our gross margins. In
addition, our gross margins on sales of services performed by ASI have generally
been lower than our gross margins on sales of services performed by our
factories in the Philippines, but we have not borne any of ASI's fixed costs. If
we complete our proposed acquisition of
<PAGE> 22
K1, K2 and K3 from ASI, we will bear all of the costs associated with these
factories, but we will no longer pay service charges to ASI for packaging and
test services. We will continue to incur costs of direct materials used in
packages that we produce for our customers. Because a portion of our costs at
our factories in the Philippines and Korea will remain fixed, increases or
decreases in capacity utilization rates may continue to have a significant
effect on our gross profit. The unit cost of packaging and test services
generally decreases as fixed charges, such as depreciation expense on our
equipment, are allocated over a larger number of units produced.
In order to meet customer demand for our laminate packages, we have made
significant investments to expand our capacity in the Philippines. In connection
with our newest factory in the Philippines, P3, in 1996 we expensed $15.5
million of pre-operating and start-up costs and in the first six months of 1997
we incurred $16.6 million of initial operating losses. This factory operated at
substantially less than full capacity during these periods while our customers
were completing qualification procedures for the production of laminate packages
at this factory. During the last six months of 1997 and in 1998 and in 1999, we
significantly increased utilization at P3 due to continued growth in demand for
laminate packages. As a result, P3 contributed positive gross margins throughout
1998 and 1999.
Relationship with ASI
Through our supply agreements with ASI, we historically have had a first
right to substantially all of the packaging and test services capacity of ASI
and the exclusive right to all of the wafer output of ASI's wafer fabrication
facility. During 1997, 1998 and 1999, we derived approximately 68%, 69% and 60%,
respectively, of our net revenues and approximately 42%, 49% and 38%,
respectively, of our gross profit from sales of services performed for us by
ASI. In addition, ASI has derived nearly all of its revenues from services sold
by us. Historically, ASI has directly sold packaging and test services in Japan
and Korea. In January 1998, we assumed the marketing rights for packaging and
test services in Japan from ASI, and we expect to assume marketing rights for
such services in Korea upon completion of our proposed acquisition of K1, K2 and
K3. In January 1998, we also began marketing wafer fabrication services provided
by ASI's new semiconductor wafer fabrication facility.
Upon completion of our proposed acquisition of K1, K2 and K3, we will no
longer receive any packaging and test services from ASI. However, we expect to
continue to have certain contractual and other business relationships with ASI,
primarily our wafer fabrication services supply agreement. Under this supply
agreement, we will continue to have the exclusive right to all of the wafer
output of ASI's wafer fabrication facility, and we expect to continue to
purchase all of ASI's wafer fabrication services. Furthermore, we will own
approximately 43% of ASI's outstanding voting stock after our investment in ASI
and the anticipated conversion of an additional W150 billion (approximately
$132.0 million) of ASI's debt to equity by ASI's creditor banks. Accordingly, we
will report ASI's results in our financial statements through the equity method
of accounting. Our company and ASI will also continue to have close ties due to
our overlapping ownership and management.
For more information concerning our relationship with ASI, you should read
"Risk Factors -- Relationship with ASI," "Risk Factors -- Potential Conflicts of
Interest with ASI," "Our Acquisition of ASI's Packaging and Test Business and
Investment in ASI" and "-- Liquidity and Capital Resources."
Financial Impact of Our Acquisition of K1, K2 and K3 and Investment in ASI on
Our Results of Operations
If we complete our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, we expect there will be significant changes in our future
financial results. Because we already sell substantially all of the output of
K1, K2 and K3, there will not be a significant change in our revenues. We expect
our gross margin to increase significantly as the K1, K2 and K3 factories would
no longer be subject to our supply agreement with ASI. The factories that we
currently own operate with gross margins significantly higher than the margins
we achieve under our supply agreement with ASI. However, our operating expenses
will increase as we will absorb the research and development, general and
administrative expenses
<PAGE> 23
related to the operations of K1, K2 and K3. Our interest expense will also
increase due to the debt we will incur to finance our proposed acquisition and
investment. We expect our overall effective tax rate to decrease due to the fact
that the profits of K1, K2 and K3 will be subject to a tax holiday in Korea. The
tax holiday will apply to 100% of the profits of K1, K2 and K3 for seven years
and then to 50% of such profits for three additional years. Because of our
equity investment in ASI, we will be required to record our increased
proportionate share of ASI's net income, net of the amortization of goodwill
incurred in the acquisition of our equity interest in ASI.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Gross profit................................................ 14.6% 16.6% 17.4%
Operating income............................................ 6.9% 8.5% 9.2%
Income before income taxes, equity in income (loss) of
investees and minority interest........................... 4.2% 6.4% 5.5%
Net income.................................................. 3.0% 4.8% 4.0%
EBITDA...................................................... 12.1% 15.5% 18.1%
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Net revenues increased $342.0 million, or 21.8%, to $1,910.0
million in 1999 from $1,568.0 million in 1998. Packaging and test net revenues
increased 11.4% to $1,617.2 million in 1999 from $1,452.3 million in 1998. For
the same one-year periods, wafer fabrication net revenues increased to $292.7
million from $115.7 million.
The increase in packaging and test net revenues was primarily attributable
to a significant increase in unit volumes, which more than offset significant
average selling price erosion across all product lines. The average selling
price erosion was most severe in the second half of 1998 and has slowed during
1999 due to increases in product demand and decreases in excess factory
capacity. Offsetting this erosion in average selling prices was an overall unit
volume increase of approximately 30%. Growth in demand for our services was
driven by our customers in the PC and telecommunications industries.
Particularly strong was the demand for packages used in cellular phones and
internet enabling equipment. In addition, changes in the mix of products we are
selling, to more advanced and laminate packages, also provided an offset to
overall price erosion. During 1999, advanced and laminate packages, which have
higher average selling prices than traditional leadframe products, accounted for
60.2% of packaging and test net revenues compared to 53.8% in 1998.
The significant increase in wafer fabrication net revenues represents the
production ramp-up of the wafer fabrication facility, which began operation in
January 1998 and did not commence producing at near full installed capacity
until the beginning of 1999. ASI plans to expand the capacity of the wafer
fabrication facility from 18,000 wafers to 22,000 wafers per month by the end of
the first quarter of 2000.
Gross Profit. Gross profit increased $71.9 million, or 27.6%, to $332.7
million, or 17.4% of net revenues, in 1999 from $260.8 million, or 16.6% of net
revenues, in 1998.
Gross margins were positively impacted by:
- Improved gross margin on the output of K4 following our acquisition of K4
in May 1999.
- Increasing unit volumes during the third and fourth quarter of 1999,
which permitted better absorption of our factories' substantial fixed
costs, resulting in a lower manufacturing cost per unit and improved
gross margins.
<PAGE> 24
The positive impact on gross margins was partially offset by:
- Increasing contribution to total revenues from our low margin wafer
fabrication services business. In 1999 wafer fabrication services net
revenues represented 15.3% of total net revenues compared to 7.4% of
total net revenues in 1998. In addition, beginning in 1999, our
contractual gross margin for this business under our supply agreement
with ASI was reduced to 10% from 15% in 1998; and
- Significant average selling price erosion across all product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $25.4 million, or 21.2%, to $145.2 million, or
7.6% of net revenues, in 1999 from $119.8 million, or 7.6% of net revenues, in
1998. The increase in these costs was due to:
- Increased headcount and related personnel costs at our marketing, sales
and wafer fabrication departments;
- Increased headcount and related personnel costs at our P3 factory, which
continued to increase production capacity; and
- Increased costs related to the consolidation of K4 factory operations
during the second quarter of 1999 and general and administrative
expenses, including fees paid to ASI under the transition services
agreement.
Research and Development. Research and development expenses increased $3.2
million, or 38.6%, to $11.4 million, or 0.6% of net revenues, in 1999 from $8.3
million, or 0.5% of net revenues, in 1998. Increased research and development
expenses resulted from increased headcount and general development activities,
primarily the expansion of our Chandler, Arizona-based research facility.
Other (Income) Expense. Other expenses increased $38.8 million, or 121.2%,
to $70.8 million, or 3.7% of net revenues, in 1999 from $32.0 million, or 2.0%
of net revenues, in 1998. The net increase in other expenses was primarily a
result of:
- Increase in interest expense of $27.4 million. The increased interest
expense resulted from the May 1999 issuance of senior and senior
subordinated notes to fund the K4 acquisition, which more than offset the
decrease in interest expense resulting from the application of the
proceeds from our initial public offering in May 1998 against outstanding
debt;
- Decrease in foreign exchange losses of $4.2 million resulting from the
stabilization of the Philippine peso since the first quarter of 1998; and
- Increase in other expenses, which in 1999 included a $17.4 million
non-cash charge associated with the early conversion of $153.6 million of
our outstanding convertible subordinated notes in the fourth quarter.
Income Taxes. Our effective tax rate in 1999 and 1998 was 25.3% and 29.0%,
respectively (after giving effect to the pro forma adjustment for income taxes).
The decrease in the effective tax rate in 1999 was due to the higher operating
profits at our factories that operate with tax holidays.
We have structured our global operations to take advantage of lower tax
rates in certain countries and tax incentives extended to encourage investment.
The tax returns for open years are subject to changes upon final examination.
Changes in the mix of income from our foreign subsidiaries, expiration of tax
holidays and changes in tax laws and regulations could result in increased
effective tax rates for us.
Minority Interest. Minority interest represented ASI's ownership in the
consolidated net income of Amkor/Anam Pilipinas, Inc. ("AAP"). Accordingly,
until the second quarter of 1998, we recorded a minority interest expense in our
consolidated financial statements relating to the minority interest in the net
income of AAP. In the second quarter of 1998, we purchased ASI's 40% interest in
AAP and, as a result, we now own substantially all of the common stock of AAP.
The acquisition of the minority interest resulted in the elimination of the
minority interest liability and in additional goodwill amortization of
approximately $2.5 million per year.
<PAGE> 25
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Revenues. Net revenues increased $112.2 million, or 7.7%, to $1,568.0
million in 1998 from $1,455.8 million in 1997. Packaging and test net revenues
were relatively unchanged in 1998 compared to 1997. However, net revenues from
wafer fabrication services have ramped up since operations began in January 1998
and accounted for substantially all of the increase in net revenues. In
addition, beginning in January 1998, we assumed marketing rights for packaging
and test services in Japan from ASI.
Total unit volumes increased during 1998 compared to 1997. This increase
was primarily due to increases in volumes of laminate packages, which more than
doubled compared to 1997. Our advanced leadframe packages also increased in
volume, but unit volumes for traditional leadframe packages declined. Although
traditional leadframe packages accounted for more than 65% of our total unit
volume for 1998, the shift to laminate packages significantly impacted revenues
because each laminate package had an average selling price significantly higher
than the average selling price of a traditional leadframe package. Laminate and
advanced leadframe packages accounted for 53.8% of packaging and test net
revenues in 1998 compared to 38.7% in 1997. This trend was consistent throughout
1998.
Gross Profit. Gross profit increased $47.7 million, or 22.4%, to $260.8
million in 1998 from $213.1 million in 1997. Gross margin improved to 16.6% in
1998 from 14.6% in 1997. The following factors contributed to higher gross
margins in 1998:
- Gross margins on packaging and test services provided by ASI improved as
a result of the supply agreements entered into in January 1998;
- Gross margins at P3, which incurred significant pre-operating and
start-up costs and initial operating losses in the first half of 1997,
improved primarily as a result of increased volumes and better absorption
of fixed costs; and
- Gross margins improved as a result of the positive impact from wafer
fabrication revenues during 1998 compared to no revenue from wafer
fabrication in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $16.1 million, or 15.5%, to $119.8 million in
1998 from $103.7 million in 1997. Selling, general and administrative expenses
as a percentage of net revenues increased to 7.6% in 1998 from 7.1% in 1997. The
increase was primarily due to: (1) higher administrative expenses at P3 as unit
volumes continued to increase and (2) costs related to wafer fabrication
services, which began in January 1998.
Research and Development Expenses. Research and development expenses
decreased $0.3 million, or 3.2%, to $8.3 million in 1998 from $8.5 million in
1997. Research and development expenses as a percentage of net revenues
decreased to 0.5% in 1998 from 0.6% in 1997.
Other (Income) Expense. Other (income) expense decreased $7.8 million to
$32.0 million in 1998 from $39.8 million in 1997. The decline was primarily due
to a reduction in net interest expense of $14.2 million to $18.0 million in 1998
from $32.2 million in 1997. We used a portion of the proceeds from our initial
public offering in May 1998 to repay much of our outstanding debt. Additionally,
we accumulated a significant cash balance. An increase in foreign exchange
losses, due to fluctuations in the Philippine peso, partly offset lower interest
expense.
Income Taxes. Our effective tax rate, after giving effect to the pro forma
adjustment for income taxes, was 29.0% in 1998 compared to an effective tax rate
of 17.5% in 1997. The lower effective tax rate in 1997 was due to the
recognition of deferred tax assets on currency losses for Philippine tax
reporting purposes, which are not recognized for financial reporting purposes.
This decrease was offset by increases in the effective rate resulting from
non-deductible losses at P3 where we have a tax holiday until the end of 2002.
To the extent P3 is profitable, our effective tax rate related to our operations
in the Philippines during this tax holiday will be less than the statutory rate
of 35% in the Philippines. In 1997 we recognized deferred tax benefits from
unrealized foreign exchange losses which are recognized in the Philippines for
tax reporting purposes and relate to unrecognized net foreign exchange losses on
U.S. dollar denominated monetary assets and liabilities. These losses are not
recognized for financial reporting purposes because the
<PAGE> 26
U.S. dollar is our functional currency. These losses will be realized for tax
reporting purposes in the Philippines upon settlement of the related asset or
liability. The benefit derived from unrealized foreign exchange losses was
partially offset by an increase in the valuation allowance. We concluded that it
was more likely than not that we could realize a portion of these tax benefits
in the Philippines within the three year loss carryforward period. We recorded a
valuation allowance for the remaining tax benefits where we could not reach such
a conclusion.
Equity in Income (Loss) of ASI. In 1997, we recognized a loss of $17.3
million resulting principally from the impairment of value in our investment in
ASI. In February 1998, we disposed of our investment in ASI's common stock.
Minority Interest. Minority interest represented ASI's ownership in the
consolidated net income of AAP, one of our subsidiaries in the Philippines.
During 1997, as a result of a settlement of an intercompany loan, which
otherwise had no effect on our combined pretax income, AAP reported a net loss
as a separate entity. Accordingly, we recorded a minority interest benefit in
our consolidated financial statements related to the minority interest in the
net loss.
In the second quarter of 1998, we purchased ASI's 40% interest in AAP, and,
as a result, we now own substantially all of the common stock of AAP. The
purchase of the minority interest resulted in the elimination of the minority
interest liability and goodwill amortization of approximately $2.5 million per
year.
QUARTERLY RESULTS
The table below sets forth unaudited consolidated financial data, including
as a percentage of net revenues, for the last eight fiscal quarters ended
December 31, 1999. Our results of operations have varied and may continue to
vary from quarter to quarter and are not necessarily indicative of the results
of any future period. In addition, in light of our recent growth, including as a
result of our acquisition of the K4 packaging and test factory from ASI in May
1999, we believe that you should not rely on period-to-period comparisons as an
indication of our future performance.
We believe that we have included in the amounts stated below all necessary
adjustments, consisting only of normal recurring adjustments, to present fairly
our selected quarterly data. You should read our selected quarterly data in
conjunction with our consolidated financial statements and the related notes,
included elsewhere in this report.
Our net revenues, gross profit and operating income are generally lower in
the first quarter of the year as compared to the fourth quarter of the preceding
year primarily due to the combined effect of holidays in the U.S., the
Philippines and Korea. Semiconductor companies in the U.S. generally reduce
their production during the holidays at the end of December which results in a
significant decrease in orders for packaging and test services during the first
two weeks of January. In addition, we typically close our factories in the
Philippines for holidays in January, and we and ASI close our factories in Korea
for holidays in February.
The semiconductor industry experienced a general slowdown during 1998. As a
result, our packaging and test net revenues decreased by 3.5% from the first
quarter of 1998 to the fourth quarter of 1998. The decrease in packaging and
test net revenue was offset by significant growth in net revenues from wafer
fabrication services. Net revenues from wafer fabrication services, which
represented less than 1% of net revenues in the first quarter of 1998, increased
to 16.4% of net revenues in the fourth quarter of 1998.
<PAGE> 27
In May 1999 we purchased the K4 factory from ASI. The acquisition resulted
in improved gross margins due to the difference in margins between company-owned
factories and factory services provided by ASI under our supply agreement. To
purchase K4, we issued $625 million of senior and senior subordinated notes.
This has resulted in increased interest expense.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ $371,733 $384,724 $386,718 $424,808 $ 419,957 $449,925 $501,816 $538,274
Cost of revenues -- including
purchases from ASI................ 310,056 317,106 321,758 358,230 357,382 383,162 404,327 432,355
-------- -------- -------- -------- --------- -------- -------- --------
Gross profit.................... 61,677 67,618 64,960 66,578 62,575 66,763 97,489 105,919
-------- -------- -------- -------- --------- -------- -------- --------
Operating expenses:
Selling, general and
administrative.................. 28,715 28,939 30,017 32,175 30,106 35,017 40,376 39,734
Research and development.......... 2,057 1,938 2,109 2,147 2,251 2,843 2,990 3,352
-------- -------- -------- -------- --------- -------- -------- --------
Total operating expenses.... 30,772 30,877 32,126 34,322 32,357 37,860 43,366 43,086
-------- -------- -------- -------- --------- -------- -------- --------
Operating income.................... 30,905 36,741 32,834 32,256 30,218 28,903 54,123 62,833
-------- -------- -------- -------- --------- -------- -------- --------
Net income.......................... $ 8,812 $ 26,119 $ 20,874 $ 19,655 $ 18,925 $ 11,520 $ 26,088 20,186
======== ======== ======== ======== ========= ======== ======== ========
Pro forma net income................ $ 9,640 $ 20,791
======== ========
Basic net income per common share... $ .11 $ .25 $ .18 $ .17 $ .16 $ .10 $ .22 $ .16
======== ======== ======== ======== ========= ======== ======== ========
Diluted net income per common
share............................. $ .11 $ .24 $ .17 $ .16 $ .16 $ .10 $ .21 $ .16
======== ======== ======== ======== ========= ======== ======== ========
Basic pro forma net income per
common share...................... $ .12 $ .20
======== ========
Diluted pro forma net income per
common share...................... $ .12 $ .19
======== ========
EBITDA.............................. $ 53,955 $ 63,820 $ 61,854 $ 61,628 $ 61,700 $ 67,504 $102,855 $114,436
======== ======== ======== ======== ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues -- including
purchases from ASI................. 83.4 82.4 83.2 84.3 85.1 85.2 80.6 80.3
----- ----- ----- ----- ----- ----- ----- -----
Gross profit..................... 16.6 17.6 16.8 15.7 14.9 14.8 19.4 19.7
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative................... 7.7 7.5 7.8 7.6 7.2 7.8 8.0 7.4
Research and development........... 0.6 0.5 0.5 0.5 0.5 0.6 0.6 .6
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses..... 8.3 8.0 8.3 8.0 7.7 8.4 8.6 8.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income..................... 8.3 9.6 8.5 7.6 7.2 6.4 10.8 11.7
----- ----- ----- ----- ----- ----- ----- -----
Net income........................... 2.4% 6.8% 5.4% 4.6% 4.5% 2.6% 5.2% 3.8%
===== ===== ===== ===== ===== ===== ===== =====
Pro forma net income................. 2.6% 5.4%
===== =====
EBITDA............................... 14.5% 16.6% 16.0% 14.5% 14.7% 15.0% 20.5% 21.3%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Code and comparable state tax laws. As a
result, AEI did not recognize any provision for federal income tax expense from
January 1, 1994 through April 28, 1998. In accordance with applicable SEC
regulations, we have provided in our consolidated financial statements the pro
forma adjustments for income taxes (unaudited) to reflect the additional U.S.
federal income taxes which we would have recorded if AEI had been a C
Corporation during these periods.
Our operating results have varied significantly from period to period and
may continue to vary in the future due to a variety of factors. For more
information on the risks affecting our operating results, see the
<PAGE> 28
risk factors entitled "Declining Average Selling Prices," "Dependence on Highly
Cyclical Semiconductor and Electronic Products Industries," "Relationship with
ASI," "Absence of Backlog," "Customer Concentration," "Risks Associated with Our
Wafer Fabrication Business," "Rapid Technological Change," "Competition" and
"Protection of Intellectual Property."
LIQUIDITY AND CAPITAL RESOURCES
Our ongoing primary cash needs are for equipment purchases, factory
expansions, interest and principal payments on our debt and working capital, in
addition to our acquisitions and investments.
In February 2000, we reached an agreement with ASI to acquire K1, K2 and K3
for a purchase price of approximately $950.0 million and to make a $459.0
additional investment in ASI. This agreement supersedes our remaining commitment
to invest $108.4 million in ASI, out of the total $150 million we committed to
invest. We intend to finance our proposed acquisition and investment with the
proceeds of this offering, our proposed $410.0 million equity financing, $600.0
million of new secured bank debt and cash on hand. The new secured bank debt
will be drawn from a new $800.0 million secured bank facility (which will
include a $200.0 million unused revolving credit line), which will provide for
amortization of the drawn amount over a five-year period and quarterly principal
and interest payments. See "Our Acquisition of ASI's Packaging and Test Business
and Investment in ASI -- Proposed Financing."
In May 1998, we consummated our initial public offering of 35,250,000
shares of common stock and $207 million principal amount of convertible
subordinated notes due May 1, 2003. We used the net proceeds of approximately
$558 million primarily to repay approximately $264 million of short-term and
long-term debt and approximately $86 million of amounts due to Anam USA, Inc., a
wholly-owned financing subsidiary of ASI, and to purchase for $34 million ASI's
40% interest in AAP. The remaining amount of net proceeds was available for
capital expenditures and working capital.
On May 17, 1999 we completed an asset purchase of ASI's newest and largest
packaging and test factory, K4, excluding cash and cash equivalents, notes and
accounts receivables, intercompany accounts and existing claims against third
parties. The purchase price for K4 was $575 million, plus the assumption of
approximately $7 million of employee benefit liabilities. In conjunction with
our purchase of K4, we completed a private placement in May 1999 to raise $425
million in senior notes and $200 million in senior subordinated notes. The
senior notes mature in May 2006 and have a coupon rate of 9.25%. The senior
subordinated notes mature in 2009, and have a coupon rate of 10.5%. We are
required to pay interest semi-annually in May and November for all of the notes.
Under the terms of our trade receivables securitization agreement, a
commercial financial institution is committed to purchase, with limited
recourse, all right, title and interest in up to $100 million in eligible
receivables, as defined in the agreement. In connection with our proposed
incurrence of new secured bank debt for the proposed acquisition of K1, K2 and
K3 and the proposed investment in ASI, we plan to terminate this agreement.
We have invested significant amounts of capital to increase our packaging
and test services capacity. During the last three years we have constructed our
P3 factory, added capacity in our other factories in the Philippines and
constructed a new research and development facility in the U.S. In 1997, 1998
and 1999, we made capital expenditures of $179.0 million, $107.9 million and
$242.4 million, respectively. We intend to spend approximately $300 million in
additional capital expenditures in 2000, primarily for the expansion of our
factories. We believe the increase in capital expenditures is necessary to
expand our capacity to meet the growth in demand we expect in 2000. If we
acquire the K1, K2 and K3 factories, we could incur significant additional
capital expenditures.
During the second quarter of 1999, we executed a letter with ASI committing
to make a $150 million equity investment in ASI. Our commitment required that we
invest this amount in installments of approximately $41 million in each of 1999,
2000 and 2001 and $27 million in 2002. In October, 1999 we made our initial
investment in ASI. We purchased 10 million shares of common stock at price of
W5,000 per share, or approximately $41.6 million dollars. As a result of this
investment and the conversion of
<PAGE> 29
ASI's debt to equity by ASI's creditor banks, we now own approximately 18% of
ASI's voting stock. The remaining portion of this commitment has been superseded
by our new agreement to invest an additional $459.0 million in ASI.
At December 31, 1999, our debt consisted of $625 million of senior and
senior subordinated notes, $6.5 million of borrowings classified as current
liabilities, $9.0 million of long-term debt and capital lease obligations and
$53.4 million of 5.75% convertible subordinated notes due 2003. We had $85.6
million in borrowing facilities with a number of domestic and foreign banks, of
which $82.2 million remained unused. These facilities are typically revolving
lines of credit and working capital facilities that are renewable annually and
bear interest at rates ranging from 8.0% to 10.75%. Long-term debt and capital
lease obligations outstanding have various expiration dates through April 2004
and bear interest at rates ranging from 5.8% to 13.8%.
Covenants in the agreements governing our new $800 million secured bank
facility, our existing $425 million of senior notes and $200 million of senior
subordinated notes and any future indebtedness may materially restrict our
operations, including our ability to incur debt, pay dividends, make certain
investments and payments and encumber or dispose of assets. In addition,
financial covenants contained in agreements relating to our existing and future
debt could lead to a default in the event our results of operations do not meet
our plans. A default under one debt instrument may also trigger cross-defaults
under our other debt instruments. An event of default under any debt instrument,
if not cured or waived, could have a material adverse effect on us.
Net cash provided by operating activities in 1997, 1998 and 1999 was $250.1
million, $238.0 million and $293.3 million, respectively. Net cash provided by
(used in) financing activities in 1997, 1998 and 1999 was $(16.0) million, $62.0
million and $573.9 million, respectively.
In the fourth quarter of 1999, the holders of our convertible subordinated
notes converted $153.6 million of such notes into 12.1 million shares of common
stock. In the fourth quarter 1999, we incurred a non-cash after-tax charge of
approximately $13.9 million representing the fair market value of the shares of
common stock issued in the conversion in excess of the shares required to be
issued, which represents a premium for early retirement. In the first quarter of
2000 we expect to incur a similar charge in the amount of $0.3 million.
Following our proposed acquisition of K1, K2 and K3 and our proposed
investment in ASI, we believe that our existing cash balances, available credit
lines, cash flow from operations and available equipment lease financing will be
sufficient to meet our projected capital expenditures, debt service, working
capital and other cash requirements for at least the next twelve months. We may
require capital sooner than currently expected. We cannot assure you that
additional financing will be available when we need it or, if available, that it
will be available on satisfactory terms. In addition, the terms of the senior
and senior subordinated notes sold by us in May 1999 significantly reduce our
ability to incur additional debt. Failure to obtain any such required additional
financing could have a material adverse effect on our company.
In connection with our wafer fabrication facility agreement with Texas
Instruments, our company and Texas Instruments agreed to revise certain payment
and other terms contained in the Texas Instruments Manufacturing and Purchase
Agreement. As part of the revision, Texas Instruments agreed to advance our
company $20 million in June 1998 and another $20 million in December 1998. These
advances represented prepayments of wafer fabrication facility services to be
provided in the fourth quarter of 1998 and first quarter of 1999, respectively.
We recorded these amounts as accrued expenses. In turn, we advanced these funds
to ASI as prepayment for fabrication facility service charges. We completely
offset the first $20 million advance to ASI against billings for wafer
fabrication services performed for us by ASI in the fourth quarter of 1998 and
offset the second $20 million advance to ASI against billings for wafer
fabrication services performed for us by ASI in the first quarter of 1999. Under
the terms of the revision to the Texas Instruments Manufacturing and Purchase
Agreement, we remain ultimately responsible for reimbursing Texas Instruments if
ASI fails to comply with the terms of the agreement.
<PAGE> 30
Subchapter S Taxes and Distributions
Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Code and comparable state laws. As a
result, ASI did not recognize any provision for federal income tax expense prior
to April 28, 1998. Instead, up until the date the S Corporation status of AEI
terminated, Mr. and Mrs. James Kim and certain trusts established for the
benefit of other members of Mr. and Mrs. 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. Under certain tax
indemnification agreements, we are 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 April
28, 1998. The agreements in turn provide that, under certain circumstances, we
will indemnify such stockholders if they are required to pay additional taxes or
other amounts attributable to taxable years for which AEI filed 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 and $33.1 million in 1997 and
1998, respectively. As a result of the finalization of the AEI tax returns in
1999, approximately $3.3 million of the 1998 distributions will be refunded to
our company.
YEAR 2000 ISSUES
We have been actively engaged in addressing year 2000 issues. These issues
occur because many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may not be
able to distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
At the date of this report, our systems have not experienced any year 2000
problems. We presently believe that the year 2000 problem will not pose
significant operational problems for our business and operations on a going
forward basis. While we have contingency plans in place for operational problems
which may still arise as a result of year 2000 problems, we cannot assure you
that the year 2000 problem will not pose significant operational problems or
have a material adverse effect on our business, financial condition and results
of operations in the future. Through the date of this report, costs incurred for
year 2000 compliance have not been material.
We are not aware of any material year 2000 problems encountered by our
suppliers to date but have not yet obtained confirmations from our suppliers
that they did not experience year 2000 problems. Accordingly, we cannot
determine whether our suppliers have experienced year 2000 problems that may
impact their ability to supply us with equipment and services. Further, we
cannot determine the state of their year 2000 readiness. We cannot assure you
that our suppliers will be successful in ensuring that their systems have been
and will continue to be or will be year 2000 compliant or that their failure to
do so will not harm our business.
MARKET RISK SENSITIVITY
Our company is exposed to market risks, primarily related to foreign
currency and interest rate fluctuations. In the normal course of business, we
employ established policies and procedures to manage the exposure to
fluctuations in foreign currency values and changes in interest rates.
Foreign Currency Risks
Our company's primary exposures to foreign currency fluctuations is
associated with Philippine peso-based transactions and related peso-based assets
and liabilities, as well as Korean-won based transactions and related won-based
assets and liabilities. The objective in managing this foreign currency exposure
is to minimize the risk through minimizing the level of activity and financial
instruments denominated in pesos and won. Although we have selectively hedged
some of our currency exposure through short-term
<PAGE> 31
(generally not more than 30 to 60 days) forward exchange contracts, the hedging
activity to date has been immaterial.
At December 31, 1999, the peso-based financial instruments primarily
consisted of cash, non-trade receivables, deferred tax assets and liabilities,
non-trade payables, accrued payroll, taxes and other expenses. Based on the
portfolio of peso-based assets at December 31, 1999, a 20% increase in the
Philippine peso to U.S. dollar exchange rate would result in a decrease of
approximately $3 million, in peso-based net assets.
At December 31, 1999, the won based financial instruments primarily
consisted of cash, non-trade receivables, non-trade payables, accrued payroll,
taxes and other expenses. Based on the portfolio of won-based assets at December
31, 1999, a 20% increase in the Korean won to U.S. dollar exchange rate would
result in a decrease of less than $1 million, in won-based net assets.
Interest Rate Risks
Our company has interest rate risk with respect to our investment in cash
and cash equivalents, use of short-term borrowings and long-term debt, including
the $206.9 million of convertible subordinated notes, $425.0 million of senior
notes and $200.0 million of senior subordinated notes outstanding, and will have
such risk with respect to the additional $425.0 million of convertible notes
that we propose to issue in connection with our proposed acquisition of K1, K2,
and K3 and proposed investment in ASI. Overall, we mitigate the interest rate
risks by investing in short-term investments, which are due on demand or carry a
maturity date of less than three months. In addition, both the short-term
borrowings and long-term debt, excluding our convertible subordinated notes,
senior notes and senior subordinated notes, have variable rates that reflect
currently available terms and conditions for similar borrowings. As the
convertible subordinated notes, senior notes and senior subordinated notes bear
fixed rates of interest, the fair value of these instruments fluctuate with
market interest rates. The fair value of the convertible subordinated notes is
also impacted by the market price of our common stock.
The table below presents the interest rates, maturity dates, principal cash
flows and fair value of our fixed rate debt as of December 31, 1999.
<TABLE>
<CAPTION>
FIXED INTEREST
DEBT RATE MATURITY DATE PRINCIPAL FAIR VALUE
---- -------------- ------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Convertible Notes.......................... 5.75% May 2003 $ 53,435 $115,420
Senior Notes............................... 9.25% May 2006 $425,000 $416,500
Senior Subordinated Notes.................. 10.5% May 2009 $200,000 $199,000
</TABLE>
Based on our conservative policies with respect to investments in cash and
cash equivalents, use of variable rate debt, and the fact we currently intend to
repay upon maturity our senior notes, senior subordinated notes the convertible
subordinated notes (unless converted), we believe that the risk of potential
loss due to interest rate fluctuations is not material.
Equity Price Risks
Our outstanding convertible subordinated notes are convertible into common
stock at $13.50 per share. As stated above, we intend to repay our convertible
subordinated notes upon maturity, unless converted. If investors were to decide
to convert their convertible subordinated notes to common stock, there would be
no impact on our future earnings, other than a reduction in interest expense,
unless such conversion were induced by us.
<PAGE> 32
d) RISK FACTORS
You should carefully consider the risks described below and other
information contained in this report. Additional risks and uncertainties not
presently known to us, or that we currently deem immaterial, may also impair our
business operations. We cannot assure you that any of the events discussed in
the risk factors below will not occur. If they do, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our securities could decline.
This report contains forward-looking statements made as of the date of this
report regarding our expected performance that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this report.
DECLINING AVERAGE SELLING PRICES -- THE SEMICONDUCTOR INDUSTRY PLACES DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
Historically, prices for our packaging and test services and wafer
fabrication services have declined over time. Beginning in 1997, a worldwide
slowdown in demand for semiconductor devices led to excess capacity and
increased competition. As a result, price declines in 1998 accelerated. We
expect that average selling prices for our packaging and test services will
continue to decline in the future. If we cannot reduce the cost of our packaging
and test services and wafer fabrication services to offset a decline in average
selling prices, our future operating results could suffer.
DEPENDENCE ON THE HIGHLY CYCLICAL SEMICONDUCTOR AND ELECTRONIC PRODUCTS
INDUSTRIES -- WE OPERATE IN VOLATILE INDUSTRIES, AND INDUSTRY DOWNTURNS HARM OUR
PERFORMANCE.
Our business is tied to market conditions in the semiconductor industry,
which is highly cyclical. Because our business is and will continue to be
dependent on the requirements of semiconductor companies for independent
packaging, test and wafer fabrication services, any future downturn in the
semiconductor industry or any other industry that uses a significant number of
semiconductor devices, such as the personal computer industry, could have a
material adverse effect on our business. For example, our operating results for
1998 were adversely affected by downturns in the semiconductor market. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a detailed discussion of our operating results in 1998.
RELATIONSHIP WITH ASI
We will report ASI's financial results in our financial statements, and if ASI
encounters financial difficulties, our financial performance could suffer.
If we complete our investment in ASI and ASI's creditor banks convert their
debt of ASI to equity, we will own approximately 43% of ASI's outstanding voting
stock. Accordingly, we will report ASI's financial results in our financial
statements through the equity method of accounting. If ASI's results of
operations are adversely affected for any reason (including as a result of
losses at its consolidated subsidiaries and equity investees), our results of
operations will suffer as well. Financial or other problems affecting ASI could
also lead to a complete loss of our investment in ASI. In addition, under
proposed changes to U.S. GAAP, we could be required to consolidate ASI's
financial results with ours. In such an event, adverse changes in any line item
of ASI's financial statements would adversely affect the corresponding line
items in our consolidated financial statements.
Our wafer fabrication business may suffer if ASI reduces its operations or if
our relationship with ASI is disrupted.
Our wafer fabrication business depends on ASI providing wafer fabrication
services on a cost effective and timely basis. If ASI were to significantly
reduce or curtail its operations for any reason, or if our relationship with ASI
were to be disrupted for any reason, our wafer fabrication business would be
<PAGE> 33
harmed. We may not be able to identify and qualify alternate suppliers of wafer
fabrication services quickly, if at all. In addition, we currently have no other
qualified third party suppliers of wafer fabrication services and do not have
any plans to qualify additional third party suppliers.
UNCERTAINTY REGARDING OUR PROPOSED TRANSACTIONS WITH ASI -- WE MAY NOT BE ABLE
TO COMPLETE OUR PROPOSED ACQUISITION OF K1, K2 AND K3 AND OUR OTHER PROPOSED
TRANSACTIONS WITH ASI ON THE TERMS DESCRIBED IN THIS REPORT, OR AT ALL, WHICH
MAY HARM OUR BUSINESS.
In 1999, we derived 45.0% of our net revenues and 29.5% of our gross profit
from sales of packaging and test services provided by ASI. If we complete our
proposed acquisition of K1, K2 and K3 from ASI, we will no longer be dependent
on ASI for packaging and test services. Our ability to consummate the proposed
acquisition of K1, K2 and K3 and other transactions related to that acquisition
is subject to a number of uncertainties, some of which are outside our control.
For example, the acquisition and our proposed investment in ASI are subject to
the approval of our stockholders and the shareholders of ASI (including the
Korean creditor banks of ASI), the completion of our proposed equity and secured
debt financings with third parties and Korean regulatory approvals. As a result,
we cannot assure you that we will be able to consummate these transactions on
the terms described in this report, or at all.
If we fail to complete our proposed acquisition of K1, K2 and K3, we will
remain dependent on ASI for packaging and test services and will be unable to
achieve any improvements in our results of operations that direct ownership of
these facilities may bring. In connection with ASI's workout arrangement with
its creditor banks, we may still be required to make an additional $108.4
million investment in ASI through 2002. If our proposed acquisition and
investment are not consummated, ASI will continue to have a substantial amount
of debt, as well as significant contingent liabilities under guarantees of
affiliate debt, and will remain subject to the workout arrangement with its
creditor banks. This in turn may adversely affect ASI's ability to continue to
provide us with the packaging and test services, as well as wafer fabrication
services, that we require for our business.
POTENTIAL CONFLICTS OF INTEREST WITH ASI -- MEMBERS OF THE KIM FAMILY OWN
SUBSTANTIAL PORTIONS OF, AND HAVE ACTIVE MANAGEMENT ROLES IN, BOTH OUR COMPANY
AND ASI. THIS COULD LEAD TO CONFLICTS OF INTEREST IN OUR BUSINESS DEALINGS WITH
ASI.
Mr. James Kim, the founder of our company and currently our Chairman, Chief
Executive Officer and largest shareholder, is the eldest son of Mr. H.S. Kim,
the founder of ASI. Mr. H.S. Kim is currently the honorary Chairman and a
Director of ASI. Since January 1992, in addition to his other responsibilities,
Mr. James Kim has served as Chairman and a Director of ASI. The Kim family,
which collectively owned approximately 11% of the outstanding voting stock of
ASI as of February 29, 2000, significantly influences the management of ASI. Mr.
James Kim and members of his family beneficially own approximately 59% of our
outstanding common stock.
In October 1999, we purchased 10 million shares of ASI's voting stock at a
price of W5,000 per share for approximately $41.6 million. As a result of this
investment and the conversion of W98 billion (approximately $82 million) of ASI
debt to equity by ASI's creditor banks, we now own approximately 18% of ASI's
voting stock. If we complete our proposed private placement of Series A
preferred stock and our proposed equity investment in ASI and ASI's creditor
banks convert up to an additional W150 billion (approximately $132 million) of
their ASI debt into common stock, our company will own approximately 43% of
ASI's outstanding voting stock, and the Kim family's direct ownership of ASI's
and our voting stock will be reduced to approximately 6% and 51%, respectively.
Even though the Kim family's ownership of our company and ASI will be reduced,
we believe that the Kim family will continue to exercise significant influence
over our company and ASI and its affiliates. This could lead to conflicts of
interest between our company and ASI or its affiliates. You should read "Our
Acquisition of ASI's Packaging and Test Business and Investment in ASI" for more
information on our relationship with ASI.
<PAGE> 34
ABSENCE OF BACKLOG -- OUR NET REVENUES IN ANY QUARTER DEPEND ON OUR CUSTOMERS'
DEMAND FOR PACKAGING AND TEST SERVICES IN THAT QUARTER, AND WE MAY NOT BE ABLE
TO ADJUST COSTS QUICKLY IF OUR CUSTOMERS' DEMAND FALLS SUDDENLY.
Our packaging and test business does not typically operate with any
material backlog. We expect that in the future our packaging and test net
revenues in any quarter will continue to be substantially dependent upon our
customers' demand in that quarter. None of our customers have committed to
purchase any amount of packaging or test services or to provide us with binding
forecasts of demand for packaging and test services for any period. In addition,
our customers could reduce, cancel or delay their purchases of packaging and
test services. Because a large portion of our costs is fixed and our expense
levels are based in part on our expectations of future revenues, we may be
unable to adjust costs in a timely manner to compensate for any revenue
shortfall.
CUSTOMER CONCENTRATION -- WE GENERATE A LARGE PERCENTAGE OF OUR NET REVENUES
FROM A SMALL GROUP OF CUSTOMERS WHO HAVE NO MINIMUM PURCHASE OBLIGATIONS.
We depend on a small group of customers for a substantial portion of our
net revenues. In 1997, 1998 and 1999, we derived 40.1%, 35.3% and 30.6%,
respectively, of our net revenues from sales to our five largest packaging and
test customers, with 23.4%, 20.6% and 14.1% of our net revenues, respectively,
derived from sales to Intel Corporation. In addition, during 1998 and 1999, we
derived 7.4% and 15.3%, respectively, of our net revenues from wafer fabrication
services, and we derived substantially all of these revenues from Texas
Instruments, Inc. Our ability to maintain close, satisfactory relationships with
these customers is important to the ongoing success and profitability of our
business. We expect that we will continue to be dependent upon a small number of
customers for a significant portion of our revenues in future periods.
For additional information regarding terms of our agreements with Texas
Instruments and ASI, including ASI's rights with respect to future transfers of
technology from Texas Instruments and Texas Instruments' obligations to buy
wafers from us.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- WE DEPEND ON OUR FACTORIES IN
KOREA AND THE PHILIPPINES. MANY OF OUR CUSTOMERS' OPERATIONS ARE ALSO LOCATED
OUTSIDE OF THE U.S.
We provide packaging and test services through our three factories located
in the Philippines and our one factory in Korea. We source additional packaging
and test services from the K1, K2 and K3 factories located in Korea which are
owned by ASI and which we intend to acquire. We also source wafer fabrication
services from a wafer fabrication facility located in Korea and owned by ASI. In
addition, many of our customers' operations are located outside the U.S. The
following are risks inherent in doing business internationally:
- regulatory limitations imposed by foreign governments;
- fluctuations in currency exchange rates;
- political risks;
- disruptions or delays in shipments caused by customs brokers or
government agencies;
- unexpected changes in regulatory requirements, tariffs, customs, duties
and other trade barriers;
- difficulties in staffing and managing foreign operations; and
- potentially adverse tax consequences resulting from changes in tax laws.
In addition to the risks listed above, our operations in Korea and the
Philippines are subject to certain country-specific risks described below.
<PAGE> 35
Risks Associated with Our Operations in Korea
Our operations in Korea, as well as ASI's operations, are subject to risks
inherent to operating in Korea. While our revenues in Korea will be denominated
in U.S. dollars, our labor costs and some of our operating costs will be
denominated in won. Substantially all of ASI's revenues and a significant
portion of its debt and capital lease obligations are denominated in U.S.
dollars, while its labor and some operating costs are denominated in won.
Fluctuations in the won-dollar exchange rate will affect both our company's and
ASI's financial results. When we make our investment in ASI and report ASI's
results in our financial statements using the equity method of accounting, our
financial results will be further affected by exchange rate fluctuations.
Beginning in late 1997 and continuing into 1998, Korea experienced a severe
foreign currency liquidity crisis that resulted in a significantly adverse
economic environment and a material depreciation in the value of the Korean won
relative to the U.S. dollar. The exchange rate as of December 31, 1996 was W844
to $1.00 as compared to W1,695 to $1.00 as of December 31, 1997, W1,195 to $1.00
as of December 31, 1998, W1,135 to $1.00 as of December 31, 1999 and W1,132 to
$1.00 as of February 29, 2000. The depreciation of the won relative to the U.S.
dollar increased the cost of importing goods and services into Korea. In
addition, the value in won of Korea's public and private sector debt denominated
in U.S. dollars and other foreign currencies also increased significantly. These
developments in turn led to sharply higher domestic interest rates and reduced
opportunities for refinancing or refunding maturing debts. As a result of these
difficulties, financial institutions in Korea have limited their lending,
particularly to highly leveraged companies. Future economic instability in Korea
could have a material adverse effect on our company's and ASI's business and
financial condition.
Relations between Korea and the Democratic People's Republic of Korea
("North Korea") have been tense over most of Korea's history. Incidents
affecting relations between the two Koreas continually occur. If the level of
tensions with North Korea increases or changes abruptly, both our company's and
ASI's businesses could be harmed.
Risks Associated with Our Operations in the Philippines
Although the political situation and the general state of the economy in
the Philippines have stabilized in recent years, each 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 led to
economic instability in the Philippines. Any future economic or political
disruptions or instability in the Philippines could have a material adverse
effect on our business.
Because the functional currency of our operations in the Philippines is the
U.S. dollar, we have recently benefited from cost reductions relating to
peso-denominated expenditures, primarily payroll costs. We believe that any
future devaluations of the Philippine peso will eventually lead to inflation in
the Philippines, which could offset any savings achieved to date.
RISKS ASSOCIATED WITH OUR PROPOSED ACQUISITION OF ASI'S PACKAGING AND TEST
BUSINESS -- THE ACQUISITION OF THIS BUSINESS REPRESENTS A MAJOR COMMITMENT OF
OUR CAPITAL AND MANAGEMENT RESOURCES.
We intend to conduct due diligence and obtain representations from ASI in
connection with our proposed acquisition of K1, K2 and K3. However, there may be
additional hidden or contingent liabilities of K1, K2 and K3, relating to
matters such as environmental problems, taxation, employee obligations,
fraudulent conveyance and others, that will not have come to our attention prior
to our acquisition. If such liabilities exist, our business and financial
performance may suffer after the acquisition.
Our acquisition of ASI's packaging and test factories will require our
management to devote a significant portion of its resources to the maintenance
and operation of factories in Korea. We have limited experience in owning and
operating a business in Korea. It may take time for us to learn how to comply
with relevant Korean regulations, including tax, environmental and labor laws.
During the transition period in which we will integrate ASI's packaging and test
business into our company, our management may not
<PAGE> 36
have adequate time and attention to devote to other aspects of our business, and
those parts of our business could suffer.
If the acquisition is completed, we plan to retain the approximately 6,600
Korean employees currently working in ASI's packaging and test business into our
workforce, and we may face cultural difficulties until we learn how to interact
with these new employees. If these employees become dissatisfied working for a
U.S. company, they may leave us. If we cannot find new employees to replace
departing ones, our new operations could suffer.
MANAGEMENT OF GROWTH -- WE FACE CHALLENGES AS WE INTEGRATE NEW AND DIVERSE
OPERATIONS AND TRY TO ATTRACT QUALIFIED EMPLOYEES TO SUPPORT OUR EXPANSION
PLANS.
We have experienced, and may continue to experience, growth in the scope
and complexity of our operations and in the number of our employees. This growth
has strained our managerial, financial, manufacturing and other resources.
Future acquisitions may result in inefficiencies as we integrate new operations
and manage geographically diverse operations.
In order to manage our growth, we must continue to implement additional
operating and financial controls and hire and train additional personnel. We
cannot assure you that we will continue to be successful in hiring and properly
training sufficient numbers of qualified personnel and in effectively managing
our growth. If we fail to: (1) properly manage growth, (2) improve our
operational, financial and management systems as we grow or (3) integrate new
factories and employees into our operations, our financial performance could be
materially adversely affected.
Our success depends to a significant extent upon the continued service of
our key senior management and technical personnel, any of whom would be
difficult to replace. In addition, in connection with our expansion plans, our
company and ASI will be required to increase the number of qualified engineers
and other employees at our respective factories in the Philippines and Korea.
Competition for qualified employees is intense, and our business could be
adversely affected by the loss of the services of any of our existing key
personnel. Our inability to attract, retain and motivate qualified new personnel
could have a material adverse effect on our business.
RISKS ASSOCIATED WITH OUR WAFER FABRICATION BUSINESS -- OUR WAFER FABRICATION
BUSINESS IS SUBSTANTIALLY DEPENDENT ON TEXAS INSTRUMENTS.
Our wafer fabrication business, which commenced operations in January 1998,
depends significantly upon Texas Instruments. An agreement with ASI and Texas
Instruments (the "Texas Instruments Manufacturing and Purchasing Agreement")
requires Texas Instruments to purchase from us at least 40% of the capacity of
ASI's wafer fabrication facility, and under certain circumstances, Texas
Instruments has the right to purchase from us up to 70% of this capacity. We
cannot assure you that Texas Instruments will meet its purchase obligations in
the future. If Texas Instruments fails to meet its purchase obligations, our
company's and ASI's businesses could be harmed. For example, Texas Instruments'
orders in the first half of 1998 were below required minimum purchase
commitments due to market conditions and issues encountered by Texas Instruments
in the transition of its products to new technology.
Texas Instruments has transferred certain of its complementary metal oxide
silicon ("CMOS") process technology to ASI, and ASI is dependent upon Texas
Instruments' assistance for developing other state-of-the-art wafer
manufacturing processes. In addition, ASI's technology agreements with Texas
Instruments (the "Texas Instruments Technology Agreements") only cover .25
micron and .18 micron CMOS process technology. Texas Instruments has not granted
ASI a license under Texas Instruments' patents to manufacture semiconductor
wafers for third parties. Moreover, Texas Instruments has no obligation to
transfer any next-generation technology to ASI. Our company's and ASI's
businesses could be harmed if ASI cannot obtain new technology on commercially
reasonable terms or ASI's relationship with Texas Instruments is disrupted for
any reason.
<PAGE> 37
DEPENDENCE ON MATERIALS AND EQUIPMENT SUPPLIERS -- OUR BUSINESS MAY SUFFER IF
THE COST OR SUPPLY OF MATERIALS OR EQUIPMENT ADVERSELY CHANGES.
We obtain from vendors the materials and equipment required for the
packaging and test services performed by our factories. We source most of our
materials, including critical materials such as leadframes and laminate
substrates, from a limited group of suppliers. Furthermore, we purchase all of
our materials on a purchase order basis and have no long-term contracts with any
of our suppliers. Our business may be harmed if we cannot obtain materials and
other supplies from our vendors: (1) in a timely manner, (2) in sufficient
quantities, (3) in acceptable quality and (4) at competitive prices.
RAPID TECHNOLOGICAL CHANGE -- OUR BUSINESS WILL SUFFER IF WE CANNOT KEEP UP WITH
TECHNOLOGICAL ADVANCES IN OUR INDUSTRY.
The complexity and breadth of both semiconductor packaging and test
services and wafer fabrication are rapidly changing. As a result, we expect that
we will need to offer more advanced package designs and new wafer fabrication
technology in order to respond to competitive industry conditions and customer
requirements. Our success depends upon the ability of our company and ASI to
develop and implement new manufacturing process and package design technologies.
The need to develop and maintain advanced packaging and wafer fabrication
capabilities and equipment could require significant research and development
and capital expenditures in future years. In addition, converting to new package
designs or process methodologies could result in delays in producing new package
types or advanced wafer designs that could adversely affect our ability to meet
customer orders.
Technological advances also typically lead to rapid and significant price
erosion and may make our existing products less competitive or our existing
inventories obsolete. If we cannot achieve advances in package design and wafer
fabrication technology or obtain access to advanced package designs and wafer
fabrication technology developed by others, our business could suffer.
COMPETITION -- WE MUST COMPETE AGAINST LARGE AND ESTABLISHED COMPETITORS IN BOTH
THE PACKAGING AND TEST BUSINESS AND THE WAFER FABRICATION BUSINESS.
The independent semiconductor packaging and test market is very
competitive. This sector is comprised of approximately 40 companies. We face
substantial competition from established packaging and test service providers
primarily located in Asia, including companies with significant manufacturing
capacity, financial resources, research and development operations, marketing
and other capabilities. Such companies have also established relationships with
many large semiconductor companies that are current or potential customers of
our company. On a larger scale, we also compete with the internal semiconductor
packaging and test capabilities of many of our customers.
The independent wafer fabrication business is also highly competitive. Our
wafer fabrication services compete primarily with independent semiconductor
wafer foundries, including those of Chartered Semiconductor Manufacturing, Inc.,
Taiwan Semiconductor Manufacturing Company, Ltd. and United Microelectronics
Corporation. Each of these companies has significant manufacturing capacity,
financial resources, research and development operations, marketing and other
capabilities and has been operating for some time. Many of these companies have
also established relationships with many large semiconductor companies that are
current or potential customers of our company.
If we cannot compete successfully in the future against existing or
potential competitors, our operating results would suffer.
ENVIRONMENTAL REGULATIONS -- FUTURE ENVIRONMENTAL REGULATIONS COULD PLACE
ADDITIONAL BURDENS ON THE MANUFACTURING OPERATIONS OF OUR COMPANY OR ASI.
The semiconductor packaging process uses chemicals and gases and generates
byproducts that are subject to extensive governmental regulations. For example,
we produce liquid waste when silicon wafers are diced into chips with the aid of
diamond saws, then cooled with running water. Federal, state and local
<PAGE> 38
regulations in the United States, as well as environmental regulations in Korea
and the Philippines, impose various controls on the storage, handling, discharge
and disposal of chemicals used in our company's and ASI's manufacturing
processes and on the factories occupied by our company and ASI.
Increasingly, public attention has focused on the environmental impact of
semiconductor manufacturing operations and the risk to neighbors of chemical
releases from such operations. In the future, applicable land use and
environmental regulations may: (1) impose upon our company the need for
additional capital equipment or other process requirements, (2) restrict our
company's ability to expand our respective operations, (3) subject our company
to liability or (4) cause our company to curtail our operations.
PROTECTION OF INTELLECTUAL PROPERTY -- WE MAY BECOME INVOLVED IN INTELLECTUAL
PROPERTY LITIGATION.
We currently hold 68 U.S. patents, and we also have 102 pending patents and
are preparing an additional 57 patent applications for filing. In connection
with our proposed acquisition of K1, K2 and K3 from ASI, we plan to acquire all
of ASI's patents, patent applications and other intellectual property rights
related to its packaging and test business. We expect to continue to file patent
applications when appropriate to protect our proprietary technologies, but we
cannot assure you that we will receive patents from pending or future
applications. In addition, any patents we obtain may be challenged, invalidated
or circumvented and may not provide meaningful protection or other commercial
advantage to us.
We may need to enforce our patents or other intellectual property rights or
to defend our company against claimed infringement of the rights of others
through litigation, which could result in substantial cost and diversion of our
resources. If we fail to obtain necessary licenses or if we face litigation
relating to patent infringement or other intellectual property matters, our
business could suffer.
Although we are not currently a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and
other intellectual property rights. If any third party makes a valid claim
against our company or ASI, our company or ASI could be required to: (1)
discontinue the use of certain processes, (2) cease the manufacture, use, import
and sale of infringing products, (3) pay substantial damages, (4) develop
non-infringing technologies or (5) acquire licenses to the technology we had
allegedly infringed. Our business, financial condition and results of operations
could be materially and adversely affected by any of these negative
developments.
In addition, Texas Instruments has granted ASI very limited licenses under
the Texas Instruments Technology Agreements, including a license under Texas
Instruments' trade secret rights to use Texas Instruments' technology in
connection with ASI's provision of wafer fabrication services. However, Texas
Instruments has not granted ASI a license under Texas Instruments' patents to
manufacture semiconductor wafers for third parties. Furthermore, Texas
Instruments has reserved the right to bring infringement claims against
customers of our company or customers of ASI with respect to semiconductor
wafers purchased from our company or ASI. Such customers and others could in
turn subject our company or ASI to litigation in connection with the sale of
semiconductor wafers produced by ASI.
CONTINUED CONTROL BY EXISTING STOCKHOLDERS -- MR. JAMES KIM AND MEMBERS OF HIS
FAMILY CAN DETERMINE THE OUTCOME OF ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of February 29, 2000, Mr. James Kim and members of his family
beneficially owned approximately 59% of our outstanding common stock. Mr. James
Kim's family, acting together, will effectively control all matters submitted
for approval by our stockholders. These matters include the approval of the
acquisition of K1, K2 and K3 and could include:
- the election of all of the members of our Board of Directors;
- proxy contests;
- approvals of transactions between our company and ASI or other entities
in which Mr. James Kim and members of his family have an interest,
including transactions which may involve a conflict of interest;
<PAGE> 39
- mergers involving our company;
- tender offers; and
- open market purchase programs or other purchases of our common stock.
<PAGE> 40
e) CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMKOR TECHNOLOGY, INC.:
Report of Independent Public Accountants (Arthur Andersen
LLP)...................................................... F-2
Consolidated Statements of Income -- Years ended December
31, 1997, 1998 and 1999................................... F-3
Consolidated Balance Sheets -- December 31, 1998 and 1999... F-4
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1997, 1998 and 1999.................... F-5
Consolidated Statements of Cash Flows -- Years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Independent Auditors' Report (Samil Accounting Corporation)
with respect to the 1999 Financial Statements of Amkor
Technology Korea, Inc..................................... F-36
K1, K2 AND K3:
Report of Independent Accountants (Samil Accounting
Corporation).............................................. F-37
Statements of Net Assets (Liabilities) -- As of December 31,
1998 and 1999............................................. F-38
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-39
Statements of Changes in Net Assets (Liabilities) for the
years ended December 31, 1997, 1998 and 1999.............. F-40
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-41
Notes to Financial Statements............................... F-42
ANAM SEMICONDUCTOR, INC.:
Report of Independent Accountants (Samil Accounting
Corporation).............................................. F-55
Consolidated Balance Sheets -- As of December 31, 1998 and
1999...................................................... F-57
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-58
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999.............. F-59
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-60
Notes to Consolidated Financial Statements.................. F-61
Independent Auditor's Report (Ahn Kwon & Co.) with respect
to the Financial Statements of Anam Engineering &
Construction Co., Ltd. as of and for the years ended
December 31, 1999, 1998 and 1997.......................... F-97
Independent Auditors' Report (Siana Carr & O'Connor, LLP)
with respect to the Financial Statements of Anam USA, Inc.
as of December 31, 1999 and 1998 and for the three years
ended December 31, 1999................................... F-98
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amkor Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Amkor
Technology, Inc. and its subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Anam Semiconductor,
Inc. ("ASI") (See Note 3), the investment in which is reflected in the
accompanying 1997 and 1999 financial statements using the equity method of
accounting. The investment in ASI represents 2% of total assets at December 31,
1997 and 1999 and the equity in its net loss represents 29% and 2% of net income
before the equity in loss of investees in 1997 and 1999, respectively. In
addition, we did not audit the financial statements of Amkor Technology Korea,
Inc., ("ATK"), a wholly-owned subsidiary, which statements reflect total assets
and total operating income of 35% and 6%, respectively, of the related
consolidated totals in 1999. The statements of ASI and ATK were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to amounts included for ASI and ATK, is based solely on the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Amkor Technology, Inc. and its
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 3, 2000
(except with respect to the Company's proposed acquisition of ASI's packaging
and test facilities and its investment in ASI as discussed in Note 21, as to
which the date is February 28, 2000)
F-2
<PAGE> 42
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES............................................... $1,455,761 $1,567,983 $1,909,972
COST OF REVENUES -- including purchases from ASI (Note
3)....................................................... 1,242,669 1,307,150 1,577,226
---------- ---------- ----------
GROSS PROFIT............................................... 213,092 260,833 332,746
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative...................... 103,726 119,846 145,233
Research and development................................. 8,525 8,251 11,436
---------- ---------- ----------
Total operating expenses......................... 112,251 128,097 156,669
---------- ---------- ----------
OPERATING INCOME........................................... 100,841 132,736 176,077
---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense, net.................................... 32,241 18,005 45,364
Foreign currency (gain) loss............................. (835) 4,493 308
Other expense, net....................................... 8,429 9,503 25,117
---------- ---------- ----------
Total other expense.............................. 39,835 32,001 70,789
---------- ---------- ----------
INCOME BEFORE INCOME TAXES, EQUITY IN LOSS OF INVESTEES AND
MINORITY INTEREST........................................ 61,006 100,735 105,288
PROVISION FOR INCOME TAXES................................. 7,078 24,716 26,600
EQUITY IN LOSS OF INVESTEES................................ (17,291) -- (1,969)
MINORITY INTEREST.......................................... (6,644) 559 --
---------- ---------- ----------
NET INCOME................................................. $ 43,281 $ 75,460 $ 76,719
========== ========== ==========
PRO FORMA DATA (UNAUDITED):
Historical income before income taxes, equity in loss of
investees and minority interest....................... $ 61,006 $ 100,735
Pro forma provision for income taxes..................... 10,691 29,216
---------- ----------
Pro forma income before equity in loss of investees and
minority interest..................................... 50,315 71,519
Historical equity in loss of investees................... (17,291) --
Historical minority interest............................. (6,644) 559
---------- ----------
Pro forma net income..................................... $ 39,668 $ 70,960
========== ==========
PER SHARE DATA:
Basic net income per common share........................ $ .52 $ .71 $ .64
========== ========== ==========
Diluted net income per common share...................... $ .52 $ .70 $ .63
========== ========== ==========
Basic pro forma net income per common share
(unaudited)........................................... $ .48 $ .67
========== ==========
Diluted pro forma net income per common share
(unaudited)........................................... $ .48 $ .66
========== ==========
Shares used in computing basic (proforma for 1997 and
1998) net income per common share..................... 82,610 106,221 119,341
========== ========== ==========
Shares used in computing diluted (proforma for 1997 and
1998) net income per common share..................... 82,610 116,596 135,067
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 43
AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 227,587 $ 98,045
Short-term investments.................................... 1,000 136,595
Accounts receivable --
Trade, net of allowance for doubtful accounts of $5,952
and $2,443............................................ 109,243 157,281
Due from affiliates.................................... 25,990 6,278
Other.................................................. 5,900 6,469
Inventories............................................... 85,628 91,465
Other current assets...................................... 16,687 11,117
---------- ----------
Total current assets.............................. 472,035 507,250
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 416,111 859,768
---------- ----------
INVESTMENTS................................................. 25,476 63,672
---------- ----------
OTHER ASSETS:
Due from affiliates....................................... 28,885 27,858
Intangible assets......................................... 26,158 233,532
Other..................................................... 34,932 63,009
---------- ----------
89,975 324,399
---------- ----------
Total assets...................................... $1,003,597 $1,755,089
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 13,429 $ 16,209
Short-term borrowings and current portion of long-term
debt................................................... 38,657 6,465
Trade accounts payable.................................... 96,948 122,147
Due to affiliates......................................... 15,722 37,913
Accrued expenses.......................................... 77,004 88,577
Accrued income taxes...................................... 38,892 41,587
---------- ----------
Total current liabilities......................... 280,652 312,898
---------- ----------
LONG-TERM DEBT.............................................. 14,846 9,021
---------- ----------
SENIOR AND SENIOR SUBORDINATED NOTES........................ -- 625,000
---------- ----------
CONVERTIBLE SUBORDINATED NOTES.............................. 207,000 53,435
---------- ----------
OTHER NONCURRENT LIABILITIES................................ 10,738 16,994
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 17)
STOCKHOLDERS' EQUITY:
Common stock.............................................. 118 131
---------- ----------
Additional paid-in capital................................ 381,061 551,964
---------- ----------
Retained earnings......................................... 109,738 189,733
---------- ----------
Receivable from stockholder (Note 12)..................... -- (3,276)
---------- ----------
Accumulated Other Comprehensive Income:
Unrealized losses on investments....................... (556) (811)
---------- ----------
Total stockholders' equity........................ 490,361 737,741
---------- ----------
Total liabilities and stockholders' equity........ $1,003,597 $1,755,089
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 44
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RECEIVABLE OTHER
COMMON PAID-IN RETAINED FROM COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCKHOLDER INCOME TOTAL INCOME
------ ---------- -------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.............. $ 46 $ 16,770 $ 32,340 $ $(3,344) $ 45,812
Net income............................ -- -- 43,281 -- -- 43,281 $43,281
Unrealized gains on investments....... -- -- -- -- 1,586 1,586 1,586
Currency translation adjustments...... -- -- -- -- 1,095 1,095 1,095
-------
Comprehensive income (Note 12)........ 45,962
-------
Distributions......................... -- -- (5,000) -- -- (5,000)
Change in division equity account..... -- 4,101 -- -- -- 4,101
---- -------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997............ 46 20,871 70,621 -- (663) 90,875
Net income............................ -- -- 75,460 -- -- 75,460 75,460
Unrealized losses on investments...... -- -- -- -- (556) (556) (556)
Currency translation adjustments,
re-classification for loss included
in net income....................... -- -- -- -- 663 663 663
-------
Comprehensive income (Note 12)........ -- -- -- -- -- -- 75,567
-------
Distributions......................... -- -- (33,100) -- -- (33,100)
Issuance of 35,250,000 common shares
in public offering, net............. 35 360,228 -- -- -- 360,263
Acquisition of AKI.................... (1) -- (3,243) -- -- (3,244)
Change in par value of stock in
connection with Company
Reorganization...................... 38 (38) -- -- -- --
---- -------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1998............ 118 381,061 109,738 -- (556) 490,361
Net income............................ -- -- 76,719 -- -- 76,719 76,719
Unrealized (losses) on investments,
net of tax.......................... -- -- -- -- (255) (255) (255)
-------
Comprehensive income (Note 12)........ $76,464
-------
Issuance of stock through employee
stock purchase plan and stock
options............................. -- 3,875 -- -- -- 3,875
Receivable from Stockholder (Note
12)................................. -- -- 3,276 (3,276) -- --
Debt conversion (Note 9).............. 13 167,028 -- -- -- 167,041
---- -------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1999............ $131 $551,964 $189,733 $(3,276) $ (811) $737,741
==== ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 45
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1998 1999
----------- ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 43,281 $ 75,460 $ 76,719
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization........................... 81,864 118,022 176,866
Amortization of deferred debt issuance costs............ -- 1,217 3,466
Debt conversion expense................................. -- -- 17,381
Provision for accounts receivable....................... 3,490 1,719 (3,500)
Provision for excess and obsolete inventory............. 12,659 7,200 6,573
Deferred income taxes................................... (11,715) 1,250 9,418
Equity in loss of investees............................. 16,779 -- 4,591
(Gain) loss on sale of fixed assets and investments..... (239) 2,500 1,805
Minority interest....................................... (6,644) 559 --
Changes in assets and liabilities excluding effects of
acquisitions --
Accounts receivable..................................... (19,802) 4,742 (44,526)
Proceeds from sale/(repurchase of) accounts
receivable............................................ 90,700 (16,500) (2,700)
Other receivables....................................... 1,547 (1,021) (555)
Inventories............................................. (26,609) 23,042 (12,063)
Due to/from affiliates, net............................. (19,138) (11,117) 35,403
Other current assets.................................... (7,239) 6,709 1,601
Other non-current assets................................ 3,322 (8,061) (15,088)
Accounts payable........................................ 60,939 (12,489) 27,474
Accrued expenses........................................ 13,817 33,489 13,117
Accrued income taxes.................................... 14,130 11,924 2,695
Other long-term liabilities............................. (1,089) (685) (5,380)
----------- --------- ---------
Net cash provided by operating activities............. 250,053 237,960 293,297
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (178,990) (107,889) (242,390)
Acquisition of K4......................................... -- -- (575,000)
Acquisition of minority interest in AAP................... -- (33,750) --
Acquisition of AKI........................................ -- (3,244) --
Acquisition of AAPMC...................................... -- -- (2,109)
Sale of property, plant and equipment..................... 1,413 121 --
Proceeds from the sale/(purchase) of investments.......... (15,187) (18,550) (135,595)
Investment in ASI......................................... -- -- (41,638)
----------- --------- ---------
Net cash used in investing activities................. (192,764) (163,312) (996,732)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdrafts and short-term borrowings... 52,393 (173,565) (24,264)
Net proceeds from issuance of 35,250,000 common shares in
public offering......................................... -- 360,263 --
Proceeds from issuance of stock through employee stock
purchase plan
and stock options....................................... -- -- 3,875
Proceeds from issuance of Anam USA, Inc. debt............. 1,408,086 522,116 --
Payments of Anam USA, Inc. debt........................... (1,443,464) (658,029) --
Net proceeds from issuance of long-term debt.............. 11,389 203,170 603,569
Payments of long-term debt................................ (43,541) (158,833) (9,287)
Distributions to stockholders............................. (5,000) (33,100) --
Change in division equity account......................... 4,101 -- --
----------- --------- ---------
Net cash provided by (used in) financing activities... (16,036) 62,022 573,893
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 41,253 136,670 (129,542)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 49,664 90,917 227,587
----------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 90,917 $ 227,587 $ 98,045
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 37,070 $ 27,730 $ 45,500
Income taxes............................................ $ 3,022 $ 12,908 $ 13,734
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 46
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Amkor
Technology, Inc. and its subsidiaries (the "Company"). All of the Company's
subsidiaries are wholly owned except for a small number of shares of each of the
Company's Philippine subsidiaries which are required to be owned by directors of
these companies pursuant to Philippine law.
The consolidated 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, as well as the Company's investment in Anam Semiconductor Inc.
("ASI") (see Note 7), are included in the consolidated financial statements
using the equity method of accounting.
Prior to the Reorganization (as defined below), the Company's financial
statements were presented on a combined basis as a result of common ownership
and business operations of all the Amkor Companies (as defined below), including
AK Industries, Inc. ("AKI"). The Reorganization was treated similar to a pooling
of interests as it represented an exchange of equity interests among companies
under common control, except for the acquisition of AKI which was accounted for
as a purchase transaction. The purchase price for the AKI stock, which
represented the fair value of those shares, approximated the book value of AKI.
Reorganization
Prior to the Reorganization (as defined herein) the combined financial
statements of Amkor Technology, Inc. ("ATI") and its subsidiaries and AKI and
its subsidiary included the accounts of the following based on the ownership
structure prior to the Reorganization (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 (a U.S. Corporation)
and Amkor Wafer Fabrication Services SARL (a French Limited Company)
("AWFS");
- 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 was owned
60% by TLL and 40% by ASI (which changed its name in 1998 from Anam
Industrial Co., Ltd.) (-- see Note 3), 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);
- The semiconductor packaging and test business unit of Chamterry
Enterprises, Ltd. ("Chamterry"). During 1997 Chamterry transferred its
customers to AEI and CIL and ceased operations of its semiconductor and
test business unit; and
- AKI (a U.S. Corporation) and its wholly-owned subsidiary, Amkor-Anam,
Inc. (a U.S. Corporation).
Prior to the Reorganization, 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
F-7
<PAGE> 47
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
"Founding Stockholders"), except for AAP which was 40% owned by ASI 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. In connection with the Reorganization, AEI was merged into ATI. Amkor
International Holdings ("AIH"), a Cayman Islands holding company, became a
wholly owned subsidiary of ATI. AIH was formed to hold the following entities:
First Amkor Caymans, Inc. ("FACI"), which was formed to hold AAAP, AAP and its
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. On April 14,
1998, 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. On April 29, 1998, ATI 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 owned 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 approximately
$3,000. The merger of AEI and ATI, the creation of AIH and FACI, the issuance of
ATI common stock for AIH and the acquisition of AKI are collectively referred to
as the Reorganization.
Nature of Operations
The Company provides semiconductor packaging and test services as well as
wafer fabrication services to semiconductor manufacturing and semiconductor
design companies located in strategic markets throughout the world. Such
services are provided by the Company and by ASI under a long-standing
arrangement (see Note 3). Approximately 68%, 67%, and 53% of the Company's
packaging and test revenues in 1997, 1998 and 1999, respectively, relate to the
packaging and test services provided by ASI. In addition, 100% of the Company's
wafer fabrication revenues relate to the wafer fabrication services provided by
ASI under a long-term agreement (see Note 3).
Concentrations of Credit Risk
Financial instruments, for which the Company is subject to credit risk,
consist principally of accounts receivable, cash and cash equivalents and
short-term investments. With respect to accounts receivable, the Company has
mitigated its credit risk by selling primarily to well established companies,
performing ongoing credit evaluations and making frequent contact with
customers.
During 1999, the Company has invested in high grade municipal bonds,
commercial loans and preferred stocks. These investments are classified in the
consolidated balance sheets either as cash and cash equivalents for securities
that have an underlying maturity date of less than three months, or as short-
term investments for securities that have an underlying maturity date in excess
of three months and are being held for trading purposes ("Trading Securities").
As of December 31, 1999, the Company held approximately $137,000 in Trading
Securities. These investments are carried at fair market value based on market
quotes and recent offerings of similar securities.
F-8
<PAGE> 48
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
The Company has mitigated its credit risk with respect to cash and cash
equivalents, as well as Trading Securities, through diversification of its
portfolio of holdings into various money market accounts, U.S. treasury bonds,
federal mortgage backed securities, high grade municipal bonds, commercial loans
and preferred stocks. At December 31, 1998 and 1999, the Company maintained
approximately $35,000 and $183,000, respectively, in high grade municipal bonds,
commercial loans and preferred stocks, with the largest individual investment
balance of approximately $10,000 and $12,000, respectively.
In addition, at December 31, 1998 and 1999, the Company maintained
approximately $29,000 and $11,000, respectively, in deposits and certificates of
deposits at foreign owned banks and approximately $4,000 and $13,000
respectively, in deposits at U.S. banks which exceeded federally insured limits,
of which, approximately $5,000 was maintained in one bank at December 31, 1999.
Significant Customers
The Company has a number of major customers in North America, Asia and
Europe. The Company's largest customer, Texas Instruments, Inc. ("TI"),
accounted for 16.5% of net revenues in 1999. Revenues for services provided to
TI prior to 1999 were less than 10%. In addition, the Company's second largest
customer, Intel Corporation, accounted for approximately 23.4%, 20.6% and 14.1%
of net revenues in 1997, 1998 and 1999, respectively. The Company's five largest
customers collectively accounted for 40.1%, 41.6%, and 43.6% of net revenues in
1997, 1998, and 1999, respectively. The Company anticipates that significant
customer concentration will continue for the foreseeable future, although the
companies which constitute the Company's largest customers may change.
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 historical results 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 ASI (see Note 3), reliance on a small group of principal customers, timing
and volume of orders relative to the Company's production capacity, availability
of manufacturing capacity and fluctuations in manufacturing yields, availability
of financing, competition, dependence on international operations and sales,
dependence on raw material and equipment suppliers, exchange rate fluctuations,
dependence on key personnel, difficulties in managing growth, enforcement of
intellectual property rights, environmental regulations and the results of ASI
on an equity method of accounting basis.
Foreign Currency Translation
Substantially all of the Company's foreign subsidiaries and investee
companies use the U.S. dollar as their functional currency. Accordingly,
monetary assets and liabilities which were originally denominated in a foreign
currency are translated into U.S. dollars at month-end exchange rates.
Non-monetary items which were originally denominated in foreign currencies are
translated at historical rates. Gains and losses from such remeasurement and
from transactions denominated in foreign currencies are included in other
(income) expense. The cumulative translation adjustment reflected in accumulated
other comprehensive income in stockholders' equity in the consolidated balance
sheets related primarily to investments in unconsolidated companies which used
the local currency as the functional currency (see Note 7).
F-9
<PAGE> 49
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Accounts Receivable
At December 31, 1998 and 1999, trade accounts receivable represent the
Company's interest in receivables in excess of amounts purchased by banks under
an accounts receivable sale agreement (see Note 4). Of the total net trade
accounts receivable amount at December 31, 1998 and 1999, $22,488 and $36,880,
respectively, relates to the trade accounts receivable of CIL which were not
sold under the accounts receivable sale agreement.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally by using a moving average method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated by the straight-line method over the estimated useful lives of
depreciable assets. Accelerated methods are used for tax purposes. Depreciable
lives follow:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10 to 30 years
Machinery and equipment..................................... 3 to 5 years
Furniture, fixtures and other equipment..................... 3 to 10 years
</TABLE>
Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts and any resulting gain or loss is included in
earnings. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense was $81,159, $116,424 and $158,938 for 1997, 1998
and 1999, respectively.
Intangible Assets
Intangible assets consist principally of goodwill. The Company recorded
goodwill representing the excess of cost over the recorded minority interest in
Amkor/Anam Pilipinas, Inc., one of its Philippine subsidiaries ("AAP"). In
addition, the Company recorded goodwill representing the excess of the cost over
the fair market value of the net assets acquired of ASI's packaging and test
business located in Kwangju, Korea ("K4") (See Note 3) and the excess of the
cost over the fair market value of the net assets acquired of Anam/Amkor
Precision Machine Company, Inc. ("AAPMC"), an affiliate of ASI. (See Note 18)
Goodwill is amortized on a straight-line basis over a period of ten years
which is the estimated future period to be benefited by the acquisitions. The
unamortized balance of goodwill at December 31, 1998 and 1999 was $24,596 and
$232,350, respectively.
Other Noncurrent Assets
Other noncurrent assets consist principally of deferred debt issuance
costs, security deposits, the cash surrender value of life insurance policies,
deferred income taxes and tax credits.
F-10
<PAGE> 50
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
In connection with the $207,000 offering of Convertible Notes (see Note 2),
and the $625,000 offering of Senior and Senior Subordinated Notes (See Note 3)
the Company incurred approximately $30,500 of debt issuance costs which have
been deferred and are amortized and reflected as interest expense over the life
of the Notes.
Other Noncurrent Liabilities
Other noncurrent liabilities consist primarily of pension obligations and
noncurrent income taxes payable.
Stock Compensation Plans
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock based plans is generally
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," are presented in
Note 14.
Income Taxes
The Company accounts for income taxes following the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires the use of the liability
method. If it is more likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is provided.
The Company reports certain income and expense items for income tax
purposes on a basis different from that reflected in the accompanying
consolidated financial statements. The principal differences relate to the
timing of the recognition of accrued expenses which are not deductible for
federal income tax purposes until paid, the use of accelerated methods of
depreciation for income tax purposes and unrecognized foreign exchange gains and
losses.
AEI, which was merged into ATI just prior to the Initial Public Offering
(See Note 2), elected to be taxed as an S Corporation under the provisions of
the Internal Revenue Code of 1986 and comparable state tax provisions. As a
result, AEI did not recognize U.S. federal corporate income taxes. Instead, the
stockholders of AEI were taxed on their proportionate share of AEI's taxable
income. Accordingly, no provision for U.S. federal income taxes was recorded for
AEI. The accompanying consolidated statements of income include an unaudited pro
forma adjustment to reflect income taxes which would have been recorded if AEI
had not been an S Corporation, based on the tax laws in effect during the
respective periods.
Just prior to the Initial Public Offering (see Note 2), AEI terminated its
S Corporation status at which point the profits of AEI became subject to federal
and state income taxes at the corporate level.
Revenue Recognition and Risk of Loss
The Company does not take ownership of customer-supplied semiconductors.
Title and risk of loss remains with the customer for these materials at all
times. Accordingly, the cost of the customer-supplied materials is not included
in the consolidated financial statements. Risk of loss for the Company's
packaging costs passes upon completion of the packaging process. The Company
generally records revenues upon shipment of packaged semiconductors to its
customers. The Company records wafer fabrication services revenues upon shipment
of completed wafers to its customers.
F-11
<PAGE> 51
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
Research and Development Costs
Research and development costs are charged to expense as incurred.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. Early adoption at the beginning of any quarter
after issuance is permitted, but cannot be applied retroactively. The provisions
of the statement must be applied to derivative instruments and certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997, or December 31, 1998, as
selected at the transition date.
The Company believes that the impact of adopting SFAS No. 133 on its
financial statements will not be material and has not determined the timing of
adoption.
Reclassifications
Certain previously reported amounts have been reclassified to conform with
the current presentation.
2. INITIAL PUBLIC OFFERING
On May 6, 1998, the Company 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, the Company 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 $558,121, after deducting the underwriter
discounts and offering expenses. The convertible notes 1) are convertible into
the Company's 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) mature at the end of five years.
Approximately $264,000 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 Anam USA, Inc., ASI's wholly owned financing subsidiary ("AUSA").
Approximately $34,000 of the proceeds was used to purchase ASI's 40% interest in
AAP (see Note 18.) In connection with the Offerings, one existing stockholder
sold approximately 5,000,000 of his shares.
F-12
<PAGE> 52
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
3. RELATIONSHIP WITH ANAM SEMICONDUCTOR INC.
In December 1999 the Company announced that it was in discussions with ASI
to purchase it's three remaining packaging and test factories, known as K1, K2
and K3 combined with an additional equity investment in ASI. In February 2000,
the Company announced that it had reached an agreement with ASI to purchase K1,
K2 and K3 for $950,000 and committed to make an additional equity investment in
ASI of approximately $459,000. The commitment to make this equity investment
supersedes the existing commitment to ASI to purchase $150,000 in equity,
previously agreed to as part of the terms of ASI's Workout (as defined below)
excluding the $42,600 already invested in October 1999. The Company expects to
complete the purchase of K1, K2 and K3 and investment in ASI during the second
quarter of 2000. To complete the transaction with ASI, the Company intends to
use existing cash and raise approximately $425,000 in convertible subordinated
notes, $600,000 in secured bank term debt and $410,000 in private equity
financing. If we make the additional $459,000 investment in the common stock of
ASI and the Creditor banks convert W150 billion (approximately $132,000) of debt
to common stock of ASI, the Company's and the Creditor banks' ownership in ASI
voting stock will be approximately 43% and 34%, respectively.
If the transaction with ASI is completed as described above, ASI will emerge
from its Workout with its Korean Creditor Banks. ASI has indicated that they
expect the net proceeds from the sale of K1, K2 and K3 and our additional equity
investment to be used to repay a substantial amount of debt, provide funding to
expand the capacity of their wafer foundry and provide general working capital.
In October 1999, the Company acquired 10,000,000 shares of ASI common stock for
approximately $41,600 (W50,000,000,000) representing the Company's first
installment of its commitment to invest in ASI over a four year period in
connection with ASI's Workout. The remaining portion of the obligation will be
canceled under the terms of the agreement to purchase K1, K2 and K3. The Company
owns 18% of ASI's common stock and members of the Kim family own 11%. As a
result of this ownership, and the relationship with ASI, the Company follows the
equity method of accounting for its investment in ASI.
Because the Company and ASI have reached agreement on terms to purchase K1,
K2 and K3, ASI's consolidated financial statements have been prepared to reflect
the packaging and test operations of ASI as discontinued operations. If the
Company is successful in acquiring K1, K2 and K3 and making our planned
additional equity investment in ASI, ASI will exit from the Workout program.
The following summary of consolidated financial information pertaining to
ASI for 1997, 1998 and 1999, reflecting the packaging and test operations of ASI
as discontinued operations, was derived from the consolidated financial
statements of ASI.
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
SUMMARY INCOME STATEMENT INFORMATION:
Sales............................................. $ 406,937 $ 221,098 $ 285,925
Income (loss)from continuing operations........... $ (102,039) $ (957,165) $ (169,759)
Net income (loss)................................. $ 41,430 $ (847,533) $ 109,865
SUMMARY BALANCE SHEET INFORMATION:
Total assets...................................... $2,922,114 $1,878,950 $1,487,469
Total liabilities................................. $2,662,612 $2,477,323 $1,785,219
</TABLE>
On May 17, 1999, the Company purchased certain assets and liabilities of
ASI's packaging and test business located in Kwangju, Korea ("K4"). The purchase
price for K4 was $575,000 in cash plus the assumption of approximately $7,000 of
employee benefit liabilities. The acquisition was accounted for as a purchase.
Accordingly, the results of K4 have been included in the accompanying
consolidated financial
F-13
<PAGE> 53
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
statements since the date of acquisition. The purchase price of $582,000 was
allocated to the fair value of the assets acquired, principally property plant
and equipment, of approximately $358,000 and liabilities assumed of
approximately $7,000. Goodwill resulting from the transaction of approximately
$223,000 will be amortized on a straight line basis over a 10 year period, and
is included in intangible assets in the Company's consolidated balance sheets at
December 31, 1999.
This acquisition was financed through a private placement completed by the
Company in May 1999 which raised approximately $603,600, net of debt issuance
costs of $21,400, through the issuance of $425,000 of senior notes and $200,000
in senior subordinated notes. The senior notes mature in May 2006 and have a
coupon rate of 9.25%. The senior subordinated notes mature in May 2009 and have
a coupon rate of 10.50%. The Company is required to pay interest semi-annually
in May and November for all of the notes. Subsequent to the purchase of K4 and
payment of related offering costs, the Company had approximately $29,714 of
proceeds remaining for working capital. The debt issuance costs have been
deferred and are included, net of amortization, in other non-current assets in
the Company's consolidated balance sheet at December 31, 1999. These deferred
costs are amortized over the life of the related notes.
In connection with the acquisition of K4, the Company has entered into a
transition services agreement with ASI. Pursuant to this agreement, ASI will
continue to provide many of the same non-manufacturing related services to K4
that it provided prior to the acquisition, including transportation and
shipping, human resources, and accounting and general administrative services.
The Company has incurred approximately $5,800 of costs during the year ended
December 31, 1999 for the services provided under this agreement. In addition,
the Company has also entered into an intellectual property license agreement
with ASI that was effective upon the closing of the acquisition.
To encourage the investment in K4, the Korean government has granted a tax
holiday on K4's operations. The tax holiday expires ten years after the earlier
of the first year K4 has taxable income or five years.
The following table displays unaudited pro forma consolidated results of
operations as though the acquisition of K4 had occurred as of the beginning of
the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Net revenues................................................ $1,577,594 $1,913,201
Net income.................................................. $ 18,119 $ 62,388
Pro forma net income........................................ $ 13,619
Basic net income per common share........................... $ .17 $ .52
Diluted net income per common share......................... $ .17 $ .52
Basic pro forma net income per common share................. $ .13
Diluted pro forma net income per common share............... $ .13
</TABLE>
The pro forma results include adjustments for goodwill amortization,
depreciation, interest expense on debt issued to finance the purchase of K4, and
income taxes. The pro forma results are not necessarily indicative of the
results the Company would actually have achieved if the acquisition had been
completed as of the beginning of each of the periods presented, nor are they
necessarily indicative of future consolidated results.
In 1997, 1998, and 1999, approximately 68%, 67% and 53%, respectively, of
the Company's packaging and test revenues as well as 100% of the Company's wafer
fabrication revenues in 1998 and 1999 (see Note 1) were derived from services
performed for the Company by ASI. By the terms of a long-standing agreement, the
Company has been responsible for marketing and selling ASI's semiconductor
packaging
F-14
<PAGE> 54
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
and test services, except to customers in Korea and Japan to whom ASI has
historically sold such services directly. During 1998, the Company became
responsible for marketing and selling ASI's semiconductor packaging and test
services to the majority of ASI's customers in Japan. The Company has worked
closely with ASI in developing new technologies and products. Effective January
1, 1998, the Company entered into five-year supply agreements with ASI giving
the Company the first right to market and sell substantially all of ASI's
packaging and test services and the exclusive right to market and sell all of
the wafer output of ASI's new wafer foundry, both of which have negotiable
pricing terms. These agreements are cancellable by either party upon five years
prior written notice at any time after the fifth anniversary of the effective
date. The Company's business, financial condition and operating results have
been and will continue to be significantly dependent on the ability of ASI to
effectively provide the contracted services on a cost-efficient and timely
basis. The termination of the Company's relationship with ASI for any reason, or
any material adverse change in ASI'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.
As of December 31, 1999, ASI was contingently liable under guarantees in
respect of debt of its non-consolidated subsidiaries and affiliates in the
aggregate amount of approximately $322 million.
Prior to the Initial Public Offering, (see Note 2), the Company 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
ASI. The Company currently does not depend on such financing arrangements.
ASI's business has been severely affected by the economic crisis in Korea.
ASI has traditionally operated with a significant amount of debt relative to its
equity and has contractually guaranteed the debt obligations of certain
affiliates and subsidiaries. These significant uncertainties may affect ASI's
future operations and its ability to maintain or refinance certain debt
obligations as they mature. ASI's plans to address these matters, which are
disclosed in ASI's financial statements, include entering into the Korean
financial restructuring program known as "Workout" in October 1998.
The Workout program is the result of an accord among Korean financial
institutions to assist in the restructuring of Korean business enterprises. This
process involves negotiation between the related banks and ASI, and does not
involve the judicial system. The Workout process also does not impact debts
outstanding with trade creditors, including balances due to/or from the Company.
ASI's operations have continued uninterrupted during the process, and we expect
ASI's operations to continue uninterrupted for the duration of the process.
The Workout as approved by the creditor banks in February 1999 contains the
following relief provisions for ASI:
- The creditor banks will allow ASI to defer repayment on principal of
ordinary loans until December 31, 2003. After December 31, 2003, bank
loans with repayment terms will be payable through readjustment of
repayment schedules on the basis of the repayment period as of October
24, 1998. For loans without repayment terms the schedule to repay
principal amounts will be determined by ASI and the creditor banks at the
end of such period.
- The creditor banks will allow ASI to defer repayment of principal under
capital leases until December 31, 1999, with payments of principal to
resume under a 7 year installment plan thereafter.
F-15
<PAGE> 55
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
- The creditor banks will allow ASI to roll over the maturity of its
Won-denominated debentures held by the creditor banks for an additional
three year term after currently scheduled maturity dates.
- The creditor banks will allow ASI to make no interest payments on
ordinary loans until December 31, 1999. The creditor banks will add
accrued interest to the principal amounts of these loans every three
months.
- The creditor banks will reduce interest rates on ASI's remaining
outstanding Won-denominated ordinary bank loans to 10% or the prime rate
of each creditor bank, whichever is greater. This would reduce ASI's
weighted average interest rate from 12.9% before the Workout to 10.5%
after the Workout.
- The creditor banks will give ASI a five year grace period until December
31, 2003 against enforcement of guarantees made by ASI for liabilities of
ASI's affiliates. In addition, interest will not accrue on guaranteed
obligations during the five year period.
- The creditor banks will provide to ASI a short-term loan of W50 billion
at the prime rate plus 1%, to be repaid with proceeds from the sale of
K4.
- The creditor banks will convert W250 billion ($208,000, using the
December 31, 1998 exchange rate of W1,207 to $1.00) of ASI debt held by
the creditor banks into: (1) W122.3 billion ($102,000 using the December
31, 1998 exchange rate) in equity shares of ASI, (2) W108.1 billion
($90,000 using the December 31, 1998 exchange rate) in five-year
non-interest bearing convertible debt and (3) W19.6 billion ($16,000) in
non-interest bearing loans. The conversion would take place in
installments over four years and at a conversion rate equal to W5,000 per
share, the par value of ASI's common stock. In order for the initial
conversion of debt to take place in accordance with the terms of the
Workout, ASI will have to undergo a series of corporate actions,
including a reverse stock split to bring the fair market value of its
equity shares to a price at least equal to the par value of such shares.
The creditor banks would time their conversions of ASI debt to coincide
with equity investments made in ASI by a third-party foreign investor
company, in the aggregate amount of $150,000 over a four year period.
The conversion of debt by the creditor banks was contingent on the
Company's commitment to invest $150,000 in ASI equity over a four-year period.
The Company has agreed to make an investment of $41,000 in 1999 and, assuming
certain additional conditions are met, invest an additional $109,000 between
years 2000 and 2002. As a result of the commitment to invest, ASI agreed to
reduce the K4 purchase price from $607,000 to $582,000. The Company's commitment
to ASI's creditor banks committing to an investment in ASI is contingent upon
the continuation of the Workout plan as approved, the continued effectiveness of
the Supply Agreements with ASI and coordination of proposed equity investments
with the conversion by the creditor banks of their ASI debt to equity. The
commitment letter provides that upon meeting these conditions, the Company would
invest $41,000 in 1999, 2000, and 2001 with a final investment of $27,000 in
2002. The Company would purchase the ASI shares at W5,000 per share. Since the
commitment is in U.S. dollars, the number of shares the Company would purchase
will vary based on the exchange rate of Korean won to U.S. dollars.
Assuming the creditor banks and ASI finalize and implement the Workout
under its original terms, the relative equity of ownership of ASI among the
creditor banks, the Kim family and the Company would be approximately 45%, 6%
and 32%, respectively (assuming an exchange rate of W1,135 to $1.00 and without
any future sales of ASI stock by these parties).
F-16
<PAGE> 56
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
The creditor banks have the right to terminate the Workout if ASI fails to
meet the conditions of the Workout, which includes conditions related to ASI's
financial performance. The Company believes that if the Workout is not finalized
by the creditor banks and ASI or if the creditor banks subsequently terminate
the Workout, the debt relief afforded to ASI pursuant to the Workout would be
terminated, and the creditor banks could reinstate and enforce the original
terms of ASI's debt, including accelerating ASI's obligations. If this were to
occur, ASI's and the Company's businesses could be harmed.
There can be no assurance that ASI will be able to satisfy the terms of the
proposed Workout agreement. Any inability of ASI to comply with the terms of the
proposed Workout agreement, generate cash flow from operations sufficient to
fund its capital expenditures and other working capital and liquidity
requirements could have a material adverse effect on ASI's ability to continue
to provide services and otherwise fulfill its obligations to the Company. The
ultimate outcome of these uncertainties cannot be determined presently and ASI's
financial statements do not include any adjustments that might result from these
uncertainties.
4. ACCOUNTS RECEIVABLE SALE AGREEMENT
Effective July 7, 1997, the Company entered into an agreement to sell
receivables (the "Agreement") with certain banks (the "Purchasers"). The
transaction qualifies as a sale under the provisions of SFAS No. 125 "Accounting
For Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Under the Agreement, the Purchasers have committed to purchase,
with limited recourse, all right, title and interest in selected accounts
receivable of the Company, up to a maximum of $100,000. In connection with the
Agreement, the Company established a wholly owned, bankruptcy remote subsidiary,
Amkor Receivables Corp., to purchase accounts receivable at a discount from the
Company on a continuous basis, subject to certain limitations as described in
the Agreement. Amkor Receivables Corp. simultaneously sells the accounts
receivable at the same discount to the Purchasers. The Agreement is structured
as a three year facility subject to annual renewals based upon the mutual
consent of the Company and purchasers.
The Agreement was renewed effective December 30, 1998 and December 29, 1999
with the next renewal date scheduled March 29, 2000. ASI had guaranteed the
Company's obligations under the agreement (See Note 3), however, ASI was
released from its obligations as guarantor effective December 30, 1998.
Proceeds, net of reduction in selected accounts receivable from the sale of
receivables were $84,400 in 1997 which has decreased by $12,900 and $2,200
during 1998 and 1999, respectively, due to a further reduction in selected
accounts receivable. Losses on receivables sold under the Agreement were
approximately $2,414, $4,693 and $4,280 in 1997, 1998 and 1999, respectively,
and are included in other expense, net. As of December 31, 1998 and 1999,
approximately $2,700 and $2,200, respectively, are included in current
liabilities for amounts to be refunded to the Purchasers as a result of a
reduction in selected accounts receivable.
F-17
<PAGE> 57
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
5. 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 and Korea, or at ASI on a
consignment basis. Components of inventories follow:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Raw materials and purchased components...................... $77,351 $81,379
Work-in-process............................................. 8,277 10,086
------- -------
$85,628 $91,465
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Land........................................................ $ 2,346 $ 38,349
Buildings and improvements.................................. 142,252 303,077
Machinery and equipment..................................... 534,314 883,057
Furniture, fixtures and other equipment..................... 40,502 52,866
Construction in progress.................................... 8,282 47,393
-------- ----------
727,696 1,324,742
Less -- Accumulated depreciation and amortization........... 311,585 464,974
-------- ----------
$416,111 $ 859,768
======== ==========
</TABLE>
7. INVESTMENTS
The Company's investments include investments in affiliated companies which
provide services to the Company (see Note 3) and certain other technology based
companies. Investments are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Equity Investment in ASI (18% at December 31, 1999)......... $ -- $39,927
------- -------
Other Equity Investments (20% - 50% owned)
Taiwan Semiconductor Technology Corporation............... 20,052 18,456
Other..................................................... 738 860
------- -------
Total other equity investments.................... 20,790 19,316
------- -------
Available for Sale.......................................... 4,686 4,429
------- -------
$25,476 $63,672
======= =======
</TABLE>
In October, 1999, the Company acquired 10,000,000 shares of ASI common
stock for approximately $41,600 (W50,000,000,000) representing the Company's
first installment of its planned investments in ASI over a four year period in
connection with ASI's Workout (see Note 3).
F-18
<PAGE> 58
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
In 1997, the Company recognized a loss of $17,291, resulting principally
from the impairment of value of its investment in ASI as well as the Company's
equity in loss of ASI for the year ended December 31, 1997. The amount of the
impairment loss was determined based upon the market value of the ASI shares on
the Korean Stock Exchange on February 16, 1998, the date that the Company sold
its investment in ASI common stock to AK Investments, Inc., an entity owned by
James J. Kim. In exchange for the shares, AK Investments, Inc. assumed $13,863
of the Company's long-term borrowings from AUSA.
The following summary of consolidated financial information pertaining to
ASI for 1997 was derived from the consolidated financial statements (see Note
3). No amounts are presented for 1998 as the investment was sold in February
1998.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
SUMMARY INCOME STATEMENT INFORMATION:
Sales....................................................... $ 406,937
Net income.................................................. $ 41,430
SUMMARY BALANCE SHEET INFORMATION:
Total assets................................................ $2,922,114
Total liabilities........................................... $2,662,612
</TABLE>
On October 21, 1998, the Company announced that it entered into a joint
venture, Taiwan Semiconductor Technology Corporation ("TSTC"), with Taiwan
Semiconductor Manufacturing Corporation, Acer Inc., United Test Center and
Chinfon Semiconductor & Technology Company. TSTC, which commenced operations in
1999, provides independent advanced integrated circuit ("IC") packaging services
primarily for the Taiwan market and Taiwan foundry output. The Company has
committed to invest an estimated total of $40,000 in TSTC. In October 1998, the
Company invested $10,000 as part of the second round of joint venture financing.
In December 1998, the Company purchased additional TSTC shares from ASI for
$10,000 which represented ASI's investment as part of the joint venture's
initial round of financing in which ATI did not participate. ASI did not
participate in the joint venture's second round of financing. No capital
contributions were required during 1999. As of December 31, 1999 the Company
owns approximately a 25% interest in TSTC and accordingly, the Company's
investment in TSTC is accounted for using the equity method of accounting.
8. SHORT-TERM CREDIT FACILITIES
At December 31, 1998 and 1999, short-term borrowings consisted of various
operating lines of credit and working capital facilities maintained by the
Company. These borrowings are secured by receivables, inventories or property.
These facilities, which are typically for one-year renewable terms, generally
bear interest at current market rates appropriate for the country in which the
borrowing is made (ranging from 10% to 11% at December 31, 1999). For 1998 and
1999, the weighted average interest rate on these borrowings was 11.9% and
11.7%, respectively. The unused portion of lines of credit was approximately
$82,000 at December 31, 1999.
F-19
<PAGE> 59
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
9. DEBT
Following is a summary of the Company's short-term borrowings and long-term
debt:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Short-term borrowings (see Note 8).......................... $ 30,430 $ 3,386
Senior notes, 9.25%, due May 2006 (See Note 3).............. -- 425,000
Senior subordinated notes, 10.5%, due May 2009 (See Note
3)........................................................ -- 200,000
Convertible subordinated notes, 5.75%, due May 2003 (See
Note 2)................................................... 207,000 53,435
Note payable, interest at bank's prime (8.8% at December 31,
1999), due in installments with balance due April 2004.... 12,747 11,472
Note payable, interest at LIBOR plus annual spread (10.25%
at December 31, 1998), due in installments with balance
due November 1999......................................... 7,000 --
Other, primarily capital lease obligations and other debt... 3,326 628
-------- --------
260,503 693,921
Less -- Short-term borrowings and current portion of
long-term debt............................................ (38,657) (6,465)
-------- --------
$221,846 $687,456
======== ========
</TABLE>
In the fourth quarter of 1999, the Company completed an early conversion of
convertible subordinated notes. As a result, the Company exchanged 12.1 million
shares of the Company's common stock for $153,565 of the Company's convertible
notes. The fair value of the shares of common stock issued in the exchanges in
excess of the shares required for conversion was $17,381, and was expensed
during the fourth quarter of 1999. This amount is included in other expense in
the accompanying consolidated statements of income.
Interest expense related to short-term borrowings and long-term debt is
presented net of interest income of $5,752, $9,072, and $19,905 in 1997, 1998
and 1999, respectively, in the accompanying consolidated statements of income.
The $53,435 of convertible notes mature in May 2003, the $425,000 of senior
notes mature in May 2006 and the $200,000 of senior subordinated notes mature in
May 2009. The senior notes and senior subordinated notes contain certain
covenants that could restrict the Company's ability and the ability of the
Company's subsidiaries to: incur additional indebtedness; pay dividends,
repurchase stock, prepay subordinate debt and make investments and other
restricted payments; create restrictions on the ability of the Company's
subsidiaries to pay dividends or make other payments; engage in sale and
leaseback transactions; create liens; enter into transactions with affiliates;
and sell assets or merge with or into other companies. These covenants are
subject to certain exceptions. The Company was in compliance with these
F-20
<PAGE> 60
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
covenants as of December 31, 1999. The principal payments required under other
long-term debt borrowings at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
2000........................................................ $ 3,079
2001........................................................ 2,647
2002........................................................ 2,549
2003........................................................ 2,549
2004........................................................ 1,276
Thereafter.................................................. --
-------
Total............................................. $12,100
=======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
U.S. Defined Contribution Plan
ATI has a defined contribution benefit plan covering substantially all U.S.
employees. Employees can contribute up to 13% of salary to the plan and ATI
matches 75% of the employee's contributions up to a defined maximum on an annual
basis. The expense for this plan was $959, $1,394 and $1,828 in 1997, 1998 and
1999, respectively.
Philippine Pension Plan
The Company's Philippine subsidiaries sponsor a defined benefit plan that
covers substantially all employees who are not covered by statutory plans.
Charges to expense are based upon costs computed by independent actuaries.
During 1998, the Company adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132
revise employers' disclosures about pensions and other postretirement benefit
plans. It does not change the measurement or recognition of this plan.
The components of net periodic pension cost for the Company's Philippine
defined benefit plan are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Service cost of current period.............................. $1,274 $1,618 $ 2,153
Interest cost on projected benefit obligation............... 957 1,209 1,563
Expected return on plan assets.............................. (534) (879) (1,083)
Amortization of transition obligation and actuarial
gains/losses.............................................. 81 79 137
------ ------ -------
Total pension expense............................. $1,778 $2,027 $ 2,770
====== ====== =======
</TABLE>
It is the Company's policy to make contributions sufficient to meet the
minimum contributions required by law and regulation.
F-21
<PAGE> 61
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
The following table sets forth the funded status of the Company's
Philippine defined benefit pension plan and the related changes in the projected
benefit obligation and plan assets:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year......... $10,428 $13,567
Service cost.............................................. 1,618 2,153
Interest cost............................................. 1,209 1,563
Actuarial loss/(gain)..................................... 194 (356)
Foreign exchange(gain)/loss............................... 348 (388)
Benefits paid............................................. (230) (1,155)
------- -------
Projected benefit obligation at end of year............... 13,567 15,384
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year............ 6,614 8,204
Actual return on plan assets.............................. (461) 2,107
Employer contribution..................................... 2,137 1,748
Foreign exchange (gain)/loss.............................. 144 (235)
Benefits paid............................................. (230) (1,155)
------- -------
Fair value of plan assets at end of year.................. 8,204 10,669
------- -------
Funded status:
Projected benefit obligation in excess of plan assets..... 5,363 4,715
Unrecognized actuarial loss............................... (2,546) (1,011)
Unrecognized transition obligation........................ (906) (826)
------- -------
Accrued pension costs..................................... $ 1,911 $ 2,878
======= =======
</TABLE>
The discount rate used in determining the projected benefit obligation was
12% as of December 31, 1998 and 1999. The rates of increase in future
compensation levels was 11% as of December 31, 1998 and 1999. The expected
long-term rate of return on plan assets was 12% as of December 31, 1998 and
1999. These rates reflect economic and market conditions in the Philippines.
The fair value of plan assets include an investment in our Company's common
stock of approximately $2,800 at December 31, 1999.
F-22
<PAGE> 62
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
11. INCOME TAXES
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and the tax bases of assets and liabilities. The
components of the provision for income taxes follow:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $ 16,126 $18,316 $ 9,928
State.................................................. 2,639 4,426 1,746
Foreign................................................ 28 724 5,508
-------- ------- -------
18,793 23,466 17,182
-------- ------- -------
Deferred:
Federal................................................ (4,991) 282 532
Foreign................................................ (6,724) 968 8,886
-------- ------- -------
(11,715) 1,250 9,418
-------- ------- -------
Total provision................................ $ 7,078 $24,716 $26,600
======== ======= =======
</TABLE>
The reconciliation between the taxes payable based upon the U.S. federal
statutory income tax rate and the recorded provision follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Federal statutory rate.................................. $ 21,352 $35,257 $ 36,162
State taxes, net of federal benefit..................... 1,285 2,877 2,028
S Corp. status of AEI through April 28, 1998............ (3,613) (4,500) --
Deferred taxes established at termination of S Corp.
status of AEI......................................... -- (1,954) --
Income of foreign subsidiaries subject to tax holiday... (5,106) (9,129) (14,860)
Foreign exchange (losses)/gains recognized for income
taxes................................................. (21,147) 12,602 8,023
Change in valuation allowance........................... 22,000 (8,079) (11,084)
Difference in rates on foreign subsidiaries............. (7,693) (3,377) (630)
Goodwill and other permanent differences................ -- 1,019 6,961
-------- ------- --------
Total......................................... $ 7,078 $24,716 $ 26,600
======== ======= ========
</TABLE>
The Company has structured its global operations to take advantage of lower
tax rates in certain countries and tax incentives extended to encourage
investment. AAAP has a tax holiday in the Philippines which expires at the end
of 2002. Foreign exchange (losses)/gains recognized for income taxes relate to
unrecognized net foreign exchange (losses)/gains on U.S. dollar denominated
monetary assets and liabilities. These (losses)/gains, which are not recognized
for financial reporting purposes as the U.S. dollar is the functional currency
(see Note 1), result in deferred tax assets that will be realized, for
Philippine tax reporting purposes, upon settlement of the related asset or
liability. The net deferred tax asset related to these losses increased in 1997
as a result of the dramatic devaluation of the Philippine peso relative to the
U.S. dollar. These assets decreased in 1998 and 1999 as they were realized for
Philippine tax reporting purposes. The Company's ability to utilize these assets
depends on the timing of the
F-23
<PAGE> 63
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
settlement of the related assets or liabilities and the amount of taxable income
recognized within the Philippine statutory carryforward limit of three years.
During 1999, AAP reversed a valuation allowance established in prior years for a
portion of the related deferred tax assets. During 1999, AAP realized all
foreign net operating loss carryforwards established in 1998. In addition,
minimum corporate income tax credits of $1,182 reversed to offset current
foreign tax obligations.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Retirement benefits................................... $ 816 $ 1,038 $ 463
Other accrued liabilities............................. 100 4,571 2,579
Receivables........................................... 227 1,717 523
Inventories........................................... 6,509 2,583 3,892
Property, plant and equipment......................... -- (2,139) (2,539)
Unrealized foreign exchange losses.................... 37,447 15,805 480
Unrealized foreign exchange gains..................... (9,084) (3,530) (2,175)
Loss on sale of investment in ASI..................... -- 1,620 1,620
Net foreign operating loss carryforward............... -- 3,646 --
Minimum corporate income tax.......................... -- 1,182 --
Equity in earnings of investees....................... -- -- 1,148
Other................................................. (2) 191 191
-------- -------- -------
Net deferred tax asset................................ 36,013 26,684 6,182
Valuation allowance................................... (22,000) (13,921) (2,837)
-------- -------- -------
Net deferred tax asset................................ $ 14,013 $ 12,763 $ 3,345
======== ======== =======
</TABLE>
Non-U.S. income before taxes and minority interest of the Company was
approximately $33,000, $54,000 and $74,000 in 1997, 1998 and 1999, respectively.
The company does not pay or record U.S. income taxes on the undistributed
earnings of its foreign subsidiaries as long as those earnings are permanently
reinvested in the companies that produced them. These cumulative undistributed
earnings are included in consolidated retained earnings on the balance sheet and
amounted to approximately $112,000 as of December 31, 1999. An estimated $27,000
in U.S. income and foreign withholding taxes would be due if these earnings were
remitted as dividends.
At December 31, 1998 and 1999 current deferred tax assets of $9,838 and
$5,793, respectively, are included in other current assets and noncurrent
deferred tax assets of $2,925 and $2,324, respectively, are included in other
assets in the consolidated balance sheet. The Company's net deferred tax assets
include amounts which, in the opinion of management, are more likely than not to
be realizable through future taxable income. In addition, at December 31, 1999,
noncurrent deferred tax liabilities of $4,772 are included in other noncurrent
liabilities in the consolidated balance sheet.
The Company's tax returns have been examined through 1995 in the
Philippines and through 1994 in the U.S. The tax returns for open years are
subject to changes upon final examination. Changes in the mix of income from the
Company's foreign subsidiaries, expiration of tax holidays and changes in tax
laws or regulations could result in increased effective tax rates for the
Company.
F-24
<PAGE> 64
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
12. STOCKHOLDERS' EQUITY
The common stock and additional paid-in capital of the Company are
reflected at the original cost of the Amkor Companies. In connection with the
Reorganization (see Note 1), the Company has authorized 500,000,000 shares of
$.001 par value common stock, of which 117,860,000 and 130,659,772 were issued
and outstanding at December 31, 1998 and 1999, respectively. In addition, the
Company has authorized 10,000,000 shares of $.001 par value preferred stock,
designated as Series A.
At the date of the Reorganization consolidated retained earnings included
$3,243 related to AKI. This amount is reflected as a reduction in retained
earnings in 1998 as a result of the purchase of AKI by the Company.
The receivable from stockholder included in stockholders equity represents
the balance due from Mr. & Mrs. Kim and the Kim Family Trusts related to the
finalization of AEI's tax returns (See Note 11).
Changes in the division equity account reflected in the consolidated
statement of stockholders' equity represent the net cash flows resulting from
the operations of the Chamterry semiconductor packaging and test business for
1997. Such cash flows have been presented as distributions or capital
contributions since these amounts were retained in Chamterry Enterprises, Ltd.
for the benefit of the owners.
The line items included in other comprehensive income, prior to 1999, as
presented in the consolidated statements of stockholders' equity, relate to S
Corporation activity prior to 1998. Accordingly, the related amounts reflected
in other comprehensive income and accumulated other comprehensive income in the
consolidated statements of stockholders' equity and the consolidated balance
sheets are net of taxes at an effective tax rate of 0%. Unrealized losses on
investments during 1998 and 1999 have been tax effected at the applicable
statutory rates.
13. EARNINGS PER SHARE
Net income per common share was calculated by dividing net income and pro
forma net income by the weighted average number of shares outstanding for the
respective periods, adjusted for the effect of the Reorganization (see Note 1)
and the Initial Public Offering (see Note 2).
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which
requires dual presentation of basic and diluted earnings per share ("EPS") on
the face of the income statement. Basic EPS is computed using only the weighted
average number of common shares outstanding for the period while diluted EPS is
computed assuming conversion of all dilutive securities, such as options. Both
the Company's basic and diluted as well as the Company's basic pro forma and
diluted pro forma per share amounts are the same for the year ended December 31,
1997. The Company's basic and diluted per share
F-25
<PAGE> 65
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
amounts for the years ended December 31, 1998 and 1999 as well as the Company's
basic proforma and diluted proforma per share amounts for the year ended
December 31, 1998 are calculated as follows:
<TABLE>
<CAPTION>
WEIGHTED
EARNINGS AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- -------------- ---------
<S> <C> <C> <C>
Earnings per Share -- Year Ended December 31, 1998
Basic earnings per share......................... $75,460 106,221,000 $0.71
Impact of Convertible Notes...................... 5,672 10,334,000
Dilutive effect of options....................... -- 41,000
------- ----------- -----
Diluted earnings per share....................... $81,132 116,596,000 $0.70
======= =========== =====
Pro forma Earnings per Share -- Year Ended December
31, 1998 (unaudited)
Basic pro forma earnings per share............... $70,960 106,221,000 $0.67
Impact of Convertible Notes...................... 5,672 10,334,000
Dilutive effect of options....................... -- 41,000
------- ----------- -----
Diluted pro forma earnings per share............. $76,632 116,596,000 $0.66
======= =========== =====
Earnings per Share -- Year Ended December 31, 1999
Basic earnings per share......................... $76,719 119,341,000 $0.64
Impact of Convertible Notes...................... 8,249 14,228,000
Dilutive effect of options....................... -- 1,498,000
------- ----------- -----
Diluted earnings per share....................... $84,968 135,067,000 $0.63
======= =========== =====
</TABLE>
14. STOCK COMPENSATION PLANS
1998 Director Option Plan. The Company's 1998 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in January 1998 and was
approved by the Company's stockholders in April 1998. A total of 300,000 shares
of Common Stock have been reserved for issuance under the Director Plan. The
option grants under the Director Plan are automatic and non-discretionary.
Generally, the Director Plan provides for an initial grant of options to
purchase 15,000 shares of Common Stock to each new non-employee director of the
Company (an "Outside Director") when such individual first becomes an Outside
Director. In addition, each Outside Director will automatically be granted
subsequent options to purchase 5,000 shares of Common Stock on each date on
which such Outside Director is re-elected by the stockholders of the Company,
provided that as of such date such Outside Director has served on the Board of
Directors for at least six months. The exercise price of the options is 100% of
the fair market value of the Common Stock on the grant date, except that with
respect to initial grants to directors on the effective date of the Director
Plan the exercise price was 94% of the Initial Public Offering price per share
of Common Stock in the Initial Public Offering. The term of each option is ten
years and each option granted to an Outside Director vests over a three year
period. The Director Plan will terminate in January 2008 unless sooner
terminated by the Board of Directors. As of December 31, 1999, there were 90,000
options outstanding under the Director Plan.
1998 Stock Plan. The Company's 1998 Stock Plan (the "1998 Plan") generally
provides for the grant to employees, directors and consultants of stock options
and stock purchase rights. The 1998 Plan was adopted by the Board of Directors
in January 1998 and was approved by the Company's stockholders in April 1998.
Unless terminated sooner, the 1998 Plan will terminate automatically in January
2008. The
F-26
<PAGE> 66
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
maximum aggregate number of shares which may be optioned and sold under the 1998
Plan is 5,000,000 plus an annual increase to be added on each anniversary date
of the adoption of the 1998 Plan.
Unless determined otherwise by the Board of Directors or a committee
appointed by the Board of Directors, options and stock purchase rights granted
under the 1998 Plan are not transferable by the optionee. Generally, the
exercise price of all stock options granted under the 1998 Plan must be at least
equal to the fair market value of the shares on the date of grant. In general,
the options granted will vest over a four year period and the term of the
options granted under the 1998 Plan may not exceed ten years. As of December 31,
1999, there were 4,775,098 options outstanding under the 1998 Plan.
1998 Stock Option Plan for French Employees. The 1998 Stock Option Plan for
French Employees (the "French Plan") was approved by the Board of Directors in
April 1998. Unless terminated sooner, the French Plan will continue in existence
for 5 years. The French Plan provides for the granting of options to employees
of the Company's French subsidiaries (the "French Subsidiaries"). A total of
250,000 shares of Common Stock have been reserved for issuance under the French
Plan plus an annual increase to be added on each anniversary date of the
adoption of the French Plan. In general, stock options granted under the French
Plan vest over a four year period, the exercise price for each option granted
under the French Plan shall be 100% of the fair market value of the shares of
Common Stock on the date the option is granted and the maximum term of the
option must not exceed ten years. Shares subject to the options granted under
the French Plan may not be transferred, assigned or hypothecated in any manner
other than by will or the laws of descent or distribution before the date which
is five years after the date of grant. As of December 31, 1999, there were
200,450 options outstanding under the French Plan.
A summary of the status of the Company's stock option plans follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Balance at January 1, 1998................................ -- $ --
Granted................................................... 3,974,200 $10.01
Exercised................................................. -- $ --
Cancelled................................................. 150,300 $11.00
--------- ------
Balance at December 31, 1998.............................. 3,823,900 $ 9.97
--------- ------
Exercisable at December 31, 1998.......................... -- $ --
========= ======
Balance at January 1, 1999................................ 3,823,900 $ 9.97
Granted................................................... 1,468,450 $10.62
Exercised................................................. 75,534 $10.49
Cancelled................................................. 151,268 $ 9.91
--------- ------
Balance at December 31, 1999.............................. 5,065,548 $10.15
--------- ------
Exercisable at December 31, 1999.......................... 1,363,644 $ 9.82
========= ======
</TABLE>
F-27
<PAGE> 67
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
Significant option groups outstanding at December 31, 1999 and the related
weighted average exercise price and remaining contractual life information are
as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------- -------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE REMAINING
SHARES PRICE SHARES PRICE LIFE (YEARS)
--------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Options with Exercise Price of:
$16.56 - $28.25..................... 223,950 $18.73 -- -- 9.79
$10.00 - $11.00..................... 3,035,405 $10.98 1,148,538 $11.00 8.37
$ 8.06 - $ 9.63..................... 1,083,050 $ 9.06 10,000 $9.14 9.33
$ 5.66 - $ 7.97..................... 723,143 $ 5.67 205,106 $5.66 8.85
--------- ------ --------- ----- ----
Options outstanding at December 31,
1999................................ 5,065,548 1,363,644
========= =========
</TABLE>
A summary of the weighted average fair value of options at grant date
granted during the year ended December 31, 1998 and 1999 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE GRANT DATE
SHARES PER SHARE FAIR VALUES
--------- ---------------- ----------------
<S> <C> <C> <C>
Options granted during 1998:
Options whose exercise price is greater
than the market price on grant date... 42,600 $11.00 $2.22
--------- ------ -----
Options whose exercise price equals
market price on grant date............ 3,901,600 $ 9.99 $4.31
--------- ------ -----
Options whose exercise price is less than
the market price on grant date........ 30,000 $10.34 $4.97
========= ====== =====
Options granted during 1999:
Options whose exercise price equals
market price on grant date............ 1,468,450 $10.62 $6.33
========= ====== =====
</TABLE>
In order to calculate the fair value of stock options at date of grant, the
Company used the Black-Scholes option pricing model. The following assumptions
were used: expected option term -- 4 years, stock price volatility factor -- 47%
and 75% for 1998 and 1999 respectively, dividend yield -- 0%, and risk free
interest rate -- 5.38% and 5.52% for 1998 and 1999, respectively.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
January 1998 and was approved by the stockholders in April 1998. A total of
1,000,000 shares of common stock have been made available for sale under the
Purchase Plan and an annual increase is to be added on each anniversary date of
the adoption of the Purchase Plan. Employees (including officers and employee
directors of the Company but excluding 5% or greater stockholders) are eligible
to participate if they are customarily employed for at least 20 hours per week
and for more than five months in any calendar year. The Purchase Plan permits
eligible employees to purchase common stock through payroll deductions, which
may not exceed 15% of the compensation an employee receives on each payday. The
initial offering period began on October 1, 1998 with a seven-month offering
period. All subsequent offering periods will be consecutive six-month periods
beginning on May 1, 1999, subject to change by the Board of Directors. Each
participant will be granted
F-28
<PAGE> 68
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
an option on the first day of an offering period, and shares of Common Stock
will be automatically purchased on the last date of each offering period. The
purchase price of the Common Stock under the Purchase Plan will be equal to 85%
of the lesser of the fair market value per share of Common Stock on the start
date of the offering period or on the purchase date. Employees may end their
participation in an offering period at any time, and participation ends
automatically on termination of employment with the Company. The Purchase Plan
will terminate in January 2008, unless sooner terminated by the Board of
Directors.
Under the Purchase Plan, for the offering periods ending April 30, 1999 and
October 31, 1999, the Company sold 399,310 and 187,445 shares, respectively. In
addition, the Company has withheld $540 through payroll deductions as of
December 31, 1999. The fair market value per share of the Company's common stock
was $4.56 on October 1, 1998, the start date of the first offering period, $9.53
on May 1, 1999 and $21.31 on November 1, 1999. The fair values of the purchase
rights granted for the offering periods beginning October 1, 1998, May 1, 1999
and November 1, 1999 were $1.29, $3.21, and $6.99 respectively, which was
estimated using the Black Scholes option pricing model with the following
assumptions: expected option term -- 7 months for the offering period beginning
October 1, 1998 and 6 months for the other offering periods; stock price
volatility factor -- 47% and 75% for the offering period beginning October 1,
1998 and
the other offering periods, respectively; dividend yield for all offering
periods -0%; risk-free interest rate -5.38% and 5.52% for the offering period
beginning October 1, 1998 and the other offering periods, respectively.
The Company accounts for its stock compensation plans as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. Accordingly, no compensation cost
has been recognized in the Consolidated Statements of Income. Had the Company
recorded compensation expense for its stock compensation plans, as provided by
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's reported
net income and basic and diluted earnings per share, which reflects pro forma
adjustments for income taxes for 1997 and 1998 (see Note 20), would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net Income:
As reported............................................ $39,668 $70,960 $76,719
Pro forma.............................................. $39,668 $69,313 $72,033
Earnings per share:
Basic:
As reported............................................ $ 0.48 $ 0.67 $ 0.64
Pro forma.............................................. $ 0.48 $ 0.65 $ 0.60
Diluted:
As reported............................................ $ 0.48 $ 0.66 $ 0.63
Pro forma.............................................. $ 0.48 $ 0.64 $ 0.59
</TABLE>
15. RELATED-PARTY TRANSACTIONS
At December 31, 1997, the Company owned 8.1% of the outstanding stock of
ASI (see Note 7), and ASI owned 40% of AAP. On February 16, 1998, the Company
sold its investment in ASI common stock for $13,863 to AK Investments, Inc.
based on the market value of ASI shares on the Korean Stock
F-29
<PAGE> 69
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
Exchange. On June 1, 1998 the Company purchased ASI's interest in AAP for
approximately $34,000 (see Note 18).
The Company previously met a significant portion of its financing from
financing arrangements provided by AUSA. A majority of the amount 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
test service charges and wafer fabrication service charges from ASI. Based on
guarantees provided by ASI, AUSA obtained for the benefit of the Company a
continuous series of short-term financing arrangements which generally were less
than six months in duration, and typically were 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 were significant. Purchases from ASI
through AUSA were $527,858, $573,791 and $714,475 for 1997, 1998 and 1999,
respectively. Charges from AUSA for interest and bank charges were $6,002,
$2,215 and $1,416 for 1997, 1998 and 1999, respectively. Excluding the $20,000
balance due from ASI at December 31, 1998 for prepaid wafer foundry service
charges (see discussion below), the net amounts payable to ASI and AUSA were
$8,357 and $28,301 at December 31, 1998 and 1999, respectively.
To facilitate capacity expansion for new product lines, certain customers
advanced the Company funds to purchase certain equipment to fulfill such
customers forecasts. In certain cases, the customer has requested that the
equipment be installed in the ASI factories. In these cases, the Company
receives funds from the customer and advances the funds to ASI. ASI in turn
purchases the necessary equipment. ASI repays the Company through a reduction of
the monthly processing charges related to the customer product being assembled.
The Company will reduce its obligation to the customer through a reduction in
the accounts receivable, due from the customer, at the time services are billed.
As of December 31, 1998 and 1999 this amount was approximately $2,600 and
$1,141, respectively.
On August 1, 1997, the Company sold its equity investment in Anam
Semiconductor & Technology Co., Ltd. ("AST"), an affiliate of ASI, and certain
investments and notes receivable from companies unrelated to the semiconductor
packaging and test business to AK Investments, Inc., at cost ($49,740) and AK
Investments, Inc. assumed $49,740 of the Company's long-term borrowings from
Anam USA, Inc. Management estimates that the fair value of these investments and
notes receivable approximated the carrying value at August 1, 1997. Subsequent
to the sale on August 1, 1997 the Company loaned AK Investments, Inc. $12,800
for the purchase of additional investments. The amount outstanding on this loan
at December 31, 1998 and 1999 was $59 and $0, respectively.
The Company utilizes AST as a key supplier of leadframes. Historically, the
Company has paid AST for these services on net 30-day terms. Effective at the
end of July 1998, the Company changed its payment policy from net 30-days, to
paid-in advance. Accordingly the Company now pays for its materials before
shipment. This change in payment policy resulted in an advance to AST which is
reflected in the current portion of Due from Affiliate. As of December 31, 1998
and 1999, the balance paid in advance to AST was approximately $3,500 and
$1,500, respectively. Payments to AST were approximately $26,000, $32,500 and
$33,000 during 1997, 1998 and 1999, respectively.
Anam Engineering and Construction, an affiliate of ASI, built the packaging
facility for AAAP in the Philippines. Payments to Anam Engineering and
Construction were $3,844, $869 and $3,881 in 1997, 1998 and 1999, respectively.
Anam Precision Equipment and Anam Instruments manufacture certain equipment used
by the Philippine operations. Payments to Anam Precision Equipment and Anam
Instruments were $4,211, $10,272 and $14,610 in 1997, 1998 and 1999,
respectively.
F-30
<PAGE> 70
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
A principal stockholder of the Company has extended guarantees on behalf of
the Company in the amount of $91,000 and $16,000 at December 31, 1998 and 1999,
respectively. Also in 1997, a company controlled by this stockholder purchased
investments in the amount of $49,740 (see Note 7).
The Company leases office space in West Chester, Pennsylvania from certain
stockholders of the Company. The lease expires in 2006. The Company has the
option to extend the lease for an additional 10 years through 2016. On September
11, 1997, the office previously being leased in Chandler, Arizona was purchased
from certain stockholders of the Company. The total purchase price of the
building ($5,710) represented the carrying value to the stockholders. Amounts
paid for these leases in 1997, 1998 and 1999 were $1,458, $1,118 and $1,140,
respectively.
At December 31, 1998 and 1999, the Company had net balances due from
affiliates other than ASI and AUSA of $27,510 and $24,524, respectively.
Realization of these balances is dependent upon the ability of the affiliates to
repay the amounts due. In management's opinion, these receivables are recorded
at the net realizable value.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop the estimates for fair value. Accordingly, these estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major
financial institutions and expose the Company to market and credit risks and may
at times be concentrated with certain counterparties or groups of
counterparties. The creditworthiness of counterparties is continually reviewed,
and full performance is anticipated.
The carrying amounts reported in the balance sheet for short-term
investments, due from affiliates, other accounts receivable, due to affiliates,
accrued expenses and accrued income taxes approximate fair value due to the
short-term nature of these instruments. The methods and assumptions used to
estimate the fair value of other significant classes of financial instruments is
set forth below:
Cash and Cash Equivalents. Cash and cash equivalents are due on demand or
carry a maturity date of less than three months when purchased. The carrying
amount of these financial instruments is a reasonable estimate of fair value.
Available for sale investments. The fair value of these financial
instruments was estimated based on market quotes, recent offerings of similar
securities, current and projected financial performance of the company and net
asset positions.
Short-term borrowings. Short-term borrowings have variable rates that
reflect currently available terms and conditions for similar borrowings. The
carrying amount of this debt is a reasonable estimate of fair value.
Long-term debt. Long-term debt balances have variable rates that reflect
currently available terms and conditions for similar debt. The carrying amount
of this debt is a reasonable estimate of fair value.
Senior Notes. The fair value of these financial instruments at December 31,
1999 is estimated to be $416,500 based on available market quotes.
Senior Subordinated Notes. The fair value of these financial instruments
at December 31, 1999 is estimated to be $199,000 based on available market
quotes.
F-31
<PAGE> 71
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
Convertible Subordinated Notes. The fair value of these financial
instruments at December 31, 1999 is estimated to be $115,420 based on available
market quotes.
17. 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, either individually or in the aggregate, 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 is currently engaged in negotiations regarding amounts due
under a technology license agreement with a third party. To date, this dispute
has not involved the judicial systems. The Company has accrued its estimate of
amounts due under this agreement. However, depending on the results of the
negotiations, the ultimate amount payable could be less than the amount accrued
or exceed the amount accrued by up to $7,700.
Net future minimum lease payments under operating leases that have initial
or remaining noncancelable lease terms in excess of one year at December 31,
1999, are:
<TABLE>
<S> <C>
2000........................................................ $ 9,736
2001........................................................ 8,633
2002........................................................ 5,966
2003........................................................ 5,139
2004........................................................ 3,940
Thereafter.................................................. 77,312
--------
Total (net of minimum sublease income of
$3,862)........................................ $110,726
========
</TABLE>
Rent expense, net of sublease income of $366, $575 and $578 for 1997, 1998
and 1999, respectively, amounted to $6,709, $7,751 and $10,443 for 1997, 1998
and 1999, respectively.
The Company has various purchase commitments for materials, supplies and
capital equipment incidental to the ordinary conduct of business. As of December
31, 1999 the Company had commitments for capital equipment of approximately
$48,524. In the aggregate, such commitments are not at prices in excess of
current market.
18. ACQUISITIONS
On July 1, 1999, the Company acquired the stock of AAPMC for $3,800, which
was paid to ASI during June 1999. AAPMC supplies machine tooling used by the
Company at its Philippine operations. As an interim step to this acquisition,
during April 1999, the Company assumed and repaid $5,700 of AAPMC's debt. The
acquisition was financed through available working capital and was accounted for
as a purchase. Accordingly, the results of AAPMC have been included in the
accompanying consolidated financial statements since the date of acquisition and
goodwill of approximately $2,000 was recorded as of the date of acquisition and
will be amortized on a straight line basis over a ten year period. Goodwill, net
of amortization, is included in intangible assets in the Company's consolidated
balance sheets at December 31, 1999. The historical operating results of AAPMC
are not material in relation to the Company's operating results.
On June 1, 1998, the Company purchased ASI's 40% interest in AAP for
$33,750. The acquisition was accounted for using the purchase method of
accounting which resulted in the elimination of the
F-32
<PAGE> 72
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
minority interest liability reflected on the consolidated balance sheet and the
recording of approximately $23,910 of goodwill which is being amortized over 10
years.
19. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," during the fourth quarter of 1998. The
Company has identified two reportable segments (packaging and test services and
wafer fabrication services) that are managed separately because the services
provided by each segment require different technology and marketing strategies.
Packaging and test services: Through its three factories located in the
Philippines, its Korean Factory, K4, as well as the three ASI factories in
Korea, under contract, the Company offers a complete and integrated set of
packaging and test services including IC packaging design, leadframe and
substrate design, IC package assembly, final testing, burn-in, reliability
testing and thermal and electrical characterization.
Wafer fabrication services: Through its wafer fabrication services
division, the Company provides marketing, engineering, and support services for
ASI's deep submicron CMOS foundry, under a long-term supply agreement.
Sales to Intel Corporation for packaging and test accounted for
approximately $340,000, $324,000 and $269,000 for the years ended December 31,
1997, 1998 and 1999, respectively. In addition, TI accounted for approximately
$25,000 of packaging and test revenues and $291,000 of wafer fabrication service
revenues during the year ended December 31, 1999. Revenues for services provided
to TI prior to 1999 were less than 10% of total revenue.
The accounting policies for segment reporting are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
evaluates its operating segments based on operating income.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes the
elimination of inter-segment balances and corporate assets which include cash
and cash equivalents, non-operating balances due from affiliates, investment in
ASI and TSTC (see Note 6) and other investments.
<TABLE>
<CAPTION>
PACKAGING WAFER
AND TEST FABRICATION OTHER TOTAL
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Net Revenues.......................... $1,617,235 $292,737 $ -- $1,909,972
Gross Profit.......................... $ 303,467 $ 29,279 $ -- $ 332,746
Operating Income...................... $ 158,283 $ 17,794 $ -- $ 176,077
Depreciation and Amortization......... $ 178,771 $ 1,561 $ -- $ 180,332
Capital Expenditures.................. $ 603,173 $ 2,536 $ -- $ 605,709
Total Assets.................. $1,391,105 $ 37,011 $326,973 $1,755,089
Year ended December 31, 1998:
Net Revenues.......................... $1,452,285 $115,698 $ -- $1,567,983
Gross Profit.......................... $ 243,479 $ 17,354 $ -- $ 260,833
Operating Income...................... $ 124,462 $ 8,274 $ -- $ 132,736
Depreciation and Amortization......... $ 118,676 $ 563 $ -- $ 119,239
Capital Expenditures.................. $ 102,142 $ 5,747 $ -- $ 107,889
Total Assets.................. $ 655,695 $ 65,941 $281,961 $1,003,597
</TABLE>
F-33
<PAGE> 73
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
<TABLE>
<CAPTION>
PACKAGING WAFER
AND TEST FABRICATION OTHER TOTAL
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Net Revenues.......................... $1,455,761 $ -- $ -- $1,455,761
Gross Profit.......................... $ 213,092 $ -- $ -- $ 213,092
Operating Income...................... $ 104,903 $ (4,062) $ -- $ 100,841
Depreciation and Amortization......... $ 81,770 $ 94 $ -- $ 81,864
Capital Expenditures.................. $ 176,858 $ 2,132 $ -- $ 178,990
Total Assets.................. $ 703,662 $ 2,068 $149,862 $ 855,592
</TABLE>
The following table presents net revenues by country based on the location
of the customer:
<TABLE>
<CAPTION>
NET REVENUES
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
United States..................................... $1,050,048 $1,124,764 $1,316,147
Foreign countries................................. 405,713 443,219 593,826
---------- ---------- ----------
Consolidated...................................... $1,455,761 $1,567,983 $1,909,972
========== ========== ==========
</TABLE>
The following table presents property, plant and equipment based on the
location of the asset:
<TABLE>
<CAPTION>
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
United States............................................. 37,845 48,851 48,438
Philippines............................................... 388,653 366,717 448,644
Korea..................................................... -- -- 362,144
Other foreign countries................................... 563 543 542
------- ------- -------
Consolidated.............................................. 427,061 416,111 859,768
======= ======= =======
</TABLE>
The following supplementary information presents net revenues allocated by
product family for the packaging and test segment:
<TABLE>
<CAPTION>
NET REVENUES
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Traditional Leadframe............................. $ 833,527 $ 603,222 $ 559,563
Advanced Leadframe................................ 311,988 342,866 412,395
Laminates......................................... 251,257 438,034 561,181
Test and Other.................................... 58,989 68,163 84,096
---------- ---------- ----------
Consolidated...................................... $1,455,761 $1,452,285 $1,617,235
========== ========== ==========
</TABLE>
20. PRO FORMA ADJUSTMENTS (UNAUDITED)
Statement of Income
Pro forma adjustments are presented for 1997 and 1998 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 Reorganization had
occurred at the beginning of the period presented.
F-34
<PAGE> 74
AMKOR TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND DOLLAR PER SHARE DATA)
21. SUBSEQUENT EVENT
On February 28, 2000 the company announced a definitive agreement with ASI
to acquire ASI's three remaining packaging and test facilities and to make
additional equity investments in ASI. See Note 3.
F-35
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Amkor Technology Korea, Inc.
We have audited the accompanying balance sheet of Amkor Technology Korea,
Inc. (the "Company") as of December 31, 1999, and the related statements of
operations, stockholder's equity, and cash flows for the period from February 19
(date of incorporation) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amkor Technology Korea, Inc.
as of December 31, 1999, and the results of its operations and its cash flows
for the period from February 19 (date of incorporation) to December 31, 1999 in
conformity with generally accepted accounting principles in the United States of
America.
/s/ SAMIL ACCOUNTING CORPORATION
--------------------------------
Seoul, Korea
January 15, 2000
F-36
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Anam Semiconductor, Inc.
We have audited the accompanying statements of net assets of the Seongsu,
Pucheon and Pupyong Packaging Businesses of Anam Semiconductor, Inc. (the
"Seongsu, Pucheon and Pupyong Packaging Businesses" and "Anam") as of December
31, 1999 and 1998 and the related statements of operations, changes in net
assets and cash flows for the years ended December 31, 1999, 1998 and 1997.
These financial statements are the responsibility of the Seongsu, Pucheon and
Pupyong Packaging Businesses' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Seongsu, Pucheon and
Pupyong Packaging Businesses as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for the years ended December 31, 1999,
1998 and 1997, in conformity with generally accepted accounting principles in
the United States of America.
As discussed in Note 1 to the accompanying financial statements, the
Seongsu, Pucheon and Pupyong Packaging Businesses' revenues are generated
primarily from semiconductor packaging and test services provided to Amkor
Technology Inc. ("Amkor") pursuant to supply agreements. The Seongsu, Pucheon
and Pupyong Packaging Businesses are dependent upon this support from Amkor.
As discussed in Note 3 to the accompanying financial statements, the
operations of the Seongsu, Pucheon and Pupyong Packaging Business, and those of
similar companies in the Republic of Korea, have been significantly affected,
and may continue to be affected for the foreseeable future, by the general
adverse economic condition in the Republic of Korea and in the Asia Pacific
region.
As more fully described in Note 4 to the accompanying financial statements,
on October 23, 1998, Anam entered into the Korean financial restructuring
program known as the "Workout Program". The Workout Program is the result of an
accord among financial institutions to assist in the restructuring of Korean
business enterprises and does not involve the judicial system. On February 23,
1999, Anam was granted certain economic concessions through the Workout Program
which was approved by its creditors committee.
/s/ SAMIL ACCOUNTING CORPORATION
--------------------------------------
Seoul, Korea
January 25, 2000, except as to Note 14,
which is as of February 28, 2000
F-37
<PAGE> 77
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESSES
OF ANAM SEMICONDUCTOR, INC.
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
THOUSANDS OF U.S.
DOLLARS
--------------------
AS OF DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ --
Due from corporate, current............................... 277,918 70,151
Accounts and notes receivable
Trade, net of allowance for doubtful accounts.......... 3,416 4,907
Due from affiliates, net of allowance for doubtful
accounts.............................................. 26,844 5,826
Other.................................................. 3,653 3,480
Inventories............................................... 7,984 6,190
Advances.................................................. 1,281 1,113
Prepaid expenses and other current assets................. 1,154 601
Deferred taxes, current................................... 231 1,482
-------- --------
Total current assets.............................. 322,481 93,750
Property, plant and equipment, net.......................... 404,384 498,555
Due from corporate, non-current............................. 277 1,622
Deferred taxes, non-current................................. 41,656 60,531
Other....................................................... 4,953 7,013
-------- --------
Total assets...................................... 773,751 661,471
-------- --------
LIABILITIES
CURRENT LIABILITIES:
Corporate borrowings, current............................. 14,788 37,253
Trade accounts payable.................................... 28,298 9,557
Other accounts payable.................................... 23,062 3,467
Accrued expenses.......................................... 11,098 33,112
Other current liabilities................................. 2,747 3,876
-------- --------
Total current liabilities......................... 79,993 87,265
Corporate borrowings, non-current........................... 124,294 160,032
Accrued severance benefits, net............................. 45,122 48,849
-------- --------
Total liabilities................................. 249,409 296,146
-------- --------
Commitments and contingencies
NET ASSETS.................................................. $524,342 $365,325
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 78
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESSES
OF ANAM SEMICONDUCTOR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
--------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales...................................................... $435,659 $409,929 $599,575
Cost of sales.............................................. 289,233 283,995 408,435
-------- -------- --------
Gross profit............................................... 146,426 125,934 191,140
Operating expenses:
Selling and administrative............................... 16,120 34,567 45,850
Research and development................................. 3,383 1,267 1,894
-------- -------- --------
Operating income........................................... 126,923 90,100 143,396
-------- -------- --------
Non-operating income (expense):
Interest income (expense), net........................ 19,091 (15,882) (5,508)
Foreign exchange gains (losses), net.................. (3,235) (26,860) 26,249
Gains (losses) from forward contracts................. 3,817 29,256 (96,719)
Other, net............................................ (1,449) 7,541 4,987
-------- -------- --------
18,224 (5,945) (70,991)
-------- -------- --------
Income before income tax provision......................... 145,147 84,155 72,405
Income tax (provision) benefit............................. (46,376) (30,289) 50,452
-------- -------- --------
Net income................................................. $ 98,771 $ 53,866 $122,857
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 79
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESSES
OF ANAM SEMICONDUCTOR, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1997.................................. $189,595
Net income................................................ 122,857
Net capital contribution.................................. 5,246
--------
BALANCE AT DECEMBER 31, 1997................................ 317,698
Net income................................................ 53,866
Net capital distribution.................................. (6,239)
--------
BALANCE AT DECEMBER 31, 1998................................ 365,325
Net income................................................ 98,771
Net capital contribution.................................. 60,246
--------
BALANCE AT DECEMBER 31, 1999................................ $524,342
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 80
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESSES
OF ANAM SEMICONDUCTOR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 98,771 $ 53,866 $ 122,857
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 133,452 137,181 116,534
Provision for severance benefits, net.................. (3,727) 17,107 (8,705)
Foreign exchange losses (gains), net................... 3,235 26,860 (26,249)
Losses (Gains) from forward contracts.................. (3,817) (29,256) 96,719
Deferred income taxes.................................. 20,126 30,289 (50,452)
Changes in operating assets and liabilities:
Decrease (Increase) in trade accounts receivable....... (19,527) 7,768 (483)
Decrease (Increase) in other accounts receivable....... (173) 24,260 (18,266)
Decrease (Increase) in inventories..................... (1,794) 9,051 7,109
Decrease (Increase) in advances........................ (168) 2,831 2,628
Decrease (Increase) in prepaid expenses................ (595) 83 1,785
Decrease in due from corporate......................... 32 1,131 5,705
Decrease (Increase) in other current assets............ 42 (42) --
Increase (Decrease) in trade accounts payable.......... 18,741 (6,719) (23,640)
Increase (Decrease) in other accounts payable.......... 19,595 (1,122) (2,517)
Decrease in accrued expenses........................... (18,197) (49,109) (8,653)
Decrease in other current liabilities.................. (1,129) (3,826) (14,174)
--------- --------- ---------
Net cash provided by operating activities............ 244,867 220,353 200,198
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advance from (to) corporate............................... (193,111) (208) 20,940
Acquisition of property, plant and equipment.............. (39,281) (24,345) (145,642)
Decrease in other assets.................................. 2,060 19 2,322
--------- --------- ---------
(230,332) (24,534) (122,380)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Corporate borrowings, net................................. (58,203) (174,194) (66,137)
Net capital contribution (distribution)................... 60,246 (6,239) 5,246
--------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 2,043 (180,433) (60,891)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (16,578) (17,705) (15,042)
--------- --------- ---------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS............. -- (2,319) 1,885
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. -- 2,319 434
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ -- $ -- $ 2,319
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................. $ 13,568 $ 12,842 $ 26,508
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 81
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
1. BUSINESS AND BASIS OF PRESENTATION
Business and Organization
Seongsu ("K1"), Pucheon ("K2") and Pupyong ("K3") Packaging Businesses,
established in 1976, 1984 and 1982, respectively, are providers of semiconductor
packaging and test services. K1, K2 and K3 are located in the Republic of Korea
and are owned and operated by Anam Semiconductor, Inc. ("Anam"). K1, K2 and K3
operate primarily for Amkor Technology, Inc. ("Amkor"), a United States
affiliate. K1, K2 and K3 package and test integrated circuits from wafers
provided by Amkor (the "Packaging Service") pursuant to supply agreements (the
"Supply Agreements") with Amkor. Consequently, substantially all of K1, K2 and
K3's revenues are derived from Packaging Services provided to Amkor pursuant to
the Supply Agreements (see Note 2).
The businesses of Anam and Amkor have been inter-related for many years and
are under the common ownership by Mr. H.S. Kim and his family. Mr. H.S. Kim
currently serves as Anam's honorary chairman and director of Anam and his eldest
son, Mr. James Kim, serves as Amkor's chairman and chief executive officer. Mr.
James Kim also serves as a director of Anam and as the chairman of the Anam
Group, consisting principally of companies in the Republic of Korea in the
electronics industries. As of December 31, 1999, Mr. H.S. Kim and his family
owned approximately 6.9% of the outstanding common stock of Anam and 58.8% of
the outstanding common stock of Amkor (see Note 4).
Basis of Presentation
The Securities and Exchange Commission in Staff Accounting Bulletin No. 55,
requires that historical financial statements of a subsidiary, division, or
lesser business component of another entity include certain expenses incurred by
the parent on its behalf. These expenses generally include, but are not limited
to, officer and employee salaries, rent, or depreciation, advertising,
accounting and legal services, other selling, general and administrative
expenses and other such expenses. These financial statements include such
expenses and services.
These financial statements present the assets, liabilities and results of
operations of K1, K2 and K3. Because K1, K2 and K3 did not previously prepare
separate financial statements, these financial statements were derived by
extracting the assets, liabilities and results of operations of K1, K2 and K3
from the corresponding Anam accounts. As a result, the carved out financial
statements contain allocations of certain Anam assets, liabilities, revenues and
expenses attributable to K1, K2 and K3 deemed reasonable by management to
present K1, K2 and K3 on a stand-alone basis. Although management is unable to
estimate the actual benefits which would have been realized and costs which
would have been incurred had the respective transactions been executed with
independent third parties, the allocation methodologies described below and
within the respective notes to financial statements, where appropriate, are
considered reasonable by management.
The financial position and results of operations of K1, K2 and K3 may,
however, differ from the results which may have been achieved had K1, K2 and K3
operated as an independent legal entity. Additionally, future expenses incurred
as an independent entity may not be comparable to the historical levels.
The statement of changes in net assets presents the net income (loss) of
the business and the net capital contribution or distribution made by Anam.
F-42
<PAGE> 82
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
The carved out financial statements are presented in accordance with
generally accepted accounting principles of the United States of America. All
amounts in these financial statements have been presented in thousands of U.S.
dollars, unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by K1, K2 and K3 in the
preparation of these financial statements are summarized below.
Allocations
The financial statements reflect the assets, liabilities, revenue and
expenses that were directly related to K1, K2 and K3 as it operated within Anam.
In cases involving assets and liabilities not specifically identifiable to any
particular facility, a portion of such items were allocated to K1, K2 and K3
based on assumptions that management considered reasonable in the circumstances.
Anam uses a centralized approach to cash management and the financing of
its operations. Cash and cash equivalents, marketable securities, bank and other
loan guarantee deposits and debt not specifically identifiable to the operations
of any particular facility were allocated to K1, K2 and K3 based on asset and
debt ratio of Anam as of the beginning of 1995. The balances of these accounts
at the end of each subsequent period reflect the beginning allocated balance
plus the net cash inflow and outflow during the years as they related to K1, K2
and K3 resulting in the balance of cash requirement at year end. Those balances
of cash requirements of K1, K2 and K3 at the end of each year are used as the
basis for allocation of Anam's total cash and cash equivalents, marketable
securities, bank and other loan guarantee deposits and debt not specified,
identifiable to any division. Due to the fact that financing of operations and
utilization of the cash resources and investments is performed centrally, the
net interest expense on outstanding debt obligations plus income earned on
utilization of cash resources and investments of ASI are allocated to K1, K2 and
K3 on the same basis.
The statements of operations include management's estimates of all of the
costs of doing business, including specific corporate costs of K1, K2 and K3 and
certain allocated costs incurred by Anam on K1, K2 and K3's behalf including
finance, human resources, strategic planning, legal, accounting and tax. These
allocations were based on a variety of factors including, for example, the
number of employees, estimates of usage and revenues. Research and development
expenses were allocated based on the ratio of K1, K2 and K3's property, plant
and equipment to that of Anam's.
K1, K2 and K3 participated in certain centralized foreign currency and
interest rate risk management functions of Anam. As part of these activities,
derivative financial instruments were utilized to manage risks generally
associated with foreign currency and interest rate volatility. Although K1, K2
and K3 are not contractually obligated under these arrangements, the statements
of operations reflect the allocated benefits and costs from these functions.
Such allocations were based on net sales of each individual operating facility.
Related Party Arrangements
The businesses of Anam and Amkor have been inter-related for many years by
virtue of the Supply Agreements (see Note 1), family ties between their
respective shareholders and management, financial relationships, coordination of
product and operating plans, joint research and development activities and
shared intellectual property rights. The Supply Agreements between Anam
(including K1, K2 and K3)
F-43
<PAGE> 83
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
and Amkor govern the responsibility and the performance of Packaging Services by
Anam on behalf of Amkor and Amkor on behalf of Anam.
Under the Supply Agreements, Anam has granted to Amkor a first right to
substantially all of the Packaging Services capacity of Anam. Amkor, in return,
is responsible for sales of Anam's Packaging Services and is obligated to
actively and diligently market the Anam Packaging Services to potential and
existing customers. Pursuant to long-standing arrangements between Anam and
Amkor, all sales from Anam to Amkor are made through Anam USA ("A-USA"), a
wholly owned financing subsidiary of Anam. Pursuant to the Supply Agreements,
Amkor reimburses A-USA for the financing costs incurred in connection with trade
financing provided to Amkor. The Supply Agreements also provide that Amkor-
Anam, Inc., a subsidiary of Amkor, provide raw material procurement and related
services to Anam on a fee basis. Sales of K1, K2 and K3's packaging and testing
services to Amkor, made through A-USA, amounted to $407,751 in 1999 ($387,528 in
1998, $479,380 in 1997).
Under the Supply Agreements, pricing arrangements relating to the Packaging
Services provided by Anam to Amkor are subject to quarterly review and
adjustment 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 interest of Amkor and
Anam. The Supply Agreements dated January 1, 1998 have a five-year term and may
be terminated by the parties thereto upon five years' written notice at any time
after expiration of such initial five-year term.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. The most significant estimates and assumptions relate to the allocation
of carved out financial information, the allowance for uncollectable accounts
receivable, depreciation and product warranty liability. Actual results could
differ from these estimates.
Financial Instruments
The amounts reported for trade and other accounts receivable, other assets,
trade and other accounts payable, accrued expenses and other liabilities and
corporate borrowings and long-term borrowings and accounts payable approximate
fair value due to their short maturities or interest rates which approximate
market rates. Obligations due to or receivables from related parties have no
ascertainable fair value as no market exists for such instruments.
Allowance for Doubtful Accounts
K1, K2 and K3 provide an allowance for doubtful accounts receivable based
on the aggregate estimated collectibility of accounts receivable.
Inventories
Inventories, which primarily consist of raw materials and supplies are
stated at the lower of cost or market, cost being determined by the weighted
average method, except for materials in-transit, for which cost is determined
using the specific identification method.
F-44
<PAGE> 84
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as set forth below :
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C>
Buildings................................................... 25 years
Machinery and equipment..................................... 2 - 6 years
Tools....................................................... 3 - 5 years
Furniture and fixtures...................................... 3 - 10 years
Vehicles.................................................... 2 - 5 years
</TABLE>
Upon retirement or other disposal of fixed assets, the costs and related
accumulated depreciation or amortization are eliminated from the accounts, and
any resulting gain or loss is reflected in operations for the period.
Routine maintenance and repairs are charged to expense as incurred.
Expenditures which enhance the value or materially extend the useful lives of
the related assets are capitalized.
Interest expense incurred during the construction period of assets on funds
borrowed to finance construction is capitalized.
Revenue recognition
Revenues from the sale of packaging services are recognized upon shipment
of goods to customers. K1, K2 and K3 do not take ownership of customer-supplied
semiconductors. Title remains with the customer for these materials at all
times. Accordingly, the cost of the customer-supplied materials is not included
in the financial statements. Risk of loss for K1, K2 and K3's packaging costs
passes upon completion of the packaging process and shipment to the customer.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
K1, K2 and K3 are not a separate taxable entity for Korean or international
tax purposes. Accordingly, income tax expense in the carved out financial
statements has been calculated on a separate tax return basis.
K1, K2 and K3 account for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS 109 requires an asset and liability approach for financial accounting and
reporting for income tax purposes. Under the asset and liability method,
deferred income taxes are recognized for temporary differences, net operating
loss carryforwards ("NOL") and tax credits by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Investment and R&D tax credits are accounted for by the flow-through method
whereby they reduce income taxes in the period the assets giving rise to such
credits are placed in service. To the extent such
F-45
<PAGE> 85
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
credits are not currently utilized, deferred tax assets, subject to
considerations about the need for a valuation allowance, are recognized for the
carryforward account.
Accrued Severance Benefits
Employees and directors with one year or more of service are entitled to
receive a lump-sum severance payment upon termination of their employment. The
amount of the payment is based on their length of service and salary at the date
of termination. The accrual for severance benefits approximates the amount
required to be paid by K1, K2 and K3 if all employees were terminated at the
date shown on the statement of net assets.
Foreign Currency
The U.S. dollar is K1, K2 and K3's functional currency. The accompanying
financial statements are remeasured into U.S. dollars from books and records
that were kept in Korean Won using the monetary/non-monetary method. Monetary
assets and liabilities, such as cash, receivables, borrowings and other
payables, are translated using the current exchange rate. Non-monetary assets
and liabilities, such as inventory and fixed assets, are translated using
historical exchange rates. Revenues and expenses are translated using average
exchange rates for the period, except for items related to non-monetary assets
and liabilities, which are translated using historical exchange rates. All
translation gains and losses are included in determining income for the period
in which exchange rates change. The exchange rates used to remeasure the
financial statements as of December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
KOREAN WON TO U.S. DOLLAR
-----------------------------------
END OF PERIOD AVERAGE
EXCHANGE RATES EXCHANGE RATES
---------------- ----------------
<S> <C> <C>
1999.................................. W1,134.50 = US$1 W1,189.30 = US$1
1998.................................. W1,195.80 = US$1 W1,398.88 = US$1
1997.................................. W1,695.80 = US$1 W 951.11 = US$ 1
</TABLE>
Impairment of Long-Lived Assets
Effective January 1, 1996, K1, K2 and K3 adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of." In accordance with this standard, management periodically evaluates the
carrying value of long-lived assets to be held and used, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flows are separately
identifiable and less than the asset's carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived assets. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
The adoption of this accounting standard did not have a material effect on K1,
K2 and K3's operating results or financial position.
Concentration of Credit Risk
Financial instruments which potentially expose K1, K2 and K3 to a
concentration of credit risk consist primarily of trade receivables.
F-46
<PAGE> 86
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
K1, K2 and K3 perform and sell their Packaging Services exclusively for
Amkor pursuant to the Supply Agreements. Any reduction in purchases by Amkor
could have an adverse impact on K1, K2 and K3's financial position, results of
operations and cash flows.
Risks and Uncertainties
K1, K2 and K3's business involves certain risks and uncertainties. Factors
that could affect K1, K2 and K3's future operating results and cause actual
results to vary materially from expectations include, but are not limited to,
dependence on a cyclical semiconductor and personal computer industry that is
characterized by rapid technological changes, fluctuations in end-user demands,
evolving industry standards, competitive pricing and declines in average selling
prices, risks associated with foreign currencies, and enforcement of
intellectual property rights. Additionally, the market in which K1, K2 and K3
operates is very competitive. Key elements of competition in the independent
semiconductor packaging market include breadth of packaging offerings,
time-to-market, technical competence, design services, quality, production
yields, reliability of customer service and price. Additionally, substantially
all of K1, K2 and K3's revenues are derived from Packaging Services provided to
Amkor pursuant to the Supply Agreements. Other risks exist as of December 31,
1999 as they are described in Workout Program in Note 4.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" which establishes a comprehensive standard on accounting for
derivatives and hedging. It is effective for all fiscal years beginning after
June 2000. K1, K2 and K3 have reviewed the provisions of the SFAS No. 133 and
has not yet quantified the impact of adopting SFAS No. 133; however, SFAS No.
133 could increase volatility in earnings.
3. UNSTABLE ECONOMIC ENVIRONMENT
In connection with the Asian financial crisis which began in 1997, the
Korean economy as well as other economies in the Asia Pacific region experienced
economic contractions, a reduction in the availability of credit, increased
interest rates, increased inflation, negative fluctuations in currency exchange
rates, increased numbers of bankruptcies, increased unemployment and labor
unrest. Such conditions had a significant adverse effect on the operations of
the Company and other companies in Korea and in the Asia Pacific region.
Recently, economic conditions in the Republic of Korea have improved as
evidenced by increased trade surplus, increases in foreign exchange reserves,
record levels of foreign investment and economic growth, lower inflation and
interest rates and stabilized foreign exchange rates. Notwithstanding the
current recovery, significant uncertainties still exist related to the economy
in Korea and in the Asia Pacific region.
4. WORKOUT PROGRAM
Anam has guaranteed certain debt obligations of equity investees and
affiliated companies, including Anam Engineering & Construction Co., Ltd. ("Anam
Construction"), Anam Environmental Industry Co., Ltd. ("Anam environment") and
Anam Electronics Co., Ltd., ("Anam Electronics"), which face serious financial
difficulties.
In response to this situation, Anam management has undertaken certain
measures it considers appropriate, including: (1) disposing of Kwangju Packaging
factory ("K4"); (2) placing Anam
F-47
<PAGE> 87
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
Construction into corporate reorganization under the Korean Corporate
Reorganization Act; and (3) enlisting jointly, on October 23, 1998 Anam, Anam
Electronics and Anam Environment into the "Workout Program", a financial
restructuring program supervised by the Korean Financial Supervisory Committee
("FSC"). The Workout Program is the result of an accord among Korean financial
institutions to assist in the restructuring of Korean business enterprises. This
process involves negotiations between the companies and the creditors committee
represented by banks and other financial institutions providing financing to
Anam, Anam Electronics and Anam Environment and does not involve the judicial
system. The Workout Program also allows the companies to resume their operations
uninterrupted and does not impact debt outstanding with trade creditors.
On February 23, 1999, the following basic conditions and terms of Anam's
Workout Program were agreed to and approved by its creditors committee: (1)
five-year extension of the loan and capital leases repayment schedules; (2)
reduction of bank loan interest rates to Korean prime rate; (3) conversion of
certain outstanding bank loans of Anam approximating 122 billion Won and 108
billion Won to equity shares and convertible bonds, respectively; (4) five-year
suspension of the creditor's right to demand performance on loan guarantees made
by Anam on behalf of its affiliates. In order for the initial conversion of debt
to take place in accordance with the terms of the Workout, Anam will have to
undergo a series of corporate actions, including a reverse stock split, to bring
the fair market value of its equity shares to a price at least equal to the par
value of such shares. The conversion of Anam debt by the creditor financial
institutions would coincide with each installment of Amkor's equity investment
in Anam as described below. The Workout contained provision for the entitlement
of the creditor financial institutions to vote the ASI shares owned by Mr. James
Kim and his family. Anam did not recognize any gain or loss as a result of the
Workout Program.
In addition to the basic restructuring terms as stated above, the approved
Workout Program also requires Mr. James Kim, the chairman of the Anam Group or
Amkor, to make capital contributions to Anam totaling $150,000 over the next
four years in exchange for equity shares of Anam at par value.
On May 13, 1999, Anam's Workout Program became effective upon signing of a
Memorandum of Understanding, which document detailed conditions and terms of
Anam's Workout Program, between Anam and the creditors committee.
The creditor financial institutions have the right to terminate or modify
the Workout if Anam does not fulfill the terms of the Workout, including meeting
certain financial targets. In addition, the creditor financial institutions can
modify the terms of the Workout upon agreement of creditor financial
institutions holding at least 75% of the debt restructured under the Workout. If
the creditor financial institutions subsequently terminate the Workout, the
creditor financial institutions could reinstate and enforce the original terms
of Anam's debt, including accelerating Anam's obligations and pursuing Anam's
guarantees of its affiliates' debt. If this were to occur, Anam's businesses
would be harmed.
There can be no assurance that Anam will be able to satisfy the terms of
the Workout Agreement. Any inability of Anam to comply with the terms of the
Workout Agreement, generate cash flow from operations sufficient to fund its
capital expenditures and other working capital and liquidity requirements could
have a material adverse effect on Anam's ability to continue to provide
services.
Anam Electronics' application for Workout Program was not accepted by the
creditors committee. As a result, on March 18, 1999, Anam Electronics filed an
application for corporate reorganization under the Korean Corporate
Reorganization Act and the district court approved Anam Electronics'
reorganization plan on February 7, 2000. On the other hand, Anam Environment's
application for Workout was accepted by its creditors committee on February 23,
1999. The probable outcome of these events was taken into
F-48
<PAGE> 88
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
consideration by Anam in estimating its liability under guarantees on the debts
of its equity investees and affiliates. No such liabilities are reflected in the
accompanying financial statements.
5. DUE FROM CORPORATE
As discussed in Note 1 to these financial statements, K1, K2 and K3 do not
undertake their own cash management functions and instead rely on Anam for such
activities. As such, any cash requirements are met by Anam or cash surplus is
maintained by Anam. The amounts due to K1, K2 and K3 at December 31, 1999 and
1998 consist of: (1) allocated cash and cash equivalents, marketable securities,
bank deposits and related receivables which are legally entered into and
maintained by Anam and (2) the amount by which obligations under capital lease
of K1, K2 and K3 exceed K1, K2 and K3's allocated portion of corporate
borrowings as of December 31, 1999 and 1998. The bank deposits and long-term
guarantee deposits which are maintained by Anam are denominated in Korean Won,
U.S. Dollars and Japanese Yen. Anam has purchased marketable securities for
purposes other than trading. Such securities consist primarily of debt
securities issued by the Korean government. K1, K2 and K3 do not have any
formalized cash management arrangements with Anam. Consequently, the amounts due
from Anam have been classified as current and long-term based on the maturity
dates, management's intent or restrictions of the underlying instruments.
6. INVENTORIES
Inventories at December 31, 1999 and 1998 comprise the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Finished products........................................... $3,643 $2,370
Semi-finished products and work in process.................. 2,446 1,573
Raw materials and supplies.................................. 1,895 2,247
------ ------
$7,984 $6,190
====== ======
</TABLE>
F-49
<PAGE> 89
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 comprise the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Buildings................................................... $ 214,190 $ 215,188
Machinery and equipment..................................... 861,200 838,673
Tools....................................................... 4,548 4,974
Furniture and fixtures...................................... 43,710 41,765
Vehicles.................................................... 1,696 2,113
---------- ----------
1,125,344 1,102,713
Accumulated depreciation.................................... (736,459) (636,056)
Governmental grants......................................... (1,247) (749)
---------- ----------
387,638 465,908
Land........................................................ 16,605 31,710
Construction in progress.................................... -- 820
Machinery in transit........................................ 141 117
---------- ----------
$ 404,384 $ 498,555
========== ==========
</TABLE>
At December 31, 1999, property, plant and equipment, other than land, were
insured against fire and other casualty losses up to approximately $638,392.
Capitalized interest costs for the year ended December 31, 1999 approximate
$432.
Buildings of K1, K2 and K3 at December 31, 1999 are pledged as collateral
for various loans obtained by Anam from banks, including Korea Development Bank,
up to a maximum amount of $634,471 (see Note 8).
Property, plant and equipment under capital leases which include machinery,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cost of machinery and equipment under capital lease......... $ 250,651 $ 249,538
Accumulated depreciation.................................... (159,353) (111,126)
--------- ---------
$ 91,298 $ 138,412
========= =========
</TABLE>
F-50
<PAGE> 90
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
Future minimum lease payments under noncancelable capital leases as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
FOR YEARS ENDED DECEMBER 31,
2000........................................................ $ 27,628
2001........................................................ 27,775
2002........................................................ 27,664
2003........................................................ 27,544
2004........................................................ 27,417
Thereafter.................................................. 54,412
--------
Total minimum lease payments................................ 192,440
Less amount representing interest........................... (53,358)
--------
Present value of minimum lease payments..................... 139,082
Less: portion due within one year........................... (14,788)
--------
$124,294
========
</TABLE>
8. CORPORATE BORROWINGS
K1, K2 and K3 do not undertake their own financing but have been able to
benefit from the financing obtained by Anam. As of December 31, 1999 and 1998,
the balances of current and non-current include allocated corporate borrowings
limited to the obligations of K1, K2 and K3 for capital lease (see Note 7). Cash
requirement of K1, K2 and K3 as of December 31, 1999 and 1998 is less than
obligations under capital lease of K1, K2 and K3. The difference between the
cash requirement and the obligations under capital lease is recorded as due from
corporate, current.
Anam has entered into various types of financing arrangements including
short-term working capital borrowings, six-month trade letters of credit
financings, general term loans, guaranteed and non-guaranteed debentures,
convertible bonds, capital lease obligations and other long-term financing. K1,
K2 and K3 do not have their own six-month trade letters of credit but benefits
from such letters of credit when needed. Certain of these lines of credit and
borrowings have been guaranteed by affiliates and subsidiaries of Anam.
K1, K2 and K3 do not have any debt sharing or other arrangements with Anam.
Consequently, the amounts due to Anam have been classified as current and
long-term based on the expected maturities of Anam's contractual obligations.
9. FINANCIAL INSTRUMENTS
In the normal course of business, Anam has purchased various financial
instruments, including derivative instruments for purposes other than trading.
Derivative financial instruments are not entered into for speculative purposes.
Anam enters into foreign currency exchange contracts, including forward and swap
contracts, to manage the exposure to changes in currency exchange rates,
principally U.S. Dollars. The use of foreign currency forward contracts and
swaps allows Anam to reduce its exposure to the risk that the eventual Korean
Won cash outflows resulting from facility operating expenses, capital
expenditures, local supplier purchases and debt service will be adversely
affected by changes in exchange rates. Gains and losses on these foreign
exchange contracts entered into by Anam and that hedge
F-51
<PAGE> 91
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
forecasted transactions are recognized in income as the exchange rates change.
At December 31, 1999, the forward contracts and swap contracts under which Anam
is contractually obligated expire as follows:
Currency and interest swap
<TABLE>
<CAPTION>
CONTRACT CONTRACTED RECEIVING PAYING CONTRACT
BANK AMOUNT EXCHANGE RATE RATE(%) RATE(%) DUE DATE
---- -------- ------------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Korea Development Bank................ $50,000 W938 : US$1 9.95 6.25 Oct. 10, 2000
Shinhan Bank.......................... $10,000 W882 : US$1 10.20 6.90 Apr. 24, 2000
Korea Merchant Bank................... $20,000 W882 : US$1 10.20 6.90 Apr. 24, 2000
</TABLE>
Interest swap
<TABLE>
<CAPTION>
CONTRACT SELLING BUYING CONTRACT
BANK AMOUNT RATE(%) RATE(%) TERMS
---- -------- ------------- ------- --------------
<S> <C> <C> <C> <C>
Chase Manhattan Bank....................... $100,000 6 month LIBOR 5.80 Sept. 16, 2000
</TABLE>
10. ACCRUED SEVERANCE BENEFITS
Changes in accrued severance benefits for the year ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Beginning balance........................................... $54,620 $34,435
Provision, net of payments and translation gain/loss........ (4,143) 20,185
------- -------
Ending balance.............................................. 50,477 54,620
Balance of payments remaining with National Pension Fund.... (5,355) (5,771)
------- -------
$45,122 $48,849
======= =======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1999 Anam was contingently liable for guarantees of
indebtedness of subsidiaries and affiliated companies of Anam approximating
$411,896.
At December 31, 1999, Anam provided notes and checks, including 40 blank
notes and 28 blank checks, to several banks and financial institutions as
collateral in relation to various borrowings and guarantees of indebtedness.
Anam has made agreements with various banks to discount notes up to an
aggregate maximum amount of $281,401 at December 31, 1999.
12. INCOME TAXES
The tax provision (benefit) consists of the following :
F-52
<PAGE> 92
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Current.............................................. $26,250 $ -- $ --
Deferred............................................. 20,126 30,289 (50,452)
------- ------- --------
$46,376 $30,289 $(50,452)
======= ======= ========
</TABLE>
K1, K2 and K3 incurs income tax liabilities in Korean Won and based upon
taxable income determined in accordance with Korean generally accepted
accounting principles and tax laws. The tax provision included in these
financial statements reflects current tax expense and the impact of accounting
for deferred taxes under SFAS 109 on a separate tax return basis. K1, K2 and K3
do not have any formalized tax sharing agreement with Anam.
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including K1, K2 and K3's ability to generate taxable
income within the period during which the temporary differences reverse, the
outlook for the Korean economy environment and the overall future industry
outlook. Management has considered these factors in reaching its conclusion as
to the valuation allowance for financial reporting purposes. Such valuation
allowance is reviewed periodically.
The major components of the deferred tax assets and deferred tax
liabilities as of December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets
Corporate borrowings...................................... $ -- $ 237
Forward contracts......................................... 231 475
Provision for severance benefits, net..................... 11,823 11,459
Property, plant and equipment, net........................ 29,833 34,181
Tax credit................................................ -- 14,517
Other..................................................... -- 1,144
------- -------
Total deferred tax assets......................... $41,887 $62,013
======= =======
</TABLE>
The statutory income tax rates, including tax surcharges, applicable to K1,
K2 and K3 for 1999, 1998 and 1997 are approximately 30.8%. The reconciliation
from income taxes calculated at the statutory tax rate to the effective income
tax amount for each of the periods is as follows :
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Taxes at Korean statutory tax rate.......................... $44,705 $25,919 $ 22,301
Remeasurement effect........................................ 3,279 14,516 (56,317)
Tax credit incurred......................................... -- (2,224) (22,435)
Other, net.................................................. (1,608) (7,922) 5,999
------- ------- --------
Effective income tax provision (benefit).................. $46,376 $30,289 $(50,452)
======= ======= ========
</TABLE>
F-53
<PAGE> 93
SEONGSU, PUCHEON AND PUPYONG PACKAGING BUSINESS
OF ANAM SEMICONDUCTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
-------------------------
13. GEOGRAPHICAL INFORMATION
K1, K2 and K3 operate in one industry segment, semiconductor packaging and
test services. All of their assets are located in the Republic of Korea.
Sales amounts from external customers by country is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S.A. ............................................ $407,751 $387,528 $479,380
Japan.............................................. -- 3,243 93,586
Republic of Korea.................................. 27,908 19,158 26,609
-------- -------- --------
$435,659 $409,929 $599,575
======== ======== ========
</TABLE>
14. SUBSEQUENT EVENT
On February 28, 2000, Anam made a decision to sell to Amkor all operating
assets related to Packaging Business excluding K2 land in accordance with the
approval of Anam's board of directors' meeting and Anam's creditors committee.
The sale price of Packaging Business is Korean Won equivalent to $950 million.
F-54
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Anam Semiconductor, Inc.
We have audited the accompanying consolidated balance sheets of Anam
Semiconductor, Inc. and its subsidiaries (the "Company") as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period ended December
31, 1999 as prepared under generally accepted accounting principles in the
United States of America. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit 1) the financial
statements of Anam Engineering and Construction Co., Ltd. ("Anam Construction"),
the investment in which is reflected in the consolidated financial statements
referred to above using the equity method of accounting in 1999 and 1998 and
consolidated in 1997, and 2) the financial statements of Anam USA, Inc, ("Anam
USA") a wholly owned subsidiary. The financial statements of Anam Construction
reflect total revenues of $ 387,946 thousand for the year ended December 31,
1997. The Company's net investment in Anam Construction was $0 at December 31,
1999 and 1998 and the equity in its net loss were $29,937 and $56,884 in 1999
and 1998. The financial statements of Anam USA reflect total assets of $124,442
thousand and $235,343 thousand at December 31, 1999 and 1998, respectively, and
total revenues of $715,756 thousand, $576,130 thousand and $544,148 thousand for
the years ended December 31, 1999, 1998 and 1997, respectively. Those statements
referred to above were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Anam Construction and Anam USA, is based solely on the
report of the other auditors. The report of the auditor of Anam Construction
contained an informative disclosure paragraph relating to uncertainties about
Anam Construction's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Anam Semiconductor, Inc. and its
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations, stockholders' deficit and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles in the United States of America.
As discussed in Note 3 to the accompanying financial statements, Anam
Semiconductor, Inc.'s revenues are generated primarily from semiconductor
packaging and test services provided to Amkor Technology Inc. ("Amkor") pursuant
to supply agreements. As described in Note 30 to the accompanying financial
statements, on May 17, 1999, Anam Semiconductor, Inc. has sold to Amkor all the
assets of one of the four its packaging and test facilities located in Kwangju
city, the Republic of Korea ("K4"). As described in Note 31 to the accompanying
financial statements, on February 28, 2000, Anam Semiconductor, Inc. made a
decision to sell to Amkor all of the remaining operating assets related to the
remaining three packaging and testing facilities excluding K2 land in accordance
with the approval of a board of directors' meeting.
As discussed in Note 4 to the accompanying financial statements, the
operations of the Anam Semiconductor, Inc. and its affiliates in the Republic of
Korea, have been significantly affected, and may continue to be affected for the
foreseeable future, by the general adverse economic condition in the Republic of
Korea and in the Asia Pacific region.
F-55
<PAGE> 95
As more fully described in Note 5 to the accompanying financial statements,
on October 23, 1998, Anam Semiconductor, Inc. entered into the Korean financial
restructuring program known as the "Workout Program". The Workout Program is the
result of an accord among financial institutions to assist in the restructuring
of Korean business enterprises and does not involve the judicial system. On
February 23, 1999, Anam Semiconductor, Inc. was granted certain economic
concessions through the Workout Program which was approved by its creditors
committee.
/s/ SAMIL ACCOUNTING CORPORATION
Seoul, Korea
February 28, 2000
F-56
<PAGE> 96
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
THOUSANDS OF US DOLLARS
---------------------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 56,469 $ 15,452
Restricted cash........................................... 41,086 --
Bank deposits............................................. 105,414 10,936
Accounts and notes receivable
Trade, net of allowance for doubtful accounts........... 3,416 50,180
Due from affiliates, net of allowance for doubtful
accounts............................................... 29,377 14,737
Other................................................... 22,797 10,153
Short-term loans to affiliates, net....................... 4,464 14,108
Inventories............................................... 41,949 59,807
Other current assets...................................... 6,894 22,597
---------- ----------
Total current assets................................ 311,866 197,970
Non-current bank deposits................................... 204 879
Restricted cash............................................. 73 2,351
Investments
Available for sale........................................ 28,128 34,009
Affiliated companies...................................... 18,550 19,146
Long-term receivables
Due from affiliate........................................ 250 --
Others.................................................... 2,906 5,729
Property, plant and equipment, less accumulated
depreciation.............................................. 1,037,935 1,581,614
Deferred tax asset -- noncurrent............................ 53,212 --
Other assets................................................ 34,345 37,252
---------- ----------
Total assets........................................ $1,487,469 $1,878,950
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 69,328 $ 228,112
Current portion of long-term debt......................... 73,882 13,954
Trade accounts and notes payable.......................... 48,902 42,759
Other accounts payable.................................... 77,141 75,211
Accrued expenses.......................................... 3,850 16,504
Forward contract liability................................ 15,364 36,968
Other current liabilities................................. 13,318 6,260
---------- ----------
Total current liabilities........................... 301,785 419,768
Long-term debt, net of current portion and discounts on
debentures................................................ 875,175 1,309,492
Long-term obligations under capital leases, net of current
portion................................................... 429,590 582,936
Accrued severance benefits, net............................. 48,757 65,727
Liability for loss contingency.............................. 129,912 97,344
Other long-term liabilities................................. -- 2,056
---------- ----------
Total liabilities................................... $1,785,219 $2,477,323
---------- ----------
Commitments and contingencies
Minority interests in consolidated subsidiaries............. $ -- $ 17,433
---------- ----------
Stockholders' equity:
Capital stock, W5,000 par value; authorized 300 million
shares of common stock and 10 million shares of
preferred stock.........................................
Common stock: issued and outstanding 55,031,183 shares in
1999 and 30,477,018 shares in 1998...................... 284,329 192,849
Series A preferred stock: issued and outstanding 2,240,240
shares in 1999 and 1998................................. 15,167 15,167
Series B preferred stock: issued and outstanding 336,036
shares in 1999 and 1998................................. 2,220 2,220
---------- ----------
301,716 210,236
Capital surplus........................................... 190,409 182,347
Receivable from stockholders.............................. (62,118) (116,417)
Accumulated deficit....................................... (712,000) (864,905)
Accumulated comprehensive income (loss):
Unrealized gains (losses) in investments................ (911) 1,728
Cumulative translation adjustment....................... (14,846) (28,795)
---------- ----------
Total stockholders' equity.......................... (297,750) (615,806)
---------- ----------
Total liabilities and stockholders' equity.......... $1,487,469 $1,878,950
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 97
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THOUSANDS OF US DOLLARS
--------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales....................................................... $ 285,925 $ 221,098 $ 406,937
Cost of sales............................................... 239,632 230,478 314,666
----------- ----------- -----------
Gross profit................................................ 46,293 (9,380) 92,271
----------- ----------- -----------
Operating expenses
Research and development.................................. 87 2,064 --
Amortization of goodwill.................................. -- 768 5,334
Provision for doubtful accounts........................... 901 1,496 3,787
Impairment of long-lived assets........................... -- 273,937 15,942
Selling and administrative expenses....................... 24,267 25,064 75,443
----------- ----------- -----------
Total operating expenses................................ 25,255 303,329 100,506
----------- ----------- -----------
Operating income (loss)..................................... 21,038 (312,709) (8,235)
----------- ----------- -----------
Other (income) expense
Interest income........................................... (5,902) (20,715) (45,151)
Interest expense.......................................... 185,315 227,799 168,932
Foreign currency (gains) loss............................. 33,198 142,605 (159,897)
Loss (gain) from disposal of investments.................. 601 (23,082) (4,972)
Loss on valuation of inventories.......................... 2,041 15,140 543
Impairment loss on loans to affiliates.................... 22,646 122,188 --
Guarantee obligation loss................................. -- 97,344 --
Other, net................................................ (24,889) 12,808 4,598
----------- ----------- -----------
Total other (income) expense............................ 213,010 574,087 (35,947)
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes, equity in loss of affiliates and minority
interest.................................................. (191,972) (886,796) 27,712
Equity in loss of unconsolidated affiliates................. (31,787) (66,792) (18,137)
Minority interest........................................... -- (2,035) (1,720)
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes..................................................... (223,759) (955,623) 7,855
Provision (benefit) for income taxes........................ (54,000) 1,542 109,894
----------- ----------- -----------
Income (loss) from continuing operations.................... (169,759) (957,165) (102,039)
Discontinued operations:
Income from discontinued packaging and testing operation
(net of income taxes of $12,408; $0; $0)................ 130,064 109,632 143,469
Gain on sale of K4 (net of income taxes of $14,268; $0;
$0)..................................................... 149,560 -- --
----------- ----------- -----------
Net income (loss)........................................... $ 109,865 $ (847,533) $ 41,430
=========== =========== ===========
Unrealized gains (losses) in investments.................. (2,639) 7,892 (5,000)
Translation adjustment (loss)............................. 13,949 (38,352) 8,450
----------- ----------- -----------
Comprehensive income........................................ $ 121,175 $ (877,993) $ 44,880
=========== =========== ===========
PER SHARE DATA:
Basic income (loss) from continuing operations per common
share..................................................... $ (5.82) $ (40.43) $ (4.87)
=========== =========== ===========
Basic net income (loss) per common share.................... $ 3.76 $ (35.80) $ 1.97
=========== =========== ===========
Diluted income (loss) from continuing operation per common
share..................................................... $ (5.82) $ (40.43) $ (4.87)
=========== =========== ===========
Diluted net income (loss) per common share.................. $ 3.42 $ (35.80) $ 1.84
=========== =========== ===========
Shares used in computing basic net income (loss) per common
share..................................................... 29,208,739 23,675,158 20,968,843
=========== =========== ===========
Shares used in computing diluted net income (loss) per
common share.............................................. 32,444,686 23,675,158 23,193,850
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 98
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
( IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------------- -------------------- CAPITAL RECEIVABLE FROM
SHARES AMOUNT SHARES AMOUNT SURPLUS STOCKHOLDERS
---------- -------- --------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.................... 21,134,068 $137,372 2,240,240 $15,167 $143,321 $ (36,186)
Comprehensive income:
Net income..................................
Unrealized gains (loss) on investments......
Currency translation adjustments............
Comprehensive income..........................
Net cash advances to stockholders............. (93,623)
Stock dividends............................... 3,170,110 20,941 336,036 2,220 (23,161)
Issuance of common stock...................... 6,172,840 34,536 62,187
---------- -------- --------- ------- -------- ---------
Balance at December 31, 1997.................. 30,477,018 192,849 2,576,276 17,387 182,347 (129,809)
---------- -------- --------- ------- -------- ---------
Comprehensive loss:
Net loss....................................
Unrealized gains on investments.............
Currency translation adjustments............
Comprehensive loss............................
Collection of receivable from stockholders.... 13,392
---------- -------- --------- ------- -------- ---------
Balance at December 31, 1998.................. 30,477,018 192,849 2,576,276 17,387 182,347 (116,417)
---------- -------- --------- ------- -------- ---------
Comprehensive loss:
Net income..................................
Unrealized gains on investments.............
Currency translation adjustments............
Comprehensive income (loss):..................
Reverse stock split........................... (6,801,860) (43,040)
Issuance of common stock for cash............. 10,000,000 41,695
Debt to equity conversion..................... 19,669,600 82,011
Convertible bonds to equity conversion........ 1,686,425 10,814 8,906
Others........................................ (844)
Collection of receivable from stockholders.... 54,299
---------- -------- --------- ------- -------- ---------
Balance at December 31, 1999.................. 55,031,183 $284,329 2,576,276 $17,387 $190,409 $ (62,118)
========== ======== ========= ======= ======== =========
<CAPTION>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
Balance at January 1, 1997.................... $ (58,802) $ (57) $ 200,815
Comprehensive income:
Net income.................................. 41,430 41,430
Unrealized gains (loss) on investments...... (5,000) (5,000)
Currency translation adjustments............ 8,450 8,450
---------
Comprehensive income.......................... 44,880
Net cash advances to stockholders............. (93,623)
Stock dividends...............................
Issuance of common stock...................... 96,723
--------- -------- ---------
Balance at December 31, 1997.................. (17,372) 3,393 248,795
--------- -------- ---------
Comprehensive loss:
Net loss.................................... (847,533) (847,533)
Unrealized gains on investments............. 7,892 7,892
Currency translation adjustments............ (38,352) (38,352)
---------
Comprehensive loss............................ (877,993)
Collection of receivable from stockholders.... 13,392
--------- -------- ---------
Balance at December 31, 1998.................. (864,905) (27,067) (615,806)
--------- -------- ---------
Comprehensive loss:
Net income.................................. 109,865 109,865
Unrealized gains on investments............. (2,639) (2,639)
Currency translation adjustments............ 13,949 13,949
---------
Comprehensive income (loss):.................. 121,175
Reverse stock split........................... 43,040 --
Issuance of common stock for cash............. 41,695
Debt to equity conversion..................... 82,011
Convertible bonds to equity conversion........ 19,720
Others........................................ (844)
Collection of receivable from stockholders.... 54,299
--------- -------- ---------
Balance at December 31, 1999.................. $(712,000) $(15,757) $(297,750)
========= ======== =========
Unrealized
losses in
investments $ (911)
Cumulative
translation
adjustment (14,846)
--------
$(15,757)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE> 99
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 109,865 $(847,533) $ 41,430
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.............................................. 271,513 291,915 138,627
Provision for severance benefits.......................... 10,472 35,228 23,263
Losses (gains) on foreign currency translation, net....... 33,198 142,605 (159,897)
Losses (gains) on sale of investments, net................ 601 (23,082) (4,972)
Impairment of long-lived assets........................... -- 273,937 15,942
Impairment loss on loan to affiliates..................... 22,646 122,188 --
Guarantee obligation loss................................. -- 97,344 --
Loss on investment in equity method investees, net........ 31,787 66,792 18,137
Gains on disposal of K4 and other......................... (180,453)
Other, net................................................ 10,830 32,841 28,492
Change in operating assets and liabilities, net of
deconsolidation effects...................................
Decrease (increase) in trade accounts and notes
receivable.............................................. 24,825 13,564 9,750
Decrease (increase) in other accounts receivable.......... (25,844) 32,763 1,437
Decrease in contracts receivable.......................... -- -- 15,461
Decrease (increase) in due from affiliates................ (43,339) (7,764) (51,939)
Decrease (increase) in inventories........................ (1,009) (31,951) 72,412
Decrease (increase) in other current assets............... 14,471 39,412 (35,167)
Increase (decrease) in trade accounts and notes payable... 16,202 (9,597) 7,592
Increase (decrease) in other accounts payable............. (1,123) 43,869 80
Increase (decrease) in forward contract credit............ (20,943) (79,329) 104,968
Increase (decrease) in other current liabilities.......... (13,922) (2,495) (7,974)
Increase in deferred tax asset............................ (53,212) -- --
Payments of severance benefits............................ (6,492) (6,099) (6,755)
--------- --------- ---------
Net cash provided by operating activities............... $ 200,073 $ 184,608 $ 210,887
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in bank deposits...................... $ (99,418) $ 9,403 $ 235,711
Decrease (increase) in short term loans................... 7,788 (227,641) (15,228)
Acquisition of property, plant and equipment.............. (183,650) (140,290) (511,620)
Proceeds from sale of property, plant and equipment
(including K4).......................................... 624,791 1,712 18,740
Acquisition of investments................................ (1,247) (8,937) (26,959)
Disposal of investment including AAPI..................... 41,425 39,698 6,353
Decrease (increase) in non-current bank deposits.......... (204) 18,034 2,179
Decrease (increase) in restricted cash.................... (41,132) 85,647 (66,955)
Decrease (increase) in long-term receivables.............. 1,485 171,979 (97,522)
Decrease (increase) in other assets....................... 128 (11,173) 20,919
Deconsolidation of subsidiaries........................... (6,279) (1,005) --
--------- --------- ---------
Net cash (used in) provided by investing activities..... 343,687 (62,573) (434,382)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings.............. (47,286) (91,884) 286,938
Repayment of current maturities of long-term debt......... (10,545) (48,206) (91,391)
Borrowing of long-term debt............................... 48,054 10,572 312,243
Repayment of long-term debt............................... (484,448) (50,175) (1,054)
Repayment of long-term obligations under capital leases... (61,597) (39,848) (2,556)
Increase (decrease) in other long-term liabilities........ 117 1,883 15,507
Dividends paid............................................ -- -- --
Decrease (increase) in receivable from stockholders....... 54,299 13,392 (93,623)
Increase in capital....................................... 41,695 -- 96,723
--------- --------- ---------
Net cash (used in) provided by financing activities..... (459,711) (204,266) 522,787
--------- --------- ---------
Effect of exchange rate changes on cash..................... (43,032) 59,935 (316,111)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 41,017 (22,296) (16,819)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 15,452 37,748 54,567
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 56,469 $ 15,452 $ 37,748
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 197,716 $ 221,900 $ 133,157
========= ========= =========
Income taxes............................................ $ 15,658 $ 2,812 $ 5,322
========= ========= =========
Property, plant and equipments acquired through capital
leases.................................................. $ 1,116 $ 54,748 $ 505,897
========= ========= =========
Capital increase through debt conversion.................. $ 101,731 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE> 100
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
1. ORGANIZATION AND NATURE OF BUSINESS:
The Controlling Company
Anam Semiconductor, Inc. (hereinafter referred to as "Anam" or "ASI"),
incorporated in the Republic of Korea in August 1956, is a provider of
semiconductor packaging and test services. In 1998, Anam commenced operations to
fabricate and sell non-memory semiconductor chips ("wafer fabrication").
Anam changed its name from Anam Industrial Co., Ltd. to Anam Semiconductor,
Inc. on March 20, 1998.
Anam's semiconductor packaging and test facilities operate primarily for
Amkor Technology, Inc. ("Amkor"), a United States affiliate. Anam packages and
tests integrated circuits from wafers provided by Amkor (the "Packaging
Service") pursuant to supply agreements (the "Supply Agreements") with Amkor. In
addition, pursuant to the manufacturing and purchasing agreements with Texas
Instruments Incorporated ("TI"), a United States corporation, further discussed
in Note 3, Anam fabricates wafers, which are also sold to Amkor.
The businesses of Anam and Amkor have been inter-related for many years and
are under the common ownership by Mr. H.S. Kim and his family (the "Kim
Family"). Mr. H.S. Kim currently serves as Anam's honorary chairman and his
eldest son, Mr. James Kim, serves as Amkor's chairman and chief executive
officer. Mr. James Kim also serves as a director of Anam and as the chairman of
the Anam Group, consisting principally of companies in the Republic of Korea in
the electronics and construction industries. As of December 31, 1999, Mr. H.S.
Kim and his family owned approximately 6.9% of the outstanding common stock of
Anam and 58.8% of the outstanding common stock of Amkor (See Note 5).
Consolidated Subsidiaries and Significant Equity Investees:
(A) Major subsidiaries and significant equity investees included in the
accompanying financial statements by either consolidation or equity method of
accounting at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
SUBSIDIARIES CAPITAL STOCK
------------ ------------------------- DIRECT AND
MILLIONS OF THOUSAND OF INDIRECT METHOD OF
WON US DOLLARS OWNERSHIP(%) ACCOUNTING
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Anam Instruments*............................. W12,746 $16,823 21.57 Equity
Anam Construction**........................... 25,898 32,563 49.00 Equity
Anam Environment**............................ 1,200 1,729 50.83 Equity
Anam USA...................................... 0.08 0.1 100.00 Consolidation
Acqutek (formerly, Anam S&T).................. 24,062 27,248 17.55 Equity
Anam Finance.................................. 39,000 45,899 44.60 Equity
Anam Telecom.................................. 47,958 57,135 29.51 Equity
</TABLE>
- -------------------------
* This entity was consolidated in 1998 and 1997 but deconsolidated in 1999.
** These entities were consolidated in 1997 but deconsolidated in 1999 and 1998.
(B) A summary of the subsidiaries referred to above is as follows:
Anam Instruments Co., Ltd. (Anam Instruments)
Anam Instruments was established under the name of Handeung Co., Ltd. in
February, 1989 to manufacture and sell electronic parts and equipment. In
December 1990, it merged with Anam Horologe Co., Ltd., an affiliate engaged in
manufacturing and selling watches. Concurrently, the company changed
F-61
<PAGE> 101
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
its name to Anam Instruments Co., Ltd. In October 1994, Anam Instruments
obtained the optical products and semiconductor machinery business of Anam.
As of December 31, 1999, its capital stock is W12,746 million ($16,823), of
which Anam Semiconductor owned 21.57%.
Anam Engineering and Construction Co., Ltd. (Anam Construction)
Anam Construction was incorporated in March 1983. Anam Construction is a
construction contractor for industrial and commercial buildings and is engaged
in the construction of condominiums primarily in the Republic of Korea. Its
major customers are affiliated companies in the Anam Group. As of December 31,
1999, Anam Construction has outstanding capital stock of W25,898 million
($32,563), of which Anam owned 49.00%. Anam Construction became insolvent and
filed an application for corporate reorganization under the Korean Corporate
Reorganization Act on October 24, 1998. It is currently under the control of a
receiver appointed by the Court. The court issued an order for preservation of
assets on October 30, 1998 and the commencement of the reorganization proceeding
was made by the court on April 23, 1999. A draft reorganization plan is
scheduled for submission at the statutory meeting of interested parties.
Approval of the draft reorganization plan by the creditors is expected to be
made in March 2000. As a result of this filing, Anam lost control over Anam
Construction. Anam deconsolidated this entity and accounted for it as an
investment under the equity method as of and for the years ended December 31
1999 and 1998.
Anam Construction holds investments in Anam Environmental Industry Co.,
Ltd. and Anam Thai Engineering & Construction Co., Ltd.
Anam Environmental Industry Co., Ltd. (Anam Environment)
Anam Environment was incorporated under the name of Yu-Bong Industry Co.,
Ltd. in February 1986 and is engaged in treatment of industrial scrap in the
Republic of Korea. Anam holds interest in Anam Environment through Anam
Construction. As of December 31, 1999, Anam Environment's capital stock is
W1,200 million ($1,729), of which Anam Construction owned 50.83%. As a
subsidiary of Anam Construction, this entity was also deconsolidated by Anam and
accounted for by the equity method as of and for the years ended December 31,
1999 and 1998.
Anam USA, Inc. (Anam USA)
Anam USA was incorporated in Philadelphia, United States in September 1994,
to sell semiconductor products of Anam. As of December 31, 1999, its capital
stock is US$0.1 of which Anam owned 100%.
Acqutek Semiconductor & Technology Co., Ltd. (Acqutek)
Acqutek was incorporated in January 1979. It is engaged in designing
semiconductors, manufacturing and selling semiconductor equipment and the Value
Added Network business. In September 1991, Acqutek was registered as a foreign
invested company under the Foreign Capital Inducement Law of the Republic of
Korea. The company changed its name from Anam S&T Co., Ltd. to Acqutek Semi-
conductor & Technology Co., Ltd. in November 1999.
As of December 31, 1999 its capital stock amounted to W24,062 million
($27,248), of which Anam owned 17.55%.
F-62
<PAGE> 102
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Hanmi-Anam Financial Service Co., Ltd. (Anam Finance)
Anam Finance was established in May 1994 and is engaged in installment
financing and factoring. As of December 31, 1999 its capital stock amounted to
W39,000 million ($45,899), of which Anam and its subsidiaries owned 39.00% and
5.60%, respectively.
Anam Telecommunications Co., Ltd. (Anam Telecom)
Anam Telecom was established in August 1997, and is engaged in the
telecommunication business. As of December 31, 1999, its capital stock amounted
to W47,958 million ($57,135), of which Anam owned 29.51%.
(C) Change in Entities included in Consolidation :
As of December 31, 1999, Anam owned 21.57% of Anam Instrument. Anam's
ownership percentage decreased from 67.24% as of December 31, 1998 due to sales
of Anam Instrument shares. Accordingly Anam accounted for it under the equity
method of accounting during 1999, effective January 1, 1999.
During 1999 Anam has sold its whole interest in Anam/Amkor Precision
Machine Company (Philippines) Inc. (AAPMCI) to Amkor Technology Inc.
Both Anam Instrument and AAPMCI were consolidated in the accompanying
financial statements for 1998 and 1997.
As of December 31, 1999 and 1998, Anam owned 49.00% of Anam Construction.
Anam's ownership percentage decreased from 56.15% as of December 31, 1997 due to
Anam Instrument's sale of its 10.64% interest in Anam Construction to Anam
Electronics Co., Ltd., an affiliated company through common ownership by the Kim
family, on September 29, 1998. Furthermore, Anam Construction filed for
corporate reorganization under the Korean Corporate Reorganization Act on
October 24, 1998. As part of the reorganization, Anam Construction was placed
under the control of a receiver. Because management of Anam no longer exercises
control over Anam Construction, Anam deconsolidated its investment in Anam
Construction, including its consolidated subsidiary, Anam Environment, and
accounted for it under the equity method of accounting during 1999 and 1998,
effective January 1, 1998.
Prior to January 1, 1998, due to continuous net loss incurred by Anam
Construction, the accumulated net losses from Anam Construction included in the
consolidated financial statements had exceeded Anam's original investment. Anam
continued to record such excess net loss due to the existence of a parent-
subsidiary relationship. At January 1, 1998, when Anam deconsolidated Anam
Construction, accumulated losses in excess of original investment were
reclassified as part of the allowance for Anam's loan to Anam Construction.
After the deconsolidation, Anam continued recognition of its share of Anam
Construction's losses and such losses were recorded as part of the allowance for
Anam's loan to Anam Construction. In addition, due to the significant financial
difficulty experienced by Anam Construction in 1999 and 1998, Anam recorded
additional allowance for its loan to Anam Construction to reduce the net loan
balance to zero.
Both Anam Construction and Anam Environment were consolidated in the
accompanying financial statements for 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES:
The consolidated financial statements are presented in accordance with
generally accepted accounting principles of the United States of America ("U.S.
GAAP"). Significant accounting policies followed by
F-63
<PAGE> 103
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Anam and its consolidated subsidiaries (hereinafter collectively referred to as
the "Company") in the preparation of the accompanying consolidated financial
statements are summarized below.
Principles of Consolidation --
The accompanying consolidated financial statements include the accounts of
Anam and its greater than 50% owned subsidiaries. The interest of other
stockholders in these subsidiaries is reflected as minority interests. The
equity method of accounting is used when Anam has both a 20% to 50% equity
interest and the ability to exercise significant influence over the investee.
Investments in companies owned less than 20% are carried at cost. All
significant intercompany transactions and balances with consolidated
subsidiaries have been eliminated in consolidation.
Unrealized profit arising from sales by the controlling company to the
consolidated subsidiaries or equity-method investees is fully eliminated and
charged to the interest of the controlling company. Unrealized profit, arising
from sales by the consolidated subsidiaries or equity-method investees to the
controlling company or sales between consolidated subsidiaries or equity-method
investees, is eliminated to the extent of the investor ownership interest.
Use of Estimates --
The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The
most significant estimates and assumptions relate to the allowance for
uncollectable accounts receivables, guaranty obligations, depreciation and
impairment of long-lived assets. Actual results could differ from those
estimates and may affect amounts reported in future periods. Management believes
that the estimates are reasonable.
Cash and Cash Equivalents --
Cash and cash equivalents include cash on hand and all highly liquid
investments with original maturities of three months or less at purchase.
Restricted Cash --
Restricted cash consists of current and non-current bank deposits, which
are pledged in connection with various short-term borrowings (Note 14) and
long-term debt (Note 16). Restricted cash at December 31, 1999 and 1998 was
$41,159 and $2,351, respectively.
At December 31, 1998, $2,286 of restricted cash represent deposits made
under group severance insurance plans, the withdrawal of which is restricted to
the actual payment of severance benefits. The Company classified those
restricted bank deposits with remaining maturities between three months to one
year at the balance sheet date as current and all other restricted bank deposits
as non-current.
Bank Deposits --
Bank deposits consist of time deposits with banks and other financial
institutions which have remaining maturities of more than three months at
purchase. The Company classified these bank deposits with remaining maturities
of one year or less at the balance sheet date as current and those with
remaining maturities of more than one year as non-current.
F-64
<PAGE> 104
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Available For Sale Securities --
The Company accounts for those investments included in "Available for sale
securities" under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115). This statement requires investment securities to be divided into one
of three categories: held-to maturity, available for sale and trading.
The Company currently classifies all investments in debt and equity
securities as available for sale securities. Individual securities with
remaining contractual maturity of less than one year at the balance sheet date
are included in current assets, and others are included as non-current assets.
All available for sale securities are recorded at fair value. Unrealized holding
gains and losses on securities available for sale are reported as a separate
component of stockholders' equity, net of related deferred taxes. Realized gains
and losses on the sale of securities available for sale are determined using the
specific identification method and are charged to current operations.
Allowance for Doubtful Accounts --
The Company provides an allowance for doubtful accounts receivable based on
the aggregate estimated collectibility of accounts receivable.
Inventories --
Inventories are stated at the lower of cost or market, with cost being
determined by the weighted average method, except for materials in-transit, for
which cost is determined using the specific identification method.
Property, Plant and Equipment --
Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as set forth below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C>
Buildings............................................... 25 years
Structures.............................................. 2 - 25 years
Machinery, equipment and vehicles....................... 2 - 6 years
Tools................................................... 3 - 5 years
Furniture and fixtures.................................. 3 - 10 years
</TABLE>
Routine maintenance and repairs are charged to expense as incurred.
Expenditures which enhance the value or materially extend the useful lives of
the related assets are capitalized.
Interest expense incurred during the construction period of assets on funds
borrowed to finance such construction is capitalized. Capitalized interest costs
at December 31, 1999 and 1998 approximate $4,502 and $14,554, respectively.
The Korean government provides subsidies to the Company for purchases of
certain buildings and machinery. The Company recorded such purchases at full
acquisition costs and the related subsidies as a contra-asset account. The
contra-asset account is reduced using the straight-line method over the
estimated useful lives of the related assets.
F-65
<PAGE> 105
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Lease Transactions --
The Company accounts for lease transactions as capital leases, depending on
the terms of the underlying lease agreements. Assets leased under capital leases
are recorded at cost as property, plant and equipment and depreciated using the
straight-line method over their estimated useful lives. In addition, aggregate
lease payments are recorded as obligations under capital leases, net of accrued
interest as determined by total lease payments in excess of the cost of the
leased machinery and equipment. Accrued interest is amortized over the lease
period using the effective interest rate method.
Discounts on Debentures --
Discounts on debentures are amortized using the effective interest rate
method over the repayment period of the debentures. The resulting amortization
cost is included in interest expense.
Accrued Severance Benefits --
Employees and directors with one year or more of service are entitled to
receive a lump-sum payment upon termination of their employment with the
Company, based on their length of service and rate of pay at the time of
termination. Accrued severance benefits are estimated assuming all eligible
employees were to terminate their employment at the balance sheet date. The
annual severance benefits expense charged to operations is calculated based on
the net change in the accrued severance benefits payable at the balance sheet
date, plus the actual payments made during the year.
The contributions to national pension fund made under the National Pension
Plan are deducted from accrued severance benefit liabilities. Contributed
amounts are refunded from the National Pension Plan to employees on their
retirement.
Revenue Recognition (non-construction business) --
Substantially all revenues are recognized upon shipment of goods to
customers. The Company does not take ownership of customer-supplied
semiconductors. Title remain with the customer for these materials at all times.
Accordingly, the cost of the customer-supplied materials is not included in the
consolidated financial statements. Risk of loss for the Company's packaging
costs passes upon completion of the packaging process and shipment to the
customer. In regards to wafer fabrication services, the Company recognizes
revenue upon shipment of completed wafers to its customers.
Revenue Recognition (construction business) --
Revenues from fixed-price and modified fixed-price construction contracts
are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to estimated total costs for each contract.
This method is used because management considers expended costs to be the best
available measure of progress on these contracts. A contract is considered
complete when all costs except insignificant items have been incurred and the
installation is operating according to specifications or has been accepted by
the customer. Revenues from sale of constructed condominiums and some
construction contracts are recognized on the completion method. This method is
used because of unreliable estimates that cause forecasts to be doubtful.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income and
F-66
<PAGE> 106
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
are recognized in the period in which the revisions are determined. An amount
equal to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
Discontinued Operations --
The operating results of the packaging and testing business, including K4
which was sold in May 1999 (see Note 30), are shown separately as discontinued
operations in the accompanying income statement due to approved sale of the
remaining packaging and testing business in February 2000 (see Note 31). The
results of the discontinued business do not reflect any interest expense or
indirect expenses allocated by the Company. The income statements for 1998 and
1997 have been restated and operating results of the packaging business are also
shown separately.
Research and Development Costs --
Research and development costs are expensed as incurred.
Advertising Costs --
Advertising costs are charged to current period operations when incurred.
Advertising expenses for 1999, 1998 and 1997 were $236, $946 and $5,510,
respectively.
Income Taxes --
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". SFAS 109 requires the recognition of deferred tax assets and liabilities
created by temporary differences between the financial statement and tax bases
of assets and liabilities. Deferred tax assets and liabilities are computed on
such temporary differences, including available net operating loss carryforwards
("NOL") and tax credits, by applying enacted statutory tax rates applicable to
the years when such differences are expected to be reversed. A valuation
allowance is provided on deferred tax assets to the extent that it is more
likely than not that such deferred tax assets will not be realized. Total income
tax provision includes current tax expenses under applicable tax regulations and
the change in the balance of deferred tax assets and liabilities.
Investment tax credits are accounted for by the flow-through method whereby
they reduce income taxes in the period the assets giving rise to such credits
are placed in service. To the extent such credits are not currently utilized,
deferred tax assets, subject to considerations about the need for a valuation
allowance, are recognized for the carryforward amount.
Earnings Per Share --
In February 1997, the Financial Accounting Standard Board (the "FASB")
issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(SFAS 128). This statement specifies the computation, presentation and
disclosure requirements for earnings per share. The Company has calculated
earnings per share based on the basic and diluted per share calculation (see
Note 24). Basic EPS is computed using the weighted average number of common
shares outstanding for the period while diluted EPS is computed assuming
conversion of all dilutive securities, such as convertible bonds. Both
computations reflect all stock dividends and the June 17, 1999 reverse stock
split in the number of shares.
F-67
<PAGE> 107
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Remeasurement into US Dollar --
The U.S. dollar is the functional currency for ASI because the dollar is
the currency of reference for market pricing in the worldwide semiconductor
industry and revenue from external sales in U.S. dollars exceeds revenues in any
other currency. The functional currency used by ASI's subsidiaries and equity
investees, with the exception of Anam USA, is the Korean Won. The functional
currency used by Anam USA is the U.S. dollar.
For financial statement purposes, assets and liabilities of ASI are
remeasured into U.S. dollars from books and records kept in Korean Won using the
monetary/non-monetary method. Monetary assets and liabilities, such as cash,
receivables, borrowings and other payables, are translated to U.S. dollars at
end-of-period exchange rates. Non-monetary assets and liabilities, such as
inventory, investments and fixed assets, are translated using historical
exchange rates. Revenues and expenses are translated using average exchange
rates for the period, except for items related to non-monetary assets and
liabilities, which are translated using historical exchange rates. All
translation gains and losses are included in the determination of income for the
period in which exchange rates change.
The financial position and results of operations of the Company's
subsidiaries and equity-method investees except Anam USA are measured using
local currency as functional currency. The financial statements of these
subsidiaries and equity-method investees are translated to U.S. dollars using
the current exchange rate method. All the assets and liabilities are translated
to U.S. dollars at end-of-period exchange rates. Capital accounts are translated
using historical exchange rates. Revenues and expenses are translated using
average exchange rates. Translation adjustments arising from differences in
exchange rates from period to period are included in the cumulative translation
adjustment account in stockholders' equity.
The end of period exchange rates and average exchange rates for the period
used to remeasure the assets, liabilities, revenues and expenses in accordance
with the translation method stated above in 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
KOREAN WON TO U.S. DOLLAR
------------------------------------------------------
END OF PERIOD EXCHANGE RATES AVERAGE EXCHANGE RATES
---------------------------- ----------------------
<S> <C> <C>
1999............................ W1,134.50 = US$1 W1,189.30 = US$1
1998............................ W1,195.80 = US$1 W1,398.88 = US$1
1997............................ W1,695.80 = US$1 W 951.11 = US$1
</TABLE>
Dividends --
In the event that cash dividends are declared in the future, such dividends
will be paid in Korean Won. The Company does not intend to pay cash dividends in
the foreseeable future.
Derivative Financial Instruments --
The Company enters into foreign currency exchange contracts, including
forward and swap contracts, to manage the exposure to changes in currency
exchange rates, principally the exchange rate between Korean Won and U.S.
Dollar. The use of foreign currency forward contracts allows Anam to reduce its
exposure to the risk that the eventual Korean Won cash outflows resulting from
facility operating expenses, capital expenditures, local supplier purchases and
debt service will be adversely affected by changes in exchange rates. These
transactions do not meet the requirements for hedge accounting for financial
statement purpose. Therefore the resulting realized and unrealized gains or
losses, measured by quoted market prices, are recognized in income as the
exchange rates change. These gains and losses are included
F-68
<PAGE> 108
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
in the foreign currency gains (losses) account. The net unrealized gains
(losses) on these contracts are accrued in the balance sheet account, forward
contract debit (credit).
The Company enters into interest rate swap transactions to manage its
exposure to the fluctuation of interest rates. These transactions are accounted
for on an accrual basis, in which cash settlement receivable or payable is
recorded as an adjustment to interest income or expense.
In regards to the impact of derivative financial instruments on liquidity
and cash flow, no significant extra cash requirement is expected. Furthermore,
the Company enters into these derivative contracts with major financial
institutions and continues to monitor the credit worthiness of these
institutions. Management expects full performance from its counterparties under
these contracts.
Allowance for credit losses on loans receivable --
The Company accounted for allowance for credit losses in accordance with
SFAS 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114). Under
SFAS 114, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral.
When a loan is classified as impaired, no interest income is recognized.
Any subsequent cash payment is applied to reduce the principal.
Impairment of Long-Lived Assets --
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." In accordance with
this standard, management periodically evaluates the carrying value of
long-lived assets, including intangibles, when events and circumstances warrant
such a review. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flows are less than the asset's carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived assets. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved.
Concentration of Credit Risk --
Financial instruments, which potentially expose the Company to a
concentration of credit risk, consist primarily of cash and cash equivalents,
bank deposits, restricted cash, trade receivables, loans to affiliates and
financial instruments with off-balance sheet risks.
It is the Company's practice to place its cash and cash equivalents, bank
deposits and restricted cash in various financial institutions located in Korea
and the United States (U.S.) so as to limit the amount of credit exposure to any
one financial institution. Deposits in U.S. banks may exceed the amount of
insurance provided on such deposits by the Federal Deposit Insurance Corporation
(the "FDIC"). The Company controls the credit risks associated with cash and
cash equivalents, bank deposits and restricted cash by monitoring the financial
standing of the related banks and financial institutions.
Anam performs and sells its Packaging Services exclusively to Amkor
pursuant to the Supply Agreements. In 1999, 1998 and 1997, sales to Amkor
accounted for substantially all of Anam's revenues
F-69
<PAGE> 109
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
and accounts receivables. Any reduction in purchases by Amkor could have an
adverse impact on Anam's financial position, results of operations and cash
flows.
The loans to affiliates are uncollateralized and collection is subject to
the operations of those affiliates. Management believes they have provided
adequate allowance against these loans to reduce them to their net realizeable
value.
The Company controls the credit risks associated with financial instruments
through credit approvals, investment limits and centralized monitoring
procedures but does not normally require collateral or other security from the
counterparties. If the counterparty fails to honor certain forward or swap
contracts, management believes any loss would be limited to the exchange rate or
interest rate differential from the time the contract was made and the
settlement date. The Company conducts its derivative transactions with major
financial institutions and does not anticipate non-performance by counterparties
which could have a significant impact on its financial position or results of
operations.
Risks and Uncertainties --
The Company's business involves certain risks and uncertainties. Factors
that could affect the Company's future operating results and the carrying value
of assets such as property, plant and equipment include, but are not limited to,
dependence on a cyclical semiconductor industry that is characterized by rapid
technological changes, fluctuations in end-user demands, evolving industry
standards, competitive pricing and declines in average selling prices, risks
associated with assets, liabilities and transactions denominated in foreign
currencies, and enforcement of intellectual property rights. Additionally, the
market in which the Company operates is very competitive. Key elements of
competition in the independent semiconductor packaging market include breadth of
packaging offerings, time-to-market, technical competence, design services,
quality, production yields, reliability of customer service and price. A
substantial portion of the Company's revenues is derived from Packaging
Services(See Note 28) provided to Amkor pursuant to the Supply Agreements. Other
risks exist as of December 31, 1999 as described in the Workout Program in Note
5.
Presentation of Unit Currency --
All amounts in the financial statements have been presented in thousands of
U.S. dollars, unless otherwise stated.
Recent Accounting Pronouncements --
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes a comprehensive standard
on accounting for derivatives and hedging. It is effective for all fiscal years
beginning after June 15, 1999. The Company has reviewed the provisions of the
SFAS No. 133 and has not yet quantified the impact of adopting SFAS 133.
However, SFAS 133 could increase volatility in earnings.
3. RELATIONSHIP WITH AMKOR:
The businesses of Anam and Amkor have been inter-related for many years by
virtue of the Supply Agreements (See Note 1), common ownership and management,
financial relationships, coordination of product and operating plans, joint
research and development activities and shared intellectual property rights.
At December 31, 1997, Amkor owned 8.1% of the outstanding stock of ASI. On
February 16, 1998, Amkor sold its investment in ASI common stock for $13,863 to
AK Investments, Inc., an affiliate through
F-70
<PAGE> 110
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
common ownership of Kim Family, based on the market value of ASI shares on the
Korean Stock Exchange. In accordance with the terms and condition of Workout
Program discussed in Note 5, on October 29, 1999, Amkor made $41,695 of capital
contribution to ASI in exchange for equity shares of ASI at par value. As a
result, ASI issued 10,000,000 shares of common stock to Amkor.
At December 31, 1998, ASI owned 100% of the outstanding stock of Anam/Amkor
Precision Machine Company (Philippines), Inc. ("AAPMCI"). On June 16, 1999, ASI
sold its whole investment in AAPMCI common stock for $3,800 to Amkor and $3,217
of realized gain from the sale was recognized.
At December 31, 1997, ASI owned 40% of the outstanding stock of Amkor/Anam
Philipinas, Inc. ("AAPI"). On May 22, 1998, ASI sold its investment in AAPI
common stock for $33,750 to Amkor and $22,329 of realized gain from the sale was
recognized.
In 1999, 1998 and 1997, approximately 93.3%, 91.5% and 77.1%, respectively,
of Anam's revenues was derived from sales to Amkor. By the terms of a
long-standing agreement, Amkor has been responsible for marketing and selling
ASI's semiconductor packaging and test services, except to customers in Korea
and Japan to whom ASI has historically sold such services directly. Since 1998,
Amkor became responsible for marketing and selling ASI's semiconductor packaging
and test services to the majority of ASI's customers in Japan. ASI has worked
closely with Amkor in developing new technologies and products.
Effective January 1, 1998, ASI entered into the five-year Supply Agreements
with Amkor giving Amkor the first right to market and sell substantially all of
ASI's packaging and test services and the exclusive right to market and sell all
of the wafer output of ASI's new wafer foundry, both of which have negotiable
pricing terms, taking into consideration 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
interest of Anam and Amkor. Amkor, in return, is responsible for sales of
Packaging Services and is obligated to actively and diligently market the
Packaging Services to potential and existing customers.
Pursuant to arrangements between Anam and Amkor, all sales from Anam to
Amkor are made through Anam USA ("AUSA"). Prior to Amkor's initial public
offering in 1998, Amkor obtained a significant portion of its financing from
AUSA. AUSA obtained for the benefit of Amkor a continuous series of short-term
financing arrangements based on guarantees provided by ASI. Pursuant to the
Supply Agreements, Amkor reimburses AUSA for the financing costs incurred by it
in connection with trade financing provided to Amkor. Amkor no longer depends on
such financing arrangement as of December 31, 1998.
These agreements are cancelable by either party upon five years prior
written notice at any time after the fifth anniversary of the effective date.
The Company's business, financial condition and operating results have been and
will continue to be significantly dependent on the ability of Amkor to
effectively market ASI's services. The termination of ASI's relationship with
Amkor for any reason, or any material adverse change in Amkor's business could
have a material adverse effect on ASI's business, financial condition and
results of operations.
In January 1998, the Company and Amkor entered into a manufacturing and
purchasing agreement with Texas Instruments Incorporated ("TI") pursuant to
which the Company will manufacture and Amkor will market wafer fabrication
services to TI. Under the terms of the agreement, TI has agreed to purchase at
least 40% of the foundry's capacity, and under certain circumstances has the
right to purchase up to 70% of the foundry's capacity. In addition, the Company
has a license to use TI technology only to provide wafer fabrication services to
TI.
F-71
<PAGE> 111
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
The agreement ends on December 31, 2007, but may be terminated earlier
upon, among other things, the consent of the Company, TI and Amkor, a material
breach by the Company, TI or Amkor, the failure of the Company to protect TI's
intellectual property and a change of control, bankruptcy, liquidation or
dissolution of the Company. The agreement may also be terminated by the Company
or TI on two years' notice if they cannot successfully negotiate an agreement to
govern the Company's use of TI's next-generation foundry technology prior to
June 30, 2000. During any such two-year notice period, TI will only be obligated
to purchase a minimum of 20% of the foundry's capacity.
4. UNSTABLE ECONOMIC ENVIRONMENT:
In connection with the Asian financial crisis which began in 1997, the
Korean economy as well as other economies in the Asia Pacific region experienced
economic contractions, a reduction in the availability of credit, increased
interest rates, increased inflation, negative fluctuations in currency exchange
rates, increased numbers of bankruptcies, increased unemployment and labor
unrest. Such conditions had a significant adverse effect on the operations of
the Company and other companies in Korea and in the Asia Pacific region.
Recently, economic conditions in the Republic of Korea have improved as
evidenced by increased trade surplus, increases in foreign exchange reserves,
record levels of foreign investment and economic growth, lower inflation and
interest rates and stabilized foreign exchange rates. Notwithstanding the
current recovery, significant uncertainties still exist related to the economy
in Korea and in the Asia Pacific region.
5. WORKOUT PROGRAM:
The Company has traditionally operated with a significant amount of debt
relative to its equity and had a significant working capital deficit at December
31, 1997. In addition, the Company has guaranteed certain debt obligations of
equity investees and affiliated companies, including Anam Construction, Anam
Environment and Anam Electronics Co., Ltd., ("Anam Electronics"), which face
serious financial difficulties.
In response to this situation, management has undertaken certain measures
it considers appropriate, including: (1) disposing of the Kwangju factory (see
Note 30); (2) placing Anam Construction into corporate reorganization under the
Korean Corporate Reorganization Act (see Note 1); and (3) enlisting, on October
23, 1998 ASI into the "Workout Program", a financial restructuring program
supervised by the Korean Financial Supervisory Commission ("FSC"). The Workout
Program is the result of an accord among Korean financial institutions to assist
in the restructuring of Korean business enterprises. This process involves
negotiations between the companies and the creditors committee represented by
banks and other financial institutions providing financing to ASI and does not
involve the judicial system. The Workout Program also allows ASI to resume its
operations uninterrupted and does not impact debts outstanding with trade
creditors. Anam Electronics and Anam Environment also applied for the Workout
Program in October 1998.
On February 23, 1999, the following basic conditions and terms of ASI's
Workout Program were agreed to and approved by its creditors committee: (1)
five-year extension of the loan and capital leases repayment schedules; (2)
reduction of bank loan interest rates to Korean prime rate; (3) conversion of
certain outstanding bank loans of ASI to equity shares and convertible bonds
approximating $102,275 and $90,400, respectively; and (4) five-year suspension
of creditors' right to demand performance on loan guarantees made by Anam on
behalf of its affiliates. In order for the initial conversion of debt to take
place in accordance with the terms of the Workout, ASI will have to undergo a
series of corporate actions, including a reverse stock split, to bring the fair
market value of its equity shares to a price at least equal to the par value of
such shares. The conversion of ASI debt by the creditor financial institutions
would
F-72
<PAGE> 112
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
coincide with each installment of Amkor's equity investment in ASI as described
below. The workout contained provision for the entitlement of the creditor
financial institutions to vote the ASI shares owned by Mr. James Kim and his
family. The Company did not recognize any gain or loss as a result of the
Workout Program.
In addition to the basic restructuring terms as stated above, the approved
Workout Program also requires Mr. James Kim, the chairman of the Anam Group or
Amkor, to make capital contributions to the Company totaling $150,000 over the
next four years in exchange for equity shares of the Company at par value.
On May 13, 1999, ASI's Workout Program became effective upon signing of a
Memorandum of Understanding, which document detailed conditions and terms of
ASI's Workout Program, between ASI and the creditors committee.
The creditor financial institutions have the right to terminate or modify
the Workout if Anam does not fulfill the terms of the Workout, including meeting
certain financial targets. In addition, the creditor financial institutions can
modify the terms of the Workout upon agreement of creditor financial
institutions holding at least 75% of the debt restructured under the Workout. If
the creditor financial institutions subsequently terminate the Workout, the
creditor financial institutions could reinstate and enforce the original terms
of Anam's debt, including accelerating Anam's obligations and pursuing Anam's
guarantees of its affiliates' debt. If this were to occur, Anam's businesses
would be harmed.
There can be no assurance that Anam will be able to satisfy the terms of
the Workout Agreement. Any inability of Anam to comply with the terms of the
Workout Agreement, generate cash flow from operations sufficient to fund its
capital expenditures and other working capital and liquidity requirements could
have a material adverse effect on Anam's ability to continue to provide
services.
Anam Electronics' application for Workout Program was not accepted by the
creditors committee. As a result, on March 18, 1999, Anam Electronics filed an
application for corporate reorganization under the Korean Corporate
Reorganization Act. The reorganization plan was completed and approved by the
district court on February 7, 2000. On the other hand, Anam Environment's
application for Workout was accepted by its creditors committee on February 23,
1999. The probable outcome of these events was taken into consideration by the
Company in estimating its liability on guarantees on the debts of its equity
investees and affiliates.
F-73
<PAGE> 113
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
6. ACCOUNTS AND NOTES RECEIVABLE:
Accounts and notes receivable at December 31, 1999 and 1998 comprise the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Accounts receivable, trade.................................. $ 2,997 $37,211
Notes receivable, trade..................................... 551 16,072
------- -------
3,548 53,283
Allowance for doubtful accounts............................. (132) (3,103)
------- -------
Trade accounts and notes receivable, net.................... $ 3,416 $50,180
======= =======
Accounts receivable from affiliated companies............... $30,128 $14,502
Notes receivable from affiliated companies.................. 181 1,128
------- -------
30,309 15,630
Allowance for doubtful accounts............................. (932) (893)
------- -------
Due from affiliates, net.................................... $29,377 $14,737
======= =======
</TABLE>
7. INVENTORIES :
Inventories at December 31, 1999 and 1998 comprise of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Finished products and merchandise........................... $ 6,639 $21,799
Semi-finished products and work in process.................. 15,562 18,722
Raw materials and supplies.................................. 17,338 18,377
Materials in transit........................................ 2,410 909
------- -------
$41,949 $59,807
======= =======
</TABLE>
8. SHORT-TERM LOANS TO AFFILIATES:
Loans receivable at December 31, 1999 and 1998 comprise of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Loans to affiliated companies
Anam Construction......................................... $ 151,639 $ 144,156
Anam Environment.......................................... 13,486 12,795
Anam Electronics.......................................... 145,987 125,188
Acqutek................................................... 3,877 3,676
Dongan Engineering Co., Ltd............................... 587 892
--------- ---------
315,576 286,707
Loans to employees and directors............................ -- 36
--------- ---------
315,576 286,743
Allowance for credit loss on loans receivable (Note 9)...... (311,112) (272,635)
--------- ---------
$ 4,464 $ 14,108
========= =========
</TABLE>
F-74
<PAGE> 114
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
The loans to affiliated companies and other loans have maturity periods of
less than one year and are uncollateralized.
9. LOAN IMPAIRMENT:
The Company provided loans to several affiliated companies, which currently
face financial difficulties. Consequently, the Company assessed the
collectibility of these loans in accordance with SFAS 114 and determined that
the Company would not be able to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement on
certain loans.
The amount of impaired loans and related allowance for credit loss on loans
receivable are summarized below (see Note 8):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Impaired loans, gross....................................... $311,112 $272,635
Allowance for credit loss on loans receivable............... (311,112) (272,635)
-------- --------
Impaired loans, net......................................... $ -- $ --
======== ========
</TABLE>
For the year ended December 31, 1999 and 1998, the average recorded
investment in impaired loans was approximately $291,874 and $133,626,
respectively.
No interest income was recognized on impaired loans for the year ended
December 31, 1999 and 1998. Had these loans performed in accordance with their
original terms, interest income of $22,684 and $17,927 would have been recorded
in 1999 and 1998, respectively.
The changes in the allowance for credit loss on loans receivable are
summarized below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning balance........................................... $272,635 $ --
Excess loss from investment in Anam Construction carried
over from prior years (Note 1)............................ -- 93,563
Equity in loss of Anam Construction for 1998 (Note 1)....... -- 56,884
Additions charged to operations............................. 22,646 122,188
Effect of changes in exchange rates......................... 15,831 --
-------- --------
Ending balance.............................................. $311,112 $272,635
======== ========
</TABLE>
10. INVESTMENT IN AVAILABLE FOR SALE SECURITIES:
The Company's investment in available for sale securities are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Bonds issued by government................. $ 3 $-- $ -- $ 3
Bonds issued by local government........... 3 -- -- 3
Equity Securities.......................... 30,557 54 2,489 28,122
------- --- ------ -------
Total............................ $30,563 $54 $2,489 $28,128
======= === ====== =======
</TABLE>
F-75
<PAGE> 115
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Bonds issued by government................. $ 276 $ -- $ -- $ 276
Bonds issued by local government........... 1 -- -- 1
Equity Securities.......................... 32,004 2,320 592 33,732
------- ------ ---- -------
Total............................ $32,281 $2,320 $592 $34,009
======= ====== ==== =======
</TABLE>
The maturity of the bonds issued by the government and the bonds issued by
local government as of December 31,1999 ranged from less than one year to ten
years.
The gross realized gains from the sale of available for sale securities
during the years ended December 31, 1998 and 1997 were $5,317 and $4,972,
respectively. The gross realized losses from the sale of available for sale
securities in 1999 and 1998 were $891 and $4,564, respectively.
At December 31, 1999 and 1998, equity securities with total carrying amount
of $9,578 and $8,535, respectively, were pledged as collateral for issuing
non-guaranteed debentures and capital lease obligation, respectively (see Notes
13 and 16).
At December 31, 1999, 1998 and 1997, respectively, the net book value of
certain equity investment is below acquisition cost and is not expected to be
recovered in the near future. Accordingly, an impairment loss of $1,523, $244
and $2,477, respectively is included in non-operating expenses for the
other-than-temporary impairment of such investment.
11. INVESTMENTS IN AFFILIATED COMPANIES:
<TABLE>
<CAPTION>
PERCENTAGE OF DECEMBER 31,
OWNERSHIP (%) AT ------------------
DECEMBER 31, 1999 1999 1998
----------------- ------- -------
<S> <C> <C> <C>
Investments in affiliated companies:
By the equity method:
Anam Construction....................................... 49.00 $ -- $ --
Acqutek................................................. 17.55 4,164 7,788
Anam Instruments (1999 only)............................ 21.75 8,954 --
Anam Finance............................................ 39.00 -- --
Anam Telecom............................................ 29.51 4,261 7,987
Anam Japan Inc. and others (*).......................... 29.82 - 100.00 1,171 3,371
------- -------
$18,550 $19,146
======= =======
</TABLE>
- -------------------------
(*) Certain majority-owned subsidiaries are not consolidated due to
immateriality.
The Company has received dividends of $158 and $26 from investments in
affiliates accounted for by the equity method for the years ended December 31,
1998 and 1997, respectively. These dividends were recorded as a reduction in the
carrying value of the related investments.
F-76
<PAGE> 116
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
12. SUMMARY FINANCIAL DATA ON SIGNIFICANT EQUITY INVESTEES:
Additional information regarding the Company's equity investees is as
below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------------------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT NET EQUITY
ASSETS ASSETS LIABILITIES LIABILITIES (DEFICIT)
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Anam Construction*............... $145,289 $85,895 $416,648 $65,199 $(250,663)
Anam Instruments................. 82,126 41,413 49,568 24,872 49,099
Acqutek.......................... 35,552 55,275 34,376 33,722 22,729
Anam Finance..................... 32,423 1,167 37,320 98 (3,828)
Anam Telecom..................... 6,502 22,862 2,416 5,996 20,952
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------
GROSS GROSS INCOME (LOSS) FROM NET INCOME
REVENUE PROFIT (LOSS) OPERATIONS (LOSS)
-------- ------------- ------------------ ----------
<S> <C> <C> <C> <C>
Anam Construction*..................... $ 63,621 $(14,766) $(66,991) $(66,991)
Anam Instruments....................... 169,051 26,601 11,135 7,487
Acqutek................................ 57,040 3,646 (7,978) (4,377)
Anam Finance........................... 9,980 (8,323) (8,343) (8,343)
Anam Telecom........................... 1,543 (3,278) (8,220) (8,220)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------------------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT NET EQUITY
ASSETS ASSETS LIABILITIES LIABILITIES (DEFICIT)
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Anam Construction*............... $229,841 $92,041 $431,701 $61,368 $(171,187)
Acqutek.......................... 22,369 55,595 33,874 26,358 17,732
Anam Finance..................... 68,977 40,402 100,629 4,194 4,556
Anam Telecom..................... 14,592 23,863 5,866 7,427 25,162
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------
GROSS GROSS INCOME (LOSS) FROM NET INCOME
REVENUE PROFIT (LOSS) OPERATIONS (LOSS)
------- ------------- ------------------ ----------
<S> <C> <C> <C> <C>
Anam Construction*...................... $65,097 $(13,171) $(99,236) $(99,236)
Acqutek................................. 41,108 8,472 10,560 10,560
Anam Finance............................ 10,583 (23,866) (23,923) (23,923)
Anam Telecom............................ 367 (2,954) (3,658) (3,658)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
INCOME (LOSS)
GROSS GROSS FROM CONTINUING NET INCOME
REVENUE PROFIT OPERATIONS (LOSS)
-------- ------- --------------------- ----------
<S> <C> <C> <C> <C>
AAPI........................................... $223,380 $54,297 $(16,594) $(16,594)
Acqutek........................................ 95,403 30,485 (17,963) (17,963)
Anam Finance................................... 18,022 510 391 391
Anam Telecom................................... -- -- (8,186) (8,186)
</TABLE>
- -------------------------
* Anam Environment's figures are included in Anam Construction.
F-77
<PAGE> 117
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
13. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1999 and 1998 comprise of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Costs
Land...................................................... $ 43,260 $ 113,162
Buildings and structures.................................. 309,315 588,251
Machinery, equipment and vehicles......................... 1,578,736 1,628,360
Tools, furniture and fixtures............................. 55,402 17,443
Construction in progress.................................. -- 38,195
Machinery in transit...................................... 22,558 40,430
---------- ----------
2,009,271 2,425,841
Accumulated depreciation.................................... (968,910) (843,478)
---------- ----------
1,040,361 1,582,363
Governmental subsidies...................................... (2,426) (749)
---------- ----------
Net Property, Plant and Equipment........................... $1,037,935 $1,581,614
========== ==========
</TABLE>
Capital Leases
The Company has various facilities and equipment held under capital lease
agreements.
Capital lease assets included in the above categories are further described
below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Machinery and equipment..................................... $ 870,837 $ 907,644
Accumulated depreciation.................................... (356,140) (218,713)
--------- ---------
Capitalized Leases, net..................................... $ 514,697 $ 688,931
========= =========
</TABLE>
Future minimum lease payments under noncancelable capital leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL
FOR YEARS ENDED DECEMBER 31, LEASES
---------------------------- ---------
<S> <C>
2000........................................................ $ 101,556
2001........................................................ 100,492
2002........................................................ 99,076
2003........................................................ 97,552
2004........................................................ 95,911
Thereafter.................................................. 186,390
---------
Total minimum lease payments................................ 680,977
Less amount representing interest........................... (197,871)
---------
Present value of minimum lease payments under capital
leases.................................................... 483,106
Less: portion due within one year........................... (53,516)
---------
$ 429,590
=========
</TABLE>
F-78
<PAGE> 118
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Pledged Property, Plant and Equipment
A substantial portion of the Company's property, plant and equipment is
pledged as collateral for various loans from banks, up to a maximum amount of
$636,608 and $683,917, at December 31, 1999 and 1998, respectively (see Notes 14
and 16).
Impairment of Property, Plant and Equipment
The Company recognized an impairment loss of $273,937 related to its assets
held in the wafer fabrication factory (the "FAB") in Bucheon City, Republic of
Korea in 1998 in accordance with SFAS 121. The amounts in property, plant and
equipment above reflect the write-off of assets based upon the present value of
expected future cash flows, as summarized below:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Building.................................................... $120,863
Machinery, equipment and vehicles........................... 153,074
--------
Total impairment write-off.................................. $273,937
========
</TABLE>
The FAB commenced operation in February 1998. Based on equipment installed
in FAB, as of December 31, 1998 production levels were below the levels
necessary for the factory to be profitable. Due to the lack of capital available
to the Company, investment in additional equipment for FAB was not planned in
the near future.
In 1999, the Company did not record the restoration of previously
recognized impairment loss in accordance with SFAS 121.
14. SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 1999 and 1998 comprise of the
following:
<TABLE>
<CAPTION>
ANNUAL INTEREST DECEMBER 31,
RATE (%) AT -------------------
DECEMBER 31, 1999 1999 1998
----------------- ------- --------
<S> <C> <C> <C>
Trade financing................................ N/A $ -- $165,301
General term loans............................. 11.96 69,328 62,214
Others......................................... N/A -- 597
------- --------
$69,328 $228,112
======= ========
</TABLE>
Trade financing of ASI have been converted to long-term debt following
conditions and terms of ASI's Workout Program on February 23, 1999.
The weighted average interest rate on short-term borrowings were 11.96% and
11.36% at December 31, 1999 and 1998, respectively.
At December 31, 1999, the Company provided notes and checks, including 40
blank notes and 28 blank checks, to several banks and financial institutions as
collateral in relation to various borrowings and guarantees of indebtedness.
Certain bank deposits and property, plant, equipment are pledged as collateral
in relation to the above short-term borrowings (see Notes 2 and 13).
F-79
<PAGE> 119
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
15. ACCRUED SEVERANCE BENEFITS:
Accrued severance benefits at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Beginning balance........................................... $73,428 $46,089
Decrease resulting from sales of divisions.................. (9,392) --
Decrease resulting from deconsolidation of affiliates....... (5,223) (1,790)
Provisions.................................................. 10,472 35,228
Severance payments.......................................... (14,717) (6,099)
------- -------
54,568 73,428
Balance of payments remaining with National Pension Fund.... (5,811) (7,701)
------- -------
$48,757 $65,727
======= =======
</TABLE>
The Company has partially funded accrued severance benefits through group
severance insurance plans. At December 31, 1998, the Company maintained $2,286
of group severance insurance deposits, the withdrawal of which is restricted to
the actual payment of severance benefits. The amounts funded under these
insurance plans are included as non-current bank deposits (see Note 2).
F-80
<PAGE> 120
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
16. LONG-TERM BORROWINGS AND INSTALLMENT PAYABLE:
Long-term debt, excluding capital lease obligations, at December 31, 1999
and 1998 comprise the following :
<TABLE>
<CAPTION>
ANNUAL INTEREST CARRYING VALUE AT
RATE (%) AT DECEMBER 31,
DECEMBER 31, ---------------------
1999 1999 1998
--------------- -------- ----------
<S> <C> <C> <C>
Won Currency Loans:
Choheung Bank due 2003............................... 3.00 - 11.50 $305,497 $ 408,021
Korea Development Bank............................... -- -- 77,474
Shinhan Bank due 2003................................ 8.47 - 11.25 41,157 60,329
Korea Exchange Bank.................................. 11.00 - 11.75 88,296 53,353
Hanvit Bank.......................................... 10.00 - 11.00 76,184 75,305
Seoul Bank........................................... 10.00 - 11.00 55,307 34,094
Others............................................... 3.00 - 11.50 64,820 67,934
-------- ----------
631,261 776,510
Less : current portion................................. (819) (1,593)
-------- ----------
630,442 774,917
-------- ----------
U.S. Currency Loans:
Korea Development Bank............................... -- -- 85,850
Seoul Bank........................................... -- -- 24,168
Korea Exchange Bank due 2004......................... Prime rate + 3 10,079 67,249
Shinhan Bank......................................... LIBOR + 3.5 11,502 37,046
Choheung Bank........................................ -- -- 57,563
Others............................................... LIBOR + 6.65 2,875 28,900
-------- ----------
24,456 300,776
Less : current portion................................. -- (2,765)
-------- ----------
24,456 298,011
-------- ----------
Debentures in Won currency:
Guaranteed, payable through 2004..................... 10.00 - 11.00 67,766 104,533
Non-guaranteed, payable through 2004................. 10.00 - 13.38 140,971 85,298
-------- ----------
208,737 189,831
Less: current portion................................ (19,392) --
Discounts on debentures........................... (1,812) (4,361)
-------- ----------
187,533 185,470
-------- ----------
Convertible Bonds (see Note 17):
US Dollar, payable through 2010...................... 0.25 31,193 48,749
-------- ----------
Installment Payable:
Installment Payable in Won currency.................. 2,515 11,941
Less: current portion................................ (719) (9,596)
Discounts on Installment Payable.................. (245) --
-------- ----------
1,551 2,345
-------- ----------
Total long-term debt......................... $875,175 $1,309,492
======== ==========
</TABLE>
F-81
<PAGE> 121
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
See Notes 7, 12 and 14 for the related collateral arrangements for the
Company's long-term debt. In relation to guaranteed debentures and convertible
bonds, the Company pays guarantee fees at 0.25% to 0.5% per annum. In addition,
the repayment of a substantial portion of long-term debt is guaranteed by
certain affiliated companies.
Certain debentures are guaranteed by Korea Development Bank, Kwangju Bank,
etc. The carrying amount of the debentures is equivalent to the registered,
issued and outstanding amount of debentures.
The annual maturities of long-term debt, excluding discounts on debentures,
outstanding at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
WON CURRENCY U.S. CURRENCY CONVERTIBLE INSTALLMENT
YEAR LOANS LOANS DEBENTURES BONDS PAYABLE TOTAL
---- ------------ ------------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
2000................. $ 819 $ -- $ 19,392 $ -- $ 719 $ 20,930
2001................. 487 -- -- -- 719 1,206
2002................. 404 -- -- -- 719 1,123
2003................. 428 -- -- -- 358 786
2004................. 629,123 24,456 189,345 -- -- 842,924
thereafter........... -- -- -- 31,193 -- 31,193
-------- ------- -------- ------- ------ --------
$631,261 $24,456 $208,737 $31,193 $2,515 $898,162
======== ======= ======== ======= ====== ========
</TABLE>
17. CONVERTIBLE BONDS:
In 1996, the Company issued US Dollar-denominated convertible bonds
aggregating $40 million bearing interest at 0.25% per annum. The bonds are
convertible into common stock from April 22, 1996 through November 30, 2010, at
a specified conversion price, subject to adjustment based on the occurrence of
certain events as provided in the offering agreement. The adjusted conversion
price as of W10,568 per share as of December 31, 1998 changed to W6,406 per
share as of December 31, 1999 to reflect issues of common stock in 1999 (see
Note 22). The exchange rate applicable to the exercise of the conversion rights
is fixed at W779.72 per US$1.
The Company may redeem all or some of the bonds on or at any time after
March 20, 1997 at their principal amount, together, in each case, with accrued
interest. No such redemption may be made on or prior to March 20, 2001 unless
the average of the last selling prices or, if no sales take place on such day,
the closing bid or offered prices of the common shares as reported by the Korea
Stock Exchange, for each of 30 consecutive trading days, ending not more than 30
days prior to the date upon which notice of such redemption is given, has been
at least 130% of the conversion price of each such trading day.
Any bondholder may request the Company to redeem all or some of the bonds
held by him on March 20, 2001 at 142.75% of the principal amount of such bonds,
together with interest accrued to the date of redemption.
Unless previously redeemed, purchased and cancelled or converted, the bonds
will be redeemed on December 31, 2010 at their principal amount together with
accrued interest.
During 1999, $19,720 of convertible bonds with interest of $3,545 were
converted into the Company's common stock. As a result of the conversion,
1,686,425 additional shares were issued, which resulted in increase of capital
and capital surplus by $10,814 and $8,906, respectively. Remainder of
convertible bonds comprised principal of $23,825 and interest of $7,368 as of
December 31, 1999.
F-82
<PAGE> 122
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
18. INTEREST CAPITALIZATION:
The Company capitalized interest costs on borrowings associated with
property, plant and equipment during the construction period (see Note 2).
Details related to interest costs for the years ended December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Total interest costs incurred............................... $189,817 $242,353
Charged to expense.......................................... 185,315 227,799
-------- --------
Interest capitalized........................................ $ 4,502 $ 14,554
======== ========
</TABLE>
19. REVENUE:
Revenue from continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue from construction services................. $ -- $ -- $232,631
Net sales of tangible products..................... 282,469 213,593 163,359
Other Revenue...................................... 3,456 7,505 10,947
-------- -------- --------
Total.................................... $285,925 $221,098 $406,937
======== ======== ========
</TABLE>
20. COST OF SALES OF CONTINUING OPERATIONS CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cost of construction services...................... $ -- $ -- $191,455
Cost of tangible product sold...................... 239,632 230,478 123,211
-------- -------- --------
Total.................................... $239,632 $230,478 $314,666
======== ======== ========
</TABLE>
21. INCOME TAXES:
The tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------ --------
<S> <C> <C> <C>
Current:............................................. $ 26,868 $1,172 $ 9,794
Deferred:............................................ (54,192) 370 100,100
-------- ------ --------
Total...................................... (27,324) 1,542 109,894
Allocated to discontinued packing and testing
operation.......................................... 12,408 -- --
Allocated to gain on sale of K4...................... 14,268 -- --
-------- ------ --------
Continuing operations................................ $(54,000) $1,542 $109,894
======== ====== ========
</TABLE>
Anam incurs income tax liabilities in Korean Won based on taxable income
determined in accordance with Korean generally accepted accounting principles
and tax laws. The tax provision included in these financial statements reflects
current tax expense and the impact of accounting for deferred taxes under SFAS
109.
F-83
<PAGE> 123
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including Anam's ability to generate taxable income
within the period during which the temporary differences reverse, the outlook
for the Korean economy environment and the overall future industry outlook.
Management has considered these factors in reaching its conclusion as to the
valuation allowance for financial reporting purposes. Such valuation allowance
is reviewed periodically.
The major components of deferred tax assets and deferred tax liabilities as
of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets :
Borrowings................................................ $ 3,141 $ 1,750
Forward contracts......................................... 371 580
Provision for severance benefits, net..................... 14,320 13,423
Property, plant and equipment............................. 116,278 147,958
Short term and long term loans............................ 163,469 157,164
Provision for contingency losses.......................... 40,013 29,982
Inventories............................................... 678 5,463
Accounts and notes receivable............................. 41 42,465
Investment................................................ 11,800 11,994
Deferred charges.......................................... -- 17,476
Loss carry forwards....................................... -- 35,288
Tax credit................................................ 58,942 61,094
Other..................................................... 41 38,574
--------- ---------
Total deferred tax assets.............................. 409,094 563,211
--------- ---------
Deferred tax liabilities
Reserves by Korean tax law................................ -- 2,357
Accounts and notes payable................................ -- 37,860
Advances from customers................................... -- 44,162
Other..................................................... 62 7,384
--------- ---------
Total deferred tax liabilities......................... 62 91,763
Valuation allowance.................................... (355,820) (472,428)
--------- ---------
Net deferred tax assets (liabilities)....................... $ 53,212 $ (980)
========= =========
</TABLE>
The net deferred tax liabilities as of December 31, 1998 are included in
other current liabilities and other long-term liabilities.
At December 31, 1999, the Company has available unused investment tax
credits of $58,942, which may be applied against future income tax amounts
through 2006.
Management has reassessed the estimated future taxable income and has
concluded that it is "more likely than not" that Anam will not realize the full
benefit of deferred tax assets. Accordingly, a valuation allowance of $355,820
and $472,428 at December 31, 1999 and 1998, respectively, has been recorded.
F-84
<PAGE> 124
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
The statutory income tax rates, including tax surcharges, applicable to
Anam for 1999, 1998 and 1997 are approximately 30.8%, respectively. The
reconciliation from income taxes calculated at the statutory tax rate to the
effective income tax amount for each of the periods is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Taxes at Korean statutory tax rate...................... $ 35,213 $(239,367) $ 52,724
Remeasurement effect.................................... 75,257 75,813 (212,612)
Increase (decrease) in valuation allowance.............. (116,608) 193,615 268,279
Tax credit used......................................... (12,057) -- --
Other, net.............................................. (9,129) (28,519) 1,503
--------- --------- ---------
Total income tax provision (benefit).................. $ (27,324) $ 1,542 $ 109,894
========= ========= =========
</TABLE>
22. CAPITAL STOCK:
The authorized share capital of the Company consists of 300,000,000 and
100,000,000 shares of common stock, respectively, and 10,000,000 and 30,000,000
shares of preferred stock, respectively, both with par value of W5,000 as of
December 31, 1999 and 1998.
As of December 31, 1999 and 1998, outstanding capital stocks are as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES ISSUED
AND OUTSTANDING THOUSANDS OF WON
------------------------ PAR VALUE ------------------------------------
1999 1998 1999 AND 1998 1999 1998
---------- ---------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Common stock.......... 55,031,183 30,477,018 W5,000 W275,155,915 W152,385,090
Preferred stock....... 2,576,276 2,576,276 5,000 12,881,380 12,881,380
---------- ---------- ---------------- ----------------
57,607,459 33,053,294 W288,037,295 W165,266,470
========== ========== ================ ================
</TABLE>
As of December 31, 1999 and 1998, preferred stocks are as follows:
<TABLE>
<S> <C>
Series A preferred stock.................................... 2,240,240 shares
Series B preferred stock.................................... 336,036
----------
2,576,276 shares
----------
----------
</TABLE>
Series A preferred stock (First Preferred) --
Series A preferred stockholders have no voting rights and are entitled to
non-cumulative and non-participating preferred dividends at a rate of one
percentage point over those provided to common shareholders. This preferred
dividend rate is not applicable to stock dividends.
Series B Cumulative Convertible preferred stock (Second Preferred) --
Series B Cumulative Convertible preferred stockholders are entitled to
cumulative and participating preferred dividends at a rate of 9% of par value.
The shareholders have no voting rights, except for the period from the
shareholders' meeting in which dividends at a rate less than 9% of par value are
declared through the shareholders' meeting in which dividends at a rate more
than 9% of par value are declared. Preferred stocks shall be converted to common
shares on March 15, 2007. The basis of conversion is one share of preferred
stock for one share of common stock.
F-85
<PAGE> 125
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Common and preferred stock issued in 1999 and 1997 are as follows: (Per
share date is stated in U.S. dollars)
<TABLE>
<CAPTION>
PAID-IN CAPITAL IN
DATE OF ISSUANCE TYPE SHARES PAR VALUE EXCESS OF PAR VALUE
---------------- ---- ---------- --------- -------------------
<S> <C> <C> <C> <C>
COMMON STOCK
October 29, 1999.......................... (A) 19,669,600 $82,011 $ --
October 29, 1999.......................... (B) 10,000,000 41,695 --
August 13 - December 30, 1999............. (C) 1,686,425 10,814 8,906
March 15, 1997............................ (D) 3,170,110(*) 20,941 --
July 24, 1997............................. (E) 6,172,840(*) 34,536 62,187
PREFERRED STOCK
March 15, 1997............................ (D) 336,036(*) 2,220 --
</TABLE>
- -------------------------
(A) Transfer of long-term borrowings to capital stock
(B) Issuance of common stock at $4.17 to creditors and Amkor
(C) Transfer of convertible bonds to capital stock
(D) Transfer of capital surplus to capital stock in the form of stock dividend
(E) Issuance of depository receipts
The Company completed an underwritten public offering of 6,172,840 shares of
its common stock in Luxemburg capital market, at a public offering price of
$15.67 per share, net of direct issuance cost of $3,278
(*) The number of shares represents stock issued before reverse stock split.
Common stock reduced in 1999 is as follows: (Per share data is stated in
U.S. dollars)
<TABLE>
<CAPTION>
PAID-IN CAPITAL IN
DATE OF REDUCTION TYPE SHARES PAR VALUE EXCESS OF PAR VALUE
----------------- ---- ---------- --------- -------------------
<S> <C> <C> <C> <C>
COMMON STOCK
June 17, 1999.......................... (A) (6,801,860) $(43,040) $ --
</TABLE>
- -------------------------
(A) Reverse stock split from 1.2873 share to one
23. RECEIVABLE FROM STOCKHOLDERS:
Receivable from stockholders is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning balance...................................... $116,417 $129,809
Collection of advance.................................. (54,299) (13,392)
-------- --------
Ending balance......................................... $ 62,118 $116,417
======== ========
</TABLE>
In July 1997, the Company loaned $100,000 to a shareholder through an
affiliated company which is payable on demand. This loan was used to purchase
the Company's depository receipts issued on July 24, 1997. The Company collected
$39,555 from the shareholder in 1999. Interest is payable at the rate from 4.1%
to 14.3% as of December 31, 1999. The Company has not recognized interest income
receivable related to this loan. This loan is recorded as a contra equity item.
In addition, the Company also made certain non-interest bearing loans to
employees and directors to finance their acquisition of the Company's stock.
Such loans are also recorded as a contra equity item.
F-86
<PAGE> 126
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
24. EARNINGS (LOSS) PER SHARE:
For the years ended December 31, 1999, 1998 and 1997, earnings (loss) per
share (EPS) was calculated as follows:
<TABLE>
<CAPTION>
WEIGHTED AVG. PER SHARE
EARNINGS (LOSS) SHARES AMOUNT
(NUMERATOR) (DENOMINATOR) (IN US DOLLARS)
--------------- ------------- ---------------
<S> <C> <C> <C>
Earnings per Share -- Year Ended December 31,
1999
Loss from continuing operations.................. $(169,759)
Less: Preferred stock dividend................... (133)
---------
Weighted average number of common shares for the
year before retroactive adjustment to reflect
the reverse stock split........................ 32,320,823
Effect of retroactive adjustment to reflect the
reverse stock split............................ (3,112,084)
----------
Basic earnings per share:
Loss from continuing operations attributable to
common stock................................... (169,892) 29,208,739 $ (5.82)
========== =======
Add: Income from discontinued operations......... 279,624
---------
Net income attributable to common stock.......... 109,732 29,208,739 $ 3.76
=======
Effect of dilutive securities:
Convertible debentures........................... 1,252 2,899,911
Convertible preferred stock...................... 133 336,036
--------- ----------
Diluted earnings per share:
Net income attributable to common stock.......... 111,117 32,444,686 $ 3.42
========= ========== =======
Loss from continuing operations attributable to
common stock................................... $(169,892) 29,208,739 $ (5.82)
========= ========== =======
Earnings per Share -- Year Ended December 31,
1998
Loss from continuing operations.................. $(957,165)
Less: Preferred stock dividend................... (108)
---------
Weighted average number of common shares for the
year before retroactive adjustment to reflect
the reverse stock split........................ 30,477,018
Effect of retroactive adjustment to reflect the
reverse stock split............................ (6,801,860)
----------
Basic earnings per share:
Loss from continuing operations attributable to
common stock................................... (957,273) 23,675,158 $(40.43)
========== =======
Add: Income from discontinued operations......... 109,632
---------
Net loss attributable to common stock............ (847,641) 23,675,158 $(35.80)
=======
Effect of dilutive securities:
Convertible debentures........................... -- --
Convertible preferred stock...................... -- --
--------- ----------
</TABLE>
F-87
<PAGE> 127
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WEIGHTED AVG. PER SHARE
EARNINGS (LOSS) SHARES AMOUNT
(NUMERATOR) (DENOMINATOR) (IN US DOLLARS)
--------------- ------------- ---------------
<S> <C> <C> <C>
Diluted earnings per share:
Net loss attributable to common stock............ (847,641) 23,675,158 $(35.80)
========= ========== =======
Loss from continuing operations attributable to
common stock................................... $(957,273) 23,675,158 $(40.43)
========= ========== =======
Earnings per Share -- Year Ended December 31,
1997
Income from continuing operations................ $(102,039)
Less: Preferred stock dividend................... (159)
---------
Weighted average number of common shares for the
year before retroactive adjustment to reflect
the reverse stock split........................ 26,993,191
Effect of retroactive adjustment to reflect the
reverse stock split............................ (6,024,348)
----------
Basic earnings per share:
Income from continuing operations attributable to
common stock................................... (102,198) 20,968,843 $ (4.87)
========== =======
Add: Income from discontinued operations......... 143,469
---------
Net income attributable to common stock.......... 41,271 20,968,843 $ 1.97
=======
Effect of dilutive securities:
Convertible debentures........................... 1,252 1,888,971
Convertible preferred stock...................... 159 336,036
Diluted earnings per share:
Net income attributable to common stock.......... 42,682 23,193,850 $ 1.84
========= ========== =======
Income from continuing operations attributable to
common stock................................... $(102,198) 20,968,843 $ (4.87)
========= ========== =======
</TABLE>
The basic earnings per share for discontinued operations was $9.58, $4.63
and $6.84 in 1999, 1998 and 1997, respectively. Diluted earnings per share for
discontinued operations was $9.24, $4.63 and $6.71 in 1999, 1998 and 1997,
respectively.
25. COMMITMENTS AND CONTINGENCIES:
At December 31, 1999, the Company was contingently liable for guarantees of
indebtedness of certain affiliated companies as follows :
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Anam Electronics(*).................................. $134,651 $147,014
Anam Construction.................................... 150,587 144,568
Anam Environment..................................... 9,626 11,070
Acqutek.............................................. 13,691 19,369
Anam Finance......................................... 4,966 11,666
Other Affiliates..................................... 8,391 26,543
-------- --------
Total...................................... $321,912 $360,230
======== ========
</TABLE>
(*) An affiliate through common ownership of the Kim Family.
F-88
<PAGE> 128
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
As discussed in Note 5, Anam Construction and Anam Electronics became
insolvent and filed an application for corporate reorganization under the Korean
Corporate Reorganization Act on October 24, 1998 and March 18, 1999,
respectively. The application of each company was accepted by the court. Under
the court appointed receivership management, both companies had been preparing
their reorganization plan including the restructuring of existing debt. Anam
Electronics reorganization plan was completed and approved by the court on
February 7, 2000 and Anam Construction's reorganization plan is expected to be
finalized in March 2000. According to Anam Electronics' reorganization plan, a
portion of ASI's loans to Anam Electronics approximating W32.4 billion shall be
converted to common stock of Anam Electronic in exchange for 2,072,300 shares at
W16,000 per share by June 1, 2000. After this conversion, ASI will own 32.4% of
Anam electronics' common shares.
Under the terms of Anam's Workout Program, the guaranteed creditors of Anam
Construction and Anam Electronics may exercise their right to request from the
Company the performance of guarantee obligations only at the time when the
guarantee obligation amount is fixed after the extinction of the primary
debtors' legal entity as a result of bankruptcy or liquidation. In addition, the
payment of the principal of the guarantee obligation was suspended until
December 31, 2003 and interest during such suspension period will be exempted.
Accordingly, it is expected that the Company may be contingently liable for
payment guarantees on the remaining indebtedness of Anam Construction and Anam
Electronics at December 31, 2003. The Company recorded a liability for loss
contingency of $101,460 and $66,707 at December 31, 1999 and 1998, respectively,
for the probable loss that may occur upon guaranteed creditors' demand for
performance of these loan guarantees.
In addition to loss provisions provided for those affiliate guarantees
discussed above, the Company accrued an additional provision of $18,452 and
$20,637 at December 31, 1999 and 1998, respectively, related to losses expected
on other guarantees.
At December 31, 1999 and 1998, the Company is contingently liable for
letters of commitment provided in relation to the issue of $38 million secured
floating rate notes due 2000 by Pacific Elephant Investment (L) limited ("PEIL")
and the issue of $20 million guaranteed floating rate notes due 2002 by Pacific
Rainbow Investment (L) Limited ("PRIL"). According to terms of the letters of
commitment, the Company is required, subject to any restrictions under Korean
Law, to make a capital injection to PEIL and PRIL if their gross asset value
become lower than 100% of the outstanding principal amount of all borrowings by
PEIL and PRIL, respectively. Because of the economic crisis in Asia Pacific
region, the gross asset value of both PEIL and PRIL significantly declined and,
as a result, the Company was asked to make capital injections to PEIL and PRIL.
The amount of capital injection requested on October 29, 1999 approximates
$18,000 for PEIL and $17,000 for PRIL. The Company has been negotiating this
matter with various parties including those responsible for the operations of
PEIL and PRIL to settle down these claims. By taking into consideration the
current status of negotiation, the Company recorded a liability for loss
contingency of $10,000 at December 31, 1999 and 1998 for the probable loss that
may occur upon settlement of these claims.
26. DERIVATIVE FINANCIAL INSTRUMENTS:
The total fair value of all derivative instruments at December 31, 1999 and
1998 was $164,636 and $273,962, respectively. Net unrealized losses in relation
to currency and interest swap contracts approximate $15,364 and $36,968 as of
December 31, 1999 and 1998, respectively (see Note 2).
F-89
<PAGE> 129
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Currency and interest swap
The Company had several outstanding currency and interest rate swap
contracts at December 31, 1999 and 1998, further described as follows:
1999
<TABLE>
<CAPTION>
CONTRACTED RECEIVING PAYING CONTRACT
BANK CONTRACT AMOUNT EXCHANGE RATE RATE(%) RATE(%) DUE DATE
---- --------------- ------------- --------- ------- ------------
<S> <C> <C> <C> <C> <C>
Korea Development Bank............ US$50,000 W938 : US$1 9.95 6.25 Oct 10, 2000
Sinhan Bank....................... US$10,000 W882 : US$1 10.20 6.90 Apr 24, 2000
Korea Merchant Bank............... US$20,000 W882 : US$1 10.20 6.90 Apr 24, 2000
</TABLE>
1998
<TABLE>
<CAPTION>
CONTRACTED RECEIVING PAYING CONTRACT
BANK CONTRACT AMOUNT EXCHANGE RATE RATE(%) RATE(%) DUE DATE
---- --------------- ------------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Chase Manhattan Bank............. $30,000 W830 : US$1 8.25 7.00 Sept 16, 1999
Chase Manhattan Bank............. $20,000 W840 : US$1 7.99 6.29 Oct 17, 1999
Korea Development Bank........... $50,000 W938 : US$1 9.95 6.25 Oct 10, 2000
Shinhan Bank..................... $10,000 W882 : US$1 10.20 6.90 Apr 24, 2000
Korea Merchant Bank.............. $20,000 W882 : US$1 10.20 6.90 Apr 24, 2000
</TABLE>
Under the terms of the currency and interest swaps, the Company is
obligated to pay the contract amount multiplied by the current exchange rate
multiplied by the paying rate and is entitled to receive the contract amount
multiplied by the contracted exchange rate multiplied by the paying rate at
six-month intervals until the contract due date.
Interest swap
The Company had several outstanding interest-rate swap contracts in
relation to payment of interest on foreign currency long-term debt at December
31, 1999 and 1998, further described as follows:
1999
<TABLE>
<CAPTION>
BUYING
BANK CONTRACT AMOUNT SELLING RATE(%) RATE(%) CONTRACT TERMS
---- --------------- --------------- ------- --------------
<S> <C> <C> <C> <C>
Chase Manhattan Bank US$100,000 6 month LIBOR 5.800 Sept 16, 2000
</TABLE>
1998
<TABLE>
<CAPTION>
SELLING BUYING CONTRACT
BANK CONTRACT AMOUNT RATE(%) RATE(%) TERMS
- -------------------- --------------- ------------- ------- --------------
<S> <C> <C> <C> <C>
Shinhan Bank US$ 50,000 6 month LIBOR 5.705 Jul 1, 1999
Chase Manhattan Bank US$100,000 6 month LIBOR 5.800 Sept 16, 2000
</TABLE>
27. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate methodologies;
however, considerable judgement is required in interpreting market data to
develop estimates for fair value. Accordingly, these estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major
financial institutions and expose the Company to
F-90
<PAGE> 130
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
market and credit risks and may at times be concentrated with certain
counterparties or group of counter-parties. The creditworthiness of
counterparties is continually reviewed, and full performance is anticipated.
The carrying amount reported in the balance sheet for accounts receivable
from affiliates, other accounts receivable, short-term loans receivable, and
accrued expenses approximate fair value due to the short-term nature of these
instruments. The methods and assumptions used to estimate the fair value of
other significant classes of financial instruments are set forth below:
Cash and Cash Equivalents
Cash and cash equivalents are due on demand or carry a maturity date of
less than three months when purchased. The carrying amount of these financial
instruments is a reasonable estimate of fair value.
Available for Sale Investments
The fair value of these financial instruments was estimated based on market
quotes, recent offerings of similar securities, current and projected financial
performance of the company and net asset positions.
Investment in affiliated companies
Management believes it is impractical to estimate the fair value of non
publicly traded companies.
Short-term borrowing
Short-term borrowings have variable rates that reflect currently available
terms and conditions for similar borrowings. The carrying amount of this debt is
a reasonable estimate of fair value.
Long-term debt
Long-term debt balances have variable rates that reflect currently
available terms and conditions for similar debt. The carrying value of this debt
is a reasonable estimate of fair value.
Convertible Bonds
Management believes it is impractical to estimate the fair value of such
bonds due to their unique feature and the lack of an active trading market for
such bonds.
Derivative Instruments
The fair value of derivative instruments is based on quoted market prices
if available or discounted cash flow if market quote is not available, and is
estimated to be $164,636 and $273,962 at December 31, 1999 and 1998,
respectively.
28. RELATED PARTY TRANSACTIONS:
Discontinued packaging and testing operations
On February 28, 2000, Anam's board of directors and the creditors committee
approved the formal plan to sell the remaining packaging and testing operations
to Amkor, the company related to Anam (see Notes 1 and 2). The anticipated
disposal date is approximately April 30, 2000. Net sales of the packaging and
testing operations, consisting of plants K1, K2 and K3, for the years ended
December 31, 1999, 1998 and 1997, including those of K4 sold to Amkor in May,
1999, were $477,862, $500,914 and $650,457,
F-91
<PAGE> 131
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
respectively. These amounts are not included in the net sales in the
accompanying income statements (see Notes 30 and 31).
Significant transactions with affiliated companies during 1999, 1998 and
1997 and the related account balances at December 31, 1999 and 1998 are
summarized as follows:
Transactions between the Company and its affiliated companies
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales
Amkor............................................ $712,300 $566,261 $530,262
Other affiliated companies....................... 2,428 4,051 19,013
-------- -------- --------
$714,728 $570,312 $549,275
======== ======== ========
Purchases
Other affiliated companies....................... $ 17,612 $ 16,277 $ 21,114
======== ======== ========
</TABLE>
Related accounts balances between the Company and its affiliated companies
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Receivables
Amkor..................................................... $26,586 $13,342
Other affiliated companies................................ 7,505 15,503
------- -------
$34,091 $28,845
======= =======
Payables
Amkor..................................................... $ 1,223 $22,578
Other affiliated companies................................ 10,633 2,012
------- -------
$11,856 $24,590
======= =======
</TABLE>
Employee and Directors Loans
The Company has short-term loans of $36 to its employees and directors at
December 31, 1998. Such loans are provided to assist employees and directors in
housing purchase. They generally bear market interest rate and are repaid
through regular payroll deduction based on a predetermined schedule.
29. SEGMENT INFORMATION:
The Company has identified three reportable segments, specifically
packaging and test services, wafer fabrication service and construction, that
are managed separately because the services provided by each segment require
different technology.
The Company offers a complete and integrated set of packaging and test
services including IC packaging design, leadframe and substrate design, IC
package assembly, final testing, burn-in reliability test and thermal and
electrical characterization. The Company also manufacture submicron CMOS wafers
through its foundry. Also, the Company, through its subsidiary, Anam
Construction, provide construction services, which was consolidated in 1997 but
deconsolidated since 1998.
F-92
<PAGE> 132
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
The accounting policies for segment reporting are the same as those
described in Note 2 to the consolidated financial statements. The Company
evaluates its operating segments based on profit and loss.
BY INDUSTRY SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue from external customers:
Packaging............................................ $ 477,862 $ 500,914 $ 650,457
Construction......................................... -- -- 232,631
Wafer................................................ 264,177 97,068 --
Other................................................ 21,748 124,030 174,306
---------- ---------- ----------
Total........................................ $ 763,787 $ 722,012 $1,057,394
========== ========== ==========
Property, Plant and Equipment:
Packaging............................................ $ 401,568 $ 926,135
Construction......................................... -- --
Wafer................................................ 597,870 597,165
Other................................................ 38,497 58,314
---------- ----------
Total........................................ $1,037,935 $1,581,614
========== ==========
</TABLE>
The following is a summary of operations by country based on the location
of the customer. Property, plant and equipment is based on the location of the
equipment.
BY GEOGRAPHY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue from external customers:
United States........................................ $ 712,300 $ 566,261 $ 530,262
Republic of Korea and Others......................... 51,487 155,751 527,132
---------- ---------- ----------
Total........................................ $ 763,787 $ 722,012 $1,057,394
========== ========== ==========
Property, Plant, and Equipment
United States........................................ $ 76 $ 72
Republic of Korea.................................... 1,037,859 1,581,542
---------- ----------
Total........................................ $1,037,935 $1,581,614
========== ==========
</TABLE>
BY MAJOR CUSTOMER
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Revenue from external customers:
Amkor................................................... $712,300 $566,261 $ 530,262
Other................................................... 51,487 155,751 527,132
-------- -------- ----------
Total........................................... $763,787 $722,012 $1,057,394
======== ======== ==========
</TABLE>
F-93
<PAGE> 133
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other column includes the
elimination of inter-segment balances and corporate assets.
<TABLE>
<CAPTION>
PACKAGING
AND TEST WAFER
(DISCONTINUED) FABRICATION CONSTRUCTION OTHER TOTAL
-------------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Net Revenue........................... $ 477,862 $264,177 $ -- $ 21,748 $ 763,787
Gross Profit.......................... 156,704 38,155 -- 8,138 202,997
Operating Income...................... 136,002 26,570 -- 938 163,510
Depreciation and Amortization......... 150,653 119,447 -- 1,531 271,631
Capital Expenditures.................. 595 3,907 -- -- 4,502
Total Assets.......................... 583,491 728,774 -- 175,204 1,487,469
Year ended December 31, 1998
Net Revenue........................... $ 500,914 $ 97,068 $ -- $124,030 $ 722,012
Gross Profit.......................... 139,129 (38,884) -- 29,504 129,749
Operating Income...................... 94,929 (315,911) -- 17,905 (203,077)
Depreciation and Amortization......... 179,955 115,428 -- 3,869 299,252
Capital Expenditures.................. 2,317 12,237 -- -- 14,554
Total Assets.......................... 1,075,286 740,135 -- 63,529 1,878,950
Year ended December 31, 1997
Net Revenue........................... $ 650,457 $ -- $387,946 $ 18,991 $1,057,394
Gross Profit.......................... 186,633 -- 94,469 (2,198) 278,904
Operating Income...................... 129,157 -- 55,287 (49,210) 135,234
Depreciation and Amortization......... 143,079 -- 11,243 (3,659) 150,663
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments............... $ 763,787 $ 722,012 $1,057,394
Elimination of revenues from discontinued operation
(Note 28)......................................... 477,862 500,914 650,457
---------- ---------- ----------
Total consolidated revenue........................... $ 285,925 $ 221,098 $ 406,937
========== ========== ==========
GROSS PROFIT
Total gross profit for reportable segments........... $ 202,997 $ 129,749 $ 278,904
Elimination of gross profit from discontinued
operation (Note 28)............................... 156,704 139,129 186,633
---------- ---------- ----------
Total consolidated gross profit...................... $ 46,293 $ (9,380) $ 92,271
========== ========== ==========
OPERATING INCOME
Total operating income (loss) for reportable
segments.......................................... $ 163,510 $ (203,077) $ 135,234
Elimination of operating income from discontinued
operation (Note 28)............................... 142,472 109,632 143,469
---------- ---------- ----------
Total consolidated operating income.................. $ 21,038 $ (312,709) $ (8,235)
========== ========== ==========
Total asset.................................. $1,487,469 $1,878,950 $2,922,114
========== ========== ==========
</TABLE>
F-94
<PAGE> 134
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
30. SALE OF K4 ASSETS AND OTHER:
On May 17, 1999, the Company sold to Amkor all the assets of the Company's
packaging and test facility located in Kwangju city, the Republic of Korea
("K4"), excluding cash and cash equivalents, notes and accounts receivables,
intercompany accounts and existing claims against third parties, in accordance
with an asset purchase agreement signed on December 30, 1998 and approved by its
shareholders on February 3, 1999. The sale price of K4 is $575,000 in cash, plus
the transfer of up to $7,000 of employee benefit liabilities. The sale of K4
resulted in a gain of approximately $163,828 on the sale. K4 provides packaging
and test services for advanced leadframe and laminate packages that are used in
high-performance electronic products such as cellular telephones, laptop
computers, digital cameras and microprocessors. K4 began operating in October
1996 and is Anam's newest semiconductor packaging and test facility. The
operating results of K4 are included in the income from the discontinued
operation because of the approved sale of the remaining packaging and testing
business in 2000 (see Note 31).
In connection with the sale of K4, Anam entered into a Transition Services
Agreement with Amkor. Pursuant to this agreement, Anam will continue to provide
many of the same non-manufacturing related services to K4 that it provided prior
to the sale, including, human resources, accounting and general administrative
services. The monthly fee for the service is $766. Anam also entered into an
Intellectual Property License Agreement with Amkor that became effective upon
the closing of the sale. Anam transferred certain patents to Amkor and licensed
certain intellectual property rights to Amkor under an exclusive, fully paid,
perpetual license.
In August 1999, the Company sold all assets and liabilities directly
related to the wiring business to a third party and recognized a gain of $16,671
on the sale. This sale did not qualify as discontinued operations and,
accordingly, the related gain was included in the results of continuing
operations.
31. SUBSEQUENT EVENTS :
On February 28, 2000, Anam made a decision to sell to Amkor all of the
remaining operating assets related to the packaging and testing business
excluding K2 land in accordance with the approval of the Anam's board of
directors' meeting and the Anam's creditors committee. The sale price of
Packaging Business is Korean Won equivalent to $950 million. The major assets of
the packaging and testing business are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Inventory.............................................. $ 7,984 $ 7,982
Fixed Assets........................................... 401,568 926,135
-------- --------
$409,552 $934,117
======== ========
</TABLE>
On February 28, 2000, the Company also made a decision to issue 56,457,039
shares of the new common stock on approval of a board of directors' meeting as
follows:
- Approximately 15,529,000 shares of common stock will be issued to Amkor
at W8,000 per share
- Additional 22,179,974 shares of common stock will be issued to Amkor at
W18,000 per share
- Additional 18,750,000 shares of common stock will be issued to creditor
banks at W8,000 per share through the conversion of W150 billion debt
into common stock
F-95
<PAGE> 135
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY -- THOUSANDS OF U.S. DOLLARS)
Management of the Company intends to use proceeds from the sales of the
packaging and testing operations to repay its borrowings due to remaining wafer
fabrication creditor institutions and invest in the remaining wafer fabrication
operations of the Company.
F-96
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Anam Engineering & Construction Co., Ltd.
Seoul, Korea
We have audited the consolidated balance sheets of Anam Engineering &
Construction Co., Ltd. and its subsidiary as of December 31, 1999, 1998 and
1997, the related consolidated statements of operations, shareholders' deficit,
and cash flows for the years then ended, all expressed in Korean Won (not
separately included herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements (not separately
included herein) present fairly, in all material respects, the financial
position of Anam Engineering & Construction Co., Ltd. and its subsidiary as of
December 31, 1999, 1998 and 1997, the results of their operations, the changes
in their shareholders' deficit and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1, the Company has filed a voluntary petition for
reorganization under the Corporate Reorganization Act in the Republic of Korea.
The financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such financial
statements do not purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b) as to
prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1, the Company's recurring
losses from operations, negative working capital, and shareholders' capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also discussed in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Ahn Kwon & Co.
February 9, 2000
F-97
<PAGE> 137
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Anam USA, Inc.
West Chester, Pennsylvania
We have audited the balance sheets of Anam USA Inc. (a Pennsylvania
Corporation and a wholly-owned subsidiary of Anam Semiconductor, Inc., Seoul,
ROK) (ASI) as of December 31, 1999 and 1998 and the related statements of
income, stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1999 (not separately included herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not separately
included herein) present fairly, in all material respects, the financial
position of Anam USA, Inc. as of December 31, 1999 and 1998 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
All of the Company's outstanding notes payable and letters of credit are
guaranteed by ASI. ASI has a significant amount of debt relative to its equity.
ASI's business has been significantly affected by the economic crisis in Korea.
In October 23, 1998, ASI entered into a Korean financial restructuring program
known as "Workout Program." On February 23, 1999, ASI was granted certain
economic concessions through the Workout Program which was approved by the
Korean Financial Supervisory Committee. The effects of the "Workout Program" and
its impact on the Company are disclosed in Note 5.
/s/ SIANA CARR & O'CONNOR, LLP
January 31, 2000
F-98
<PAGE> 138
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 hereunto duly authorized.
AMKOR TECHNOLOGY, INC.
By: /s/ Kenneth T. Joyce
------------------------
Kenneth T. Joyce
Chief Financial Officer
Dated: March 13, 2000
<PAGE> 139
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Samil Accounting Corporation.*
23.3 Consent of Siana Carr & O'Connor, LLP.
23.4 Consent of Ahn Kwon & Co.
</TABLE>
- -------------
(*) Chiang An
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 3, 2000 (except with respect to the Company's proposed
acquisition of ASI's packaging and test facilities and its investment in ASI as
discussed in Note 21, as to which the date is February 28, 2000) and to all
references to our Firm included in or made a part of this Current Report on Form
8-K; and to the incorporation of that report included in this Current Report on
Form 8-K, into the Company's previously filed Form S-8 Registration Statements
File Numbers 333-62891 and 333-86161.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 11, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-62891 and No. 333-86161) of Amkor Technology,
Inc. of our following reports which appear in the Current Report on Form 8-K/A
of Amkor Technology, Inc. dated March 13, 2000:
- - dated February 28, 2000 relating to the consolidated financial statements of
Anam Semiconductor, Inc. and its subsidiaries;
- - dated January 25, 2000, except as to Note 14, which is as of February 28,
2000, relating to the financial statements of the Seongsu, Pucheon and Pupyong
Packaging Businesses of Anam Semiconductor, Inc.; and,
- - dated January 15, 2000 relating to the financial statements of the Amkor
Technology Korea, Inc.
We also consent to the references to us under the headings "Selected Historical
Financial Data of K1, K2 and K3" (Seongsu, Pucheon and Pupyong Packaging
Businesses of Anam Semiconductor, Inc.) and "Selected Historical Financial Data
of ASI" (Anam Semiconductor, Inc.) appearing in the Current Report on Form 8-K/A
of Amkor Technology, Inc. dated March 13, 2000, which is incorporated by
reference in such Form S-8s.
/s/ SAMIL ACCOUNTING CORPORATION
Seoul, Korea
March 13, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Current Report on Form 8-K by Amkor Technology, Inc.
/s/ SIANA CARR & O'CONNOR, LLP
Paoli, Pennsylvania
March 10, 2000
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Current Report on Form 8-K by Amkor Technology, Inc.
/s/ AHN KWON & COMPANY
Seoul, Korea
March 9, 2000
