================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
(AMENDMENT NO. 1)
----------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
October 17, 2003
Date of Report (Date of earliest event reported)
AMKOR TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
000-29472 23-1722724
Commission file number (I.R.S. Employer Identification Number)
1345 Enterprise Drive
West Chester, PA 19380
(610) 431-9600
(Address of principal executive offices and zip code)
================================================================================
Item 5. OTHER EVENTS
The purpose of this Form 8-K/A is to amend the Form 8-K filed March 27,
2003. The consolidated financial statements of Anam Semiconductor, Inc. (ASI)
for the three years ended December 31, 2002 have been restated by ASI to correct
an error with respect to ASI's accounting for income taxes. ASI's prior
financial statements, as of December 31, 2002, included deferred tax assets of
$417.4 million against which ASI previously had recorded a $362.1 million
valuation allowance. Additionally, ASI's prior financial statements, as of
December 31, 2001, included deferred tax assets of $360.0 million against which
ASI previously had recorded a $300.5 million valuation allowance. In October
2003, ASI determined that the proper accounting treatment, in accordance with
generally accepted accounting principles in the United States, was that ASI
should have recorded a full valuation allowance offsetting its deferred tax
assets prior to 1999 except for those deferred tax assets that were realized in
connection with the sale of its three packaging and test facilities to Amkor in
2000. ASI's conclusion is as a result of a determination that ASI had
insufficient objective evidence to overcome the "more likely than not" standard
of SFAS No. 109, "Accounting for Income Taxes," with respect to ASI's ability to
realize its net deferred tax assets. As a result of the restatement, ASI reduced
its net loss in 2002 and 2001 by $4.6 million and $13.8 million, respectively,
and reduced its net income for 2000 by $72.9 million.
The restated consolidated financial statements of Anam Semiconductor, Inc.
and its subsidiary for each of the three years ended December 31, 2002 are
filed herein pursuant to rule 3-09 of Regulation S-X. We present the information
in the following order:
Report of Independent Accountants........................................... 1
Consolidated Balance Sheets-- December 31, 2002 and 2001.................... 3
Consolidated Statements of Operations-- Years ended
December 31, 2002, 2001 and 2000.......................................... 6
Consolidated Statements of Stockholders' Equity (Deficit)-- Years ended
December 31, 2002, 2001 and 2000....................................... 7
Consolidated Statements of Cash Flows-- Years ended
December 31, 2002, 2001 and 2000....................................... 8
Notes to Consolidated Financial Statements.................................. 9
i
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 subsidiary (the "Company") as of December 31, 2002
and 2001 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2002, which, as described in Note 2, have been prepared on the basis of
accounting principles generally accepted 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 conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those U. S. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Anam
Semiconductor, Inc. and its subsidiary as of December 31, 2002 and 2001, and the
results of their operations, and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the accompanying consolidated financial statements,
the Company has restated its consolidated financial statements for the years
ended December 31, 2000, 2001 and 2002, in order to properly state the valuation
allowance on its deferred tax assets.
Continued;
1
Without qualifying our opinion, as discussed in Notes 3 and 21 to the
accompanying consolidated financial statements, Anam Semiconductor, Inc.'s
revenues are generated primarily from semiconductor foundry services provided to
Amkor Technology Inc. ("Amkor") pursuant to a foundry agreement. On January 27,
2003, Anam Semiconductor, Inc. reached an agreement with Amkor to terminate
Amkor's foundry agreement. Subsequent to the closing of this transaction, Anam
Semiconductor, Inc.'s revenues will be generated primarily from semiconductor
foundry services provided directly to Texas Instruments, Inc.
/s/ Samil Accounting Corporation
Seoul, Korea
January 17, 2003
except for Note 21, which is as of January 27, 2003,
and Notes 2, 13 and 15, which are as of October 6, 2003
2
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(as restated)
Thousands of US Dollars
-----------------------
As of December 31,
-----------------------
2002 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 15,369 $ 74,980
Restricted cash 49,754 1,951
Bank deposits 763 609
Accounts receivable
Trade 266 56
Due from affiliates 69,389 15,439
Other 2,035 4,460
Inventories 18,377 37,232
Prepaid expenses 6,929 5,578
Other current assets 4,263 4,593
-------- --------
Total current assets 167,145 144,898
Restricted cash 5 7,181
Investments
Available for sale 6,168 16,535
Affiliated companies 57,381 10,470
Long-term receivables from affiliate, net of allowance for doubtful
accounts of $ 0 and $ 3,062 in 2002 and 2001 1,184 9,667
Property, plant and equipment, net of
accumulated depreciation 482,028 646,298
Other assets 21,207 21,689
-------- --------
Total assets $735,118 $856,738
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Continued;
3
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS, Continued;
(as restated)
Thousands of US Dollars
-----------------------
As of December 31,
--------------------
2002 2001
-------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 24,607 $ 20,736
Current portion of long-term installment payable 449 2,719
Current portion of long-term obligations under capital leases 64,061 97,042
Trade accounts and notes payable 8,839 5,966
Other accounts payable 4,603 4,019
Accrued expenses 1,251 1,584
Advances received 4,120 21
Other current liabilities 3,479 2,640
-------- --------
Total current liabilities 111,409 134,727
Long-term debt, net of current portion and
discounts on debentures 40,928 59,213
Long-term installment payable, net of current portion 68 464
Long-term obligations under capital
leases, net of current portion 20,494 58,796
Accrued severance benefits, net 805 709
Liability for loss contingencies 57,198 56,305
-------- --------
Total liabilities $230,902 $310,214
-------- --------
Commitments and contingencies (Note 16)
The accompanying notes are an integral part of these consolidated
financial statements.
Continued;
4
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS, Continued;
(as restated)
Thousands of US Dollars except share data
-----------------------------------------
As of December 31,
--------------------
2002 2001
-------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY, Continued;
Stockholders' equity:
Capital stock, W5,000 par value;
authorized 300 million shares of common stock
and 10 million shares of preferred stock
Series A preferred stock:
issued and outstanding
2,240,240 shares in 2002 and 2001 15,167 15,167
Series B preferred stock:
issued and outstanding
336,036 shares in 2002 and 2001 2,220 2,220
Common stock:
issued and outstanding
123,880,768 shares in 2002 and
111,880,768 shares in 2001 589,865 539,739
--------- ---------
607,252 557,126
Capital surplus 530,581 530,863
Accumulated deficit (628,503) (535,952)
Accumulated other comprehensive loss:
Unrealized losses in investments (2,428) (1,615)
Cumulative translation adjustment (2,686) (3,898)
--------- ---------
Total stockholders' equity 504,216 546,524
--------- ---------
Total liabilities and stockholders' equity $ 735,118 $ 856,738
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
5
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(as restated)
Thousands of US Dollars except per share data
---------------------------------------------
For the year ended December 31
------------------------------
2002 2001 2000
------------ -------------- --------------
Sales $ 213,813 $ 161,700 $ 344,792
Cost of sales 313,230 261,995 303,110
------------ -------------- --------------
Gross profit (loss) (99,417) (100,295) 41,682
------------ -------------- --------------
Operating expenses
Selling and administrative expenses 11,112 14,383 24,230
Research and development 5,905 3,590 1,840
Loss (gain) on disposal of PP&E, net (3,749) 3,886 (561)
------------ -------------- --------------
Total operating expenses 13,268 21,859 25,509
Operating income (loss) (112,685) (122,154) 16,173
------------ -------------- --------------
Other (income) expense
Interest income (5,964) (12,069) (23,760)
Interest expense 12,156 23,114 71,914
Foreign currency loss (gain) (1,431) 4,095 22,992
Loss (gain) on disposal of investments, net (1,657) 370 12,824
Impairment loss on investment 6,987 6,254 740
Guarantee obligation loss - 1,447 49,797
Recovery on allowance for doubtful accounts (34,572) - -
Others, net 767 1,618 (8,877)
------------ -------------- --------------
Total other (income) expense (23,714) 24,829 125,630
------------ -------------- --------------
Loss from continuing operations before income taxes,
equity in gain (loss) affiliates (88,971) (146,983) (109,457)
Provision for (benefit from) income taxes - - (15,208)
Equity in gain (loss) of unconsolidated affiliates (3,580) (1,396) 1,660
------------ -------------- --------------
Loss from continuing operations (92,551) (148,379) (92,589)
Discontinued operations :
Income from discontinued packaging and testing operations
(net of income taxes of $6,353
for the four months ended April 30, 2000) - - 36,117
Gain on sale of packaging and testing factories
(net of income taxes of $112,724
for the year ended December 31, 2000) - - 434,227
------------ -------------- --------------
Net income (loss) $ (92,551) $ (148,379) $ 377,755
============ ============== ==============
PER SHARE DATA:
Basic loss per common share from continuing operations $ (0.79) $ (1.33) $ (1.04)
============ ============== ==============
Basic net income (loss) per common share $ (0.79) $ (1.33) $ 4.25
============ ============== ==============
Diluted loss per common share from continuing operations $ (0.79) $ (1.33) $ (1.04)
============ ============== ==============
Diluted net income (loss) per common share $ (0.79) $ (1.33) $ 4.25
============ ============== ==============
Weighted average number of shares used in computing basic
net income (loss) per common share 117,075,279 111,880,768 88,838,496
============ ============== ==============
Weighted average number of shares used in computing
net income (loss) per common share diluted 117,075,279 111,880,768 88,838,496
============ ============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
6
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2002, 2001, 2000
(In thousands of US dollars except share data)
Common Stock Preferred Stock
------------------------- ------------------- Capital
Shares Amount Shares Amount Surplus
------ ------ ------ ------ -------
Balance as of December 31, 1999 55,031,183 $ 284,329 2,576,276 $ 17,387 $ 190,409
----------- --------- --------- --------- ---------
Comprehensive income:
Net income (a)
Unrealized losses on investments, net of tax
Reclassification adjustment for accumulated unrealized
loss on investments, net of tax
Currency translation adjustments, net of tax
Comprehensive income
Issuance of common stock for cash 37,707,039 169,374 289,626
Debt to equity conversion 18,398,250 82,691 49,615
Convertible bonds to equity conversion 744,296 3,345 2,770
Others (1,557)
Cancelled receivable from stockholders
Collection of receivable from stockholders
----------- --------- --------- --------- ---------
Balance as of December 31, 2000 (a) 111,880,768 539,739 2,576,276 17,387 530,863
----------- --------- --------- --------- ---------
Comprehensive loss:
Net Loss (a)
Unrealized gain on investments, net of tax
Reclassification adjustment for accumulated unrealized
loss on investments included in net loss, net of tax
Currency translation adjustments, net of tax
Comprehensive loss
----------- --------- --------- --------- ---------
Balance as of December 31, 2001 (a) 111,880,768 539,739 2,576,276 17,387 530,863
----------- --------- --------- --------- ---------
Comprehensive loss:
Net Loss (a)
Unrealized losses on investments, net of tax
Reclassification adjustment for accumulated unrealized
loss on investments included in net loss, net of tax
Currency translation adjustments, net of tax
Comprehensive loss
Issuance of common stock for cash 12,000,000 50,126 (282)
----------- --------- --------- --------- ---------
Balance as of December 31, 2002 (a) 123,880,768 $ 589,865 2,576,276 $ 17,387 $ 530,581
=========== ========= ========= ========= =========
(a) As restated - See Note 2
Receivable from Accumulated Other
Stockholders Accumulated Deficit Comprehensive Income (Loss) Total
------------ ------------------- -------------------------- -----
Balance as of December 31, 1999 $ (62,118) $ (712,000) $ (15,757) $ (297,750)
---------- ----------- ------------ -----------
Comprehensive income:
Net income (a) 377,755 377,755
Unrealized losses on investments,
net of tax (9,043) (9,043)
Reclassification adjustment for
accumulated unrealized
loss on investments, net of tax 353 353
Currency translation adjustments, net of tax 12,471 12,471
-----------
Comprehensive income 381,536
Issuance of common stock for cash 459,000
Debt to equity conversion 132,306
Convertible bonds to equity conversion 6,115
Others (1,557)
Cancelled receivable from stockholders 53,328 (53,328) -
Collection of receivable from stockholders 8,790 8,790
---------- ----------- ------------ -----------
Balance as of December 31, 2000 (a) - (387,573) (11,976) 688,440
---------- ----------- ------------ -----------
Comprehensive loss:
Net Loss (a) (148,379) (148,379)
Unrealized gain on investments, net of tax 1,407 1,407
Reclassification adjustment
for accumulated unrealized
loss on investments included in net loss,
net of tax 6,579 6,579
Currency translation adjustments, net of tax (1,523) (1,523)
-----------
Comprehensive loss (141,916)
---------- ----------- ------------ -----------
Balance as of December 31, 2001 (a) - (535,952) (5,513) 546,524
---------- ----------- ------------ -----------
Comprehensive loss:
Net Loss (a) (92,551) (92,551)
Unrealized losses on investments, net of tax (2,156) (2,156)
Reclassification adjustment for accumulated
unrealized loss on investments included
in net loss, net of tax 1,343 1,343
Currency translation adjustments, net of tax 1,212 1,212
-----------
Comprehensive loss (92,152)
Issuance of common stock for cash 49,844
---------- ----------- ------------ -----------
Balance as of December 31, 2002 (a) $ - $ (628,503) $ (5,114) $ 504,216
========== =========== ============ ===========
(a) As restated - See Note 2
Unrealized losses in investments $ (2,428)
Cumulative translation adjustment (2,686)
------------
$ (5,114)
============
The accompanying notes are an integral part of these consolidated financial
statements.
7
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(as restated)
Thousands of U.S. Dollars
-----------------------------------
For the year ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (92,551) $(148,379) $ 377,755
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 196,996 186,913 203,032
Provision for severance benefits 2,273 4,144 14,376
Loss (gain) on foreign currency translation, net (1,431) 4,095 22,992
Loss (gain) on disposal of investments, net (1,657) 370 12,824
Impairment loss on investment 6,987 6,254 740
Loss (gain) on disposal of property, plant and equipment (3,749) 3,886 -
Guarantee obligation loss - - 49,797
Loss (gain) on investment in equity method investees, net 3,580 1,396 (1,660)
Gains on disposal of packaging and testing factories - - (546,951)
Recovery on allowance for doubtful accounts (26,048) - -
Decrease (increase) in deferred tax asset - - 53,212
Others, net 3,000 (48) 1,717
Change in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (210) (56) 5,993
Decrease (increase) in other accounts receivable (359) 6,542 (4,511)
Decrease (increase) in due from affiliates (53,950) 7,870 6,068
Decrease (increase) in inventories 18,855 4,354 (5,613)
Decrease (increase) in other current assets 4,628 (1,523) (539)
Increase (decrease) in trade accounts and notes payable 2,403 (11,052) (33,327)
Increase (decrease) in other accounts payable 659 (5,199) (79,969)
Decrease in forward contract credit - - (15,364)
Increase in advances received 4,158 19 -
Increase (decrease) in other current liabilities 628 (10,500) 467
Payments of severance benefits (2,312) (3,422) (6,623)
--------- --------- ---------
Net cash provided by operating activities $ 61,900 $ 45,664 $ 54,416
--------- --------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
Continued;
8
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued;
(as restated)
Thousands of U.S. Dollars
-----------------------------------
For the year ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in bank deposits, net $ 134 $ 67,544 $ 28,031
Decrease in short term loans, net - 1,580 2,684
Acquisition of property, plant and equipment (34,288) (27,250) (132,491)
Proceeds from sale of property, plant and equipment of K1, K2 and K3 - - 950,000
Payment of severance benefit for K1, K2 and K3 - - (56,510)
Acquisition of investments (49,922) (1) (87)
Disposal of property, plant and equipment 5,311 - -
Disposal of investments 30,915 1,787 9,247
Decrease in non-current bank deposits - 155 45
Decrease (increase) in restricted cash, net (39,348) 17,813 8,233
Decrease in long-term receivables 8,795 4,597 2,906
Decrease (increase) in other assets, net (1,960) 3,208 1,712
--------- --------- ---------
Net cash provided (used) by investing activities (80,363) 69,433 813,770
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment in short-term borrowings - - (69,328)
Repayment of current maturities of long-term installment payable (2,839) (9,844) (719)
Borrowing of long-term debt - - 22,347
Repayment of long-term debt (21,642) (31,607) (681,278)
Repayment of long-term obligations under capital leases (71,283) (100,982) (426,758)
Payment of liability for loss contingencies (979) (17,891) (102,929)
Repayment in receivable from stockholders - - 8,790
Issuance of common stock 49,844 - 457,559
--------- --------- ---------
Net cash used in financing activities (46,899) (160,324) (792,316)
--------- --------- ---------
Effect of exchange rate changes on cash 5,751 (7,565) (4,567)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (59,611) (52,792) 71,303
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR 74,980 127,772 56,469
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR $ 15,369 $ 74,980 $ 127,772
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 11,437 $ 21,979 $ 75,315
========= ========= =========
Income taxes $ - $ 17,533 $ 12,561
========= ========= =========
Property, plant and equipment acquired through capital leases $ - $ 2,775 $ 210,896
========= ========= =========
Property, plant and equipment acquired through installment payable $ - $ 3,546 $ 9,188
========= ========= =========
Capital increase through debt conversion $ - $ - $ 138,421
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
8
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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, was a provider of
semiconductor packaging and test services. In 1998, ASI commenced
operations to fabricate and sell non-memory semiconductor chips ("wafer
fabrication").
ASI's semiconductor packaging and test facilities operated primarily
for Amkor Technology, Inc. ("Amkor"), a United States affiliate. ASI
packaged and tested integrated circuits from wafers provided by Amkor
(the "Packaging Service") pursuant to supply agreements (the "Supply
Agreements") with Amkor. ASI manufactures semiconductor wafers and
otherwise performs foundry services as a subcontractor to Amkor
pursuant to a foundry agreement (the "Foundry Agreement") 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, ASI fabricates wafers, which
are also sold to Amkor.
In 1999 and 2000, ASI sold its semiconductor packaging and test
facilities to Amkor.
The businesses of ASI and Amkor have been inter-related for many years
and have some common ownership by Mr. H.S. Kim and his family (the "Kim
Family"). Mr. H.S. Kim had served as ASI's honorary chairman and his
eldest son, Mr. James Kim, serves as Amkor's chairman and chief
executive officer. As of December 31, 2002, Mr. H.S. Kim and his family
owned approximately 0.8% of the outstanding common stock of Anam and
48% of the outstanding common stock of Amkor (See Note 3).
On July 25, 2002, the Dongbu Group acquired from ASI 12 million shares
of newly issued ASI common stock for 60 billion Korean Won, in cash.
The Dongbu Group comprises Dongbu Corporation, Dongbu Fire Insurance
Co., Ltd. and Dongbu Life Insurance Co., Ltd., all of which are Korean
corporations and are collectively referred herein as "Dongbu". On
September 30, 2002, Amkor consummated a share purchase transaction with
Dongbu under which Dongbu purchased from Amkor 20 million shares of ASI
common stock at a price of 5,700 Korean Won per share, for a total
consideration of 114 billion Korean Won. During the fourth quarter of
2002, Amkor sold an additional 1 million shares of ASI stock in the
Korean stock market. Following these transactions, Amkor owns 26.7
million shares (21.6%) of ASI and Dongbu owns 32.0 million shares of
ASI (25.8%) as of December 31, 2002. In addition, on November 26, 2002,
ASI acquired 12 million shares of Dongbu Electronics for 60 billion
Korean Won in cash. Pursuant to the definitive agreements between Amkor
and Dongbu, Amkor and Dongbu agreed to use their reasonable best
efforts to cause Dongbu Electronics and ASI to be merged together as
soon as practicable.
Continued;
9
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
1. Organization and Nature of Business, Continued;
Consolidated Subsidiary and Significant Equity Investees --
A) The major subsidiary and significant equity investees included in
the accompanying financial statements by either consolidation or
equity method of accounting as of December 31, 2002 are as follows:
Direct and
Indirect Method of
Subsidiaries Ownership (%) Accounting
------------------ ------------- -------------
Anam Instruments 25.58% Equity
Anam Telecom 36.75% Equity
Dongbu Electronics 10.68% Equity
Anam USA 100% Consolidation
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 its name to Anam Instruments Co., Ltd. In October
1994, Anam Instruments obtained the optical products and semiconductor
machinery business of ASI.
Anam Telecommunications Co., Ltd. (Anam Telecom) --
Anam Telecom was established in August 1997, and is engaged in the
telecommunication business.
Dongbu Electronics Co., Ltd. (Dongbu Electronics) --
Dongbu Electronics was established under the name Samdong Express Co.,
Ltd. in March 1987 to engage in transport and warehousing. The Company
changed its business purpose to manufacture and sell semiconductors and
electronics goods, and changed its name to Dongbu Electronics & Telecom
in March 1996 and to Dongbu Electronics Co., Ltd. in March 1997.
Continued;
10
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
1. Organization and Nature of Business, Continued;
Anam USA, Inc. (Anam USA) --
Anam USA was incorporated in Pennsylvania, United States in September
1994, to sell the semiconductor products of Anam. As of December 31,
2002, its capital stock is US$0.1 of which ASI owned 100%.
C) Changes in entities included in significant equity investees :
On November 26, 2002, ASI acquired 12 million shares of Dongbu
Electronics or approximately 10.68% of Dongbu Electronics' outstanding
voting stock for 60 billion Korean Won in cash. Although ASI owned less
than 20%, ASI has the ability to exercise significant influence over
the operating and financial activities of Dongbu Electronics and
accounted for its investment in Dongbu Electronics under the equity
method of accounting.
Gre-tec of which ASI owned 46.9% became insolvent and filed an
application for corporate reorganization under the Korean Corporate
Reorganization Act on December 13, 2001. As part of the reorganization,
Gre-tec was placed under the control of the receivers appointed by the
court in 2002. As a result of such court receivership, ASI currently
does not have any board representation or any other involvement in the
management or operation of this entity. Given the lack of its ability
to exercise any influence over the operating and financial policies of
this entity, and given the fact that the carrying value of such
investee has been written down to zero, ASI accounted for Gre-tec under
the historical cost method of accounting in 2002 and equity method of
accounting in 2001.
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 ASI
and its consolidated subsidiary (hereinafter collectively referred to
as the "Company") in the preparation of the accompanying consolidated
financial statements are summarized below.
Principles of Consolidation --
The consolidated financial statements include the accounts of ASI, its
wholly-owned subsidiary, and its equity investees. The equity method of
accounting is used when ASI has the ability to exercise significant
influence over the investee. Generally, without contrary evidence, an
investment of 20% to 50% of the voting stock of the investee presumes
significant influence. Investments in companies where ownership is less
than 20% or for which the Company does not exercise significant
influence are carried at cost. All significant intercompany
transactions and balances with the consolidated subsidiary have been
eliminated in consolidation.
Continued;
11
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Principles of Consolidation, Continued --
Unrealized profit arising from sales by the controlling company to the
consolidated subsidiary or equity-method investees is fully eliminated.
Unrealized profit, arising from sales by the consolidated subsidiary or
equity-method investees to the controlling company or sales between
consolidated subsidiary 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, loss
contingencies, depreciation and impairment of long-lived assets.
Although these estimates are based on management's best knowledge of
current events and actions that the Company may undertake in the
future, actual results may be different from the estimates.
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 the
date of purchase.
Restricted Cash --
Restricted cash consists of current and non-current bank deposits,
which are pledged in connection with various long-term debt of ASI and
certain equity-method investees (see Notes 8 and 12). Restricted cash
as of December 31, 2002 and 2001 amounted to $49,759 and $9,132,
respectively.
Bank Deposits --
Bank deposits consist of time deposits with banks and other financial
institutions which have remaining maturities of more than three months
at the date of 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.
Continued;
12
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
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 maturities 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.
Management periodically evaluates whether declines in fair values below
cost on each individual investment are temporary. When the decline in
value is considered to be other than temporary, the investment is
written down to its estimated realizable value.
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.
Continued;
13
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
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:
Estimated Useful Lives
----------------------
Buildings 25 years
Structures 10 - 25 years
Machinery, equipment and vehicles 5 - 10 years
Tools 5 years
Furniture and fixtures 5 years
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 for the years ended December 31, 2002 and 2001
approximate $318 and $2,304, 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.
Capital Lease Transactions --
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.
Continued;
14
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
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 the national pension fund made under the National
Pension Plan and the severance insurance deposit are deducted from
accrued severance benefit liabilities. Contributed amounts are refunded
from the National Pension Plan and the insurance company to employees
on their retirement.
Revenue Recognition --
Revenues from the sale of the Company's product is recognized when : i)
persuasive evidence of an arrangement exists, ii) delivery has occurred
to the customers, iii) the sale price to the customer is fixed or
determinable and iv) collectibility is reasonably assured. Sales terms
of the Company is FOB - ASI's shipping point which means the title and
risk of loss is transferred to the customer at the point of shipment.
The Company recognizes revenue upon shipment of completed wafers to its
customers. There are no acceptance terms besides normal warranties in
the normal course of business.
Discontinued Operations --
The operating results of the packaging and testing businesses are shown
separately as discontinued operations in the accompanying income
statement due to the sale of the packaging and testing business in May
1999 and 2000, respectively (see Note 3). The results of the
discontinued businesses do not reflect any interest expense or indirect
expenses allocated by the Company.
Research and Development Costs --
Research and development costs are expensed as incurred.
Continued;
15
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Advertising Costs --
Advertising costs are charged to current period operations when
incurred. Advertising expenses for the years ended December 31, 2002,
2001 and 2000 amounted to $158, $157 and $414, 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
carry-forward amount.
Earnings Per Share --
The Company accounted for earnings per share in accordance with SFAS.
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 15). 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.
Continued;
16
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Remeasurement into US Dollars --
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 equity investees is the Korean Won. The functional currency used
by Anam USA is the U.S. dollar.
For financial statement purposes, the 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
equity-method investees are measured using the 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 2002, 2001
and 2000 were as follows:
Korean Won to U.S. dollar
-----------------------------------------------------------------------
End of period exchange rates Average exchange rates
---------------------------- ---------------------------
2002 Korean Won 1,187.80 = US$ 1 Korean Won 1,251.17 = US$ 1
2001 Korean Won 1,314.60 = US$ 1 Korean Won 1,291.00 = US$ 1
2000 Korean Won 1,259.70 = US$ 1 Korean Won 1,127.03 = US$ 1
Continued;
17
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Derivative Financial Instruments --
The Company previously entered into foreign currency exchange
contracts, including forward and swap contracts, to manage its exposure
to changes in currency exchange rates, principally the exchange rate
between Korean Won and the U.S. Dollar, due to certain transactions
denominated in Korean Won. The transactions did not meet the
requirements for hedge accounting for financial statement purposes
under the previous guidance of SFAS 52 "Foreign Currency Translation"
and therefore the resulting realized and unrealized gains or losses,
measured by quoted market prices, were recognized in income as the
exchange rates changed. The net unrealized gains (losses) on these
contracts were previously accrued on the balance sheet as forward
contracts debits (credits). These contracts terminated during the year
ended December 31, 2000. There were no such contracts as of December
31, 2002 or 2001.
The Company previously entered into interest rate swap transactions to
manage its exposure to the fluctuation of interest rates. Under SFAS
52, these transactions were accounted for on an accrual basis, in which
cash settlement receivable or payable is recorded as an adjustment to
interest income or expense. These contracts terminated during the year
ended December 31, 2000. There were no such contracts as of December
31, 2002 or 2001.
Allowance for credit losses on loans receivable --
The Company accounted for its 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 for all collateral-dependent loans whereby the
impairments are measured 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 (Note 6).
Impairment of Long-Lived Assets --
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.
Continued;
18
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
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 foundry market include breadth of foundry 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 Foundry
Services provided to Amkor pursuant to the Foundry Agreement and the
foundry services are based on technology licenses provided by Texas
Instruments (see Note 3). The Company also has significant debt
obligations.
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.
ASI performs and sells its Foundry Services exclusively to Amkor
pursuant to the Foundry Agreement. In 2002, 2001 and 2000, sales to
Amkor accounted for substantially all of Anam's revenues and accounts
receivables. Any reduction in purchases by Amkor would have an adverse
impact on ASI's financial position, results of operations and cash
flows.
The loans to affiliates are uncollaterized 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 realizable value.
Continued;
19
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Concentration of Credit Risk, Continued --
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. No outstanding
derivative transactions of the Company existed at December 31, 2002 and
2001.
Recent Accounting Pronouncements --
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.146,
"Accounting for Costs Associated with Exit or Disposal Activities."
This statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and supersedes Emerging
Issues Task Force Issue ("EITF") No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated with an exit or
disposal activity shall be recognized and measured initially at its
fair value in the period in which the liability is incurred rather than
when a company commits to such an activity. This statement is required
to be adopted beginning with exit or disposal activities that are
initiated after December 31, 2002 and is not expected to have a
material impact on the Company's consolidated results of operations or
financial position.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others" - an
interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This
Interpretation does not prescribe a specific approach for subsequently
measuring the guarantor's recognized liability over the term of the
related guarantee. This Interpretation also incorporates, without
change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being
superseded. This Interpretation is applicable on a prospective basis
to guarantees issued or modified after December 31, 2002 and is not
expected to have a material impact on the Company's consolidated
results of operations or financial position.
Continued;
20
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Recent Accounting Pronouncements, Continued --
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities - an interpretation of ARB
No. 51". This interpretation addresses consolidation by business
enterprises of variable interest entities which have some
characteristics. This interpretation is required to be adopted by the
Company beginning on January 1, 2003 and is not expected to have a
material impact on the Company's consolidated results of operations or
financial position.
Restatement of Previously Reported Amounts --
The Company has restated its financial statements for the year ended
December 31, 2000, 2001 and 2002 in order to properly state the
valuation allowance on its deferred tax assets.
SFAS No. 109 "Accounting for Income Taxes" requires that a valuation
allowance be established when it is "more likely than not" that all or
a portion of deferred tax assets will not be realized. A review of all
available positive and negative evidence needs to be considered,
including the Company's performance, the market environment in which
the Company operates, forecasts of future profitability, the
utilization of past tax credits, length of carryforward periods and
similar factors. SFAS No. 109 further states that it is difficult to
conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.
The Company had originally reported a net deferred tax asset at
December 31, 2000. After consideration of the positive and negative
evidence discussed above, the Company's cumulative loss position for
the three years ended December 31, 2000 suggests that a full valuation
allowance should have been established on the net deferred tax assets
at December 31, 2000. We expect to continue to record a full valuation
allowance on future tax benefits until we return to profitability. See
Note 13, "Income Taxes" to the accompanying consolidated financial
statements.
As a result of the adjustments discussed above, the Company's
consolidated financial statements for the year ended December 31, 2000,
2001 and 2002 have been restated from amounts previously reported. The
principal effects of these adjustments on the accompanying consolidated
financial statements, are set forth below:
Continued;
21
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Restatement of Previously Reported Amounts, Continued --
For the Year Ended December 31, 2000
(in thousands except per share data)
-----------------------------------------------------
As Previously Restatement As
Reported Adjustments Restated
--------------- ----------- ---------
Provision for (benefit from) income taxes $ (88,094) $ 72,886 $ (15,208)
Loss from continuing operations (19,703) (72,886) (92,589)
------------- ----------- ---------
Net income(loss) $ 450,641 $ (72,886) $ 377,755
============= =========== =========
Basic and diluted income(loss) per common share from
continuing operations $ (0.22) $ (0.82) $ (1.04)
============= =========== =========
Basic and diluted income(loss) per common share $ 5.07 $ (0.82) $ 4.25
============= =========== =========
For the Year Ended December 31, 2001
(in thousands except per share data)
------------------------------------------------------
As Previously Restatement As
Reported Adjustments Restated
--------------- ----------- ----------
Deferred tax asset $ 59,092 $ (59,092) $ -
=============== =========== =========
Total assets $ 915,830 $ (59,092) $ 856,738
=============== =========== =========
Total stockholder's equity $ 605,616 $ (59,092) $ 546,524
=============== =========== =========
Provision for (benefit from) income taxes $ 13,794 $ (13,794) $ -
Loss from continuing operations (162,173) 13,794 (148,379)
--------------- ----------- ---------
Net income(loss) $ (162,173) $ 13,794 $(148,379)
=============== =========== =========
Basic and diluted income(loss) per common share from
continuing operations $ (1.45) $ 0.12 $ (1.33)
=============== =========== =========
Basic and diluted income(loss) per common share $ (1.45) $ 0.12 $ (1.33)
=============== =========== =========
Continued;
22
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
2. Summary of Significant Accounting and Financial Reporting Policies,
Continued;
Restatement of Previously Reported Amounts, Continued --
For the Year Ended December 31, 2002
(in thousands except per share data)
--------------------------------------------
As Previously Restatement As
Reported Adjustments Restated
------------- ----------- ----------
Deferred tax asset $ 54,514 $(54,514) $ -
======== ======== ==========
Total assets $789,632 $(54,514) $ 735,118
======== ======== ==========
Total stockholder's equity $558,730 $(54,514) $ 504,216
======== ======== ==========
Provision for (benefit from) income taxes $ 4,577 $ (4,577) $ -
Loss from continuing operations (97,128) 4,577 (92,551)
-------- -------- ----------
Net income(loss) $(97,128) $ 4,577 $ (92,551)
======== ======== ==========
Basic and diluted income(loss) per common share from
continuing operations $ (0.83) $ 0.04 $ (0.79)
======== ======== ==========
Basic and diluted income(loss) per common share $ (0.83) $ 0.04 $ (0.79)
======== ======== ==========
23
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
3. Relationship with Amkor and TI:
The businesses of ASI and Amkor have been inter-related for many years by
virtue of the Supply Agreement and Foundry Agreements (see Note 1), certain
common ownership and management, financial relationships, coordination of
product and operating plans, and shared intellectual property rights.
ASI's business had been severely affected by the economic crisis in Korea.
ASI has traditionally operated with a significant amount of debt relative to
its equity. In addition, ASI has guaranteed certain debt obligations of
equity investees and affiliated companies. In response to this situation,
ASI was part of the "Workout Program", a financial restructuring program
supervised by the Korean Financial Supervisory Commission ("FSC") beginning
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 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 debt outstanding with trade creditors.
In May 1999, ASI sold one of its packaging and test facilities located in
Kwangju city, the Republic of Korea ("K4") to Amkor for $575,000 in cash. In
May 2000, ASI also sold all of the remaining packaging and testing business
("K1, K2 and K3") to Amkor for $950,000 in cash. In 2000 and 1999, Amkor
made a capital contribution to ASI amounting to $500,694 in exchange for the
equity shares of ASI. As a result, Amkor owned 42% of the outstanding stock
of ASI as of December 31, 2001 and 2000. In April 2000, the creditors
committee approved that ASI's payment of $125,517 resulted in the
elimination of all guarantee obligations provided for Anam Construction and
Anam Electronics (Note 16). On July 18, 2000, the creditors committee
released ASI from the Workout Program due to the fulfillment of the terms of
the Workout Agreement.
As a result of the transactions among ASI, Amkor and Dongbu in 2002 (See
Note 1), Amkor owns 26.7 million shares of ASI or approximately 21.6% of
ASI's outstanding voting stock and Dongbu owns 32.0 million shares of ASI or
approximately 25.8% of ASI's outstanding voting stock as of December 31,
2002.
ASI entered into the Foundry Agreement with Amkor giving Amkor the exclusive
right to market and sell all of the wafer output of ASI's new wafer foundry
until 2008. Amkor, in return, is responsible for the sales of Foundry
Services and is obligated to actively and diligently market the Foundry
Services to potential and existing customers (see Note 21).
Continued;
24
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
3. Relationship with Amkor and TI, Continued;
The Manufacturing and Purchase Agreement between TI, ASI and Amkor was made
in 1998 and amended on July 1, 2000 and December 31, 2001. Pursuant to the
amended agreement, TI's purchase obligation was modified to 40% of ASI's
wafer fabrication facility's capacity in the quarter ending March 31, 2002,
30% of such capacity in the quarter ending June 30, 2002, and 20% of such
capacity in each subsequent quarter. TI has agreed to increase its purchase
to at least 40% of such capacity if a new technical assistance agreement
covering advanced wafer fabrication technology is entered into among ASI,
Amkor and TI prior to December 31, 2002. In addition, the amended
Manufacturing and Purchase Agreement also transfers high voltage Linear
BiCMOS technology to ASI's wafer fabrication facility.
The Manufacturing and Purchasing Agreement and related technical assistance
agreements terminate on December 31, 2007, unless they have been previously
terminated. The agreements may be terminated upon, among other things: (1)
the consent of ASI, TI and Amkor, (2) a material breach by ASI, TI or Amkor,
(3) the failure of ASI or Amkor to protect TI's intellectual property; or
(4) the parties' failure to enter into a new technical assistance agreement
by December 31, 2002.
Since ASI and TI did not enter into a new technical assistance agreement by
December 31, 2002, either party may give the notice of termination to the
other parties. This notice will, among other things, result in the amended
Manufacturing and Purchasing Agreement and the technology assistance
agreements terminating two years after such notice. During such two-year
period, TI will only be obligated to purchase a minimum of 20% of the ASI
wafer fabrication facility's capacity. Amkor, ASI and TI are required to
enter into a new technology assistance agreement by December 31, 2002, in
order for the Manufacturing and Purchasing Agreement and the technology
assistance agreements to continue until December 31, 2007. However, the
advanced wafer fabrication technology that would be licensed under this
agreement would require ASI either to (i) invest in excess of $400 million
to refurbish its existing manufacturing facility, requiring the shutdown of
part or all of its existing facility during the period of refurbishment, or
(ii) obtain access to a new or existing manufacturing facility owned by a
third party that could support the advanced technology. A third option for
ASI would be to build and equip a new manufacturing facility, but this
option would require substantially greater capital investment by ASI than
the other options. Currently, neither party has given notice that they
intend to terminate the agreement. In the event the Manufacturing and
Purchasing Agreement and the technology assistance agreements with TI were
to be terminated, the nature of any future business relationship with TI is
uncertain.
25
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
4. Unstable Economic Environment:
In response to general unstable economic conditions, the Korean government
and the private sector have been implementing structural reforms to
historical business practices. Implementation of these reforms is
progressing slowly, particularly in the areas of restructuring private
enterprises and reforming the banking industry. The Korean government
continues to apply pressure to Korean companies to restructure into more
efficient and profitable firms. The Company may be either directly or
indirectly affected by these general unstable economic conditions and the
reform program described above. The accompanying financial statements
reflect management's assessment of the impact to date of the economic
situation on the financial position of the Company. Actual results may
differ materially from management's current assessment.
5. Inventories:
Inventories as of December 31, 2002 and 2001 comprise the following:
December 31,
---------------------------
2002 2001
-------- --------
Finished products and merchandise $ 1,340 $ 14,417
Semi-finished products
and work in process 16,944 24,598
Raw materials and supplies 4,133 7,812
Materials in transit 9 514
-------- --------
22,426 47,341
Reserve for the lower of cost or market (4,049) (10,109)
-------- --------
$ 18,377 $ 37,232
======== ========
26
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
6. Loan Impairment:
ASI provided loans to several affiliated companies, which are currently
facing financial difficulties. Consequently, ASI assessed the collectibility
of these loans in accordance with Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", and
determined that ASI 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:
December 31,
------------------------
2002 2001
--------- ---------
Impaired loans to affiliated companies
Anam Construction $ 18,827 $ 17,011
Gre-tec 7,920 7,156
Anam Electronics - 99,013
Anam Telecom - 2,977
--------- ---------
26,747 126,157
--------- ---------
Allowance for credit loss (26,747) (126,157)
--------- ---------
$ - $ -
========= =========
For the years ended December 31, 2002 and 2001, the average recorded
investment in impaired loans was approximately $76,452 and $130,196,
respectively.
No interest income was recognized on impaired loans for the years ended
December 31, 2002 and 2001. Had these loans performed in accordance with
their original terms, interest income of $5,942 and $10,119 would have been
recorded for the years ended December 31, 2002 and 2001, respectively.
Continued;
27
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
6. Loan Impairment, Continued;
The changes in the allowance for credit loss on loans receivable are
summarized below:
2002 2001
--------- ---------
Beginning balance $ 126,157 $ 134,234
Transfer of loans receivable to investment securities (27,441) (7,654)
Cash receipt (8,524) -
Write-off (73,733) -
Additions due to payment of guarantee obligation 979 5,238
Effect of changes in exchange rates 9,309 (5,661)
--------- ---------
Ending balance $ 26,747 $ 126,157
========= =========
In 2002, loan receivables from Anam Electronics which were provided with a
full allowance were converted to investment and collected in cash and ASI
recorded a recovery of allowance for doubtful accounts of $32,080. In 2002
and 2001, a portion of ASI's loans receivable were converted to investment
securities as follows:
2002 2001
--------- ---------
Anam Electronics $ 23,557 $ -
Anam Telecom 3,884 -
Gre-tec - 7,654
--------- ---------
$ 27,441 $ 7,654
========= =========
28
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
7. Investment in Available For Sale Securities:
The Company's investment in available for sale securities are summarized
below:
December 31, 2002
--------------------------------------------------------------
Amortized Unrealized Unrealized Estimated Fair
Cost Holding Gains Holding Losses Value
--------- ------------- -------------- --------------
Bonds issued by the Korean government $ 216 $ - $ - $ 216
Bonds issued by the Korean local government 10 - - 10
Equity Securities 7,741 4 1,803 5,942
------ ------ ------ ------
Total $7,967 $ 4 $1,803 6,168
====== ====== ====== ======
December 31, 2001
---------------------------------------------------------------
Amortized Unrealized Unrealized Estimated Fair
Cost Holding Gains Holding Losses Value
---------- ------------- -------------- --------------
Bonds issued by the Korean government $ 70 $ - $ - $ 70
Bonds issued by the Korean local government 9 - - 9
Equity Securities 17,939 44 1,527 16,456
------- ------- ------- -------
Total $18,018 $ 44 $ 1,527 $16,535
======= ======= ======= =======
The maturity of the bonds issued by the government and the bonds issued by
the local government as of December 31, 2002 ranged from two years to six
years.
The gross realized gains from the sale of available for sale securities for
the year ended December 31, 2002, 2001 and 2000 amounted to $4,559, $40 and
$710, respectively. The gross realized losses from the sale of available for
sale securities for the years ended December 31, 2002, 2001 and 2000
amounted to $2,902, $410 and $6,560, respectively.
As of December 31, 2002 and 2001, equity securities with total carrying
amounts of $1,253 and $2,357, respectively, were pledged as collateral for
issuing non-guaranteed debentures and capital lease obligation, respectively
(see Notes 10 and 12).
As of December 31, 2002, 2001 and 2000, the net book value of a certain
equity investment is below acquisition cost and is not expected to be
recovered in the near future. Accordingly, an impairment loss of $6,987,
$6,254 and $740, respectively were included in non-operating expenses for
the other-than-temporary impairment of such investment.
Management believes that there are no other than temporary declines at this
time.
29
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
8. Investments in Affiliated Companies:
The Company's investments in affiliated companies are summarized below:
December 31, 2002
------------------------------------------------------------------------------------
Percentage of Accumulated Accumulated
Ownership Amortized Comprehensive Equity in Gain Estimated Fair
(%) Cost Income (Loss) (Loss) Value
------------- --------- ------------- --------------- --------------
Anam Instrument 25.58 $ 8,905 $ (3,315) $ 4,180 $ 9,770
Anam Telecom 36.75 1,701 - (1,701) -
Dongbu Electronics(*) 10.68 49,774 - (2,163) 47,611
-------- -------- -------- --------
$ 60,380 $ (3,315) $ 316 $ 57,381
======== ======== ======== ========
December 31, 2001
------------------------------------------------------------------------------------
Percentage of Accumulated Accumulated
Ownership Amortized Comprehensive Equity in Gain Estimated Fair
(%) Cost Income (Loss) (Loss) Value
------------- --------- ------------- -------------- --------------
Anam Instrument 20.80 $ 8,905 $ (4,032) $ 5,597 $ 10,470
Gre-tec 46.90 - - - -
Anam Telecom 29.51 1,701 - (1,701) -
-------- -------- -------- --------
$ 10,606 $ (4,032) $ 3,896 $ 10,470
======== ======== ======== ========
(*) The fair value of Dongbu Electronics has been determined based on
projected cash flows discounted at a rate commensurate with the risk
involved. Management has used this estimation of fair value to verify
recoverability of its investment.
There was no gain or loss on the sale of investment in affiliated companies
for the years ended December 31, 2002 and 2001.
The gross realized loss from the sale of investment in affiliated companies
for the year ended December 31, 2000 amounted to $6,974, and there was no
gain relating to such transaction for the same period.
30
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
9. Summary Financial Data on Significant Equity Investees:
Additional information regarding the Company's equity investees is as
follows:
As of December 31, 2002
--------------------------------------------------------------------------------------
Current Non-current Current Non-current Net Equity
Assets Assets Liabilities Liabilities (deficit)
--------- ----------- ----------- ----------- -----------
Anam Instruments $ 69,401 $ 27,144 $ 48,830 $ 3,748 $ 43,967
Anam Telecom 1,552 3,321 2,871 2,197 (195)
Dongbu Electronics 45,529 385,209 269,098 316,454 (154,814)
For the Year ended December 31, 2002
--------------------------------------------------------------------
Gross Gross Income (Loss) from Net
Revenue Profit(Loss) operations Loss
--------- ------------ ------------------ ---------
Anam Instruments $ 112,037 $ 11,909 $ (155) $ (4,873)
Anam Telecom 1,078 (2,474) 3,621 (8,141)
Dongbu Electronics 8,859 (15,709) (99,452) (170,405)
As of December 31, 2001
--------------------------------------------------------------------------------------
Current Non-current Current Non-current Net Equity
Assets Assets Liabilities Liabilities (deficit)
--------- ----------- ----------- ----------- -----------
Anam Instruments $ 59,459 $ 25,279 $ 22,503 $ 13,766 $ 48,469
Gre-tec 7,752 14,460 4,643 18,996 (1,427)
Anam Telecom 1,841 6,120 1,410 6,618 (67)
For the Year ended December 31, 2001
--------------------------------------------------------------------
Gross Gross Income (Loss) from Net Income
Revenue Profit(Loss) operations (Loss)
--------- ------------ ------------------ ----------
Anam Instruments $ 94,690 $ 9,469 $ 417 $ 1,123
Gre-tec 9,267 3,505 2,124 (703)
Anam Telecom 1,810 (2,713) (4,199) (8,693)
For the Year ended December 31, 2000
--------------------------------------------------------------------
Gross Income from
Revenue Gross Profit operations Net Income
--------- ------------ ------------------ ----------
Anam Instruments $ 143,800 $ 19,756 $ 3,595 $ 4,524
31
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
10. Property, Plant and Equipment :
Property, plant and equipment as of December 31, 2002 and 2001 comprise of
the following :
December 31,
---------------------------------
2002 2001
----------- -----------
Costs
Land $ 31,903 $ 29,854
Buildings and Structures 98,969 94,964
Machinery, equipment and vehicles 1,095,232 1,068,836
Tools, furniture and fixtures 17,249 14,567
Machinery in transit 1,064 4,373
----------- -----------
1,244,417 1,212,594
Accumulated depreciation (762,062) (565,707)
----------- -----------
482,355 646,887
Governmental subsidies (327) (589)
----------- -----------
Property, Plant and Equipment, net $ 482,028 $ 646,298
=========== ===========
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 $256,197 and $295,989, as of December 31, 2002 and 2001, respectively
(see Note 12).
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 :
December 31,
---------------------------------
2002 2001
----------- -----------
Machinery and equipment $ 833,680 $ 833,856
Accumulated depreciation (614,328) (468,905)
----------- -----------
Capitalized Leases, net $ 219,352 $ 364,951
=========== ===========
Continued;
32
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
10. Property, Plant and Equipment, Continued;
Capital Leases, Continued --
In 2002, the lease payments schedule due in 2002 and 2003 were changed.
Future minimum lease payments under noncancelable capital leases as of
December 31, 2002 are as follows :
Capital Leases
--------------
For the years ended December 31,
2003 $ 67,630
2004 21,464
--------
Total minimum lease payments 89,094
Less amount representing interest (4,539)
--------
Present value of minimum lease
payments under capital leases 84,555
Less: portion due within one year (64,061)
--------
$ 20,494
========
11. Accrued Severance Benefits :
Accrued severance benefits as of December 31, 2002 and 2001 are as
follows :
2002 2001
------- -------
Beginning balance $ 6,403 $ 6,721
Provisions 2,273 4,144
Severance payments (5,773) (4,462)
------- -------
2,903 6,403
Balance of the National Pension Fund (91) (299)
Balance of the Severance insurance deposits (2,007) (5,395)
------- -------
$ 805 $ 709
======= =======
The severance benefits are funded approximately 69.1% as of December 31,
2002, through severance insurance deposits for the payment of severance
benefits, and the account is deducted from accrued severance benefit
liabilities. The beneficiaries of the severance insurance deposit are the
Company's employees.
33
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
12. Borrowings and Installment Payable :
Long-term debt and long-term installment payable excluding capital lease
obligations, as of December 31, 2002 and 2001 comprise the following :
Carrying Value
as of December 31,
Annual Interest Rate(%) -----------------------
at December 31, 2002 2002 2001
------------------------ ---------- ----------
Won Currency Loans:
Choheung Bank due 2006 6.07 - 12.00 $ 31,653 $ 31,449
Shinhan Bank due 2005 10.25 19,334 19,057
Korea Exchange Bank due 2005 10.25 7,116 7,014
Others 10.45 6,168 6,080
---------- ----------
64,271 63,600
Less : current portion (23,343) (5,529)
---------- ----------
40,928 58,071
---------- ----------
Debentures in Won currency:
Non-guaranteed, payable through 2003 9.7 1,264 1,142
Guaranteed, payable through 2002 - - 15,214
---------- ----------
1,264 16,356
Less : discounts on debentures - (7)
Current portion (1,264) (15,207)
---------- ----------
- 1,142
---------- ----------
Total long-term debt $ 40,928 $ 59,213
========== ==========
Long-term Installment Payable
Installment payable in Won currency $ 531 $ 1,207
Installment payable in Japanese Yen - 2,075
---------- ----------
531 3,282
Less : discounts on installment payable (14) (99)
Current portion (449) (2,719)
---------- ----------
$ 68 $ 464
========== ==========
See Notes 7 and 10 for the related collateral arrangements for the
Company's long-term debt. As of December 31, 2002, the Company has provided
notes and checks, including 7 blank notes and 3 blank checks, to several
banks and financial institutions as collateral in relation to various
borrowings.
Continued;
34
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
12. Borrowings and Installment Payable, Continued;
The annual maturities of long-term debts, excluding discounts on debentures
and installment payable, outstanding as of December 31, 2002 are as follows
:
Won Currency Installment
Year Loans Debentures Payable Total
---- ------------ ---------- ----------- -------
2003 $23,343 $ 1,264 $ 462 $25,069
2004 23,291 - 69 23,360
2005 17,499 - - 17,499
2006 138 - - 138
------- ------- ------- -------
$64,271 $ 1,264 $ 531 $66,066
======= ======= ======= =======
13. Income Taxes :
The tax provision (benefit) consists of the following :
(as restated)
Year ended December 31,
-----------------------------------------
2002 2001 2000
------ ------ ---------
Current $ - $ - $ 50,657
Deferred - - 53,212
- ---- ------ ---------
Total - - 103,869
Allocated to income from discontinued
packaging and testing operation - - 6,353
Allocated to gain on sale of packaging and
testing factories - - 112,724
------ ------ ---------
Continuing operations $ - $ - $ (15,208)
====== ====== =========
ASI incurs income tax liabilities 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.
Continued;
35
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
13. Income Taxes, Continued;
The major components of deferred tax assets and deferred tax liabilities as
of December 31, 2002 and 2001 are as follows :
(as restated)
December 31,
-----------------------------
2002 2001
--------- ---------
Deferred tax assets :
Property, plant and equipment $ 63,717 $ 67,252
Short-term and long-term loans 108,493 110,246
Provision for contingency losses 17,104 16,823
Inventories 1,755 3,002
Accounts and notes receivable 30,909 27,928
Investment 29,297 24,375
Net operating loss carryforward 89,771 44,284
Tax credit 75,373 65,780
Others 954 316
--------- ---------
Total deferred tax assets 417,373 360,006
--------- ---------
Deferred tax liabilities 714 450
Valuation allowance (416,659) (359,556)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
As of December 31, 2002, the Company has available unused operating loss
carryforwards of $302,260, which may be applied against future taxable
income through 2007. As of December 31, 2002, the Company has available
unused investment tax credits of $75,373, which may be applied against
future income tax amounts through 2007.
SFAS No. 109 "Accounting for Income Taxes" requires that a valuation
allowance be established when it is "more likely than not" that all or a
portion of deferred tax assets will not be realized. A review of all
available positive and negative evidence needs to be considered, including
the Company's performance, the market environment in which the Company
operates, forecasts of future profitability, the utilization of past tax
credits, length of carryforward periods and similar factors. SFAS No. 109
further states that it is difficult to conclude that a valuation allowance
is not needed when there is negative evidence such as cumulative losses in
recent years. Therefore, cumulative losses weigh heavily in the overall
assessment.
The Company was in a cumulative loss position for the three years ended
December 31, 2000. Accordingly, a full valuation allowance has been
established relating to the Company's net deferred tax assets beginning
December 31, 2000. We expect to continue to record a full valuation
allowance on future tax benefits until we can sustain an appropriate level
of profitability.
Continued;
36
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
13. Income Taxes, Continued;
The statutory income tax rate, including tax surcharges, applicable to ASI
for 2002 is approximately 29.7% and for 2001 and 2000 is approximately
30.8%, respectively. The statutory income tax rate was amended to 29.7%
effective for fiscal years beginning January 1, 2002 in accordance with the
Corporate Income Tax Law enacted in December 2001. Accordingly, deferred
income taxes as of December 31, 2002 and 2001, were calculated based on the
enacted rate of 29.7%. 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 :
(as restated)
-------------------------------------------------
2002 2001 2000
--------- --------- ---------
Taxes at Korean statutory tax rate $ (27,488) $ (43,775) $ 148,340
Remeasurement effect (30,740) 15,016 (22,068)
Increase (decrease) in valuation allowance 57,103 22,143 (18,407)
Tax credits incurred (2,818) (12,626) (17,767)
Effect of change in tax rate - 10,881 -
Other, net 3,943 8,361 13,771
--------- --------- ---------
Total income tax provision (benefit) $ - $ - $ 103,869
========= ========= =========
14. Capital Stock:
The authorized share capital of the Company consists of 300,000,000 shares
of common stock and 10,000,000 shares of preferred stock, both with par
value of Korean Won 5,000 as of December 31, 2002 and 2001.
As of December 31, 2002 and 2001, outstanding capital stocks are as
follows :
Number of shares
issued and outstanding Par value Thousands of Won Thousands of US$
------------------------- ------------- -------------------------- ------------------------------
2002 2001 2002 and 2001 2002 2001 2002 2001
----------- ----------- ------------- ------------ ------------ ------------ ------------
Common stock 123,880,768 111,880,768 W 5,000 W619,403,840 W559,403,840 $ 589,865 $ 539,739
Preferred stock 2,576,276 2,576,276 W 5,000 12,881,380 12,881,380 17,387 17,387
----------- ----------- ------------ ------------ ------------ ------------
126,457,044 114,457,044 W632,285,220 W572,285,220 $ 607,252 $ 557,126
=========== =========== ============ ============ ============ ============
As of December 31, 2002 and 2001, preferred stock consists of the
following :
Series A preferred stock 2,240,240 shares
Series B preferred stock 336,036
----------------
2,576,276 shares
================
Continued;
37
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
14. Capital Stock, Continued;
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.
15. Earnings (Loss) Per Share :
For the years ended December 31, 2002, 2001 and 2000, earnings (loss) per
share (EPS) was calculated as follows :
Year ended December 31, 2002
-------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) No. of Shares Amount
(Numerator) (Denominator) (in US dollars)
--------------- ------------- ----------------
(as restated) (as restated)
Basic loss per share $ (92,551)
Less: Preferred stock dividend (124)
-----------
Loss attributable to Common Stock $ (92,675) 117,075,279 (0.79)
=========== =========== =====
Year ended December 31, 2001
-------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) No. of Shares Amount
(Numerator) (Denominator) (in US dollars)
--------------- ------------- ----------------
(as restated) (as restated)
Basic loss per share $ (148,379)
Less: Preferred stock dividend (111)
-----------
Loss attributable to Common Stock $ (148,490) 111,880,768 $(1.33)
=========== =========== ======
Continued;
38
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
15. Earnings (Loss) Per Share, Continued;
Year ended December 31, 2000
-------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) Shares Amount
(Numerator) (Denominator) (in US dollars)
--------------- ------------- ----------------
(as restated) (as restated)
Loss from continuing operations $ (92,589)
Less: Preferred stock dividend (118)
----------
Loss from continuing operations
attributable to common stock (92,707) 88,838,496 $(1.04)
========== ======
Add: Income from discontinued
operations 470,344
----------
Net income attributable to common
stock $ 377,637 88,838,496 $ 4.25
========== ========== ======
39
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
The basic earnings per share for discontinued operations was $5.29 in 2000.
Diluted earnings per share for discontinued operations was $5.29 in 2000.
The following convertible preferred stock and debentures convertible into
common stock were not included in computing diluted earnings per share in
2002, 2001 and 2000, since their effects were antidilutive:
Year ended December 31,
-----------------------------
2002 2001 2000
------- ------- ---------
Convertible preferred stock 324,900 324,900 324,900
Convertible debentures - - 2,155,611
------- ------- ---------
324,900 324,900 2,480,511
======= ======= =========
40
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
16. Commitments and Contingencies :
As of December 31, 2002 and 2001, the Company was contingently liable for
guarantees of indebtedness of certain affiliated companies as follows :
2002 2001
------- -------
Anam Electronics (*) $ 9,206 $ 8,318
Anam Construction 9,406 8,499
Anam Telecom - 4,378
Acqutek 522 660
------- -------
Total $19,134 $21,855
======= =======
(*) An affiliate through common ownership of the Kim Family.
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. Anam Electronics
reorganization plan was completed and approved by the court on February 7,
2000 and Anam Electronics was released from the corporate reorganization
plan on March 16, 2002. Anam Construction's reorganization plan was
completed and approved by the court on March 20, 2000.
With regard to Anam Construction and Anam Electronics, a liability for loss
contingencies of $18,612 and $16,817, respectively, was recorded as of
December 31, 2002 and 2001, for the probable loss that may occur upon the
guaranteed creditors' demand for the performance of these loan guarantees.
ASI paid $4,603 to the creditors of Anam Constructions and Anam Electronics
for guarantee obligations in 2001.
ASI is a defendant in a lawsuit filed by one of the above creditors for the
specific performance of guarantee obligations provided for Anam
Construction and Anam Electronics. The suit asks for the performance of
guarantee obligations totaling $16,869 and related interest. As described
in the preceding paragraph, ASI had recorded a liability for loss
contingency of $14,874 relating to these creditors.
In addition to loss provisions provided for those affiliate guarantees
discussed above, ASI accrued an additional provision of $1,457 and $5,102
as of December 31, 2002 and 2001, respectively, related to losses expected
on other guarantees.
As of December 31, 2002, the Company provided $25,257 of current bank
deposit as a collateral for loan of Dongbu Electronics.
As of December 31, 2002, the Company provided $ 21,900 of current bank
deposit as a collateral for opening letter of credit to facilitate the
import of certain machinery.
Continued;
41
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
16. Commitments and Contingencies, Continued;
As of December 31, 2002 and 2001, the Company is contingently liable for
letters of commitment provided in relation to the issuance of $38 million
secured floating rate notes due in 2000 by Pacific Elephant Investment (L)
limited ("PEIL") and the issuance of $20 million guaranteed floating rate
notes due in 2002 by Pacific Rainbow Investment (L) Limited ("PRIL").
According to the 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 becomes lower than
100% of the outstanding principal amount of all their respective
borrowings. Due to the economic crisis in the 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 Company negotiated this matter with various parties including those
responsible for the operations of PEIL and PRIL to settle down these claims
but no settlement was made. Lawsuits relating to these claims were filed in
September 2000. The plaintiffs sued the Company for damages totaling $33
million for PEIL and $16 million for PRIL and changed the claimed amounts
to $50 million for PEIL and $24 million for PRIL in 2002. ASI recorded a
liability for loss contingencies of $37,129 and $34,386 as of December 31,
2002 and 2001, for the probable loss that may occur upon the settlement of
these claims.
Liability for loss contingencies as of December 31, 2002 and 2001 are as
follows:
2002 2001
------- -------
Anam Construction and Anam Electronics $18,612 $16,817
Other affiliates 1,457 5,102
Letters of commitment 37,129 34,386
------- -------
$57,198 $56,305
======= =======
The changes in the liability for loss contingencies are summarized below :
2002 2001
------- --------
Beginning balance $56,305 $ 72,662
Cash payment (979) (19,338)
Guarantee obligation loss - 1,447
Proceeds from sale of investment - 1,589
Effect of changes in exchange rates 1,872 (55)
------- --------
$57,198 $ 56,305
======= ========
In 2000, the estimated realizable value of the investment in Anam
Electronics, carrying value of zero, of $1,501 was offset against the
estimated liability for loss contingencies. In 2001, all investment in Anam
Electronics was sold for a total proceeds of $1,589. Such proceeds were
added back to the liability for loss contingencies in 2001.
42
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
17. 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 estimates for fair value. 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 on certain
counterparties or group of counterparties. 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, 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.
Long-term receivables from affiliate --
The fair value of long-term receivables from affiliate is calculated by
using a discount rate that approximates the current rate for similar
long-term receivables. The carrying amount of these receivables approximate
their value.
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 debts --
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.
43
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
18. Other (Income) Expenses:
The details of the net amount of other income and expenses are as follows:
December 31,
-------------------------------
2002 2001 2000
------- ------- ---------
Rental income $(1,812) $(1,783) $ (1,565)
Shared service fee income - (3,092)
Income from forward contract - - (787)
Gain on extinguishment of debt - - (3,637)
Write-off of non-trade receivables 2,905 3,849 959
Others (325) (448) (755)
------- ------- ---------
$ 768 $ 1,618 $ (8,877)
======= ======= =========
19. Related Party Transactions :
Discontinued packaging and testing operations --
On May 1, 2000, ASI sold the remaining packaging and testing operations to
Amkor, the company related to ASI (see Notes 1 and 2). Net sales of the
packaging and testing operations, consisting of plants K1, K2 and K3, for
the years ended December 31, 2000 and 1999, including those of K4 sold to
Amkor in May 1999, amounted to $166,296 and $477,862, respectively. These
amounts have been excluded from the net sales amounts in the accompanying
consolidated statements of operation (see Note 3).
Significant transactions with affiliated companies during 2002, 2001 and
2000 and the related account balances at December 31, 2002 and 2001 are
summarized as follows:
Transactions between the Company and its affiliated companies --
December 31,
-----------------------------
2002 2001 2000
-------- -------- ---------
Sales
Amkor $212,592 $161,649 $ 499,820
======== ======== =========
Continued;
44
\
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
19. Related Party Transactions, Continued;
Related accounts balances between the Company and its affiliated
companies --
December 31, 2002
---------------------------------------
Other affiliated
Amkor companies Total
------- ---------------- ----------
Trade accounts receivable $69,389 $ - $ 69,389
Long-term receivables - 1,184 1,184
------- ------- ---------
69,389 1,184 70,573
======= ======= =========
Other accounts payable $ - $ 5,215 $ 5,215
======= ======= =========
December 31, 2001
------------------------------------
Other affiliated
Amkor companies Total
------- ---------------- -------
Trade accounts receivable $15,439 $ - $15,439
Long-term receivables - 9,667 9,667
------- ------- -------
$15,439 $ 9,667 $25,106
======= ======= =======
Other accounts payable $ - $ 182 $ 182
======= ======= =======
In 2000, ASI provided to Amkor transaction services relating to supporting
functions including accounting, EDP, personnel and legal. ASI did not
provide these transaction service in 2002 and 2001. ASI's income from these
transaction services in 2000 amounted to $3,092.
20. Segment Information :
The Company has identified two reportable segments, specifically packaging
and test services and wafer fabrication service, that are managed
separately because the services provided by each segment require different
technology.
Prior to the sale to Amkor of the packaging and testing operations, the
Company offered a complete and integrated set of packaging and test
services including Integrated Circuit ("IC") packaging design, leadframe
and substrate design, IC package assembly, final testing, burn-in
reliability test, and thermal and electrical characterization. The Company
also manufactures submicron Complementary Metal Oxide Semiconductor
("CMOS") wafers through its foundry.
Continued;
45
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
20. Segment Information, Continued;
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
Year ended December 31,
------------------------------
2002 2001 2000
------- -------- ----------
Revenue from external customers:
Packaging $ - $ - $ 166,295
Wafer 213,813 161,700 344,792
-------- -------- ----------
Total $213,813 $161,700 $ 511,087
======== ======== ==========
Property, Plant and Equipment:
Wafer $482,028 $646,298
======== ========
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
Year ended December 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
Revenue from external customers:
United States $ 212,592 $ 161,649 $ 499,820
Republic of Korea and Others 1,221 51 11,267
--------- --------- ---------
Total $ 213,813 $ 161,700 $ 511,087
========= ========= =========
Property, Plant, and Equipment
United States $ 24 $ 33
Republic of Korea 482,004 646,265
--------- ---------
Total $ 482,028 $ 646,298
========= =========
BY MAJOR CUSTOMER
Year ended December 31,
----------------------------------
2002 2001 2000
---------- ---------- ----------
Revenue from external customers:
Amkor $ 212,592 $ 161,649 $ 499,820
Other 1,221 51 11,267
---------- ---------- ----------
Total $ 213,813 $ 161,700 $ 511,087
========== ========== ==========
Continued;
46
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
20. Segment Information, Continued;
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.
Packaging
Wafer and Test
Fabrication (Discontinued) Total
----------- -------------- ----------
Year ended December 31, 2002
Net revenue $ 213,813 $ - $ 213,813
Gross profit (99,417) - (99,417)
Operating income (loss) (112,685) - (112,685)
Depreciation and amortization 196,996 - 196,996
Capital expenditures 34,288 - 34,288
Year ended December 31, 2001
Net revenue $ 161,700 $ - $ 161,700
Gross profit (loss) (100,295) - (100,295)
Operating income (loss) (122,154) - (122,154)
Depreciation and amortization 186,913 - 186,913
Capital expenditures 33,571 - 33,571
Year ended December 31, 2000
Net revenue $ 344,792 $ 166,295 $ 511,087
Gross profit 41,682 48,024 89,706
Operating income 16,173 42,470 58,643
Depreciation and amortization 158,520 44,512 203,032
Continued;
47
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
20. Segment Information, Continued;
Year ended December 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Revenues
Total revenues for reportable segments $ 213,813 $ 161,700 $ 511,087
Elimination of revenues from discontinued
operation - - 166,295
---------- ---------- ----------
Total consolidated revenue $ 213,813 $ 161,700 $ 344,792
========== ========== ==========
Gross profit
Total gross profit for reportable segments $ (99,417) $ (100,295) $ 89,706
Elimination of gross profit from discontinued
operation - - 48,024
---------- ---------- ----------
Total consolidated gross profit $ (99,417) $ (100,295) $ 41,682
========== ========== ==========
Operating income
Total operating income for reportable
segments $ (112,685) $ (122,154) $ 58,643
Elimination of operating income from
discontinued operation - - 42,470
---------- ---------- ----------
Total consolidated operating income $ (112,685) $ (122,154) $ 16,173
========== ========== ==========
21. Subsequent Events :
On January 27, 2003, ASI reached an agreement with Amkor to terminate
Amkor's foundry agreement and to purchase the marketing and sales
operations of the wafer fabrication service from Amkor by the end of March
31, 2003. In consideration of such agreement, ASI will pay $62 million to
Amkor. Subsequent to the closing of this transaction, ASI's revenues will
be generated primarily from semiconductor foundry services provided
directly to TI (see Note 3).
48
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: October 17, 2003