EX-99.5 5 w68064exv99w5.txt UNAUDITED BALANCE SHEET OF UNITIVE SEMICONDUCTOR TAIWAN CORPORATION AS OF JUNE 30, 2004 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.