AMKOR TECHNOLOGY INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2002

Commission File Number 000-29472
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AMKOR TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 23-1722724
(State of incorporation) (I.R.S. Employer Identification Number)

1345 ENTERPRISE DRIVE
WEST CHESTER, PA 19380
(610) 431-9600
(Address of principal executive offices and zip code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006
5% CONVERTIBLE SUBORDINATED NOTES DUE 2007

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold as of the last business day of the registrant's most recently
completed second fiscal quarter, June 30, 2002, was approximately $567,696,638.

The number of shares outstanding of each of the issuer's classes of common
equity, as of February 28, 2003, was as follows: 165,155,936 shares of Common
Stock, $0.001 par value.

Documents Incorporated by Reference: None.
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TABLE OF CONTENTS

All references in this annual report to "Amkor," "we," "us," "our" or the
"company" are to Amkor Technology, Inc. and its subsidiaries. We refer to the
Republic of Korea, which is also commonly known as South Korea, as "Korea." All
references in this annual report to "ASI" are to Anam Semiconductor, Inc. and
its subsidiaries, an equity investment of ours. As of December 31, 2002, we
owned 21% of ASI's outstanding voting stock. PowerQuad, SuperBGA, FlexBGA,
ChipArray, PowerSOP, MicroLeadFrame, Amkor Technology are trademarks or
registered trademarks of Amkor Technology, Inc. Also, microBGA is a registered
trademark of Tessera, Inc. All other trademarks appearing herein are held by
their respective owners.

2

PART I

ITEM 1. BUSINESS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This business section contains forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors that May Affect Future Operating Performance" in Item
7 of this annual report. These factors may cause our actual results to differ
materially from any forward-looking statement.

OVERVIEW

Amkor is the world's largest subcontractor of semiconductor packaging and
test services. Amkor was incorporated in Delaware in 1997. The company has built
a leading position by:

- Providing a broad portfolio of packaging and test technologies and
services;

- Maintaining a leading role in the design and development of new package
and test technologies;

- Cultivating long-standing relationships with customers, including many of
the world's leading semiconductor companies;

- Developing expertise in high-volume manufacturing; and

- Diversifying our operational scope by establishing production
capabilities in China, Japan and Taiwan, in addition to long-standing
capabilities in Korea and the Philippines.

The semiconductors that we package and test for our customers ultimately
become components in electric systems used in communications, computing,
consumer, industrial, automotive and military applications. Our customers
include, among others, Agilent Technologies, Atmel Corporation, Intel
Corporation, LSI Logic Corporation, Mediatek Inc., Philips Electronics N.V.,
R.F. Microdevices, ST Microelectronics PTE, Sony Semiconductor Corporation and
Toshiba Corporation. The outsourced semiconductor packaging and test market is
very competitive. We also compete with the internal semiconductor packaging and
test capabilities of many of our customers.

Packaging and test are an integral part of the semiconductor manufacturing
process. Semiconductor manufacturing begins with silicon wafers and involves the
fabrication of electronic circuitry into complex patterns, thus creating
individual chips on the wafers. The packaging process creates an electrical
interconnect between the semiconductor chip and the system board. In packaging,
the fabricated semiconductor wafers are cut into individual chips which are then
attached to a substrate and encased in a protective material to provide optimal
electrical and thermal performance. Increasingly, packages are custom designed
for specific chips and specific end-market applications. The packaged chips are
then tested using sophisticated equipment to ensure that each packaged chip
meets its design specifications.

We historically marketed the output of fabricated semiconductor wafers
provided by a wafer fabrication foundry owned and operated by Anam
Semiconductor, Inc. (ASI). On February 28, 2003, we sold our wafer fabrication
services business to ASI. Beginning with the first quarter of 2003, we will
reflect our wafer fabrication services segment as a discontinued operation and
restate our historical results.

A web site featuring current information regarding Amkor Technology, Inc.
can be found on the internet at www.amkor.com.

3

INDUSTRY BACKGROUND

Semiconductor devices are the essential building blocks used in most
electronic products. As semiconductor devices have evolved, there have been
three important consequences: (1) an increase in demand for computers and
consumer electronics fostered by declining prices for such products; (2) the
proliferation of semiconductor devices into diverse end products such as
consumer electronics, communications equipment and automotive systems; and (3)
an increase in the semiconductor content in electronic products.

TRENDS TOWARD OUTSOURCING

Historically, semiconductor companies packaged semiconductors primarily in
their own factories and relied on subcontract providers to handle overflow
volume. In recent years, semiconductor companies have increasingly outsourced
their packaging and testing to subcontract providers for the following reasons:

SUBCONTRACT PROVIDERS HAVE DEVELOPED EXPERTISE IN ADVANCED PACKAGING
TECHNOLOGIES.

Semiconductor companies are facing ever-increasing demands for
miniaturization, higher lead counts and improved thermal and electrical
performance in semiconductor devices. This trend, coupled with increasing
complexity in the design of semiconductor devices has led many semiconductor
companies to view packaging as an enabling technology requiring sophisticated
expertise and technological innovation. Many semiconductor companies have had
difficulty developing the adequate internal capabilities and are relying on
subcontract providers of packaging and test services as a key source of new
package designs.

SUBCONTRACT PROVIDERS CAN OFFER SHORTER TIME TO MARKET FOR NEW PRODUCTS
BECAUSE THEIR RESOURCES ARE DEDICATED TO PACKAGING AND TEST SOLUTIONS.

We believe that semiconductor companies are seeking to shorten the time to
market for their new products, and that having the right packaging technology
and capacity in place is a critical factor in reducing delays for these
companies.

Semiconductor companies frequently do not have sufficient time to develop
their packaging and test capabilities or the equipment and expertise to
implement new packaging technology in volume. For this reason, semiconductor
companies are leveraging the resources and capabilities of subcontract packaging
and test companies to deliver their new products to market more quickly.

MANY SEMICONDUCTOR MANUFACTURERS DO NOT HAVE THE ECONOMIES OF SCALE TO OFFSET
THE SIGNIFICANT COSTS OF BUILDING PACKAGING AND TEST FACTORIES.

Semiconductor packaging is a complex process requiring substantial
investment in specialized equipment and factories. As a result of the large
capital investment required, this manufacturing equipment must operate at a high
capacity level for an extended period of time to be cost effective. Shorter
product life cycles, faster introductions of new products and the need to update
or replace packaging equipment to accommodate new products have made it more
difficult for semiconductor companies to maintain cost effective manufacturing
and capacity utilization. Subcontract providers of packaging and test services,
on the other hand, can use their equipment to support a broad range of
customers, potentially generating greater manufacturing economies of scale.

THE AVAILABILITY OF HIGH QUALITY PACKAGING AND TESTING FROM SUBCONTRACTORS
ALLOWS SEMICONDUCTOR MANUFACTURERS TO FOCUS THEIR RESOURCES ON SEMICONDUCTOR
DESIGN AND WAFER FABRICATION.

With semiconductor process technology migrating to larger semiconductor
wafers with more and smaller semiconductor dies, new wafer fabrication
facilities are requiring investments of $2 billion or more. Subcontractors have
demonstrated their ability to deliver advanced packaging and test solutions at a
competitive price. Accordingly, semiconductor companies are choosing to focus
their capital resources on core wafer fabrication activities rather than invest
in advanced packaging and test technology.

4

THERE ARE A GROWING NUMBER OF SEMICONDUCTOR COMPANIES WITHOUT FACTORIES, KNOWN
AS "FABLESS" COMPANIES, THAT OUTSOURCE ALL OF THE MANUFACTURING OF THEIR
SEMICONDUCTOR DESIGNS.

Fabless semiconductor companies focus exclusively on the semiconductor
design process and outsource virtually every significant step of the
semiconductor manufacturing process. We believe that fabless semiconductor
companies will continue to be a significant driver of growth in the subcontract
packaging and test industry.

These outsourcing trends, combined with the growth in the number of
semiconductor devices being produced and sold, are increasing demand for
subcontracted packaging and test services. Today, nearly all of the world's
major semiconductor companies use packaging and test service subcontractors for
at least a portion, if not all, of their packaging and test needs.

COMPETITIVE STRENGTHS

We believe our competitive strengths include the following:

BROAD OFFERING OF PACKAGE DESIGN, PACKAGING AND TEST SERVICES

Integrating advanced semiconductor technology into electronic end products
often poses unique thermal and electrical challenges, and Amkor employs a large
number of design engineers to create package formats that solve these
challenges. Amkor produces more than 1,000 package types, representing one of
the broadest package offerings in the semiconductor industry. We provide
customers with a wide array of packaging alternatives including traditional
leadframe, advanced leadframe and laminate packages, in both wirebond and flip
chip formats. We are also a leading assembler of complementary metal oxide
silicon ("CMOS") image sensor devices used in digital cameras and cellular
phones, and micro-electromechanical system ("MEMS") devices used in a variety of
end markets, including automotive, industrial and personal entertainment. We
also offer an extensive line of services to test digital, logic, analog and
mixed signal semiconductor devices. We believe that the breadth of our packaging
and test services is important to customers seeking to reduce the number of
their suppliers.

LEADING TECHNOLOGY INNOVATOR

We believe that we are one of the leading providers of advanced
semiconductor packaging and test solutions. We have designed and developed
several state-of-the-art leadframe and laminate package formats including our
MicroLeadFrame(TM), VisionPak(TM), PowerQuad(R), SuperBGA(R), fleXBGA(R) and
ChipArray(R) BGA packages. To maintain our leading industry position, we have
more than 300 employees engaged in research and development focusing on the
design and development of new semiconductor packaging and test technology. We
work closely with customers and technology partners to develop new and
innovative package designs.

LONG-STANDING RELATIONSHIPS WITH PROMINENT SEMICONDUCTOR COMPANIES

Our customer base consists of more than 400 companies, including most of
the world's largest semiconductor companies. Over the last three decades Amkor
has developed long-standing relationships with many of our customers.

ADVANCED MANUFACTURING CAPABILITIES

We believe that our company's manufacturing excellence has been a key
factor in our success in attracting and retaining customers. We have worked with
our customers and our suppliers to develop proprietary process technologies to
enhance our existing manufacturing capabilities. These efforts have directly
resulted in reduced time to market, increased quality and lower manufacturing
costs. We believe our manufacturing cycle times are among the fastest available
from any subcontractor of packaging and test services.

5

COMPETITIVE DISADVANTAGES

You should be aware that our competitive strengths may be diminished or
eliminated due to certain challenges faced by our company and which our
principal competitors may not face, including the following:

- High Leverage and Restrictive Covenants -- Our substantial indebtedness
and the covenants contained in the agreements with our lenders could
materially restrict our operations and adversely affect our financial
condition.

- Risks Associated With International Operations -- We depend on our
factories in the Philippines, Korea, Japan, Taiwan and China. Many of our
customers' operations are also located outside of the U.S. To the extent
political or economic instability or military actions occur in any of
these regions, our operations could be harmed.

- Difficulties Integrating Acquisitions -- We face challenges as we
integrate new and diverse operations and try to attract qualified
employees to support our expansion plans.

In addition, we and our competitors face a variety of operational and
industry risks inherent to the industry in which we operate. For a complete
discussion of risks associated with our business, please read "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Factors that May Affect Future Operating Performance" in Item 7 of this annual
report.

STRATEGY

To build upon our leading industry position and to remain a preferred
subcontractor of semiconductor packaging and test services, we are pursuing the
following strategies:

CAPITALIZE ON OUTSOURCING TREND

We believe that while the outsourcing trend has been impacted during the
recent industry downturn, there remains a long-term trend towards more
outsourcing on the part of semiconductor companies. During this downturn, we
believe that many vertically integrated semiconductor companies increased the
use of their in-house packaging and test capabilities in order to minimize the
impact of significant excess internal capacity that resulted from sharply
lowered demand. At the same time, however, a number of vertically integrated
semiconductor companies accelerated their use of outsourcing. In January 2001,
we commenced a 60% Amkor-owned venture with Toshiba Corporation, in which
Toshiba outsourced an entire packaging and test factory to the venture. We also
reached agreement in 2002 with Agilent Technologies, whereby Agilent has ceased
the packaging and testing of certain package types for its semiconductor devices
used in printers, and is now using Amkor as the exclusive provider of packaging
and test services for these package types. We intend to continue to capitalize
on the expected growth in the outsourcing of semiconductor packaging and test
services. We believe semiconductor companies will increasingly outsource
packaging and test services to companies who can provide advanced technology and
high-quality, high-volume manufacturing expertise.

LEVERAGE SCALE AND SCOPE OF PACKAGING AND TEST CAPABILITIES

We are committed to expanding both the scale of our operations and the
scope of our packaging and test services. We believe that our scale and scope
allow us to provide cost-effective solutions to our customers in the following
ways:

- We have the capacity to absorb large orders and accommodate quick
turn-around times;

- We use our size and industry position to obtain low pricing on materials
and manufacturing equipment; and

- We offer an industry-leading breadth of packaging and test services and
can serve as a single source for many of our customers.

6

MAINTAIN OUR TECHNOLOGY LEADERSHIP

We intend to continue to develop leading-edge packaging technologies. We
believe that our focus on research and product development will enable us to
enter new markets early, capture market share and promote the adoption of our
new package designs as industry standards. We seek to enhance our in-house
research and development capabilities through the following activities:

- Collaborating with customers to gain access to technology roadmaps for
next generation semiconductor designs and to develop new packages that
satisfy the requirements of those technology roadmaps;

- Collaborating with companies, such as Toshiba Corporation, Cisco Systems,
Ericsson Corporation and Nokia Group, to design new packages that
function with the next generation of electronic products; and

- Implementing new package designs by entering into technology alliances
and by licensing leading-edge designs from others. For example, we have
entered into a strategic alliance with Sharp Corporation to promote chip
scale packaging with fleXBGA(R). We have licensed from Tessera, Inc. its
microBGA(R) design. We have also licensed flip chip package technology
from LSI Logic Corporation and wafer bumping technology from Flip Chip
Technologies and Unitive Technologies. In general, these license
agreements are non-exclusive, royalty-bearing arrangements with terms
extending to various dates between 2008 and 2011.

BROADEN THE GEOGRAPHICAL SCOPE OF OUR MANUFACTURING BASE

Prior to 2001, our company's manufacturing operations were centered in
Korea and the Philippines. In order to diversify our operational footprint and
better serve our customers, we adopted a strategy of expanding our operational
base to key microelectronic manufacturing areas of Asia. During 2001, we
commenced a joint venture with Toshiba Corporation in Japan, we acquired two
businesses in Taiwan, and we established a new factory in China. Our goal is to
build operational scale in these new geographic locations and capitalize on
growth opportunities in their respective markets.

PROVIDE AN INTEGRATED, TURNKEY SOLUTION

We are able to provide a turnkey solution comprised of semiconductor
package design, packaging, test and drop shipment services. We believe that this
will enable customers to achieve faster time to market for new products and
improved cycle times.

STRENGTHEN CUSTOMER RELATIONSHIPS

We intend to further develop our long-standing customer relationships. We
believe that because of today's shortened technology life cycles, integrated
communications are crucial to speed time to market. We have customer support
personnel located near the facilities of major customers and in acknowledged
technology centers. These support personnel work closely with customers to plan
production for existing packages as well as to develop requirements for the next
generation of packaging technology. In addition, we are implementing direct
electronic links with our customers to enhance communication and facilitate the
flow of real-time engineering data and order information.

PURSUE STRATEGIC ACQUISITIONS

We are evaluating candidates for strategic acquisitions and joint ventures
to strengthen our core business and expand our geographic reach. We believe that
there are many opportunities to acquire the in-house packaging operations of our
customers and competitors. To the extent we acquire operations of our customers,
we intend to structure any such acquisition to include long-term supply
contracts with those customers. In addition, we intend to enter new markets near
clusters of wafer foundries, which are large sources of demand for packaging and
test services.

7

PACKAGING AND TEST SERVICES

PACKAGING SERVICES

We offer a broad range of package formats designed to provide our customers
with a full array of packaging solutions. Our packages are divided into two
families: traditional, which includes principally traditional leadframe
products, and advanced packages, which includes principally advanced leadframes
and laminate products.

In response to the increasing demands of today's high-performance
electronic products, semiconductor packages have evolved from traditional
leadframe packages and now include advanced leadframe, and laminate formats. The
differentiating characteristics of these package formats include (1) the size of
the package, (2) the number of electrical connections the package can support
(3) the thermal and electrical characteristics of the package, and (4) in the
case of our System-in-Package family of laminate packages, the integration of
multiple active and passive components in a single package.

As semiconductor devices increase in complexity, they often require a
larger number of electrical connections. Leadframe packages are so named because
they connect the electronic circuitry on the semiconductor device to the system
board through leads on the perimeter of the package. Our laminate products,
typically called ball grid array or BGA, use balls on the bottom of the package
to create the electrical connections. This array format can support larger
numbers of electrical connections.

Evolving semiconductor technology has allowed designers to increase the
level of performance and functionality in portable and handheld electronics
products, and this has led to the development of smaller package sizes. In
leading-edge packages, the size of the package is reduced to approximately the
size of the individual chip itself in a process known as chip scale packaging.

The following table sets forth by product type, for the periods indicated,
the amount of our packaging and test net revenues in millions of dollars and the
percentage of such net revenues:

We historically marketed the output of fabricated semiconductor wafers
provided by a wafer fabrication foundry owned and operated by Anam
Semiconductor, Inc. (ASI). Our net revenues from wafer fabrication services were
$234 million, $181 million and $378 million of in 2002, 2001 and 2000,
respectively. On February 28, 2003, we sold our wafer fabrication services
business to ASI. Beginning with the first quarter of 2003, we will reflect our
wafer fabrication services segment as a discontinued operation and restate our
historical results.

TRADITIONAL PACKAGES

Traditional, leadframe-based packages are the most widely used package
family in the semiconductor industry and are typically characterized by a chip
encapsulated in a plastic mold compound with metal leads on the perimeter. The
most common traditional leadframe package is the SOIC, which accounts for
approximately one half of all integrated circuit (IC) packages produced by the
semiconductor industry. The traditional leadframe package family has evolved
from "through hole design," where the leads are plugged into holes on the
circuit board to "surface mount design," where the leads are soldered to the
surface of the circuit board. We offer a wide range of lead counts and body
sizes to satisfy variations in the size of customers' semiconductor devices.

8

ADVANCED PACKAGES

Advanced Leadframe Packages

Through a process of continuous engineering and customization, we have
designed several advanced leadframe package types that are thinner and smaller
than traditional leadframe packages, with the ability to accommodate more leads
on the perimeter of the package. These advanced leadframe packages also have
superior thermal and electrical characteristics, which allow them to dissipate
heat generated by high-powered semiconductor devices while providing enhanced
electrical connectivity. We plan to continue to develop increasingly smaller
versions of these packages to keep pace with continually shrinking semiconductor
device sizes and demand for miniaturization of portable electronic products.

One of our newest advanced leadframe package offerings is the
MicroLeadFrame(TM), a family of "leadless" advanced leadframe packages that is
particularly well suited for radio frequency ("RF") and wireless applications.
Our smallest MicroLeadFrame package is only 2mm square and can fit on the head
of a pin.

Laminate Packages

The laminate family employs the ball grid array design which utilizes a
plastic or tape laminate substrate rather than a leadframe substrate and places
the electrical connections on the bottom of the package rather than around the
perimeter.

The ball grid array format was developed to address the need for higher
lead counts required by advanced semiconductor devices. As the number of leads
on leadframe packages increased, leads were placed closer to one another in
order to maintain the size of the package. The increased lead density resulted
in electrical shorting problems, and required the development of increasingly
sophisticated and expensive techniques for producing circuit boards to
accommodate the high number of leads.

The ball grid array format solved this problem by effectively creating
leads on the bottom of the package in the form of small bumps or balls that can
be evenly distributed across the entire bottom surface of the package, allowing
greater distance between the individual leads.

Our first package format in this family was the plastic ball grid array
(PBGA). We have subsequently designed or licensed additional ball grid array
package formats that have superior performance characteristics and features that
enable low-cost, high-volume manufacturing. These new laminate products include:

- SuperBGA(R), which includes a copper layer to dissipate heat and is
designed for low-profile, high-power applications;

- microBGA(R), which is designed to be approximately the same size as the
chip and uses a thinner tape substrate rather than a plastic laminate
substrate; and

- ChipArray(R) BGA, in which the package is only 1.5 mm larger than the
chip itself.

- Tape SuperBGA(R), TapeArray(TM) BGA and Wafer Level Package further
reduce package size and increase manufacturing efficiency.

Other Advanced Packages

To capitalize on an increasing customer demand for higher levels of system
integration, we created our "System-in-Package" ("SiP") modules. SiP modules are
integrated solutions that use both advanced packaging and traditional surface
mount techniques to enable the combination of otherwise incompatible
technologies in a single, highly reliable package. Most of our SiP packages are
laminate based. By integrating various system elements into a single-function
block, the SiP module delivers space and power efficiency, high performance, and
lower production costs. Our SiP technology is being used to produce a variety of
devices including power amplifiers for cellular phones, memory cards and
sensors.

9

In order to accommodate the emerging use of digital imaging in a variety of
consumer products, we developed VisionPak(TM), a family of CMOS image
sensor-based packages that can be incorporated in such products as cellular
phones, PDAs, digital cameras and PCs.

We are also a leading outsourced provider of micro-electromechanical system
("MEMS") based packages that are used in a broad range of industrial and
consumer applications, including automobiles and home entertainment.

TEST SERVICES

Amkor provides a complete range of test solutions including wafer probe,
final test, strip test, marking, bake, drypack, and tape and reel. The devices
we test encompass nearly all technologies produced in the industry today
including digital, linear, mixed signal, RF and integrated combinations of these
technologies. In 2002 Amkor tested over 1.1 billion units making Amkor one of
the highest volume testing companies in the subcontract packaging and test
business. We tested 21%, 16% and 17% of the units that we packaged in 2002, 2001
and 2000, respectively. Our test operations are geographically located with our
packaging operations to improve cycle time and facilitate information flow
between the various manufacturing operations and with our customers.

We are also an industry leader in providing innovative testing solutions
that help to lower the total cost of test for our customers. Two examples of
these innovative approaches are strip test and low cost RF test. In strip test,
we integrate the testing process into the packaging process. This is a
significant departure from the industry standard practice of treating packaging
and test as separate unlinked operations. Using strip test technology,
semiconductor devices are tested while they are still in the format they are
naturally produced in during the packaging process. This process is superior to
traditional non-integrated testing because it allows for large numbers of
devices to be tested at the same time, increases the number of good devices,
improves the quality of the finished device and improves throughput.

In the area of low cost RF test, we have developed one of the lowest cost
test solutions in the industry for testing simple RF devices that are pervasive
in today's cell phones and wireless LAN products. This test approach combines
inexpensive test hardware with integration software to achieve test costs that
are significantly less costly than industry standard test practices. We believe
that our low cost RF test technology provides a competitive advantage for Amkor
and when it is combined with our System in Package packaging technology, offers
our customers one of the industry's lowest total cost solutions.

Amkor also provides value added engineering services in addition to basic
device testing. These services include test program development, test hardware
development, test program conversion to lower cost test systems, device
characterization and reliability qualification testing. In total, Amkor can
provide all of the test engineering services needed by our customers to get
their products ready for high volume production. We believe that this service
will continue to become more valuable to our customers as they face resource
constraints not only in their production testing, but also in their test
engineering and development areas.

WAFER FABRICATION SERVICES

In January 1998, we entered into a supply agreement with ASI to market
wafer fabrication services provided by ASI's semiconductor wafer fabrication
facility using 0.35 micron, 0.25 micron and 0.18 micron complementary metal
oxide silicon ("CMOS") process technology provided by Texas Instruments pursuant
to technology assistance agreements with ASI. On February 28, 2003, we sold our
wafer fabrication services business to ASI. Additionally, we obtained a release
from Texas Instruments regarding our contractual obligations with respect to
wafer fabrication services to be performed subsequent to the transfer of the
business to ASI. Beginning with the first quarter of 2003, we will reflect our
wafer fabrication services segment as a discontinued operation and restate our
historical results.

10

RESEARCH AND DEVELOPMENT

Our research and development efforts focus on developing new package
products and improving the efficiency and capabilities of our existing
production processes. We believe that technology development is one of the key
success factors in the semiconductor packaging and test market and believe that
we have a distinct advantage in this area. Our research and development efforts
support our customers' needs for smaller packages, increased performance, and
lower cost. We continue to invest our research and development resources to
further the development of flip chip interconnection solutions, chip scale
packages that are nearly the size of the semiconductor die,
micro-electromechanical system ("MEMS") devices used in a variety of end markets
including automotive, industrial and personal entertainment, our stacked chip
packages that stack as many as three semiconductor dies in a single package, and
System-in-Package technology, that uses both advanced packaging and traditional
surface mount techniques to enable the combination of technologies in a single
chip.

As of December 31, 2002, we had more than 300 employees in research and
development activities. In addition, we involve management and operations
personnel in research and development activities. In 2002, 2001 and 2000, we
spent $31.2 million, $38.8 million and $26.1 million, respectively, on research
and development. We expect to continue to invest in research and development at
similar levels in future periods.

We believe that our focus on research and product development and the
launching of leading-edge package technologies enables us to enter new markets
early, capture market share and promote the adoption of our new package
offerings as industry standards. We license our leading-edge technology such as
MicroLeadFrame(TM) to customers and competitors. We seek to enhance our in-house
research and development capability through the following activities:

- Collaborating with customers to gain access to technology roadmaps for
next generation semiconductor designs and to develop new packages that
satisfy the requirements of those technology roadmaps;

- Collaborating with companies, such as Toshiba Corporation, Cisco Systems,
Ericsson Corporation and Nokia Group, to design new packages that
function with the next generation of electronic products; and

- Implementing new package designs by entering into technology alliances
and by licensing leading-edge designs from others. For example, we have
entered into a strategic alliance with Sharp Corporation to promote chip
scale packaging with fleXBGA(R). We have licensed from Tessera, Inc.
their microBGA(R) design. We have also licensed flip chip package
technology from LSI Logic Corporation and wafer bumping technology from
Flip Chip Technologies and Unitive Technologies. In general, these
license agreements are non-exclusive, royalty-bearing arrangements with
terms extending to various dates between 2008 and 2011.

MARKETING AND SALES

We sell our packaging and test services to our customers and support them
through a network of international offices. To better serve our customers, our
offices are located near our largest customers or areas where there is a
concentration of several of our customers. Our office locations include sites in
the U.S. (Chandler, Arizona; Irvine, Santa Clara and San Diego, California;
Boston, Massachusetts; Greensboro, North Carolina; West Chester, Pennsylvania,
and Austin and Dallas, Texas), China, France, Japan, Korea, the Philippines,
Singapore and Taiwan.

To provide comprehensive sales and customer service, we assign each of our
customers a direct support team consisting of an account manager, a technical
program manager, a test program manager and both field and factory customer
support representatives. We also typically support our largest multinational
customers from multiple office locations to make sure we are fully aligned with
their various operational and business entities.

The direct support teams are closely supported by an extended staff of
product managers, process and reliability engineers, marketing and advertising
specialists, information systems technicians and factory

11

personnel. Together, these direct and extended support teams deliver an array of
services to our customers. These services include:

- managing and coordinating ongoing manufacturing activity;

- providing information and expert advice on packaging solutions and
trends;

- managing the start-up of specific packaging and test programs;

- providing a continuous flow of information to the customers regarding
products and programs in process; and

- researching and assisting in the resolution of technical and logistical
issues.

We implement direct electronic links with our customers to achieve near
real time and automated communications of order fulfillment information, such as
inventory control and production schedules, and engineering data, such as
production yields, device specifications and quality indices, and to connect our
customers to our sales and marketing personnel worldwide and to our factories.
Web-enabled tools provide our customers real time access to the status of their
products, the performance of our manufacturing lines, and technical data they
require to support their new product introductions.

CUSTOMERS

As of January 31, 2003, we had more than 400 customers, and our customers
include many of the largest semiconductor companies in the world. The table
below lists our top 50 customers in 2002 based on revenues:

AMI Semiconductor, Inc.
Adaptec, Inc.
Advanced Micro Devices, Inc.
Agere Technologies, Inc.
Agilent Technologies
Altera Corporation
American Micro Systems, Inc.
Analog Devices, Inc.
Atmel Corporation
Austria Mikro Systeme
Cirrus Logic
Conexant Systems Inc.
Cypress Semiconductor
ESS Technology Inc.
Fairchild Semiconductor Corporation
Fujitsu Limited
Infineon Technologies AG
Integrated Circuit Systems, Inc.
Integrated Device Technology, Inc.
Intel Corporation
International Business Machines Corporation
International Rectifier
Intersil Corporation
Lattice Semiconductor Corporation
LSI Logic Corporation
Macronix International Corporation
Maxim Integrated Circuits
Mediatek Inc.
Melexis N.V.
Microchip Technology Inc.
Motorola, Inc.
National Semiconductor Corporation
NEC Corporation Ltd.
Omachi Fuji Co., LTD
ON Semiconductor
PMC -- Sierra Inc.
Philips Electronics
R.F Micro Devices
Robert Bosch GmbH
Samsung Electronics Corporation, LTD
Sanyo Electric Co., LTD
Silicon Laboratories Inc.
Skyworks Solutions, Inc.
Sony Semiconductor Corporation
ST Microelectronics PTE
Standard Microsystems
Texas Instruments, Inc.
Toshiba Corporation
Xilinx, Inc.
Zilog Electronics

With the commencement of operations of Amkor Iwate and the acquisition of a
packaging and test facility from Toshiba in 2001, total net revenues derived
from Toshiba accounted for 12.6% and 14.3% of our consolidated net revenues for
2002 and 2001, respectively. Prior to the sale of our wafer fabrication services
business to ASI in February 2003, we derived substantially all of our wafer
fabrication revenues from Texas

12

Instruments ("TI"). Total net revenues derived from TI accounted for 13.9%,
10.2% and 14.1% of consolidated net revenues in 2002, 2001 and 2000,
respectively.

MATERIALS AND EQUIPMENT

Our packaging operations depend upon obtaining adequate supplies of
materials and equipment on a timely basis. The principal materials used in our
packaging process are leadframes or laminate substrates, gold wire and mold
compound. We purchase materials based on customer forecasts, and our customers
are generally responsible for any unused materials in excess of the quantity
that they indicated that they would need.

We work closely with our primary material suppliers to insure that
materials are available and delivered on time. Moreover, we also negotiate
worldwide pricing agreements with our major suppliers to take advantage of the
scale of our operations. We are not dependent on any one supplier for a
substantial portion of our material requirements.

Our packaging operations depend on obtaining adequate supplies of
manufacturing equipment on a timely basis. We work closely with major equipment
suppliers to insure that equipment is delivered on time and that the equipment
meets our stringent performance specifications.

For a discussion of additional risks associated with our materials and
equipment suppliers, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors that May Affect Future
Operating Performance" in Item 7 of this annual report.

ENVIRONMENTAL MATTERS

The semiconductor packaging process uses chemicals and gases and generates
byproducts that are subject to extensive governmental regulations. For example,
at our foreign manufacturing facilities, we produce liquid waste when silicon
wafers are diced into chips with the aid of diamond saws, then cooled with
running water. Federal, state and local regulations in the United States, as
well as environmental regulations internationally, impose various controls on
the storage, handling, discharge and disposal of chemicals used in our
manufacturing processes and on the factories we occupy.

We have been engaged in a continuing program to assure compliance with
federal, state and local environmental laws and regulations. We do not expect
capital expenditures or other costs attributable to compliance with
environmental laws and regulations to have a material adverse effect on our
business, results of operations or financial condition.

For a discussion of additional risks associated with the environmental
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Factors that May Affect Future Operating
Performance -- Environmental Regulations" in Item 7 of this annual report.

COMPETITION

The subcontracted semiconductor packaging and test market is very
competitive. We face substantial competition from established packaging and test
service providers primarily located in Asia, including companies with
significant manufacturing capacity, financial resources, research and
development operations, marketing and other capabilities. These companies
include Advanced Semiconductor Engineering, Inc., ASE Test Limited, ASAT Ltd.,
ChipPAC Incorporated, Orient Semiconductor Engineering, ST Assembly and Test
Services, and Siliconware Precision Industries Co., Ltd. Such companies have
also established relationships with many large semiconductor companies that are
current or potential customers of our company. We also compete with the internal
semiconductor packaging and test capabilities of many of our customers.

The principal elements of competition in the subcontracted semiconductor
packaging market include: (1) breadth of package offering, (2) technical
competence, (3) new package design and implementation,

13

(4) manufacturing yields, (5) manufacturing cycle times, (6) customer service
and (7) price. We believe that we generally compete favorably with respect to
each of these factors.

INTELLECTUAL PROPERTY

As of March 20, 2003, we held 224 U.S. patents and had 209 pending patents.
In addition to the U.S. patents, we held 637 patents in foreign jurisdictions.
We expect to continue to file patent applications when appropriate to protect
our proprietary technologies, but we cannot assure you that we will receive
patents from pending or future applications. In addition, any patents we obtain
may be challenged, invalidated or circumvented and may not provide meaningful
protection or other commercial advantage to us.

We may need to enforce our patents or other intellectual property rights or
to defend our company against claimed infringement of the rights of others
through litigation, which could result in substantial cost and diversion of our
resources. The semiconductor industry is characterized by frequent claims
regarding patent and other intellectual property rights. If any third party
makes a valid claim against us, we could be required to:

- discontinue the use of certain processes;

- cease the manufacture, use, import and sale of infringing products;

- pay substantial damages;

- develop non-infringing technologies; or

- acquire licenses to the technology we had allegedly infringed.

If we fail to obtain necessary licenses or if we face litigation relating to
patent infringement or other intellectual property matters, our business could
suffer.

EMPLOYEES

As of December 31, 2002, we had 20,276 full-time employees including
approximately 700 employees seconded from Toshiba whose employment will be
transferred to Amkor as of January 1, 2004. Of the total employee population,
13,021 were engaged in manufacturing, 5,650 were engaged in manufacturing
support, 326 were engaged in research and development, 233 were engaged in
marketing and sales and 1,046 were engaged in finance, business management and
administration. We believe that our relations with our employees are good. We
have never experienced a work stoppage in any of our factories. Our employees in
the U.S., the Philippines, Taiwan and China are not represented by a collective
bargaining unit. Certain members of our factories in Korea and Japan are members
of a union, and all employees at these factories are subject to collective
bargaining agreements.

ITEM 2. PROPERTIES

We provide packaging and test services through our factories in Korea,
Philippines, Japan, Taiwan and China. We believe that total quality management
is a vital component of our advanced manufacturing capabilities. We have
established a comprehensive quality operating system designed to: (1) promote
continuous improvements in our products and (2) maximize manufacturing yields at
high volume production without sacrificing the highest quality standards. The
majority of our factories are ISO9001, ISO9002, ISO14001, QS9000 and SAC Level I
certified. Additionally, as we acquire or construct additional factories, we
commence the quality certification process to meet the certification standards
of our existing facilities. We believe that many of our customers prefer to
purchase from quality certified suppliers. In addition to providing world-class
manufacturing services, our factories in the Philippines and Korea provide
purchasing, engineering and customer service support. The size, location, and
manufacturing services provided by each of our company's factories are set forth
in the table below as of February 28, 2003.

14

- ---------------

(1) The land associated with this facility is leased from ASI. The buildings are
owned by Amkor.

(2) As a result of foreign ownership restrictions in the Philippines, the land
associated with our Philippine factories is leased from subsidiaries in
which Amkor controls a minority interest, generally a 40% interest. Amkor
owns the buildings at our P1, P3 and P4 facilities and leases the buildings
at our P2 facility.

(3) Leased facility.

We expect to complete the closing of the K2 facility in Bucheon, South
Korea during the second quarter of 2003. We will transfer most of its packaging
operations into our K4 factory in Kwangju, South Korea. Our operational
headquarters is located in Chandler, Arizona, and our administrative
headquarters, which is leased, is located in West Chester, Pennsylvania. In
addition to an executive staff, the Chandler, Arizona campus houses sales and
customer service for the southwest region and product management planning and
marketing. The West Chester location houses finance and accounting, legal, and
information systems, and serves as a satellite sales office for our eastern
sales region. Our sales offices are located throughout the U.S. (Austin, Texas;
Boston, Massachusetts; Chandler, Arizona; Dallas, Texas; Greensboro, North
Carolina; Irvine, San Diego and Santa Clara, California; and West Chester,
Pennsylvania) and internationally in France, Singapore, Taiwan, the Philippines,
Japan and Korea.

ITEM 3. LEGAL PROCEEDINGS

We currently are a party to various legal proceedings, including those
noted below. While management, including internal counsel, currently believes
that the ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on our financial position or
overall trends in results of operations, litigation is subject to inherent
uncertainties. Were an unfavorable ruling to occur, there exists the possibility
of a material adverse impact on the net income of the period in which the ruling
occurs. The estimate of the potential impact on our financial position or
overall results of operations for the following legal proceedings could change
in the future.

15

Fujitsu Limited v. Cirrus Logic, Inc.

On April 16, 2002, Amkor was served with a Third Party Complaint in an
action entitled Fujitsu Limited v. Cirrus Logic, Inc., No. 02-CV-01627 JW,
pending in the United States District Court for the Northern District of
California, San Jose Division. In this action, Fujitsu alleges that
semiconductor devices it purchased from Cirrus Logic are defective in that a
certain epoxy mold compound used in the manufacture of the chip causes a short
circuit which renders Fujitsu disk drive products inoperable. Fujitsu did not
specify the amount of damages sought. Cirrus Logic, in response, denied the
allegations of the complaint, counterclaimed against Fujitsu for unpaid
invoices, and filed its Third Party Complaint against Amkor alleging that any
liability for chip defects should be assigned to Amkor because Amkor assembled
the subject semiconductor devices. Upon receipt of the Third Party Complaint,
Amkor filed an Answer denying all liability, and its own Third Party Complaint
against Sumitomo Bakelite Co., Ltd., the Japanese manufacturer of the allegedly
defective epoxy mold compound. Sumitomo Bakelite Co., Ltd., filed an Answer
denying liability. The case is in discovery. Currently, the matter is scheduled
to proceed to trial in January 2004.

Amkor believes it has meritorious defenses to Cirrus Logic's Third Party
Complaint and intends to vigorously defend the case. Moreover, Amkor believes it
has valid third party claims against Sumitomo Bakelite should the epoxy mold
compound in question be found to be defective. However, no assurance can be
given that an adverse result cannot occur, or that any adverse result would not
have a material impact upon Amkor. In this regard, other customers of Amkor have
made inquiry about the epoxy mold compound in issue, which was widely used in
the semiconductor industry, and no assurance can be given that claims similar to
that of Cirrus Logic will not be made against Amkor by other customers in the
future.

Amkor Technology, Inc. v. Motorola, Inc.

On August 16, 2002, Amkor filed a complaint against Motorola, Inc. in an
action captioned Amkor Technology, Inc. v. Motorola, Inc., C.A. No. 02C-08-160
CHT, pending in the Superior Court of the State of Delaware in and for New
Castle County. In this action, Amkor is seeking declaratory judgment relating to
a controversy between Amkor and Motorola concerning: (i) the assignment by
Citizen Watch Co., Ltd. ("Citizen") to Amkor of a Patent License Agreement dated
January 25, 1996 between Motorola and Citizen (the "License Agreement") and
concurrent assignment by Citizen to Amkor of Citizen's interest in U.S. Patents
5,241,133 and 5,216,278 (the "'133 and '278 patents"); and (ii) Amkor's
obligation to make certain payments pursuant to an Immunity Agreement dated June
30, 1993 between Amkor and Motorola (the "Immunity Agreement").

Amkor and Motorola have recently resolved the controversy with respect to
all issues relating to the Immunity Agreement, and all claims and counterclaims
filed by the parties in the case relating to the Immunity Agreement will be
dismissed or otherwise disposed of without further litigation. The claims
relating to the License Agreement and the '133 and '278 Patents remain pending,
with a trial date currently scheduled for Fall 2003.

Amkor believes it will prevail on the merits in this case. Moreover, should
it be determined that the License Agreement or Citizen's interest in the '133
and '278 Patents were not successfully transferred to Amkor, Amkor believes it
has recourse against Citizen. However, no assurance can be given that an adverse
outcome in the case cannot occur, or that any adverse outcome would not have a
material impact on Amkor.

Alcatel Business Systems

On November 5, 1999, Amkor agreed to sell certain semiconductor parts to
Alcatel Microelectronics, N.V. ("AME"), a subsidiary of Alcatel S.A. The
components were manufactured by Anam Semiconductor, Inc. ("Anam") for Amkor. AME
transferred the parts to another Alcatel subsidiary, Alcatel Business Systems
("ABS"), which incorporated the parts into cellular phone products. In early
2001, a dispute arose as to whether the parts sold by Amkor were defective. On
March 18, 2002, ABS and its insurer filed suit against Amkor and Anam in the
Paris Commercial Court of France. That court has commenced a special proceeding
before a technical expert to report on the facts of the dispute. The report of
the court appointed expert is not expected before December 2003. Amkor has
denied all liability and intends to vigorously defend itself.
16

Additionally, Amkor has entered into a written agreement with Anam whereby Anam
has agreed to indemnify Amkor against any and all loss related to the claims of
AME, ABS and ABS' insurer.

In response to the Paris lawsuit, on May 22, 2002, Amkor filed a petition
to compel arbitration in the United States District Court for the Eastern
District of Pennsylvania against ABS, AME, and ABS' insurer, claiming that any
dispute regarding is subject to the arbitration clause of the November 5, 1999
agreement between Amkor and AME. ABS and ABS' insurer have refused to arbitrate.
This action is currently in discovery.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth fiscal quarter of the fiscal year ended December 31, 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"AMKR." Public trading of the common stock began on May 1, 1998. Prior to that,
there was no public market for our common stock. The following table sets forth,
for the periods indicated, the high and low sale price per share of our common
stock as quoted on the Nasdaq National Market.

There were approximately 391 holders of record of our common stock as of
February 28, 2003.

DIVIDEND POLICY

Since our public offering in 1998, we have never paid a dividend to our
stockholders. We currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, our secured bank debt
agreements and the indentures governing our senior, senior subordinated and
convertible subordinated notes restrict our ability to pay dividends.

17

RECENT SALES OF UNREGISTERED SECURITIES

None.

EQUITY COMPENSATION PLANS

The following table summarizes our equity compensation plans as of December
31, 2002, all of which have been approved by our stockholders:

- ---------------

(1) Includes 10,096,837 options were reserved for issuance under the 1998 Stock
Plan, 343,161 were reserved for issuance under the 1998 Stock Option Plan
for French Employees and 175,000 options were reserved for issuance under
the 1998 Director Option Plan. On November 8, 2002, we initiated a voluntary
stock option replacement program such that employees and members of our
board of directors could elect to surrender their existing options and be
granted new options no earlier than six months and one day after the
tendered options were cancelled. We will issue new option grants equal to
the same number of shares surrendered by the employees. Pursuant to the
terms and conditions of the offer to exchange, a total of 1,633 eligible
employees participated and our company has accepted for cancellation options
to purchase an aggregate of 7,115,891 shares of our company's common stock
under the 1998 Stock Plan, an aggregate of 35,000 shares of our company's
common stock under the 1998 Director Option Plan and an aggregate of 248,200
shares of our company's common stock under the 1998 Stock Plan for French
Employees. Subject to the terms and conditions of the offer to exchange, our
company will grant new options to purchase 7,399,091 shares of our common
stock no earlier than June 12, 2003 in exchange for the options tendered by
eligible employees and members of our board of directors and accepted by our
company. The exercise price will equal the fair market value of common stock
as of the new grant date.

(2) As of December 31, 2002, no shares of common stock were available for sale
under the Stock Purchase Plan; however, there is a provision for an annual
replenishment to bring the number of shares of common stock available for
sale under the plan up to 1,000,000 as of each January 1.

(3) As of December 31, 2002, a total of 10,096,837 shares were reserved for
issuance under the 1998 Stock Plan, and there is a provision for an annual
replenishment to bring the number of shares of common stock reserved for
issuance under the plan up to 5,000,000 as of each January 1. As of January
1, 2003, since there were in excess of 5,000,000 shares available for
issuance under the plan, no additional shares were made available pursuant
to the annual replenishment provision.

(4) As of December 31, 2002, a total of 343,161 shares of common stock are
reserved for issuance under the French Plan, and there is a provision for an
annual replenishment to bring the number of shares of common stock reserved
for issuance under the plan up to 250,000 as of each January 1. As of
January 1, 2003, since there were in excess of 250,000 shares available for
issuance under the plan, no additional shares were made available pursuant
to the annual replenishment provision. The French Plan will terminate in
April 2003. Amkor intends to implement a new French Plan, subject to
shareholder approval in 2003.

18

ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

We have derived the selected historical consolidated financial data
presented below for, and as of the end of, each of the years in the five-year
period ended December 31, 2002 from our consolidated financial statements. You
should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes, included elsewhere in this annual report.

The summary consolidated financial data below reflects the following
transactions on a historical basis (i) our 1999 acquisition of K4 from Anam
Semiconductor, Inc. ("ASI") for $582.0 million together with its related
financing, (ii) our 2000 acquisitions of K1, K2 and K3 from ASI for $950.0
million and equity investment in ASI of $459.0 million together with the related
financing for the acquisitions and investment, (iii) our 2001 acquisitions of
Amkor Iwate Corporation, Sampo Semiconductor Corporation and Taiwan
Semiconductor Technology Corporation (a prior equity investment) and (iv) our
2002 acquisitions of semiconductor packaging businesses from Citizen Watch Co.,
Ltd. and Agilent Technologies, Inc. We historically marketed the output of
fabricated semiconductor wafers provided by a wafer fabrication foundry owned
and operated by ASI. On February 28, 2003, we sold our wafer fabrication
services business to ASI. Beginning with the first quarter of 2003, we will
reflect our wafer fabrication services segment as a discontinued operation and
restate our historical results.

20

- ---------------

(a) As of January 1, 2002, we adopted Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets. We reclassified
$30.0 million of intangible assets previously identified as an assembled
workforce intangible to goodwill. Additionally, we stopped amortizing
goodwill of $659.1 million.

(b) During 2002, we recorded $292.0 million of special charges. Special
charges, in thousands, were comprised of:

Impairment of long-lived assets............................. $190,266
Impairment of goodwill...................................... 73,080
Lease termination and other exit costs...................... 28,624
--------
$291,970
========

(c) In 1999 we recognized a pre-tax loss of $17.4 million as a result of the
early conversion of $153.6 million principal amount of our 5 3/4%
convertible subordinate notes due 2003.

(d) Prior to our reorganization in April 1998, our predecessor, Amkor
Electronics, Inc. ("AEI"), elected to be taxed as an S Corporation under
the Internal Revenue Code of 1986 and comparable state tax laws. As a
result AEI did not recognize any provision for federal income tax expense.
The pro forma provision for income taxes reflects the U.S. federal income
taxes that would have been recorded if AEI had been a C Corporation prior
to April 1998.

(e) During 2002, we recorded a $138.2 million charge to establish a valuation
allowance against our deferred tax assets consisting primarily of U.S. and
Taiwanese net operating loss carryforwards and tax credits.

(f) As of January 1, 2002, we adopted Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets. We stopped
amortizing equity method goodwill of $118.6 million associated with our
investment in ASI.

(g) During 2002, we recorded impairment charges totaling $172.5 million to
reduce the carrying value of our investment in ASI to ASI's market value.
ASI is a publicly traded company on the Korean stock exchange. Additionally
during 2002, we recorded a loss of $1.8 million on the disposition of a
portion of our interest in ASI to Dongbu.

(h) In 2001, minority interest reflects Toshiba's 40% ownership interest in
Amkor Iwate in Japan as well as shares that we did not acquire in
connection with our two acquisitions in Taiwan. In 1998, minority interest
reflects ASI's 40% interest in the earnings of Amkor/Anam Pilipinas, Inc.
("AAP"), one of our subsidiaries in the Philippines.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements within the
meaning of the federal securities laws, including but not limited to statements
regarding: (1) the condition and growth of the industry in which we operate,
including trends toward increased outsourcing, reductions in inventory and
demand and selling prices for our services, (2) our anticipated capital
expenditures and financing needs, (3) our belief as to our future capacity
utilization rates, revenue, gross margins and operating performance, (4)
statements regarding the future of our relationship with ASI (5) our statements
regarding the anticipated financial impact of the discontinuation of our wafer
fabrication services segment, and (6) other statements that are not historical
facts. In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology. Because such statements include risks and
uncertainties, actual results may differ materially from those anticipated in
such forward-looking statements as

21

a result of certain factors, including those set forth in the following
discussion as well as in "Risk Factors that May Affect Future Operating
Performance." The following discussion provides information and analysis of our
results of operations for the three years ended December 31, 2002 and our
liquidity and capital resources. You should read the following discussion in
conjunction with our consolidated financial statements and the related notes,
included elsewhere in this annual report as well as other reports we file with
the Securities and Exchange Commission.

Amkor is the world's largest subcontractor of semiconductor packaging and
test services. The company has built a leading position by:

- Providing a broad portfolio of packaging and test technologies and
services;

- Maintaining a leading role in the design and development of new package
and test technologies;

- Cultivating long-standing relationships with customers, including many of
the world's leading semiconductor companies;

- Developing expertise in high-volume manufacturing; and

- Diversifying our operational scope by establishing production
capabilities in China, Japan and Taiwan, in addition to long-standing
capabilities in Korea and the Philippines.

The semiconductors that we package and test for our customers ultimately
become components in electric systems used in communications, computing,
consumer, industrial, automotive and military applications. Our customers
include, among others, Agilent Technologies, Atmel Corporation, Intel
Corporation, LSI Logic Corporation, Mediatek Inc., Philips Electronics N.V.,
R.F. Microdevices, ST Microelectronics PTE, Sony Semiconductor Corporation and
Toshiba Corporation. The outsourced semiconductor packaging and test market is
very competitive. We also compete with the internal semiconductor packaging and
test capabilities of many of our customers.

Packaging and test are an integral part of the semiconductor manufacturing
process. Semiconductor manufacturing begins with silicon wafers and involves the
fabrication of electronic circuitry into complex patterns, thus creating
individual chips on the wafers. The packaging process creates an electrical
interconnect between the semiconductor chip and the system board. In packaging,
the fabricated semiconductor wafers are cut into individual chips which are then
attached to a substrate and encased in a protective material to provide optimal
electrical and thermal performance. Increasingly, packages are custom designed
for specific chips and specific end-market applications. The packaged chips are
then tested using sophisticated equipment to ensure that each packaged chip
meets its design specifications.

We historically marketed the output of fabricated semiconductor wafers
provided by a wafer fabrication foundry owned and operated by Anam
Semiconductor, Inc. ("ASI"). On February 28, 2003, we sold our wafer fabrication
services business to ASI. Beginning with the first quarter of 2003, we will
reflect our wafer fabrication services segment as a discontinued operation and
restate our historical results.

Our business is tied to market conditions in the semiconductor industry,
which is highly cyclical. Based on industry estimates, from 1981 through 2002,
there were 12 years when semiconductor industry growth, measured by revenue
dollars, was 10% or less and 10 years when growth was 19% or greater. Since
1981, the semiconductor industry declined in 1985, 1996, 1998 and 2001. The
semiconductor industry declined an unprecedented 32% in 2001 and experienced a
1% growth in 2002 as compared to 2001. The historical trends in the
semiconductor industry are not necessarily indicative of the results of any
future period. Semiconductor industry analysts are forecasting significant
growth in the semiconductor industry in each of 2003 and 2004. The strength of
the semiconductor industry is dependent primarily upon the strength of the
computer and communications systems markets as well as the strength of the
worldwide economy. Although significant recovery was noted in our company's core
packaging services during the second quarter of 2002, our test services assets
and several non-core packaging services assets remained at low utilization rates
relative to our projections, and are no longer expected to reach previously
anticipated utilization levels. We recognized total impairment charges of $263.4
million during the second quarter of 2002. The nature of the impairment charges
was as follows: (1) $18.7 million impairment charge to reduce the carrying value
of the test and
22

packaging assets to be disposed to their fair value less cost to sell; (2)
$171.6 million impairment charge to reduce the carrying value of test assets and
certain non-core packaging assets that are held and used to fair value, and (3)
$73.1 million goodwill impairment charge associated with our test services
reporting unit.

The first calendar quarter is typically a seasonally down quarter for
Amkor. On the basis of customers' forecasts, we currently expect packaging and
test revenue for the first quarter of 2003 to be around 10% lower than packaging
and test revenues for the fourth quarter of 2002. We expect that first quarter
of 2003 gross margin will be around 11%. Our profitability is dependent upon the
utilization of our capacity, semiconductor package mix and the average selling
price of our services. Because a substantial portion of our costs at our
factories is fixed, relatively insignificant increases or decreases in capacity
utilization rates can have a significant effect on our profitability. Prices for
packaging and test services and wafer fabrication services have declined over
time. Historically, we have been able to partially offset the effect of price
declines by successfully developing and marketing new packages with higher
prices, such as advanced leadframe and laminate packages, by negotiating lower
prices with our material vendors, and by driving engineering and technological
changes in our packaging and test processes which resulted in reduced
manufacturing costs. We expect that average selling prices for our packaging and
test services will continue to decline in the future. If our semiconductor
package mix does not shift to new technologies with higher prices or we cannot
reduce the cost of our packaging and test services to offset a decline in
average selling prices, our future operating results will suffer. Average
selling prices for 2002 declined 16% as compared to average selling prices in
2001. Average selling prices for 2001 declined 14% as compared to average
selling prices in 2000. These declines in average selling prices significantly
impacted our gross margins in 2002 and 2001.

OVERVIEW OF OUR HISTORICAL RESULTS

OUR HISTORICAL RELATIONSHIP WITH ASI

Historically we performed packaging and test services at our factories in
the Philippines and subcontracted for additional services with ASI, which
operated four packaging and test facilities in Korea. Beginning in the fourth
quarter of 1998 ASI's business was severely affected by the economic crisis in
Korea. ASI was part of the Korean financial restructuring program known as the
"Workout" program beginning in October 1998. The Workout program was the result
of an accord among Korean financial institutions to assist in the restructuring
of Korean business enterprises. The process involved negotiation between ASI's
banks and ASI, and did not involve the judicial system. The Workout process
restructured the terms of ASI's significant bank debt. Although ASI's operations
continued uninterrupted during the process, it caused concern among our
customers that we could potentially lose access to ASI's services. As a result,
we decided to acquire ASI's packaging and test operations to ensure continued
access to the manufacturing services previously provided by ASI. During the
course of negotiations for the purchase of the packaging and test operations,
both ASI management and the ASI bank group presented a counter-proposal whereby,
in addition to the purchase of the packaging and test operations, we would also
make an equity investment in ASI. The bank group and ASI management proposed
this structure because they believed the equity investment would reflect a level
of commitment from us to continue our ongoing business relationship with ASI
after the sale of its packaging and test operations to Amkor.

In May 1999, we acquired K4, one of ASI's packaging and test facilities,
and in May 2000 we acquired ASI's remaining packaging and test facilities, K1,
K2 and K3. With the completion of our acquisition of K1, K2 and K3, we no longer
depend upon ASI for packaging or test services. In May 2000 we also committed to
a $459.0 million equity investment in ASI, and fulfilled this commitment in
installments taking place over the course of 2000. In connection with the May
2000 transactions with ASI, we obtained independent appraisals to support the
value and purchase price of each the packaging and test operations and the
equity investment. We invested a total of $500.6 million in ASI including an
equity investment of $41.6 million made in October 1999 and, as a result
acquired a total of 47.7 million shares of ASI common stock.

23

As part of our strategy to sell our investment in ASI and to divest our
wafer fabrication services business, we entered into a series of transactions
beginning in the second half of 2002:

- In September 2002, we sold 20 million shares of ASI common stock to
Dongbu Group for $58.1 million in net cash proceeds and 42 billion Korean
Won (approximately $35.4 million at a spot exchange rate as of December
31, 2002) of interest bearing notes from Dongbu Corporation payable in
two equal principal payments in September 2003 and February 2004. The
Dongbu Group comprises Dongbu Corporation, Dongbu Fire Insurance Co.,
Ltd. and Dongbu Life Insurance Co., Ltd., all of which are Korean
corporations and are collectively referred herein as "Dongbu."
Additionally, we divested one million shares of ASI common stock in
connection with the payment of certain advisory fees related to this
transaction.

- As of February 28, 2003, we sold our wafer fabrication services business
to ASI for total consideration of $62 million.

- In separate transactions designed to facilitate a future merger between
ASI and Dongbu, (i) we acquired a 10% interest in Acqutek from ASI for
$1.9 million; (ii) we acquired the Precision Machine Division ("PMD") of
Anam Instruments, a related party to Amkor, for $8 million; and (iii)
Anam Instruments, which had been partially owned by ASI, utilized the
proceeds from the sale of PMD to us to buy back all of the Anam
Instruments shares owned by ASI. Acqutek supplies materials to the
semiconductor industry and is publicly traded in Korea. An entity
controlled by the family of James Kim, our Chairman and Chief Executive
Officer, held a 25% ownership interest in Acqutek at the time of our
acquisition of our interest in Acqutek. We have historically purchased
and continue to purchase leadframes from Acqutek. PMD supplies
sophisticated die mold systems and tooling to the semiconductor industry
and historically over 90% of its sales were to Amkor. At the time of our
acquisition of PMD, Anam Instruments was owned 20% by ASI and 20% by a
family member of James Kim.

Each of the transactions with Dongbu, ASI and Anam Instruments are
interrelated and it is possible that if each of the transactions were viewed on
a stand-alone basis without regard to the other transactions, we could have had
different conclusions as to fair value.

As of February 28, 2003, we sold our wafer fabrication services business to
ASI. Additionally, we obtained a release from Texas Instruments regarding our
contractual obligations with respect to wafer fabrication services to be
performed subsequent to the transfer of the business to ASI. Beginning with the
first quarter of 2003, we will reflect our wafer fabrication services segment as
a discontinued operation and restate our historical results. We no longer
benefit from the income from operations and cash flows of our wafer fabrication
services segment. The historical results of our wafer fabrication services
segment are as follows:

In connection with the disposition of our wafer fabrication business, we
expect to incur an estimated $1 million in severance and other exit costs to
close our wafer fabrication services operations in Boise, Idaho and Lyon,
France. We estimate that in the first quarter of 2003 we will recognize a
pre-tax net gain on the disposition of our wafer fabrication services business
approximately $58 million. The carrying value of the disposed net assets
associated with the business as of February 28, 2003 was $3 million. In
addition, pursuant to the definitive agreements, (1) Amkor and Dongbu agreed to
use reasonable best efforts to cause Dongbu Electronics and ASI to be merged
together as soon as practicable, (2) Amkor and Dongbu agreed to cause ASI to use
the proceeds ASI received from its sale of stock to Dongbu to purchase shares in
Dongbu

24

Electronics and (3) Amkor and Dongbu agreed to use their best efforts to provide
releases and indemnifications to the chairman, directors and officers of ASI,
either past or incumbent, from any and all liabilities arising out of the
performance of their duties at ASI between January 1, 1995 and December 31,
2001. The last provision would provide a release and indemnification for James
Kim, our CEO and Chairman, and members of his family. We are not aware of any
claims or other liabilities which these individuals would be released from or
for which they would receive indemnification.

At January 1, 2002 Amkor owned 47.7 million shares or 42% of ASI's voting
stock. During 2002, we divested 21 million shares of ASI stock and at December
31, 2002 Amkor owned 26.7 million shares of ASI or 21%. The carrying value of
our remaining investment in ASI at December 31, 2002 was $77.5 million, or $2.90
per share. On March 24, 2003, we sold an additional 7 million shares of ASI
common stock to an investment bank for 24.4 billion Korean won ($19.5 million
based on the spot exchange rate as of the transaction date) which approximates
the carrying value of those shares. As part of that sale, we purchased a
nondeliverable call option for $6.7 million that expires December 2003 and is
indexed to ASI's share price with a strike price of $1.97 per share. The net
proceeds from the exercise of the option could be less than the current carrying
value and could expire unexercised losing our entire investment in the option.
As of March 24, 2003, we owned 19.7 million shares of ASI, or 16% of ASI's
voting stock. Beginning March 24, 2003, we ceased accounting for our investment
in ASI under the equity method of accounting and commenced accounting for our
investment as a marketable security that is available for sale.

OUR 2002 ACQUISITIONS

In April 2002, we acquired the semiconductor packaging business of Citizen
Watch Co., Ltd. located in the Iwate prefecture in Japan. The business acquired
includes a manufacturing facility, over 80 employees and intellectual property.
The purchase price included a $7.8 million cash payment at closing. We are
required to make additional payments one year from closing for the amount of the
deferred purchase price as well as contingent payments. Based on the resolution
of the contingency as of January 2003, the total amount of additional payments
due in April 2003 is 1.7 billion Japanese yen ($14.3 million based on the spot
exchange rate at December 31, 2002). We recorded $19.6 million of intangible
assets for patent rights that are amortizable over 7 years.

In January 2002, we acquired Agilent Technologies, Inc.'s packaging
business related to semiconductor packages utilized in printers for $2.8 million
in cash. The acquired tangible assets were integrated into our existing
manufacturing facilities. The purchase price was principally allocated to the
tangible assets. Our results of operations were not significantly impacted by
this acquisition.

In October 2002, we terminated negotiations with Fujitsu Limited to acquire
Fujitsu's packaging and test operation in Kagoshima, Japan pursuant to the April
2002 memorandum of understanding between our company and Fujitsu.

OUR VENTURE WITH TOSHIBA CORPORATION

As of January 1, 2001, Amkor Iwate Corporation commenced operations with
the acquisition of a packaging and test facility at a Toshiba factory located in
the Iwate prefecture in Japan. We currently own 60% of Amkor Iwate and Toshiba
owns the balance of the outstanding shares. By January 2004 we are required to
purchase the remaining 40% of the outstanding shares of Amkor Iwate from
Toshiba. The share purchase price will be determined based on the performance of
the venture during the three-year period but cannot be less than 1 billion
Japanese yen and cannot exceed 4 billion Japanese yen ($8.4 million to $33.7
million based on the spot exchange rate at December 31, 2002). Amkor Iwate
provides packaging and test services principally to Toshiba's Iwate factory
under a long-term supply agreement that provides for services to be performed on
a cost plus basis during the term of the joint venture and subsequently at
market based rates. The supply agreement with Toshiba's Iwate factory terminates
two years subsequent to our acquisition of Toshiba's ownership interest in Amkor
Iwate.

25

OUR ACQUISITIONS OF TAIWAN SEMICONDUCTOR TECHNOLOGY CORPORATION AND SAMPO
SEMICONDUCTOR CORPORATION

In July 2001, we acquired, in separate transactions, Taiwan Semiconductor
Technology Corporation ("TSTC") and Sampo Semiconductor Corporation ("SSC") in
Taiwan. The results of TSTC and SSC have been included in the accompanying
consolidated financial statements since the acquisition dates. Our results of
operations were not significantly impacted by these acquisitions. In connection
with earn-out provisions that provided for additional purchase price based in
part on the results of the acquisitions, we issued an additional 1.8 million
shares in January 2002 and recorded an additional $35.2 million in goodwill.

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated:

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net Revenues. Net revenues increased $121.8 million, or 8.0%, to $1,639.7
million in 2002 from $1,517.9 million in 2001. Packaging and test net revenues
increased 5.2% to $1,406.2 million in 2002 from $1,336.7 million in 2001. Wafer
fabrication net revenues increased 28.9% to $233.5 million in 2002 from $181.2
million in 2001.

The increase in packaging and test net revenues for 2002, excluding the
impact of our acquisitions and expansion in Japan, Taiwan and China, was
principally attributed to an overall unit volumes increase of 19.7% which was
driven by a 42.0% increase for advanced packages and a 1.2% increase in our
traditional packages. Partially offsetting the volume increases, average selling
prices for 2002 declined 16% as compared to average selling prices in 2001. The
revenues of our Japanese acquisition, Amkor Iwate, declined $12.4 million in
2002 compared to 2001. Our acquisitions in Taiwan and expansion into China
contributed $54.6 million to the increase in net revenues for 2002.

Prices for packaging and test services and wafer fabrication services have
declined over time. Historically, we have been able to partially offset the
effect of price declines by successfully developing and marketing new packages
with higher prices, such as advanced leadframe and laminate packages, by
negotiating lower prices with our material vendors, and by driving engineering
and technological changes in our packaging and test processes which resulted in
reduced manufacturing costs. During 2002, the decline in average selling prices
significantly impacted our gross margins as compared to the comparable period a
year ago.

The increase in wafer fabrication net revenues was primarily attributed to
a 50.7% increase in sales to Texas Instruments in 2002 as compared with 2001
partially offset by a 55.1% decrease in demand from our other wafer fabrication
services customers. We derived 92.8% and 79.4% of our wafer fabrication revenues
from Texas Instruments for 2002 and 2001, respectively. On February 28, 2003, we
sold our wafer fabrication services business to ASI. Additionally, we obtained a
release from Texas Instruments regarding our contractual obligations with
respect to wafer fabrication services to be performed subsequent to the transfer
of the business to ASI. Beginning with the first quarter of 2003, we will
reflect our wafer fabrication services segment as a discontinued operation and
restate our historical results.

26

Gross Profit (Loss). Gross profit increased $48.0 million, or 68.8%, to
$117.8 million in 2002 from $69.8 million in 2001. Our cost of revenues consists
principally of costs of materials, labor and depreciation. Because a substantial
portion of our costs at our factories is fixed, relatively insignificant
increases or decreases in capacity utilization rates can have a significant
effect on our gross margin. As a result of acquisitions in Japan and Taiwan in
2001 as well as other geographic expansions, we substantially increased our
fixed costs.

Gross margins as a percentage of net revenues increased 2.6 percentage
points to 7.2% in 2002 as compared to 4.6% in 2001 principally as a result of
the following:

- Increased capacity utilization as a result of increased unit volumes at
our factories in Korea and the Philippines together with the impact of
our cost savings initiatives at those factories caused an approximate 7
percentage point increase in gross margins.

- Material cost savings contributed approximately 4 percentage points to
the increase in gross margins.

- Reduced depreciation expense of approximately $42 million as a result of
the impact of the fixed asset impairment charge recorded as of June 30,
2002 caused an approximate 2% percentage points increase in gross
margins. A discussion of the second quarter impairment charge is
presented within the discussion of special charges below.

- Reduced depreciation expense of approximately $17 million as a result of
the impact of the change in estimated useful lives of certain packaging
equipment beginning with the fourth quarter of 2002 caused an approximate
1% percentage point increase in gross margins. A discussion of the change
in estimated useful lives is set forth below.

The positive impacts on gross margins were partially offset by:

- Average selling price erosion across our product lines caused an
estimated 10 percentage points decline in gross margins.

- Our acquisitions in Taiwan and expansion into China contributed
approximately 1.4 percentage points to the decline in gross margin as a
result of the costs associated with ramping and reconfiguring operations
at these facilities.

Depreciation accounting requires estimation of the useful lives of the
assets to be depreciated as well as adoption of a method of depreciation. We
calculate depreciation using the straight-line method over the estimated useful
lives of the depreciable assets. We have historically estimated the useful lives
of our machinery and equipment to be three to five years, with the substantial
majority of our packaging assets having estimated useful lives of four years.
Effective with the fourth quarter of 2002, we changed the estimated useful lives
of certain of our packaging equipment from four years to seven years for
depreciation purposes, which is in line with our historical usage and consistent
with other companies in our industry. We did not extend the useful lives of the
packaging equipment associated with the second quarter impairment charge based
on our expected use of that equipment and the associated cash flows. This change
decreased our net loss by approximately $16.7 million, or $0.10 per share. There
was no offsetting impact to our tax provision related to the change in useful
lives because of our consolidated net losses for 2002 and our recognition of a
valuation allowance against the associated net operating loss carryforwards.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $11.6 million, or 5.8%, to $188.6 million, or
11.5% of net revenues, in 2002 from $200.2 million, or 13.2% of net revenues, in
2001. The decrease in these costs was largely attributed to $12.6 million in
cost reductions principally related to our U.S. based administrative overhead
cost reduction initiatives; partially offset by $0.9 million for increased
administrative costs related to our factories. Our factory administrative
expenses increased overall as a result of our 2002 and 2001 acquisitions offset
by factory cost reduction initiatives.

Research and Development. Research and development expenses decreased $7.6
million to $31.2 million, or 1.9% of net revenues, in 2002 from $38.8 million,
or 2.6% of net revenues, in 2001. Our research and development efforts support
our customers' needs for smaller packages and increased functionality. We
continue to invest our research and development resources to further the
development of flip chip

27

interconnection solutions, chip scale packages that are nearly the size of the
semiconductor die, micro-electromechanical system ("MEMS") devices used in a
variety of end markets including automotive, industrial and personal
entertainment, our stacked chip packages that stack as many as three
semiconductor dies in a single package, and System-in-Package technology, that
uses both advanced packaging and traditional surface mount techniques to enable
the combination of technologies in a single chip.

Amortization of Goodwill and Other Acquired Intangibles. As of January 1,
2002, we adopted Statement of Financial Accounting Standard No. 142, Goodwill
and Other Intangible Assets. We reclassified $30.0 million of intangible assets
previously identified as an assembled workforce intangible to goodwill.
Additionally, we stopped amortizing goodwill of $659.1 million. The cessation of
amortization reduced amortization expense by $80.2 million for 2002 as compared
with 2001.

Special Charges. During 2002, we recorded $292.0 million of special
charges. Special charges, in thousands, were comprised of:

Impairment of long-lived assets............................. $190,266
Impairment of goodwill...................................... 73,080
Lease termination and other exit costs...................... 28,624
--------
$291,970
========

Although significant recovery was noted in our company's core packaging
services during the second quarter of 2002, our test services assets and several
non-core packaging services assets remained at low utilization rates relative to
our projections, and are no longer expected to reach previously anticipated
utilization levels. In addition, during the second quarter of 2002, we
experienced a significant decline in our market capitalization. These events
triggered an impairment review in accordance with SFAS No. 144. This review
included a company-wide evaluation of underutilized assets that could be sold
and a detailed update of our operating and cash flow projections. As a result of
this analysis, we identified $19.8 million of test and packaging fixed assets to
be disposed. We recognized an $18.7 million impairment charge to reduce the
carrying value of the test and packaging fixed assets to be disposed to their
fair value less cost to sell. Fair value of the assets to be disposed was
determined with the assistance of an appraisal firm and available information on
the resale value of the equipment. Additionally, we tested for impairme