================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K/A
----------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 29, 2002
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)
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ITEM 5. OTHER EVENTS
The consolidated financial statements of Anam Semiconductor, Inc. and its
subsidiaries (ASI) as of and for each of the three years ended December 31, 2001
are filed herein pursuant to rule 3-09 of Regulation S-X. In connection with
Amkor Technology Inc's filing of a Registration Statement on Form S-8 on October
29, 2002, the consolidated financial statements of ASI have been amended to
include Note 26 to the Consolidated Financial Statements related in part to
significant subsequent events impacting the capital structure of ASI. The audit
report of Samil Accounting Corporation has been amended to make reference to the
additional note to the Consolidated Financial Statements and to remove a
reference to other auditors in connection with the audit of Anam USA. We present
the information in the following order:
Report of Independent Accountants................................................... 1
Consolidated Statements of Operations -- Years ended December 31, 2001, 2000
and 1999 ......................................................................... 6
Consolidated Balance Sheets -- December 31, 2001 and 2000........................... 7
Consolidated Statements of Stockholders' Equity (Deficit) -- Years ended
December 31, 2001, 2000 and 1999................................................ 10
Consolidated Statements of Cash Flows -- Years ended
December 31, 2001, 2000 and 1999................................................ 11
Notes to Consolidated Financial Statements.......................................... 13
\ 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, 2001
and 2000 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 2001, as prepared under generally accepted accounting principles in
the United States of America. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Anam Engineering and Construction Co., Ltd. ("Anam Construction"),
the investment in which is reflected in the consolidated financial statements
referred to above using the equity method of accounting in 1999. The financial
statements of Anam Construction were audited by another auditor whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Anam Construction, is based solely on the
report of the other auditors. The report of the auditor of Anam Construction
contained an information disclosure paragraph relating to uncertainties about
Anam Construction's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
Continued;
1
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above, after the restatement described in Note
2, present fairly, in all material respects, the consolidated financial position
of Anam Semiconductor, Inc. and its subsidiary as of December 31, 2001 and 2000,
and the results of their operations, stockholders' equity (deficit) and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with generally accepted accounting principles in the United States.
As discussed in Note 3 to the accompanying 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. As described in Note 3 to the accompanying financial
statements, Anam Semiconductor, Inc. sold to Amkor all the assets of four of its
packaging and test facilities except K2 land located in the Republic of Korea on
May 17, 1999 and May 1, 2000.
As discussed in Note 4 to the accompanying financial statements, the operations
of Anam Semiconductor, Inc. and its affiliates in the Republic of Korea have
been significantly affected, and may continue to be affected for the foreseeable
future, by the general unstable economic conditions in the Republic of Korea and
in the Asia Pacific region. The ultimate effect of these uncertainties on the
financial position of the Company as of the balance sheet date cannot presently
be determined.
As more fully described in Note 5 to the accompanying financial statements, on
October 23, 1998, Anam Semiconductor, Inc. entered into the Korean financial
restructuring program known as the "Workout Program". The Workout Program is the
result of an accord among financial institutions to assist in the restructuring
of Korean business enterprises and does not involve the judicial system. The
Company's operations continued uninterrupted during the Workout Program. The
Company was released from the Workout Program with its Korean creditor banks on
July 18, 2000.
/s/ Samil Accounting Corporation
--------------------------------
Seoul, Korea
October 23, 2002
2
Independent Auditors' Report
To the Shareholders of
Anam Engineering & Construction Co., Ltd.
Seoul, Korea
We have audited the consolidated balance sheets of Anam Engineering &
Construction Co., Ltd. and its subsidiary as of December 31, 1999, 1998 and
1997, the related consolidated statements of operations, shareholders' deficit,
and cash flows for the years then ended, all expressed in Korean Won (not
separately included herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements (not separately included
herein) present fairly, in all material respects, the financial position of Anam
Engineering & Construction Co., Ltd. and its subsidiary as of December 31, 1999,
1998 and 1997, the results of their operations, the changes in their
shareholders' deficit and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1, the Company has filed a voluntary petition for
reorganization under the Corporate Reorganization Act in the Republic of Korea.
The financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such financial
statements do not purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b) as to
prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business.
Continued;
3
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1, the Company's recurring
losses from operations, negative working capital, and shareholders' capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also discussed in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Ahn Kwon & Co.
------------------
Seoul, Korea
February 9, 2000
4
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Anam USA, Inc.
West Chester, Pennsylvania
We have audited the balance sheet of Anam USA, Inc. (a Pennsylvania Corporation
and a wholly-owned subsidiary of Anam Semiconductor, Inc., Seoul, ROK)(ASI) as
of December 31, 1999 and the related statements of income, stockholder's equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anam USA, Inc. as of December
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
All of the Company's outstanding notes payable and letters of credit are
guaranteed by ASI. ASI has a significant amount of debt relative to its equity.
ASI's business has been significantly affected by the economic crisis in Korea.
In October 1998, ASI entered into a Korean financial restructuring program
known as "Workout Program." On February 23, 1999, ASI was granted certain
economic concessions through the Workout Program which was approved by the
Korean Financial Supervisory Committee. The effects of the "Workout Program"
and its impact on the Company are disclosed in Note 5.
/s/ SIANA CARR & O'CONNOR, LLP
------------------------------
Paoli, Philadelphia
January 31, 2000
5
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
----------
Thousands of US Dollars except per share data
---------------------------------------------
For the year ended December 31
---------------------------------------------
2001 2000 1999
------------- ------------ ------------
Sales $ 161,700 $ 344,792 $ 285,925
Cost of sales 261,995 303,110 238,375
------------- ------------ ------------
Gross profit (loss) (100,295) 41,682 47,550
------------- ------------ ------------
Operating expenses
Selling and administrative expenses 14,383 24,217 24,267
Research and development 3,590 1,840 87
Loss (gain) on disposal of PP&E, net 3,886 (561) (5,842)
Provision for doubtful accounts -- 13 901
------------- ------------ ------------
Total operating expenses 21,859 25,509 19,413
------------- ------------ ------------
Operating income (loss) (122,154) 16,173 28,137
------------- ------------ ------------
Other (income) expense
Interest income (12,069) (23,760) (5,902)
Interest expense 23,114 71,914 185,315
Foreign currency loss 4,095 22,992 33,198
Loss on disposal of investments, net 370 12,824 601
Impairment loss on investment 6,254 740 1,523
Impairment loss on loans to affiliates -- -- 22,646
Guarantee obligation loss 1,447 49,797 --
Other, net 1,618 (8,877) (17,272)
------------- ------------ ------------
Total other (income) expense 24,829 125,630 220,109
------------- ------------ ------------
Loss from continuing operations before income taxes,
equity in loss of affiliates (146,983) (109,457) (191,972)
Equity in gain (loss) of unconsolidated affiliates (1,396) 1,660 (31,787)
------------- ------------ ------------
Loss from continuing operations before income taxes (148,379) (107,797) (223,759)
Provision (Benefit) for income taxes 13,794 (88,094) (54,000)
------------- ------------ ------------
Loss from continuing operations (162,173) (19,703) (169,759)
Discontinued operations:
Income from discontinued packaging and testing operation
to April 30, 2000 (net of income taxes of $0 ; $6,353 ; $12,408) -- 36,117 130,064
Gain on sale of packaging and testing factories
(net of income taxes of $0 ; $112,724 ; $14,268) -- 434,227 149,560
------------- ------------ ------------
Net income (loss) $ (162,173) $ 450,641 $ 109,865
============= ============ ============
PER SHARE DATA:
Basic loss per common share from continuing operations $ (1.45) $ (0.22) $ (5.82)
============= ============ ============
Basic net income (loss) per common share $ (1.45) $ 5.07 $ 3.76
============= ============ ============
Diluted loss per common share from continuing operations $ (1.45) $ (0.22) $ (5.82)
============= ============ ============
Diluted net income (loss) per common share $ (1.45) $ 5.07 $ 3.76
============= ============ ============
Shares used in computing basic
net income (loss) per common share 111,880,768 88,838,496 29,208,739
============= ============ ============
Shares used in computing diluted
net income (loss) per common share 111,880,768 88,838,496 29,208,739
============= ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
----------
Thousands of US Dollars
-----------------------
As of December 31,
-----------------------
2001 2000
-------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 74,980 $ 127,772
Restricted cash 1,951 17,378
Bank deposits 609 69,858
Accounts receivable
Trade 56 --
Due from affiliates 15,439 23,309
Other 4,460 12,911
Short-term loans to affiliates, net -- 1,619
Inventories 37,232 41,586
Prepaid expenses 5,578 6,078
Other current assets 4,593 2,975
-------- ----------
Total current assets 144,898 303,486
Non-current bank deposits -- 159
Restricted cash 7,181 9,621
Investments
Available for sale 16,535 15,803
Affiliated companies 10,470 11,442
Long-term receivables from affiliate, net of allowance for doubtful
accounts of $3,062 and $0 in 2001 and 2000 9,667 14,800
Property, plant and equipment, less
accumulated depreciation 646,298 793,850
Deferred tax asset-noncurrent 59,092 72,886
Other assets 21,689 24,897
-------- ----------
Total assets $915,830 $1,246,944
======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Continued;
7
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS, Continued;
----------
Thousands of US Dollars
-----------------------
As of December 31,
-----------------------
2001 2000
-------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 20,736 $ 32,462
Current portion of long-term installment payable 2,719 9,844
Current portion of long-term obligations under capital leases 97,042 100,030
Trade accounts and notes payable 5,966 17,286
Other accounts payable 4,019 9,522
Accrued expenses 1,584 1,963
Other current liabilities 2,661 13,209
-------- --------
Total current liabilities 134,727 184,316
Long-term debt, net of current portion and
discounts on debentures 59,213 83,406
Long-term installment payable, net of current portion 464 895
Long-term obligations under capital
leases, net of current portion 58,796 144,339
Accrued severance benefits, net 709 --
Liability for loss contingencies 56,305 72,662
-------- --------
Total liabilities $310,214 $485,618
-------- --------
Commitments and contingencies (Note 20)
The accompanying notes are an integral part of these consolidated financial
statements.
Continued;
8
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS, Continued;
----------
Thousands of US Dollars except share data
-----------------------------------------
As of December 31,
-----------------------------------------
2001 2000
--------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY, Continued;
Stockholders' equity:
Capital stock, ?5,000 par value;
authorized 300 million shares of common stock
and 10 million shares of preferred stock
Common stock:
issued and outstanding
111,880,768 shares in 2001 and 2000 539,739 539,739
Series A preferred stock:
issued and outstanding
2,240,240 shares in 2001 and 2000 15,167 15,167
Series B preferred stock:
issued and outstanding
336,036 shares in 2001 and 2000 2,220 2,220
--------- -----------
557,126 557,126
Capital surplus 530,863 530,863
Accumulated deficit (476,860) (314,687)
Accumulated comprehensive income (loss):
Unrealized losses in investments (1,615) (9,601)
Cumulative translation adjustment (3,898) (2,375)
--------- -----------
Total stockholders' equity 605,616 761,326
--------- -----------
Total liabilities and stockholders' equity $ 915,830 $ 1,246,944
========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
9
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands of US dollars except share data)
Common Stock Preferred Stock
------------------------- -------------------- Capital
Shares Amount Shares Amount Surplus
------------ --------- --------- -------- --------
Balance at December 31, 1998 30,477,018 $ 192,849 2,576,276 $ 17,387 $182,347
------------ --------- --------- -------- --------
Comprehensive income:
Net income
Unrealized losses on investments, net of tax
Currency translation adjustments, net of tax
Reclassification adjustment for currency translation
adjustments, net of tax
Comprehensive income
Reverse stock split (6,801,860) (43,040)
Issuance of common stock for cash 10,000,000 41,695
Debt to equity conversion 19,669,600 82,011
Convertible bonds to equity conversion 1,686,425 10,814 8,906
Others (844)
Collection of receivable from stockholders
------------ --------- --------- -------- --------
Balance at December 31, 1999 55,031,183 284,329 2,576,276 17,387 190,409
------------ --------- --------- -------- --------
Comprehensive income:
Net income
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 at December 31, 2000 111,880,768 539,739 2,576,276 17,387 530,863
------------ --------- --------- -------- --------
Comprehensive loss:
Net Loss
Unrealized losses on investments, net of tax
Reclassification adjustment for accumulated unrealized
loss on investments included in net loss, net of income
tax benefit of $0
Currency translation adjustments, net of tax
Comprehensive loss:
------------ --------- --------- -------- --------
Balance at December 31, 2001 111,880,768 $ 539,739 2,576,276 $ 17,387 $530,863
============ ========= ========= ======== ========
Accumulated
Other
Receivable from Accumulated Comprehensive
Stockholders Deficit Income Total
--------------- ------------ ------------- ---------
Balance at December 31, 1998 $ (116,417) $ (864,905) $ (27,067) $(615,806)
--------------- ------------ ------------ ---------
Comprehensive income:
Net income 109,865 109,865
Unrealized losses on investments, net of tax (2,639) (2,639)
Currency translation adjustments, net of tax 2,205 2,205
Reclassification adjustment for currency translation
adjustments, net of tax 11,744 11,744
---------
Comprehensive income: 121,175
Reverse stock split 43,040 --
Issuance of common stock for cash 41,695
Debt to equity conversion 82,011
Convertible bonds to equity conversion 19,720
Others (844)
Collection of receivable from stockholders 54,299 54,299
--------------- ------------ ------------ ---------
Balance at December 31, 1999 (62,118) (712,000) (15,757) (297,750)
--------------- ------------ ------------ ---------
Comprehensive income:
Net income 450,641 450,641
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 454,422
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 at December 31, 2000 -- (314,687) (11,976) 761,326
--------------- ------------ ------------ ---------
Comprehensive loss:
Net Loss (162,173) (162,173)
Unrealized losses on investments, net of tax 1,407 1,407
Reclassification adjustment for accumulated unrealized
loss on investments included in net loss, net of income
tax benefit of $0 6,579 6,579
Currency translation adjustments, net of tax (1,523) (1,523)
---------
Comprehensive loss (155,710)
--------------- ------------ ------------ ---------
Balance at December 31, 2001 $ -- $ (476,860) $ (5,513) $ 605,616
=============== ============ ============ =========
Unrealized losses in investments $ (1,615)
Cumulative translation adjustment (3,898)
------------
$ (5,513)
============
The accompanying notes are an integral part of these consolidated financial
statements.
10
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------
Thousands of U.S. Dollars
-----------------------------------
For the year ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(162,173) $ 450,641 $ 109,865
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 186,913 203,032 271,513
Provision for severance benefits 4,144 14,376 10,472
Losses on foreign currency translation, net 4,095 22,992 33,198
Losses on disposal of investments, net 370 12,824 601
Impairment loss on investment 6,254 740 1,523
Loss (gain) on disposal of property, plant and equipment 3,886 -- (5,842)
Impairment loss on loan to affiliates -- -- 22,646
Guarantee obligation loss -- 49,797 --
Loss (gain) on investment in equity method investees, net 1,396 (1,660) 31,787
Gains on disposal of packaging and testing factories -- (546,951) (163,828)
Decrease(increase) in deferred tax asset 13,794 (19,674) (53,212)
Other, net (48) 1,717 (1,476)
Change in operating assets and liabilities,
net of deconsolidation effects
Decrease (increase) in trade accounts receivable (56) 5,993 24,825
Decrease (increase) in other accounts receivable 6,542 (4,511) (25,844)
Decrease in due from affiliates 7,870 6,068 (43,339)
Decrease (increase) in inventories 4,354 (5,613) (1,009)
Decrease (increase) in other current assets (1,523) (539) 14,471
Increase (decrease) in trade accounts and notes payable (11,052) (33,327) 16,202
Decrease in other accounts payable (5,199) (79,969) (1,123)
Decrease in forward contract credit -- (15,364) (20,943)
Increase(decrease) in other current liabilities (10,481) 467 (13,922)
Payments of severance benefits (3,422) (6,623) (6,492)
--------- --------- ---------
Net cash provided by operating activities $ 45,664 $ 54,416 $ 200,073
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
Continued;
11
ANAM SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued;
----------
Thousands of U.S. Dollars
-----------------------------------
For the year ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in bank deposits $ 67,544 $ 28,031 $ (99,418)
Decrease in short term loans 1,580 2,684 7,788
Acquisition of property, plant and equipment (27,250) (132,491) (183,650)
Proceeds from sale of property, plant and equipment of K1, K2 and K3 -- 950,000 624,791
Payment of severance benefit for K1, K2 and K3 -- (56,510) --
Acquisition of investments (1) (87) (1,247)
Disposal of investments 1,787 9,247 41,425
Decrease (increase) in non-current bank deposits 155 45 (204)
Decrease (increase) in restricted cash 17,813 8,233 (41,132)
Decrease in long-term receivables 4,597 2,906 1,485
Decrease in other assets 3,208 1,712 128
Deconsolidation of subsidiaries -- -- (6,279)
--------- --------- ---------
Net cash provided by investing activities 69,433 813,770 343,687
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings -- (69,328) (47,286)
Repayment of current maturities of long-term debt (31,607) (19,797) (10,545)
Repayment of current maturities of long-term installment payable (9,844) (719) --
Repayment of current maturities of long-term obligations under capital leases (952) (53,516) --
Borrowing of long-term debt -- 22,347 48,054
Repayment of long-term debt -- (661,481) (484,448)
Repayment of long-term obligations under capital leases (100,030) (373,242) (61,597)
Payment of liability for loss contingencies (17,891) (102,929) --
Increase in other long-term liabilities -- -- 117
Decrease in receivable from stockholders -- 8,790 54,299
Issuance of common stock -- 457,559 41,695
--------- --------- ---------
Net cash used in financing activities (160,324) (792,316) (459,711)
--------- --------- ---------
Effect of exchange rate changes on cash (7,565) (4,567) (43,032)
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS (52,792) 71,303 41,017
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 127,772 56,469 15,452
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 74,980 $ 127,772 $ 56,469
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 21,979 $ 75,315 $ 197,716
========= ========= =========
Income taxes $ 17,533 $ 12,561 $ 15,658
========= ========= =========
Property, plant and equipment acquired through capital leases $ 2,775 $ 210,896 $ 1,116
========= ========= =========
Property, plant and equipment acquired through installment payable $ 3,546 $ 9,188 $ --
========= ========= =========
Capital increase through debt conversion $ -- $ 138,421 $ 101,731
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
12
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, is now primarily a
provider of semiconductor foundry services and a holding company for
certain investments. Prior to their sale in 1999 and 2000 ASI also was a
provider of semiconductor packaging and test services (See Note 3). In
1998, ASI commenced operations to fabricate and sell non-memory
semiconductor chips ("wafer fabrication").
ASI changed its name from Anam Industrial Co., Ltd. to Anam Semiconductor,
Inc. on March 20, 1998.
ASI's semiconductor foundry facilities operate primarily for Amkor
Technology, Inc. ("Amkor"), a United States affiliate. 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
purchase agreements with Texas Instruments Incorporated ("TI"), a United
States corporation, further discussed in Note 3, ASI fabricates wafers,
which are also sold 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 currently serves as ASI's honorary chairman and his
eldest son, Mr. James Kim, serves as Amkor's chairman and chief executive
officer. Mr. James Kim also serves as a director of ASI and as the
chairman of the Anam Group, consisting principally of companies in the
Republic of Korea in the electronics and construction industries. As of
December 31, 2001, Mr. H.S. Kim and his family owned approximately 1.7% of
the outstanding common stock of Anam and 48% of the outstanding common
stock of Amkor (See Note 3).
Consolidated Subsidiary and Significant Equity Investees --
A) Major subsidiary and significant equity investees included in the
accompanying financial statements by either consolidation or equity
method of accounting at December 31, 2001 are as follows :
Direct and
Indirect Method of
Subsidiaries Ownership(%) Accounting
-------------------------- ----------------- ------------------
Anam Instruments 20.8% Equity
Gre-tec 46.9% Equity
Anam Telecom 29.5% Equity
Anam USA 100% Consolidation
Continued;
13
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, Continued --
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.
Gre-tec Co., Ltd. (Gre-tec) --
Gre-tec was incorporated under the name of Yu-Bong Industry Co., Ltd. in
February 1986 and is engaged in treatment of industrial scrap in the
Republic of Korea. The company changed its name to Anam Environment in
January 1998 and to Gre-tec Co., Ltd. in December 2000, respectively.
Anam Telecommunications Co., Ltd. (Anam Telecom) --
Anam Telecom was established in August 1997, and is engaged in the
telecommunication business.
Anam USA, Inc. (Anam USA) --
Anam USA was incorporated in Philadelphia, United States in September
1994, to sell semiconductor products of Anam. As of December 31, 2001, its
capital stock is US$0.1 of which ASI owned 100%.
C) Changes in entities included in significant equity investees :
As part of the reorganization, Anam Construction and Anam Electronics were
placed under the control of the receivers appointed by the court. As a
result of such court receivership, ASI currently does not have any board
representation or any other involvement in management or operation of
these entities. Given the lack of its ability to exercise any influence
over the operating and financial policies of these entities, and given the
fact that the carrying value of such investees have been written down to
zero, ASI accounted for Anam Construction and Anam Electronics under the
historical cost method of accounting in 2001 and 2000 (see Note 5).
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 :
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 both a 20% to 50% equity interest and the
ability to exercise significant influcence over the investee. Investments
in companies owned less than 20% are carried at cost or for which the
Company does not exercise significant influence. All significant
intercompany transactions and balances with consolidated subsidiary have
been eliminated in consolidation.
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. Actual results could
differ from those estimates and may affect amounts reported in future
periods. Management believes that the estimates are reasonable.
Cash and Cash Equivalents --
Cash and cash equivalents include cash on hand and all highly liquid
investments with original maturities of three months or less at purchase.
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;
Restricted Cash --
Restricted cash consists of current and non-current bank deposits, which
are pledged in connection with various long-term debt (Note 14). Restriced
cash at December 31, 2001 and 2000 was $9,132 and $26,999, 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
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.
Available For Sale Securities --
The Company accounts for those investments included in "Available for sale
securities" under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). This statement requires investment securities to
be divided into one of three categories: held-to maturity, available for
sale and trading.
The Company currently classifies all investments in debt and equity
securities as available for sale securities. Individual securities with
remaining contractual maturity of less than one year at the balance sheet
date are included in current assets, and others are included as
non-current assets. All available for sale securities are recorded at fair
value. Unrealized holding gains and losses on securities available for
sale are reported as a separate component of stockholders' equity, net of
related deferred taxes. Realized gains and losses on the sale of
securities available for sale are determined using the specific
identification method and are charged to current operations.
Management periodically evaluate whether declines in fair values below
cost on each individual investment are or are not temporary. When decline
in value is other than temporary, 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. There is
no allowance for doubtful accounts recorded as of December 31, 2001 and
2000.
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;
Inventories --
Inventories are stated at the lower of cost or market, with cost being
determined by the weighted average method, except for materials
in-transit, for which cost is determined using the specific identification
method.
Property, Plant and Equipment --
Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets as set forth below:
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 in 2001 and 2000 approximate $2,304 and $3,626,
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.
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;
Discounts on Debentures --
Discounts on debentures are amortized using the effective interest rate
method over the repayment period of the debentures. The resulting
amortization cost is included in interest expense.
Accrued Severance Benefits --
Employees and directors with one year or more of service are entitled to
receive a lump-sum payment upon termination of their employment with the
Company, based on their length of service and rate of pay at the time of
termination. Accrued severance benefits are estimated assuming all
eligible employees were to terminate their employment at the balance sheet
date. The annual severance benefits expense charged to operations is
calculated based on the net change in the accrued severance benefits
payable at the balance sheet date, plus the actual payments made during
the year.
The contributions to national pension fund made under the National Pension
Plan 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 --
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.
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
(see Note 3). The results of the discontinued businesses do not reflect
any interest expense or indirect expenses allocated by the Company.
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;
Research and Development Costs --
Research and development costs are expensed as incurred.
Advertising Costs --
Advertising costs are charged to current period operations when incurred.
Advertising expenses for 2001, 2000 and 1999 were $157, $414 and $236,
respectively.
Income Taxes --
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". SFAS 109 requires the recognition of deferred tax assets and
liabilities created by temporary differences between the financial
statement and tax bases of assets and liabilities. Deferred tax assets and
liabilities are computed on such temporary differences, including
available net operating loss carryforwards ("NOL") and tax credits, by
applying enacted statutory tax rates applicable to the years when such
differences are expected to be reversed. A valuation allowance is provided
on deferred tax assets to the extent that it is more likely than not that
such deferred tax assets will not be realized. Total income tax provision
includes current tax expenses under applicable tax regulations and the
change in the balance of deferred tax assets and liabilities.
Investment tax credits are accounted for by the flow-through method
whereby they reduce income taxes in the period the assets giving rise to
such credits are placed in service. To the extent such credits are not
currently utilized, deferred tax assets, subject to considerations about
the need for a valuation allowance, are recognized for the carryforward
amount.
Earnings Per Share --
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 19). Basic EPS is computed using the
weighted average number of common shares outstanding for the period while
diluted EPS is computed assuming conversion of all dilutive securities,
such as convertible bonds. Both computation reflect the June 17, 1999
reverse stock split in the number of shares.
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;
Remeasurement into US Dollar --
The U.S. dollar is the functional currency for ASI because the dollar is
the currency of reference for market pricing in the worldwide
semiconductor industry and revenue from external sales in U.S. dollars
exceeds revenues in any other currency. The functional currency used by
ASI's equity investees is the Korean Won. The functional currency used by
Anam USA is the U.S. dollar.
For financial statement purposes, assets and liabilities of ASI are
remeasured into U.S. dollars from books and records kept in Korean Won
using the monetary/non-monetary method. Monetary assets and liabilities,
such as cash, receivables, borrowings and other payables, are translated
to U.S. dollars at end-of-period exchange rates. Non-monetary assets and
liabilities, such as inventory, investments and fixed assets, are
translated using historical exchange rates. Revenues and expenses are
translated using average exchange rates for the period, except for items
related to non-monetary assets and liabilities, which are translated using
historical exchange rates. All translation gains and losses are included
in the determination of income for the period in which exchange rates
change.
The financial position and results of operations of the Company's
equity-method investees are measured using local currency as functional
currency. The financial statements of these subsidiaries and equity-method
investees are translated to U.S. dollars using the current exchange rate
method. All the assets and liabilities are translated to U.S. dollars at
end-of-period exchange rates. Capital accounts are translated using
historical exchange rates. Revenues and expenses are translated using
average exchange rates. Translation adjustments arising from differences
in exchange rates from period to period are included in the cumulative
translation adjustment account in stockholders' equity.
The end of period exchange rates and average exchange rates for the period
used to remeasure the assets, liabilities, revenues and expenses in
accordance with the translation method stated above in 2001, 2000 and 1999
were as follows:
Korean Won to U.S. dollar
--------------------------------------------------------------------------
End of period exchange rates Average exchange rates
------------------------------------ ----------------------------------
2001 W1,314.60 = US$ 1 W1,291.00 = US$ 1
2000 W1,259.70 = US$ 1 W1,127.03 = US$ 1
1999 W1,134.50 = US$ 1 W1,189.30 = US$ 1
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;
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, 2000 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, 2000 or
2001.
Allowance for credit losses on loans receivable --
The Company accounted for allowance for credit losses in accordance with
SFAS 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114).
Under SFAS 114, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement
of impaired loans is generally based on the present value of expected
future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral.
When a loan is classified as impaired, no interest income is recognized.
Any subsequent cash payment is applied to reduce the principal (Note 7 and
8).
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;
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.
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 (see Note 3) provided to Amkor pursuant to the Foundry Agreement.
In addition, the foundry services are based on technology licenses
provided by Texas Instruments which could expire as early as December 31,
2004. 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.
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;
Concentration of Credit Risk, Continued --
ASI performs and sells its Foundry Services exclusively to Amkor pursuant
to the Foundry Agreement. In 2001, 2000 and 1999, 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
realizeable value.
The Company controls the credit risks associated with financial
instruments through credit approvals, investment limits and centralized
monitoring procedures but does not normally require collateral or other
security from the counterparties. No outstanding derivative transactions
of the Company existed at December 31, 2001 and 2000.
Reclassifications --
Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform to the 2001 presentation. These reclassifications
have had no effect on previously reported net income or retained earnings.
Restatement --
Diluted earnings per share for the years ended December 31, 2000 and 1999
have been revised to reflect a correction in the dilution calculation. The
revision did not impact net income, stockholders' equity or cash flows.
The previously reported diluted earnings per share from discontinued
operations for 2000 of 5.18 has been revised to 5.29. The previously
reported diluted earnings per share from discontinued operations for 1999
of 9.24 has been revised to 9.58. The previously reported diluted net
income per share for 2000 of 4.94 has been revised to 5.07. The previously
reported diluted net income per share for 1999 of 3.42 has been revised to
3.76. Please refer to the changes in Note 19 and in the Consolidated
Statements of Operations.
Continued;
23
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 --
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
These standards change the accounting for business combinations by, among
other things, prohibiting the prospective use of pooling-of-interests
accounting and requiring companies to stop amortizing goodwill and certain
intangible assets with an indefinite useful life created by business
combinations accounted for using the purchase method of accounting.
Instead, goodwill and intangible assets deemed to have an indefinite
useful life would be subject to an annual review for impairment.
For existing acquisitions, the provisions of the new standards will be
effective for us in the first quarter of 2002. ASI will adopt this
statement during the first quarter of 2002 and believe that the impact of
adoption on the financial statements will not be material.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". This statement establishes standards for
accounting for obligations associated with the retirement of tangible
long-lived assets. The standard is required to be adopted by us beginning
on January 1, 2003. In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement addresses financial accounting and reporting for the impairment
and disposal of long-lived assets. This standard is required to be adopted
by us beginning on January 1, 2002. We are currently in the process of
evaluating the effect the adoption of these standards will have on our
consolidated results of operations, financial position and cash flows, if
any.
24
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
------------
3. Relationship with Amkor:
The businesses of ASI and Amkor have been inter-related for many years by
virtue of the Foundry Agreements (see Note 1), certain common ownership
and management, financial relationships, coordination of product and
operating plans and shared intellectual property rights.
In accordance with the terms and condition of the Workout Program
discussed in Note 5, in 2000 and 1999, Amkor made $500,694 of capital
contribution to ASI in exchange for equity shares of ASI. As a result,
Amkor owns 42% of the outstanding stock of ASI at December 31, 2001 and
2000.
On May 17, 1999, the Company sold to Amkor all the assets of the Company's
packaging and test facility located in Kwangju city, the Republic of Korea
("K4"), excluding cash and cash equivalents, notes and accounts
receivables, intercompany accounts and existing claims against third
parties, in accordance with an asset purchase agreement signed on December
30, 1998 and approved by its shareholders on February 3, 1999. The sale
price of K4 is $575,000 in cash, plus the transfer of up to $7,000 of
employee benefit liabilities. The sale of K4 resulted in a gain of
$163,828.
On May 1, 2000, the Company sold to Amkor all of the remaining operating
assets related to the packaging and testing business excluding K2 land in
accordance with an asset purchase agreement approved by its shareholders
on April 14, 2000. The sale price of K1, K2 and K3 was for $950,000 in
cash. The sale of K1, K2 and K3 resulted in a gain of $546,951.
In 2001, 2000 and 1999, approximately 99.9%, 97.0% and 93.3%,
respectively, of ASI's revenues was derived from sales to Amkor. By the
terms of a long-standing agreement, Amkor has been responsible for
marketing and selling ASI's semiconductor foundry services, except to
customers in Korea to whom ASI has historically sold such services
directly. ASI has worked closely with Amkor in developing new technologies
and products.
Effective January 1, 1998, ASI entered into the five-year Foundry
Agreement with Amkor giving Amkor the exclusive right to market and sell
all of the wafer output of ASI's new wafer foundry, both of which have
negotiable pricing terms, taking into consideration factors such as
changes in the semiconductor market, forecasted demand, product mix,
capacity utilization and fluctuations in exchange rates as well as the
mutual long-term strategic interest of ASI and Amkor. Amkor, in return, is
responsible for sales of Foundry Services and is obligated to actively and
diligently market the Foundry Services to potential and existing
customers.
Continued;
25
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
------------
3. Relationship with Amkor, Continued;
The agreement is cancelable by either party upon five years prior written
notice at any time after the fifth anniversary of the effective date. The
Company's business, financial condition and operating results have been
and will continue to be significantly dependent on the ability of Amkor to
effectively market ASI's services. The termination of ASI's relationship
with Amkor for any reason, or any material adverse change in Amkor's
business would have a material adverse effect on ASI's business, financial
condition and results of operations.
Under the 1998 Manufacturing and Purchase Agreement between Amkor and
Texas Instruments(as amended on July 1, 2000), Texas Instruments agreed to
purchase from us at least 40%, and under certain circumstances had the
right to purchase 70%, of ASI's wafer fabrication facility's capacity. As
a result of the weakness in the semiconductor industry, Texas Instruments'
demand for the output of ASI's wafer fabrication facility decreased
significantly in 2001. and they failed to meet minimum purchase
obligations. Texas Instruments made certain concessions to Amkor to
partially mitigate this shortfall in demand.
The Manufacturing and Purchase Agreement between Texas Instruments and
Amkor was amended again on December 31, 2001. Pursuant to the amended
agreement, Amkor agreed to modify Texas Instruments' purchase obligation
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. Texas
Instruments 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 Texas
Instruments 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. It is anticipated
that this linear BiCMOS process technology will be used primarily for
customers other than Texas Instruments.
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, Texas Instruments and Amkor, (2) a
material breach by ASI, Texas Instruments or Amkor, (3) the failure of ASI
or Amkor to protect Texas Instruments' intellectual property; or (4) the
parties' failures to enter into a new technical assistance agreement by
December 31, 2002.
Continued;
26
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
3. Relationship with Amkor, Continued;
If the parties fail to enter into a new technical assistance agreement by
December 31, 2002, then any party may give the other notice of
termination. 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, Texas Instruments will only be obligated to purchase a minimum of
20% of the ASI wafer fabrication facility's capacity. In addition, even if
the parties were to enter into a new technical assistance agreement, that
agreement would provide that if ASI is not able to enter into production
using the advanced wafer fabrication technology licensed under that
agreement, the Manufacturing and Purchasing Agreement is terminable by any
party as discussed above over a two year period beginning on December 31,
2002. As of October, 2002, Amkor, ASI and Texas Instruments have not come
to agreement on a new technical assistance agreement.
In order for the Manufacturing and Purchasing Agreement and the technology
assistance agreements to continue until December 31, 2007, Amkor, ASI and
Texas Instruments would have to enter into a new technology assistance
agreement by December 31, 2002. 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. It is not certain whether Amkor and ASI will be able to negotiate
successfully a new technical assistance agreements with Texas Instruments.
Moreover, it will be extremely difficult for ASI to finance, acquire and
equip the necessary manufacturing facility to deploy the advanced wafer
fabrication technology that would be transferred by Texas Instruments. If
Texas Instruments were to significantly reduce or terminate its purchase
of ASI's wafer fabrication services, ASI's wafer fabrication business
would be seriously harmed. However, we have maintained a strong
relationship with both Amkor and Texas Instruments and the Company
currently expects that in the event new manufacturing and technology
assistance agreements could not be entered into by December 31, 2002,
Texas Instruments and Amkor would negotiate a new relationship with the
Company and continue to use the Company's wafer fabrication facility for a
significant portion of their outsourced wafer fabrication needs.
Under the existing technical assistance agreements between Texas
Instruments and ASI, ASI has a license to use wafer fabrication-related TI
Trade Secrets for non-Texas Instruments' products. In the event that the
Manufacturing and Purchase Agreement is terminated, this license will also
terminate. At such time, it would be necessary for ASI to negotiate a new
license agreement with Texas Instruments relating to its trade secrets, or
ASI would not be able to continue its wafer fabrication operations as
currently practiced. This would have the result of shutting down the wafer
fabrications business of ASI and Amkor unless and until alternative
technology arrangements could be made and implemented at ASI's wafer
manufacturing facility.
27
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
------------
4. Unstable Economic Environment:
Beginning in 1997, Korea and other countries in the Asia Pacific region
experienced a severe contraction in substantially all aspects of their
economies. This situation is commonly referred to as the 1997 Asian
financial crisis. In response to this situation, the Korean government and
the private sector began implementing structural reforms to historical
business practices.
The Korean economy continues to experience difficulties, 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
banking industry is currently undergoing consolidation and uncertainty
exists with regard to the continued availability of financing. The Company
may be either directly or indirectly affected by the situation described
above.
28
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
------------
5. Workout Program:
The Company has traditionally operated with a significant amount of debt
relative to its equity. In addition, the Company has guaranteed certain
debt obligations of equity investees and affiliated companies, including
Anam Engineering and Construction Co., Ltd. ("Anam Construction"), Anam
Electronics Co., Ltd. ("Anam Electronics") and Gre-tec which face serious
financial difficulties.
In response to this situation, management has undertaken certain measures
it considers appropriate, including: (1) disposing of the packaging and
test facilities (see Note 3); (2) placing Anam Construction into corporate
reorganization under the Korean Corporate Reorganization Act; and (3)
enlisting, on October 23, 1998 ASI into the "Workout Program", a financial
restructuring program supervised by the Korean Financial Supervisory
Commission ("FSC"). The Workout Program is the result of an accord among
Korean financial institutions to assist in the restructuring of Korean
business enterprises. This process involves negotiations between the
companies and the creditors committee represented by banks and other
financial institutions providing financing to ASI and does not involve the
judicial system. The Workout Program also allows ASI to resume its
operations uninterrupted and does not impact debt outstanding with trade
creditors. Anam Electronics and Gre-tec also applied for the Workout
Program in October 1998.
On February 23, 1999, the following basic conditions and terms of ASI's
Workout Program were agreed to and approved by its creditors committee :
(1) five-year extension on repayment of loans and capital leases; (2)
reduction of bank loan interest rates to Korean prime rate; (3) conversion
of certain outstanding bank loans of ASI to equity shares and convertible
bonds approximating $102,275 and $90,400, respectively; and (4) five-year
suspension of creditors' right to demand performance on loan guarantees
made by ASI on behalf of its affiliates. In order for the initial
conversion of debt to take place in accordance with the terms of the
Workout Program, ASI underwent a series of corporate actions, including a
reverse stock split, to bring the fair market value of its equity shares
to a price at least equal to the par value of such shares. The conversion
of ASI debt by the creditor financial institutions would coincide with
each installment of Amkor's equity investment in ASI as described below.
The Workout Program contained a provision for the entitlement of the
creditor financial institutions to vote the ASI shares owned by Mr. James
Kim and his family. The Company did not recognize any gain or loss as a
result of the Workout Program.
Continued;
29
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
------------
5. Workout Program, Continued;
On May 13, 1999, ASI's Workout Program became effective upon the signing
of a Memorandum of Understanding, which detailed the conditions and terms
between ASI and the creditors committee. In accordance with the terms and
conditions of the Workout Program, in 2000 and 1999, Amkor made $458,999
and $41,695, respectively, of capital contribution to ASI in exchange for
equity shares of ASI. ASI paid $4,603 and $102,929 to creditors for
guarantee obligations in 2001 and 2000, respectively, in order to
eliminate all guarantee obligations provided for Anam Construction and
Anam Electronics (Note 20). On July 18, 2000, the creditors committee
released ASI from the Workout Program due to fulfillment of the terms of
the Workout Agreement.
As of December 31, 1999, ASI owned 49.00% of Anam Construction. Anam
Construction filed for corporate reorganization under the Korean Corporate
Reorganization Act on October 24, 1998. Anam Construction's reorganization
plan was completed and approved by the court on March 20, 2000. As part of
the reorganization, Anam Construction was placed under the control of a
receiver. In 2000, according to Anam Construction's reorganization plan,
all common shares of ASI were reduced without consideration and a portion
of ASI's loans to Anam Construction approximating $65,916 converted to
preferred stock of Anam Construction in exchange for 1,472,705 non-voting
preferred shares at (won)U50,000 per share by August 1, 2000. After this
conversion, ASI currently owns 25.0% of Anam Construction's shares, which
is recorded at $0 in accompanying financial statements. (see Note 20).
Anam Electronics' application for Workout Program was not accepted by the
creditors committee. As a result, on March 18, 1999, Anam Electronics
filed an application for corporate reorganization under the Korean
Corporate Reorganization Act. Anam Electronics' reorganization plan was
completed and approved by the court on February 7, 2000. In 2000,
according to the reorganization plan of Anam Electronics, a portion of
ASI's loans to Anam Electronics approximating $29,004 converted to common
stock of Anam Electronic in exchange for 2,026,640 non-voting common
shares at (won)U16,000 per share by June 1, 2000, all of which were sold
in 2001 (see Note 20).
Gre-tec's application for Workout Program was accepted by its creditors
committee on February 23, 1999 and the creditors committee released
Gre-tec from Workout Program on August 29, 2000. A portion of ASI's loans
to Gre-tec approximating $7,654 converted to common stock of Gre-tec in
exchange for 212,000 common shares at (won)U47,100 per share on May 3,
2001. ASI records its investment in Gre-tec at $0 in the accompanying
financial statements. Gre-tec became insolvent and filed an application
for corporate reorganization under the Korean Corporate Reorganization Act
on December 13, 2001. Gre-tec is preparing its reorganization plan, which
is expected to be finalized in early 2003 (see Note 20).
30
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
6. Inventories :
Inventories at December 31, 2001 and 2000 comprise the following:
December 31,
-----------------------
2001 2000
-------- -------
Finished products and merchandise $ 14,417 $ 2,422
Semi-finished products
and work in process 24,598 10,945
Raw materials and supplies 7,812 18,754
Materials in transit 514 9,465
-------- -------
47,341 41,586
Reserve for the lower of cost or market $(10,109) --
-------- -------
$ 37,232 $41,586
======== =======
7. Short-term Loans to Affiliates :
Loan receivables at December 31, 2001 and 2000 comprise of the following :
December 31,
-------------------------
2001 2000
--------- ---------
Loans to affiliated companies
Anam Construction $ 17,011 $ 17,752
Anam Electronics 99,013 103,328
Gre-tec 7,156 12,145
Anam Telecom 2,977 1,009
New-line Finance(former, Anam Finance) -- 1,619
--------- ---------
126,157 135,853
--------- ---------
Allowance for credit loss (Note 8) (126,157) (134,234)
--------- ---------
$ -- $ 1,619
========= =========
The loans to affiliated companies have maturity periods of less than one
year and are uncollateralized.
31
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
8. Loan Impairment :
The Company provided loans to several affiliated companies, which
currently face financial difficulties. Consequently, the Company assessed
the collectibility of these loans in accordance with Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", and determined that the Company would not be able
to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement on certain loans.
The amount of impaired loans and related allowance for credit loss on
loans receivable are summarized below :
December 31,
-------------------------
2001 2000
--------- ---------
Impaired loans, gross $ 126,157 $ 134,234
Allowance for credit loss on loans receivable $(126,157) (134,234)
--------- ---------
Impaired loans, net $ -- $ --
========= =========
For the year ended December 31, 2001 and 2000, the average recorded
investment in impaired loans was approximately $130,196 and $222,673,
respectively.
No interest income was recognized on impaired loans for the year ended
December 31, 2001 and 2000. Had these loans performed in accordance with
their original terms, interest income of $10,119 and $17,306 would have
been recorded in 2001 and 2000, respectively.
The changes in the allowance for credit loss on loans receivable are
summarized below:
2001 2000
--------- ---------
Beginning balance $ 134,234 $ 311,112
Transfer of loans receivable to investment securities (7,654) (94,920)
Write-off -- (108,680)
Additions due to payment of guarantee obligation 5,238 36,128
Effect of changes in exchange rates (5,661) (9,406)
--------- ---------
Ending balance $ 126,157 $ 134,234
========= =========
As discussed in Note 5, in 2001 and 2000, a portion of ASI's loans
receivable were converted to investment securities as follows:
2001 2000
--------- ---------
Anam Construction $ -- $ 65,916
Anam Electronics -- 29,004
Gre-tec 7,654 --
--------- ---------
$ 7,654 $ 94,920
========= =========
32
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
9. Investment in Available For Sale Securities :
The Company's investment in available for sale securities are summarized
below :
December 31, 2001
------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Holding Gains Holding Losses Fair Value
--------------- --------------- --------------- ---------------
Bonds issued by Korean government $ 70 $ -- $ -- $ 70
Bonds issued by Korean local government 9 -- -- 9
Equity Securities 17,939 44 1,527 16,456
--------------- --------------- --------------- ---------------
Total $ 18,018 $ 44 $ 1,527 $ 16,535
=============== =============== =============== ===============
December 31, 2000
------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Holding Gains Holding Losses Fair Value
--------------- --------------- --------------- ---------------
Bonds issued by Korean government $ 73 $ -- $ -- $ 73
Bonds issued by Korean local government 9 -- -- 9
Equity Securities 24,942 -- 9,221 15,721
--------------- --------------- --------------- ---------------
Total $ 25,024 $ -- $ 9,221 $ 15,803
=============== =============== =============== ===============
The maturity of the bonds issued by the government and the bonds issued by
local government as of December 31, 2001 ranged from two years to six
years.
The gross realized gains from the sale of available for sale securities in
the year ended December 31, 2001, 2000 and 1999 were $40, $710 and $0,
respectively. The gross realized losses from the sale of available for
sale securities in 2001, 2000 and 1999 were $410, $6,560 and $891,
respectively.
At December 31, 2001 and 2000, equity securities with total carrying
amount of $2,357 and $1,481, respectively, were pledged as collateral for
issuing non-guaranteed debentures and capital lease obligation,
respectively (see Notes 12 and 14).
At December 31, 2001, 2000 and 1999, respectively, the net book value of
certain equity investment is below acquisition cost and is not expected to
be recovered in the near future. Accordingly, an impairment loss of
$6,254, $740 and $1,523, 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.
33
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
10. Investments in Affiliated Companies :
The Company's investments in affiliated companies are summarized below:
December 31, 2001
-----------------------------------------------------------------------------------------------
Percentage Accumulated Accumulated
of Ownership Amortized Comprehensive Equity in Estimated
(%) Cost Income (loss) gain (loss) Fair 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
============== ============== ============== ==============
December 31, 2000
-----------------------------------------------------------------------------------------------
Percentage Accumulated Accumulated
of Ownership Amortized Comprehensive Equity in Estimated
(%) Cost Income (loss) gain (loss) Fair Value
-------------- -------------- -------------- -------------- --------------
Anam Instrument 20.80 $ 8,905 $ (2,755) $ 5,292 $ 11,442
============== ============== ============== ==============
The gross realized loss from the sale of investment in affiliated
companies in the year ended December 31, 2001, 2000 and 1999 were $0,
$6,974 and $0, respectively. The gross realized gain from the sale of
investment in affiliated companies in the year ended December 31, 2001,
2000 and 1999 were $0, $0 and $290, respectively.
34
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
11. Summary Financial Data on Significant Equity Investees :
Additional information regarding the Company's equity investees is as
below :
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)
As of December 31, 2000
----------------------------------------------------------------------------------
Current Non-current Current Non-current
Assets Assets Liabilities Liabilities Net Equity
-------------- --------------- ------------- ---------------- --------------
Anam Instruments $ 71,298 $ 21,292 $ 23,287 $ 14,558 $ 54,745
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
For the Year ended December 31, 1999
------------------------------------------------------------------------------
Gross Income (Loss) from Net Income
Revenue Gross Profit operations (Loss)
--------------- ---------------- ---------------------- -----------------
Anam Construction* $ 63,621 $ (14,776) $ (66,691) $ (66,691)
Anam Insturments 169,051 26,601 11,135 7,487
Acqutek 57,040 3,646 (7,978) (4,377)
New-line Finance
(former, Anam Finance) 9,980 (8,323) (8,343) (8,343)
Anam Telecom 1,543 (3,278) (8,220) (8,220)
* Gre-tec's figures are included in Anam Construction.
35
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
12. Property, Plant and Equipment :
Property, plant and equipment at December 31, 2001 and 2000 comprise of
the following :
December 31,
-----------------------------
2001 2000
----------- -----------
Costs
Land $ 29,854 $ 29,820
Buildings and Structures 94,964 93,632
Machinery, equipment and vehicles 1,068,836 1,012,939
Tools, furniture and fixtures 14,567 9,891
Construction in progress -- 610
Machinery in transit 4,373 38,349
----------- -----------
1,212,594 1,185,241
Accumulated depreciation (565,707) (390,540)
----------- -----------
646,887 794,701
Governmental subsidies (589) (851)
----------- -----------
Net Property, Plant and Equipment $ 646,298 $ 793,850
=========== ===========
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 $295,989 and $338,512, at December 31, 2001 and 2000, respectively (see
Note 14).
Continued;
36
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
12. Property, Plant and Equipment, Continued;
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,
---------------------------
2001 2000
--------- ---------
Machinery and equipment $ 833,856 $ 831,081
Accumulated depreciation (468,905) (323,342)
--------- ---------
Capitalized Leases, net $ 364,951 $ 507,739
========= =========
Future minimum lease payments under noncancelable capital leases as of
December 31, 2001 are as follows :
For years ended December 31, Capital Leases
--------------
2002 $ 103,736
2003 41,046
2004 21,465
---------
Total minimum lease payments 166,247
Less amount representing interest (10,409)
---------
Present value of minimum lease 155,838
payments under capital leases
Less: portion due within one year (97,042)
---------
$ 58,796
=========
Impairment of Property, Plant and Equipment --
The Company recognized an impairment loss of $273,937 in accordance with
SFAS 121 related to assets held and used in the wafer fabrication factory
(the "FAB") in Bucheon City, Republic of Korea in 1998. The amounts in
property, plant and equipment above reflect the write-off of assets based
upon the present value of expected future cash flows.
Continued;
37
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
12. Property, Plant and Equipment, Continued;
Impairment of Property, Plant and Equipment, Continued --
The remaining recorded value of the FAB after the impairment adjustment at
December 31, 2001 and 2000 is as follows:
2001
--------------------------------------------
Machinery and
Building equipment Total
---------- ------------- ----------
Acquisition cost $ 189,899 $ 320,825 $ 510,724
Impairment (120,863) (153,074) (273,937)
Accumulated depreciation (13,865) (73,910) (87,775)
---------- ---------- ----------
Net book value $ 55,171 $ 93,841 $ 149,012
========== ========== ==========
2000
--------------------------------------------
Machinery and
Building equipment Total
---------- ------------- ----------
Acquisition cost $ 189,899 $ 320,825 $ 510,724
Impairment (120,863) (153,074) (273,937)
Accumulated depreciation (11,800) (58,918) (70,718)
---------- ---------- ----------
Net book value $ 57,236 $ 108,833 $ 166,069
========== ========== ==========
38
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
13. Accrued Severance Benefits :
Accrued severance benefits at December 31, 2001 and 2000 are as follows :
2001 2000
-------- --------
Beginning balance $ 6,721 $ 54,568
Decrease resulting from sales of divisions -- (56,510)
Provisions 4,144 14,376
Severance payments (4,462) (5,713)
-------- --------
6,403 6,721
Balance of payments remaining with
National Pension Fund (299) (413)
Balance of payments remaining with
Severance insurance deposit (5,395) (6,308)
-------- --------
$ 709 $ --
======== ========
The severance benefits are funded approximately 84.3% at December 31,
2001, through severance insurance deposit for 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.
39
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
14. Borrowings and Installment Payable :
Long-term debt and long-term installment payable excluding capital lease
obligations, at December 31, 2001 and 2000 comprise the following :
Carrying Value
at December 31,
Annual Interest Rate -----------------------
(%) at December 31, 2001 2001 2000
------------------------ -------- --------
Won Currency Loans:
Choheung Bank due 2006 5.00 - 10.50 $ 31,449 $ 33,046
Shinhan Bank due 2005 10.25 19,057 19,887
Korea Exchange Bank due 2005 10.25 7,014 7,320
Others 10.45 6,080 6,345
-------- --------
63,600 66,598
Less : current portion (5,529) (254)
-------- --------
58,071 66,344
-------- --------
Debentures in Won currency:
Guaranteed, payable through 2002 10.00 - 10.20 15,214 15,877
Non-guaranteed, payable through 2006 9.10 - 12.00 1,142 9,130
-------- --------
16,356 25,007
Less : discounts on debentures (7) (641)
Current portion (15,207) (7,304)
-------- --------
1,142 17,062
-------- --------
Convertible Bonds:
US Dollar, payable -- 24,904
Less : current portion -- (24,904)
-------- --------
Total long-term debt $ 59,213 $ 83,406
======== ========
Long-term Installment Payable
Installment payable in Japanese Yen $ 2,075 $ 9,342
Installment payable in Won currency 1,207 1,618
-------- --------
3,282 10,960
Less : discounts on installment payable (99) (221)
Current portion (2,719) (9,844)
-------- --------
$ 464 $ 895
======== ========
Continued;
40
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
14. Borrowings and Installment Payable, Continued;
See Notes 9 and 12 for the related collateral arrangements for the
Company's long-term debt. At December 31, 2001, the Company provided notes
and checks, including 8 blank notes and 11 blank checks, to several banks
and financial institutions as collateral in relation to various
borrowings. In relation to guaranteed debentures, the Company pays
guarantee fees at 0.4% per annum. Certain debentures are guaranteed by
Choheung Bank. The carrying amount of the debentures is equivalent to the
registered, issued and outstanding amount of debentures.
The annual maturities of long-term debt, excluding discounts on debentures
and installment payable, outstanding at December 31, 2001 are as follows :
Won Currency Installment
Year Loans Debentures Payable Total
---- ------------ ---------- ----------- --------
2002 $ 5,529 $ 15,214 $ 2,802 $ 23,545
2003 21,091 202 417 21,710
2004 21,045 402 63 21,510
2005 15,811 269 -- 16,080
2006 124 269 -- 393
-------- -------- -------- --------
$ 63,600 $ 16,356 $ 3,282 $ 83,238
======== ======== ======== ========
15. Convertible Bonds :
In 1996, the Company issued US Dollar-denominated convertible bonds
aggregating $40 million bearing interest at 0.25% per annum. The bonds are
convertible into common stock from April 22, 1996 through November 30,
2010, at a specified conversion price. The conversion price was initially
determined at 20,200 Korean Won per common share using the fixed rate of
exchange of 779.72 Korean Won to US$1.00 at the time of issuance, which
was subject to adjustment based on the occurrence of certain events such
as making a free distribution of common shares, declaration of a dividend
in common shares and other events which would dilute the bondholder's
interest. These events are more fully described in the offering agreement.
Continued;
41
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
15. Convertible Bonds, Continued;
The Company may redeem all or some of the bonds on or at any time after
March 20, 1997 at their principal amount, together, in each case, with
accrued interest. No such redemption may be made on or prior to March 20,
2001 unless the average of the last selling prices or, if no sales take
place on such day, the closing bid or offered prices of the common shares
as reported by the Korea Stock Exchange, for each of 30 consecutive
trading days, ending not more than 30 days prior to the date upon which
notice of such redemption is given, has been at least 130% of the
conversion price of each such trading day.
Any bondholder may request the Company to redeem all or some of the bonds
held by him on March 20, 2001 at 142.75% of the principal amount of such
bonds, together with interest accrued to the date of redemption. The
Company accrued interest expenses for the put premium, 42.75% of the
principal amount, over the period from the issuance date of these
convertible bonds to March 20, 2001.
Unless previously redeemed, purchased and cancelled or converted, the
bonds will be redeemed on December 31, 2010 at their principal amount
together with accrued interest.
During 1999, $19,720 of convertible bonds with interest of $3,545 were
converted into the Company's common stock. As a result of the conversion,
1,686,425 additional shares were issued, which resulted in increase of
capital and capital surplus by $10,814 and $8,906, respectively. Remainder
of convertible bonds comprised principal of $23,825 and accrued interest
of $7,368 as of December 31, 1999.
During 2000, $6,115 of convertible bonds with interest of $1,891 were
converted into the Company's common stock. As a result of the conversion,
744,296 additional shares were issued, which resulted in increase of
capital and capital surplus by $3,345 and $2,770, respectively. Remainder
of convertible bonds comprised principal of $17,710 and accrued interest
of $7,194 as of December 31, 2000. These convertible bonds were subject to
redemption at the request of the holders at March 20, 2001 and classified
as current liabilities at December 31, 2000.
On March 20, 2001, $17,710 of convertible bonds with accrued interest of
$7,571 were redeemed at the request of bondholders.
42
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
16. Income Taxes :
The tax provision (benefit) consists of the following :
Year ended December 31,
----------------------------------------
2001 2000 1999
--------- --------- ---------
Current: $ -- $ 50,657 $ 26,868
Deferred: 13,794 (19,674) (54,192)
--------- --------- ---------
Total 13,794 30,983 (27,324)
Allocated to income from discontinued
packaging and testing operation -- 6,353 12,408
Allocated to gain on sale of packaging and
testing factories -- 112,724 14,268
--------- --------- ---------
Continuing operations $ 13,794 $ (88,094) $ (54,000)
========= ========= =========
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.
Realization of the future tax benefits related to the deferred tax assets
is dependent on many factors, including ASI's ability to generate taxable
income within the period during which the temporary differences reverse,
the outlook for the Korean economy environment and the overall future
industry outlook. Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting purposes.
Such valuation allowance is reviewed periodically.
Continued;
43
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
16. Income Taxes, Continued;
The major components of deferred tax assets and deferred tax liabilities
as of December 31, 2001 and 2000 are as follows :
December 31,
-------------------------
2001 2000
--------- ---------
Deferred tax assets :
Property, plant and equipment $ 67,252 $ 88,168
Short term and long term loans 110,246 119,311
Provision for contingency losses 16,823 22,691
Inventories 3,002 --
Accounts and notes receivable 27,928 30,224
Investment 24,375 25,808
Net operating loss carryfoward 44,284 --
Tax credit 65,780 51,164
Other 316 488
--------- ---------
Total deferred tax assets 360,006 337,854
--------- ---------
Deferred tax liabilities 450 441
Valuation allowance (300,464) (264,527)
--------- ---------
Net deferred tax assets $ 59,092 $ 72,886
========= =========
At December 31, 2001, the Company has available unused operating loss
carryforwards of $149,104, which may be applied against future taxable
income through 2006. At December 31, 2001, the Company has available
unused investment tax credits of $65,780, which may be applied against
future income tax amounts through 2006.
Management has reassessed the estimated future taxable income and has
concluded that it is "more likely than not" that ASI will not realize the
full benefit of deferred tax assets. The valuation allowance was reduced
in 1999 due to the taxable gain realized on the sale of ASI's K4 facility
to Amkor and the anticipated taxable gain on the sale of ASI's K1, K2 and
K3 facilities to Amkor. Prior to the sale of these factories, it was not
likely that the Company would be able to realize the deferred tax assets
associated with the property, plant and equipment of the factories. In
2000, the valuation allowance was reduced further primarily based on the
decrease in the net deferred tax assets and the anticipated benefit and
expected return to profitability of ASI as a result of being released from
the Workout Program. Accordingly, a valuation allowance of $300,464 and
$264,527 at December 31, 2001 and 2000, respectively, has been recorded.
Continued;
44
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
16. Income Taxes, Continued;
The statutory income tax rate, including tax surcharges, applicable to ASI
for 2001, 2000 and 1999 is approximately 30.8%, respectively and was
amended to 29.7% effective for fiscal years beginning January 1, 2002 in
accordance with Corporate Income Tax Law enacted in December 2001. 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 :
Thousands of U.S. Dollars
-----------------------------------------
2001 2000 1999
--------- --------- ---------
Taxes at Korean statutory tax rate $ (43,775) $ 148,340 $ 35,213
Remeasurement effect 15,016 (22,068) 75,257
Increase (decrease) in valuation allowance 35,937 (91,293) (116,608)
Tax credits incurred (12,626) (17,767) (12,057)
Effect of change in tax rate 10,881 -- --
Other, net 8,361 13,771 (9,129)
--------- --------- ---------
Total income tax provision (benefit) $ 13,794 $ 30,983 $ (27,324)
========= ========= =========
17. 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 W5,000 as of December 31, 2001 and 2000.
As of December 31, 2001 and 2000, outstanding capital stocks are as
follows :
Number of shares issued
and outstanding Par value Thousands of Won
----------------------- --------------- ---------------------
Common stock 111,880,768 W 5,000 W 559,403,840
Preferred stock 2,576,276 5,000 12,881,380
----------------------- ---------------------
114,457,044 572,285,220
======================= =====================
As of December 31, 2001 and 2000, preferred stocks are as follows :
Series A preferred stock 2,240,240 shares
Series B preferred stock 336,036
--------------------
2,576,276 shares
====================
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.
Continued;
45
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
17. Capital Stock, Continued;
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.
In 1999, the Company declared a reverse stock split of 1.2873 common
shares to one. The effect of this stock split was to reduce common shares
outstanding by 6,801,860 and to reduce the related common stock par value
by $43,040.
18. Receivable from stockholders :
In July 1997, the Company loaned $100,000 to a shareholder through an
affiliated company to purchase the Company's depository receipts(the
"Shares") issued on July 24, 1997. This loan was recorded as a contra
equity item. In addition, the Company did not recognize interest income
related to this loan.
Beginning in 1999 and continuing through October 2000, the affiliated
company at the request of the Company began selling the Shares. All the
Shares were sold with all the proceeds being returned to the Company
totalling $46,672. Upon completion of the sale of the Shares the loan was
cancelled.
In addition, the Company also made certain non-interest bearing loans to
employees and directors to finance their acquisition of the Company's
stock. Such loans were also recorded as a contra equity item.
There were no such outstanding loans in 2001.
46
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
19. Earnings (Loss) Per Share :
For the years ended December 31, 2001, 2000 and 1999, earnings (loss) per
share (EPS) was calculated as follows :
Year ended December 31, 2001
-----------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) Shares Amount
(Numerator) (Denominator) (in US dollars)
--------------- ------------- ---------------
Basic loss per share $ (162,173)
Less: Preferred stock dividend (111)
-------------
Loss attributable to Common Stock $ (162,284) 111,880,768 $ (1.45)
============= ============= =============
Year ended December 31, 2000
-----------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) Shares Amount
(Numerator) (Denominator) (in US dollars)
--------------- ------------- ---------------
Loss from continuing operations $ (19,703)
Less: Preferred stock dividend (118)
-------------
Loss from continuing operations
attributable to common stock (19,821) 88,838,496 $ (0.22)
============= =============
Add: Income from discontinued
operations 470,344
-------------
Net income attributable to common
stock $ 450,523 88,838,496 $ 5.07
============= ============= =============
Continued;
47
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
19. Earnings (Loss) Per Share, Continued;
Year ended December 31, 2001
----------------------------------------------------------
Weighted Avg. Per Share
Earnings (loss) Shares Amount
(Numerator) (Denominator) (in US dollars)
-------------- -------------- ---------------
Loss from continuing operations $ (169,759)
Less: Preferred stock dividend (133)
--------------
Weighted average number of common shares for
the year before retroactive adjustment to
reflect the reverse stock split 32,320,823
--------------
Effect of retroactive adjustment to
reflect the reverse stock split (3,112,084)
--------------
Loss from continuing operations
attributable to common stock (169,892) 29,208,739 $ (5.82)
============== ==============
Add: Income from discontinued
operations 279,624
--------------
Net income attributable to common
stock 109,732 29,208,739 $ 3.76
============== ============== ==============
The basic earnings per share for discontinued operations was $5.29 and
$9.58 in 2000 and 1999, respectively. Diluted earnings per share for
discontinued operations was $5.29 and $9.58 in 2000 and 1999,
respectively.
Convertible preferred stock were not included in computing diluted
earnings per share nor were debentures convertible into common stock as
followings in 2001, 2000 and 1999, respectively, because their effects
were antidilutive:
Year ended December 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
Convertible preferred stock 324,900 324,900 336,036
Convertible debentures -- 2,155,611 2,899,911
--------- --------- ---------
324,900 2,480,511 3,235,947
========= ========= =========
48
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
20. Commitments and Contingencies :
At December 31, 2001 and 2000, the Company was contingently liable for
guarantees of indebtedness of certain affiliated companies as follows :
2001 2000
------- -------
Anam Electronics (*) $ 8,318 $11,939
Anam Construction 8,499 12,150
Gre-tec -- 8,788
Anam Telecom 4,378 6,539
Acqutek 660 710
------- -------
Total $21,855 $40,126
======= =======
(*) An affiliate through common ownership of the Kim-Family.
As discussed in Note 5, Anam Construction, Anam Electronics and Gre-tec
became insolvent and filed an application for corporate reorganization
under the Korean Corporate Reorganization Act on October 24, 1998, March
18, 1999 and December 13, 2001, 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
Construction's reorganization plan was completed and approved by the court
on March 20, 2000. Gre-tec is preparing its reorganization plan, which is
expected to be finalized in early 2003.
Under the terms of ASI's Workout Program, the guaranteed creditors of Anam
Construction and Anam Electronics may exercise their right to request from
the Company the performance of guarantee obligations only at the time when
the guarantee obligation amount is fixed after the extinction of the
primary debtors' legal entity as a result of bankruptcy or liquidation. In
addition, the payment of the principal of the guarantee obligation was
suspended until December 31, 2003 and interest during such suspension
period will be exempted. In April 2000, the creditors committee approved
that ASI's payment of $125,517 resulted in eliminating all guarantee
obligations provided for Anam Construction and Anam Electronics. With
regard to Anam Construction and Anam Electronics, a liability for loss
contingencies of $16,817 and $22,588, respectively, was recorded at
December 31, 2001 and 2000, for the probable loss that may occur upon
guaranteed creditors' demand for performance of these loan guarantees. The
Company paid $4,603 and $102,929 to creditors of Anam Constructions and
Anam Electronics for guarantee obligations in 2001 and 2000, respectively.
Continued;
49
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
20. Commitments and Contingencies, Continued;
ASI is a defendant in a lawsuit filed by one of above creditors for
alleged performance of guarantee obligations provided for Anam
Construction and Anam Electronics. The suit asks for performance of
guarantee obligations totaling $15,242 and related interest. As described
in preceding paragraph, ASI had recorded a liability for loss contingency
of $13,439 relating to these creditors.
In addition to loss provisions provided for those affiliate guarantees
discussed above, ASI accrued an additional provision of $5,102 and $15,688
at December 31, 2001 and 2000, respectively, related to losses expected on
other guarantees.
At December 31, 2001 and 2000, the Company is contingently liable for
letters of commitment provided in relation to the issuance of $38 million
secured floating rate notes due 2000 by Pacific Elephant Investment (L)
limited ("PEIL") and the issuance of $20 million guaranteed floating rate
notes due 2002 by Pacific Rainbow Investment (L) Limited ("PRIL").
According to terms of the letters of commitment, the Company is required,
subject to any restrictions under Korean Law, to make a capital injection
to PEIL and PRIL if their gross asset value becomes lower than 100% of the
outstanding principal amount of all their respective borrowings. Because
of 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 are suing the Company for damages totaling
$33 million for PEIL and $16 million for PRIL, the Company recorded
liability for loss contingencies of $34,386 at December 31, 2001 and 2000,
for the probable loss that may occur upon settlement of these claims.
Liability for loss contingencies at December 31, 2001 and 2000 are as
follows:
2001 2000
------- -------
Anam Construction and Anam Electronics $16,817 $22,588
Other affiliates 5,102 15,688
Letters of commitment 34,386 34,386
------- -------
$56,305 $72,662
======= =======
50
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
20. Commitments and Contingencies, Continued;
The changes in the liability for loss contingencies are summarized below :
2001 2000
-------- ---------
Beginning balance $ 72,662 $ 129,912
Cash payment (19,338) (102,929)
Guarantee obligation loss 1,447 49,797
Proceeds from sale of investment 1,589 --
Effect of changes in exchange rates (55) (4,118)
-------- ---------
$ 56,305 $ 72,662
======== =========
In 2000, estimated realizable value of investment in Anam Electronics,
carrying value of zero, of $1,501 was offset against 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.
21. Derivative Financial Instruments :
Net unrealized losses in relation to currency and interest swap contracts
approximate $15,364 as of December 31, 1999 (see Note 2). In 2000, all of
the remaining currency and interest swap contracts were settled and the
Company recorded realized gains or losses as foreign currency exchange
gain or loss. There were no such contracts in 2001.
22. 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. Accordingly, these
estimates are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. Certain of these financial
instruments are with major financial institutions and expose the Company
to market and credit risks and may at times be concentrated with certain
counterparties or group of counter-parties. The creditworthiness of
counterparties is continually reviewed, and full performance is
anticipated.
The carrying amount reported in the balance sheet for accounts receivable
from affiliates, other accounts receivable, short-term loans receivable,
and accrued expenses approximate fair value due to the short-term nature
of these instruments. The methods and assumptions used to estimate the
fair value of other significant classes of financial instruments are set
forth below:
Continued;
51
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
22. Fair Value of Financial Instruments, continued;
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 borrowing --
Short-term borrowings have variable rates that reflect currently available
terms and conditions for similar borrowings. The carrying amount of this
debt is a reasonable estimate of fair value.
Long-term debt --
Long-term debt balances have variable rates that reflect currently
available terms and conditions for similar debt. The carrying value of
this debt is a reasonable estimate of fair value.
52
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
23. Other (Income) Expenses :
Other, net included in other (income) expenses consists of the following:
December 31,
--------------------------------------
2001 2000 1999
-------- -------- --------
Rental income $ (1,783) $ (1,565) $ (675)
Shared service fee income -- (3,092) (5,769)
Income from forward contract -- (787) (6,661)
Gain on extinguishment of debt -- (3,637) --
Gain on sale of scrapped material -- -- (1,643)
Write-off of non-trade receivables 3,849 959 3,483
Others (448) (755) (6,007)
-------- -------- --------
$ 1,618 $ (8,877) $(17,272)
======== ======== ========
24. 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, were $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 2001, 2000 and
1999 and the related account balances at December 31, 2001 and 2000 are
summarized as follows:
Transactions between the Company and its affiliated companies --
December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Sales
Amkor $161,649 $499,820 $712,300
Other affiliated companies -- -- 2,428
-------- -------- --------
161,649 499,820 $714,728
======== ======== ========
Purchases
Other affiliated companies $ -- $ -- $ 17,612
======== ======== ========
Continued;
53
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
24. Related Party Transactions, Continued;
Related accounts balances between the Company and its affiliated
companies--
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
========== ========== ==========
December 31, 2000
------------------------------------------
Other affiliated
Amkor companies Total
---------- ---------------- ----------
Trade accounts receivable $ 23,309 $ -- $ 23,309
Other accounts receivable -- 3,203 3,203
Other current assets 2,906 2,533 5,439
Long-term receivables -- 14,800 14,800
---------- ---------- ----------
$ 26,215 $ 20,536 $ 46,751
========== ========== ==========
Other accounts payable $ -- $ 527 $ 527
========== ========== ==========
ASI provided to Amkor transition services relating to supporting functions
including accounting, EDP, personnel and legal. ASI's income from these
transition services in 2001, 2000 and 1999 were $0, $3,092 and $5,769,
respectively.
54
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
25. 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 submircron Complementary Metal Oxide
Semiconductor("CMOS") wafers through its foundry.
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,
------------------------------------
2001 2000 1999
-------- -------- --------
Revenue from external customers:
Packaging $ -- $166,295 $477,862
Wafer 161,700 344,792 264,177
Other -- -- 21,748
-------- -------- --------
Total $161,700 $511,087 $763,787
======== ======== ========
Property, Plant and Equipment:
Wafer $646,298 $793,850
======== ========
Continued;
55
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
25. Segment Information, Continued;
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,
------------------------------------
2001 2000 1999
-------- -------- --------
Revenue from external customers:
United States $161,649 $499,820 $712,300
Republic of Korea and Others 51 11,267 51,487
-------- -------- --------
Total $161,700 $511,087 $763,787
======== ======== ========
Property, Plant, and Equipment
United States $ 33 $ 44
Republic of Korea 646,265 793,806
-------- --------
Total $646,298 $793,850
======== ========
BY MAJOR CUSTOMER Year ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Revenue from external customers:
Amkor $161,649 $499,820 $712,300
Other 51 11,267 51,487
-------- -------- --------
Total $161,700 $511,087 $763,787
======== ======== ========
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.
Continued;
56
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
25. Segment Information, Continued;
Packaging
Wafer and Test
Fabrication (Discontinued) Other Total
-------------- ------ ---------
Year ended December 31, 2001
Net Revenue $ 161,700 $ -- $ -- $ 161,700
Gross Profit (Loss) (100,295) -- -- (100,295)
Operating Income (Loss) (118,268) -- -- (118,268)
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 15,612 42,470 -- 58,082
Depreciation and Amortization 158,520 44,512 -- 203,032
Capital Expenditures 335,829 16,746 -- 352,575
Year ended December 31, 1999
Net Revenue $ 264,177 $477,862 $21,748 $ 763,787
Gross Profit 39,412 156,704 8,138 204,254
Operating Income 27,827 136,002 938 164,767
Depreciation and Amortization 119,447 150,653 1,531 271,631
Continued;
57
ANAM SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Currency - Thousands of U.S. Dollars)
---------------
25. Segment Information, Continued;
Year ended December 31,
-------------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues
Total revenues for reportable segments $ 161,700 $ 511,087 $ 763,787
Elimination of revenues from discontinued
operation -- 166,295 477,862
---------- ---------- ----------
Total consolidated revenue $ 161,700 $ 344,792 $ 285,925
========== ========== ==========
Gross profit
Total gross profit for reportable segments $ (100,295) $ 89,706 $ 204,254
Elimination of gross profit from discontinued
operation -- 48,024 156,704
---------- ---------- ----------
Total consolidated gross profit $ (100,295) $ 41,682 $ 47,550
========== ========== ==========
Operating income
Total operating income for reportable
segments $ (118,268) $ 58,082 $ 164,767
Elimination of operating income from
discontinued operation -- 42,470 142,472
---------- ---------- ----------
Total consolidated operating income $ (118,268) $ 15,612 $ 22,295
========== ========== ==========
26. Subsequent Events
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
comprise Dongbu Corporation, Dongbu Fire Insurance Co., Ltd. and Dongbu Life
Insurance Co., Ltd., all of which are Korean corporation 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 AI common stock at a price of 5700 Korean Won per share, for a
total consideration of 114 billion Korean Won. Following the transactions, Amkor
owned 27.7 million shares (21.9%) of ASI and Dongbu owns 32.0 million shares of
ASI (25.3%). In addition, pursuant to the definitive agreements between Amkor
and Dongbu, (1) Amkor and Dongbu agreed to use reasonable best efforts to cause
Dongbu Electronics and ASI to be merged together as soon as practicable, and (2)
Amkor and Dongbu agreed to cause ASI to use the proceeds ASI received from its
sale of stock to Dongbu to purchase shares in Dongbu Electronics.
Amkor, ASI and Dongbu are in negotiations to terminate Amkor's foundry
agreement with ASI. Under the terms of the foundry agreement, Amkor has
exclusive rights to sell all the output of ASI's foundry until 2008.
58
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 29, 2002
3