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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 19, 2004
AMKOR TECHNOLOGY, INC.
| DELAWARE | 000-29472 | 23-1722724 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1345 ENTERPRISE DRIVE
WEST CHESTER, PA 19380
(Address of Principal Executive Offices, including Zip Code)
(610) 431-9600
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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ITEM 2.01. Completion of Acquisition or Disposition of Assets.
On August 19, 2004, Amkor Technology, Inc., a Delaware corporation (“Amkor”), acquired approximately 93.0% of the capital stock of Unitive, Inc., a Delaware corporation (“Unitive”), and on August 20, 2004, Amkor acquired approximately 60.0% of the capital stock of Unitive Semiconductor Taiwan Corporation (“UST”).
Amkor acquired the capital stock of Unitive pursuant to a Stock Purchase Agreement dated as of July 19, 2004 (the “Unitive Agreement”), by and among Amkor, Unitive, certain former stockholders of Unitive, certain former holders of options to purchase capital stock of Unitive, Onex American Holdings II LLC, David Rizzo, Thomas Egolf, Kenneth Donahue and U.S. Bank National Association. The consideration payable under the Unitive Agreement consists of a cash payment of approximately $12.3 million at closing, the assumption of approximately $5.7 million of debt at closing, an additional $15.5 million on the one-year anniversary of closing (payable in cash or in Amkor common stock at Amkor’s option) and a contingent payment of up to $55 million (payable in cash or in Amkor common stock at Amkor’s option) to be paid, if at all, upon the achievement of certain performance goals described in the Unitive Agreement. Unitive is a leading independent developer of electroplated wafer bumping technology and earlier this year announced the industry’s first electroplated lead-free wafer bumping process.
Amkor acquired the capital stock of UST pursuant to a Stock Purchase Agreement dated as of June 3, 2004 (the “UST Agreement”), by and among Amkor, UST, and certain stockholders of UST, as amended by a letter agreement dated July 9, 2004. The consideration payable under the UST transaction consists of a cash payment of approximately $19.4 million at closing (excluding an additional $0.7 million due in 2006), the assumption of approximately $19.2 million of debt at closing, the payment of approximately $450,000 in other costs and a variable contingent cash payment to be paid, if at all, based on the achievement of certain performance goals described in the UST Agreement, which payment is currently estimated to be approximately $2 million. In addition, Amkor has a call option to acquire the remaining approximate 40.0% of UST at any time over the next 18 months. Amkor is required to exercise the call option if UST achieves certain goals within such 18-month period. The exercise price of this option, which is currently estimated to be approximately $18.0 million, is based on a formula taking into account, among other things, the performance of UST. UST is a provider of electroplated wafer bumping services.
The terms of the acquisitions are more fully described in the Unitive Agreement and UST Agreement, as amended.
ITEM 9.01. Financial Statements and Exhibits.
On September 3, 2004, Amkor filed a Current Report on Form 8-K dated August 19, 2004 with respect to the acquisition of capital stock of Unitive and UST without the financial statements and pro forma financial information required by Rules 3-05, 11-01 and 11-02 of Regulation S-X. This amendment provides this information.
(a) Financial Statements of Businesses Acquired
Attached as Exhibit 99.2 are the audited consolidated balance sheet of Unitive as of December 31, 2003 and the related consolidated statements of operations, convertible preferred stock and stockholders’ equity and cash flows for the year then ended. Attached as Exhibit 99.3 are the audited balance sheet of UST as of December 31, 2003 and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended. Attached as Exhibit 99.4 are the unaudited condensed consolidated balance sheet of Unitive as of June 30, 2004 and the unaudited condensed consolidated statements of operations and cash flows for the six months ended June 30, 2004 and 2003. Attached as Exhibit 99.5 are the unaudited balance sheet of UST as of June 30, 2004 and 2003 and the unaudited statements of operations, changes in stockholders’ equity and cash flows for the six months ended June 30, 2004 and 2003.
(b) Pro Forma Financial Information
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Attached as Exhibit 99.6 are the Amkor Technology, Inc. unaudited pro forma combined condensed balance sheet as of June 30, 2004 and the related pro forma combined condensed statements of income for the year ended December 31, 2003 and the six months ended June 30, 2004. These pro forma statements give effect to Amkor’s acquisitions of Unitive and UST as if they had occurred at the beginning of each period presented.
(c) Exhibits
| 2.1 | Stock Purchase Agreement, dated as of July 19, 2004, by and among Amkor Technology, Inc., Unitive, Inc., Certain of the Stockholders of Unitive, Inc., Certain Option Holders of Unitive, Inc., Onex American Holdings II LLC as the Onex Stockholder Representative, David Rizzo as the MCNC Stockholder Representative, Thomas Egolf as the TAT Stockholder Representative, Kenneth Donahue as the Additional Indemnifying Stockholder Representative, and, with respect to Article VIII and Article X thereof only, U.S. Bank National Association. (1) | |||
| 2.2 | Stock Purchase Agreement, dated as of June 3, 2004, by and among Amkor Technology, Inc., Unitive Semiconductor Taiwan Corporation and Certain Shareholders of Unitive Semiconductor Taiwan Corporation, along with Letter Agreement dated July 9, 2004 regarding Amendment to Stock Purchase Agreement and Loan Agreement by and among Amkor Technology, Inc., Unitive Semiconductor Taiwan Corporation and Sellers’ Representative on Behalf of each Seller. (1) | |||
| 99.1 | Press Release issued by Amkor Technology, Inc. on August 24, 2004. (1) | |||
| 99.2 | Audited consolidated balance sheet of Unitive, Inc. as of December 31, 2003 and the related consolidated statements of operations, convertible preferred stock and stockholders’ equity and cash flows for the year then ended. (2) | |||
| 99.3 | Audited balance sheet of Unitive Semiconductor Taiwan Corporation as of December 31, 2003 and the related statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. (2) | |||
| 99.4 | Unaudited condensed consolidated balance sheet of Unitive, Inc. as of June 30, 2004 and the unaudited condensed consolidated statements of operations and cash flows for the six months ended June 30, 2004 and 2003. (2) | |||
| 99.5 | Unaudited balance sheet of Unitive Semiconductor Taiwan Corporation as of June 30, 2004 and 2003 and the unaudited statements of operations, changes in stockholders’ equity and cash flows for the six months ended June 30, 2004 and 2003. (2) | |||
| 99.6 | Amkor Technology, Inc. unaudited pro forma combined condensed balance sheet as of June 30, 2004 and the related pro forma combined condensed statements of income for the year ended December 31, 2003 and the six months ended June 30, 2004, which include the acquisitions of Unitive, Inc. and Unitive Semiconductor Taiwan Corporation. (2) | |||
| 23.1 | Consent of Ernst and Young LLP with respect to Unitive, Inc. (2) | |||
| 23.2 | Consent of KPMG Certified Public Accountants with respect to Unitive Semiconductor Taiwan Corporation. (2) | |||
| (1) | Previously filed as an Exhibit to the original report on Form 8-K filed with the Commission on September 3, 2004 and incorporated herein by reference. | |||
| (2) | Filed herewith. | |||
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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 |
Date: October 29, 2004
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EXHIBIT INDEX
| Exhibit No. |
Description |
|
99.2
|
Audited consolidated balance sheet of Unitive, Inc. as of December 31, 2003 and the related statements of operations, convertible preferred stock and stockholders’ equity and cash flows for the year then ended. | |
99.3
|
Audited balance sheet of Unitive Semiconductor Taiwan Corporation as of December 31, 2003 and the related statements of operations, stockholders’ equity and cash flows for the year then ended. | |
99.4
|
Unaudited condensed consolidated balance sheet of Unitive, Inc. as of June 30, 2004 and the unaudited condensed consolidated statements of operations and cash flows for the six months ended June 30, 2004 and 2003. | |
99.5
|
Unaudited balance sheet of Unitive Semiconductor Taiwan Corporation as of June 30, 2004 and 2003, and the unaudited statements of operations, changes in stockholders’ equity, and cash flows for the six months ended June 30, 2004 and 2003. | |
99.6
|
Amkor Technology, Inc. unaudited pro forma combined condensed balance sheet as of June 30, 2004, and the related pro forma combined condensed statements of income for the year ended December 31, 2003 and the six months ended June 30, 2004, which include the acquisitions of Unitive, Inc. and Unitive Semiconductor Taiwan Corporation. | |
23.1
|
Consent of Ernst and Young LLP with respect to Unitive, Inc. | |
23.2
|
Consent of KPMG Certified Public Accountants with respect to Unitive Semiconductor Taiwan Corporation. |
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EXHIBIT 99.2 CONSOLIDATED FINANCIAL STATEMENTS Unitive, Inc. Year ended December 31, 2003 with Report of Independent Auditors
. . . Unitive, Inc. Audited Consolidated Financial Statements Year ended December 31, 2003 CONTENTS Report of Independent Auditors............................................................. 1 Audited Consolidated Financial Statements Consolidated Balance Sheet................................................................. 2 Consolidated Statement of Operations....................................................... 4 Consolidated Statement of Convertible Preferred Stock and Stockholders' Equity............. 5 Consolidated Statement of Cash Flows....................................................... 6 Notes to Consolidated Financial Statements................................................. 7
Report of Independent Auditors Board of Directors Unitive, Inc. We have audited the accompanying consolidated balance sheet of Unitive, Inc. (the "Company") as of December 31, 2003 and the related consolidated statements of operations, convertible preferred stock and stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unitive, Inc. at December 31, 2003 and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst and Young LLP Raleigh, North Carolina February 20, 2004 1
Unitive, Inc. Consolidated Balance Sheet December 31, 2003 ASSETS Current assets: Cash and cash equivalents $ 8,933,830 Accounts receivable, less allowance for doubtful accounts of $74,233 1,583,248 Inventory 277,680 Prepaid expenses and other assets 13,713 ------------- Total current assets 10,808,471 Equipment and furniture: Equipment 16,905,874 Leasehold improvements 267,840 Furniture and fixtures 101,275 ------------- 17,274,989 Less accumulated depreciation and amortization (10,053,247) ------------- 7,221,742 Other assets: Restricted cash 125,000 Intellectual property rights, net of accumulated amortization of $2,284,383 5,598,053 Investment in Unitive Semiconductor Taiwan Corporation 189,571 Deposits 122,074 ------------- 6,034,698 ------------- Total assets $ 24,064,911 ============= 2
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,759,044 Payables to related party 24,972 Accrued expenses 403,322 Deferred revenue 32,303 Capital lease obligations, current portion, net of warrant debt discount 1,544,938 Current portion of long-term debt 1,134,763 Current portion of notes payable to stockholders 446,324 ------------- Total current liabilities 5,345,666 Capital lease obligations, less current portion, net of warrant debt discount 593,788 Long-term debt, net of current portion 2,686,359 Notes payable to stockholders, net of current portion 493,676 ------------- Total liabilities 9,119,489 Commitments (Notes 3, 4, 5, 8 and 9) Convertible preferred stock and stockholders' equity: Series A-1 convertible preferred stock, $0.01 par value; authorized shares 37,408,837; issued and outstanding shares 24,874,830; aggregate liquidation preference of $24,874,830 248,748 Series A-2 convertible preferred stock, $0.01 par value; authorized shares 20,601,163; issued and outstanding shares 8,101,163; aggregate liquidation preference of $8,101,163 81,012 Series A-3 convertible preferred stock, $0.01 par value; authorized shares 25,600,201; zero shares issued and outstanding - Series A-1, Series A-2, Series A-3 convertible preferred stock warrants 6,373,959 Common stock, $0.01 par value; authorized shares 250,000,000; issued and outstanding shares 60,745,283 607,452 Additional paid-in capital 73,511,253 Common stock warrants 320,200 Stockholders' notes receivable (420,000) Accumulated deficit (65,777,202) ------------- Total convertible preferred stock and stockholders' equity 14,945,422 ------------- Total liabilities, convertible preferred stock and stockholders' equity $ 24,064,911 ============= See accompanying notes. 3
Unitive, Inc. Consolidated Statement of Operations Year ended December 31, 2003 Revenues $ 9,230,908 Cost of revenues 11,412,375 ------------ (2,181,467) Expenses: Sales and marketing 560,675 Research and development 1,763,157 General and administrative 1,920,444 ------------ Total expenses 4,244,276 ------------ Operating loss (6,425,743) Other income (expense): Interest income 45,160 Interest expense (618,524) Other expense (892,856) Loss in equity investee (1,621,769) ------------ Net loss $ (9,513,732) ============ See accompanying notes. 4
Unitive, Inc. Consolidated Statement of Convertible Preferred Stock and Stockholders' Equity Year ended December 31, 2003 REDEEMABLE CONVERTIBLE PREFERRED STOCK --------------------------------------------------------------------------- SERIES C-1 SERIES C-2 SERIES C-1 SHARES AMOUNT SHARES AMOUNT WARRANTS --------------------------------------------------------------------------- Balance at December 31, 2002 12,000,000 10,647,083 17,000,200 18,805,174 4,260,000 Accretion of redeemable preferred stock for dividend - 729,534 - 1,033,519 - Accretion of redeemable preferred stock for warrant value - 739,956 - - - Accretion of redeemable preferred stock for issuance costs - 94,620 - 134,047 - Conversion of preferred stock into common stock (12,000,000) (12,211,193) (17,000,200) (19,972,740) - Issuance of convertible preferred stock, net of issuance costs - - - - - Issuance of warrants to existing shareholders - - - - - Issuance of warrants in exchange for termination of existing Series C-1 warrants and management agreement - - - - (4,260,000) Issuance of warrants in connection with long-term debt - - - - - Issuance of warrants in connection with capital lease financing agreement - - - - - Settlement of stockholder note receivable - - - - - Exercise of stock options for cash - - - - - Compensation expense on variable stock option awards - - - - - Net loss - - - - - --------------------------------------------------------------------------- Balance at December 31, 2003 - $ - - $ - $ - =========================================================================== CONVERTIBLE PREFERRED STOCK ---------------------------------------------------------------------------- SERIES A SERIES B SERIES A-1 SHARES PAR SHARES PAR SHARES PAR ---------------------------------------------------------------------------- Balance at December 31, 2002 1,724,622 17,246 28,525,819 285,258 - - Accretion of redeemable preferred stock for dividend - - - - - - Accretion of redeemable preferred stock for warrant value - - - - - - Accretion of redeemable preferred stock for issuance costs - - - - - - Conversion of preferred stock into common stock (1,724,622) (17,246) (28,525,819) (285,258) - - Issuance of convertible preferred stock, net of issuance costs - - - - 24,874,830 248,748 Issuance of warrants to existing shareholders - - - - - - Issuance of warrants in exchange for termination of existing Series C-1 warrants and management agreement - - - - - - Issuance of warrants in connection with long-term debt - - - - - - Issuance of warrants in connection with capital lease financing agreement - - - - - - Settlement of stockholder note receivable - - - - - - Exercise of stock options for cash - - - - - - Compensation expense on variable stock option awards - - - - - - Net loss - - - - - - ---------------------------------------------------------------------------- Balance at December 31, 2003 - $ - - $ - 24,874,830 $ 248,748 ============================================================================ CONVERTIBLE PREFERRED STOCK ------------------------------------ ADDITIONAL SERIES A-2 SERIES A COMMON STOCK PAID-IN SHARES PAR WARRANTS SHARES PAR CAPITAL ---------------------------------------------------------------------------- Balance at December 31, 2002 - - - 1,576,867 15,769 32,792,438 Accretion of redeemable preferred stock for dividend - - - - - - Accretion of redeemable preferred stock for warrant value - - - - - - Accretion of redeemable preferred stock for issuance costs - - - - - - Conversion of preferred stock into common stock - - - 59,250,641 592,506 31,893,931 Issuance of convertible preferred stock, net of issuance costs 8,101,163 81,012 - - - 6,150,756 Issuance of warrants to existing shareholders - - 3,864,634 - - - Issuance of warrants in exchange for termination of existing Series C-1 warrants and management agreement - - 2,375,000 - - 2,777,856 Issuance of warrants in connection with long-term debt - - 54,525 - - - Issuance of warrants in connection with capital lease financing agreement - - 79,800 - - - Settlement of stockholder note receivable - - - (100,000) (1,000) (4,000) Exercise of stock options for cash - - - 17,775 177 1,877 Compensation expense on variable stock option awards - - - - - (101,605) Net loss - - - - - - ---------------------------------------------------------------------------- Balance at December 31, 2003 8,101,163 $ 81,012 $ 6,373,959 60,745,283 $ 607,452 $ 73,511,253 ============================================================================ COMMON STOCKHOLDERS' STOCK NOTES ACCUMULATED WARRANTS RECEIVABLE DEFICIT TOTAL ----------------------------------------------------------- Balance at December 31, 2002 320,200 (520,000) (49,667,160) 16,956,008 Accretion of redeemable preferred stock for dividend - - (1,763,053) - Accretion of redeemable preferred stock for warrant value - - (739,956) - Accretion of redeemable preferred stock for issuance costs - - (228,667) - Conversion of preferred stock into common stock - - - - Issuance of convertible preferred stock, net of issuance costs - - - 6,480,516 Issuance of warrants to existing shareholders - - (3,864,634) - Issuance of warrants in exchange for termination of existing Series C-1 warrants and management agreement - - - 892,856 Issuance of warrants in connection with long-term debt - - - 54,525 Issuance of warrants in connection with capital lease financing agreement - - - 79,800 Settlement of stockholder note receivable - 100,000 - 95,000 Exercise of stock options for cash - - - 2,054 Compensation expense on variable stock option awards - - - (101,605) Net loss - - (9,513,732) (9,513,732) ----------------------------------------------------------- Balance at December 31, 2003 $ 320,200 $ (420,000) $(65,777,202) $ 14,945,422 =========================================================== See accompanying notes. 5
Unitive, Inc. Consolidated Statement of Cash Flows Year ended December 31, 2003 OPERATING ACTIVITIES Net loss $ (9,513,732) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,162,072 Reversal of compensation expense on variable stock option awards (101,605) Non-cash compensation 75,000 Amortization of debt discount 76,623 Equity in losses of equity investee 1,621,768 Loss on termination of management agreement 892,856 Loss on disposal of equipment and furniture 10,253 Accretion of terminal payment on long-term debt 3,055 Changes in operating assets and liabilities: Accounts receivable (901,527) Inventory (48,396) Prepaid expenses and other assets 23,633 Accounts payable and payables to related party 1,704,751 Accrued expenses and other current liabilities 19,063 Deposits (100,431) ------------- Net cash used in operating activities (3,076,617) INVESTING ACTIVITIES Purchases of equipment and furniture (2,973,782) Increase in restricted cash (125,000) ------------- Net cash used in investing activities (3,098,782) FINANCING ACTIVITIES Payments on capital lease obligations (1,847,675) Proceeds from issuance of long-term debt and preferred stock warrants 3,872,342 Proceeds from issuance of preferred stock, net of issuance costs 6,480,516 Proceeds from exercise of stock options 2,054 Payments received on stockholders' notes receivable 20,000 ------------- Net cash provided by financing activities 8,527,237 ------------- Net increase in cash and cash equivalents 2,351,838 Cash and cash equivalents at beginning of year 6,581,992 ------------- Cash and cash equivalents at end of year $ 8,933,830 ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for interest $ 541,901 ============= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Issuance of preferred stock warrants to existing stockholders $ 3,864,634 ============= Accretion of redeemable convertible preferred stock and warrants $ 2,731,676 ============= Issuance of preferred stock warrants as consideration for termination of management agreement and cancellation of Series C-1 preferred stock warrants $ 2,375,000 ============= Issuance of preferred stock warrants in connection with issuance of long-term debt $ 54,525 ============= Issuance of preferred stock warrants in connection with financing arrangements $ 79,800 ============= See accompanying notes. 6
Unitive, Inc. Notes to Consolidated Financial Statements December 31, 2003 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS DESCRIPTION On January 30, 2001, Unitive Electronics, Inc. ("UEI") and Unitive International, Ltd. ("UIL") became the wholly-owned subsidiaries of Unitive, Inc. (the "Company"), a Delaware corporation, through a share exchange. The Company, located in Research Triangle Park, North Carolina, is a provider of advanced semiconductor packaging solutions offering wafer-level and turn-key die-level processing, engineering, and design services to electronics manufacturers. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Actual results could differ from those estimates. REVENUE RECOGNITION The Company derives revenues from services provided in connection with the processing and packaging of its customers' semiconductor products. The Company recognizes revenue when a purchase order has been executed, the price is fixed and determinable, delivery of services has occurred and the products have been shipped, and collection of the purchase order price is considered probable and can be reasonably estimated. 7
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SALES AND CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk consist principally of trade accounts receivable, which are unsecured, and cash and cash equivalents. Sales are made primarily to large companies located throughout the United States. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable. Receivable allowances totaled $74,233 at December 31, 2003. Three major customers accounted for approximately 47% of sales in during the year ended December 31, 2003 and 66% of accounts receivable at December 31, 2003. The Company maintains cash balances at financial institutions that may at times exceed federally insured limits. The Company maintains this cash at high credit quality institutions and, as a result, believes credit risk related to its cash is minimal. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, capital lease obligations, notes payable to stockholders, and long-term debt. In management's opinion, the carrying amounts of these financial instruments approximate their fair values at December 31, 2003. INVENTORY Inventories are carried at the lower of cost or market using the first-in, first-out ("FIFO") method. Inventory consists primarily of raw materials. RESEARCH AND DEVELOPMENT Research and development expenses are charged to operations as incurred. Research and development expenses include direct costs and allocated salaries, employee benefits and applicable indirect costs. 8
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EQUIPMENT AND FURNITURE Equipment and furniture is stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the respective assets. Depreciation expense for the year ended December 31, 2003 totaled $2,635,629. Expenditures for maintenance and repairs are charged to operations; major expenditures for renewals and betterments are capitalized and depreciated. Estimated useful lives are as follows: Equipment 3 to 5 years Leasehold improvements 3 years Furniture and fixtures 5 years INTELLECTUAL PROPERTY RIGHTS Intellectual property rights are capitalized and amortized over the estimated useful life of the licensed technologies. Amortization is calculated based upon the number of units produced during the year as a percentage of the total number of units expected to be produced using the licensed technology. The Company recorded amortization expense of $526,443 related to its intellectual property rights for the year ended December 31, 2003. Additionally, certain intellectual property rights are amortized based upon annual revenue recognized to total expected revenue related to the intellectual property. In 2003, the Company did not record amortization related to $1,071,125 of its intellectual property as no related revenue was recognized. RESTRICTED CASH During 2003, the Company entered into a new lease for its corporate office and certain operations, which required the issuance of an irrevocable, unconditional, standby letter of credit for $125,000. The restricted cash balance as of December 31, 2003 includes a $125,000 certificate of deposit that secures this letter of credit. At the option of the Company, the letter of credit may be reduced by 20% on each anniversary of the lease agreement. 9
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. STOCK-BASED COMPENSATION The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which gives companies the option to adopt the fair value method for expense recognition of employee stock options and other stock-based awards or to account for such items using the intrinsic value method as outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") with pro forma disclosures of net income (loss) as if the fair value method had been applied. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"). SFAS No. 148 amends SFAS No. 123, to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to apply the provisions of APB 25 for stock option and other stock-based awards. The following table illustrates the effect on net loss for the year ended December 31, 2003 had the Company applied the fair value recognition provisions of SFAS 123 for its option grants to employees: Net loss, as reported $ (9,513,732) Reversal of stock-based compensation expense (101,605) Deduct total stock-based employee compensation expense determined under the fair value based method for all awards (74,106) ------------- Pro forma loss $ (9,689,443) ============= 10
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION (CONTINUED) The Company computes fair value for employee stock options using the minimum value option-pricing model. The assumptions used in this model to estimate fair value and the resulting values are as follows for the year ended December 31, 2003. Expected dividend yield - Risk-free interest rate 3.3% Expected life (in years) 4 INVESTMENT IN UNITIVE SEMICONDUCTOR TAIWAN CORPORATION The Company's investment in Unitive Semiconductor Taiwan Corporation ("USTC") is accounted for using the equity method, as prescribed by APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18") since the Company is able to exert influence through its collaborative services agreement and representation on the USTC board of directors. The Company's ownership percentage at December 31, 2003 was approximately 18.4%. USTC provides semiconductor processing services in Taiwan. The Company recorded a loss of $1,621,769 as of December 31, 2003, in accordance with the requirements of APB 18 for its share of the losses incurred by USTC. There were no additional equity investments during 2003 and the Company does not have any requirements to fund future obligations of USTC. INCOME TAXES The Company accounts for income taxes in accordance with SFAS 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 11
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 2. ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 2003: Accrued compensation and benefits $ 127,837 Accrued property taxes 104,418 Accrued legal and professional fees 55,000 Other accrued expenses 116,067 --------- Accrued expenses $ 403,322 ========= 3. NOTES PAYABLE TO STOCKHOLDERS In October 2002, the Company executed a promissory note for $440,000 with a stockholder in lieu of paying facility rent. The note was unsecured and accrued interest at a rate of 7.5% annually. The outstanding principal balance at December 31, 2002 was $245,207. During November 2003, the Company negotiated a new promissory note with this stockholder for $440,000 in exchange for the outstanding balance of the previous promissory note of $276,530, which included accrued interest of $31,323, and as consideration for $163,470 of unpaid rent. The promissory note is unsecured and bears interest at the rate of 7.5% annually. Principal payments totaling $208,913 and $231,087 are due during the years ended December 31, 2004 and 2005, respectively. In October 2002, the Company executed a promissory note for $462,000 with another stockholder in lieu of paying certain management expenses. The note was unsecured and accrued interest at a rate of 7.5% annually. The outstanding principal at December 31, 2002 was $220,000. During November 2003, the Company negotiated a new promissory note for $500,000 in exchange for the outstanding balance of the previous promissory note of $240,213, which included accrued interest of $20,213, and as consideration for outstanding payables of $259,787 related to management expenses. The promissory note is unsecured and bears interest at the rate of 7.5% annually. Principal payments totaling $237,411 and $262,589 are due during the years ended December 31, 2004 and 2005, respectively. 12
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 4. LONG-TERM DEBT In November 2003, the Company entered into a loan and security agreement (the "Loan Agreement") with two lenders that provides up to $6,000,000 of financing. Borrowings under the Loan Agreement will be evidenced by promissory notes that bear interest at a rate equal to the interest rate of the three-year treasury note at the time of funding, plus 740 basis points. The Company may prepay the outstanding balance of the promissory notes in whole by giving thirty days written notice to the lenders. However, the Company will be required to pay a premium of 5%, 3%, or 1% if any of the borrowings are prepaid during the first twelve, twenty-four, or thirty-six month period, respectively. The obligations under the Loan Agreement are secured by substantially all of the assets of the Company. The terms of the Loan Agreement permit the Company to incur additional indebtedness of up to $1,000,000, provided that such indebtedness is used for the financing of capital expenditures and may be secured with only the equipment purchased. As of December 31, 2003, the Company had issued promissory notes totaling $4,000,000 to the two lenders. The actual proceeds remitted to the Company were $3,872,342, which excluded the first month's principal and interest payments. The weighted average interest rate of the promissory notes issued during 2003 was approximately 9.8%. The terms of the loan agreement require that the Company make a terminal payment equal to 5.5% of the original principal amount of the promissory notes on the maturity date. This terminal payment is in addition to the repayment of the full principal amount of the notes. The Company is accruing the terminal payment amount related to the outstanding notes with a corresponding charge to interest expense over the term of the promissory notes. In connection with the Loan Agreement, the Company issued 300,000 warrants to purchase Series A-1 preferred stock at an exercise price of $0.20 per share to the two lenders. The warrants expire in 2013. The Company recorded the 300,000 warrants at their estimated fair value of $54,525 as a discount on the debt, which is being amortized to interest expense over the term of the promissory notes. The Company determined the fair value of the warrants using the Black-Scholes valuation model. 13
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 4. LONG-TERM DEBT (CONTINUED) The borrowings under the promissory notes outstanding as of December 31, 2003 are payable in full by December 31, 2006. Future minimum principal payments as of December 31, 2003 are as follows: 2004 $ 1,152,938 2005 1,323,738 2006 1,615,666 ------------ Total minimum principal payments 4,092,342 ------------ Less unamortized debt discount (54,275) Less unamortized terminal payments (216,945) Less current portion (1,134,763) ------------ Long-term portion $ 2,686,359 ============ 5. LEASE COMMITMENTS The Company leases manufacturing equipment and a telephone system with an aggregate cost of approximately $6,162,500 at December 31, 2003, under capital lease arrangements which expire at various dates through 2005. Certain leases contain renewal provisions and escalation clauses. Amortization of assets under capital leases is included in depreciation and amortization expense. Future minimum lease payments, by year and in the aggregate, under capital leases with initial terms of one year or more at December 31, 2003 are as follows: CAPITAL LEASES ------------ 2004 $ 1,801,696 2005 615,422 ------------ Total minimum lease payments 2,417,118 Less amount representing interest (237,785) ------------ Present value of net minimum lease payments 2,179,333 Less unamortized debt discount (40,607) Less current portion (1,544,938) ------------ Long-term portion $ 593,788 ============ 14
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 5. LEASE COMMITMENTS (CONTINUED) The Company leases facilities under operating leases. Certain of these leases contain renewal provisions and escalation clauses. The Company expenses leases containing fixed rental increases ratably over the term of the respective leases. Rent expense was approximately $1,135,600 for the year ended December of 2003. Future minimum lease payments under various operating leases, which had initial terms in excess of one year, at December 31, 2003, are as follows: OPERATING LEASES ---------------- 2004 $ 1,166,905 2005 1,214,055 2006 1,260,940 2007 714,745 2008 and thereafter 143,758 ------------- Total minimum lease payments $ 4,500,403 ============= 15
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES The components of loss before taxes for the year ended December 31, 2003 are as follows: Loss before tax: U.S. (7,891,963) Non-U.S. (1,621,769) ------------ Total $ (9,513,732) ============ The Company has no current provision for income taxes. Due to the history of losses by the Company, management has determined that a valuation allowance is needed to reduce net deferred tax assets to zero. Components of the Company's deferred tax assets and liabilities are as follows at December 31, 2003. Current deferred tax assets (liabilities): Allowance for bad debts $ 29,000 ------------- Current deferred tax assets (liabilities) 29,000 Non-current deferred tax assets (liabilities): Equity investments - Intellectual property rights (329,000) Fixed assets (915,000) Net operating loss carryforwards 18,023,000 Other 27,000 ------------- Non-current deferred tax assets (liabilities) 16,806,000 ------------- Less valuation allowance (16,835,000) ------------- Net deferred taxes $ - ============= A reconciliation between the statuatory rate and the Company's effective tax rate for the year-ended December 31, 2003 is as follows: AMOUNT PERCENTAGE -------------------------------------- Net loss at statuatory rate $ (3,330,000) (35)% Equity loss of investee, state taxes and other 687,000 8 Increase in valuation allowance 2,643,000 27 -------------------------------------- $ - -% ====================================== 16
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (CONTINUED) At December 31, 2003, the Company had U.S. federal net operating loss carryforwards and state net economic loss carryforwards of approximately $45,000,000, for income tax purposes. If not used, these carryforwards begin to expire in 2018 for federal tax purposes and 2013 for state tax purposes. The Company also has approximately $30,000 of research and development credit carryovers as of December 31, 2003 that begin to expire in 2013. U.S. tax rules impose limitations on the use of net operating losses following certain changes in ownership. If such changes occur, the limitation could adversely impact the ultimate utilization of existing net operating losses and tax credit carryovers to offset future income. 7. RELATED PARTY TRANSACTIONS During 2003, the Company entered into several transactions with one of its stockholders. These transactions involved leasing certain facilities from the stockholder and contracts for certain services to be provided by the stockholder to the Company. Additionally, the transactions included certain utility costs, clean room costs and other related expenses. Below are the approximate amounts related to these transactions for the year ended December 31, 2003. Rent expense $ 1,000,000 Research and development costs 119,000 Utilities and other expenses 165,000 Clean room and other related expenses 419,000 Interest on note payable (Note 2) 30,000 At December 31, 2003, the Company owed the stockholder approximately $51,000, related to these activities. These amounts are included in accounts payable and accrued expenses. The Company also owes this stockholder amounts under a note payable agreement (See Note 3). In addition, the Company had revenues from this stockholder of approximately $10,000 for the year ended December 31, 2003. The Company had accounts receivable of approximately $170,000 due from USTC as of December 31, 2003, which have been reflected within accounts receivable in the accompanying balance sheet. The Company owed USTC $24,972 in connection with amounts collected on behalf of USTC but not remitted as of December 31, 2003. These balances have been reflected within payables to related party in the accompanying balance sheet. 17
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 7. RELATED PARTY TRANSACTIONS (CONTINUED) STOCKHOLDERS' NOTES RECEIVABLE In consideration for the issuance of the Company's Series B preferred stock, various key employees executed promissory notes in January 2001, in the principal amount of $520,000. The notes bear interest at the rate of 6.5% per annum and are due and payable five years from the date of issuance. The notes are full recourse, and in addition, each of the individuals has pledged the Series B preferred stock as collateral to secure the obligations under the notes. A promissory note, with an outstanding balance of $100,000, was settled during 2003 in connection with the severance agreement entered into between the Company and a terminated employee. As discussed in Note 8, in connection with the sale of Series A-1 and Series A-2 preferred stock in November 2003, the outstanding shares of Series B preferred stock converted to common stock. 8. STOCKHOLDERS' EQUITY In November 2003, the Company issued 24,874,830 shares of Series A-1 preferred stock and 8,101,163 shares of Series A-2 preferred stock at $0.20 per share resulting in aggregate gross proceeds of $6,595,199. The excess of the net proceeds over the par value of the Series A-1 and Series A-2 preferred stock of $4,639,709 and $1,511,047, respectively, was recorded within additional paid-in capital. The Company incurred $114,683 of issuance costs in connection with the sale of preferred stock, which was recorded as a reduction of the proceeds. Upon the issuance of the Series A-1 and Series A-2 preferred stock, all of the outstanding shares of Series C-1, Series C-2, Series A, and Series B preferred stock converted into shares of common stock on a one-for-one basis. The holders of the Series C-1 and Series C-2 preferred stock forfeited all of the accrued dividends as of the date of conversion. As of December 31, 2003, the Company has total authorized common shares of 250,000,000. The Company also has total authorized preferred shares of 83,610,201 of which 37,408,837 shares are designated as Series A-1 preferred stock; 20,601,163 shares are designated as Series A-2 preferred stock; and 25,600,201 shares are designated as Series A-3 preferred stock (together with the Series A-1 and Series A-2 preferred stock, the "new Series A preferred stock"). There were no shares of Series A-3 preferred stock outstanding at December 31, 2003. CONVERTIBLE PREFERRED STOCK Dividends - Holders of the new Series A preferred stock are entitled to receive, out of the assets of the Company legally available, dividends when, as and if declared by the board of directors of the Company. No dividends shall be declared and paid on any class of the new Series A preferred stock or common stock unless an equivalent dividend is paid each class of the new Series A preferred stock. 18
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) CONVERTIBLE PREFERRED STOCK (CONTINUED) Liquidation - Upon any liquidation, dissolution, or winding up of the Company, holders of the Series A-1 and Series A-2 preferred stock shall be entitled, before any distribution is made upon the Series A-3 preferred stock and the common stock, to be paid an amount equal to $1.00 per share (as adjusted for any combination, consolidation, stock distributions or stock dividends with respect to such shares) plus all, or any, accrued but unpaid dividends on such shares. If the assets to be distributed are insufficient to permit full payment to the holders of the new Series A preferred stock, then the assets of the Company shall be distributed ratably among the holders of Series A-1 and Series A-2 preferred stock based upon the number of shares then held. After payment to the holders of Series A-1 and Series A-2 preferred stock, holders of the Series A-3 preferred stock shall be entitled, before any distribution is made upon the common stock, to be paid an amount equal to $1.00 per share (as adjusted for any combination, consolidation, stock distributions or stock dividends with respect to such shares) plus all, or any, declared but unpaid dividends on such shares. If the assets to be distributed are insufficient to permit full payment to the holders of Series A-3 preferred stock, then the assets of the Company shall be distributed ratably among the holders of Series A-3 preferred stock based upon the number of shares then held. After payment to the preferred stockholders, holders of common stock shall be entitled, together with the holders of preferred stock, to share ratably according to the number of shares of common stock held, in all remaining assets of the Company available for distribution. Right of First Refusal - Each holder of preferred stock shall have the right of first refusal to purchase up to its pro rata share of all new securities (except as outlined in the stock purchase agreements) which the Corporation may propose to sell or issue. The Company's obligation under this provision may be waived upon the vote of a majority of the holders of the new Series A preferred stock. This right expires upon the closing of a qualified public offering. Voting - Each holder of Series A-1 and Series A-3 preferred stock is entitled to the number of votes equal to the number of shares of common stock into which the respective shares are convertible. Until such time as the original holders of the Series A-2 preferred stock no longer hold at least 50% of the shares of Series A-2 preferred stock issued in November 2003, each holder of Series A-2 preferred stock is entitled to the number of votes equal to twelve times the number of shares of common stock into which the Series A-2 preferred stock is convertible. However, in connection with any vote or action by consent related to a) the merger with, or sale of substantially all of the Company's assets, to a holder of the Series A-2 preferred stock or its' 19
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) CONVERTIBLE PREFERRED STOCK (CONTINUED) subsidiary or affiliate or b) the waiver of the right of first refusal provision by a majority vote of the holders of the new Series A preferred stock, the holders of the Series A-2 preferred stock will be entitled to the number of votes equal to the number of shares of common stock into which the Series A-2 preferred stock is convertible. Conversion - Holders of the new Series A preferred stock have the right, at any time, to convert into such number of shares of common stock as is determined by dividing the preferred stock original price ($0.20 per share) by the conversion price in effect at the time of conversion. The preferred stock conversion price will be reduced in the event of the Company's issuing any shares of its common stock (or instruments convertible into common stock) without consideration (except for a) common stock issued in connection with the conversion of preferred stock, b) common stock issued to officers, directors, employees, or consultants pursuant to any stock purchase plan, and c) the issuance of common stock upon the exercise of options and warrants outstanding as of November 13, 2003) or for a consideration per share less than the conversion price of any series of preferred stock in effect immediately prior to the time of such issue or sale. The new Series A preferred stock conversion price as of December 31, 2003 was $0.20. In the event of the sale of the Company's common stock in an underwritten public offering in which the public offering price is equal to or exceeds $1.00 per share of common stock and the gross proceeds to the Company equal or exceed $30,000,000, each share of the new Series A preferred stock shall automatically be converted into shares of common stock at the then-effective conversion price. Upon the majority vote of the holders of at least a majority of the outstanding shares of preferred stock, each share of the new Series A preferred stock will convert into shares of common stock at the conversion price in effect on the date of conversion. PREFERRED STOCK WARRANTS In connection with the issuance of the redeemable convertible preferred stock during 2001, the Company issued warrants to purchase 14,998,000 shares of Series C-1 preferred stock at $1.00 per share in 2001. These warrants originally expired on January 31, 2004. The Company allocated the net proceeds to the Series C-1 preferred stock and the warrants based on the relative fair values. The Company recorded an increase to accumulated deficit of $739,956 resulting from the accretion of Series C-1 preferred stock related to the value of the warrants for the period from January 1, 2003 through the date of conversion, November 13, 2003. 20
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) PREFERRED STOCK WARRANTS (CONTINUED) During November 2003, the Company issued 12,500,000 warrants to purchase Series A-2 preferred stock as consideration for both the cancellation of all of the outstanding warrants to purchase Series C-1 preferred stock and the termination of the management agreement with one its stockholders. The warrants to purchase Series A-2 preferred stock have an exercise price of $0.01 per share and will expire in September 2008. The Company determined that the value of the warrants on the date of issuance was $2,375,000 based on the Black-Scholes valuation model. The termination of the management agreement was determined by management to have a fair value of $892,856, which was computed based on the present value of the remaining management fees as of the date of termination. The fair value of the management agreement of $892,856 has been reflected within other expense in the accompanying statement of operations for the year ended December 31, 2003. The excess of the carrying value of the warrants to purchase Series C-1 preferred stock that were canceled and the estimated fair value of the termination of the management agreement over the fair value of the warrants to purchase Series A-2 preferred stock was recorded as an increase to additional paid-in capital of $2,777,856. The holders of each prior series of preferred stock who elected to purchase Series A-1 or Series A-2 preferred stock in November 2003 in proportion to, or in excess of, their percentage ownership of the Company's common stock, on a fully diluted basis, received one warrant to purchase Series A-3 preferred stock for each share of their preferred stock outstanding immediately prior to closing. The Company issued 22,600,201 warrants to purchase Series A-3 preferred stock in connection with the sale of the Series A-1 and Series A-2 preferred stock to existing stockholders. The warrants have an exercise price of $0.01 and will expire in September 2008. The warrants issued were determined to have a fair value of $3,864,634 based on the Black-Scholes valuation model. The Company recorded the value of the warrants issued as an increase to accumulated deficit. In connection with a capital lease financing agreement entered into in February 2002, the Company issued a warrant to purchase 210,000 shares of Series B preferred stock at an exercise price of $1.00 per share. The Company determined the fair value of the warrant using the Black-Scholes valuation model. In connection with the issuance of Series A-1 and Series A-2 preferred stock in November 2003, the warrant was adjusted to allow the holder to purchase 210,000 shares of Series A-1 preferred stock at an exercise price of $0.20 per share. 21
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK In 1998, the Company executed restricted stock purchase agreements which included certain repurchase rights under the 1998 Stock Plan, issuing 2,225,000 shares of common stock to employees. As of December 31, 2003, 281,048 of these shares had been forfeited. In 2002, the Company executed amendments to the restricted stock purchase agreements of certain employees. Under the amended agreements, the repurchase rights of the Company lapse with respect to the shares on January 1, 2005. As of December 31, 2003, 1,943,952 shares were subject to repurchase. Dividends - The holders of common stock shall be entitled to receive dividends as declared by the board of directors, provided that equivalent dividends are declared and paid on the Series A preferred stock. Voting - Each holder of common stock shall be entitled to one vote per share owned. COMMON STOCK WARRANTS In 2000, the Company issued warrants under a leasing arrangement to purchase 44,000 shares of common stock of the Company at an exercise price of $1.00 per share at any time on or before February 25, 2005. The Company also issued 1,095,000 warrants in connection with certain convertible debt to purchase 1,095,000 shares of common stock of the Company at an exercise price of $0.01 per share at any time on or before February 9, 2009. In addition, in 2000, the Company issued a warrant to a bank to purchase 60,000 shares of common stock of the Company at an exercise price of $1.00 per share at any time on or before September 14, 2005. In accordance with the terms of the warrant agreement, the warrant issued to the bank was adjusted in connection with the issuance of the Series A-1 and Series A-2 preferred stock discussed above to allow for the purchase of 91,881 shares of common stock at an exercise price of approximately $0.65 per share. The Company determined that the fair value of the warrants issued during 2000 was $262,800 using the Black-Scholes model. The warrant value was recorded as a charge to interest expense during the year ended December 31, 2000. 22
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK WARRANTS (CONTINUED) In connection with a financing agreement entered into in July 2001, the Company issued a warrant to purchase 140,000 shares of common stock at $1.00 per share during 2001. The transaction resulted in the valuation of the warrant of $57,400. The warrant value was recorded as a discount to the related capital lease obligation and is being amortized to interest expense over the term of the capital lease obligation. The warrant expires on July 31, 2008. The Company determined the fair value of the warrant using the Black-Scholes valuation model. In accordance with the terms of the warrant agreement, the warrant was adjusted in connection with the issuance of the Series A-1 and Series A-2 preferred stock discussed above to allow for the purchase of 214,389 shares of common stock at an exercise price of approximately $0.65 per share. SERIES B PREFERRED STOCK PLAN In April 2002, the Company adopted the 2002 Series B Preferred Stock Purchase Plan (the "Series B Plan"). The Series B Plan provides an opportunity for certain employees and consultants to purchase shares of Series B preferred stock. The Company has authorized and reserved 500,000 shares of Series B preferred stock for the Series B Plan. During the year ended December 31, 2002, the Company granted to employees the rights to purchase 95,000 shares of Series B preferred stock, for $1.00 per share. There were no rights granted during the year ended December 31, 2003. In November 2003, the Series B Plan was terminated and the outstanding rights to purchase 95,000 shares of Series B preferred stock expired unexercised. STOCK PLAN In 2001, the Company adopted the 2001 Stock Plan (the "2001 Plan"). The 2001 Plan provides for the granting of incentive stock options, nonqualified stock options, and the rights to purchase shares of common stock pursuant to restricted stock agreements. There are 5,953,328 shares of common stock reserved for issuance under the 2001 Plan as of December 31, 2003. In connection with the issuance of the Series A-1 and Series A-2 preferred stock in November 2003, the Company reserved 8,000,000 shares of common stock related to the issuance of options to purchase Series A-1 and Series A-3 preferred stock. As of December 31, 2003, the Company had not adopted the Series A-1 and Series A-3 preferred stock option plans. Accordingly, there were no options to purchase Series A-1 and Series A-3 preferred stock granted during the year ended December 31, 2003. 23
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) STOCK PLAN (CONTINUED) Incentive options may be granted to key employees, including members of the Board of Directors who are employees of the Company. Nonqualified stock options and purchase rights are granted to key employees and consultants of the Company, including members of the Board of Directors. The terms of the stock option agreements, including the purchase price per share payable upon exercise of a nonqualified option, are determined by the Board of Directors and the Compensation Committee. The exercise price of the incentive options shall not be less than one hundred percent of the fair market value of a share on the date of grant and the maximum term of options granted is ten years. A summary of the Company's stock option plans activity follows for the year ended December 31, 2003. WEIGHTED SHARES AVERAGE AVAILABLE OPTIONS EXERCISE EXERCISE FOR GRANT OUTSTANDING PRICE PRICE -------------------------------------------------------------------------------------- Balance at December 31, 2002 3,668,073 2,646,817 $ 0.05 - $ 0.60 $ 0.51 Additional shares reserved 8,000,000 - - - Options granted (372,100) 372,100 0.05 0.05 Options exercised - (17,775) 0.05 0.05 Options canceled 297,663 (641,450) 0.05 - 0.60 0.10 ------------------------------------------------------------------------------------- Balance at December 31, 2003 11,593,636 2,359,692 $ 0.05 - $ 0.60 $ 0.07 ===================================================================================== The weighted average fair value of options granted during 2003 was $0.01. The weighted average remaining contractual life of options outstanding at December 31, 2003 is approximately 7.6 years. There were 1,111,632 options exercisable at December 31, 2003. 24
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 8. STOCKHOLDERS' EQUITY (CONTINUED) STOCK PLAN (CONTINUED) In 2002, the Company repriced and changed the vesting requirements for 1,370,927 options. The strike price of 1,131,677 options was repriced from $0.60 to $0.05 and the strike price of 239,250 options was repriced from $0.25 to $0.05. The vesting requirements of the 1,370,927 options were also changed from performance-based to time-based (four years from original grant date). These changes are considered modifications under APB 25 and require these options to be subject to variable accounting until the options are exercised, forfeited or expire unexercised. In addition, the 1,370,927 options were repriced below fair market value. The Company recorded a charge for compensation of $101,605 for the year ended December 31, 2002 based on the intrinsic value of the stock options at year end. As of December 31, 2003, the Company determined that the fair value of its common stock had declined to $0.05 per share. Accordingly, the compensation charge of $101,605 recorded during 2002 was reversed as of December 31, 2003, since the fair value of the common stock was equal to or less than the exercise price. Those options remain subject to variable accounting and additional compensation expense will be recorded in future periods if the fair value of the common stock increases. COMMON STOCK RESERVED FOR FUTURE ISSUANCE At December 31, 2003, the Company had reserved a total of 83,984,792 of its authorized 250,000,000 shares of common stock for future issuance as follows: Stock options outstanding 2,359,692 Reserved for future stock option grants 11,593,636 Series A preferred stock conversion 32,975,993 Preferred stock warrants 35,610,201 Common stock warrants 1,445,270 ---------- Total shares reserved for future issuance 83,984,792 ========== 25
Unitive, Inc. Notes to Consolidated Financial Statements (continued) 9. RETIREMENT PLAN The Company has a 401(k) retirement plan whereby all eligible employees may elect to make contributions pursuant to a salary reduction agreement upon meeting certain age and length-of-service requirements. The Company provides discretionary matching contributions as determined by the Board of Directors. The Company pays the administrative fees incurred by the plan. Total expense incurred by the Company in connection with this retirement plan was approximately $6,500 for the year ended December 31, 2003. 10. SUBSEQUENT EVENTS (UNAUDITED) During March 2004, the Board of Directors of the Company approved the 2004 Equity Incentive Plan (the "2004 Plan"). Pursuant to the 2004 Plan, during March, June and July 2004, the Company issued an aggregate 5,000,000 options to purchase Series A-1 preferred stock at a exercise price of $0.10 per share, 3,000,000 options to purchase Series A-3 preferred stock at an exercise price of $0.01 per share, and 4,000,000 options to purchase 4,000,000 shares of common stock at an exercise price of $0.01 per share. On August 19, 2004, Amkor Technology, Inc. purchased approximately 93.0% of the capital stock of the Company at a purchase price of $28,000,000. The selling stockholders of the Company are also entitled to receive additional consideration of up to $55,000,000. The additional consideration will be determined based on a formula set forth in the Stock Purchase Agreement that includes a final determination of the Company's EBITDA, as defined, for the nine-month period ended March 31, 2005. On August 19, 2004, the Company issued a promissory note totaling $1,000,000 in connection with the Loan Agreement executed in November 2003 (see Note 4) in order to finance certain capital expenditures. The terms of the promissory note are substantially the same as the promissory notes outstanding at December 31, 2003 under the Loan Agreement. On October 27, 2004 the Company repaid $4.3 million in cash consideration for all outstanding related to the promissory notes under the Loan Agreement, which included accrued interest and early payment fees. The funding for the payment of these promissory notes was provided by Amkor. As is typical in the semiconductor and other high technology industries, from time to time, others may in the future assert, that the Company's products or manufacturing processes infringe on their intellectual property rights. Subsequent to year-end, the Company received correspondence from a third party indicating that a potential unasserted claim may exist related to the use of certain intellectual property. In the opinion of management, if a legal claim is made in the future, the Company would vigorously defend itself or would likely prevail. However, no assurance can be given to the outcome of any potential future litigation. 26
EXHIBIT 99.3 UNITIVE SEMICONDUCTOR TAIWAN CORP. FINANCIAL STATEMENTS DECEMBER 31, 2003 (WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THEREON)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Unitive Semiconductor Taiwan Corp.: We have audited the accompanying balance sheet of Unitive Semiconductor Taiwan Corp. (the Company) as of December 31, 2003, and the related statements of operations, changes in stockholders' 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 audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the Republic of China generally accepted auditing standards and the Republic of China Guidelines for Certified Public Accountants' Examinations and Reports on Financial Statements. 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 in the first paragraph present fairly, in all material respects, the financial position of Unitive Semiconductor Taiwan Corp. as of December 31, 2003, and the results of its operations and its cash flows for the year then ended, in conformity with the Regulations Governing Financial Reporting for Issuers of Stock Certificates and Republic of China generally accepted accounting principles. Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 17 to the financial statements. /s/ KPMG February 4, 2004, except as to Note 16, which is as of July 9, 2004.
UNITIVE SEMICONDUCTOR TAIWAN CORP. BALANCE SHEET DECEMBER 31, 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR PAR VALUE) AMOUNT ASSETS CURRENT ASSETS: Cash and cash equivalents $ 32,450 Short-term investments (note 3) 47,452 Notes receivable 2,738 Accounts receivable, net 27,092 Accounts receivable - related parties (note 11) 5,146 Other monetary assets - current 651 Inventories, net (note 4) 10,376 Prepaid expenses and other current assets 6,357 Restricted assets (note 12) 12,700 ----------- TOTAL CURRENT ASSETS 144,962 ----------- PROPERTY, PLANT AND EQUIPMENT (NOTES 5, 12 AND 13): Land 113,069 Land improvements 3,081 Buildings 346,795 Machinery and equipment 682,586 Computer equipment 7,095 Transportation equipment 2,898 Furniture and fixtures 6,138 Leased assets 32,000 Other equipment 6,265 ----------- 1,199,927 Less: accumulated depreciation (380,990) Advances for purchases of machinery and equipment 90,542 ----------- NET PROPERTY, PLANT AND EQUIPMENT 909,479 ----------- INTANGIBLE ASSETS: Patents (note 11) 53,200 Computer software 2,392 ----------- TOTAL INTANGIBLE ASSETS 55,592 ----------- OTHER ASSETS: Deferred tax assets (note 9) 181,509 Other 1,940 ----------- TOTAL OTHER ASSETS 183,449 ----------- TOTAL ASSETS $ 1,293,482 =========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. BALANCE SHEET (CONTINUED) DECEMBER 31, 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) AMOUNT LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debts (notes 6 and 12) $ 106,504 Notes payable (note 11) 18,374 Accounts payable (note 11) 14,346 Other notes payable 4,852 Accrued expenses and other current liabilities (note 11) 35,633 Current portion of long-term debt (notes 7 and 12) 135,350 ----------- TOTAL CURRENT LIABILITIES 315,059 ----------- LONG-TERM LIABILITIES: Long-term debts (notes 7 and 12) 283,296 Obligations under capital lease 862 ----------- 284,158 ----------- OTHER LIABILITIES: Accrued pension liabilities (note 8) 7,707 ----------- TOTAL LIABILITIES 606,924 ----------- STOCKHOLDERS' EQUITY (NOTE 10): Common stock of $10 par value, authorized 140,000,000 shares in 2003; issued 130,000,000 shares in 2003 1,300,000 Additional paid-in capital 60,000 Accumulated deficit (673,442) ----------- TOTAL STOCKHOLDERS' EQUITY 686,558 ----------- COMMITMENTS (NOTES 11 AND 13) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,293,482 =========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) AMOUNT SALES (NOTE 11) $ 99,394 LESS: SALES RETURNS AND ALLOWANCES 947 ---------- NET SALES 98,447 COST OF SALES (NOTES 8 AND 11) 294,793 ---------- GROSS LOSS (196,346) ---------- OPERATING EXPENSES (NOTES 8 AND 11) Selling expenses 29,703 Administrative expenses 56,463 Research and development expenses 57,310 ---------- 143,476 ---------- OPERATING LOSS (339,822) ---------- NON-OPERATING INCOME: Interest income 321 Gain on disposal of short-term investments 5,632 Foreign exchange gain, net 693 Other income 5,819 ---------- 12,465 ---------- NON-OPERATING EXPENSE: Interest expense, net of capitalized interest expense of $1,715 and $233 in 2003, respectively (note 5) 24,409 Loss on disposal of fixed assets 1,907 Inventory loss 7,713 Other expense 110 ---------- 34,139 ---------- LOSS BEFORE INCOME TAX (361,496) INCOME TAX BENEFIT (NOTE 9) 66,072 ---------- NET LOSS $ (295,424) ========== EARNINGS PER SHARE (NOTE 15) Basic $ (2.27) ========== AVERAGE NUMBER OF SHARES (`000 SHARES) (NOTE 15) Basic 130,000 ========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) NUMBER OF ADDITIONAL SHARES (`000 COMMON PAID-IN ACCUMULATED SHARES) STOCK CAPITAL DEFICIT TOTAL BALANCE AS OF DECEMBER 31, 2002 130,000 $ 1,300,000 60,000 (378,018) 981,982 Net loss for 2003 - - - (295,424) (295,424) ------- ----------- ------ -------- -------- BALANCE AS OF DECEMBER 31, 2003 130,000 $ 1,300,000 60,000 (673,442) 686,558 ======= =========== ====== ======== ======== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) AMOUNT CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (295,424) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 148,061 Amortization 13,413 Inventory loss 7,713 Gain on disposal of short-term investments (5,632) Loss on disposal of fixed assets 1,907 Income tax benefit (66,072) Decrease in notes receivable and accounts receivable 2,001 Income tax benefit (30) Increase in inventories (1,264) Decrease in prepaid expenses and other current assets 2,413 Decrease in notes payable and accounts payable (2,190) Increase in accrued expenses and other current liabilities 4,592 Increase in accrued pension liabilities 2,916 ---------- NET CASH USED IN OPERATING ACTIVITIES (187,596) ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in short-term investments (196,000) Disposal of short-term investments 673,477 Acquisitions of property, plant and equipment (186,526) Increase in intangible assets (1,386) Increase in other assets (1,036) ---------- NET CASH PROVIDED BY INVESTING ACTIVITIES 288,529 ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in restricted assets 5,800 Decrease in short-term debts (30,957) Increase in long-term debts 21,000 Repayment of long-term debts (132,054) Issuance of new common shares - ---------- NET CASH USED IN BY FINANCING ACTIVITIES (136,211) ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (35,278) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 67,728 ---------- See accompanying notes to financial statements.
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 32,450 ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 24,905 ========== Cash paid for income tax $ 30 ========== SUPPLEMENTAL DISCLOSURES OF INVESTING AND FINANCING ACTIVITIES: Acquisitions of property, plant and equipment $ 164,360 Net increase in equipment payable 22,166 ---------- $ 186,526 ========== Current portion of long-term debt $ 135,350 ========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 (ALL AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, UNLESS OTHERWISE SPECIFIED) (1) ORGANIZATION AND OPERATIONS Unitive Semiconductor Taiwan Corp. (the Company) was incorporated on June 30, 1999, as a company limited by shares under the laws of the Republic of China and approved as a Foreign Investment Approved Company in accordance with the Statute for Investment by Foreign Nationals. The Company's approved foreign capital investment and related earnings are eligible for repatriation. The Company is a bumping house that focuses on providing solder bumping and gold bumping services in the wafer level that advanced packing industries. With the solder bumping technology, the Company bumps wafers using electro-plated solder to connect I/O pads and substrate for flip chip assembly. The Company is capable of providing both 8 inch and 12 inch with best solder bumping services and also cooperates with world-class assembly houses to provide turnkey solutions to its customers. The Company also develops its own gold bumping technology to serve mainly in the field of LCD/PDP driver IC's packaging. The Company with its high quality gold bumping references is the main partner of the worldwide major players in this field. To achieve the goal of world-leading production and permanent operation, the Company focuses on providing the solder bumping and gold bumping service to worldwide IDMs, fables IC design houses, foundry fabs and assembly houses. The Company continuously improves its bumping process and enhances production capability through research and innovation to satisfy its customers. As of December 31, 2003, the number of the Company's employees was 151. The Company has incurred losses during each year since its inception, and continues to incur significant costs related to the development of its business. As a result, as of December 31, 2003, the Company has an accumulated deficit of $673,442 and negative working capital of $170,097. Management believes that the Company will be able to meet its obligations as they come due in the near term using operating cash flows, proceeds from existing loan commitments, and other capital provided from third parties. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Company have been prepared in the local currency and in Chinese. These financial statements have been translated into English. The translated information is consistent with the Chinese language financial statements from which it is derived. The Company prepares the accompanying financial statements in conformity with ROC generally accepted accounting principles. The preparation of the financial statements is based on historical cost. (Continued)
2 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS A summary of significant accounting policies used in preparing such financial statements is as below. 1) Foreign currency transactions The Company maintains its books in New Taiwan dollars. Foreign currency transactions, except for forward contracts, are recorded at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are revalued at the exchange rate prevailing on the balance sheet date. The resulting exchange gains or losses are recorded as non-operating income or expense. Forward contracts to hedge an exposed foreign currency position are recorded at the spot exchange rates prevailing on the contract date. The premiums or discounts on forward contracts resulting from the difference between the spot rate and forward rate are amortized over the terms of the contracts. Forward contracts are revaluated and adjusted to the spot exchange rate on the balance sheet date. The resulting exchange gains or losses are recorded as non-operating income or expenses. At the settlement date, the resulting exchange differences are recorded as exchange gains or losses. 2) Cash equivalents Cash equivalents represent all highly liquid short-term debt instruments, such as commercial paper, negotiable certificates of deposit, and bank acceptances purchased with the original maturity of three months or less, and other highly liquid investments with insignificant interest rate risk. 3) Short-term investments Short-term investments are the receipt of trust funds invested in the bond market and are stated at the lower of cost or market value. Market value is determined based on the net value of the fund at the balance sheet date, and any unrealized loss is charged to current year's operation. Cost is determined based on the weighted-average method. 4) Inventories Inventories are stated at the lower of cost or market value. Cost is determined by using the monthly weighted-average method. Market value is determined by net realizable value. 5) Property, plant and equipment Property, plant and equipment are stated at acquisition cost. Interest cost incurred in connection with the acquisition of property and equipment is capitalized as part of the cost of the related assets. Gain or loss on disposal of property, plant, and equipment is recorded as non-operating income or expenses. (Continued)
3 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS Except for land, depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives of property, plant, and equipment are as follows: Land improvements 3 years Buildings 3 ~ 25 years Machinery and equipment 3 ~ 5 years Computer equipment 5 years Transportation equipment 3 ~ 5 years Furniture and fixtures 3 years Leased assets 5 years Other equipment 3 years 6) Intangible assets Computer software and patents are stated at acquisition cost. Amortization is provided for by using the straight-line method over the estimated useful lives of the assets. 7) Retirement plan In March 2001, the Company established an employee retirement plan providing for lump-sum retirement benefits to all full-time employees who meet retirement requirements. The pension payment is calculated based on the number of service years. In accordance with the ROC Labor Standards Law, the Company has made monthly deposits equal to an approved percentage of employees' total salaries in the Central Trust of China since March 2001. Actual benefits paid are made out of the fund. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 18, "Accounting for Pensions". The end of each fiscal year is used as the measurement date for the actuarial assessment. A minimum pension liability is recognized when the accumulated benefit obligation exceeds the fair value of plan assets. In accordance with SFAS No. 18, the Company recognizes net pension cost every year. 8) Recognition of revenue Revenue is recognized after the completion of production processes and shipment. (Continued)
4 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS 9) Income tax The Company's income tax is estimated based on the accounting income. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities, and are measured by applying the effective tax rates for the taxable years in which those temporary differences are expected to reverse. Deferred tax liabilities are recognized for the future tax consequences attributable to taxable temporary differences, and deferred tax assets are recognized for the future tax consequences attributable to deductible temporary difference, loss carryforwards, and investment tax credits, with the measurement of deferred tax assets being reduced by estimated amounts of tax benefits not likely to be realized, based on, among other considerations, forecasts of future taxable income. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the related liabilities or assets for financial reporting. Deferred tax assets and liabilities that are not related to a liability or asset for financial reporting are classified according to the expected reversal date of the temporary differences. The 10% income tax surtax on unappropriated earnings is recorded as expense on the date the stockholders resolve the distribution of earnings. (3) SHORT-TERM INVESTMENTS As of December 31, 2003, the details of investments were as follows: AMOUNT Bond fund $ 47,452 ========= The bond fund acquired by the Company was of low risk and provided the fixed return. As of December 31, 2003, the bond fund was stated at cost and the related market price was $48,414. (4) INVENTORIES As of December 31, 2003, the details of inventories were as follows: AMOUNT Raw materials $ 4,639 Supplies 6,122 Work in process 5,389 Finished goods 3,360 --------- 19,510 Less: provision for inventory loss 9,134 --------- $ 10,376 ========= (Continued)
5 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS The insurance coverage on inventories as of December 31, 2003, was $60,000. (5) PROPERTY, PLANT AND EQUIPMENT The capitalized interest expense for purchasing machinery and equipment amounted to $1,715 in 2003. The annual interest rate for the capitalized interest expense ranged from 1.75% to 8.00% for 2003. As of December 31, 2003, the insurance coverage for property, plant and equipment was $1,173,000. (6) SHORT-TERM DEBTS As of December 31, 2003, the details of short-term debts were as follows: AMOUNT Unsecured short-term debts $ 50,000 Usance letters of credit 56,504 --------- $ 106,504 ========= The annual interest rate for the unsecured short-term debts ranged from 1.85% to 2.54% for 2003. The annual interest rate for the usance letters of credit ranged from 0.69% to 8.00% for 2003. All the short-term debts mentioned are due in one year. As of December 31, 2003, unused lines of credit amounted to approximately $168,030. (Continued)
\ 6 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (7) LONG-TERM DEBTS As of December 31, 2003, the details of long-term debts were as follows: PERIOD OF INTEREST BANK DESCRIPTION LOAN PAYMENT PERIOD RATE AMOUNT Hua Nan Secured by 2000.12.28~ Repayment of principal is in 16 5.715%~ $ 180,920 Commercial machinery 2005.12.28 quarterly installments. The 5.865% Bank Company repaid principal amounting to $23,415 and $12,000 in January and March 2002, respectively. The remaining principal after March 2002 is payable in 15 quarterly installments. Hua Nan Secured by 2000.11.3~ Repayment of principal is in 32 3.70%~ 131,240 Commercial land and 2010.11.3 quarterly installments 4.775% Bank buildings beginning from February 2003. Hua Nan Secured by 2000.11.3~ Repayment of principal is in 24 3.70%~ 86,640 Commercial buildings 2007.11.3 quarterly installments 4.775% Bank beginning from February 2002. Hua Nan Secured by 2003.03.12~ Repayment of principal is in 16 4.00%~ 11,000 Commercial machinery 2008.03.12 quarterly installments 4.185% Bank beginning from April 2004. Shanghai Credit 2003.06.05~ Repayment of principal and 4.5% 8,846 Commercial debts 2007.06.05 interest is in 48 monthly Bank installments beginning from July 2003. ---------- 418,646 Less: current portion of long-term debts 135,350 ---------- $ 283,296 ========== The Company's long-term debt balances due for the five years following December 31, 2003, are as follows: YEAR AMOUNT 2004 $ 135,350 2005 136,147 2006 45,802 2007 44,460 2008 and thereafter 56,887 ------------ $ 418,646 ============ (Continued)
7 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS 8) PENSION The Company has made monthly deposits equal to 2% of employees' total salaries in the Central Trust of China since March 2001. As of December 31, 2003, the reconciliation between funded status and accrued pension liabilities was as follows: AMOUNT Benefit obligation: Vested benefit obligation $ 1,800 Non-vested benefit obligation 6,234 ----------- Accumulated benefit obligation 8,034 Additional benefits based on future salaries 5,430 ----------- Projected benefit obligation 13,464 Fair value of plan assets (4,463) ----------- Underfunded status 9,001 Unrecognized net transition obligation (3,542) Unrecognized pension gain 2,248 ----------- Accrued pension liabilities recognized on the balance sheet $ 7,707 =========== Amount of vested benefit $ 1,800 =========== The components of net pension cost for 2003 were as follows: AMOUNT Service cost $ 4,072 Interest cost 465 Actual return on plan assets (48) Net amortization 70 --------- Net pension cost $ 4,559 ========= In 2003, the actuarial assumptions were as follows: Discount rate 3.50% Rate of increase in future compensation 3.00% Expected long-term rate of return on plan assets 3.50% (Continued)
8 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (9) INCOME TAX The Company's income tax is subject to a maximum income tax rate of 25%. The current statutory tax rate is 25%. For the year ended December 31, 2003, the components of income tax benefit were as follows: AMOUNT Current income tax $ - Deferred tax benefit 66,072 ----------- Income tax benefit $ 66,072 =========== For the years ended December 31, 2003, the differences between "expected" income tax at the statutory income tax rate, and effective income tax benefit as reported in the accompanying financial statements, were as follows: AMOUNT Expected income tax benefit $ 90,374 Gain on disposal of investments 1,408 Investment tax credits and R&D expense tax credits 74,083 Change in estimate of prior years' deferred tax assets 4,475 Others (336) Valuation allowance for deferred tax assets (103,932) ------------ Actual income tax benefit $ 66,072 ============ For the year ended December 31, 2003, the components of the Company's deferred income tax benefits were as follows: AMOUNT Deferred tax benefits (exclusive of the effects of other components below) $ 68,001 Increase in beginning-of-the-year balance of the valuation allowance for deferred tax assets (1,929) ----------- Total deferred tax benefits $ 66,072 =========== (Continued)
9 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS The deferred tax assets as of December 31, 2003, were as follows: AMOUNT Current: Deferred tax assets $ 2,284 Less: valuation allowance (2,284) ------------ Net deferred tax assets $ - ============ Noncurrent: Deferred tax assets $ 456,464 Less: valuation allowance (274,803) ------------ Net deferred tax assets 181,661 Deferred tax liabilities (152) ------------ Net noncurrent deferred tax assets $ 181,509 ============ Total deferred tax assets $ 458,748 ============ Total deferred tax liabilities $ 152 ============ Total valuation allowance for deferred tax assets $ 277,087 ============ The components of deferred tax assets as of December 31, 2003, were as follows: AMOUNT Deferred tax assets: Loss carryforwards $ 265,207 Investment tax credits and R&D expense tax credits 188,880 Inventories 2,284 Accrued employee benefits 450 Accrued pension liabilities 1,927 ------------ 458,748 Less: valuation allowance for deferred tax assets (277,087) ------------ Net deferred tax assets $ 181,661 ============ Deferred tax liabilities: Unrealized foreign exchange gain 152 ============ (Continued)
10 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS In accordance with the ROC Income Tax Law, the Company's losses for tax purposes, as assessed by the tax authorities, can be carried forward to offset any future taxable income for a period of five years. As of December 31, 2003, the Company's total loss carryforward amounts and their expiry dates were as follows: YEAR OF LOSS AMOUNT YEAR OF EXPIRATION 1999 $ 23,510 2004 2000 176,576 2005 2001 278,257 2006 2002 224,324 2007 2003 358,162 2008 -------------- $ 1,060,829 ============== Pursuant to the ROC Statute for Upgrading Industries, the Company's unused investment tax credit for the purchase of automation equipment and R&D expense tax credit as of December 31, 2003, were as follows: YEAR OF LOSS AMOUNT YEAR OF EXPIRATION 2000 $ 7,054 2004 2001 5,669 2005 2002 102,074 2006 2003 74,083 2007 ------------ $ 188,880 ============ The ROC income tax authorities have assessed the Company's income tax returns for all years through 1999. In assessing the realizability of deferred tax assets, the management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $1,834,384 prior to the expiration of the net operating loss carryforward in 2008 and investment tax credits in 2007. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize $1,108,348 of benefits of these deductible differences at December 31, 2003. (Continued)
11 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (10) STOCKHOLDERS' EQUITY 1) Capital surplus The ROC Company Law prescribes that capital surplus should be used to offset an accumulated deficit before utilizing realized capital surplus to increase issued share capital. The realized capital surplus includes the amount in excess of the par value of common stock issued and any amounts donated to the Company. The amount to be capitalized cannot exceed the specific percentage of capital surplus every year. 2) Legal reserve The ROC Company Law stipulates that companies must retain 10% of their annual net earnings, as defined in the Law, until such retention equals the amount of authorized share capital. The legal reserve shall be used exclusively to offset deficits and is prohibited from being distributed as cash dividends. However, the legal reserve may be transferred to capital upon approval of the stockholders when it has been accumulated to a level equal to at least one-half of the issued share capital, and then only one-half of such reserve may be transferred. 3) Distribution of earnings The Company's articles of incorporation stipulate that not less than 1% of annual earnings, net of income tax, accumulated deficit, and legal reserve appropriation are to be distributed as employee bonuses, and the remaining portion may be distributed according to a stockholders' meeting resolution. 4) Imputation credit account and imputation tax credit ratio As of December 31, 2003, the Company's total imputation credit account was $0. Due to the loss from operations for the year ended December 31, 2003, the imputation tax credit ratio of the Company was zero for 2003. (11) TRANSACTIONS WITH RELATED PARTIES 1) Name and relationship of related parties NAME RELATIONSHIP WITH THE COMPANY Unitive International Limited (UIL) The Company's major shareholder Wah Lee Industrial Corp. (Wah Lee) The Company's chairman is the same as Wah Lee's. Unitive Electronics Inc. (UEI) An affiliated company of UIL (Continued)
12 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS 2) Nature of transactions 1. Sales % OF THE COMPANY'S AMOUNT NET SALES UEI $ 10,142 10 =========== == As of December 31, 2003, the balance of accounts receivable resulting from the above transactions was as follows: AMOUNT % UEI $ 5,146 16 ========= == The sales prices and terms were not significantly different between sales to related parties and other customers. 2. Purchases % OF THE COMPANY'S NET AMOUNT SALES UEI $ 396 - Wah Lee 512 1 ------- -- $ 908 1 ======= == As of December 31, 2003, the balance of accounts payable resulting from the transactions was as follows: AMOUNT % Accounts payable: Wah Lee $ 54 - ======= === The purchase prices and terms were not significantly different between purchases from related parties and other firms. (Continued)
13 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS 3. Others The Company entered into a patent and technical support agreement with UIL, recorded under intangible assets and amortized over 10 years on a straight-line basis. The resulting amortization expenses from the above-mentioned transaction were $9,600 in 2003, and were accounted for under cost of sales. Furthermore in accordance with the contract, the Company should quarterly pay a further 2.5% of total sales over USD10,000,000 to UIL as royalties. In 2002, the Company entered into a global marketing and R&D system contract with UEI. Under this contract, the Company should pay a fixed percentage of the Company's sales as commission expense. The commission paid pursuant to this contract amounted to $9,657, and was booked as an operating expense in 2003. As of December 31, 2003, commission payment to UEI resulting from the above transaction was paid. On October 2002, the Company entered into a service agreement with UEI and a third party. Under this agreement, UEI will assist the Company in acquisition of demonstration equipment wafer bumping line from the third party, and provide support services to the Company with respect to the implementation of such bumping line. According to the predetermined payment schedule, the Company shall pay UEI the following nonrefundable fees: PAYMENT DATE (FIRST OF TWO PAYMENTS) AMOUNT Contract date Nil USD 75,000 Delivery date of equipment January 31, 2003 USD 175,000 Date of successful start of production May 14, 2003 USD 100,000 In 2003, the Company had incurred net service expense of $9,543 (USD 275,000), which was booked as operating expense. As of December 31, 2003, the service expense resulting from the above transaction was paid. According to the above agreement, the Company will be responsible for taxes and duties on the equipment, while the third party will carry its own property insurance until the equipment is purchased by the Company. In addition, expiring on September 30, 2004, the Company has an option to purchase the equipment from the third party. As of December 31, 2003, the above-mentioned equipment had been imported. The Company had sold raw materials and overpaid the commission to UEI as of December 31, 2003; the resulting amount of $1,108 was recorded under prepaid expenses and other current assets. (Continued)
14 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS As of December 31, 2003, the Company had consigned the manufacturing process to UEI on behalf of its client; the resulting amount of $4,686 was recorded under accrued expense and other current liabilities. (12) PLEDGED ASSETS As of December 31, 2003, the details and net book value of pledged assets were as follows: PLEDGED ASSETS PLEDGED FOR BOOK VALUE Time deposits Short-term debts $ 12,700 Property, plant and equipment Long-term debts 609,702 ------------- Total $ 622,402 ============= (13) COMMITMENTS 1) As of December 31, 2003, the Company had outstanding letters of credit totaling approximately $37,262. The outstanding amounts of letters of credit were mainly used for acquisition of equipment. 2) The Company entered into foreign currency forward contracts to hedge exchange rate risk arisen from fluctuation in foreign currency debts. As of December 31, 2003, the Company did not have any unsettled foreign currency forward contracts. The period of the aforementioned contracts ranged from September 2, 2002, to March 25, 2003. The effects of net forward contract receivable (payable) and its fair value on the financial statements were not significant. (14) OTHER A summary of employment, depreciation and amortization expenses categorized by cost of goods sold and operating expenses is as follows: FUNCTION COST OF OPERATING ACCOUNT GOODS SOLD EXPENSES TOTAL Employment expenses: Salaries 65,843 45,731 111,574 Labor and health insurance 4,390 2,169 6,559 Pension 2,664 1,895 4,559 Other employment expense 3,024 1,445 4,469 Depreciation expense 136,937 11,124 148,061 Depletion expense - - - Amortization expense 10,965 2,448 13,413 (Continued)
15 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (15) EARNINGS PER SHARE Numerator Basic: Net Profit $ (295,424) ============ Denominator/1000 shares Basic: Weighted average shares 130,000 ============ The Company issued only common stocks in 2003, and therefore had simple capital structure. Under ROC SFAS No. 24 "Earnings per Share", if the Company's capital structure is simple, only basic earnings per share need to be presented and basic earnings per share is computed using the weighted average number of shares outstanding during the period. (16) SUBSEQUENT EVENT Amkor Technology, Inc. (Amkor) has agreed to acquire 60 percent of the capital stock of the Company pursuant to a Stock Purchase Agreement dated as of June 3, 2004, by and among Amkor, the Company, and certain stockholders of the Company, as amended by a letter agreement dated July 9, 2004. The consideration payable under the agreement consists of a cash payment of approximately $19.4 million at closing, the assumption of approximately $16.3 million of debt at closing, the payment of approximately $450,000 in other costs and a variable contingent cash payment to be paid, if at all, based on the achievement of certain performance goals. In addition, Amkor has a call option to acquire the remaining approximate 40.0% of the Company at any time over the subsequent 18-month period. Amkor is required to exercise the call option if the Company achieves certain goals within such 18-month period. The Company will operate as subsidiaries of Amkor. (Continued)
16 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (17) DIFFERENCES BETWEEN ROC GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company's financial statements are prepared in accordance with accounting principles generally accepted in ROC (ROC GAAP), which differ in certain significant respects from accounting principles generally accepted in US (US GAAP). The principal differences between ROC GAAP and US GAAP are presented below together with explanations of certain adjustments that affect the net loss and total shareholders' equity as of and for the year ended December 31, 2003. RECONCILIATION OF NET LOSS: Net loss reported under ROC GAAP $ (295,424) US GAAP adjustments: Unrealized gain on marketable securities 962 Deferred income tax expense on unrealized gain on marketable securities (240) Deferred income tax expense - change in valuation allowance on deferred tax assets (65,832) ------------ Net loss under US GAAP $ (360,534) ============ PRESENTATION OF COMPREHENSIVE LOSS UNDER US GAAP Other comprehensive loss: Foreign currency translation adjustment $ - Additional minimum liability - Net gains (losses) on cash flow hedges - Net unrealized holding gains (losses) - ------------ Other comprehensive income (loss) - ------------ Comprehensive loss $ (360,534) ============ RECONCILIATION OF STOCKHOLDERS' EQUITY Total stockholders' equity reported under ROC GAAP $ 686,558 US GAAP adjustments: Short-term investments 962 Deferred income tax assets (181,509) ------------ Total stockholders' equity under US GAAP $ 506,011 ============ (Continued)
17 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS 1) Short-term investments Under ROC GAAP, investment in marketable securities is stated at the lower of cost or market method. Any unrealized holding loss is reported as non-operating losses on the statement of income. When the market price restores in the subsequent period, the unrealized holding gain is to be recognized to the extent not exceeding the unrealized holding loss recognized previously. Under US GAAP, the investment in marketable securities would be classified as trading, available-for-sale, and hold-to-maturity. The unrealized gains or losses resulting from holding trading securities are reported as non-operating gains or losses on the statement of income and from holding available-for-sale are reported as other comprehensive income. The investment in marketable securities held by the Company is classified as trading and carried at aggregate fair value with unrealized gains and losses reported as non-operating gains and losses on the statement of income. During the\ year period ended December 31, 2003, due to the increase in market price for the marketable securities held by the Company, the Company had $962 of unrealized holding gains, giving rise to an adjustment between ROC GAAP and US GAAP. This also results in additional deferred income tax expense of $240 under US GAAP. 2) Deferred tax assets Under ROC GAAP, a valuation allowance in provided on deferred tax assets when they are not certain to be realized based on the available projection of future taxable income. However, the criteria by which the need for a valuation allowance is determined is less stringent as compared to US GAAP. Under US GAAP, cumulative losses in recent years are a significant piece of negative evidence, which is difficult to overcome with projections of future taxable income for the purpose of determining the valuation allowance. The Company suffered losses in 2002 and 2003. As a result, the Company did not use the projection of future taxable income in determining its net deferred tax asset valuation allowance as of December 31, 2002 or 2003 in accordance with US GAAP, giving rise to a total adjustment of $181,509 between ROC GAAP and US GAAP for deferred tax assets, and $65,832 for deferred income tax expense. 3) Derivative instruments Under US GAAP, derivative instruments (forward contracts) are marked to market through earnings, unless they qualify as hedges. Under no circumstances are premiums and discounts to be amortized over the life of the contract as indicated by the policy. Under ROC GAAP, derivative instruments (forward contracts) are reported at the unamortized balance. The premiums and discounts are to be amortized over the life of the contract as indicated by the policy. (Continued)
18 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS As of December 31, 2003, the fair value for the derivative instruments (forward contracts) approximated to the unamortized balance. Further, during the year ended December 31, 2003, the net effect of amortization of premiums and discounts was insignificant. Therefore, no GAAP adjustment between ROC GAAP and US GAAP was incorporated into above reconciliation schedule. 4) Provision for inventory losses Provisions to write down inventory to estimated net realizable value are reported as a component of non-operating expense in the statement of operations under ROC GAAP. Such provisions are required to be reported as a component of cost of sales under US GAAP. Consequently, cost of sales, gross loss, and operating loss would be increased by $7,713 for the year ended December 31, 2003 under US GAAP. This adjustment would have no impact on net loss reported under US GAAP. 5) Long-lived assets Under US GAAP, gain or loss on sale of long-lived assets reported as operating income or loss. However, under ROC GAAP it is reported as non-operating income or loss. Consequently, cost of sales, gross loss, and operating loss would be increased by $1,907 for the year ended December 31, 2003 under US GAAP. This adjustment would have no impact on net loss reported under US GAAP.
. . . EXHIBIT 99.4 UNITIVE, INC. CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) JUNE 30, 2004 ------------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.............................................................. $ 1,907 Accounts receivable, net of allowance of $111.......................................... 2,008 Due from affiliates ................................................................... 166 Inventories ........................................................................... 336 Prepaid expenses and other current assets.............................................. 50 ------------------ Total current assets....................................................... 4,467 Property, plant and equipment, net........................................................... 7,894 Intellectual property rights, net............................................................ 5,162 Restricted cash.............................................................................. 125 Other assets ................................................................................ 189 ------------------ Total assets............................................................... $ 17,837 ================== LIABILITIES AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts Payable ...................................................................... $ 1,463 Due to affiliate ...................................................................... 18 Current portion of notes payable to stockholders....................................... 476 Current portion of long-term debt...................................................... 2,446 Accrued expenses....................................................................... 645 ------------------ Total current liabilities.................................................. 5,048 Notes payable to stockholders, net of current portion........................................ 251 Long-term debt, net of current portion....................................................... 2,086 ------------------ Total liabilities.......................................................... 7,385 Convertible preferred stock and stockholders' equity: Series A-1 convertible preferred stock, $0.01 par value; authorized shares 37,408,837; issued and outstanding shares 24,874,830; aggregate liquidation preference of $24,874,830........................................................... 260 Series A-2 convertible preferred stock, $0.01 par value; authorized shares 20,601,163; issued and outstanding shares 8,101,163; aggregate liquidation preference of $8,101,163............................................................ 81 Series A-3 convertible preferred stock, $0.01 par value; authorized shares 25,600,201; zero shares issued and outstanding....................................... - Series A-1, Series A-2, Series A-3 convertible preferred stock warrants.............. 6,374 Common Stock, $0.01 par value; authorized shares 250,000,000; issued and outstanding shares 60,755,161............................................. 607 Additional paid-in capital............................................................. 74,958 Unearned compensation.................................................................. (1,365) Common stock warrants.................................................................. 320 Accumulated deficit.................................................................... (70,783) ------------------ Total convertible preferred stock and stockholders' equity................................... 10,452 ------------------ Total liabilities, convertible preferred stock and stockholders' equity...................... $ 17,837 ================== 1
UNITIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, ------------------------ 2004 2003 ------- ------- (UNAUDITED) Revenues ............................... $ 6,257 $ 3,803 Cost of revenues ....................... 7,629 4,996 ------- ------- Gross loss ............................. (1,372) (1,193) ------- ------- Sales and marketing .................... 353 263 Research and development ............... 1,115 879 General and administrative ............. 1,518 1,034 ------- ------- Operating loss ......................... (4,358) (3,369) ------- ------- Other expense: Interest expense, net ............ 458 309 Loss in equity investee .......... 190 682 ------- ------- Total other expense ........ 648 991 ------- ------- Net loss ............................... $(5,006) $(4,360) ======= ======= 2
UNITIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------ 2004 2003 ------------------ ------------------ (UNAUDITED) Cash flows from operating activities: Net loss ............................................................................ $ (5,006) $ (4,360) Adjustments to net cash used in operating activities -- Equity in loss of equity investee.............................................. 190 682 Depreciation and amortization.................................................. 1,739 1,493 Non-cash compensation charges.................................................. 511 Changes in assets and liabilities excluding effects of acquisition............. (846) (4) ------------------ ------------------ Net cash used in operating activities....................................... (3,412) (2,189) ------------------ ------------------ Cash flows from investing activities: Purchases of property, plant and equipment........................................... (1,975) (49) ------------------ ------------------ Net cash used in investing activities....................................... (1,975) (49) ------------------ ------------------ Cash flows from financing activities: Payments on long-term debt and notes payable to stockholders...................... (1,640) (399) ------------------ ------------------ Net cash used in financing activities....................................... (1,640) (399) ------------------ ------------------ Net decrease in cash and cash equivalents............................................ (7,027) (2,637) Cash and cash equivalents, beginning of period....................................... 8,934 6,516 ------------------ ------------------ Cash and cash equivalents, end of period............................................. $ 1,907 $ 3,879 ================== ================== Supplemental disclosure of cash flow information: Cash paid during the period for interest......................................... $ 400 $ 288 ================== ================== 3
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS DESCRIPTION On January 30, 2001, Unitive Electronics, Inc. ("UEI") and Unitive International, Ltd. ("UIL") became the wholly-owned subsidiaries of Unitive, Inc. (the "Company"), a Delaware corporation, through a share exchange. The Company, located in Research Triangle Park, North Carolina, is a provider of advanced semiconductor packaging solutions offering wafer-level and turn-key die-level processing, engineering and design services to electronics manufacturers. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Actual results could differ from those estimates. REVENUE RECOGNITION The Company derives revenues from services provided in connection with the processing and packaging of its customers' semiconductor products. The Company recognizes revenue when a purchase order has been executed, the price is fixed and determinable, delivery of services has occurred and the products have been shipped, and collection of the purchase order price is considered probable and can be reasonably estimated. 4
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, capital lease obligations, notes payable to stockholders, and long-term debt. In management's opinion, the carrying amounts of these financial instruments approximate their fair values at June 30, 2004. INVENTORY Inventories are carried at the lower of cost or market using the first-in, first-out ("FIFO") method. Inventory consists primarily of raw materials. RESEARCH AND DEVELOPMENT Research and development expenses are charged to operations as incurred. Research and development expenses include direct costs and allocated salaries, employee benefits and applicable indirect costs. EQUIPMENT AND FURNITURE Equipment and furniture is stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the respective assets. Depreciation expense for the six months ended June 30, 2004 and 2003 totaled $1,303 and $1,326, respectively. Expenditures for maintenance and repairs are charged to operations; major expenditures for renewals and betterments are capitalized and depreciated. Estimated useful lives are as follows: Equipment 3 to 5 years Leasehold improvements 3 years Furniture and fixtures 5 years 5
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTELLECTUAL PROPERTY RIGHTS Intellectual property rights are capitalized and amortized over the estimated useful life of the licensed technologies. Amortization is calculated based upon the number of units produced during the period as a percentage of the total number of units expected to be produced using the licensed technology. The Company recorded amortization expense of $436 and $167 related to its intellectual property rights for the six months ended June 30, 2004 and 2003, respectively. Additionally, certain intellectual property rights are amortized based upon annual revenue recognized to total expected revenue related to the intellectual property. During 2004, the Company did not record amortization related to $1,071 of its intellectual property as no related revenue was recognized. RESTRICTED CASH During 2003, the Company entered into a new lease for its corporate office and certain operations, which required the issuance of an irrevocable, unconditional, standby letter of credit for $125. The restricted cash balance as of June 30, 2004 includes a $125 certificate of deposit that secures this letter of credit. At the option of the Company, the letter of credit may be reduced by 20% on each anniversary of the lease agreement. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 6
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which gives companies the option to adopt the fair value method for expense recognition of employee stock options and other stock-based awards or to account for such items using the intrinsic value method as outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") with pro forma disclosures of net income (loss) as if the fair value method had been applied. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"). SFAS No. 148 amends SFAS No. 123, to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to apply the provisions of APB 25 for stock option and other stock-based awards. The following table illustrates the effect on net loss for the six months ended June 30, 2004 and 2003 had the Company applied the fair value recognition provisions of SFAS 123 for its option grants to employees: JUNE 30, 2004 JUNE 30, 2003 ------------- ------------- Net loss, as reported $(5,006) $(4,360) Deduct total stock-based employee compensation expense determined under the fair value based method for all awards, net (39) (38) ------------------------------------ Pro forma loss $(5,045) $(4,398) ==================================== The Company computes fair value for employee stock options using the minimum value option-pricing model. The assumptions used in this model to estimate fair value and the resulting values are as follows: JUNE 30, 2004 JUNE 30, 2003 ----------------------------------------- Expected dividend yield - - Risk-free interest rate 3.6% 2.1% Expected life (in years) 4 4 7
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENT IN UNITIVE SEMICONDUCTOR TAIWAN CORPORATION The Company's investment in Unitive Semiconductor Taiwan Corporation ("USTC") is accounted for using the equity method, as prescribed by APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18") since the Company is able to exert influence through its collaborative services agreement and representation on the USTC board of directors. The Company's ownership percentage at June 30, 2004 was approximately 18.4%. USTC provides semiconductor processing services in Taiwan. The Company recorded a loss of $190 and $682 for the six months ending June 30, 2004 and 2003, respectively, in accordance with the requirements of APB 18 for its share of the losses incurred by USTC. As of June 30, 2004, the Company's investment in USTC had been written down to zero since its share of USTC losses had exceeded the carrying value of the investment. The Company does not have any requirements to fund future obligations of USTC. INCOME TAXES The Company accounts for income taxes in accordance with SFAS 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has no current provision for income taxes. Due to the history of losses by the Company, management has determined that a valuation allowance is needed to reduce the net deferred tax asset to zero. 2. ACCRUED EXPENSES Accrued expenses consist of the following at June 30, 2004: Accrued compensation and benefits $ 211 Accrued property taxes 137 Accrued legal and professional fees 35 Other accrued expenses 262 ------ Accrued expenses $ 645 ====== 8
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 3. NOTES PAYABLE TO STOCKHOLDERS In October 2002, the Company executed a promissory note for $440 with a stockholder in lieu of paying facility rent. The note was unsecured and accrued interest at a rate of 7.5% annually. During November 2003, the Company negotiated a new promissory note with this stockholder for $440 in exchange for the outstanding balance of the previous promissory note of $277, which included accrued interest of $31, and as consideration for $163 of unpaid rent. The promissory note is unsecured and bears interest at the rate of 7.5% annually. As of June 30, 2004, the outstanding principal balance of the promissory note was $340, of which $223 is due by June 30, 2005. In October 2002, the Company executed a promissory note for $462 with another stockholder in lieu of paying certain management expenses. The note was unsecured and accrued interest at a rate of 7.5% annually. During November 2003, the Company negotiated a new promissory note for $500 in exchange for the outstanding balance of the previous promissory note of $240, which included accrued interest of $20, and as consideration for outstanding payables of $260 related to management expenses. The promissory note is unsecured and bears interest at the rate of 7.5% annually. As of June 30, 2004, the outstanding principal balance of the promissory note was $387, of which $253 is due by June 30, 2005. 4. LONG-TERM DEBT In November 2003, the Company entered into a loan and security agreement (the "Loan Agreement") with two lenders that provides up to $6,000 of financing. Borrowings under the Loan Agreement will be evidenced by promissory notes that bear interest at a rate equal to the interest rate of the three-year treasury note at the time of funding, plus 740 basis points. The Company may prepay the outstanding balance of the promissory notes in whole by giving thirty days written notice to the lenders. However, the Company will be required to pay a premium of 5%, 3%, or 1% if any of the borrowings are prepaid during the first twelve, twenty-four, or thirty-six month period, respectively. The obligations under the Loan Agreement are secured by substantially all of the assets of the Company. The terms of the Loan Agreement permit the Company to incur additional indebtedness of up to $1,000, provided that such indebtedness is used for the financing of capital expenditures and may be secured with only the equipment purchased. As of June 30, 2004, the Company had issued promissory notes totaling $4,000 to the two lenders. The actual proceeds remitted to the Company were $3,872, which excluded the first month's principal and interest payments. The weighted average interest rate of the promissory notes is approximately 9.8%. The terms of the Loan Agreement require that the Company make a terminal payment equal to 5.5% of the original principal amount of the promissory notes on the maturity date. This terminal payment is in addition to the repayment of the full principal amount of the notes. The Company is accruing the terminal payment amount related to the outstanding notes with a corresponding charge to interest expense over the term of the promissory notes. The Company issued an additional $1,000 subsequent to June 30, 2004 under this Loan Agreement (see Note 7). In connection with the Loan Agreement, the Company issued 300,000 warrants to purchase Series A-1 preferred stock at an exercise price of $0.20 per share to the two lenders. The warrants expire in 2013. The Company recorded the 300,000 warrants at their estimated fair value of $55 as a discount on the debt, which is being amortized to interest expense over the term of the promissory notes. The Company determined the fair value of the warrants using the Black-Scholes valuation model. 9
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 4. LONG-TERM DEBT (CONTINUED) The borrowings under the promissory notes outstanding as of June 30, 2004 are payable in full by December 31, 2006. Future minimum principal payments as of June 30, 2004 are as follows: July 1, 2004 - June 30, 2005 $ 1,261 July 1, 2005 - June 30, 2006 1,390 After June 30, 2006 903 -------- Total minimum principal payments 3,554 -------- Less unamortized debt discount (52) Less unamortized terminal payments (180) Less current portion (1,261) -------- Long-term portion $ 2,061 ======== 5. LEASE COMMITMENTS The Company leases manufacturing equipment and a telephone system with an aggregate cost of approximately $6,163 at June 30, 2004, under capital lease arrangements which expire at various dates through 2005. Certain leases contain renewal provisions and escalation clauses. Amortization of assets under capital leases is included in depreciation and amortization expense. Future minimum lease payments, by period and in the aggregate, under capital leases with initial terms of one year or more at June 30, 2004 are as follows: CAPITAL LEASES -------------- July 1, 2004 - June 30, 2005 $ 1,124 July 1, 2005 - June 30, 2006 292 --------- Total minimum lease payments 1,416 Less amount representing interest (188) --------- Present value of net minimum lease payments 1,228 Less unamortized debt discount (18) Less current portion (1,185) --------- Long-term portion $ 25 ========= 10
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 6. RELATED PARTY TRANSACTIONS During 2004, the Company entered into several transactions with one of its stockholders. These transactions involved leasing certain facilities from the stockholder and contracts for certain services to be provided by the stockholder to the Company. Additionally, the transactions included certain utility costs, clean room costs and other related expenses. Below are the approximate amounts related to these transactions for the six months ended June 30, 2004. Rent expense $ 510 Research and development costs 13 Utilities and other expenses 210 Clean room and other related expenses 189 Interest on note payable (Note 3) 16 At June 30, 2004, the Company owed the stockholder approximately $33, related to these activities. These amounts are included in accounts payable and accrued expenses. The Company also owes this stockholder amounts under a note payable agreement (See Note 3). The Company had accounts receivable of approximately $166 due from USTC as of June 30, 2004, which have been reflected within accounts receivable in the accompanying balance sheet. The Company owed approximately $18 to USTC in connection with amounts collected on behalf of USTC but not remitted as of June 30, 2004. These balances have been reflected as due to affiliate in the accompanying balance sheet. STOCKHOLDERS' NOTES RECEIVABLE In consideration for the issuance of the Company's Series B preferred stock, various key employees executed promissory notes in January 2001, in the principal amount of $420 and are included in Stockholders' Equity. The notes bear interest at the rate of 6.5% per annum and are due and payable five years from the date of issuance. The notes are full recourse, and in addition, each of the individuals has pledged the common stock as collateral to secure the obligations under the notes. During March 2004, the Board of Directors of the Company amended the promissory notes to provide for the forgiveness of the outstanding principle balance and accrued interest upon a change in control, as defined. Upon cancellation of the promissory notes, the holders must remit the shares of common stock pledged as collateral to the Company. In connection with this amendment, the Company recorded compensation expense of $420 within general and administrative expenses in the accompanying statement of operations for the six-month period ended June 30, 2004. 11
UNITIVE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2004 (DOLLARS IN THOUSANDS) 7. 2004 EQUITY INCENTIVE PLAN During March 2004, the Board of Directors of the Company approved the 2004 Equity Incentive Plan (the "2004 Plan"). Pursuant to the 2004 Plan, during March, June and July 2004, the Company issued an aggregate 5,000,000 options to purchase Series A-1 preferred stock at a exercise price of $0.10 per share, 3,000,000 options to purchase Series A-3 preferred stock at an exercise price of $0.01 per share, and 4,000,000 options to purchase 4,000,000 shares of common stock at an exercise price of $0.01 per share. The options generally vest over a period of 4 years. However, the vesting is subject to acceleration upon a change in control, as defined in the 2004 Plan. In connection with the issuance of these options, the Company measured compensation expense of $1,456, of which $91 was recorded within general and administrative expenses in the accompanying statement of operations for the six-month period ended June 30, 2004. 8. SUBSEQUENT EVENTS On August 19, 2004, Amkor Technology, Inc. purchased approximately 93.0% of the capital stock of the Company at a purchase price of $28,000,000. The selling stockholders of the Company are also entitled to receive additional consideration of up to $55,000,000. The additional consideration will be determined based on a formula set forth in the Stock Purchase Agreement that includes a final determination of the Company's EBITDA, as defined, for the nine-month period ended March 31, 2005. On August 19, 2004, the Company issued a promissory note totaling $1,000,000 in connection with the Loan Agreement executed in November 2003 (see Note 4) in order to finance certain capital expenditures. The terms of the promissory note are substantially the same as the promissory notes outstanding at December 31, 2003 under the Loan Agreement. On October 27, 2004 the Company repaid $4.3 million in cash consideration for all outstanding related to the promissory notes under the Loan Agreement, which included accrued interest and early payment fees. The funding for the payment of these promissory notes was provided by Amkor. As is typical in the semiconductor and other high technology industries, from time to time, others may in the future assert, that the Company's products or manufacturing processes infringe on their intellectual property rights. Subsequent to year-end, the Company received correspondence from a third party indicating that a potential unasserted claim may exist related to the use of certain intellectual property. In the opinion of management, if a legal claim is made in the future, the Company would vigorously defend itself or would likely prevail. However, no assurance can be given to the outcome of any potential future litigation. 12
EXHIBIT 99.5 UNITIVE SEMICONDUCTOR TAIWAN CORP. UNAUDITED FINANCIAL STATEMENTS JUNE 30, 2004 AND 2003
UNITIVE SEMICONDUCTOR TAIWAN CORP. BALANCE SHEETS (UNAUDITED) JUNE 30, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR PAR VALUE) 2004 2003 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 105,285 18,515 Short-term investments (note 3) 27,018 300,591 Notes receivable 3,833 - Accounts receivable, net 39,819 12,516 Accounts receivable - related parties (note 11) 1,091 11,451 Other financial assets - current 437 14,356 Inventories, net (note 4) 18,114 12,936 Prepaid expenses and other current assets 5,349 2,581 Restricted assets (note 12) 5,050 10,700 ----------- ----------- TOTAL CURRENT ASSETS 205,996 383,646 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT (NOTES 5 AND 12): Cost: Land 113,069 113,069 Land improvements 3,081 3,081 Buildings 346,795 308,289 Machinery and equipment 829,196 606,193 Computer equipment 7,171 10,986 Transportation equipment 2,898 2,898 Furniture and fixtures 5,993 6,776 Leased assets 34,195 32,426 Other equipment 6,265 3,141 ----------- ----------- 1,348,663 1,086,859 Less: accumulated depreciation (467,654) (309,682) Prepayments for purchases of machinery and equipment 1,651 170,888 ----------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 882,660 948,065 ----------- ----------- INTANGIBLE ASSETS: Patents (note 11) 48,400 58,000 Computer software 2,007 3,412 ----------- ----------- TOTAL INTANGIBLE ASSETS 50,407 61,412 ----------- ----------- OTHER ASSETS Deferred tax assets (note 9) - 154,210 Others 1,977 1,891 ----------- ----------- TOTAL OTHER ASSETS 1,977 156,101 ----------- ----------- TOTAL ASSETS $ 1,141,040 1,549,224 =========== =========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. BALANCE SHEETS (CONTINUED) (UNAUDITED) JUNE 30, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR PAR VALUE) 2004 2003 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debts (notes 6 and 12) $ 105,616 159,132 Current portion of long-term debts (notes 7 and 12) 154,655 133,922 Notes payable 21,718 22,431 Accounts payable 11,908 6,190 Other notes payable 2,695 6,592 Accrued expenses and other current liabilities (note 11) 30,499 25,617 ----------- ----------- TOTAL CURRENT LIABILITIES 327,091 353,884 ----------- ----------- LONG-TERM LIABILITIES: Long-term debts (notes 7, 11 and 12) 455,953 351,328 Obligations under capital lease 1,498 2,838 ----------- ----------- TOTAL LONG-TERM LIABILITIES 457,451 354,166 ----------- ----------- OTHER LIABILITIES: Accrued pension liabilities (note 8) 9,095 6,255 ----------- ----------- TOTAL LIABILITIES 793,637 714,305 ----------- ----------- STOCKHOLDERS' EQUITY (NOTE 10): Common stock of $10 par value, authorized 140,000,000 shares and issued 130,000,000 shares in 2004 1,300,000 1,300,000 Capital surplus 60,000 60,000 Accumulated deficit (1,012,597) (525,081) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 347,403 834,919 ----------- ----------- COMMITMENTS (NOTE 13) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,141,040 1,549,224 =========== =========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) 2004 2003 SALES (NOTE 11) $ 104,120 31,856 LESS: SALES RETURNS AND ALLOWANCES 204 - --------- --------- NET SALES 103,916 31,856 COST OF SALES (NOTES 8 AND 11) 209,262 132,874 --------- --------- GROSS LOSS (105,346) (101,018) --------- --------- OPERATING EXPENSES (NOTES 8 AND 11): Selling expenses 11,584 14,507 Administrative expenses 23,594 30,331 Research and development expenses 18,329 29,570 --------- --------- 53,507 74,408 --------- --------- OPERATING LOSS (158,853) (175,426) --------- --------- NON-OPERATING INCOME: Interest income 117 193 Gain on sale of property, plant and equipment 97 - Gain on disposal of short-term investments 1,122 2,198 Foreign exchange gain, net 24 - Other income 12,415 1,658 --------- --------- 13,775 4,049 --------- --------- NON-OPERATING EXPENSE: Interest expense, net of capitalized interest expense of $754 in 2003 12,442 13,378 Loss on disposal of property, plant and equipment 121 359 Foreign exchange loss, net - 109 Other expense 5 613 --------- --------- 12,568 14,459 --------- --------- LOSS BEFORE INCOME TAX (157,646) (185,836) INCOME TAX EXPENSE (NOTE 9) (181,509) 38,773 --------- --------- NET LOSS $(339,155) (147,063) ========= ========= EARNING PER SHARE (NOTE 15) BASIC $ (2.61) (1.13) ========= ========= AVERAGE NUMBER OF SHARES (`000 SHARES) (NOTE 15) BASIC $ 130,000 130,000 ========= ========= See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) NUMBER OF SHARES (`000 COMMON CAPITAL ACCUMULATED SHARES) STOCK SURPLUS DEFICIT TOTAL BEGINNING BALANCE AS OF JANUARY 1, 2003 130,000 $1,300,000 60,000 (378,018) 981,982 Net loss for the six-month period ended June 30, 2004 and 2003 - - - (147,063) (147,063) ---------- ---------- ---------- ---------- ---------- BALANCE AS OF JUNE 30, 2003 130,000 $1,300,000 60,000 (525,081) 834,919 ========== ========== ========== ========== ========== BEGINNING BALANCE AS OF JANUARY 1, 2004 130,000 $1,300,000 60,000 (673,442) 686,558 Net loss for the six-month period ended June 30, 2004 and 2004 - - - (339,155) (339,155) ---------- ---------- ---------- ---------- ---------- BALANCE AS OF JUNE 30, 2004 130,000 $1,300,000 60,000 (1,012,597) 347,403 ========== ========== ========== ========== ========== See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(339,155) (147,063) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 86,834 71,986 Amortization 5,914 7,022 Recovery of provision for obsolescence and decline in value of inventory (1,989) 526 Gain on disposal of short-term investments (1,122) (2,198) Gain on sale of property, plant and equipment (97) - Loss on disposal of property, plant and equipment 121 359 Decrease (increase) in notes receivable and accounts receivable (9,767) 12,987 Decrease (increase) in inventories (5,749) 3,363 Decrease (increase) in other financial assets-current 214 (12,693) Decrease in prepaid expenses and other current assets 1,008 5,170 Decrease (increase) in net deferred tax assets 181,509 (38,773) Increase (decrease) in notes payable and accounts payable 3,344 (6,289) Decrease in accrued expenses and other current liabilities (5,437) (6,120) Increase in accrued pension liabilities 1,388 1,464 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (82,984) (110,259) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease (increase) in short-term investments (89,000) 220,904 Disposal of short-term investments 110,556 - Acquisitions of property, plant and equipment (60,848) (143,077) Proceeds from sale of property, plant and equipment 200 - Increase in intangible assets (471) (1,073) Increase in other assets (295) (729) --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (39,858) 76,025 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in restricted assets 7,650 7,800 Increase (decrease) in short-term debts (888) 21,671 Increase in long-term debts 259,280 21,000 Repayment of long-term debts (70,365) (65,450) --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 195,677 (14,979) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72,835 (49,213) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32,450 67,728 --------- --------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 105,285 18,515 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 11,920 13,415 ========= ========= Cash paid for income tax $ 11 20 ========= ========= SUPPLEMENTAL DISCLOSURES OF INVESTING AND FINANCING ACTIVITIES: Cash paid for acquisitions of property, plant and equipment: Total acquisitions $ 60,239 125,323 Net increase in payable to equipment suppliers 609 17,754 --------- --------- $ 60,848 143,077 ========= ========= Current portion of long-term debts $ 154,655 133,922 ========= ========= See accompanying notes to financial statements.
UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 AND 2003 (ALL AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, UNLESS OTHERWISE SPECIFIED) (1) ORGANIZATION AND OPERATIONS Unitive Semiconductor Taiwan Corp. (the Company) was incorporated on June 30, 1999, as a company limited by shares under the laws of the Republic of China and approved as a Foreign Investment Approved Company in accordance with the Statute for Investment by Foreign Nationals. The Company's approved foreign capital investment and related earnings are eligible for repatriation. The Company is a bumping house that focuses on providing solder bumping and gold bumping services in the wafer level that advanced packing industries. With the solder bumping technology, the Company bumps wafers using electro-plated solder to connect I/O pads and substrate for flip chip assembly. The Company is capable of providing both 8 inch and 12 inch with best solder bumping services and also cooperates with world-class assembly houses to provide turnkey solutions to its customers. The Company also develops its own gold bumping technology to serve mainly in the field of LCD/PDP driver IC's packaging. The Company with its high quality gold bumping references is the main partner of the worldwide major players in this field. To achieve the goal of world-leading production and permanent operation, the Company focuses on providing the solder bumping and gold bumping service to worldwide IDMs, fables IC design houses, foundry fabs and assembly houses. The Company continuously improves its bumping process and enhances production capability through research and innovation to satisfy its customers. As of June 30, 2004, the number of the Company's employees was 193. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial statements as of and for the six-month ended June 30, 2004 and 2003, and notes thereto, are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statements of the results of operations, financial position and cash flows. The results reported in these interim financial statements should not be regarded as necessarily indicative of the results that can be expected for the entire year. The Company prepares the accompanying financial statements in conformity with accounting principles generally accepted in the ROC. The preparation of the financial statements is based on historical cost. (Continued)
2 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) A summary of significant accounting policies used in preparing such financial statements is as below. 1) Foreign currency transactions The Company maintains its books in New Taiwan dollars. Foreign currency transactions, except for forward contracts, are recorded at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are revalued at the exchange rate prevailing on the balance sheet date. The resulting exchange gains or losses are recorded as non-operating income or expense. 2) Cash equivalents Cash equivalents represent all highly liquid short-term debt instruments, such as bonds purchased under agreements to resell with the original maturity of three months or less, and other highly liquid investments with insignificant interest rate risk. 3) Short-term investments Short-term investments are the receipt of trust funds invested in the bond market and are stated at the lower of cost or market method. Market value is determined based on the net value of the fund at the balance sheet date, and any unrealized loss is charged to current year's operation. Cost is determined based on the weighted-average method. 4) Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the monthly weighted-average method. Market value is determined according to net realizable value. 5) Property, plant and equipment, and related depreciation Property, plant and equipment are stated at acquisition cost. Interest cost incurred in connection with the acquisition of property, plant and equipment is capitalized as part of the cost of the related assets. Gain or loss on disposal of property, plant and equipment is recorded as non-operating income or expenses. Except for land, depreciation is provided for on a straight-line basis over the estimated useful lives of the respective assets. (Continued)
3 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The estimated useful lives of property, plant and equipment are as follows: Land improvements 3 years Buildings 3 ~ 25 years Machinery and equipment 2 ~ 5 years Computer equipment 3 years Transportation equipment 3 ~ 5 years Furniture and fixtures 3 ~ 5 years Leased assets 5 years Other equipment 3 ~ 5 years 6) Intangible assets Computer software and patents are stated at acquisition cost. Amortization is provided for using straight-line method over the estimated useful lives of the assets. 7) Retirement plan In March 2001, the Company established an employee retirement plan providing for lump-sum retirement benefits to all full-time employees who meet retirement requirements. The pension payment is calculated based on the number of service years. The Company has made monthly deposits equal to an approved percentage of employees' total salaries in the Central Trust of China since March 2001 in accordance with the ROC Labor Standards Law. Actual benefits paid are made out of the fund. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 18, "Accounting for Pensions". The end of each fiscal year is used as the measurement date for the actuarial assessment. A minimum pension liability is recognized when the accumulated benefit obligation exceeds the fair value of plan assets. In accordance with SFAS No. 18, the Company recognizes net pension cost every year. 8) Recognition of revenue Revenue is recognized after the completion of production processes and shipment. (Continued)
4 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 9) Income tax The Company's income tax is estimated based on the accounting income. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities, and are measured by applying the effective tax rates for the taxable years in which those temporary differences are expected to reverse. Deferred tax liabilities are recognized for the future tax consequences attributable to taxable temporary differences, and deferred tax assets are recognized for the future tax consequences attributable to deductible temporary difference, loss carryforwards, and investment tax credits, with the measurement of deferred tax assets being reduced by estimated amounts of tax benefits not likely to be realized, based on, among other considerations, forecasts of future taxable income. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the related liabilities or assets for financial reporting. Deferred tax assets and liabilities that are not related to a liability or asset for financial reporting are classified according to the expected reversal date of the temporary differences. The 10% surtax on unappropriated earnings is recorded as expense on the date the stockholders resolve the distribution of earnings. (3) SHORT-TERM INVESTMENTS As of June 30, 2004 and 2003, the details of investments were as follows: 2004 2003 Bond fund $ 27,018 300,591 ======== ======= The bond fund acquired by the Company was of low risk and provided fixed return. As of June 30, 2004 and 2003, the bond fund was stated at cost and the related market price was $27,143 and $303,368. (Continued)
5 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (4) INVENTORIES As of June 30, 2004 and 2003, the details of inventories were as follows: 2004 2003 Raw materials $13,468 5,701 Supplies and spare parts 6,340 6,948 Work in process 3,979 2,046 Finished goods 1,472 393 ------- ------- 25,259 15,088 Less: provision for losses 7,145 2,152 ------- ------- $18,114 12,936 ======= ======= The insurance coverage on inventories as of June 30, 2004 and 2003 was both $60,000. (5) PROPERTY, PLANT AND EQUIPMENT The Company leased a computer system under capital lease effective July 2000. The lease period is 4 years. Upon expiration of the lease, the ownership of the assets is transferred to the Company without any limitation. As of June 30, 2004 and 2003, the details of obligations under capital lease were as follows: 2004 2003 Obligations under capital lease $ - 9,430 Less: current portion - 6,592 ------ ------ $ - 2,838 ====== ====== As of June 30, 2004, and 2003, the leased assets were included in property, plant and equipment. The current portion of obligations under capital lease is included in other notes payable. The noncurrent portion is included in obligations under capital lease in the accompanying financial statements. The capitalized interest expense for purchasing machinery and equipment amounted to $754 for the six-month period ended June 30, 2003. The annual interest rate for the capitalized interest expense ranged from 1.82% to 8.00%. There was no capitalized interest expense for the six-month period ended June 30, 2004. (Continued)
6 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The insurance coverage for property, plant and equipment as of June 30, 2004 and 2003 was $1,173,000 and $1,175,092, respectively. (6) SHORT-TERM DEBTS As of June 30, 2004 and 2003, the details of short-term debts were as follows: 2004 2003 Unsecured short-term debts $ 74,794 50,000 Usance letters of credit 30,822 109,132 -------- -------- $105,616 159,132 ======== ======== The annual interest rate for the unsecured short-term debts ranged from 1.48% to 2.89% and 1.85% to 2.00% for the six-month periods ended June 30, 2004 and 2003, respectively. The annual interest rate for the usance letters of credit ranged from 0.66% to 8.00% and 0.66% to 8.00 for the six-month periods ended June 30, 2004 and 2003, respectively. All the short-term debts mentioned are due in one year. As of June 30, 2004 and 2003, unused lines of credit amounted to approximately $122,482 and $353,940, respectively. (7) LONG-TERM DEBTS As of June 30, 2004 and 2003, the details of long-term debts were as follows: PERIOD OF PAYMENT INTEREST BANK DESCRIPTION LOAN PERIOD RATE 2004 2003 Hua Nan Secured by 2000.12.28~ Repayment of principal 2004: $ 135,690 226,150 Commercial machinery 2005.12.28 is in 16 quarterly 5.715% Bank installments. The 2003: Company repaid 5.715%~ principal amounting to 5.865% 23,415 and $12,000 in January and March 2002, respectively. The remaining principal after March 2002 is payable in 15 quarterly installments. Hua Nan Secured by 2000.11.3~ Repayment of principal 2004: 121,860 140,620 Commercial land and 2010.11.3 is in 32 quarterly 3.70% Bank buildings installments beginning 2003: from February 2003. 4.125%~ 4.625% (Continued)
7 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) PERIOD OF PAYMENT INTEREST BANK DESCRIPTION LOAN PERIOD RATE 2004 2003 Hua Nan Secured by 2000.11.3~ Repayment of principal 2004: $ 75,800 97,480 Commercial machinery 2007.11.3 is in 24 quarterly 3.70% Bank installments beginning 2003: from February 2002. 4.125%~ 4.625% Hua Nan Secured by 2003.03.12~ Repayment of principal 2004: 10,312 11,000 Commercial machinery 2008.03.12 is in 16 quarterly 4.00% Bank installments beginning 2003: from April 2004. 4.185% Shanghai Credit debts 2003.06.05~ Repayment of principal 2004: 7,666 10,000 Commercial 2007.06.05 and interest is in 48 4.5% Bank monthly installments 2003: beginning from July 4.5% 2003. Hua Nan Secured by 2004.4.15~ Repayment of principal 2004: 139,000 - Commercial machinery 2009.1.15 and interest is in 16 4.00% Bank monthly installments beginning from January 2005. Hua Nan Secured by 2004.4.15~ Repayment of principal 2004: 19,000 - Commercial machinery 2009.1.15 and interest is in 16 4.00% Bank monthly installments beginning from April 2005. Amkor Secured by 2004.6.8~ Payment of interest is 2004: 101,280 - Technology stock of the 2009.6.8 made semiannually 5.71% Inc. Company beginning from held by December 2004; shareholders repayment of principal is on the maturity date or upon termination of the agreement ----------- ------- 610,608 485,250 Less: current portion of long-term debts 154,655 133,922 ----------- ------- $ 455,953 351,328 =========== ======= (Continued)
8 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The Company's long-term debt balances due on the five years following June 30, 2004, are as follows: YEAR AMOUNT July 1, 2004 ~ June 30, 2005 $154,655 July 1, 2005 ~ June 30, 2006 130,478 July 1, 2006 ~ June 30, 2007 85,365 July 1, 2007 ~ June 30, 2008 71,086 After July 1, 2008 169,024 -------- $610,608 ======== (8) PENSION The Company has made monthly deposits equal to 2% of employees' total salaries in the Central Trust of China. As of June 30, 2004 and 2003, the balance of the deposits was $5,118 and $3,452, respectively. For the six-month periods ended June 30, 2004 and 2003, the Company recognized net pension cost of $2,177 and $2,268, respectively. (9) INCOME TAX The Company's income tax is subject to a maximum income tax rate of 25%. The current statutory tax rate is 25%. For the six-month periods ended June 30, 2004 and 2003, the components of income tax expense (benefit) were as follows: 2004 2003 Current income tax $ - - Deferred income tax expense (benefit) 181,509 (38,773) -------- -------- Income tax expense (benefit) $181,509 (38,773) ======== ======== (Continued)
9 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) For the six-month period ended June 30, 2004 and 2003, the differences between "expected" income tax at the statutory income tax rate, and effective income tax expense (benefit) as reported in the accompanying financial statements, were as follows: 2004 2003 Expected income tax benefit $ (39,411) (46,459) Gain on disposal of investments (280) (549) Investment tax credits and R&D expense tax credits (8,891) (51,375) Change in estimate of prior years' deferred tax assets 36,396 1,391 Others 85 60 Valuation allowance for deferred tax assets 193,610 58,159 --------- --------- Actual income tax expense (benefit) $ 181,509 (38,773) ========= ========= For the six-month periods ended June 30, 2004 and 2003, the components of the Company's deferred income tax expense (benefit) were as follows: 2004 2003 Deferred tax benefit (exclusive of the effects of other components below) $ - (38,773) Increase in beginning-of-the-year balance of the valuation allowance for deferred tax assets 181,509 - -------- -------- Total deferred tax expense (benefit) $181,509 (38,773) ======== ======== The deferred tax assets as of June 30, 2004 and 2003, were as follows: 2004 2003 Current: Deferred tax assets $ 1,786 - Less: valuation allowance (1,786) - --------- --------- Net deferred tax assets $ - - ========= ========= Noncurrent: Deferred tax assets $ 468,911 385,524 Less: valuation allowance (468,911) (231,314) --------- --------- Net noncurrent deferred tax assets $ - 154,210 ========= ========= Total deferred tax assets $ 470,697 385,524 ========= ========= Total valuation allowance for deferred tax assets $ 470,697 231,314 ========= ========= (Continued)
10 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The components of deferred tax assets as of June 30, 2004 and 2003, were as follows: 2004 2003 Deferred tax assets: Loss carryforwards $ 303,337 223,912 Investment tax credits and R&D expense tax credits 162,892 159,176 Inventories 1,786 - Accrued employee benefits 275 875 Accrued pension liabilities 2,274 1,561 Other 133 - --------- --------- 470,697 385,524 Less: valuation allowance (470,697) (231,314) --------- --------- Net deferred tax assets $ - 154,210 ========= ========= In accordance with the ROC Income Tax Law, the Company's losses for tax purposes, as assessed by the tax authorities, can be carried forward to offset any future taxable income for a period of five years. As of June 30, 2004, the Company's total loss carryforward amounts and their expiry dates were as follows: YEAR OF YEAR OF LOSS AMOUNT EXPIRATION 1999 $ 23,510 2004 2000 176,576 2005 2001 278,257 2006 2002 224,324 2007 2003 352,087 2008 2004 158,592 2009 ---------- $1,213,346 ========== (Continued)
11 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Pursuant to the ROC Statute for Upgrading Industries, the Company's unused investment tax credit for the purchase of automation equipment and R&D expense tax credit as of June 30, 2004 and 2003, were as follows: YEAR AMOUNT YEAR OF EXPIRATION 2000 $ 7,054 2004 2001 5,669 2005 2002 102,074 2006 2003 39,204 2007 2004 8,891 2008 -------- $162,892 ======== The ROC income tax authorities have assessed the Company's income tax returns for all years through 1999. In assessing the realizability of deferred tax assets, the management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, as of June 30, 2004 and 2003, the Company will need to generate future taxable income of approximately $1,882,788 and $1,542,096 prior to the expiration of the net operating loss carryforward in 2007 and 2006, and investment tax credits in 2008 and 2007, respectively. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize $1,882,788 and $925,256 of benefits of these deductible differences at June 30, 2004 and 2003, respectively. (10) STOCKHOLDERS' EQUITY 1) Capital surplus The ROC Company Law prescribes that capital surplus should be used to offset an accumulated deficit before utilizing realized capital surplus to increase issued share capital. The realized capital surplus includes the amount in excess of the par value of common stock issued and any amounts donated to the Company. The amount to be capitalized cannot exceed the specific percentage of capital surplus every year. (Continued)
12 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2) Legal reserve The ROC Company Law stipulates that companies must retain 10% of their annual net earnings, as defined in the Law, until such retention equals the amount of authorized share capital. The legal reserve shall be used exclusively to offset deficits and is prohibited from being distributed as cash dividends. However, the legal reserve may be transferred to capital upon approval of the stockholders when it has been accumulated to a level equal to at least one-half of the issued share capital, and then only one-half of such reserve may be transferred. 3) Distribution of earnings The Company's articles of incorporation stipulate that not less than 1% of annual earnings, net of income tax, accumulated deficit, and legal reserve appropriation, are to be distributed as employee bonuses, and the remaining portion may be distributed according to a stockholders' meeting resolution. 4) Imputation credit account and imputation tax credit ratio As of June 30, 2004 and 2003, the balance of the Company's imputation credit account was zero. Due to accumulated deficits as of December 31, 2003, the imputation tax credit ratio of the Company was zero for 2003. (11) TRANSACTIONS WITH RELATED PARTIES 1) Name and relationship of related parties NAME RELATIONSHIP WITH THE COMPANY Unitive International Limited (UIL) The Company's major shareholder Unitive Electronics Inc. (UEI) An affiliated Company of Unitive International Limited (UIL) Yi-Kang Investment Ltd. A shareholder of the Company (Continued)
13 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2) Nature of transactions 1. Sales and accounts receivable For the six-month periods ended June 30, 2004 and 2003, sales to related parties were as follows: 2004 2003 % OF THE COMPANY'S % OF THE COMPANY'S AMOUNT NET SALES AMOUNT NET SALES UEI $ 319 0.3 4,470 14 ====== === ===== == As of June 30, 2004 and 2003, the balance of accounts receivable resulting from the above transactions was as follows: 2004 2003 AMOUNT % AMOUNT % UEI $ 1,091 2 11,451 48 =============== === ====== == The sales prices and terms were not significantly different between sales to related parties and other customers. 2. Others (a) The Company entered into a patent and technical support agreement with UIL, recorded under intangible assets and amortized over 10 years on a straight-line basis. The resulting amortization expenses from the abovementioned transaction were $4,800 for the six-month period ended June 30, 2004 and 2003, and were accounted for under cost of sales. Further, in accordance with the contract, the Company should pay an additional 2.5% of total sales in excess of USD10,000,000 to UIL as royalties on the quarterly basis. (b) In 2002, the Company entered into a global marketing and R&D system contract with UEI. According to the contract, the Company should pay a fixed percentage of the Company's sales as a commission expense. The commission paid pursuant to this contract amounted to $4,669 and $5,630, respectively, and was booked as an operating expense for the six-month period ended June 30, 2004 and 2003. (Continued)
14 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (c) On October 2002, the Corporation entered into a service agreement with UEI and a third party. Under this agreement, UEI will assist the Corporation to acquire the demonstration equipment wafer bumping line from the third party, and provide support services to the Corporation with respect to the implementation of such bumping line. According to the predetermined payment schedule, the Corporation shall pay UEI the following nonrefundable fees: PAYMENT DATE (EARLIEST OF TWO) AMOUNT Contract date - USD 75,000 Delivery date of equipment January 31, 2003 USD 175,000 Date of successful start of production May 14, 2003 USD 100,000 As of June 30, 2003, the Corporation had incurred net service expense of $9,543 (USD275,000), which was booked as operating expense. As of June 30, 2003, the service expense resulting from the above transaction had been paid. According to the above agreement, the Corporation will be responsible for taxes and duties on the equipment, while the third party will carry its own property insurance until the Corporation purchases the equipment. In addition, expiring on September 30, 2004, the Corporation has an option to purchase the equipment from the third party. As of June 30, 2003, the above-mentioned equipment had been imported. (d) As of June 30 ,2004, the Company consigned the manufacturing process to UEI on behalf of its client; the resulting amount of $4,427 was recorded as accrued expense and other current liabilities. (e) As of June 30, 2004 and 2003, Yi-Kang Investment Ltd. provided its holding shares of the Company as pledged assets to Amkor Technology, Inc. for long-term debts of the Company. (Continued)
15 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 12) PLEDGED ASSETS As of June 30, 2004 and 2003, the details and net book value of pledged assets were as follows: BOOK VALUE PLEDGED ASSETS PLEDGED FOR 2004 2003 Time deposits Short-term debts $ 5,050 10,700 Property, plant and equipment Long-term debts 589,661 643,479 --------- ------- Total $ 594,711 654,179 ========= ======= (13) COMMITMENTS AND CONTINGENCIES 1) As of June 30, 2004 and 2003, the Company had outstanding amount of letters of credit, mainly used for acquisition of equipment, was approximately $15,777 and $57,322, respectively. 2) The Company entered into forward foreign currency contracts to hedge against exposure to exchange rate fluctuation in foreign currency debts. At June 30, 2003, the nominal value for outstanding short and long position in forward contracts was USD200,000 and USD2,085,100, respectively. The contract period is from May 3 to October 31, 2003. In addition, the net receivable (payable) and the fair value of the above forward foreign currency contracts are immaterial to the financial statements. 3) The Company had a contract for an extended clean room with an engineering firm amounting to $40,804 for the six-month period ended June 30, 2003. As of June 30, 2003, the Company had paid $31,210 under the contracts. The amount was recorded as prepayments for purchases of machinery and equipment. 4) Advanced Interconnect Technology Limited of Hong Kong (AIT) has claimed that certain of the Company's current process technologies may infringe AIT's patent and, therefore, instructed its attorney to seek a reasonable license under AIT's patents. As a result, the Company and Amkor Technology Inc. (see Note 16) have initiated a study to determine whether such process technologies are covered by AIT's patents. AIT's action is in the early stages and the Company is unable to determine the potential impact on the financial statements as of and for the six-month period ended June 30, 2004. (Continued)
16 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (14) OTHER For the six-month periods ended June 30, 2004 and 2003, a summary of employment, depreciation and amortization expenses categorized by cost of goods sold and operating expenses is as follows: 2004 2003 FUNCTION COST OF OPERATING COST OF OPERATING ACCOUNT GOODS SOLD EXPENSES TOTAL GOODS SOLD EXPENSES TOTAL Employment expenses: Salaries 38,924 25,486 64,410 29,306 18,237 47,543 Labor and health insurance 2,342 935 3,277 2,306 1,130 3,436 Pension 1,550 627 2,177 1,421 847 2,268 Other employment expense - - - 1,483 703 2,186 Depreciation expense 81,288 5,546 86,834 66,680 5,306 71,986 Depletion expense - - - - - - Amortization expense 5,313 601 5,914 5,557 1,465 7,022 (15) EARNINGS PER SHARE 2004 2003 Number Basic: Net profit $(339,155) (147,063) ========= ========= Denominator/1000 shares Basic: Weighted average shares $ 130,000 130,000 ========= ========= The Company issued only common stocks in the six-month periods ended 2004 and 2003, respectively, and therefore had simple capital structure. Under ROC SFAS No. 24 "Earnings per Share", if the Company's capital structure is simple, only basic earnings per share need to be presented and basic earnings per share is computed using the weighted average number of shares outstanding during the period. (Continued)
17 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (16) SUBSEQUENT EVENT Amkor Technology, Inc. (Amkor) has agreed to acquire 60 percent of the capital stock of the Company pursuant to a Stock Purchase Agreement dated as of June 3, 2004, by and among Amkor, the Company, and certain stockholders of the Company, as amended by a letter agreement dated July 9, 2004. The consideration payable under the agreement consists of a cash payment of approximately $19.4 million at closing, the assumption of approximately $16.3 million of debt at closing, the payment of approximately $450,000 in other costs and a variable contingent cash payment to be paid, if at all, based on the achievement of certain performance goals. In addition, Amkor has a call option to acquire the remaining approximate 40.0% of the Company at any time over the subsequent 18-month period. Amkor is required to exercise the call option if the Company achieves certain goals within such 18-month period. The Company will operate as subsidiaries of Amkor. (17) DIFFERENCES BETWEEN ROC GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company's financial statements are prepared in accordance with accounting principles generally accepted in ROC (ROC GAAP), which differ in certain significant respects from accounting principles generally accepted in US (US GAAP). The principal differences between ROC GAAP and US GAAP are presented below together with explanations of certain adjustments that affect total net loss and total shareholders' equity as of and for the six-month period ended June 30, 2004 and 2003: 2004 2003 RECONCILIATION OF NET LOSS: Net loss reported under ROC GAAP $(339,155) (147,063) US GAAP adjustments: Unrealized gain on marketable securities 125 2,777 Deferred income tax expense on unrealized gain on marketable securities (31) (694) Deferred income tax expense - change in valuation allowance on deferred tax assets 181,540 (38,079) --------- --------- Net loss under US GAAP $(157,521) (183,059) ========= ========= (Continued)
18 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2004 2003 PRESENTATION OF COMPREHENSIVE INCOME (LOSS) UNDER US GAAP Other comprehensive income (loss): Foreign currency translation adjustment $ - - Additional minimum liability - - Net gains (losses) on cash flow hedges - - Net unrealized holding gains (losses) - - Other comprehensive income (loss): - - --------- --------- Comprehensive income (loss) - - --------- --------- $(157,521) (183,059) ========= ========= RECONCILIATION OF SHARESHOLDERS' EQUITY Total shareholders' equity reported under ROC GAAP $ 347,403 834,919 US GAAP adjustments: Short-term investments 1,087 2,777 Deferred tax assets - (154,210) --------- --------- Total stockholders' equity under US GAAP $ 348,490 683,486 ========= ========= 1) Short-term investments Under ROC GAAP, investment in marketable securities is stated at the lower of cost or market method. Any unrealized holding loss is reported as non-operating losses on the statement of income. When the market price restores in the subsequent period, the unrealized holding gain is to be recognized to the extent not exceeding the unrealized holding loss recognized previously. Under US GAAP, the investment in marketable securities would be classified as trading, available-for-sale, and hold-to-maturity. The unrealized gains or losses resulting from holding trading securities are reported as non-operating gains or losses on the statement of income and from holding available-for-sale are reported as other comprehensive income. The investment in marketable securities held by the Company is classified as trading and carried at aggregate fair value with unrealized gains and losses reported as non-operating gains and losses on the statement of income. For the six-month period ended June 30, 2004 and 2003, due to the increase in market price for the marketable securities held by the Company, the Company had $125 and $2,777 of unrealized holding gains, giving rise to an adjustment between ROC GAAP and US GAAP. This also results in additional deferred income tax expense of $31 and $694 for the six-month period ended 2004 and 2003, under US GAAP. (Continued)
19 UNITIVE SEMICONDUCTOR TAIWAN CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2) Deferred tax assets Under ROC GAAP, a valuation allowance in provided on deferred tax assets when they are not certain to be realized based on the available projection of future taxable income. However, the criteria by which the need for a valuation allowance is determined is less stringent as compared to US GAAP. Under US GAAP, cumulative losses in recent years are a significant piece of negative evidence, which is difficult to overcome with projections of future taxable income for the purpose of determining the valuation allowance. The Company has not generated net taxable income since its inception. As a result, the Company did not use the projection of future taxable income in determining its net deferred tax asset valuation allowance as of June 30, 2003 in accordance with US GAAP. Consequently, the additional $181,509 deferred tax asset valuation allowance recognized under ROC GAAP for the six month period ended June 30, 2004, was already recognized under US GAAP at December 31, 2002. Therefore, the net loss under US GAAP would be reduced by this amount for the six months ended June 30, 2004. The deferred income tax benefit recorded under ROC GAAP during the six month period ended June 30, 2003, would not have been recorded under US GAAP, which would have resulted in an increase of net loss during the period of $38,773 under US GAAP. 3) Long-lived assets Under US GAAP, gain or loss on sale of long-lived assets reported as operating income or loss. However, under ROC GAAP it is reported as non-operating income or loss. Consequently, cost of sales, gross loss, and operating loss would be increased by $121 and $359 for the six month periods ended June 30, 2004 and 2003, respectively, under US GAAP. This adjustment would have no impact on net loss reported under US GAAP.
EXHIBIT 99.6 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION On August 19, 2004, Amkor Technology, Inc., a Delaware corporation ("Amkor"), acquired approximately 93.0% of the capital stock of Unitive, Inc., a Delaware corporation ("Unitive"), and on August 20, 2004, Amkor acquired approximately 60.0% of the capital stock of Unitive Semiconductor Taiwan Corporation ("UST"). The unaudited pro forma combined condensed balance sheet as of June 30, 2004 gives effect to the acquisitions of Unitive and UST as if the acquisitions had occurred on June 30, 2004. The unaudited pro forma combined condensed statements of income for the year ended December 31, 2003 and the six month period ended June 30, 2004 give effect to the acquisitions of Unitive and UST as if the acquisitions had occurred on January 1, 2003. The following unaudited pro forma combined condensed financial statements do not purport to represent what our actual results would have been had the acquisitions occurred on the dates indicated or for any future period or date. The pro forma adjustments give effect to available information and assumptions that we believe are reasonable. The unaudited pro forma combined condensed financial statements should be read in conjunction with Amkor's historical financial statements and related notes, as well as "Selected Consolidated Financial Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Amkor's previously filed Annual Reports on Form 10-K. 11
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF JUNE 30, 2004: Pro Forma Amkor Unitive UST Adjustments Pro Forma ------------ ------------ ----------- ------------- ------------------ (In thousands) Current assets: Cash and cash equivalents............. $ 294,595 $ 1,907 $ 3,119 $ - $ 299,621 Accounts receivable, net.............. 276,761 2,174 1,212 - 280,147 Inventories........................... 120,061 336 537 - 120,934 Other current assets.................. 37,027 50 1,235 - 38,312 ------------ ------------ ----------- ------------- ------------------ Total current assets............ 728,444 4,467 6,103 739,014 Property, plant and equipment, net........ 1,329,112 7,894 26,152 11,339 a 1,374,497 Investments............................... 13,919 - - - 13,919 Other assets.............................. 746,051 5,476 1,552 26,451 b,c 779,530 ------------ ------------ ----------- ------------- ------------------ Total assets.................... $ 2,817,526 $ 17,837 $ 33,807 $ 37,790 $ 2,906,960 ============ ============ =========== ============= ================== Current liabilities: Short-term borrowing and current portion of long-term debt.......... $ 143,693 $ 2,922 $ 7,712 $ - $ 154,327 Trade accounts payable................ 264,019 1,481 352 5,742 a 271,594 Accrued expenses and other current liabilities................ 164,674 645 1,627 - 166,946 ------------ ------------ ----------- ------------- ------------------ Total current liabilities....... 572,386 5,048 9,691 5,742 592,867 Long-term debt............................ 1,733,114 2,337 13,554 - 1,749,005 Other noncurrent liabilities.............. 91,168 - 269 - 91,437 ------------ ------------ ----------- ------------- ------------------ Total liabilities............... 2,396,668 7,385 23,514 5,742 2,433,309 ------------ ------------ ----------- ------------- ------------------ Commitments and contingencies Minority interest......................... 1,561 - - 4,849 d 6,410 ------------ ------------ ----------- ------------- ------------------ Total stockholders' equity...... 419,297 10,452 10,293 27,199 e 467,241 ------------ ------------ ----------- ------------- ------------------ Total liabilities and equity.... $ 2,817,526 $ 17,837 $ 33,807 $ 37,790 $ 2,906,960 ============ ============ =========== ============= ================== See Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 12
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2003: Pro Forma Amkor Unitive UST Adjustments Pro Forma ------------ ------------ ------------ ------------- -------------- (In thousands) Revenue........................................ $ 1,603,768 $ 9,231 $ 2,856 $ (275) m $ 1,615,580 Cost of sales.................................. 1,267,302 11,412 8,554 (617) f,n 1,286,651 ------------ ------------ ------------ -------------- -------------- Gross profit (loss)............................ 336,466 (2,181) (5,698) 342 328,929 ------------ ------------ ------------ ------------- -------------- Operating expenses: Selling, general and administrative........ 179,952 2,481 2,500 (360) f,m 184,573 Research and development................... 25,784 1,763 1,663 29,210 Amortization of acquired intangibles....... 8,183 - - 517 g 8,700 Other operating (income) expense, net...... (461) - 55 56 n (350) ------------ ------------ ------------ ------------- -------------- Total operating expenses............. 213,458 4,244 4,218 213 222,133 ------------ ------------ ------------ ------------- -------------- Operating income (loss)........................ 123,008 (6,425) (9,916) 129 106,796 ------------ ------------ ------------ ------------- -------------- Other expense: Interest expense, net...................... 140,281 573 699 844 k 142,397 Foreign currency gain...................... (3,022) - (20) (3,042) Other expense, net......................... 31,052 893 (104) 1,250 h,n 33,091 ------------ ------------ ------------ ------------- -------------- Total other expense.................. 168,311 1,466 575 2,094 172,446 ------------ ------------ ------------ ------------- -------------- Loss before provision for income taxes, equity investment gains (losses), minority interest.......................... (45,303) (7,891) (10,491) (1,965) (65,650) Minority interest and equity investment gain (loss), net........................... (7,298) (1,622) - 6,798 i,j (2,122) ------------ ------------ ------------ ------------- -------------- Income (loss) from continuing operations before income taxes........................ (52,601) (9,513) (10,491) 4,833 (67,772) Income tax expense (benefit)................... (233) - (1,917) 1,917 l (233) ------------ ------------ ------------ ------------- -------------- Net income (loss).............................. $ (52,368) $ (9,513) $ (8,574) $ 2,916 $ (67,539) ============ ============ ============ ============= ============== Per Share Data: Basic and diluted loss per common share........ $ (0.31) $ (0.40) ============ ============== Shares used in computing basic and diluted loss per common share.............. 167,142 167,142 ============ ============== See Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 13
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004: Pro Forma Amkor Unitive UST Adjustments Pro Forma ---------- ----------- ----------- ------------ -------------- (In thousands) Revenue........................................... $ 957,182 $ 6,257 $ 3,111 $ - $ 966,550 Cost of sales..................................... 750,559 7,629 6,265 (899) f 763,554 ---------- ----------- ----------- ------------- -------------- Gross profit (loss)............................... 206,623 (1,372) (3,154) 899 202,996 ---------- ----------- ----------- ------------ -------------- Operating expenses: Selling, general and administrative........... 107,757 1,871 1,053 (51) f 110,630 Research and development...................... 18,877 1,115 549 20,541 Gain on disposal of fixed assets, net......... (198) - 1 (197) Amortization of acquired intangibles.......... 3,165 - - 258 g 3,423 ---------- ----------- ----------- ------------ -------------- Total operating expenses................ 129,601 2,986 1,603 207 134,397 ---------- ----------- ----------- ------------ -------------- Operating income (loss)........................... 77,022 (4,358) (4,757) 692 68,599 ---------- ----------- ----------- ------------ -------------- Other expense: Interest expense, net......................... 69,650 458 369 70,477 Foreign currency loss (gain).................. 2,710 - (1) 2,709 Other income (expense), net................... (23,556) - (405) 767 h (23,194) ---------- ----------- ----------- ------------ -------------- Total other expense (income)............ 48,804 458 (37) 767 49,992 ---------- ----------- ----------- ------------ -------------- Income (loss) before provision for income taxes, equity investment gains (losses), minority interest............................. 28,218 (4,816) (4,720) (75) 18,607 Minority interest and equity investment gain (loss), net.............................. (365) (190) - 2,421 i,j 1,866 ---------- ----------- ----------- ------------ -------------- Income (loss) from continuing operations before income taxes........................... 27,853 (5,006) (4,720) 2,346 20,473 Provision (benefit) for income taxes.............. 6,963 - 5,434 (5,434) l 6,963 ---------- ----------- ----------- ------------ -------------- Net income (loss)................................. $ 20,890 $ (5,006) $ (10,154) $ 7,780 $ 13,510 ========== =========== =========== ============ ============== Per Share Data: Basic and diluted income per common share......... $ 0.12 $ 0.08 ========== ============== Shares used in computing basic income per common share.............................. 174,961 174,961 ========== ============== Shares used in computing diluted income per common share.............................. 178,028 178,028 ========== ============== See Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 14
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The estimated significant pro forma adjustments included in the above unaudited pro forma combined condensed financial statements are explained as follows: Unaudited Pro Forma Combined Condensed Balance Sheet a. Represents the estimated fair market value adjustment to property, plant and equipment, as well as an adjustment to accounts payable for an unrecorded liability related to purchased equipment. b. Represents the estimated fair market value adjustment to technology-related intangible assets and the acquisition of a call option to purchase the remaining approximate 40% common stock of UST. c. Represents $25.5 of goodwill, or the excess of total consideration over the net assets acquired. d. Represents the 40% minority interest balance of UST and 7% minority interest balance of Unitive. e. Represents the elimination of historical UST and Unitive equity, offset by total purchase consideration. Unaudited Pro Forma Combined Condensed Statements of Income f. Represents the adjustment to depreciation expense as a result of the fair market value and useful life adjustments to property, plant and equipment. g. Represents the adjustment to amortization expense as a result of the fair market value and useful life adjustments to acquired intangible assets. h. Represents additional expense related to the estimated change in the value of the call option asset. i. Represents the elimination of Unitive's losses from their equity investment in UST. j. Represents the minority interest income related to the 40% minority interest of UST and 7% minority interest of Unitive. k. Represents additional interest expense related to the amortization of the debt discount incurred in connection with the financing of the UNC transaction. l. Represents the application of a 100% valuation allowance against UST's deferred tax assets, in accordance with accounting principles generally accepted in the United States, as a result of UST's historical, cumulative losses. m. Represents elimination of intercompany transactions. n. Represents the reclassification of expenses between operating and non-operating in accordance with accounting principles generally accepted in the Unites States; with no effect to net loss. 15
EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-39642, 333-68032 and 333-81334) and Form S-8 (Nos. 333-62891, 333-63430, 333-76254, 333-86161, 333-100814, 333-104601 and 333-113512) of Amkor Technology, Inc. of our report dated February 20, 2004, with respect to the consolidated financial statements of Unitive, Inc. included in the Current Report (Form 8-K/A) of Amkor Technology, Inc. Raleigh, North Carolina /s/ Ernst & Young LLP October 28, 2004 16
EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Unitive Semiconductor Taiwan Corp.: We consent to the incorporation by reference in the registration statements (Nos. 333-39642, 333-68032, 333-81334, 333-62891, 333-63430, 333-76254, 333-86161, 333-100814, 333-104601 and 333-113512) on Form S-3 and S-8 of Amkor Technology, Inc. of our report dated February 4, 2004 (except as to Note 16, which is as of July 9, 2004), with respect to the balance sheet of Unitive Semiconductor Taiwan Corp. as of December 31, 2003, and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended, which report appears in the Form 8-K/A of Amkor Technology, Inc., dated August 19, 2004. /s/ KPMG KPMG Certified Public Accountants Taipei, Taiwan October 27, 2004 17