<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
---------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
---------------------- -----------------------
Commission file number 0-23084
-----------------
INTEGRATED SILICON SOLUTION, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0199971
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2231 Lawson Lane, Santa Clara, California 95054
- --------------------------------------------- ----------
(Address of principal executive offices) zip code
Registrant's telephone number, including area code (408) 588-0800
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK, PAR VALUE $0.0001 PER SHARE NASDAQ NATIONAL MARKET
- ----------------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
-----------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of such stock on December 10, 1999,
as reported by the Nasdaq National Market, was approximately $192.0 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on
December 10, 1999 was 20,407,713.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting
of Stockholders to be held on February 7, 2000 are incorporated by reference in
Part III of this Form 10-K.
<PAGE> 2
AMENDED FILING OF FORM 10-K FOR 1999
This amendment is being filed for the sole purpose of filing as an Exhibit the
Audited Financial Statements of Integrated Circuit Solution Incorporation
(formerly known as Integrated Silicon Solution Taiwan Inc.).
<PAGE> 3
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
-------- -----------------------
<S> <C>
2.1(6) Agreement and Plan of Reorganization dated November 5,
1997 by and among the Company, Nexcom Technology, Inc. and
certain shareholders of Nexcom Technology, Inc.
3.1(2) Restated Certificate of Incorporation of Registrant.
3.3(1) Bylaws of Registrant.
4.2(1) Form of Common Stock Certificate.
10.1(1) Form of Indemnification Agreement.
10.2(1)*** Form of 1993 Employee Stock Purchase Plan, as amended,
and form of Subscription Agreement.
10.3(1)*** Form of 1989 Stock Plan, as amended, and form of Stock Option
Agreements.
10.4 (1) Information and Registration Rights Agreement dated as of
March 17, 1993 among the Registrant and certain holders of the
Registrant's Common Stock, as amended.
10.5(1)* Letter Agreement dated September 14, 1994 between Taiwan
Semiconductor Manufacturing Company, Ltd. ("TSMC") and the
Registrant.
10.6(1)* Joint Development Contract between Chartered Semiconductor
Manufacturing Pte. Ltd. and the Registrant dated July 21, 1994.
10.7(1) Subscription and Shareholders Agreement Relating to Valery
Limited dated March 30, 1994.
10.8(1) Long term line of credit between Bank of Communication and
Registrant.
10.9(1) Short term line of credit between International Commercial
Bank of China and Registrant.
10.10(1)*** 1995 Director Stock Option Plan.
10.11(2)* Option I Agreement between the Registrant and TSMC dated April
21, 1995.
10.12(2)* Option II Agreement between the Registrant and TSMC dated
April 21, 1995.
10.13(3)* UMC/ISSI-Taiwan Foundry Venture Agreement dated August 31,
1995.
10.14(3)* UMC/ISSI-Taiwan Fabven Foundry Capacity Agreement dated August
31, 1995.
10.15(8) Second Amended and Restated Limited Liability Company
Agreement of WaferTech, LLC, a Delaware limited liability
company, dated as of October 28, 1997.
10.16(4)** Purchase Agreement by and between Taiwan Semiconductor
Manufacturing Corporation, as Seller, and Analog Devices,
Inc., Altera Corporation and Integrated Silicon Solution,
Inc., as Buyers.
10.17(5)* Amendment to Option I and Option II Agreement between the
Company and TSMC dated September 23, 1996.
10.18(5) Sublease Agreement for facility located at 2231 Lawson Lane,
Santa Clara, California.
10.19(7)*** Nonstatutory Stock Plan
10.20(8)*** 1998 ISSI-Taiwan Stock Plan
10.21(9)*** 1998 Stock Plan
10.22 Financial Statements with Independent Auditors' Report for
Integrated Circuit Solution Incorporation
21.1(1) Subsidiaries of the Registrant
+ 23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 46).
+ 27.1 Financial Data Schedule
+ Previously filed.
* Confidential treatment granted for certain portions of this
exhibit.
** Confidential treatment requested for certain portions of this
exhibit. The portions of this exhibit for which confidential
treatment is being requested have been blacked out in the
copies filed with the related report and the confidential
portions so omitted have been filed separately with the
Securities and Exchange Commission.
*** Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report on Form 10-K
pursuant to form 14(c) of this report.
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (file no. 33-72960).
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (file no. 33-91520)
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended September 30, 1995.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended
June 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended
September 30, 1996.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended
September 30, 1997.
(7) Incorporated by reference to the Company's Registration Statement on
Form S-8 filed April 30, 1997.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended
September 30, 1998
(9) Incorporated by reference to the Company's Registration Statement on
Form S-8 filed April 26, 1999.
(b)Reports on Form 8-K
(c)Exhibits
See (a) above
(d)Financial statement schedules
See (a) above
<PAGE> 1
EXHIBIT 10.22
INTEGRATED CIRCUIT SOLUTION INCORPORATION
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999,
DECEMBER 31, 1998 AND
SEPTEMBER 30, 1998
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors, Supervisors, and Shareholders
of Integrated Circuit Solution Incorporation
We have audited the accompanying balance sheets of Integrated Circuit
Solution Incorporation as of December 31, 1999 and 1998, and September 30, 1998
and the related statements of operations, changes in shareholders' equity, and
cash flows for the years ended December 31, 1999 and September 30, 1998 and the
three-month period ended December 31, 1998. 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. 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 Integrated Circuit Solution
Incorporation as of December 31, 1999 and 1998, and September 30, 1998 and the
results of its operations and its cash flows for the years ended December 31,
1999 and September 30, 1998 and the three-month period ended December 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Diwan Ernst & Young
Taipei, Taiwan, R.O.C.
January 26, 2000
<PAGE> 3
INTEGRATED CIRCUIT SOLUTION INCORPORATION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
AND SEPTEMBER 30, 1998
(Amounts in thousand New Taiwan dollars)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 September 30, 1998
------------------------ ------------------------ ------------------------
ASSETS Notes Amount % Amount % Amount %
------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 2,4(1) $ 146,517 4.27 $ 246,860 6.31 $ 161,363 3.72
Restricted investments 6 31,500 0.92 11,500 0.29 11,500 0.27
Short-term investments 2,4(2) -- -- 166,000 4.25 -- --
Notes and accounts receivable (net) 4(3) 385,704 11.23 186,387 4.77 282,226 6.51
Receivables from related parties 5 387,564 11.28 62,744 1.60 70,361 1.62
Inventories (net) 2,4(4) 1,018,884 29.66 1,380,092 35.30 2,038,752 47.04
Prepaid expenses & other current assets 30,367 0.88 37,910 0.97 60,913 1.41
Deferred income taxes- current 2,4(15) 8,188 0.24 8,360 0.21 9,195 0.21
----------- ------ ----------- ------ ----------- ------
Total current assets 2,008,724 58.48 2,099,853 53.71 2,634,310 60.78
----------- ------ ----------- ------ ----------- ------
LONG-TERM EQUITY INVESTMENTS 4(5),6 32,544 0.95 360,597 9.22 314,089 7.25
----------- ------ ----------- ------ ----------- ------
PROPERTY, PLANT AND EQUIPMENT 2,4(6),6
Land 19,758 0.57 -- -- -- --
Buildings & facility 381,834 11.12 408,302 10.44 575,595 13.28
Machinery 1,081,958 31.50 1,073,084 27.45 934,055 21.55
Vehicles 6,583 0.19 6,721 0.17 6,721 0.16
Furniture & fixtures 45,074 1.31 41,825 1.07 38,477 0.89
Miscellaneous equipment 98,606 2.87 88,726 2.27 61,695 1.42
R & D equipment 53,504 1.56 36,723 0.94 18,934 0.44
----------- ------ ----------- ------ ----------- ------
Total property, plant and equipment 1,687,317 49.12 1,655,381 42.34 1,635,477 37.74
Plus: Prepayments for equipment 54,338 1.59 -- -- 71,382 1.65
Less: Accumulated depreciation (652,114) (18.99) (487,990) (12.48) (461,090) (10.64)
----------- ------ ----------- ------ ----------- ------
Net property, plant and equipment 1,089,541 31.72 1,167,391 29.86 1,245,769 28.74
----------- ------ ----------- ------ ----------- ------
OTHER ASSETS
Assets for lease 229,322 6.68 200,505 5.13 55,971 1.29
Refundable deposits 683 0.02 644 0.02 5,132 0.12
Deferred charge 13,105 0.38 12,933 0.33 13,103 0.30
Deferred income taxes- non-current 2,4(15) 60,943 1.77 67,772 1.73 65,732 1.52
----------- ------ ----------- ------ ----------- ------
Total other assets 304,053 8.85 281,854 7.21 139,938 3.23
----------- ------ ----------- ------ ----------- ------
TOTAL ASSETS $ 3,434,862 100.00 $ 3,909,695 100.00 $ 4,334,106 100.00
=========== ====== =========== ====== =========== ======
</TABLE>
DECEMBER 31, 1999 AND 1998
AND SEPTEMBER 30, 1998
(Amounts in thousand New Taiwan dollars)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 September 30, 1998
------------------------- ----------------------- -----------------------
LIABILITIES & SHAREHOLDERS' EQUITY Notes Amount % Amount % Amount %
----- ----------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Short-term debt 4(7) $ 176,000 5.12 $ 251,172 6.42 $ 395,770 9.13
Short-term notes 4(8) 166,785 4.86 286,843 7.34 232,255 5.36
Current portion of long-term debt 4(9) 96,056 2.80 137,165 3.51 115,065 2.65
Notes and accounts payable 472,177 13.75 619,881 15.85 1,044,294 24.09
Payable to equipment supplier 19,944 0.58 211,494 5.41 240,651 5.55
Payable to related parties 5 25,547 0.74 285,289 7.30 257,014 5.93
Income taxes payable 2,4(15) -- -- -- -- 1,144 0.03
Accrued expenses and other
current liabilities 245,939 7.16 105,250 2.69 109,567 2.53
----------- ------ ---------- ------ ---------- ------
Total current liabilities 1,202,448 35.01 1,897,094 48.52 2,395,760 55.28
----------- ------ ---------- ------ ---------- ------
LONG-TERM LIABILITIES
Accrued pension cost 2,4(14) 8,818 0.26 5,547 0.14 4,874 0.11
Long-term debt, less current portion 4(9) 475,196 13.83 521,230 13.33 417,900 9.64
Refundable deposits-in 11,975 0.35 -- -- -- --
----------- ------ ---------- ------ ---------- ------
Total long-term liabilities 495,989 14.44 526,777 13.47 422,774 9.75
----------- ------ ---------- ------ ---------- ------
TOTAL LIABILITIES 1,698,437 49.45 2,423,871 62.00 2,818,534 65.03
----------- ------ ---------- ------ ---------- ------
SHAREHOLDERS' EQUITY
Common shares 4(10) 1,200,000 34.94 1,200,000 30.69 1,200,000 27.69
Capital reserves 2 17,991 0.52 13,229 0.34 7,263 0.17
Legal reserve 4(11) 132,195 3.85 132,195 3.38 132,195 3.05
Retained earnings 4(12) 389,239 11.33 140,400 3.59 176,114 4.06
Cumulative translation adjustments 2,4(15) (3,000) (0.09) -- -- -- --
----------- ------ ---------- ------ ---------- ------
TOTAL SHAREHOLDERS' EQUITY 1,736,425 50.55 1,485,824 38.00 1,515,572 34.97
----------- ------ ---------- ------ ---------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,434,862 100.00 $3,909,695 100.00 $4,334,106 100.00
=========== ====== ========== ====== ========== ======
</TABLE>
(See accompanying notes to financial statements)
-2-
<PAGE> 4
INTEGRATED CIRCUIT SOLUTION INCORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
(Amounts in thousand New Taiwan dollars except per share)
<TABLE>
<CAPTION>
January 1, 1999 to October 1, 1998 to October 1, 1997 to
December 31, 1999 December 31, 1998 September 30, 1998
------------------------ ------------------------ ------------------------
Description Notes Amounts % Amounts % Amounts %
----- ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES 2,5,9 $ 3,561,473 100.79 $ 1,151,820 101.42 $ 3,837,526 102.11
Less: Sales returns and discounts (28,019) (0.79) (16,122) (1.42) (79,170) (2.11)
Net sales 3,533,454 100.00 1,135,698 100.00 3,758,356 100.00
COST OF GOODS SOLD (2,958,924) (83.74) (1,108,714) (97.62) (85.51)
----------- ------ ----------- ------ ----------- ------
GROSS PROFIT 574,530 16.26 26,984 2.38 544,576 14.49
----------- ------ ----------- ------ ----------- ------
OPERATING EXPENSES
Research and development expenses (125,358) (3.55) (31,556) (2.78) (241,433) (6.42)
Selling expenses (84,142) (2.38) (14,423) (1.27) (62,691) (1.67)
Administration expenses (113,326) (3.21) (23,442) (2.06) (75,157) (2.00)
----------- ------ ----------- ------ ----------- ------
Total operating expenses (322,826) (9.14) (69,421) (6.11) (379,281) (10.09)
----------- ------ ----------- ------ ----------- ------
OPERATING INCOME (LOSS) 251,704 7.12 (42,437) (3.74) 165,295 4.40
----------- ------ ----------- ------ ----------- ------
OTHER INCOME
Interest income 10,123 0.29 3,640 0.32 11,979 0.32
Rental income 42,989 1.22 -- -- -- --
Gain on disposal of property,
plant and equipment 2 5,951 0.17 7,458 0.66 9,006 0.24
Gain on disposal of short-term
investments 1,408 0.04 54 0.00 356 0.01
Reversal of inventory loss provision 2 56,500 1.60 -- -- -- --
Gain on disposal of long-term
investments 36,409 1.03 -- -- 68,366 1.82
Foreign currency exchange- gain -- -- 22,030 1.94 -- --
Others 8,310 0.24 16,602 1.46 2,612 0.07
----------- ------ ----------- ------ ----------- ------
Total other income 161,690 4.59 49,784 4.38 92,319 2.46
----------- ------ ----------- ------ ----------- ------
OTHER EXPENSES
Interest expense (61,670) (1.74) (29,876) (2.63) (76,132) (2.03)
Expenses related to assets for lease (10,890) (0.31) -- -- -- --
Foreign currency exchange- loss 2 (1,375) (0.04) -- -- (86,160) (2.29)
Investment loss (11,527) (0.33) -- -- -- --
Inventory loss provision 2 -- -- (857) (0.08) (84,000) (2.24)
Physical inventory loss (5,171) (0.15) (1,117) (0.10) (4,852) (0.13)
Others (62,160) (1.76) (5,184) (0.46) (6,381) (0.17)
----------- ------ ----------- ------ ----------- ------
Total other expenses (152,793) (4.33) (37,034) (3.26) (257,525) (6.85)
----------- ------ ----------- ------ ----------- ------
INCOME (LOSS) BEFORE TAXES 260,601 7.38 (29,687) (2.61) 89 0.00
INCOME TAX BENEFIT (EXPENSE) 2,4(15) (7,000) (0.20) (61) (0.01) 5,096 0.14
----------- ------ ----------- ------ ----------- ------
NET INCOME (LOSS) $ 253,601 7.18 $ (29,748) (2.62) $ 5,185 0.14
=========== ====== =========== ====== =========== ======
NET INCOME (LOSS) PER SHARE 4(13) $ 2.11 $ (0.25) $ 0.04
=========== =========== ===========
</TABLE>
(See accompanying notes to financial statements)
-3-
<PAGE> 5
INTEGRATED CIRCUIT SOLUTION INCORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
(Amounts in thousand New Taiwan dollars)
<TABLE>
<CAPTION>
Cumulative
Common Capital Legal Retained translation
Description shares reserves reserves earnings adjustments Total
----------- ---------- -------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of October 1, 1997 $ 900,000 $ 58 $118,226 $ 493,360 $ -- $ 1,511,644
Appropriation and distribution of 1996
retained earnings:
Legal reserve -- -- 13,969 (13,969) -- --
Employee bonuses -- -- -- (1,257) -- (1,257)
Stock dividend 300,000 -- -- (300,000) -- --
Gain on disposal of property, plant and
equipment transferred to capital reserve -- 7,205 -- (7,205) -- --
Net income, 1997 -- -- -- 5,185 -- 5,185
-------- --------- ------- -----------
Balance as of September 30, 1998 1,200,000 7,263 132,195 176,114 -- 1,515,572
Gain on disposal of property, plant and
equipment transferred to capital reserve -- 5,966 -- (5,966) -- --
Net losses, 1998 -- -- -- (29,748) -- (29,748)
---------- ------- -------- --------- ------- -----------
Balance as of December 31, 1998 1,200,000 13,229 132,195 140,400 -- 1,485,824
Gain on disposal of property, plant and
equipment transferred to capital reserve -- 4,762 -- (4,762) -- --
Net income, 1999 -- -- -- 253,601 -- 253,601
Cumulative translation adjustment -- -- -- -- (3,000) (3,000)
---------- ------- -------- --------- ------- -----------
Balance as of December 31, 1999 $1,200,000 $17,991 $132,195 $ 389,239 $(3,000) $ 1,736,425
========== ======= ======== ========= ======= ===========
</TABLE>
(See accompanying notes to financial statements)
-4-
<PAGE> 6
INTEGRATED CIRCUIT SOLUTION INCORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
(Amounts in thousand New Taiwan dollars)
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 1, OCTOBER 1,
1999 1998 1997
TO TO TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
DESCRIPTION 1999 1998 1998
----------- ------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 253,601 $ (29,748) $ 5,185
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Deferred income tax 7,001 (1,205) (5,098)
Inventory loss provision (Reversal) (56,500) 857 84,000
Depreciation 206,432 44,557 120,987
Amortization 3,038 170 --
Net gain on disposal of property, plant and equipment (5,915) (7,458) (8,983)
Loss on long-term equity investment 11,527 -- (68,366)
Decrease (increase) in short-term investment 166,000 (166,000) --
Decrease (increase) in notes and accounts receivable (199,317) 95,839 (70,646)
Decrease (increase) in receivable from related parties (324,820) 7,617 530,452
Decrease (increase) in inventories 417,708 657,803 (1,194,879)
Decrease in prepaid expenses and other current assets 7,543 23,003 14,990
Increase (decrease) in notes and accounts payable (147,704) (424,413) 507,528
Increase (decrease) in payable to related parties (259,742) 28,275 (6,413)
Decrease in income taxes payable -- (1,144) (757)
Increase (decrease) in accrued expenses & other current liabilities 140,689 (4,318) (73,985)
--------- --------- -----------
Net cash provided by (used in) operating activities 219,541 223,835 (165,985)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted investments (20,000) -- --
Decrease (increase) in refundable deposits (39) 4,488 (2,867)
Purchase of property, plant and equipment (353,530) (143,532) (535,457)
Decrease (increase) in long-term investments 313,526 (46,507) 298,027
Additions to intangible assets (3,210) -- (9,878)
Proceeds from disposal of property, plant and equipment 10,496 11,119 29,001
--------- --------- -----------
Net cash used in investing activities: (52,757) (174,432) (221,174)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term debts (75,172) (144,598) 219,835
Net increase (decrease) in short-term notes (120,058) 54,588 232,255
Net decrease in payable to related parties -- -- (371,799)
Net increase (decrease) in long-term debts (87,143) 125,430 134,015
Net increase in refundable deposits-in 11,975 -- --
Net increase in accrued pension cost 3,271 674 2,293
Employee bonuses -- -- (1,257)
--------- --------- -----------
Net cash provided by (used in) financing activities (267,127) 36,094 215,342
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents (100,343) 85,497 (171,817)
Cash and cash equivalents at the beginning of period 246,860 161,363 333,182
--------- --------- -----------
Cash and cash equivalents at the end of period $ 146,517 $ 246,860 $ 161,365
========= ========= ===========
Supplemental disclosures of cash flow information:
Interest paid during the period (excluding capitalized interest) $ 68,928 $ 35,444 $ 63,507
========= ========= ===========
Income tax paid during the period $ 1,082 $ 277 $ 2,865
========= ========= ===========
Purchase of property, plant and equipment $ 161,980 $ 114,375 $ 728,491
Plus: Payables to equipment supplier, beginning 211,494 240,651 47,617
Minus: Payables to equipment supplier, ending (19,944) (211,494) (240,651)
--------- --------- -----------
Cash used in purchase of property, plant & equipment $ 353,530 $ 143,532 $ 535,457
========= ========= ===========
Non-cash activities
Current portion of long term debt $ 96,056 $ 137,165 $ 115,065
========= ========= ===========
Stock dividend declared $ -- $ -- $ 300,000
========= ========= ===========
</TABLE>
(See accompanying notes to financial statements)
-5-
<PAGE> 7
INTEGRATED CIRCUIT SOLUTION INCORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998, and September 30, 1998
(Amounts in thousand NT dollars unless otherwise stated)
1. ORGANIZATION AND BUSINESS
Integrated Circuit Solution Incorporation (the "Company") was incorporated
in the Hsinchu Science-Based Industrial Park ("HSIP"), Taiwan on September
10, 1990. The Company operates principally as a designer, manufacturer and
supplier of integrated circuits.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Period
The Company first adopted an accounting year that ended on September 30.
On September 11, 1998, the Company's shareholders' resolved to change to
the calendar accounting year. The 3-month period from October 1 through
December 31, 1998 was referred as the period "1998" in the financial
statements.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash, and so near their maturity
that they present insignificant risk of changes in interest rates.
Commercial papers, negotiable certificates of deposit, and bank
acceptances with remaining maturity of three months or less at investment
date are considered cash equivalents.
Short- Term Investments
Short-term investments are carried at lower of cost or market value at the
balance sheet date using weighted average cost method.
Inventories
Inventories are carried at lower of cost or market value using the
weighted average cost method. Replacement cost is used to determine the
market value of raw materials. Net realizable value is used to determine
the market value of work in process and finished goods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on the straight-line basis over the
following useful lives:
<TABLE>
<S> <C>
Building & facility 3 to 50 years
(building 50 years, facility 3-10 years)
Machinery 3 to 5 years
Furniture & fixtures 3 to 8 years
Vehicles 5 years
Miscellaneous equipment 3 to 10 years
R & D equipment 3 to 5 years
</TABLE>
-6-
<PAGE> 8
Improvements and replacements are capitalized and depreciated over their
estimated useful lives while ordinary repairs and maintenance are expensed
as incurred. Gains or losses resulting from the disposal of property,
plant and equipment are presented under other income or expenses. In
addition, gains from disposal of property, plant, and equipment, net of
income tax, are transferred from retained earnings to capital reserve in
the current year.
Foreign Currency Transactions
The Company maintains its accounting records in New Taiwan dollars ("NT
Dollars" or "NT$"). Transactions denominated in foreign currencies are
recorded in New Taiwan dollars using the exchange rates in effect at the
dates of transactions. Assets and liabilities denominated in foreign
currencies are translated into NT Dollars using the exchange rates in
effect at the balance sheet date. Foreign exchange gains or losses are
included in other incomes or losses. Exchange gains or losses on
inter-company foreign currency transactions of capital or long-term nature
are included in cumulative translation adjustments, a separate component
of stockholders' equity. Payable and receivable resulted from contracted
forward exchange are net as either assets or liabilities on balance
sheets.
Income taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
tax bases, and tax credits. On the basis of the expected realizability of
the deferred tax assets, a valuation allowance is provided.
Undistributed earnings generated after 1998 would be subject to a 10% tax
in compliance with R.O.C. income tax law.
Revenue Recognition
Revenue is recognized when it is realized or realizable and when it is
earned. Revenue from the sale of product is recognized when ownership is
transferred to the customer, which normally occurs when shipment is made.
Capital Expenditures vs. Revenue Expenditures
If the expenditure increases the future service potential of the plant
assets and the lump sum purchase price per transaction exceeds a certain
criteria, the expenditure is capitalized, while the others are expensed as
incurred.
Employee Retirement Benefits
The Company has a defined benefit pension plan covering substantially all
of its employees. In accordance with the ROC Labor Standards Law, the
Company made a monthly contribution equal to 2 % of the wages and salaries
paid during the period to a pension fund maintained with the Central Trust
of China. The fund, established during 1991 to meet employees retirement
benefit entitlements, is administered by the Employees' Retirement Fund
Committee and is deposited under the committee's name. Therefore, the
pension fund is not included in the financial statements of the Company.
The Company adopted ROC Statement of Financial Accounting Standards No.
18, "Accounting for Pensions".
-7-
<PAGE> 9
Derivative financial instrument
Gains and losses on contracts designated as hedges of existing assets and
liabilities are accrued as exchange rate changes and are recognized in
current income. Gains and losses on contracts designated as hedges of net
investments in foreign subsidiaries are accrued as exchange rate changes
and are recognized as translation adjustment, a separate component of
shareholders' equity. Gains and losses on contracts designated as hedges
of identifiable foreign currency firm commitments are deferred and
included in the measurement of the related foreign currency transaction.
3. REASONS AND EFFECTS FOR ACCOUNTING PRINCIPLE CHANGE
None
4. CONTENT OF SIGNIFICANT ACCOUNTS
(1) Cash and Cash Equivalents
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Cash on hand $ 155 $ 141 $ 140
Saving and Checking 90,362 104,719 50,223
Time Deposits 56,000 142,000 111,000
--------- --------- ---------
Total $ 146,517 $ 246,860 $ 161,363
========= ========= =========
</TABLE>
(2) Short-Term Investments
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Beneficiary certificates $ -- $ 166,000 $ --
Less: Allowance for market -- -- --
value decline
--------- --------- ---------
Net $ -- $ 166,000 $ --
========= ========= =========
</TABLE>
Short-term investments were not pledged.
(3) Notes and Accounts Receivable
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Notes receivable $ 15,548 $ 8,410 $ 28,751
Accounts receivable 384,566 188,387 265,885
--------- --------- ---------
Total 400,114 196,797 294,636
Less: Allowance for bad debt (14,410) (10,410) (10,410)
Allowance for sales discount -- -- (2,000)
--------- --------- ---------
Net $ 385,704 $ 186,387 $ 282,226
========= ========= =========
</TABLE>
-8-
<PAGE> 10
(4) Inventories
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials $ 277,741 $ 253,516 $ 449,293
Work in process 107,897 740,680 836,850
Finished goods 811,246 620,396 987,609
--------- ----------- -----------
1,196,884 1,614,592 2,273,752
Less: Allowance for market
value decline and
obsolescence (178,000) (234,500) (235,000)
--------- ----------- -----------
Net 1,018,884 $ 1,380,092 $ 2,038,752
========= =========== ===========
</TABLE>
The insurance coverage for inventories amounted to NT$2,129,032,
NT$2,053,550 and NT$2,053,550 as of December 31, 1999, 1998 and
September 30, 1998, respectively.
(5) Long- Term Equity Investments (shares in thousands)
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
------------------------ ----------------------- ------------------------
Accounting
Investee Shares amount % Shares amount % Shares amount % Method
-------- ----- ------ ----- ------ -------- ----- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. United Integrated -- -- -- 31,643 $316,429 2.11% 31,409 $314,089 2.09% Cost
Circuits Corp
2. Nexflash 1,070 28,618 17.59 1,070 31,618 16.97% -- -- -- Cost
Technologies Inc
3. Dynachip -- -- -- 143 9,708 -- -- -- -- Cost
Corporation
4. ICSI-Japan 0.2 1,084 100% -- -- -- -- -- -- Equity
5. ISSI(Warrant) -- 2,842 -- -- 2,842 -- -- -- -- Cost
------ -------- --------
32,544 $360,597 $314,089
====== ======== ========
</TABLE>
Please refer to note 6 for assets pledged as collateral.
(6) Property, Plant and Equipment
a. Total interests capitalized amounted to NT$731, NT$30,684 and
NT$615 for the years ended December 31, 1999 and September 30, 1998
and the three-month period ended December 31, 1998, respectively.
b. The insurance coverage for property, plant and equipment amounted
to NT$1,833,065, NT$1,921,975 and NT$1,921,975 as of December 31,
1999 and 1998, and September 30, 1998, respectively.
c. Please refer to note 6 for property, plant and equipment pledged as
collateral.
(7) Short- Term Debt
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Working capital loan:
Due within 180 day with
variable interest rates $176,000 $251,172 $395,770
-------- -------- --------
</TABLE>
-9-
<PAGE> 11
a. The Company's unused short-term lines of credits amounted to
NT$501,673, NT$248,718 and NT$174,370 as of December 31, 1999 and
1998, and September 30, 1998, respectively.
b. The interest rates of short-term debt ranged from 5.58% to 7.75%,
2.25% to 8.75% and 7.5% to 8.58% as of December 31, 1999 and 1998,
and September 30, 1998, respectively.
c. Please refer to note 6 for assets pledged as collateral for short
term debt.
(8) Short-Term Notes
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Commercial paper $170,000 $290,000 $235,000
Less: discount (3,215) (3,157) (2,745)
-------- -------- --------
Net $166,785 $286,843 $232,255
======== ======== ========
</TABLE>
a. The interest rates of short-term notes ranged from 4.62% to 5.1%,
5% to 7.5% and 6.88% to 7.23% as of December 31, 1999 and 1998, and
September 30, 1998, respectively.
b. The Company's unused short-term lines of credits for short-term
notes amounted to NT$169,000, NT$0 and NT$5,000 as of December 31,
1999 and 1998, and September 30, 1998, respectively.
(9) Long- Term Debt
<TABLE>
<CAPTION>
Interest Rate Balance
----------------------------------------- ---------------------------------
1999/1/1- 1998/10/1- 1997/10/1-
1999/12/31 1998/12/31 1999/9/30 1999/12/31 1998/12/31 1998/9/30
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
SECURED 6.64% 6.67% 6.85% 171,252 187,000 69,600
International
Commercial Bank of China
Repayable in 21 quarterly
installments from April 1999
to April 2004 with variable
interest rates
China Trust Bank 7.75% -- -- 300,000 -- --
Repayable in 21 quarterly
installments from January
2000 to November 2004 with
variable interest rates
Chao Tung Bank -- 6.67% 8.82% -- 471,395 463,365
Fully repaid in 1999 8.67% 8.82%
COMMERCIAL PAPER 4.93% -- -- 100,000 -- --
China Trust Bank
Due within 180 days and
expected to be refinanced
------- -------- --------
Total Long-term debt 571,252 658,395 532,965
Current portion of long-term debt (96,056) (137,165) (115,065)
475,196 521,230 417,900
======= ======== ========
</TABLE>
Please refer to Note 6 for assets pledged as collateral.
-10-
<PAGE> 12
(10) Capital Stock
As of October 1, 1997, the Company's authorized and issued capital was
$900,000 divided into 90,000,000 shares, each at par of NT$10.
On April 29, 1998, the Company's shareholders resolved in the annual
meeting to declare a 33.33% stock dividend which resulted in the
issuance of 30,000,000 shares.
As of December 31, 1999, the Company's authorized and issued common
shares amounted to NT$1,200,000 divided into 120,000,000 shares each
at par of NT$10.
(11) Legal Reserve
According to the ROC Company Law, 10% of the Company's net income,
after deducting previous years' losses, if any, is appropriated as
legal reserve prior to any distribution until such reserve is equal to
the Company's paid-in capital. When the legal reserve is equal to 50%
of the paid-in stock, 50% of such reserve may be distributed to the
Company's shareholders through the issuance of additional common
share.
(12) Income Distribution
The Company's articles of incorporation provide that the net income,
after deducting the previous years' losses and the appropriation to
the legal reserve ("Distributable Earnings"), may be appropriated or
distributed in the following sequence:
a. Employee bonuses at no less than 8% of the remaining.
b. The remaining may be appropriated or distributed follow the
resolution of the Company's shareholders meeting.
(13) Earnings Per Common Share
The Company's basic earnings (losses) per share for the years ended
December 31, 1999 and September 30, 1998 and the 3-month period ended
December 31, 1998, were NT$2.11, NT$0.04 and NT$(0.25), respectively.
The basic earnings (losses) per common share were computed by dividing
the net earnings (losses) of NT$253,601, NT$5,185 and NT$(29,748) for
the underlying periods, by the weighted average number of common
shares outstanding of 120,000,000, respectively. The weighted average
number of common shares outstanding were computed as follows: (in
shares)
<TABLE>
<CAPTION>
Items 1999.1.1-1999.12.31 1998.10.1-1998.12.3 1997.10.1-1998.9.30
------------------- ------------------- -------------------
<S> <C> <C> <C>
Common shares outstanding,
beginning 120,000,000 120,000,000 90,000,000
Stock dividend 33.33% - - 30,000,000
----------- ----------- ----------
Weighted average number of
shares outstanding 120,000,000 120,000,000 120,000,000
=========== =========== ===========
</TABLE>
-11-
<PAGE> 13
(14) Retirement Plan
<TABLE>
<S> <C>
The actuarial assumptions for 1999 are as follows:
Discount rate 6.5%
Expected long-term rate of return on plan assets 6.5%
Rate of increase in future compensation levels 5.0%
</TABLE>
(1) The status of the defined benefit plans covering employees in ROC
was as follows:
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
---------- ---------- ---------
<S> <C> <C> <C>
Benefit Obligations
Vested benefit obligation $ -- $ -- $ --
Non-vested benefit obligation (10,253) (5,779) (3,949)
-------- -------- --------
Accumulated benefit obligation (10,253) (5,779) (3,949)
Effect of projected future
salary increase (19,796) (18,443) (18,443)
-------- -------- --------
Projected benefit obligation (30,049) (24,222) (22,392)
Fair value of plan assets 18,874 13,123 11,965
-------- -------- --------
Pension plan status (11,175) (11,099) (10,427)
Unrecognized transition obligation -- -- --
Unrecognized prior service cost -- -- --
Unrecognized gains and losses 2,327 5,552 5,581
Under-accrual / over-accrual 30 -- (28)
-------- -------- --------
Accrued pension cost (8,818) $ (5,547) $ (4,874)
======== ======== ========
</TABLE>
(2) Components of net periodic pension cost for 1999
<TABLE>
<S> <C>
Service cost $7,233
Interest cost 1,585
Expected return on plan assets (853)
Amortization 218
------
Net periodic pension cost $8,183
======
</TABLE>
-12-
<PAGE> 14
(15) Income Taxes
A. The preferential income tax rate of 20%, instead of 25% applicable
to other business entities, is applicable to the Company,
qualified as a Science-Based Industry provided by article 3 of the
Statute for the Establishment and Administration of a
Science-Based Industrial Park.
B. The Company is entitled to income tax exemption periods of five
consecutive years starting October 1, 1992; four consecutive years
starting May 16, 1995; and four consecutive years starting
December 19, 1995, on income generated from qualifying
manufacturing high technology activities. Permission was obtained
from the administrative office of the Hsinchu Science-Based
Industrial Park.
C. Income tax assessments for the years up to 1995 have been
finalized by the tax authorities.
D. As of December 31, 1999 unused tax credits available to reduce
future income tax amounted to NT$170,132 and expire as follows:
<TABLE>
<CAPTION>
NT$
------
<S> <C>
2000 89,788
2001 43,255
2002 5,642
2003 31,477
-------
Total 170,132
=======
</TABLE>
E. Information related to imputation of shareholders' income tax
<TABLE>
<CAPTION>
1999/12/31 1998/12/31
---------- ----------
<S> <C> <C>
Available shareholders' tax credit $61 $61
Expected rate of shareholders' tax credit 0.03% N.A.
</TABLE>
F. Information related to undistributed retained earnings
<TABLE>
<CAPTION>
1999/12/31 1998/12/31
---------- ----------
<S> <C> <C>
Prior to 1997 $176,114 $176,114
After 1997 (inclusive) 213,125 (35,714)
-------- --------
Total $389,239 $140,400
======== ========
</TABLE>
G. (1) Deferred tax assets and liabilities as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NT$
<S> <C>
(a) Total deferred tax liabilities 3,073
=======
(b) Total deferred tax assets 190,185
=======
(c) Valuation allowance for deferred tax assets 117,981
=======
</TABLE>
-13-
<PAGE> 15
(d) Temporary differences that generated deferred tax assets or
liabilities:
<TABLE>
<CAPTION>
Amount Tax effect
------- ----------
NT$ NT$
<S> <C> <C>
Taxable temporary difference
Recognition of unrealized foreign exchange gain 30,730 3,073
======= =======
Deductible temporary difference
Recognition of unrealized inventory provision 178,000 17,800
======= =======
Deductible temporary difference
Recognition of unrealized foreign exchange loss 6,298 630
======= =======
Deductible temporary difference
Recognition of unrealized allowance for bad debts 6,533 653
======= =======
Deductible temporary difference
Recognition of unrealized loss on long term investments 9,708 970
======= =======
Income tax credit 170,132
=======
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(2) Deferred tax assets - current 108,870
Valuation allowance for deferred tax assets - current (97,609)
--------
Net deferred tax assets - current 11,261
Net deferred tax liabilities - current (3,073)
--------
Net deferred tax assets and liabilities - current 8,188
========
(3) Deferred tax assets - noncurrent 81,315
Valuation allowance for deferred tax assets - noncurrent (20,372)
--------
Net deferred tax assets - noncurrent 60,943
========
(4) Income tax payable- current --
Net deferred income tax effect 7,000
--------
Income tax expense 7,000
========
</TABLE>
H. (1) Deferred tax assets and liabilities as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NT$
--------
<S> <C>
(a) Total deferred tax liabilities 486
(b) Total deferred tax assets 248,402
=======
(c) Valuation allowance for deferred tax assets 171,784
=======
(d) Temporary differences that generated deferred tax assets or
liabilities:
</TABLE>
<TABLE>
<CAPTION>
Amount Tax effect
------- ----------
NT$ NT$
<S> <C> <C>
Taxable temporary difference
Recognition of unrealized foreign exchange gain 2,432 486
======= =======
Deductible temporary difference
Recognition of unrealized inventory provision 234,500 46,900
======= =======
Deductible temporary difference
Recognition of unrealized foreign exchange loss 11,072 2,215
======= =======
Deductible temporary difference
Recognition of unrealized allowance for bad debt 8,298 1,660
======= =======
Deductible temporary difference
Recognition of unrealized gross profit 43,386 8,677
======= =======
Income tax credits 188,950
=======
</TABLE>
-14-
<PAGE> 16
<TABLE>
<CAPTION>
NT$
<S> <C>
(2) Deferred tax assets - current 67,789
Valuation allowance for deferred tax assets - current (58,943)
--------
Net deferred tax assets - current 8,846
Net deferred tax liabilities - current (486)
--------
Net deferred tax assets and liabilities - current 8,360
========
(3) Deferred tax assets - noncurrent 180,613
Valuation allowance for deferred tax assets - noncurrent (112,841)
--------
Net deferred tax assets - noncurrent 67,772
========
(4) Income tax payable - current --
Net deferred income tax effect 61
--------
Income tax expense 61
========
</TABLE>
I. (1) Deferred tax assets and liabilities as of September 30, 1998
are as follows:
<TABLE>
<CAPTION>
NT$
<S> <C>
(a) Total deferred tax liabilities 332
=======
(b) Total deferred tax assets 236,053
=======
(c) Valuation allowance for deferred tax assets 160,794
=======
</TABLE>
(d) Temporary differences that generated deferred tax assets or
liabilities:
<TABLE>
<CAPTION>
Amount Tax effect
------- ----------
NT$ NT$
<S> <C> <C>
Taxable temporary difference
Recognition of unrealized foreign exchange gain 1,658 332
======= ========
Deductible temporary difference
Recognition of unrealized inventory provision 235,000 47,000
======= ========
Deductible temporary difference
Recognition of unrealized foreign exchange loss 23,055 4,611
======= ========
Deductible temporary difference- others 1,080 216
======= ========
Income tax credits 184,226
========
(2) Deferred tax assets - current 69,693
Valuation allowance for deferred tax assets - current (60,166)
--------
Net deferred tax assets - current 9,527
Net deferred tax liabilities - current (332)
--------
Net deferred tax assets and liabilities - current 9,195
========
(3) Deferred tax assets - noncurrent 166,360
Valuation allowance for deferred tax assets - noncurrent (100,628)
--------
Net deferred tax assets - noncurrent 65,732
========
(4) Income tax payable - current 1,144
Net deferred income tax effect (6,240)
--------
Income tax benefit (5,096)
========
</TABLE>
-15-
<PAGE> 17
5. RELATED PARTY TRANSACTIONS
(1) Related Parties and Relationships
<TABLE>
<CAPTION>
Related parties Relationships
------------------------------------------------- -------------------
<S> <C>
Integrated Silicon Solution (USA) Inc. (ISSI-USA) The Company's major shareholder
ISSI-USA, Taiwan Branch (ISSI Branch) Branch office of ISSI-USA
Integrated Silicon Solution (H.K.) Inc. (ISSI-HK) Equity investee of ISSI-USA
Integrated Circuit Solution (H.K.) Inc. (ICSI-HK) Same General Manager
Integrated Circuit Solution (Japan) Inc.(ICSI-Japan) The Company's equity investee
Nexflash Technologies Inc. (Nexflash) Equity investee of ISSI-USA
</TABLE>
(2) Major Transactions with Related Parties
a. Purchase
<TABLE>
<CAPTION>
1999 (12 months) 1998 (3 months) 1997 (12 months)
------------------- ------------------- --------------------
% of total % of total % of total
Amount purchase Amount purchase Amount purchase
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ISSI-USA $50,262 4.44% $36,825 16.72% $63,159 2.11%
------- ----- ------- ------ ------- -----
Others 514 0.05% - - - -
------- ----- ------- ------ ------- -----
Total $50,776 4.49% $36,825 16.72% $63,519 2.11%
======= ===== ======= ====== ======= =====
</TABLE>
There was no similar transaction for comparison of purchase price from
ISSI-USA. Payment term to ISSI-USA is similar to those of third-party
customers.
b. Sales and services rendered:
<TABLE>
<CAPTION>
1999 (12 months) 1998 (3 months) 1997 (12 months)
------------------- ------------------- --------------------
% of total % of total % of total
Amount purchase Amount purchase Amount purchase
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ISSI-USA $1,221,473 34.57% $588,979 51.86% $2,180,428 58.02%
ISSI-H.K 117,954 3.34% 23,193 2.04% 92,822 2.47%
ISSI-Branch 180,013 5.09% 205,252 18.07% - -
Nexflash 38,121 1.08% - - - -
Others 632 0.02% - - - -
---------- ------ -------- ------ ---------- ------
Total $1,558,193 44.10% $817,424 71.97% $2,273,250 60.49%
========== ====== ======== ====== ========== ======
</TABLE>
For 1999, sales price to ISSI-USA is 102% of cost. Price for service
rendered to ISSI-USA is similar to those of third-party customers. For
1998 and 1997, sales price is about 90% to 115% of cost, NET 60. In
1999, sale price to ISSI-USA, Taiwan Branch was 102% of cost.
-16-
<PAGE> 18
c. Property transactions
(1) The Company sold equipment to ISSI-USA in 1999 for NT$4,366 with a
gain of NT$4,035.
(2) The Company sold equipment to ISSI-HK in 1999 for NT$302 with gain
of NT$49.
d. Financing
Loan from ISSI-USA (None for 1998 and 1999)
<TABLE>
<CAPTION>
Highest Balance Interest Total interest paid
balance 1998/9/30 rate during the year
------------ ------------ -------- ---------------------
<S> <C> <C> <C> <C>
1997 (12 months) $452,660 $- 5.75% $18,045
============ ============ ======== =====================
</TABLE>
e. The Company entered into a royalty agreement with ISSI-USA for
obtaining the manufacturing technology of and authorization to sell
SRAM, EEPROM, FLASH and DRAM products. Royalty expenses for 1999 and
1997 were NT$7,707 and NT$96,563, respectively. Such expenses were
included in R&D expenses.
f. The Company charged ISSI-USA NT$6,466 and NT$6,347 for 1999 and 1998,
respectively, for wafer processing expenses.
g. In 1997, the Company sold 25,000,000 shares of stock of UICC to
ISSI-USA for NT$313,671. Gain from the sale was NT$63,671.
h. The Company purchased wafer on behalf of ISSI-USA. The amounts were
NT$814,287 and NT$21,766 for 1999 and 1998, respectively.
i. In 1999, the Company lent NT$2,607 to ICSI-Japan for start-up
expenses.
(3) Receivable and payable resulting from the above transactions as of
December 31, 1999 and 1998, and September 30, 1998 were as follows.
<TABLE>
<CAPTION>
1999.12.31 1998.12.31 1998.9.30
------------------- ------------------- --------------------
% of % of % of
total A/R total A/R total A/R
Amount or A/P Amount or A/P Amount or A/P
-------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Receivables from
ISSI-USA $338,280 43.75% $ -- -- $ -- --
ISSI-HK 26,359 3.41% 62,744 25.18% 70,361 19.96%
Nexflash 18,006 2.33% -- -- -- --
Others 4,919 0.64% -- -- -- --
-------- ----- -------- ----- -------- -----
Total $387,564 50.13% $ 62,744 25.18% $ 70,361 19.96%
======== ===== ======== ===== ======== =====
Payable to
ISSI-USA $25,320 4.89% $285,186 25.54% $256,692 16.65%
Others 227 0.04% 103 - 322 0.02%
-------- ----- -------- ----- -------- -----
Total $25,547 4.93% $285,289 25.54% $257,014 16.67%
======== ===== ======== ===== ======== =====
</TABLE>
-17-
<PAGE> 19
6. ASSETS PLEDGED AS COLLATERAL
The Company's assets pledged as collateral as of December 31, 1999 and 1998,
and September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Assets pledged 1999.12.31 1998.12.31 1998.9.30 Content
-------------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C>
Restricted investment $ 31,500 $ 11,500 $ 11,500 Guarantee
Machinery 356,054 480,833 410,791 Secured loan
Buildings 573,696 -- -- Secured loan
Long-term investment -- 200,000 200,000 Secured loan
Long-term investment -- 20,000 20,000 Guarantee
--------- --------- ---------
Total $ 961,250 $ 712,333 $ 642,291
========= ========= =========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company's commitments and contingencies, not included in the financial
statements, as of December 31, 1999 were as follows:
Operating Leases
The Company has operating leases of land and buildings for its business
purposes. Payments resulted from lease obligations expected to be paid in the
future are as follows:
<TABLE>
<CAPTION>
Year Lease Payable
- ---- -------------
<S> <C>
2000 $ 3,837
2001 $ 3,837
2002 $ 3,847
2003 $ 2,186
2004 through 2016 $ 25,860
</TABLE>
8. SIGNIFICANT SUBSEQUENT EVENTS
None
9. SEGMENT INFORMATION
(1)
<TABLE>
<CAPTION>
1999 (12 months) 1998 (3 months) 1997 (12 months)
---------------------------- ---------------------------- -------------------------
Amount % Amount % Amount %
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 1,531,852 43.35 $ 429,817 46.85 $ 1,046,514 27.84
Export 2,029,621 57.44 722,003 54.57 2,791,012 74.26
Less: return &
allowance (28,019) (0.79) (16,122) (1.42) (79,170) (2.10)
----------- -------- ----------- -------- ----------- --------
Net sales $ 3,533,454 100.00 $ 1,135,698 100.00 $ 3,758,356 100.00
=========== ======== =========== ======== =========== ========
</TABLE>
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<PAGE> 20
(2) Major customers
<TABLE>
<CAPTION>
1999 (12 months) 1998 (3 months) 1997 (12 months)
------------------- ----------------- -------------------
Customers Amount % Amount % Amount %
--------- ---------- ------ -------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
A $1,221,473 34.57% $588,979 51.86% $2,180,428 58.02%
B -- -- 205,252 18.07% -- --
---------- ----- -------- ----- ---------- -----
$1,221,473 34.57% $794,231 69.93% $2,180,428 58.02%
========== ===== ======== ===== ========== =====
</TABLE>
10. DERIVATIVE FINANCIAL INSTRUMENTS
(1) Contract Amount or Nominal Amount and Credit Risk as of December 31,
1999:
<TABLE>
<CAPTION>
Financial instrument Contract /nominal amount Credit risk
-------------------- ------------------------ ----------
<S> <C>
Forward currency exchange contract USD $7,000,000 --
==============
Option contract (Buy) USD $3,000,000 --
==============
Option contract (Sell) USD $10,000,000 --
===============
</TABLE>
Credit risk amount represents forward exchange contracts with positive
fair value factoring in the offsetting effect of the master netting
arrangement as of balance sheet date. If the credit risk amount is
positive and the transaction party breaches the contract, the Company will
incur a loss. The possibility for incurring a loss is remote since the
Company's transaction parties are banks with great reputation.
(2) Market Value Risk
Market value risk is insignificant due to the fact that the purpose of
forward exchange contract is hedging and the gain or loss from
fluctuation of interest or exchange rates will be offset by the gain
or loss from the forward exchanges hedged.
(3) Liquidity Risk
No significant cash flow risks since the exchange rate of forward
contract is fixed.
(4) Types of derivative financial instruments, purpose of holding the
derivative financial instruments and the strategy for achieving the
hedging purpose: The Company's derivative financial instruments are
not held for trading purpose. The purpose of holding forward exchange
contract is to hedge exchange rate fluctuation risk resulting from
assets, liabilities or commitments denominated in foreign currency.
The Company's hedging strategy is to avoid majority of market price
risk. Derivative financial instruments selected for hedging are highly
anti-co-related with the fluctuation of the fair value of derivatives
hedged. Derivatives are evaluated periodically.
(5) Presentation of derivative financial instruments
Forward exchange contract receivable and payable are reported under
current assets or liability on net amount. As of December 31, 1999,
details were as follows(in NT$):
<TABLE>
<S> <C>
Forward contract receivable 220,628
Forward contract payable (220,220)
Discount 552
--------
Forward contract receivable-net 960
=========
</TABLE>
Foreign exchange loss incurred in the period ended December 31, 1999 was
reported under other expenses in the income statements.
-19-
<PAGE> 21
(6) Fair value of financial instruments
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1999.12.31 1998.12.31
---------------------------- -----------------------------
Carrying Carrying
value Fair value value Fair value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Non-derivative
Assets
Cash & cash equivalents $ 146,517 $ 146,517 $ 246,860 $ 246,860
Restricted investment 31,500 31,500 11,500 11,500
Short-term investment -- -- 166,000 166,189
Receivable 787,678 773,268 249,131 259,540
Long-term investment 32,544 -- 360,597 --
Liabilities
Short-term debt 176,000 176,000 251,172 251,172
Notes payable 166,785 166,785 286,843 286,843
Trade payable 763,607 763,607 1,369,923 1,369,923
Long-term debt 571,252 571,252 521,230 521,230
Derivatives
Assets
Forward contracts 960 408 21,769 22,030
</TABLE>
The methods and assumptions used to estimate the fair value of derivative
financial instruments are as follows:
(1) The fair value of the Company's short-term financial instruments is
based on the book value of those instruments at reporting date due to
the short maturity of those instruments. The method applied to cash
and cash equivalents, restricted investment, receivable, payable and
short-term debt.
(2) The fair value of the Company's marketable securities is based on
market prices at reporting date if market prices are available. The
fair value of the Company's marketable securities is based on
financial or any other information if market prices are not available.
(3) The fair value of the Company's long-term borrowings bearing variable
interests, which includes current portion of long-term debt, is
estimated using the book value of the debt at reporting date.
(4) The fair value of derivative financial instruments, normally includes
unrealized gain or loss from outstanding forward exchange contracts,
is assumed to be the predicted amount that the Company is entitled to
receive or obligated to pay if the Company terminated contracts.
-20-
