Amkor Technology
AMKR
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

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, 1998

COMMISSION FILE NUMBER 000-29472

AMKOR TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 23-172-2724
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>

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 2003

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is contained in this form, and no disclosure will 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]

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the average bid and asked prices of
such stock, was approximately $397,010,688 as of March 16, 1999.

The number of shares outstanding of each of the issuer's classes of common
equity, as of March 16, 1999, was as follows: 117,860,000 shares of Common
Stock, $0.001 par value.

Documents Incorporated by Reference: Portions of the definitive Proxy
Statement to be delivered to stockholders in connection with the 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III.

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TABLE OF CONTENTS

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PAGE
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<S> <C> <C>
PART I.................................................................. 1
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 21
Item 3. LEGAL PROCEEDINGS........................................... 21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 21

PART II................................................................. 22
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 22
Item 6. SELECTED FINANCIAL DATA..................................... 23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 25
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 44
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 45
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 84

PART III................................................................ 84
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT........... 84
Item 11. EXECUTIVE COMPENSATION...................................... 84
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 84
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 84

PART IV................................................................. 84
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 84
</TABLE>

USE OF CERTAIN TERMS

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."

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PART I

ITEM 1. BUSINESS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This business section contains forward-looking statements that involve
risks and uncertainties. You may find these statements by the use of
forward-looking terminology such as "believe," "expect," "anticipate,"
"estimate," "plan," "project," "may," "will" or other similar words. We have
based these forward-looking statements on our own information and on information
from other sources that we believe are reliable. Our actual results may differ
materially from those expressed or implied by these forward-looking statements
as a result of risk factors and other factors noted throughout this annual
report. Given this level of uncertainty, you should not place undue reliance on
such forward-looking statements.

OVERVIEW

Amkor is the world's largest independent provider of semiconductor
packaging and test services. We believe that we are also one of the leading
developers of advanced semiconductor packaging and test technology. We offer a
broad and integrated set of packaging and test services, which are the final
procedures to prepare semiconductor devices for further use. Our customers
supply us with semiconductor wafers, and through a series of complex steps we
incorporate individual semiconductor chips into protective packages that
facilitate the integration of the semiconductor device into electronic products.
We also provide final testing and related services that validate the operating
specifications of the finished semiconductor device. In January 1998, we began
marketing wafer fabrication services provided by Anam Semiconductor, Inc.'s
("ASI's") new semiconductor wafer foundry. ASI is our primary supplier of
semiconductor packaging and test services from four factories they own in Korea.
For the year ended December 31, 1998, we derived 69% of our net revenues and 49%
of our gross profit from sales of services performed for us by ASI. We derived
the remainder of our revenues from services performed by our three factories in
the Philippines. We have entered into an asset purchase agreement with ASI to
purchase the assets of ASI's newest and largest packaging and test factory, K4,
excluding cash and cash equivalents, notes and accounts receivables,
intercompany accounts and existing claims against third parties. The purchase
price for K4 is $607 million, including the assumption of up to $7 million of
employee benefit liabilities. ASI has indicated that this purchase price would
be reduced to $582 million if we sign an agreement to make an equity investment
of $150 million in ASI over a four year period, pursuant to the proposed
financial restructuring of ASI with its creditor banks, called a "Workout." The
Company has sent ASI's creditor banks a letter committing to make an equity
investment in ASI subject to certain conditions. See "-- Relationship With ASI,"
The terms on which we are willing to make this investment have not yet been
accepted by ASI's creditor banks.

INDUSTRY BACKGROUND

Semiconductors, transistors and integrated circuits are the essential
building blocks used in most electronic products. Semiconductor material,
usually silicon, has the properties of both an electrical conductor and an
insulator, a non-conductor of electricity. A transistor is made of semiconductor
material and enables both analog and digital circuits to manipulate and perform
computations. In 1958, Texas Instruments developed the first integrated circuit,
a complex semiconductor device consisting of multiple connected transistors
residing on a single piece of silicon. Since then, semiconductor design and
manufacturing technologies have improved and resulted in smaller, more complex
and less costly integrated circuits.

As semiconductor devices have evolved, there have been three important
effects: (1) an increase in demand for computers and related products due to
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 number of
semiconductor devices in electronic products. Semiconductor content in
electronic products has increased from approximately 10.5% in 1992 to 14.8% in
1998, and this figure is expected to grow to 20.7% by 2002. Simultaneously, the
worldwide semiconductor market expanded at a compound annual growth rate of
12.9% over a period of six years from $65.3 billion in

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1992 to $134.8 billion in 1998. According to industry estimates, the worldwide
semiconductor market is expected to total $234.8 billion by 2001, which
represents a compound annual growth rate of 20.3% over 1998's level.

MANUFACTURING PROCESS

The production of a semiconductor device is a complex process that requires
increasingly sophisticated engineering and manufacturing expertise. The
production process can be broadly divided into three primary stages: (1) wafer
fabrication, (2) packaging of die into finished semiconductor devices and (3)
test of finished semiconductor devices and other related services.

Wafer Fabrication. The wafer fabrication process begins with the generation
of a mask that defines the circuit patterns for the transistors and interconnect
layers that will be formed on the raw silicon wafer. The transistors and other
circuit elements are formed by repeating a series of process steps wherein: (1)
a photosensitive material is first deposited on the wafer, (2) the material is
exposed to light through the mask in a photolithography process and (3) the
unwanted material is etched away, leaving only the desired circuit pattern on
the wafer. By stacking various patterns, the individual elements of the
semiconductor are defined. The final step in the wafer fabrication process is to
electrically test each individual chip on the semiconductor wafer in a wafer
probe process in order to identify the good chips for packaging.

Packaging. The fabricated wafers are then transferred to semiconductor
packaging factories. Semiconductor packaging protects the semiconductor device,
dissipates heat from the semiconductor device and facilitates its integration
into electronic products. In the packaging process, the wafer is diced into its
individual die which are then separated from the wafer and attached to a
substrate via an epoxy adhesive. Leads on the substrate are then connected by
extremely fine gold wires to the input/output terminals on the chips through the
use of automated machines known as wire bonders. Each lead is an input/output
connector, and a higher number of leads increases the functionality and
complexity of a semiconductor device. Each die is then encapsulated in a plastic
molding compound, thus forming the package, which then goes through several
additional finishing steps to prepare it for testing.

Test. Following packaging, each packaged device is then tested using a
sophisticated test platform and program that analyzes the many different
operating specifications of the semiconductor device, including functionality,
voltage, current and timing. The completed devices are either shipped back to
the customer or shipped directly to their final destination.

TRENDS TOWARD OUTSOURCING

Historically, semiconductor companies packaged semiconductors primarily in
their own factories and relied on independent providers to handle overflow
volume. Today, semiconductor companies are increasingly outsourcing their
packaging and test services to independent providers for the following reasons:

INDEPENDENT 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. As a result of this trend, many
semiconductor companies view packaging as an enabling technology requiring
sophisticated expertise and technological innovation. However, they have had
difficulty developing the necessary capabilities with their internal resources
and are relying on independent providers of packaging and test services as a key
source of new package designs.

INDEPENDENT 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.

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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 independent 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 sustain high levels of capacity
utilization. Independent providers of packaging and test services, on the other
hand, can use equipment at high utilization levels over a longer period of time
for a broad range of customers, effectively extending the life of the equipment.

THE AVAILABILITY OF HIGH QUALITY INDEPENDENT PACKAGING AND TEST SERVICES ALLOWS
SEMICONDUCTOR MANUFACTURERS TO FOCUS THEIR RESOURCES ON SEMICONDUCTOR DESIGN AND
WAFER FABRICATION RATHER THAN SEMICONDUCTOR PACKAGING AND TEST SERVICES.

As the cost to build a new wafer foundry has increased to over $1 billion,
semiconductor companies are choosing to focus their capital resources on core
wafer fabrication activities. As a result, semiconductor companies are
outsourcing to independent packaging and test providers who have the ability to
invest the capital needed to develop new packaging and test capacity.

THERE IS 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. According to industry estimates, revenues
of fabless semiconductor companies as a percentage of the worldwide
semiconductor industry have expanded from 5.2% in 1997 to 6.3% in 1998. We
believe that fabless semiconductor companies will continue to be a significant
driver of growth in the independent 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
independent packaging and test services. Today, nearly all of the world's major
semiconductor companies use independent packaging and test service providers for
at least a portion, if not all, of their packaging and test needs. According to
industry estimates, independent packaging and test revenues are expected to grow
at a compound annual growth rate of 26.4% over a period of three years from $4.6
billion in 1998 to $9.3 billion in 2001. Furthermore, the percentage of total
packaging and test revenues generated by independent providers, which was 15.4%
in 1995, is expected to increase to 23.3% in 2001.

Certain of the same forces driving the growth of independent packaging and
test are also driving demand for independent wafer fabrication services. Many
semiconductor companies are outsourcing some or all of their wafer fabrication
needs because the cost to build new wafer foundries has been rising steadily.
This is particularly true for newer, smaller geometry technologies which cannot
be produced in many semiconductor companies' existing wafer foundries. As the
demand for semiconductor devices with smaller geometries increases, we believe
semiconductor companies will increasingly utilize independent wafer
manufacturers.

STRATEGY

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

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CAPITALIZE ON OUTSOURCING TREND. We intend to continue to capitalize on the
projected growth of the independent semiconductor packaging and test segment. We
believe that semiconductor manufacturers will increasingly outsource packaging
and test services to those independent providers who deliver superior quality
and value. We work with our customers to quantify the cost savings of our
services compared to their in-house capabilities. We believe our leading-edge
technologies and manufacturing expertise enable us to optimize production
yields, reduce cycle times and lower per unit costs.

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:

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

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

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

MAINTAIN 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 capability and joint
development activities with ASI in Korea through the following activities:

N We are collaborating with customers to gain access to technology roadmaps
for the next generation of semiconductor designs;

N We are collaborating with companies, such as Compaq Computer Corporation,
Ericsson Corporation, and Nokia Group, which purchase semiconductor
devices from our customers, to design new packages that function with the
next generation of electronic products; and

N We are implementing new package designs by entering into technology
alliances and by licensing leading-edge designs from others. We and Sharp
Corporation have entered into a strategic alliance to promote chip scale
packaging with fleXBGA(R). We have licensed from Tessera, Inc. the
technology for their (LOGO)BGA(R) design. We have also licensed
"flip-chip" package technology from LSI Logic Corporation.

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 SELECTIVE ACQUISITIONS AND STRATEGIC RELATIONSHIPS. 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 factories from
semiconductor manufacturers. We intend to structure any such acquisitions to
include long-term supply contracts with the seller. In addition, by establishing
joint ventures, we intend to enter new markets near clusters of wafer foundries,
which are large sources of demand for packaging and test services. For example,
in October 1998, we entered into a joint venture with Taiwan Semiconductor
Manufacturing Corporation, Acer Inc., Scientek International Investment Co. Ltd.
and Chinfon Semiconductor & Technology Company to build a packaging and test
factory in Taiwan, a market with significant demand in which we currently have
few customers.

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PROVIDE AN INTEGRATED, TURNKEY SOLUTION. We intend to provide a complete
turnkey solution comprised of semiconductor wafer fabrication, packaging and
test services. We believe that this will enable customers to achieve faster time
to market for new products and reduce manufacturing costs.

COMPETITIVE STRENGTHS

LEADING INDUSTRY POSITION. We are the world's largest independent provider
of semiconductor packaging and test services. We have built our leading position
through: (1) one of the industry's broadest offerings of packaging and test
services, (2) expertise in the development and implementation of packaging and
test technology, (3) long-standing relationships with our customers and (4)
advanced manufacturing capabilities.

BROAD AND INTEGRATED PACKAGING AND TEST SERVICES. With over 600 different
package types, we offer one of the semiconductor industry's broadest lines of
packaging and test services. We provide customers with a wide array of packaging
alternatives including mature leadframe packages and newer advanced leadframe
and laminate packages. 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 state-of-the-art thin package formats and laminate
packages including our PowerQuad(R), SuperBGA(R), fleXBGA(R) and ChipArray(R)
BGA packages. To maintain our leading industry position, we have 95 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. We also
participate in joint development activities with ASI's research and development
staff in Korea.

LONG-STANDING RELATIONSHIPS WITH PROMINENT SEMICONDUCTOR COMPANIES. Our
customer base consists of more than 150 companies, including 36 of the world's
40 largest semiconductor companies. In our 31-year operating history, we have
developed long-standing relationships with many of our customers. We have served
each of our ten largest customers, based on our 1998 net revenues, for more than
ten years.

ADVANCED MANUFACTURING CAPABILITIES. We believe that our company's and
ASI's manufacturing excellence has been a key factor in our success in
attracting and retaining customers. We have worked with ASI, our customers and
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 independent
provider of packaging and test services.

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 three
families: traditional leadframe, advanced leadframe and laminate, as described
below.

Semiconductor packages have evolved from traditional leadframe to advanced
leadframe to laminate in response to the increasing demands of today's
high-performance electronic products. The differentiating characteristics of
these packages include: (1) the size of the package, (2) the number of
electrical connections the package can support and (3) the thermal and
electrical requirements of the package.

N As the size of semiconductor devices shrinks for use in portable
computers and wireless telecommunications products, the size of packages
must also shrink. 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.

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N The number of electrical connections on a semiconductor device is an
important factor in determining its end use in electronic products. As
semiconductor devices increase in complexity, the number of electrical
connections that is required also increases. Leadframe products have
electrical connections from the semiconductor device to the electronic
product through leads on the perimeter of the package. Our newer laminate
products use balls on the bottom of the package to create the electrical
connections and can support larger numbers of electrical connections.
These products are called ball grid array or BGA products.

N Advanced thermal and electrical characteristics of a particular package
improve the functionality and durability of today's high-powered
semiconductor devices. For example, a copper layer in a package can help
reduce thermal wear on the semiconductor device and improve its
electrical conductivity.

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:

<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------------ ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Traditional leadframe......... $491 85.7% $749 80.3% $ 819 69.9% $ 834 57.3% $ 603 41.5%
Advanced leadframe............ 47 8.2 136 14.6 202 17.3 312 21.4 343 23.6
Laminate...................... 3 .6 15 1.7 109 9.3 251 17.3 438 30.2
Test and other................ 32 5.5 32 3.4 41 3.5 59 4.0 68 4.7
---- ----- ---- ----- ------ ----- ------ ------ ------ -----
Total package and test net
revenues................ $573 100.0% $932 100.0% $1,171 100.0% $1,456 100.0% $1,452 100.0%
==== ===== ==== ===== ====== ===== ====== ====== ====== =====
</TABLE>

In addition, we had $116 million of net revenues from wafer fabrication
services in 1998.

TRADITIONAL LEADFRAME PACKAGES

Traditional leadframe packages are the most widely used package family and
are characterized by a chip encapsulated in a plastic mold compound with metal
leads on the perimeter. This package family has evolved from a design where the
leads are plugged into holes on the circuit board to a 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. Continuous engineering and customization has reduced the
footprint of the package on the circuit board and improved the electrical
performance of the package. In addition, we have designed package types to
dissipate the heat generated by high-powered semiconductor devices. Such "power"
designs are advancements on our small outline package (SOP) and metric quad flat
package (MQFP) and are called PowerSOP(R) and PowerQuad(R).

The following table presents our traditional leadframe packages, including
the number of leads and the description of and end uses for each package format.

<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTION END USES
-------------- -------- --------------------------------- ---------------------------------
<S> <C> <C> <C>
Plastic Dual In-line Package 8-48 General purpose plastic package Games, telephones, televisions,
PDIP used in consumer electronic audio equipment and computer
products peripherals
Shrink PDIP-SPDIP 30-64 General purpose plastic package Games, telephones, televisions,
used in consumer electronic audio equipment and computer
products peripherals
Hermetic Custom Ceramic package used in high- Military, space and commercial
reliability applications aviation products
Plastic Leaded Chip Carrier- 20-84 Package with leads on two sides Copiers, printers, scanners,
PLCC used in a consumer electronics desktop personal computers,
and products in which the size of electronic games and monitors
the package is not vital
Small Outline Integrated 8-44 Small leadframe package designed Pagers, cordless telephones, fax
Circuit-SOIC for applications requiring low machines, copiers, printers,
height computer peripherals, audio and
video products and automotive
systems
</TABLE>

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<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTION END USES
-------------- -------- --------------------------------- ---------------------------------
<S> <C> <C> <C>
Metric Quad Flat Package- 44-304 Package with leads on four sides Desktop personal computers,
MQFP designed for advanced processors, consumer and industrial products,
controllers, digital signal commercial and office equipment
processors (DSPs) and application and automotive systems
specific integrated circuits
(ASICs)
PowerQuad(R) 64-304 Higher-performance, thermally- High-performance computers such
enhanced quad flat package (QFPs) as workstations and servers, disk
drives, central processing units
(CPUs), audio and video products
and telecommunications products
PowerSOP(R) 8-36 Higher-performance, thermally- Pagers, disk drives, wireless
enhanced SOIC package telecommunications products,
automotive systems and industrial
products
</TABLE>

ADVANCED LEADFRAME PACKAGES

Our advanced leadframe packages are similar in design to our traditional
leadframe packages. However, the advanced leadframe packages generally are
thinner and smaller, have more leads and have advanced thermal and electrical
characteristics.

The thin small outline packages (TSOPs), thin shrink small outline packages
(TSSOPs), and shrink small outline packages (SSOPs) are smaller than our
traditional small outline integrated circuit (SOIC) package. The thin quad flat
package (TQFP) is a smaller version of the metric quad flat package (MQFP). We
also offer power versions of these package types to dissipate heat generated by
high-powered semiconductor devices. 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.

The following table presents our advanced leadframe packages, including the
number of leads and the description of and end uses for each package format.

<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTIONS END USES
-------------- -------- ------------------------------- -------------------------------
<S> <C> <C> <C>
Thin Quad Flat Package -- TQFP 32-176 Designed for lightweight, Laptop computers, desktop
portable electronics requiring personal computers, disk
broad performance drives, office equipment, audio
characteristics and video products, and
telecommunications and wireless
telecommunications products
Thin Small Outline Package -- 28-48 Package designed for Laptop computers, desktop
TSOP high-volume production of personal computers, still and
low-lead count memory devices video cameras, and standard
such as FLASH, SRAM and DRAM connections for peripherals to
computers (PCMCIA)
Thin Shrink Small Outline 8-80 Smaller version of TSOP Disk drives, recordable optical
Package -- TSSOP designed for logic and analog disks, audio and video
devices and memory devices such products, consumer electronics
as FLASH, SRAM, EPROM, EEPROM and telecommunications products
and DRAM
Shrink Small Outline 8-56 Smallest of the SOP packages Pagers, disk drives, portable
Package -- SSOP designed for portable products audio and video products and
which require reduced size and wireless telecommunications
weight products
MicroLeadframe(TM) 6-52 Package designed for low Telecommunications and wireless
lead-count devices requiring telecommunications products and
reduced size and improved personal digital assistants
thermal and electrical (PDAs)
performance
</TABLE>

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<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTIONS END USES
-------------- -------- ------------------------------- -------------------------------
<S> <C> <C> <C>
ePad(TM), ExposedPad(TM) 6-128 Thermally and Pagers, disk drives and
electrically-enhanced TQFP and wireless telecommunications
TSSOP packages products
Multi-Chip Package -- MCP 8-44 Package designed to integrate FLASH memory devices, audio and
two or more dice to maximize video products, portable
their operating performance consumer electronics,
telecommunications and wireless
telecommunications products,
and electronic automotive
components
</TABLE>

LAMINATE PACKAGES

The laminate package family is our newest product offering. This 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
surrounding the package increased, packagers increased the proximity of the
leads to one another in an attempt to maintain the size of the package. The
nearness of one lead to another 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. These
balls can be evenly distributed across the entire bottom surface of the package,
allowing greater distance between the individual leads. For the highest lead
count devices, the ball grid array configuration can be manufactured less
expensively and requires less delicate handling at installation.

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:

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

N (LOGO)BGA(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

N ChipArray(R) BGA, which allows the package to be as small as 1.5 mm
larger than the chip itself.

We are currently designing and implementing extensions of existing ball
grid array packages, such as ChipArray(R) BGA, TapeSuperBGA(R), TapeArray(TM)
BGA and WaferScale Chip Scale Package, to further reduce package size and
increase manufacturing efficiency.

The following table presents our laminate packages, including the number of
leads and the description of and end uses for each package format.

<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTIONS END USES
-------------- ---------- --------------------------- ---------------------------
<S> <C> <C> <C>
Plastic Ball Grid Array -- PBGA 119-580 Ball grid array package Laptop computers, disk
designed for applications drives, video cameras,
which require high global positioning systems
performance (GPS), wireless
telecommunications products
and standard connections
for peripherals to
computers (PCMCIA)
</TABLE>

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11

<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTIONS END USES
-------------- ---------- --------------------------- ---------------------------
<S> <C> <C> <C>
SuperBGA(R) 168-600 Higher-performance, Laptop and palmtop
thermally-enhanced BGA computers, personal digital
package designed for assistants (PDAs), video
digital signal processors graphical user interfaces
(DSPs), application (video GUI), central
specific integrated processing units (CPUs) and
circuits (ASICs) and wireless telecommunications
microprocessors products

fleXBGA(R) 132-672 Low-profile package Laptop computers, disk
designed to support a drives, pagers, video
densely-packed ball grid products and wireless
array for high lead count telecommunications products
devices

Micro Ball Grid Array -- (LOGO)BGA(R) 8-100 Package approximately the Laptop and palmtop
size of the die designed computers, disk drives,
for applications which personal digital assistants
require small size and (PDAs), video products,
light weight such as memory portable consumer products
devices, including FLASH, and wireless
SRAM and Rambus DRAM, telecommunications products
microprocessors, and
applications specific
integrated circuits (ASICs)

ChipArray(R) BGA 8-208 Extension of PBGA package Laptop and palmtop
designed for logic, analog computers, personal digital
and memory devices and assistants (PDAs), global
application specific positioning systems (GPS),
integrated circuits (ASICs) telecommunications and
wireless telecommunications
products

TapeSuperBGA(R) 256-696 Extension of SuperBGA(R) High-performance computers
package designed for high such as workstations and
lead count devices servers, data communication
products and internet
routers

TapeArray(TM) BGA 48-256 Extension of fleXBGA(R) Palmtop computers, disk
package designed for logic, drives, personal digital
analog and memory devices assistants (PDAs), global
and application specific positioning systems (GPS),
integrated circuits (ASICs) digital consumer
electronics and wireless
telecommunications products
WaferScale Chip Scale Package 40-200 Extension of (LOGO)BGA(R) Laptop and palmtop
wsCSP(TM) package designed for logic computers, personal digital
and memory devices and assistants (PDAs), and
other low lead count telecommunications and
devices wireless telecommunications
products
Flip Chip BGA 168-1140 Package with latest High-performance computers
interconnect technology such as workstations and
that delivers improved servers, data
electrical performance to communications products and
devices requiring a large internet routers
number of leads in a small
package
</TABLE>

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12

<TABLE>
<CAPTION>
NUMBER
PACKAGE FORMAT OF LEADS DESCRIPTIONS END USES
-------------- ---------- --------------------------- ---------------------------
<S> <C> <C> <C>
Multi-Chip Package PBGA- 119-456 Extension of PBGA package Modems, wireless
MCP PBGA designed to integrate two telecommunications products
or more logic, analog and and electronic automotive
memory devices and components
application specific
integrated circuits (ASICs)
to maximize their operating
performance
VisionPak(TM) 8-20 Ceramic ball grid array Bar code scanners, digital
package in which still cameras, digital
photographic-quality glass video conferencing and
is mounted above the die electronic toys
</TABLE>

TEST SERVICES

We also provide our customers with services to test the specifications of
semiconductor devices. We have the capability to test digital logic, analog and
mixed signal products. The combination of our test operations together with
ASI's test operations comprises one of the largest independent test operations
in the world. Although test services accounted for only 4.7% of our net revenues
and were performed on only 14% of the total units shipped in 1998, we believe
that our ability to provide both packaging and test services at the same
location provides us with a competitive advantage.

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 foundry. Using
.25 micron and .18 micron CMOS process technology provided by Texas Instruments,
Inc. ("TI"), this semiconductor wafer foundry can produce up to 15,000 eight
inch wafers per month. ASI began limited production in January 1998 and since
the end of 1998 has been operating at close to full capacity. The wafer foundry
primarily manufactures digital signal processors ("DSPs"), application-specific
integrated circuits ("ASICs") and other logic devices, which are found in many
advanced electronic products.

We plan to continue to focus our semiconductor technology development
efforts to serve the high-performance digital logic market. However, as
technological capability evolves and the need for new CMOS designs arise, we
anticipate adding embedded memory and special analog functionality to our core
CMOS technology.

We can provide a complete turnkey solution comprised of wafer fabrication,
packaging and test services. We believe that this will enable customers to
achieve faster time to market for new products and reduce manufacturing costs.

AGREEMENTS WITH ASI AND TI. TI and our company have entered into a
Manufacturing and Purchase Agreement pursuant to which TI has agreed to purchase
from us at least 40% of ASI's wafer foundry's capacity, and under certain
circumstances has the right to purchase 70% of the wafer foundry's capacity.

The Texas Instruments Manufacturing and Purchasing Agreement terminates on
December 31, 2007, unless it has been previously terminated. The agreement may
be terminated upon, among other things: (1) the consent of ASI, TI and our
company, (2) a material breach by ASI, TI or our company, (3) the failure of ASI
to protect TI's intellectual property and (4) a change of control, bankruptcy,
liquidation or dissolution of ASI. The agreement may also be terminated by ASI
or TI on two years' notice if they cannot successfully negotiate an agreement to
govern ASI's use of TI's next-generation CMOS process technology prior to
September 30, 2000. During any such two-year notice period, TI will only be
obligated to purchase a minimum of 20% of the wafer foundry's capacity.

Under the Texas Instruments Technology Agreements, ASI has a license to use
Texas Instruments' technology only to provide wafer fabrication services to
Texas Instruments. For more information regarding the risks to our company of
this relationship and ASI's limited technology license, see "Management's

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Discussion and Analysis of Financial Condition and Results of
Operations -- Risks That May Affect Future Operating Performance -- Risks
Associated with Our Wafer Fabrication Business" in Item 7 of this annual report.

RESEARCH AND DEVELOPMENT

Our research and development efforts focus on developing new package
designs 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.

We employ approximately 95 persons in research and development activities.
In addition, we involve management and operations personnel in research and
development activities. In 1996, 1997 and 1998, we spent $10.9 million, $8.5
million and $8.3 million, respectively, on research and development. We expect
to continue to invest in research and development.

In addition to our internal development work and our co-development work
with ASI, we also work closely with our packaging equipment and material
suppliers in developing advanced processing capabilities and materials for use
in our production process. Currently, we are focusing on development programs
that extend the capability and applicability of the ball grid array design.

We are implementing new package designs by entering into technology
alliances and by licensing leading-edge package designs from others.

N We and Sharp Corporation have entered into a strategic alliance to
promote chip scale packaging with fleXBGA(R), a package which is also
only slightly larger than the chip itself. The size of this package is
ideal for portable electronic products, and the flexible tape substrate
enables the package to support a denser ball grid array configuration and
thus more complex semiconductor devices.

N We have licensed from Tessera, Inc. the technology for its (LOGO)BGA(R)
design, a package which is only slightly larger than the chip itself.
Rambus Inc., a fabless semiconductor company, has adopted the
(LOGO)BGA(R) package as the preferred package for their Rambus DRAM
(RDRAM) designs. Rambus Inc. has developed a technology which increases
the speed of semiconductor memory devices and has licensed this
technology to leading DRAM manufacturers.

N We have also licensed "flip chip" package design technology from LSI
Logic Corporation. Using flip chip technology, we are able to design
packages that support the highest number of leads available because we
attach the input/output terminals on the chip directly to the leads on
the substrate thereby eliminating the need for delicate wire bonds. The
flip-chip package can support semiconductor devices with more than 1,000
leads.

MARKETING AND SALES

We sell our packaging and test services and wafer fabrication 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 near a concentration of several of our customers. Our office locations
include sites in the U.S. (Austin, Texas; Boise, Idaho; Chandler, Arizona;
Dallas, Texas; Santa Clara, California; and West Chester, Pennsylvania), France,
Singapore, Taiwan and the Philippines. We have historically derived a
substantial majority of our net revenues from U.S.-based customers.

To provide comprehensive sales and customer service, we assign each of our
customers a direct team consisting of an account manager, a technical program
manager and one or more customer support representatives. We also typically
support our largest multinational customers from multiple offices. We have 200
employees dedicated to our direct teams who focus on sales and customer service.

The direct teams are closely supported by an extended staff of product
managers, process and reliability engineers, marketing and advertising
specialists, information systems technicians and factory personnel. Together,
these direct and extended teams deliver an array of services to our customers.
These services
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include: (1) providing information and expert advice on packaging solutions and
trends, (2) managing the start-up of specific packaging and test programs, (3)
providing a continuous flow of information to the customers regarding products
and programs in process and (4) researching and helping to resolve technical and
logistical issues.

We are implementing direct electronic links with our customers to enhance
communication and facilitate the flow of real-time engineering data and order
information. These links connect our customers to our sales and marketing
personnel worldwide and to our factories in the Philippines and ASI's factories
in Korea.

CUSTOMERS

We currently have more than 150 customers, and our customers include many
of the largest semiconductor companies in the world. The table below lists our
top 50 customers in 1998:

<TABLE>
<CAPTION>
<S> <C> <C>
Altera Corporation Integrated Device Technology, Nvidia Corporation
Adaptec, Inc. Inc. Philips Electronics N.V.
Advanced Micro Devices, Inc. Intel Corporation R.F. Micro Devices
Alcatel Mietec Lattice Semiconductor Robert Bosch GmbH
American Micro Systems, Inc. Corporation S3 Incorporated
Analog Devices, Inc. Level One Communications, Inc. SGS-THOMSON
Atmel Corporation LSI Logic Corporation Microelectronics N.V.
Cirrus Logic Lucent Technologies, Inc. Siemens AG
Conexant Macronix International Co., Ltd. SMC Corporation
Cypress Semiconductor Corp. Matra Harris Semiconductors Siera Semiconductor Corporation
Dallas Semiconductor Maxim Integrated Circuits Silicon Storage Technology, Inc.
Fairchild Semiconductor Microchip Technology Inc. Taiwan Semiconductor
Harris Corporation Mitel Semiconductor Manufacturing Corporation Ltd.
Hewlett-Packard Company Mitsubishi Electric Corporation Texas Instruments, Inc.
International Business Motorola, Inc. Toshiba
Machines Corp. National Semiconductor Corp. VLSI Technology, Inc.
IC Works Inc. NEC Corporation Ltd. VTC Inc.
Integrated Circuit Systems, Inc. NeoMagic Corporation Xilinx, Inc.
Northern Telecom
</TABLE>

Our five largest packaging and test customers collectively accounted for
approximately 39.2%, 40.1% and 35.3% of our net revenues in 1996, 1997 and 1998,
respectively. We anticipate that, for the foreseeable future, our top five
customers will continue to account for a substantial percentage of our net
revenues. In addition, during 1998, we derived 7.4% of our net revenues from
wafer fabrication services, and we derived all of these revenues from TI. We
have served each of our ten largest customers, based on our 1998 net revenues,
for more than ten years.

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 molding
compound. We purchase materials based on customer orders, 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 and our expansion plans also 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. One of ASI's
affiliates manufactures semiconductor packaging equipment exclusively for our
company and ASI at locations in close proximity to our factories in the
Philippines and ASI's factories in Korea. For a discussion of additional risks
associated with our materials and equipment suppliers, see "Management's
Discussion and

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Analysis of Financial Condition and Results of Operations -- Risk Factors that
May Affect Future Operating Performance -- Dependence on Materials and Equipment
Suppliers" in Item 7 of this annual report.

ENVIRONMENTAL MATTERS

For a discussion of the environmental issues and risks facing us, 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 independent semiconductor packaging and test market is very
competitive. This sector is comprised of approximately 39 companies.

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., Hana
Microelectronics Public Co. Ltd., Astra International, Carsem Bhd., ChipPAC
Incorporated, Siliconware Precision Industries Co., Ltd. and Shinko Electric
Industries Co., Ltd. Such companies have also established relationships with
many large semiconductor companies that are current or potential customers of
our company. On a larger scale, we also compete with the internal semiconductor
packaging and test capabilities of many of our customers.

The principal elements of competition in the independent semiconductor
packaging market include: (1) breadth of package offering, (2) technical
competence, (3) new package design and implementation, (4) manufacturing yields,
(5) manufacturing cycle times, (6) customer service and (7) price.

The independent wafer fabrication business is also highly competitive. Our
wafer fabrication services compete primarily with independent semiconductor
wafer foundries, including those of Chartered Semiconductor Manufacturing, Inc.,
Taiwan Semiconductor Manufacturing Company, Ltd. and United Microelectronics
Corporation. Each of these companies has significant manufacturing capacity,
financial resources, research and development operations, marketing and other
capabilities and has been operating for some time. We also expect to compete
with device manufacturers that provide semiconductor wafer foundry services for
other semiconductor companies, such as LG Semicon Co., Ltd., Hitachi, Ltd.,
Toshiba Corp. and Winbond Electronics Corporation. Each of these independent
semiconductor wafer foundries and many of these companies have also established
relationships with many large semiconductor companies that are current or
potential customers of our company.

The principal elements of competition in the wafer foundry market include:
(1) technical competence, (2) new semiconductor wafer design and implementation,
(3) manufacturing yields, (4) manufacturing cycle times, (5) customer service
and (6) price.

As with the independent semiconductor packaging market, we believe that we
generally compete favorably with respect to each of these factors.

INTELLECTUAL PROPERTY

We currently hold 43 U.S. patents, 16 of which are held jointly with ASI,
related to various semiconductor packaging technologies. These patents will
expire at various dates from 2012 through 2016. We also have 89 pending patent
applications. With respect to development work undertaken jointly with ASI, we
share intellectual property rights with ASI under the terms of the supply
agreements between our company and ASI. The supply agreements provide for the
cross-licensing of intellectual property rights between our company and ASI. We
also enter into agreements with other developers of packaging technology to
license or otherwise obtain certain process or packaging technologies.

We expect to continue to file patent applications when appropriate to
protect our proprietary technologies. However, we believe that our continued
success depends primarily on factors such as the technological skills

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and innovation of our personnel rather than on our patents. 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.

Although we are not currently a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and
other intellectual property rights. If a third party were to bring a valid legal
claim against our company or ASI, we and ASI could be required to: (1)
discontinue the use of certain processes, (2) cease the manufacture, use, import
and sale of infringing products, (3) pay substantial damages, (4) develop
non-infringing technologies or (5) acquire licenses to the technology that we
had allegedly infringed.

EMPLOYEES

As of December 31, 1998, we had approximately 10,300 full-time employees.
Of these employees, 8,845 were engaged in manufacturing, 940 were engaged in
manufacturing support, 95 were engaged in research and development, 210 were
engaged in marketing and sales and 210 were engaged in finance, business
management and administration. Our employees are not represented by any
collective bargaining agreement, and we have never experienced a work stoppage.
We believe that our relations with our employees are good. In connection with
our proposed acquisition of ASI's packaging and test facility located in
Kwangju, Korea ("K4"), we expect to hire 1,700 employees currently working at
K4. For a more complete discussion of the acquisition of K4, see "-- The
Acquisition of K4."

CORPORATE HISTORY

Amkor Technology Inc. was formed in September 1997 to consolidate the
ownership of the following interdependent companies which were involved in the
same business under the direction of common management (the "Reorganization"):

N AEI and its subsidiaries Amkor Receivables Corp., which purchases our
accounts receivable under an accounts receivable financing arrangement,
and Amkor Wafer Fabrication Services SARL, which provides various
technical support for CIL Limited's ("CIL") wafer fabrication services
customers in Europe and Asia;

N T.L. Limited ("TLL") and its subsidiary CIL, which markets our services
to semiconductor companies in Europe and Asia;

N Amkor/Anam EuroServices S.A.R.L. ("AAES"), which provides various
technical and support services for CIL's packaging and test customers;

N Amkor/Anam Advanced Packaging, Inc. ("AAAP"), Amkor/Anam Pilipinas, Inc.
("AAP") and AAP's subsidiary Automated MicroElectronics, Inc. ("AMI"),
each of which provides manufacturing services; and

N AK Industries, Inc. ("AKI") and its subsidiary, Amkor-Anam, Inc., which
provides raw material purchasing and inventory management services.

Subsequent to the Reorganization, we created additional subsidiaries and
reorganized the ownership structure of several of our subsidiaries.

THE ACQUISITION OF K4

We have entered into an asset purchase agreement with ASI to purchase the
assets of ASI's newest and largest packaging and test factory, K4, excluding
cash and cash equivalents, notes and accounts receivables, intercompany accounts
and existing claims against third parties. The purchase price for K4 is $607
million, including the assumption of up to $7 million of employee benefit
liabilities. K4 provides packaging and test services for advanced leadframe and
laminate packages that are used in high-performance electronic products such as
cellular telephones, laptop computers, digital cameras and microprocessors. K4
began operating in October 1996 and is ASI's newest semiconductor packaging and
test facility. In addition to other conditions, including the satisfactory
completion of due diligence, the receipt of a fairness opinion and final board

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17

approval, our acquisition of K4 is subject to our ability to obtain financing of
the entire amount of the purchase price on reasonable terms. We cannot be
certain that we will be able to obtain this financing on reasonable terms. Our
company and ASI continue to finalize the details of the acquisition, including
ancillary agreements. ASI has indicated that it will reduce the purchase price
of K4 to $582 million if we sign an agreement to make an equity investment of
$150 million in ASI over a four year period, pursuant to the proposed financial
restructuring of ASI with its creditor banks, called "Workout." The Company has
sent ASI's creditor banks a letter committing to make an equity investment in
ASI. The commitment is subject to conditions more fully described in
"-- Relationship With ASI," and the terms on which we are willing to make this
investment have not yet been accepted by ASI's creditor banks.

K4 is situated on approximately 100 acres and currently consists of a
1,000,000 square feet facility, including 782,000 square foot of manufacturing
and administrative space. K4 provides packaging and test services for many of
our most advanced packages. In addition, the K4 site has the infrastructure in
place to accommodate four pre-configured modules for a total of 1.6 million
square feet of incremental capacity.

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RELATIONSHIP WITH ASI

WHO IS ANAM SEMICONDUCTOR, INC.?

ASI is a Korean company engaged primarily in providing semiconductor
packaging and test services. ASI currently operates four semiconductor packaging
and test factories in Korea, including K4. ASI also operates a semiconductor
wafer foundry in Korea. ASI derives substantially all of its revenues from the
sale of its packaging and test services to us. ASI also derives all of its wafer
fabrication revenues from the sale of services to us. In addition, ASI markets
its services directly to customers located in Korea.

We have a long-standing relationship with ASI. ASI was founded in 1956 by
Mr. H. S. Kim, the father of Mr. James Kim, our Chairman and Chief Executive
Officer. Since January 1992, in addition to his other responsibilities, Mr.
James Kim has served as Chairman and a director of ASI. For the years ended
December 31, 1996, 1997 and 1998, we derived 72%, 68% and 69% of our net
revenues and 51%, 42% and 49% of our gross profit from sales of services
performed for us by ASI.

In January 1998, we entered into new supply agreements with ASI. Under
these agreements, we retain a first right to substantially all of its packaging
and test services and the exclusive right to all of the output of its
semiconductor wafer foundry. We expect to continue to purchase substantially all
of ASI's packaging and test services and to purchase all of ASI's semiconductor
wafer output.

THE KOREAN FINANCIAL CRISIS AND THE ASI WORKOUT

ASI's business has been severely affected by the economic crisis in Korea.
In late 1997, the Republic of Korea began to undergo a foreign currency
liquidity crisis resulting in significant adverse economic circumstances and
significant depreciation in the value of the Korean Won against the U.S. dollar.
In order to address this situation, the government of Korea sought assistance
from the International Monetary Fund and implemented a comprehensive policy
intended to address the structural weaknesses in the Korean economy and
financial sector. While the reform policies were intended to alleviate the
economic difficulties and improve the economy over time, in the short term, they
have resulted in: (1) slower economic growth, (2) a reduction in the
availability of credit, (3) an increase in interest rates, (4) an increase in
taxes, (5) an increase in the rate of inflation, (6) volatility in the value of
the Korean Won, (7) an increase in the number of bankruptcies of Korean
corporate entities and (8) unrest resulting from a significant increase in
unemployment. Although the Korean economy recovered somewhat in the latter half
of 1998, these conditions and similar conditions in other countries in the Asia
Pacific region continue to pose a threat to the economies of such countries and
to the region as a whole.

ASI historically operated with a significant amount of debt relative to its
equity. The economic crisis in Korea led to sharply higher interest rates and
significantly reduced opportunities for refinancing maturing debts. Because ASI
maintained a substantial amount of short-term debt, its inability to refinance
this debt created a liquidity crisis for ASI.

In addition to its own leveraged financial position, ASI guarantees certain
debt obligations of its affiliates and subsidiaries, many of which have
encountered similar or worse financial difficulties as a result of the crisis.
In response to this situation, in October 1998, ASI announced that it had
applied for and was accepted into the Korean financial restructuring program
known as "Workout." The Workout program is the result of an accord among Korean
financial institutions to assist in the restructuring of Korean business
enterprises. This process involves negotiation between the related banks and
ASI, and does not involve the judicial system. The Workout process also does not
impact debts outstanding with trade creditors, including balances due to/or from
ATI. ASI's operations have continued uninterrupted during the process, and we
expect ASI's operations to continue uninterrupted for the duration of the
process.

The Company has received the report of the meeting of ASI's Creditor Banks
at which the principal terms of a Workout plan for ASI were approved (a
translation of the principle terms of the ASI Workout is attached as Exhibit
99.1 filed with this annual report). We understand from ASI's management that
many of the details of the Workout program will be contained in definitive
agreements between ASI and the creditor

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banks and none of these agreements have yet been finalized. The terms of ASI's
Workout set forth below are based upon the report and information provided to us
by ASI's management. References to "won" or "W" are to the currency of Korea.

The Workout as approved by the creditor banks contains the following relief
provisions for ASI:

N The creditor banks will allow ASI to defer repayment on principal of
ordinary loans until December 31, 2003. After December 31, 2003 bank
loans with repayment terms will be payable through readjustment of
repayment schedules on the basis of the repayment period as of October
24, 1998. For loans without repayment terms, the schedule to repay
principal amounts will be determined by ASI and the Creditor Banks at the
end of such period.

N The creditor banks will allow ASI to defer repayment of principal under
capital leases until December 31, 1999, with payments of principal to
resume under a 7 year installment plan thereafter.

N The creditor banks will allow ASI to defer the maturity of its
Won-denominated debentures held by the Creditor Banks for an additional
three year term after currently scheduled maturity dates.

N The creditor banks will allow ASI to make no interest payments on
ordinary loans until December 31, 1999. The Creditor Banks will add
accrued interest to the principal amounts of these loans every three
months.

N The creditor banks will reduce interest rates on ASI's remaining
outstanding Won-denominated ordinary bank loans to 10% or the prime rate
of each creditor bank, whichever is greater. This would reduce ASI's
weighted average interest rate from 12.9% before the Workout to 10.5%
after the Workout.

N The creditor banks will give ASI a five year grace period until December
31, 2003 against enforcement of guarantees made by ASI for liabilities of
ASI's affiliates. In addition, interest will not accrue on guaranteed
obligations during the five year period.
N The creditor banks will provide to ASI a short-term loan of W50 billion
at the prime rate plus 1%, to be repaid with proceeds from the sale of
K4.
N The creditor banks will convert W250 billion ($208 million, using the
December 31, 1998 exchange rate of W1207 to $1.00) of ASI debt held by
the creditor banks into: (1) W122.3 billion ($102 million using the
December 31, 1998 exchange rate) in equity shares of ASI, (2) W108.1
billion ($90 million using the December 31, 1998 exchange rate) in
five-year non-interest bearing convertible debt and (3) W19.6 Billion
($16 million) in non-interest bearing loans. The conversion would take
place in installments over four years and at a conversion rate equal to
W5,000 per share, the par value of ASI's common stock. In order for the
initial conversion of debt to take place in accordance with the terms of
Workout, ASI will have to undergo a series of corporate actions,
including a reverse stock split to bring the fair market value of its
equity shares to a price at least equal to the par value of such shares.
The creditor banks would time their conversions of ASI debt to coincide
with equity investments made in ASI by a third-party investor company, in
the aggregate amount of $150 million over a four year period.

The conversion of debt by the creditor banks depends upon ASI obtaining a
commitment from a third party foreign investor to invest $150 million in ASI
equity over a four-year period. We have sent a letter to ASI's creditor banks
committing, subject to certain conditions, to make an investment of $41 million
in 1999 and, assuming certain additional conditions are met, we will invest an
additional $109 million between years 2000 and 2002. Our commitment letter
provides that upon meeting these conditions, we would invest $41 million in
1999, 2000, and 2001, with a final investment of $27 million in 2002. We would
purchase the ASI shares at W5,000 per share. Since our commitment is in U.S.
dollars, the number of shares we would purchase will vary based on the exchange
rate of Korean won to U.S. dollars. The letter has not yet been accepted by
ASI's creditor banks, and we cannot be certain that the banks will agree to the
terms we have proposed for the investment. Our commitment to invest in ASI must
be finalized before the Workout agreements will be implemented. If we reach
agreement with ASI's creditors banks on the terms of our
17
20

commitment, ASI has indicated that it will reduce the K4 purchase price to $582
million from $607 million. We do not believe that any other third party is
considering investing in ASI.

ASI has not finalized the Workout agreement with the creditor banks.
Assuming the creditor banks and ASI finalize and implement the Workout, upon
completion of the first installment of the conversion of debt of the creditor
banks to equity or convertible debt and the first installment of our equity
investment, the relative equity ownership of ASI among the creditor banks, the
Kim family and our company would be approximately 27%, 21% and 21%, respectively
(assuming an exchange rate of W1,200 to $1.00) Upon completion of all debt
conversions and equity investments contemplated by the Workout through 2002, the
relative equity ownership of ASI among the creditor banks, the Kim family and
our company would be approximately 29%, 11% and 43%, respectively (assuming an
exchange rate of W1,200 to $1.00 and without any future sales of ASI stock by
these parties). Upon conversion of all of the convertible debt issued to
creditor banks, which would be permitted beginning one year after the date of
issuance of such debt, the ownership of ASI among the creditor banks, the Kim
family and our company would be approximately 43%, 9% and 34%, respectively
(assuming an exchange rate of W1,200 to $1.00 and without any future sales of
ASI stock by these parties).

The creditor banks have the right to terminate the Workout if ASI fails to
meet the conditions of the Workout, which includes conditions related to ASI's
financial performance. We believe that if the Workout is not finalized by the
creditor banks and ASI, or if the creditor banks subsequently terminate the
Workout, the debt relief afforded to ASI pursuant to the Workout would be
terminated and the creditor banks could reinstate and enforce the original terms
of ASI's debt, including accelerating ASI's obligations. If this were to occur,
ASI's and our businesses could be harmed.

RELATIONSHIP WITH ASI FOLLOWING THE WORKOUT AND PROPOSED ACQUISITION OF K4

We expect ASI to continue to be important to our business in the future.
Under our supply agreements with ASI, we have a first right to substantially all
of the packaging and test services of ASI and the exclusive right to all of the
wafer output of ASI's wafer foundry. The supply agreements have a five-year term
and may be terminated by either party upon five years' written notice after
completion of the initial five year term. The supply agreements may also be
terminated upon breach or insolvency of either party. We expect to continue to
have certain contractual and other business relationships with ASI, including
those under the supply agreements. The supply agreements generally provide for
continued cooperation between our company and ASI in research and development,
as well as cross-licensing of intellectual property rights. The supply
agreements also provide for continued capital investment by ASI based on our
forecasts. If the Workout is not agreed upon by ASI and its creditor banks or if
it is not successful, ASI's ability to meet the capital expenditure requirements
for expansion may be limited.

Concurrent with the completion of the proposed acquisition of K4, we will
enter into a transition services agreement and an intellectual property
licensing agreement with ASI. The terms of these agreements are being
negotiated.

Our company and ASI will also continue to have close ties due to our
overlapping ownership and management. The Kim family currently beneficially owns
approximately 65.8% of our outstanding common stock and approximately 40.7% of
ASI's Common Stock. As a result of the Workout as currently contemplated, the
Kim family's ownership of ASI will be substantially diluted. Nevertheless, we
believe that the Kim family will continue to exercise significant influence over
ASI and its affiliates, as well as over our company. We expect that Mr. James
Kim will continue to serve as Chairman of ASI and as our Chairman and Chief
Executive Officer. If our company makes an investment of $150 million in ASI in
connection with the Workout, our company would own approximately 43% of the
outstanding common stock of ASI by the year 2002, which would increase the
interrelationship of our two companies (assuming an exchange rate of W1,200 to
$1.00, without any future sales of ASI stock by us, and before conversion of
outstanding convertible notes to equity).

Our company has also entered into agreements with ASI and TI relating to
our wafer fabrication business. For more information on these agreements, please
see "Business -- Wafer Fabrication Services."

18
21

We may engage in other transactions with ASI from time to time that are
material to us. For further information regarding our historical relationship
with ASI, see "Certain Transactions."

ASI'S FINANCIAL CONDITION

ASI's ability to continue to provide services to us will depend on ASI's
financial condition and performance. ASI is currently in a weak financial
condition, and it is not certain whether the Workout that is being negotiated
will be sufficient to allow ASI to substantially improve its financial
condition.

The following is a summary of the audited, December 31, 1996, 1997 and 1998
unconsolidated financial information pertaining to ASI. The unconsolidated
financial information differs from consolidated financial data in certain
significant respects. Under generally accepted accounting principles in Korea
("Korean GAAP"), investments are carried at cost. Consequently, income or losses
from subsidiaries and equity investments are generally not considered in
determining net income on an unconsolidated basis. In addition, revenues earned
on sales to affiliated companies are not eliminated. In 1997, ASI's net loss on
a consolidated basis was W348,729 million. Consolidated financial statements for
1998 are not available. The financial information is prepared in accordance with
Korean GAAP which differs from U.S. GAAP. These differences include accounting
for investment securities, foreign currency translation, impairment of long
lived assets, deferred assets, deferred taxes and goodwill. Under U.S. GAAP the
U.S. dollar would be the functional currency for ASI. U.S. GAAP financial
statements are not available.

Beginning in late 1997 and continuing into 1998, the won depreciated
significantly against the U.S. dollar and other foreign currencies. On December
31, 1996, the exchange rate was W884 to $1.00. By comparison, the exchange rate
was W1,415 to $1.00 on December 31, 1997 and W1,207 to $1.00 on December 31,
1998. No representation is made that the won or U.S. dollar amounts referred to
herein could have been or could be converted into U.S. dollars or won, as the
case may be, at any particular rate or at all.

ASI UNCONSOLIDATED CONDENSED FINANCIAL INFORMATION
(KOREAN GAAP)

<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................................... W1,125,880 W1,428,353 W2,261,395
Gross profit..................................... 162,965 212,059 143,199
Operating income................................. 112,815 153,402 78,641
Interest and dividend (income) expense, net...... 54,637 61,731 246,139
Foreign exchange (gains) losses, net, losses on
forward exchange contracts and amortization of
deferred charges, net.......................... 31,720 343,169 (187,831)
Loss on valuation of inventories................. -- 444 21,179
Other, net....................................... (3,875) 235 (32,462)
---------- ---------- ----------
Total non-operating (income) expense, net... 82,482 405,579 47,025
---------- ---------- ----------
Ordinary income (loss) before income taxes and
extraordinary items............................ 30,333 (252,177) 31,616
Income tax.......................................... 7,286 -- --
Extraordinary (gains) losses, net................... 3,322 (484) 189,811
---------- ---------- ----------
Net income (loss)................................ W 19,725 W (251,693) W(158,195)
========== ========== ==========
Depreciation expense................................ W 83,433 W 123,142 W 301,874
========== ========== ==========
</TABLE>

19
22

ASI UNCONSOLIDATED
(KOREAN GAAP)

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and bank deposits............................ W 291,554 W 190,473 W 8,623
Accounts and notes receivable, net................ 50,219 86,274 101,646
Inventories....................................... 90,889 116,224 61,749
Short-term loans to affiliates.................... 2,680 28,919 340,344
Other current assets.............................. 67,868 161,512 105,131
---------- ---------- ----------
Total current assets........................... 503,210 583,402 617,493
---------- ---------- ----------
Property, plant and equipment, net................ 884,985 2,075,065 2,212,544
Investments....................................... 114,093 122,732 116,849
Long-term accounts receivable..................... 9,696 9,518 6,120
Other long-term assets............................ 38,507 231,898 109,795
---------- ---------- ----------
Total long-term assets......................... 1,047,281 2,439,213 2,445,308
---------- ---------- ----------
Total assets.............................. W
W1,550,491 W3,022,615 3,062,801
========== ========== ==========
Short-term borrowings............................. W 410,009 W 932,937 W 924,426
Current maturities of long-term debt.............. 80,222 93,396 214,161
Provision for losses on short-term loans to
affiliates..................................... -- -- 190,000
Other current liabilities......................... 202,863 280,951 387,868
---------- ---------- ----------
Total current liabilities...................... 693,094 1,307,284 1,716,455
---------- ---------- ----------
Long-term debt, net of current maturities......... 402,020 654,662 448,212
Long-term capital lease obligations............... 105,428 852,444 655,105
Other long-term liabilities....................... 57,074 74,915 78,563
---------- ---------- ----------
Total long-term liabilities.................... 564,522 1,582,021 1,181,880
---------- ---------- ----------
Total liabilities.............................. 1,257,616 2,889,305 2,898,335
---------- ---------- ----------
Stockholders' equity.............................. 292,875 133,310 164,466
---------- ---------- ----------
Total liabilities and stockholders' equity..... W W
W1,550,491 3,022,615 3,062,801
========== ========== ==========
</TABLE>

A significant amount of the current and long-term liabilities of ASI are
denominated in U.S. dollars and other foreign currencies. At December 31, 1998,
the amount of U.S. dollar and other foreign currency denominated short-term
borrowings, current maturities of long-term debt, long-term debt (net of current
maturities) and long-term capital lease obligations were W253 billion, W80
billion, W96 billion and W633 billion, respectively. Due in part to the
significant depreciation of the won resulting from the economic crisis in Korea,
ASI's dollar-denominated liabilities in won terms and its leverage calculated in
won significantly increased in 1997. The effect of this depreciation on ASI,
however, has been mitigated by the fact that substantial amounts of ASI's
revenues are denominated in U.S. dollars. The increase in ASI's liabilities was
also attributable in part to additional financing obtained in connection with
the construction of its new semiconductor wafer foundry.

As of December 31, 1998, ASI was contingently liable under guarantees in
respect of debt of ASI's subsidiaries and affiliates in the Anam Group including
AUSA in the aggregate amount of approximately W668 billion. In addition, if any
relevant subsidiaries or affiliates of ASI, certain of which may have greater
exposure to domestic Korean economic conditions than ASI, were to fail to make
interest or principal payments or otherwise default under their debt obligations
guaranteed by ASI, ASI could be required under its guarantees to repay such
debt, which event could have a material adverse effect on its financial
condition and results of operations.

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23

ITEM 2. PROPERTIES

We provide packaging and test services through our three factories in the
Philippines. We source additional packaging and test services from four
factories located in Korea and owned by ASI, including K4, pursuant to a supply
agreement with ASI. We also source wafer fabrication services from ASI's
semiconductor wafer foundry located in Korea pursuant to another supply
agreement. In addition, we have a research and development facility at our
Chandler, Arizona site. For information about our supply agreements with ASI,
see "Relationship With ASI."

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. Each of our factories and each of
ASI's factories is ISO9002 and QS-9000 certified. ISO9002 is a worldwide
manufacturing quality certification program administered by an independent
standards organization. QS-9000 is a manufacturing quality certification program
administered by an independent standards organization that is used primarily by
U.S. automotive manufacturers. We believe that many of our customers prefer to
purchase from suppliers who are ISO9002 and QS-9000 certified. In addition to
providing world-class manufacturing services, our factories in the Philippines
and ASI's factories in Korea provide purchasing, engineering and customer
service support.

The size, location, and manufacturing services provided by each of our
company's and ASI's factories is set forth in the table below.

<TABLE>
<CAPTION>
APPROXIMATE
FACTORY SIZE
LOCATION (SQUARE FEET) MANUFACTURING SERVICES
-------- ------------- ----------------------
<S> <C> <C>
OUR FACTORIES
Muntinlupa, Philippines(P1) 579,000 Packaging and test services
Packaging and process development
Muntinlupa, Philippines(P2) 115,000 Packaging services
Province of Laguna, Philippines(P3) 388,000 Packaging and test services

ASI'S FACTORIES
Seoul, Korea(K1) 646,000 Packaging services
Package and process development
Buchon, Korea(K2) 264,000 Packaging services
Bupyung, Korea(K3) 404,000 Packaging and test services
Kwangju, Korea(K4) 782,000 Packaging and test services
Buchon, Korea 480,000 Wafer fabrication services
</TABLE>

Our operational headquarters is located in Chandler, Arizona, and our
administrative headquarters is located in West Chester, Pennsylvania. In
addition to an executive staff, the Chandler, Arizona campus houses: (1) sales
and customer service for the southwest region, (2) product management planning
and marketing and (3) a 121,000 square foot center for technical design and
research and development. The West Chester location houses finance and
accounting, legal, personnel administration and information systems, and serves
as a satellite sales office for our eastern sales region.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business we may be involved in legal proceedings
from time to time. As of the date of this annual report, there are no material
proceedings pending against us.

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, 1998.

21
24

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.

<TABLE>
<CAPTION>
1998 HIGH LOW
---- ------- ------
<S> <C> <C>
Second Quarter (from May 1, 1998)........................... $14.000 $7.000
Third Quarter............................................... $ 9.750 $3.250
Fourth Quarter.............................................. $10.875 $3.000
</TABLE>

DIVIDEND POLICY

We have not paid cash dividends and have no present plans to do so. We have
a negative covenant prohibiting dividends under the terms of one of our current
loan agreements.

There were approximately 102 holders of record as of March 15, 1999 of our
Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES

Prior to our initial public offering in May of 1998, 82,610,000 shares of
Common Stock were issued to Mr. James Kim and members of his family in exchange
for their outstanding interests in entities affiliated with our predecessor.
Such issuances were made pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended. See "Corporate History"
in Item 1 of this Annual Report. The recipients of securities in each such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the share certificates issued in
such transactions. All recipients had adequate access, through their
relationships with our company, to information about our company.

22
25

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the selected consolidated financial data presented below
for, and as of the end of, each of the years in the five-year period ended
December 31, 1998 from our consolidated financial statements. Arthur Andersen
LLP, independent public accountants, has audited the consolidated financial
statements as of December 31, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998. Their report thereon, together with
such consolidated financial statements and the notes thereto, are included
elsewhere in this annual report. We have derived the selected consolidated
financial data presented below as of December 31, 1994, 1995 and 1996 and for
the years ended December 31, 1994 and 1995 from audited consolidated financial
statements which are not presented herein. 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 notes thereto, included elsewhere
in this annual report.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............................ $572,918 $932,382 $1,171,001 $1,455,761 $1,567,983
Cost of revenues -- including purchases
from ASI.............................. 514,648 783,335 1,022,078 1,242,669 1,307,150
-------- -------- ---------- ---------- ----------
Gross profit............................ 58,270 149,047 148,923 213,092 260,833
-------- -------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative... 41,337 55,459 66,625 103,726 119,846
Research and development.............. 3,090 8,733 10,930 8,525 8,251
-------- -------- ---------- ---------- ----------
Total operating expenses......... 44,427 64,192 77,555 112,251 128,097
-------- -------- ---------- ---------- ----------
Operating income........................ 13,843 84,855 71,368 100,841 132,736
-------- -------- ---------- ---------- ----------
Other (income) expense:
Interest expense, net................. 5,752 9,797 22,245 32,241 18,005
Foreign currency (gain) loss.......... (4,865) 1,512 2,961 (835) 4,493
Other (income) expense, net........... (877) 6,523 3,150 8,429 9,503
-------- -------- ---------- ---------- ----------
Total other (income) expense........ 10 17,832 28,356 39,835 32,001
-------- -------- ---------- ---------- ----------
Income before income taxes, equity in
income (loss) of ASI and minority
interest.............................. 13,833 67,023 43,012 61,006 100,735
Provision for income taxes.............. 2,977 6,384 7,876 7,078 24,716
Equity in income (loss) of ASI(a)....... 1,762 2,808 (1,266) (17,291) --
Minority interest(b).................... 1,044 1,515 948 (6,644) 559
-------- -------- ---------- ---------- ----------
Net income.............................. $ 11,574 $ 61,932 $ 32,922 $ 43,281 $ 75,460
======== ======== ========== ========== ==========
PRO FORMA DATA (UNAUDITED):
Historical income before income taxes,
equity in income (loss) of ASI and
minority interest..................... $ 13,833 $ 67,023 $ 43,012 $ 61,006 $ 100,735
Pro forma provision for income
taxes(c).............................. 3,177 16,784 10,776 10,691 29,216
-------- -------- ---------- ---------- ----------
Pro forma income before equity in income
(loss) of ASI and minority
interest(d)........................... 10,656 50,239 32,236 50,315 71,519
Historical equity in income (loss) of
ASI................................... 1,762 2,808 (1,266) (17,291) --
Historical minority interest............ 1,044 1,515 948 (6,644) 559
-------- -------- ---------- ---------- ----------
Pro forma net income(c)................. $ 11,374 $ 51,532 $ 30,022 $ 39,668 $ 70,960
======== ======== ========== ========== ==========
PER SHARE DATA:
Basic net income per common share(c).... $ .14 $ .75 $ .40 $ .52 $ .71
======== ======== ========== ========== ==========
Diluted net income per common
share(c).............................. $ .14 $ .75 $ .40 $ .52 $ .70
======== ======== ========== ========== ==========
Basic pro forma net income per common
share -- unaudited(c)(d).............. $ .14 $ .62 $ .36 $ .48 $ .67
======== ======== ========== ========== ==========
Diluted pro forma net income per common
share -- unaudited(c)(d).............. $ .14 $ .62 $ .36 $ .48 $ .66
======== ======== ========== ========== ==========
OTHER FINANCIAL DATA:
Depreciation and amortization........... $ 14,612 $ 26,614 $ 57,825 $ 81,864 $ 119,239
Capital expenditures.................... $ 68,926 $123,645 $ 185,112 $ 178,990 $ 107,889
</TABLE>

23
26

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................ $114,930 $ 91,151 $ 49,664 $ 90,917 $ 227,587
Working capital (deficit)............................ $134,798 $111,192 $ 36,785 $(38,219) $ 191,383
Total assets......................................... $426,522 $626,379 $804,864 $855,592 $1,003,597
Total debt, including short-term borrowings and
current portion of long-term debt.................. $326,434 $411,542 $594,151 $514,027 $ 260,503
Total long-term debt................................. $273,908 $326,422 $402,338 $346,710 $ 221,846
Stockholders' equity................................. $ 9,617 $ 45,289 $ 45,812 $ 90,875 $ 490,361
</TABLE>

- ---------------
(a) In 1997, we recognized a loss of $17,291 resulting principally from the
impairment of value of our investment in ASI, which we sold in February
1998.

(b) Represented ASI's 40% interest in the earnings of Amkor/Anam Pilipinas, Inc.
("AAP"), one of our subsidiaries in the Philippines. We purchased ASI's
interest in AAP with a portion of the proceeds from our initial public
offering in May 1998.

(c) Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Internal Revenue Code of 1986 and
comparable state tax laws. Accordingly, AEI did not recognize any provision
for federal income tax expense during the periods presented. The pro forma
provision for income taxes reflects the U.S. federal income taxes which
would have been recorded if AEI had been a C Corporation during these
periods.

(d) We used 82,610,000 shares of common stock and common stock equivalents to
compute both basic and diluted net income per common share for the years
ended December 31, 1994, 1995, 1996 and 1997. We used 106,221,000 shares of
common stock and 116,596,000 shares of common stock and common stock
equivalents to compute basic and diluted net income per common share,
respectively, for the year ended December 31, 1998.

24
27

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: (1) statements regarding the
anticipated growth in the market for our products, (2) our anticipated capital
expenditures and financing needs, (3) our expected capacity utilization rates,
(4) our belief as to our future operating performance (5) our anticipated
results of the ASI Workout, (6) statements regarding future won/dollar exchange
rates, (7) statements regarding the future of our relationship with ASI, (8) our
anticipated equity investment in ASI, (9) our plan to implement a Year 2000
compliance plan, and (10) other statements that are not historical facts.
Because such statements include risks and uncertainties, actual results may
differ materially from those anticipated in such forward-looking statements as 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" and
"Business." The following discussion provides information and analysis of our
results of operations for the three years ended December 31, 1998 and our
liquidity and capital resources. You should read the following discussion in
conjunction with "Selected Consolidated Financial Data" and our consolidated
financial statements and notes thereto, included elsewhere in this annual
report.

OVERVIEW

From 1995 to 1998, our net revenues increased from $932.4 million to
$1,568.0 million. We generate revenues from packaging and test services
performed by our three factories in the Philippines. In addition, we subcontract
with ASI for packaging and test and wafer fabrication services performed by
their five factories in Korea. We derived approximately 72%, 68% and 69% of our
net revenues in 1996, 1997 and 1998, respectively, from sales of services
performed by ASI pursuant to our supply agreements.

Beginning in 1997, a worldwide slowdown in demand for semiconductor devices
led to excess capacity and increased competition. As a result, price declines
resulted in recent periods. From 1996 to 1998, we were 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.
We cannot assure you that we will be able to offset any such price declines in
the future. You should read "-- Risk Factors that May Affect Future Operating
Performance -- Declining Average Selling Prices" for more information regarding
declining prices for our products and "Business -- Packaging and Test Services"
for more detailed descriptions of our product offerings.

We depend on a small group of customers for a substantial portion of our
revenues. In 1996, 1997 and 1998, we derived 39.2%, 40.1% and 35.3%,
respectively, of our net revenues from sales to five packaging and test
customers, with 23.5%, 23.4% and 20.6% of our net revenues, respectively,
derived from sales to Intel Corporation. In addition, during 1998, we derived
7.4% of our net revenues from wafer fabrication services, and we derived all of
these revenues from TI.

Our cost of revenues consists principally of: (1) service charges paid to
ASI for packaging and test services performed for us, (2) costs of direct
material and (3) labor and other costs at our factories in the Philippines.
Services charges paid to ASI are set in accordance with our supply agreements
with ASI as described below. Our gross margins on sales of services performed by
ASI are lower than our gross margins on sales of services performed by our
factories in the Philippines, but we do not bear any of ASI's fixed costs. We
incur costs of direct materials used in packages that we and ASI produce for our
customers. Because a portion of our costs at our factories in the Philippines is
fixed, increases or decreases in capacity utilization rates can have a
significant effect on our gross profit. The unit cost of packaging and test
services generally decreases as fixed charges, such as depreciation expense on
our equipment, are allocated over a larger number of units produced. If our
investment in ASI occurs, ASI's financial results will affect our financial
results because we will be required to record our proportionate ownership
interest in ASI's earnings or losses, through equity accounting. See
"Business -- Relationship with ASI" in Item 1 of this annual report.

25
28

In order to meet customer demand for our laminate packages, we have made
significant investments to expand our capacity in the Philippines. In 1996 and
the first six months of 1997, we incurred and expensed $15.5 million and $16.6
million, respectively, of pre-operating and start-up costs and initial operating
losses in connection with our newest factory in the Philippines, P3. This
factory operated at substantially less than full capacity during these periods
while our customers were completing qualification procedures for the production
of laminate packages at this factory. During the last six months of 1997 and in
1998, we significantly increased utilization of P3 due to continued growth in
demand for laminate packages. As a result, P3 contributed positive gross margins
throughout 1998.

RELATIONSHIP WITH ASI. Our gross margins are significantly affected by
fluctuations in service charges paid pursuant to our supply agreements with ASI.
During 1996, 1997 and 1998, we derived approximately 51%, 42% and 49%,
respectively, of our gross profit from sales of services performed for us by
ASI. In addition, ASI derives nearly all of its revenues from services sold by
us. Historically, ASI has directly sold packaging and test services in Japan and
Korea. In January 1998, we assumed the marketing rights for packaging and test
services in Japan from ASI. In January 1998, we also began marketing wafer
fabrication services provided by ASI's new semiconductor wafer foundry.

Through our supply agreements with ASI, we have a first right to
substantially all of the packaging and test service capacity of ASI and the
exclusive right to all of the wafer output of ASI's new wafer foundry. We expect
to continue to purchase substantially all of ASI's packaging and test services
and to purchase all of ASI's wafer fabrication services.

Our company and ASI review and, if applicable, adjust within a
pre-determined range the pricing arrangements for packaging and test services
and wafer fabrication services. Our company and ASI review the arrangements for
packaging and test services quarterly and wafer fabrication services annually.
In each case, the prices can be adjusted based on changes in forecasted demand,
product mix, capacity utilization and fluctuations in exchange rates, as well as
our mutual long-term strategic interests. Based on these factors, in the second
quarter of 1998, our company and ASI agreed to reduce the prices paid by us for
packaging and test services.

Historically, ASI has undertaken capacity expansion programs and other
capital expenditures primarily on the basis of forecasts and operational plans
which our company and ASI jointly prepare. The supply agreements generally
provide for continued capital investment by ASI based on our forecasts and on
operating plans we jointly prepare reflecting such forecasts. If the Workout
described in Item 1 of this annual report is not agreed upon by ASI and its
creditor banks or if it is not successful, ASI's ability to meet the capital
expenditure requirements for expansion may be limited.

We cannot assure you that ASI will not terminate the supply agreements when
the initial term expires, or that ASI will not become insolvent and cause the
supply agreements to terminate. If ASI does terminate the supply agreements, we
may not be able to enter into a new agreement with ASI on terms favorable to us
or at all. For more information on this risk, see "Business -- Relationship with
ASI" in Item 1 of this Annual Report and "-- Risk Factors that May Affect Future
Operating Performance -- Dependence on ASI."

We expect ASI to continue to be important to our business, financial
condition and results of operations as we will continue to be significantly
dependent on ASI's ability to effectively provide the contracted services on a
cost-efficient and timely basis. ASI's ability to continue to provide services
to us will depend on ASI's financial condition and performance. ASI is currently
in a weak financial condition. ASI's creditors recently agreed on a Workout,
pursuant to which a portion of ASI's outstanding debt will be converted to
equity and payment of certain loans will be deferred for a number of years. The
Workout may be modified or terminated by ASI's creditors if ASI fails to meet
the conditions of the Workout. Even if the Workout is completed, we cannot be
certain that it will be sufficient to allow ASI to substantially improve its
financial condition.

Our company and ASI will continue to have close ties due to our overlapping
ownership and management. The Kim family beneficially owns approximately 65.8%
of our outstanding common stock. As a result of the Workout as currently
contemplated the Kim family's ownership of ASI will be substantially diluted. As
of February 1, 1999, the Kim family owned 40.7% of ASI's outstanding common
stock. Under the

26
29

proposed terms of the Workout, this interest could be diluted to approximately
21% in 1999 and less than 10% by 2003 (assuming an exchange rate of W1,200 to
$1.00 and without any future sales of ASI stock by the Kim family).
Nevertheless, we believe that the Kim family will continue to exercise
significant influence over ASI and its affiliates, as well as our company. We
expect that Mr. James Kim will continue to serve as Chairman of ASI and as our
Chairman and Chief Executive Officer. If we complete our proposed investment of
$150 million over the next four years in ASI in connection with the Workout, and
our company would own approximately 43% of the outstanding common stock
(assuming an exchange rate of W1,200 to $1.00, without any future sales of ASI
stock by us and before conversion of outstanding convertible notes to equity) of
ASI by the year 2002, which would increase the interrelationship of our two
companies.

We may agree to certain changes in our contractual and other business
relationships with ASI, including pricing, manufacturing allocation, capacity
utilization and capacity expansion, among others, which in the judgment of our
management could result in reduced short-term profitability for us in favor of
potential long-term benefits to our company and ASI. We cannot assure you that
our business, financial condition or results of operations may not be adversely
affected by any such decision. For more information concerning our relationship
with ASI, you should read "-- Risk Factors that May Affect Future Operating
Performance -- Dependence on Relationship with ASI," "-- Risk Factors that May
Affect Future Operating Performance -- Potential Conflicts of Interest with ASI"
and "-- Liquidity and Capital Resources."

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues -- including purchases from ASI............ 87.3 85.4 83.4
------ ------ ------
Gross profit.............................................. 12.7 14.6 16.6
------ ------ ------
Operating expenses:
Selling, general and administrative....................... 5.7 7.1 7.6
Research and development.................................. 0.9 0.6 0.5
------ ------ ------
Total operating expenses........................... 6.6 7.7 8.1
------ ------ ------
Operating income............................................ 6.1% 6.9% 8.5%
====== ====== ======
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Net Revenues

Net revenues increased $112.2 million, or 7.7%, to $1,568.0 million in 1998
from $1,455.8 million in 1997. Packaging and test net revenues were relatively
unchanged in 1998 compared to 1997. However, net revenues from wafer fabrication
services have ramped up since operations began in January 1998 and accounted for
substantially all of the increase in net revenues. In addition, beginning in
January 1998, we assumed marketing rights for packaging and test services in
Japan from ASI.

Total unit volumes increased during 1998 compared to 1997. This increase
was primarily due to increases in volumes of laminate packages, which more than
doubled compared to 1997. Our advanced leadframe packages also increased in
volume, but unit volumes for traditional packages declined. Although traditional
packages still account for more than 65% of our total unit volume, the shift to
laminate packages has more significantly impacted revenues because each laminate
package has an average selling price significantly higher than the average
selling price of a traditional package. Laminate and advanced leadframe packages
accounted for 53.8% of packaging and test net revenues in 1998 compared to 38.7%
in 1997. This trend was consistent throughout 1998. We do not expect any near
term changes to this trend because we expect demand for smaller and thinner
packages to continue to increase and believe laminate and advanced leadframe
packages will best satisfy this demand.

27
30

Gross Profit

Gross profit increased $47.7 million, or 22.4%, to $260.8 million in 1998
from $213.1 million in 1997. Gross margin improved to 16.6% in 1998 from 14.6%
in 1997. The following factors contributed to higher gross margins in 1998:

N Gross margins on packaging and test services provided by ASI improved as
a result of the supply agreements entered into in January 1998;

N Gross margins at P3, which incurred significant pre-operating and
start-up costs and initial operating losses in the first half of 1997,
improved primarily as a result of increased volumes and better absorption
of fixed costs; and

N Gross margins improved as a result of the positive impact from wafer
fabrication revenues during 1998 compared to no revenue from wafer
fabrication in 1997.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $16.1 million, or
15.5%, to $119.8 million in 1998 from $103.7 million in 1997. Selling, general
and administrative expenses as a percentage of net revenues increased to 7.6% in
1998 from 7.1% in 1997. The increase was primarily due to: (1) higher
administrative expenses at P3 as unit volumes continued to increase and (2)
costs related to wafer fabrication services, which began in January 1998.

Research and Development Expenses

Research and development expenses decreased $0.3 million, or 3.2%, to $8.3
million in 1998 from $8.5 million in 1997. Research and development expenses as
a percentage of net revenues decreased to 0.5% in 1998 from 0.6% in 1997.

Other (Income) Expense

Other (income) expense decreased $7.8 million to $32.0 million in 1998 from
$39.8 million in 1997. The decline was primarily due to a reduction in net
interest expense of $14.2 million to $18.0 million in 1998 from $32.2 million in
1997. We used a portion of the proceeds from our initial public offering in May
1998 to repay much of our outstanding debt. Additionally, we accumulated a
significant cash balance. An increase in foreign exchange losses, due to
fluctuations in the Philippine peso, partly offset lower interest expense.

Income Taxes

Our effective tax rate, after giving effect to the pro forma adjustment for
income taxes, was 29.0% in 1998 compared to an effective tax rate of 17.5% in
1997. The lower effective tax rate in 1997 was due to the recognition of
deferred tax assets on currency losses for Philippine tax reporting purposes,
which are not recognized for financial reporting purposes. This decrease was
offset by increases in the effective rate resulting from non-deductible losses
at P3 where we have a tax holiday until the end of 2002.

We have structured our global operations to take advantage of lower tax
rates in certain countries and tax incentives extended to encourage investment.
The tax returns for open years are subject to changes upon final examination.
Changes in the mix of income from our foreign subsidiaries, expiration of tax
holidays and changes in tax laws and regulations could result in increased
effective tax rates for us.

Minority Interest

Minority interest represented ASI's ownership in the consolidated net
income of AAP, one of our subsidiaries in the Philippines. Accordingly, we
recorded a minority interest expense in our consolidated financial statements
relating to the minority interest in the net income of AAP.

28
31

In the second quarter of 1998, we purchased ASI's 40% interest in AAP, and,
as a result, we now own substantially all of the common stock of AAP. The
purchase of the minority interest resulted in the elimination of the minority
interest liability and goodwill amortization of approximately $2.5 million per
year.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Revenues

Net revenues increased $284.8 million, or 24.3%, to $1,455.8 million in
1997 from $1,171.0 million in 1996. This growth was primarily due to an increase
in units sold and a continued shift in our mix of packages from traditional
leadframe packages to advanced leadframe and laminate packages. In addition, the
opening of both our P3 factory and ASI's K4 factory in late 1996 enabled us to
begin to expand revenues from laminate packages. This growth was offset in part
by declines in average selling prices for many of our packages.

Gross Profit

Gross profit increased $64.2 million, or 43.1%, to $213.1 million in 1997
from $148.9 million in 1996. Gross margin improved to 14.6% in 1997 from 12.7%
in 1996. Gross profit and gross margin increased primarily due to improved
operating results at our P1 and P2 factories during the second half of 1997,
which more than offset pre-operating losses and start-up costs and initial
operating losses incurred in connection with P3 during the first half of 1997.
Gross margins at our P1 and P2 factories improved as a result of a shift to more
profitable packages and a decrease in labor costs due to the devaluation of the
Philippine peso.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $37.1 million, or
55.7%, to $103.7 million in 1997 from $66.6 million in 1996. Selling, general
and administrative expenses as a percentage of net revenues increased to 7.1% in
1997 from 5.7% in 1996. The increase was primarily due to the addition of
marketing and support personnel in connection with our growth. The number of
employees in our marketing and sales support groups increased approximately 21%
during 1997 over 1996, which resulted in: (1) an overall increase in
personnel-related costs including salaries, benefits and payroll taxes and (2)
higher office rental, depreciation and other occupancy-related expenses. In
addition, during 1997, we incurred general and administrative expenses of
approximately $8.0 million to expand P3's operations and $3.6 million to support
our wafer fabrication services. We did not incur similar costs in 1996 as these
groups were start-up operations in 1997.

Research and Development Expenses

Research and development expenses decreased $2.4 million, or 22.0%, to $8.5
million in 1997 from $10.9 million in 1996. Research and development expenses as
a percentage of net revenues decreased to 0.6% in 1997 from 0.9% in 1996. The
decrease in research and development expenses principally reflected the
termination in late 1996 of our efforts to develop our own laminate substrate
manufacturing capability.

Other (Income) Expense

Other (income) expense increased $11.4 million, to $39.8 million in 1997
from $28.4 million in 1996. This increase was primarily due to higher interest
expense, net and other expense, net. Interest expense, net increased $10.0
million to $32.2 million in 1997 from $22.2 million in 1996 as we increased our
borrowings to finance capacity expansion. Other expenses, net increased
primarily due to $2.4 million of costs related to our trade receivables
securitization transactions.

Income Taxes

Our effective tax rate, after giving effect to the pro forma adjustment for
income taxes, was 18% in 1997 as compared to 25% in 1996. This decrease was
attributable to income not taxed due to a tax holiday and foreign exchange
effects described below.

29
32

This decrease was also attributable to certain foreign exchange effects. To
the extent P3 is profitable, our effective tax rate related to our operations in
the Philippines during this tax holiday will be less than the statutory rate of
35% in the Philippines. In 1997 we recognized deferred tax benefits from
unrealized foreign exchange losses which are recognized in the Philippines for
tax reporting purposes and relate to unrecognized net foreign exchange losses on
U.S. dollar denominated monetary assets and liabilities. These losses are not
recognized for financial reporting purposes because the U.S. dollar is our
functional currency. These losses will be realized for tax reporting purposes in
the Philippines upon settlement of the related asset or liability. The benefit
derived from unrealized foreign exchange losses was partially offset by an
increase in the valuation allowance. We concluded that it was more likely than
not that we could realize a portion of these tax benefits in the Philippines
within the three year loss carryforward period. We recorded a valuation
allowance for the remaining tax benefits where we could not reach such a
conclusion.

Equity in Income (Loss) of ASI

In 1997, we recognized a loss of $17.3 million resulting principally from
the impairment of value in our investment in ASI. In February 1998, we disposed
of our investment in ASI's common stock.

Minority Interest

Minority interest represented ASI's ownership interest in the consolidated
net income of AAP, one of our subsidiaries in the Philippines. During 1997, as a
result of a settlement of an intercompany loan, which otherwise had no effect on
our combined pretax income, AAP reported a net loss as a separate entity.
Accordingly, we recorded a minority interest benefit in our consolidated
financial statements related to the minority interest in the net loss. We
purchased ASI's ownership interest in AAP during 1998.

QUARTERLY RESULTS

The table below sets forth unaudited consolidated financial data, including
as a percentage of net revenues, for the last eight fiscal quarters ended
December 31, 1998. Our results of operations have varied and may continue to
vary from quarter to quarter and are not necessarily indicative of the results
of any future period. In addition, in light of our recent growth, we believe
that you should not rely on period-to-period comparisons as an indication of our
future performance.

Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Code. As a result, AEI did not recognize
any provision for federal income tax expense prior to April 28, 1998. In
accordance with applicable SEC regulations, we have presented pro forma
adjustments (unaudited) to net income to reflect the additional U.S. federal
income taxes which we would have recorded if AEI had been a C Corporation during
these periods.

We believe that we have included in the amounts stated below all necessary
adjustments, consisting only of normal recurring adjustments, to present fairly
our selected quarterly data. You should read our selected quarterly data in
conjunction with our consolidated financial statements and the notes thereto,
included elsewhere in this annual report.

Our net revenues, gross profit and operating income are generally lower in
the first quarter of the year as compared to the fourth quarter of the preceding
year primarily due to the combined effect of holidays in the U.S., the
Philippines and Korea. Semiconductor companies in the U.S. generally reduce
their production during the holidays at the end of December which results in a
significant decrease in orders for packaging and test services during the first
two weeks of January. In addition, we typically close our factories in the
Philippines for holidays in January, and ASI closes its factories in Korea for
holidays in February.

The semiconductor industry experienced a general slowdown during 1998. As a
result, our packaging and test net revenues decreased by 3.5% from the first
quarter of 1998 to the fourth quarter of 1998. The decrease in packaging and
test net revenue was offset by significant growth in net revenues from wafer
fabrication

30
33

services. Net revenues from wafer fabrication services, which represented less
than 1% of net revenues in the first quarter of 1998, increased to 16.4% of net
revenues in the fourth quarter of 1998.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............. $313,019 $350,471 $380,130 $412,141 $371,733 $384,724 $386,718 $424,808
Cost of
revenues - including
purchases from ASI..... 287,449 299,093 314,246 341,881 310,056 317,016 321,758 358,230
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 25,570 51,378 65,884 70,260 61,677 67,618 64,960 66,578
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and
administrative....... 20,608 26,657 26,829 29,632 28,715 28,939 30,017 32,175
Research and
development.......... 1,485 2,030 2,236 2,774 2,057 1,938 2,109 2,147
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 22,093 28,687 29,065 32,406 30,772 30,877 32,126 34,322
-------- -------- -------- -------- -------- -------- -------- --------
Operating income......... 3,477 22,691 36,819 37,854 30,905 36,741 32,834 32,256
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........ $ (4,829) $ 8,707 $ 19,025 $ 20,378 $ 8,812 $ 26,119 $ 20,874 $ 19,655
======== ======== ======== ======== ======== ======== ======== ========
Pro forma net income
(loss)................. $ (6,388) $ 7,566 $ 18,098 $ 20,392 $ 9,640 $ 20,791 $ 20,874 $ 19,655
======== ======== ======== ======== ======== ======== ======== ========
Basic net income (loss)
per common share....... $ (.06) $ .11 $ .23 $ .25 $ .11 $ .25 $ .18 $ .17
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income (loss)
per common share....... $ (.06) $ .11 $ .23 $ .25 $ .11 $ .24 $ .17 $ .16
======== ======== ======== ======== ======== ======== ======== ========
Basic pro forma net
income (loss) per
common share........... $ (.08) $ .09 $ .22 $ .25 $ .12 $ .20 $ .18 $ .17
======== ======== ======== ======== ======== ======== ======== ========
Diluted pro forma net
income (loss) per
common share........... $ (.08) $ .09 $ .22 $ .25 $ .12 $ .19 $ .17 $ .16
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of
revenues - including
purchases from ASI...... 91.8 85.3 82.7 83.0 83.4 82.4 83.2 84.3
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 8.2 14.7 17.3 17.0 16.6 17.6 16.8 15.7
-------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and
administrative........ 6.6 7.6 7.1 7.2 7.7 7.5 7.8 7.6
Research and
development........... 0.5 0.6 0.5 0.6 0.6 0.5 0.5 0.5
-------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 7.1 8.2 7.6 7.8 8.3 8.0 8.3 8.1
-------- ------- ------- ------- ------- ------- ------- -------
Operating income.......... 1.1 6.5 9.7 9.2 8.3 9.6 8.5 7.6
-------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)......... (1.5)% 2.5% 5.0% 4.9% 2.4% 6.8% 5.4% 4.6%
======== ======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss).................. (2.0)% 2.2% 4.8% 4.9% 2.6% 5.4% 5.4% 4.6%
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>

Our operating results have varied significantly from period to period and
may continue to vary in the future due to a variety of factors. For more
information on the risks affecting our operating results, see "-- Risk Factors
that May Affect Future Operating Performance -- Declining Average Selling
Prices," "-- Dependence on Highly Cyclical Semiconductor and Electronic Products
Industries," "-- Dependence on Relationship with ASI," "-- Absence of Backlog,"
"-- Customer Concentration," "-- Risks Associated with our Wafer Fabrication
Business," "-- Rapid Technological Change," "Competition," "-- Protection of
Intellectual Property" and "-- Year 2000 Compliance."

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34

LIQUIDITY AND CAPITAL RESOURCES

Our ongoing primary cash needs are for equipment purchases, factory
expansion and working capital. In addition, we have funded and will continue to
fund our interest in our Taiwan packaging and test joint venture out of
available cash.

In May, 1998, we consummated our initial public offering of 35,250,000
shares of common stock and $207 million principal amount of convertible
subordinated notes due May 1, 2003. We used the net proceeds of approximately
$558 million primarily to repay approximately $264 million of short-term and
long-term debt and approximately $86 million of amounts due to AUSA, and to
purchase for $34 million ASI's 40% interest in AAP. The remaining amount of net
proceeds was available for capital expenditures and working capital.

Prior to our initial public offering, we met a significant portion of our
cash requirements from a combination of: (1) cash from operating activities, (2)
short-term and long-term bank loans, (3) financing obtained for our benefit by
AUSA, a wholly-owned financing subsidiary of ASI, and (4) financing from a trade
receivables securitization agreement. Because of the short-term nature of
certain of the AUSA loans, the flows of cash to and from AUSA under this
arrangement have been significant. At December 31, 1998, we had no outstanding
balances with AUSA. Net cash provided by operating activities in 1996, 1997 and
1998 was $8.6 million, $250.1 million and $238.0 million, respectively. Net cash
provided by (used in) financing activities in 1996, 1997 and 1998 was $148.0
million, $(16.0) million and $62.0 million, respectively.

Under the terms of our trade receivables securitization agreement, a
commercial financial institution is committed to purchase, with limited
recourse, all right, title and interest in up to $100 million in eligible
receivables, as defined in the agreement.

We have invested significant amounts of capital to increase our packaging
and test services capacity. During the last three years we have constructed our
P3 factory, added capacity in our other factories in the Philippines and
constructed a new research and development facility in the U.S. In 1996, 1997
and 1998, we made capital expenditures of $185.1 million, $179.0 million and
$107.9 million, respectively. We expect that we will need to increase capital
expenditures in 1999 to meet the anticipated growth in demand for our products.
We intend to spend approximately $160 million in capital expenditures in 1999,
primarily for the expansion of our factories.

On a monthly basis, we incur processing charges for packaging and test and
wafer fabrication services performed for us by ASI. Historically, we paid ASI
for these services on net 30-day terms. On July 21, 1998 we entered into a
prepayment agreement with ASI related to packaging and test services. Under this
agreement, we made a $50 million non-interest bearing advance to ASI. This
advance represented approximately one month's processing charges for packaging
and test services. We completely offset this advance against billings by ASI for
packaging and test services provided in the fourth quarter of 1998.

In connection with our wafer foundry agreement with TI, our company and TI
agreed to revise certain payment and other terms contained in the Texas
Instruments Manufacturing and Purchase Agreement. As part of the revision, TI
agreed to advance our company $20 million in June 1998 and another $20 million
in December 1998. These advances represented prepayments of wafer foundry
services to be provided in the fourth quarter of 1998 and first quarter of 1999,
respectively. We recorded these amounts as accrued expenses. In turn, we
advanced these funds to ASI as prepayment for foundry service charges. We
completely offset the first $20 million advance to ASI against billings for
wafer fabrication services performed for us by ASI in the fourth quarter of 1998
and intend to offset the second $20 million advance to ASI against billings for
wafer fabrication services performed for us by ASI in the first quarter of 1999.
The current portion due from an affiliate reflects the prepayment to ASI. Under
the terms of the revision to the Texas Instruments Manufacturing and Purchase
Agreement, we remain ultimately responsible for reimbursing TI if ASI fails to
comply with the terms of the agreement.

We have entered into an asset purchase agreement with ASI to purchase the
assets of ASI's newest and largest packaging and test factory, K4, excluding
cash and cash equivalents, notes and accounts receivables, intercompany accounts
and existing claims against third parties. The purchase price for K4 is $607
million, including the assumption of up to $7 million of employee benefit
liabilities. This purchase price would be
32
35

reduced to $582 million if we sign an agreement to make an equity investment of
$150 million in ASI over a four year period, pursuant to the proposed financial
restructuring of ASI with its creditor banks, called a "Workout." The Company
has sent ASI's creditor banks a letter committing to make an equity investment
in ASI. The commitment is subject to conditions more fully described in
"-- Relationship With ASI," and the terms on which we are willing to make this
investment have not yet been accepted by ASI's creditor banks. In addition to
other conditions, including the satisfactory completion of due diligence, the
receipt of a fairness opinion and final board approval, our acquisition of K4 is
subject to our ability to obtain financing of the entire amount of the purchase
price on reasonable terms. We cannot be certain that we will be able to obtain
this financing on reasonable terms. If we agree to make the $150 million equity
investment in ASI the purchase price of K4 will be $582 million. If we do not
make the equity investment, the Workout may be terminated. We expect to use cash
flow from operations to fund this equity investment in ASI over four years.

At December 31, 1998, our debt consisted of $38.7 million of borrowings
classified as current liabilities, $14.8 million of long-term debt and capital
lease obligations and $207.0 million of 5 3/4% convertible subordinated notes
due 2003. We had $90.5 million in borrowing facilities with a number of domestic
and foreign banks, of which $54.1 million remained unused. Certain of the
agreements with our banks require compliance with certain financial covenants,
contain other restrictions and are collateralized by our assets. These
facilities are typically revolving lines of credit and working capital
facilities that are renewable annually and bear interest at rates ranging from
11.25% to 16.0%. We intend to pay a substantial portion of the amounts
outstanding under these facilities in the first half of 1999. Long-term debt and
capital lease obligations outstanding have various expiration dates through
April 2004 and bear interest at rates ranging from 5.8% to 13.8%. During the
third quarter of 1998, we were released from our obligations under guarantees of
affiliate bank debts and vendor obligations.

We believe that our existing cash balances, cash flow from operations, and
available equipment lease financing will be sufficient to meet our projected
capital expenditures, working capital and other cash requirements for at least
the next twelve months, exclusive of our proposed acquisition of K4. Our
acquisition of K4 is contingent upon obtaining satisfactory financing for the
acquisition. In addition to the financing of K4, we may require other capital
sooner than currently expected. We cannot assure you that additional financing
will be available when we need it or, if available, that it will be available on
satisfactory terms. Failure to obtain any such financing could have a material
adverse effect on our company.

Subchapter S Taxes and Distributions

Prior to our reorganization in April 1998, our predecessor, AEI, elected to
be taxed as an S Corporation under the Internal Revenue Code and comparable
state laws. As a result, AEI did not recognize any provision for federal income
tax expense prior to April 28, 1998. Instead, up until the date the S
Corporation status of AEI terminated, Mr. and Mrs. James Kim and the Kim Family
Trusts had been obligated to pay U.S. federal and certain state income taxes on
their allocable portion of the income of AEI. Under certain tax indemnification
agreements, we are indemnified by such stockholders with respect to their
proportionate share of any U.S. federal or state corporate income taxes
attributable to the failure of AEI to qualify as an S Corporation for any period
or in any jurisdiction for which S Corporation status was claimed through April
28, 1998. The agreements in turn provide that, under certain circumstances, we
will indemnify such stockholders if they are required to pay additional taxes or
other amounts attributable to taxable years for which AEI filed tax returns
claiming status as an S Corporation. AEI has made various distributions to Mr.
and Mrs. Kim and the Kim Family Trusts which have enabled them to pay their
income taxes on their allocable portions of the income of AEI. Such
distributions totaled approximately $13.0 million, $5.0 million and $33.1
million in 1996, 1997 and 1998, respectively. As a result of the termination of
the S Corporation election and the finalization of the AEI tax returns,
approximately $3.0 million of the 1998 distributions will be refunded to our
company.

Foreign Currency Translation Gains and Losses

Our subsidiaries in the Philippines maintain their accounting records in
U.S. dollars. All sales, the majority of all bank debt and all significant
material and fixed asset purchases of such subsidiaries are denominated in U.S.
dollars. As a result, the exposure of our subsidiaries in the Philippines to
changes in the
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Philippine peso/U.S. dollar exchange rate relates primarily to certain
receivables and advances and other assets offset by payroll, pension and local
liabilities. To minimize our foreign exchange risk in the Philippines, we
selectively hedge our net foreign currency exposure through short-term forward
exchange contracts. To date, our hedging activity has been immaterial.

YEAR 2000 ISSUES

We have been actively engaged in addressing Year 2000 ("Y2K") issues. These
issues occur because many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field. As a
result, software that records only the last two digits of the calendar year may
not be able to distinguish whether "00" means 1900 or 2000. This may result in
software failures or the creation of erroneous results.

State of Readiness: To manage our Y2K compliance program, we have divided
our efforts into five program areas:

N Computing systems, including computer hardware and software;

N Manufacturing equipment;

N Facilities;

N External utilities; and

N Supply chain, including equipment/inventory vendors, freight forwarders
and other vendors.

For each of these program areas, we are using a five-step approach:

N Ownership: creating awareness, assigning tasks, providing structured
feedback and updates;

N Inventory: listing items to be assessed for Y2K readiness;

N Initial Assessment: prioritizing the inventoried items and assessing
their Y2K readiness, including validation with vendors, and testing where
appropriate;

N Risk Assessment: evaluating initial assessments and developing action and
contingency plans; and

N Corrective Action Deployment: implementing corrective actions, verifying
implementation, finalizing and executing contingency plans.

We have implemented a process to monitor and maintain our Y2K compliance.
As of December 31, 1998, we had completed the Ownership and Inventory steps for
all program areas. We provide structured feedback and progress updates to our
senior management on an ongoing basis.

To date, we are on target to complete the Initial Assessment and Risk
Assessment step during the first quarter of 1999 and the Corrective Action
Deployment step during the second quarter of 1999. The status for each program
area is as follows:

N COMPUTING SYSTEMS: With a few exceptions, we believe that our technical
infrastructure, including servers, communications equipment, personal
computers, operating systems and standard software are Y2K compliant. We
will replace our older personal computers through the end of 1999 as part
of our normal upgrade and expansion plans. We are in the process of
physically testing our technical infrastructure, and we will complete
this process during the first quarter of 1999. We have completed the
Inventory and Assessment steps regarding software applications, and we
have put in place plans to either upgrade or replace certain
applications.

N MANUFACTURING EQUIPMENT: We have inventoried all manufacturing equipment
and have contacted vendors to ascertain the status of their Y2K
compliance. We plan to implement vendor recommended actions for every
piece of equipment. Our packaging operations have completed the Risk
Assessment and Corrective Action Deployment steps. Our test operations
have completed the Initial Assessment and Risk Assessment steps for all
equipment and related systems. We have determined that certain

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test equipment is not Y2K compliant and will require upgrades which are
scheduled for the second quarter of 1999. ASI expects to conduct the
Initial Assessment and Risk Assessment steps during the first quarter of
1999.

N FACILITIES: We have completed the Initial and Risk Assessments for all
of our packaging and test factories. We expect to complete Corrective
Action Deployment during the first quarter of 1999. We are scheduled to
complete the Initial Assessment and Risk Assessment steps for all of our
other facilities during the first quarter of 1999.

N EXTERNAL UTILITIES: We are currently assessing the Y2K readiness of both
public and private utilities in Korea and the Philippines. These
utilities include electricity, telecommunications, water, sewer, gas and
key airports used to transport products and supplies. We are developing
contingency plans for all utilities, regardless of their Y2K readiness.
We are scheduled to complete the first version of such plans during the
first quarter of 1999.

N SUPPLY CHAIN: We have completed supply chain inventories and vendor
surveys. During the fourth quarter of 1998, we began Y2K compliance
audits of our key equipment and material suppliers and freight
forwarders. In addition, we are continuing to review external providers
of software and information technology and to verify our banks' Y2K
readiness. We are also developing contingency plans for all key suppliers
regardless of their readiness. We will continue to monitor and assess the
risks of our supply chain to Y2K issues throughout 1999.

In addition, because ASI is our most significant vendor, we have conducted
regular reviews as to the status of their Y2K compliance program. We believe
that ASI has a similar Y2K program. Unless discussed otherwise above, we believe
that ASI has achieved a similar level of completion and believe that ASI is on
target to meet our timing deadlines.

COSTS TO ADDRESS Y2K ISSUES: We have highly-automated manufacturing
equipment and systems. Such equipment incorporates personal computers, embedded
processors and related software to control activity scheduling, inventory
tracking, statistical analysis and automated manufacturing. We have devoted a
significant portion of our Y2K efforts on internal systems to prevent disruption
to manufacturing operations.

We are evaluating the estimated costs to address Y2K issues using our
actual experience. Based on available information, we believe that we will be
able to manage our Y2K transition without any material long-term adverse effect
on our business or results of operations. We have executed our Y2K compliance
effort within the normal operating budgets of our internal engineering,
information technology, purchasing and other departments. We attribute a small
number of projects directly to Y2K issues, and most software upgrades have been
covered within our software maintenance contracts. We attribute the majority of
our historical and projected costs to resolve Y2K issues to the upgrade of
equipment in our test operations. We will capitalize such costs. We have
incurred $1 million of expenses related to Y2K issues through 1998 and are
projecting $2 million of expenses in 1999.

RISKS OF Y2K ISSUES AND CONTINGENCY PLANS: We continue to assess the Y2K
issues relating to our computing systems, manufacturing equipment, facilities,
and external utilities and supply chain. Currently, we believe that our largest
Y2K risk is that entities beyond our control upon which we are dependent,
including external utilities and our supply chain, fail to adequately address
their Y2K issues. We have designed our Y2K planning process to mitigate
worst-case disruptions which could delay product delivery. We are scheduled to
complete our Risk Assessment step during the first quarter of 1999 and will
continue to update our contingency plans throughout 1999 as circumstances
dictate.

Based on currently available information, we do not believe that the Y2K
issues discussed above will have a material long-term adverse impact on our
financial condition or results of operations. However, we cannot assure you that
we will not be affected by such issues. In addition, we cannot assure you that
the failure of any material supplier, utility provider, customer or other third
party with whom we deal to ensure Y2K compliance will not have a material
adverse effect on our financial condition or results of operations.

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RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE

FLUCTUATIONS IN OPERATING RESULTS -- THE SUCCESS OF OUR BUSINESS DEPENDS ON A
VARIETY OF FACTORS.

Our operating results have varied significantly from period to period and
may continue to vary in the future due to a variety of factors. A large portion
of our expenses are fixed, and as a result, we cannot quickly adjust to
unanticipated declines in revenues. In addition to the risks to our business and
to the industry in which we operate described in the risk factors below, our
quarterly operating results may vary due to:

- changes in the mix of products we sell, with more advanced products
contributing more revenue than older products;

- start-up expenses associated with bringing new factories on line;

- capital expenditures;

- results of ASI on an equity accounting basis, assuming we make the $150
million investment in ASI (because we will be required to record our
proportionate ownership interest in ASI's earnings or losses) (see
"Business -- Relationship with ASI" in Item 1 of this annual report).

- seasonality of our customers' purchases, with our first quarter revenues
and net income typically lower than our fourth quarter revenues and net
income; and

- declining average selling prices.

The following sections entitled Declining Average Selling Prices,
Dependence on Highly Cyclical Semiconductor and Electronic Products Industries,
Dependence on Relationship with ASI, Customer Concentration, Absence of Backlog,
Risks Associated with Our Wafer Fabrication Business, Utilization of
Manufacturing Capacity, Rapid Technological Change, Competition, Protection of
Intellectual Property and Year 2000 Compliance describe other risks to our
business and the industry in which we operate. You should also read the section
entitled "-- Quarterly Results" above for a better understanding of the factors
that cause our results to fluctuate.

DECLINING AVERAGE SELLING PRICES -- THE SEMICONDUCTOR INDUSTRY PLACES DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.

Historically, prices for our packaging and test services have declined over
time. Beginning in 1997 a worldwide slowdown in demand for semiconductor devices
led to excess capacity and increased competition. As a result, price declines in
1998 accelerated more rapidly. We expect that average selling prices for our
packaging and test services will continue to decline in the future. If we cannot
reduce the cost of our packaging and test services to offset a decline in
average selling prices, our future operating results could be harmed.

DEPENDENCE ON THE HIGHLY CYCLICAL SEMICONDUCTOR AND ELECTRONIC PRODUCTS
INDUSTRIES -- WE OPERATE OUR BUSINESS IN VOLATILE INDUSTRIES, AND INDUSTRY
DOWNTURNS HARM OUR PERFORMANCE.

Our business is tied to market conditions in the semiconductor industry
which is highly cyclical. Because our business is and will continue to be
dependent on the requirements of semiconductor companies for independent
packaging, test and wafer fabrication services, any future downturn in the
semiconductor industry or any other industry that uses a significant number of
semiconductor devices, such as the personal computer industry, could have a
material adverse effect on our business. For example, our operating results for
1998 were adversely affected by downturns in the semiconductor market. See above
for a detailed discussion of our operating results in 1998.

DEPENDENCE ON RELATIONSHIP WITH ASI -- OUR BUSINESSES ARE CLOSELY RELATED AND
FINANCIAL DIFFICULTIES FACED BY ASI MAY AFFECT OUR PERFORMANCE.

Our business depends on ASI providing semiconductor packaging and test
services and wafer fabrication services on a cost effective and timely basis. In
addition, we derived 100% of our wafer fabrication net revenues from services
performed for us by ASI.

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If ASI were to significantly reduce or curtail its operations for any
reason, or if our relationship with ASI were to be disrupted for any reason, our
business would be harmed. We may not be able to identify and qualify alternate
suppliers quickly, if at all. In addition, we currently have no other third
party suppliers of packaging and test services and no other qualified third
party suppliers of wafer fabrication services. Our factories in the Philippines
would be able to fill only a small portion of the resulting shortfall in
packaging and test capacity and none of the shortfall in wafer fabrication
capacity.

ASI is currently in weak financial condition. In 1998, ASI's independent
auditors report on the unconsolidated financial statements included explanatory
paragraphs regarding ASI's operations being significantly affected by the Korean
economy caused in part by currency volatility in the Asia Pacific region and
ASI's participation in the Workout program. ASI has a significant amount of debt
relative to its equity and has negotiated the Workout program with its
creditors. The Workout is conditioned upon a third party foreign investor
committing to invest $150 million in equity of ASI during the next four years.
We have sent the creditors a letter committing to the equity investment on
certain terms. We do not believe there is any other investor considering an
investment in ASI, and we cannot be certain that the creditors will accept our
terms. If we make the equity investment, ASI's financial results will affect our
financial results as they will be reported in our financial statements using the
equity method of accounting method. ASI's creditors could terminate the Workout.
If the Workout fails, we could be harmed.

It is not certain whether the Workout will be sufficient to allow ASI to
substantially improve its financial condition. There is a substantial risk that
ASI's ability to continue to provide services to our company at current levels
may be negatively affected by its weak financial condition. Moreover, ASI may be
unable to obtain funds for capital expansion, and this would affect our access
to services provided by them as well as our financial results on an equity
accounting basis if their income suffers.

You should read the risk factor entitled, "Business -- Potential Conflicts
of Interest with ASI" below and the section entitled "Relationship with ASI" in
Item 1 of this annual report for specific details about our dependence on ASI,
our commercial agreements with ASI, ASI's financial condition and the potential
conflicts of interest between our company and ASI. Financial information
relating to ASI that appears in this annual report was prepared in accordance
with Korean GAAP which differs from U.S. GAAP.

POTENTIAL CONFLICTS OF INTEREST WITH ASI -- MEMBERS OF THE KIM FAMILY OWN
SUBSTANTIAL PORTIONS OF, AND HAVE ACTIVE MANAGEMENT ROLES IN, BOTH OUR COMPANY
AND ASI. THIS COULD LEAD TO CONFLICTS OF INTEREST IN OUR BUSINESS DEALINGS WITH
ASI.

Mr. James Kim, the founder of our company and currently our Chairman, Chief
Executive Officer and largest shareholder, is the eldest son of Mr. H. S. Kim,
the founder of ASI. Mr. H. S. Kim is currently the honorary Chairman and a
Director of ASI. Since January 1992, in addition to his other responsibilities,
Mr. James Kim has served as Chairman and a director of ASI. The Kim family,
which collectively owned approximately 40.7% of the outstanding common stock of
ASI as of February 1, 1999, significantly influences the management of ASI. Mr.
James Kim and members of his family beneficially own approximately 65.8% of our
outstanding common stock. However, our company may purchase equity in ASI which
could result in our company owning approximately 43% of ASI's outstanding common
stock by 2002 (assuming an exchange rate of W1200 to $1.00 and without any
future sales of ASI stock by us). ASI has experienced financial difficulties and
recently its creditor banks agreed on a Workout arrangement. The Workout
provides for the conversion of a portion of ASI's debt to equity, which will
substantially decrease the Kim family's ownership in ASI. We believe that, in
the future, the Kim family will continue to exercise significant influence over
our company and ASI and its affiliates. You should read "Relationship with ASI"
for more information on the Workout arrangement.

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ABSENCE OF BACKLOG -- OUR NET REVENUES IN ANY QUARTER DEPEND ON OUR CUSTOMERS'
DEMAND FOR PACKAGING AND TEST SERVICES IN THAT QUARTER, AND WE MAY NOT BE ABLE
TO ADJUST COSTS QUICKLY IF OUR CUSTOMERS' DEMAND DIPS SUDDENLY.

Our packaging and test business does not typically operate with any
material backlog. We expect that in the future our packaging and test net
revenues in any quarter will continue to be substantially dependent upon our
customers' demand in that quarter. None of our customers have committed to
purchase any amount of packaging or test services or to provide us with binding
forecasts of demand for packaging and test services for any period. In addition,
our customers could reduce, cancel or delay their purchases of packaging and
test services. Because a large portion of our costs is fixed and our expense
levels are based in part on our expectations of future revenues, we may be
unable to adjust costs in a timely manner to compensate for any revenue
shortfall.

CUSTOMER CONCENTRATION -- WE GENERATE A LARGE PERCENTAGE OF OUR NET REVENUES
FROM A SMALL GROUP OF CUSTOMERS WHO HAVE NO MINIMUM PURCHASE OBLIGATIONS.

We depend on a small group of customers for a substantial portion of our
net revenues. In 1996, 1997 and 1998, we derived 39.2%, 40.1% and 35.3%,
respectively, of our net revenues from sales to five packaging and test
customers, with 23.5%, 23.4% and 20.6% of our net revenues, respectively,
derived from sales to Intel Corporation. In addition, during 1998, we derived
7.4% of our net revenues from wafer fabrication services, and we derived all of
these revenues from TI. Our ability to maintain close, satisfactory
relationships with these customers is important to the ongoing success and
profitability of our business. We expect that we will continue to be dependent
upon a small number of customers for a significant portion of our revenues in
future periods.

For additional information regarding terms of our agreements with Texas
Instruments and ASI, including ASI's rights with respect to future transfers of
technology from Texas Instruments and Texas Instruments' obligations to buy
wafers from us, see "Business -- Packaging and Test Services -- Wafer
Fabrication Services."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- WE DEPEND ON OUR FACTORIES IN
KOREA AND THE PHILIPPINES. MANY OF OUR CUSTOMERS' OPERATIONS ARE ALSO LOCATED
OUTSIDE OF THE U.S.

We provide packaging and test services through our three factories located
in the Philippines. We source additional packaging and test services from four
factories located in Korea and owned by ASI, including K4, pursuant to a supply
agreement with ASI. We also source wafer fabrication services from a wafer
foundry located in Korea and owned by ASI. In addition, many of our customers'
operations are located outside the U.S. The following are risks inherent in
doing business internationally:

N regulatory limitations imposed by foreign governments;

N fluctuations in currency exchange rates;

N political risks;

N disruptions or delays in shipments caused by customs brokers or
government agencies;

N unexpected changes in regulatory requirements, tariffs, customs, duties
and other trade barriers;

N difficulties in staffing and managing foreign operations; and

N potentially adverse tax consequences resulting from changes in tax laws.

In addition to the risks listed above, our operations in Korea and the
Philippines are subject to certain country-specific risks described below.

RISKS ASSOCIATED WITH OUR OPERATIONS IN KOREA

Historically, we have derived a significant percentage of our net revenues
from sales of services performed for us by ASI in Korea. Our operations in Korea
following the acquisition of K4 and ASI's operations are subject to risks
inherent to operating in Korea. Substantially all of ASI's revenues and a
significant part of its
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debt and capital lease obligations are denominated in U.S. dollars, while its
costs are denominated in won. Fluctuations in the foreign exchange rate will
affect ASI's financial results. If we make the proposed equity investment in
ASI, the translation of ASI's financial results from won to dollars to include
them in our financial results will also subject our financial results to foreign
exchange fluctuations.

Relations between Korea and the Democratic People's Republic of Korea
("North Korea") have been tense over most of Korea's history. Incidents
affecting relations between the two Koreas continually occur. If the level of
tensions with North Korea increases or changes abruptly, both our company's and
ASI's businesses could be harmed.

Beginning in late 1997 and continuing into 1998, Korea experienced severe
economic instability as well as devaluation of the Korean won relative to the
U.S. dollar. The exchange rate as of December 31, 1996 was W884 to $1.00 as
compared to W1,415 to $1.00 as of December 31, 1997 and W1,207 to $1.00 as of
December 31, 1998. The depreciation of the won relative to the U.S. dollar has
increased the cost of importing goods and services into Korea. In addition, the
value in won of Korea's public and private sector debt denominated in U.S.
dollars and other foreign currencies has also increased significantly. These
developments in turn led to sharply higher domestic interest rates and reduced
opportunities for refinancing or refunding maturing debts. As a result of these
difficulties, financial institutions in Korea have limited their lending, in
particular to highly leveraged companies. Future economic instability in Korea
could have a material adverse effect on our company's and ASI's business and
financial condition.

RISKS ASSOCIATED WITH OUR OPERATIONS IN THE PHILIPPINES

Although the political situation and the general state of the economy in
the Philippines has stabilized in recent years, each has historically been
subject to significant instability. Most recently, the devaluation of the
Philippine peso relative to the U.S. dollar beginning in July 1997 led to
economic instability in the Philippines. Any future economic or political
disruptions or instability in the Philippines could have a material adverse
effect on our business.

Because the functional currency of our Philippine operations is the U.S.
dollar, we have recently benefited from cost reductions relating to
peso-denominated expenditures, primarily payroll costs. We believe that any
future devaluations of the Philippine peso will eventually lead to inflation in
the Philippines, which could offset any savings achieved to date.

RISKS ASSOCIATED WITH OUR PROPOSED ACQUISITION OF K4 -- THE ACQUISITION OF K4
REPRESENTS A MAJOR COMMITMENT OF OUR CAPITAL AND MANAGEMENT RESOURCES.

Our proposed acquisition of K4 would require our management to devote a
significant portion of its resources to the maintenance and operation of a
factory in Korea. We do not have experience in owning and operating a business
in Korea. It may take time for us to learn how to comply with relevant Korean
regulations, including tax, environmental and employee laws. During the
transition period in which we will integrate K4 into our company, our management
may not have adequate time and attention to devote to other aspects of our
business, and those parts of our business could suffer. In addition, we will
rely on ASI to provide us with financial, human resources and other
administrative services pursuant to a transition services agreement. If ASI
terminates this agreement or fails to provide us with the services we require to
operate K4, our ability to operate K4 profitably could be adversely affected.

Our proposed acquisition of K4 is subject to conditions, including
satisfactory completion of due diligence, the receipt of a fairness opinion,
final board approval, and our ability to obtain financing of the entire amount
of the purchase price on reasonable terms. We cannot be certain that we will be
able to obtain financing on reasonable terms. Our company and ASI continue to
finalize the details of the acquisition, including ancillary agreements.

If we complete the K4 acquisition, we plan to retain and integrate up to
1,700 Korean employees currently working at K4 into our workforce, and we may
face cultural difficulties until we learn how to interact

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with these new employees. If our K4 employees become dissatisfied working for a
U.S. company, they may leave us. If we cannot find new employees to replace
departing ones, our K4 operations could suffer.

MANAGEMENT OF GROWTH -- WE FACE CHALLENGES AS WE INTEGRATE NEW AND DIVERSE
OPERATIONS AND TRY TO ATTRACT QUALIFIED EMPLOYEES TO SUPPORT OUR EXPANSION
PLANS.

We have experienced, and may continue to experience, growth in the scope
and complexity of our operations and in the number of our employees. This growth
has strained our managerial, financial, manufacturing and other resources.
Future acquisitions may result in inefficiencies as we integrate new operations
and manage geographically diverse operations.

Although we believe our current controls are adequate, in order to manage
our growth, we must continue to implement additional operating and financial
controls and hire and train additional personnel. We have been successful in
hiring and properly training sufficient numbers of qualified personnel and in
effectively managing our growth. However, we cannot assure you that we will be
able to continue to do so in the future. If we fail to: (1) properly manage
growth, (2) improve our operational, financial and management systems as we grow
or (3) integrate new factories and employees into our operations, our financial
performance could be materially adversely affected.

Our success depends to a significant extent upon the continued service of
our key senior management and technical personnel, any of whom would be
difficult to replace. In addition, in connection with our expansion plans, our
company and ASI will be required to increase the number of qualified engineers
and other employees at our respective factories in the Philippines and Korea.
Competition for qualified employees is intense, and our business could be
adversely affected by the loss of the services of any of our existing key
personnel. Our inability to attract, retain and motivate qualified new personnel
could have a material adverse effect on our business.

RISKS ASSOCIATED WITH OUR WAFER FABRICATION BUSINESS -- OUR WAFER FABRICATION
BUSINESS IS SUBSTANTIALLY DEPENDENT ON TEXAS INSTRUMENTS.

Our wafer fabrication business, which commenced operations in January 1998,
depends significantly upon TI. An agreement with ASI and TI (the "Texas
Instruments Manufacturing and Purchasing Agreement") requires TI to purchase
from us at least 40% of the capacity of ASI's wafer foundry, and under certain
circumstances, TI has the right to purchase from us up to 70% of this capacity.
TI's orders during rampup of production during the first half of 1998 were below
required minimum purchase commitments due to market conditions and issues
encountered by TI in the transition of its products to new technology. We cannot
assure you that TI will meet its purchase obligations in the future. If TI fails
to meet its purchase obligations, our company's and ASI's businesses could be
harmed.

TI has transferred certain of its complementary metal oxide silicon
("CMOS") process technology to ASI, and ASI is dependent upon TI's assistance
for developing other state-of-the-art wafer manufacturing processes. In
addition, ASI's technology agreements with TI (the "Texas Instruments Technology
Agreements") only cover .25 micron and .18 micron CMOS technology. TI has not
granted ASI a license under TI's patents to manufacture semiconductor wafers for
third parties. Moreover, TI has no obligation to transfer any next-generation
technology to ASI. Our company's and ASI's businesses could be harmed if: (1)
ASI cannot obtain new technology on commercially reasonable terms or (2) ASI's
relationship with TI is disrupted for any reason.

DEPENDENCE ON MATERIALS AND EQUIPMENT SUPPLIERS -- OUR BUSINESS MAY SUFFER IF
THE COST OR SUPPLY OF MATERIALS ADVERSELY CHANGES.

We obtain from vendors the materials and equipment required for both the
packaging and test services performed by our factories and the packaging and
test services performed for us by ASI. We source most of our materials,
including critical materials such as leadframes and laminate substrates, from a
limited group of suppliers. Furthermore, we purchase all of our materials on a
purchase order basis and have no long-term contracts with any of our suppliers.
Our business may be harmed if we cannot obtain materials and other
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supplies from our vendors: (1) in a timely manner, (2) in sufficient quantities,
(3) in acceptable quality and (4) at competitive prices.

RAPID TECHNOLOGICAL CHANGE -- OUR BUSINESS WILL SUFFER IF WE CANNOT KEEP UP WITH
TECHNOLOGICAL ADVANCES IN OUR INDUSTRY.

The complexity and breadth of both semiconductor packaging and test and
wafer fabrication are rapidly changing. As a result, we expect that we will need
to offer more advanced package designs and new wafer fabrication technology in
order to respond to competitive industry conditions and customer requirements.
Our success depends upon the ability of our company and ASI to develop and
implement new manufacturing process and package design technologies. The need to
develop and maintain advanced packaging and wafer fabrication capabilities and
equipment could require significant research and development and capital
expenditures in future years. In addition, converting to new package designs or
process methodologies could result in delays in producing new package types or
advanced wafer designs which could adversely affect our ability to meet customer
orders.

Technological advances also typically lead to rapid and significant price
erosion and may make our existing products less competitive or our existing
inventories obsolete. If we cannot achieve advances in package design and wafer
fabrication technology or obtain access to advanced package designs and wafer
fabrication technology developed by others, our business could suffer.

COMPETITION -- WE MUST COMPETE AGAINST LARGE AND ESTABLISHED COMPETITORS IN BOTH
THE PACKAGING AND TEST INDUSTRY AND THE WAFER FABRICATION BUSINESS.

The independent semiconductor packaging and test market is very
competitive. This sector is comprised of approximately 50 companies, and
approximately 15 of these companies had sales of $100 million or more in 1998.
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. Such companies have also
established relationships with many large semiconductor companies that are
current or potential customers of our company. On a larger scale, we also
compete with the internal semiconductor packaging and test capabilities of many
of our customers.

The independent wafer fabrication business is also highly competitive. Our
wafer fabrication services compete primarily with independent semiconductor
wafer foundries, including those of Chartered Semiconductor Manufacturing, Inc.,
Taiwan Semiconductor Manufacturing Company, Ltd. and United Microelectronics
Corporation. Each of these companies has significant manufacturing capacity,
financial resources, research and development operations, marketing and other
capabilities and has been operating for some time. Many of these companies have
also established relationships with many large semiconductor companies that are
current or potential customers of our company.

If we cannot compete successfully in the future against existing or
potential competitors, our operating results would suffer.

ENVIRONMENTAL REGULATIONS -- FUTURE ENVIRONMENTAL REGULATIONS COULD PLACE
ADDITIONAL BURDENS ON THE MANUFACTURING OPERATIONS OF OUR COMPANY OR ASI.

The semiconductor packaging process uses chemicals and gases and generates
byproducts that are subject to extensive governmental regulations. For example,
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 in Korea
and the Philippines, impose various controls on the storage, handling, discharge
and disposal of chemicals used in our company's and ASI's manufacturing
processes and on the factories occupied by our company and ASI. We believe that
our activities, as well as those of ASI, conform to present environmental and
land use regulations applicable to our respective operations.

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Increasingly, however, public attention has focused on the environmental
impact of semiconductor manufacturing operations and the risk to neighbors of
chemical releases from such operations. In the future, applicable land use and
environmental regulations may: (1) impose upon our company or ASI the need for
additional capital equipment or other process requirements, (2) restrict our
company's or ASI's ability to expand our respective operations, (3) subject our
company or ASI to liability or (4) cause our company or ASI to curtail our
respective operations.

PROTECTION OF INTELLECTUAL PROPERTY -- WE MAY BECOME INVOLVED IN INTELLECTUAL
PROPERTY LITIGATION.

We currently hold 43 U.S. patents, and we also have 89 pending patent
applications. 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. However, we believe that
our continued success depends primarily on factors such as the technological
skills and innovation of our personnel rather than on our patents. 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. 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.

Although we are not currently a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and
other intellectual property rights. If any third party makes a valid claim
against our company or ASI, our company or ASI could be required to: (1)
discontinue the use of certain processes, (2) cease the manufacture, use, import
and sale of infringing products, (3) pay substantial damages, (4) develop
non-infringing technologies or (5) acquire licenses to the technology we had
allegedly infringed. Our business, financial condition and results of operations
could be materially and adversely affected by any of these negative
developments.

In addition, TI has granted ASI very limited licenses under the Texas
Instruments Technology Agreements, including a license under TI's trade secret
rights to use TI's technology in connection with ASI's provision of wafer
fabrication services. However, TI has not granted ASI a license under TI's
patents to manufacture semiconductor wafers for third parties. Furthermore, TI
has reserved the right to bring infringement claims against customers of our
company or customers of ASI with respect to semiconductor wafers purchased from
our company or ASI. Such customers and others could in turn subject our company
or ASI to litigation in connection with the sale of semiconductor wafers
produced by ASI.

CONTINUED CONTROL BY EXISTING STOCKHOLDERS -- MR. JAMES KIM AND MEMBERS OF HIS
FAMILY CAN DETERMINE THE OUTCOME OF ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.

Mr. James Kim and members of his family beneficially own approximately
65.8% of our outstanding common stock. Mr. James Kim's family, acting together,
will therefore effectively control substantially all matters submitted for
approval by our stockholders. These matters could include:

N the election of all of the members of our Board of Directors;

N proxy contests;

N approvals of transactions between our company and ASI or other entities
in which Mr. James Kim and members of his family have an interest;

N mergers involving our company;

N tender offers; and

N open market purchase programs or other purchases of our common stock.

See "Principal Stockholders" for additional information concerning
ownership of our common stock.

42
45

YEAR 2000 COMPLIANCE -- OUR BUSINESS MAY SUFFER IF OUR YEAR 2000 ("Y2K")
COMPLIANCE PROGRAM FAILS TO RESOLVE ALL Y2K ISSUES.

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.

We have implemented a Y2K compliance program to address possible Y2K issues
that may affect our business, and we are involved in the implementation of a
similar Y2K compliance program for ASI. We believe that these programs are on
target to bring our company and ASI into Y2K compliance. However, if these
compliance programs are not successful, or if we encounter unexpected problems,
our business could be harmed. Our operations could also be harmed if any
material supplier, utility provider, customer or other third party with whom we
deal fails to address its own Y2K issues.

For information about the current status of our Y2K readiness and potential
costs, see "-- Year 2000 Compliance" above.

STOCK PRICE VOLATILITY

The trading price of our common stock has been and is likely to continue to
be highly volatile and could be subject to wide fluctuations in response to
factors such as:

N actual or anticipated quarter-to-quarter variations in operating results;

N announcements of technological innovations or new products and services
by Amkor or our competitors;

N general conditions in the semiconductor industry;

N changes in earnings estimates or recommendations by analysts;

N developments affecting ASI;

N or other events or factors, many of which are out of our control

In addition, the stock market in general, and the Nasdaq National Market
and the markets for technology companies in particular, have experienced extreme
price and volume fluctuations. This volatility has affected the market prices of
securities of companies like ours for that have often been unrelated or
disproportionate to the operating performance. These broad market fluctuations
may adversely affect the market price of our common stock.

OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A TAKEOVER.

Certain provisions of our Certificate of Incorporation, Bylaws and Delaware
law could make it more difficult for a third party to acquire us, even if that
change of control would be beneficial to our stockholders. For example, our
Board of Directors has the authority to issue up to 10,000,000 shares of
Preferred Stock with rights, preferences and privileges that could be superior
to Common Stock; this would make it more difficult for a potential acquiror to
obtain a majority of our voting stock. We are also subject to Section 203 of the
Delaware General Corporation Law, which prohibits us from entering into certain
"business combinations" with an "interested stockholder" for three years after
the transaction in which that person becomes an interested stockholder unless
the transaction were to be approved in a prescribed manner. This too could delay
or prevent a change of control that could be beneficial to our stockholders. In
addition, our Certificate of Incorporation does not provide for cumulative
voting. This provision, and other provisions of the Certificate of
Incorporation, our Bylaws and Delaware corporate law, may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or our
management, including transactions in which stockholders might otherwise receive
a premium for their shares over then current market prices.

43
46

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

The Company is exposed to market risks, primarily related to foreign
currency and interest rate fluctuations. In the normal course of business, the
Company employs established policies and procedures to manage its exposure to
fluctuations in foreign currency values and changes in interest rates.

FOREIGN CURRENCY RISKS

The company's primary exposure to foreign currency fluctuations is
associated with Philippine Peso based transactions and related Peso based assets
and liabilities. The Company's objective in managing this exposure is to
minimize the risk through minimizing the level of activity and financial
instruments derived in Pesos. Although the Company has selectively hedged some
of it's currency exposure through short-term (generally not more than 30 to 60
days) forward exchange contracts, the Company's hedging activity to date has
been immaterial.

At December 31, 1998, the Company's Peso based financial instruments
primarily consisted of non-trade receivables, deferred tax assets and
liabilities, accounts payable, accrued payroll, taxes and other expenses. Based
on the Company's portfolio of Peso based net assets at December 31, 1998, a 20%
increase in the Philippine Peso to U.S. dollar exchange rate would result in a
decrease of approximately $4 million, in Peso based net assets.

INTEREST RATE RISKS

The Company has interest rate risk with respect to its investment in cash
and cash equivalents, use of short-term borrowings and long-term debt, including
the $207 million face value of convertible notes outstanding. Overall, the
Company mitigates its interest rate risks by investing in short-term
investments, which are due on demand or carry a maturity date of less than three
months. In addition, both the Company's short-term borrowings and long-term
debt, excluding the convertible notes, have variable rates that reflect
currently available terms and conditions for similar borrowings. As the
Company's convertible notes bear a fixed rate of interest, the fair value of
these instruments fluctuates with the market interest rates and the market price
of the Company's common stock.

Based on the Company's conservative policies with respect to investments in
cash and cash equivalents, use of variable rate debt and the fact that the
Company intends to pay the face value of its convertible note obligation upon
maturity, unless converted, the Company believes that the potential loss in
future earnings due to interest rate fluctuations is not material.

EQUITY PRICE RISKS

The Company's convertible notes are convertible into the Company's common
stock at $13.50 per share. As stated above, the Company intends to pay the face
value of its convertible note obligation upon maturity, unless converted. If the
market value of the Company's common stock were to increase above the conversion
rate of $13.50 per share and investors were to decide to convert their
investment in convertible debt to Company common stock, there would be no impact
to future earnings of the Company, other than a reduction in interest expense
(See Note 15 in "Notes to Consolidated Financial Statements").

44
47

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We present the information required by Item 8 of Form 10-K here in the
following order:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants (Arthur Andersen
LLP)...................................................... 45
Consolidated Statements of Income -- Years ended December
31, 1996, 1997 and 1998................................... 46
Consolidated Balance Sheets -- December 31, 1997 and 1998... 47
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1996, 1997 and 1998.................... 48
Consolidated Statements of Cash Flows -- Years ended
December 31, 1996, 1997 and 1998.......................... 49
Notes to Consolidated Financial Statements.................. 50
Independent Auditors' Report (Samil Accounting Corporation)
with respect to the 1997 Financial Statements of Anam
Semiconductor, Inc. ...................................... 77
Independent Auditors' Report (Chong Un & Company) with
respect to the 1997 Financial Statements of Anam
Engineering & Construction Co., Ltd....................... 79
Report of Independent Public Accountants (SyCip Gorres
Velayo & Co) with respect to the 1997 Financial Statements
of Amkor/Anam Pilipinas, Inc.............................. 80
Independent Auditors' Report (Siana Carr & O'Connor, LLP)
with respect to the 1997 Financial Statements of Anam USA,
Inc....................................................... 81
Report of Independent Public Accountants (Arthur Anderson
LLP) with respect to Schedule II -- Valuation and
Qualifying Accounts....................................... 86
Schedule II -- Valuation and Qualifying Accounts............ 87
</TABLE>

45
48

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Amkor Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Amkor
Technology, Inc. and its subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Anam Semiconductor,
Inc. ("ASI"), the investment in which is reflected in the accompanying 1996 and
1997 financial statements using the equity method of accounting. The investment
in ASI represents 2% of total assets at December 31, 1997 and the equity in its
net loss represents 4% and 29% of net income before the equity in loss of ASI in
1996 and 1997, respectively. The statements of ASI were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for ASI, is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the report of other auditors
regarding 1996 and 1997, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Amkor
Technology, Inc. and its subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.

The report of the other auditors referred to above indicates that the
financial statements of ASI have been prepared assuming that ASI will continue
as a going concern. This report states that the operations of ASI have been
significantly affected, and will continue to be affected for the foreseeable
future, by Korea's unstable economy caused by currency volatility and unstable
finance markets in Korea and that ASI has historically operated with a
significant amount of debt relative to its equity, had a significant working
capital deficit at December 31, 1997 and has contractually guaranteed the debt
obligations of certain affiliates and subsidiaries. These significant
uncertainties may affect ASI's future operations and its ability to maintain or
refinance certain debt obligations as they mature, which raise substantial doubt
regarding ASI's ability to continue as a going concern. ASI's plans to address
these matters, which are disclosed in ASI's financial statements, including
entering into the Korean financial restructuring program known as "Workout" in
October 1998. The Workout program is the result of an accord among Korean
financial institutions to assist in the restructuring of Korean business
enterprises and does not involve the judicial system. Finally, the report of
other auditors states that the ultimate outcome of these uncertainties cannot be
determined presently and ASI's financial statements do not include any
adjustments that might result from these uncertainties.

ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 10, 1999
(except with respect to the Company's proposed investment in ASI pursuant to the
financial restructuring of ASI discussed in Note 14, as to which the date is
March 29, 1999)

46
49

AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES........................................... $1,171,001 $1,455,761 $1,567,983
COST OF REVENUES -- including purchases from ASI (Note
14).................................................. 1,022,078 1,242,669 1,307,150
---------- ---------- ----------
GROSS PROFIT........................................... 148,923 213,092 260,833
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative.................. 66,625 103,726 119,846
Research and development............................. 10,930 8,525 8,251
---------- ---------- ----------
Total operating expenses.......................... 77,555 112,251 128,097
---------- ---------- ----------
OPERATING INCOME....................................... 71,368 100,841 132,736
---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense, net................................ 22,245 32,241 18,005
Foreign currency (gain) loss......................... 2,961 (835) 4,493
Other expense, net................................... 3,150 8,429 9,503
---------- ---------- ----------
Total other expense............................... 28,356 39,835 32,001
---------- ---------- ----------
INCOME BEFORE INCOME TAXES, EQUITY IN LOSS OF ASI AND
MINORITY INTEREST.................................... 43,012 61,006 100,735
PROVISION FOR INCOME TAXES............................. 7,876 7,078 24,716
EQUITY IN LOSS OF ASI.................................. (1,266) (17,291) --
MINORITY INTEREST...................................... 948 (6,644) 559
---------- ---------- ----------
NET INCOME............................................. $ 32,922 $ 43,281 $ 75,460
========== ========== ==========
PRO FORMA DATA (UNAUDITED):
Historical income before income taxes, equity in loss
of ASI and minority interest...................... $ 43,012 $ 61,006 $ 100,735
Pro forma provision for income taxes................. 10,776 10,691 29,216
---------- ---------- ----------
Pro forma income before equity in loss of ASI and
minority interest................................. 32,236 50,315 71,519
Historical equity in loss of ASI..................... (1,266) (17,291) --
Historical minority interest......................... 948 (6,644) 559
---------- ---------- ----------
Pro forma net income................................. $ 30,022 $ 39,668 $ 70,960
========== ========== ==========
PER SHARE DATA:
Basic net income per common share.................... $ .40 $ .52 $ .71
========== ========== ==========
Diluted net income per common share.................. $ .40 $ .52 $ .70
========== ========== ==========
Basic pro forma net income per common share
(unaudited)....................................... $ .36 $ .48 $ .67
========== ========== ==========
Diluted pro forma net income per common share
(unaudited)....................................... $ .36 $ .48 $ .66
========== ========== ==========
Shares used in computing basic net income per common
share............................................. 82,610 82,610 106,221
========== ========== ==========
Shares used in computing diluted net income per
common share...................................... 82,610 82,610 116,596
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.
47
50

AMKOR TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 90,917 $ 227,587
Short-term investments.................................... 2,524 1,000
Accounts receivable --
Trade, net of allowance for doubtful accounts of $4,234
and $5,952............................................ 102,804 109,243
Due from affiliates.................................... 14,431 25,990
Other.................................................. 4,879 5,900
Inventories............................................... 115,870 85,628
Other current assets...................................... 26,997 16,687
-------- ----------
Total current assets.............................. 358,422 472,035
-------- ----------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 427,061 416,111
-------- ----------
INVESTMENTS:
ASI at equity............................................. 13,863 --
Other..................................................... 5,958 25,476
-------- ----------
Total investments................................. 19,821 25,476
-------- ----------
OTHER ASSETS:
Due from affiliates....................................... 29,186 28,885
Other..................................................... 21,102 61,090
-------- ----------
50,288 89,975
-------- ----------
Total assets...................................... $855,592 $1,003,597
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 29,765 $ 13,429
Short-term borrowings and current portion of long-term
debt................................................... 167,317 38,657
Trade accounts payable.................................... 113,037 96,948
Due to affiliates......................................... 15,581 15,722
Accrued expenses.......................................... 43,973 77,004
Accrued income taxes...................................... 26,968 38,892
-------- ----------
Total current liabilities......................... 396,641 280,652
-------- ----------
LONG-TERM DEBT.............................................. 196,934 14,846
-------- ----------
CONVERTIBLE SUBORDINATED NOTES.............................. -- 207,000
-------- ----------
DUE TO ANAM USA, INC. (Note 14)............................. 149,776 --
-------- ----------
OTHER NONCURRENT LIABILITIES................................ 12,084 10,738
-------- ----------
COMMITMENTS AND CONTINGENCIES (Note 16)
MINORITY INTEREST........................................... 9,282 --
-------- ----------
STOCKHOLDERS' EQUITY:
Amkor Technology, Inc. -- common stock.................... 45 118
-------- ----------
AK Industries, Inc. -- common stock....................... 1 --
-------- ----------
Additional paid-in capital................................ 20,871 381,061
-------- ----------
Retained earnings......................................... 70,621 109,738
-------- ----------
Accumulated Other Comprehensive Income:
Unrealized losses on investments....................... -- (556)
Cumulative translation adjustment...................... (663) --
-------- ----------
(663) (556)
-------- ----------
Total stockholders' equity........................ 90,875 490,361
-------- ----------
Total liabilities and stockholders' equity........ $855,592 $1,003,597
======== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

48
51

AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
AMKOR AK
TECHNOLOGY, INDUSTRIES, ACCUMULATED
INC. INC. ADDITIONAL OTHER
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME TOTAL INCOME
----------- ----------- ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996......... $ 45 $ 1 $ 16,494 $ 31,146 $(2,397) $ 45,289
Net income....................... -- -- -- 32,922 -- 32,922 $32,922
Unrealized gains on
investments.................... -- -- -- -- 464 464 464
Currency translation
adjustments.................... -- -- -- -- (1,411) (1,411) (1,411)
-------
Comprehensive income (Note 11)... 31,975
-------
Distributions.................... -- -- -- (15,123) -- (15,123)
Change in division equity
account........................ -- -- -- (16,605) -- (16,605)
Acquisition of AATS (Note 14).... -- -- 276 -- -- 276
---- --- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1996....... 45 1 16,770 32,340 (3,344) 45,812
Net income....................... -- -- -- 43,281 -- 43,281 43,281
Unrealized gains on
investments.................... -- -- -- -- 1,586 1,586 1,586
Currency translation
adjustments.................... -- -- -- -- 1,095 1,095 1,095
-------
Comprehensive income (Note 11)... 45,962
-------
Distributions.................... -- -- -- (5,000) -- (5,000)
Change in division equity
account........................ -- -- 4,101 -- -- 4,101
---- --- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1997....... 45 1 20,871 70,621 (663) 90,875
Net income....................... -- -- -- 75,460 -- 75,460 75,460
Unrealized (losses) on
investments, net of tax........ -- -- -- -- (556) (556) (556)
Currency translation adjustments,
reclassification for loss
included in net income......... -- -- -- -- 663 663 663
-------
Comprehensive income (Note 11)... $75,567
-------
Distributions.................... -- -- -- (33,100) -- (33,100)
Issuance of 35,250,000 common
shares in public offering,
net............................ 35 -- 360,228 -- -- 360,263
Acquisition of AKI............... -- (1) -- (3,243) -- (3,244)
Change in par value of stock in
connection with Company
Reorganization................. 38 -- (38) -- -- --
---- --- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1998....... $118 $ 0 $381,061 $109,738 $ (556) $490,361
==== === ======== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these statements.
49
52

AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 32,922 $ 43,281 $ 75,460
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization........................... 57,825 81,864 119,239
Provision for accounts receivable....................... 1,271 3,490 1,719
Provision for excess and obsolete inventory............. 500 12,659 7,200
Deferred income taxes................................... (324) (11,715) 1,250
Equity loss of investees................................ 605 16,779 --
(Gain) loss on sale of fixed assets and investments..... (139) (239) 2,500
Minority interest....................................... 948 (6,644) 559
Changes in assets and liabilities excluding effects of
acquisitions --
Accounts receivable..................................... (36,695) (19,802) 4,742
Proceeds from sale/(repurchase of) accounts
receivable............................................ -- 90,700 (16,500)
Other receivables....................................... (925) 1,547 (1,021)
Inventories............................................. (16,380) (26,609) 23,042
Due to/from affiliates, net............................. (8,203) (19,138) (11,117)
Other current assets.................................... 1,694 (7,239) 6,709
Other non-current assets................................ (6,108) 3,322 (8,061)
Accounts payable........................................ (16,852) 60,939 (12,489)
Accrued expenses........................................ (12,658) 13,817 33,489
Accrued taxes........................................... 7,433 14,130 11,924
Other long-term liabilities............................. (108) (1,089) (685)
Other, net.............................................. 3,750 -- --
----------- ----------- ---------
Net cash provided by operating activities.......... 8,556 250,053 237,960
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, including
purchase of AATS........................................ (185,112) (178,990) (107,889)
Acquisition of minority interest in AAP................... -- -- (33,750)
Acquisition of AKI........................................ -- -- (3,244)
Sale of property, plant and equipment..................... 2,228 1,413 121
Purchases of investments and issuances of notes
receivable.............................................. (15,633) (15,187) (20,571)
Proceeds from sale of investments......................... 520 -- 2,021
----------- ----------- ---------
Net cash used in investing activities.............. (197,997) (192,764) (163,312)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdrafts and short-term borrowings... 64,852 52,393 (173,565)
Net proceeds from issuance of 35,250,000 common shares in
public offering......................................... -- -- 360,263
Proceeds from issuance of Anam USA, Inc. debt............. 1,205,174 1,408,086 522,116
Payments of Anam USA, Inc. debt........................... (1,189,317) (1,443,464) (658,029)
Net proceeds from issuance of long-term debt.............. 102,193 11,389 203,170
Payments of long-term debt................................ (3,138) (43,541) (158,833)
Distributions to stockholders............................. (15,205) (5,000) (33,100)
Change in division equity account......................... (16,605) 4,101 --
----------- ----------- ---------
Net cash provided by (used in) financing
activities....................................... 147,954 (16,036) 62,022
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (41,487) 41,253 136,670
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 91,151 49,664 90,917
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 49,664 $ 90,917 $ 227,587
=========== =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 24,125 $ 37,070 $ 27,730
Income taxes............................................ $ 2,256 $ 3,022 $ 12,908
</TABLE>

The accompanying notes are an integral part of these statements.
50
53

AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Amkor
Technology, Inc. and its subsidiaries (the "Company"). All of the Company's
subsidiaries are wholly owned except for a small number of shares of each of the
Company's Philippine subsidiaries which are required to be owned by directors of
these companies pursuant to Philippine law.

The consolidated financial statements reflect the elimination of all
significant intercompany accounts and transactions.

The investments in, and the operating results of, 20% to 50% owned
companies are included in the consolidated financial statements using the equity
method of accounting.

Prior to the Reorganization (as defined below), the Company's financial
statements were presented on a combined basis as a result of common ownership
and business operations of all the Amkor Companies (as defined below), including
AK Industries, Inc. ("AKI"). The Reorganization was treated similar to a pooling
of interests as it represented an exchange of equity interests among companies
under common control, except for the acquisition of AKI which was accounted for
as a purchase transaction. The purchase price for the AKI stock, which
represented the fair value of those shares, approximated the book value of AKI.

Reorganization

Prior to the Reorganization (as defined herein) the combined financial
statements of Amkor Technology, Inc. ("ATI") and its subsidiaries and AKI and
its subsidiary included the accounts of the following based on the ownership
structure prior to the Reorganization (these companies are referred to as the
"Amkor Companies"):

M Amkor Electronics, Inc. ("AEI"), (a U.S. S Corporation) and its wholly
owned subsidiaries, Amkor Receivables Corp (a U.S. Corporation) and Amkor
Wafer Fabrication Services SARL (a French Limited Company) ("AWFS");

M T.L. Limited ("TLL") (a British Cayman Island Corporation) and its
Philippine subsidiaries, Amkor Anam Advanced Packaging, Inc. ("AAAP")
(wholly owned) and Amkor/Anam Pilipinas, Inc. ("AAP"), which was owned
60% by TLL and 40% by Anam Semiconductor Inc. ("ASI")(which changed its
name in 1998 from Anam Industrial Co., Ltd.) (-- see Notes 6 and 14), and
its wholly-owned subsidiary Automated MicroElectronics, Inc. ("AMI");

M C.I.L., Limited ("CIL") (a British Cayman Islands Corporation) and its
wholly-owned subsidiary Amkor/Anam Euroservices S.A.R.L. ("AAES") (a
French Corporation);

M Amkor Anam Test Services, Inc. (a U.S. Corporation) (see Note 17);

M The semiconductor packaging and test business unit of Chamterry
Enterprises, Ltd. ("Chamterry"). During the third quarter of 1997
Chamterry transferred its customers to AEI and CIL and ceased operations
of its semiconductor and test business unit; and

M AKI (a U.S. Corporation) and its wholly-owned subsidiary, Amkor-Anam,
Inc. (a U.S. Corporation).

Prior to the Reorganization, all of the Amkor Companies were substantially
wholly owned by Mr. and Mrs. James Kim or entities controlled by members of Mr.
James Kim's immediate family (the "Founding Stockholders"), except for AAP which
was 40% owned by ASI and one third of AEI and all of AKI which were owned by
trusts established for the benefit of other members of Mr. James Kim's family
("Kim Family

51
54
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Trusts"). The Amkor Companies were an interdependent group of companies involved
in the same business under the direction of common management. ATI was formed in
September 1997 to facilitate the Reorganization and consolidate the ownership of
the Amkor Companies. In connection with the Reorganization, AEI was merged into
ATI. Amkor International Holdings ("AIH"), a Cayman Islands holding company,
became a wholly owned subsidiary of ATI. AIH was formed to hold the following
entities: First Amkor Caymans, Inc. ("FACI"), which was formed to hold AAAP, AAP
and its subsidiary AMI, TLL and its subsidiary CIL and CIL's subsidiary AAES.
The relative number of shares of common stock issued by the Company in
connection with each of the transactions comprising the Reorganization was based
upon the relative amounts of stockholders' equity at December 31, 1997. On April
14, 1998, Mr. and Mrs. James Kim and the Kim Family Trusts received two-thirds
(9,746,760 shares) and one-third (4,873,380 shares) of the ATI common stock then
outstanding, respectively. On April 29, 1998, ATI issued 67,989,851 shares of
common stock, representing approximately 82% of its shares immediately after the
Reorganization, in exchange for all of the outstanding shares of AIH and its
subsidiaries. Of such shares, 27,528,234 shares and 36,376,617 shares were
gifted to Mr. and Mrs. James Kim and the Kim Family Trusts, respectively, such
that Mr. and Mrs. James Kim and the Kim Family Trusts owned 45.1% and 49.9%,
respectively, of the ATI common shares outstanding after the Reorganization.
Following such transactions the Founding Stockholders beneficially owned a
majority of the outstanding shares of ATI common stock. In addition, ATI
acquired all of the stock of AKI from the Kim Family Trusts for approximately
$3,000. The merger of AEI and ATI, the creation of AIH and FACI, the issuance of
ATI common stock for AIH and the acquisition of AKI are collectively referred to
as the Reorganization. (See "-- Income Taxes" regarding change in AEI tax
status.)

Nature of Operations

The Company provides semiconductor packaging and test services as well as
wafer fabrication services to semiconductor and computer manufacturers located
in strategic markets throughout the world. Such services are provided by the
Company and by ASI under a long-standing arrangement (see Note 14).
Approximately 72%, 68% and 67% of the Company's packaging and test revenues in
1996, 1997 and 1998 respectively, relate to the packaging and test services
provided by ASI. In addition, 100% of the Company's wafer fabrication revenues
relate to the wafer fabrication services provided by ASI under a long-term
agreement (see Note 14).

Concentrations of Credit Risk

Financial instruments, for which the Company is subject to credit risk,
consist principally of accounts receivable and cash and cash equivalents. With
respect to accounts receivable, the Company has mitigated its credit risk by
selling primarily to well established companies, performing ongoing credit
evaluations and making frequent contact with customers.

The Company has mitigated its credit risk with respect to cash and cash
equivalents through diversification of its portfolio of cash holdings into
various money market accounts, U.S. treasury bonds, federal mortgage backed
securities, and high grade municipal and commercial loans. At December 31, 1998,
the Company maintained approximately $35,000 in six high grade municipal and
commercial loans, with the largest individual loan balance of approximately
$10,000. However, at December 31, 1996, 1997 and 1998, the Company maintained
approximately $14,649, $34,622 and $29,303, respectively, in deposits and
certificates of deposits at foreign owned banks and $1,861, $2,548 and $4,406,
respectively, in deposits at U.S. banks which exceeded federally insured limits.

52
55
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Significant Customers

The Company has a number of major customers in North America, Asia and
Europe. The Company's largest customer, Intel Corporation, accounted for
approximately 23.5%, 23.4% and 20.6% of net revenues in 1996, 1997 and 1998,
respectively. The Company's five largest customers collectively accounted for
39.2%, 40.1% and 41.6% of net revenues in 1996, 1997 and 1998, respectively. The
Company anticipates that significant customer concentration will continue for
the foreseeable future, although the companies which constitute the Company's
largest customers may change.

Risks and Uncertainties

The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from historical results include, but
are not limited to, dependence on the highly cyclical nature of both the
semiconductor and the personal computer industries, competitive pricing and
declines in average selling prices, dependence on the Company's relationship
with ASI (see Note 14), reliance on a small group of principal customers, timing
and volume of orders relative to the Company's production capacity, availability
of manufacturing capacity and fluctuations in manufacturing yields, availability
of financing, competition, dependence on international operations and sales,
dependence on raw material and equipment suppliers, exchange rate fluctuations,
dependence on key personnel, difficulties in managing growth, enforcement of
intellectual property rights, environmental regulations and results of ASI on an
equity accounting basis, assuming we make the $150,000 investment in ASI
(because we will be required to record our proportional ownership interest in
ASI's earnings or losses).

Foreign Currency Translation

Substantially all of the Company's foreign subsidiaries use the U.S. dollar
as their functional currency. Accordingly, monetary assets and liabilities which
were originally denominated in a foreign currency are translated into U.S.
dollars at month-end exchange rates. Non-monetary items which were originally
denominated in foreign currencies are translated at historical rates. Gains and
losses from such remeasurement and from transactions denominated in foreign
currencies are included in other (income) expense, net. The cumulative
translation adjustment reflected in accumulated other comprehensive income in
stockholders' equity in the consolidated balance sheets related primarily to
investments in unconsolidated companies which used the local currency as the
functional currency (see Note 6).

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Accounts Receivable

At December 31, 1997 and 1998, trade accounts receivable represent the
Company's interest in receivables in excess of amounts purchased by banks under
an accounts receivable sale agreement (see Note 3). Of the total net trade
accounts receivable amount at December 31, 1997 and 1998, $19,905 and $22,488,
respectively relates to the trade accounts receivable of CIL which were not sold
under the Agreement.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
principally by using a moving average method.

53
56
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is
calculated by the straight-line method over the estimated useful lives of
depreciable assets. Accelerated methods are used for tax purposes. Depreciable
lives follow:

<TABLE>
<S> <C>
Buildings and improvements.................................. 10 to 30 years
Machinery and equipment..................................... 3 to 5 years
Furniture, fixtures and other equipment..................... 3 to 10 years
</TABLE>

Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts and any resulting gain or loss is included in
earnings. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense was $58,497, $81,159 and $116,424 for 1996, 1997
and 1998, respectively.

Other Noncurrent Assets

Other noncurrent assets consist principally of goodwill, deferred debt
issuance costs, security deposits, deferred income taxes and the cash surrender
value of life insurance policies.

The Company recorded goodwill representing the excess of cost over the book
value of minority interest in AAP (see Note 17). Goodwill is amortized on a
straight-line basis over a period of ten years which is the estimated future
period to be benefited by the acquisition.

In connection with the $207,000 offering of Convertible Notes (see Note 2)
the Company incurred approximately $9,100 of debt issuance costs which have been
deferred and are amortized and reflected as interest expense over the life of
the Convertible Notes.

Other Noncurrent Liabilities

Other noncurrent liabilities consist primarily of pension obligations and
noncurrent income taxes payable.

Stock Compensation Plans

The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock based plans is generally
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 123 are presented in Note 13.

Income Taxes

The Company accounts for income taxes following the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires the use of the liability
method. If it is more likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is provided.

The Company reports certain income and expense items for income tax
purposes on a basis different from that reflected in the accompanying
consolidated financial statements. The principal differences relate to the
timing of the recognition of accrued expenses which are not deductible for
federal income tax purposes until paid, the use of accelerated methods of
depreciation for income tax purposes and unrecognized foreign exchange gains and
losses.

54
57
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

AEI elected to be taxed as an S Corporation under the provisions of the
Internal Revenue Code of 1986 and comparable state tax provisions. As a result,
AEI did not recognize U.S. federal corporate income taxes. Instead, the
stockholders of AEI were taxed on their proportionate share of AEI's taxable
income. Accordingly, no provision for U.S. federal income taxes was recorded for
AEI. The accompanying consolidated statements of income include an unaudited pro
forma adjustment to reflect income taxes which would have been recorded if AEI
had not been an S Corporation, based on the tax laws in effect during the
respective periods (see "-- Reorganization").

Just prior to the Offerings (see Note 2), AEI terminated its S Corporation
status at which point the profits of AEI became subject to federal and state
income taxes at the corporate level.

Revenue Recognition and Risk of Loss

The Company records revenues upon shipment of packaged semiconductors to
its customers. The Company does not take ownership of customer-supplied
semiconductors. Title and risk of loss remains with the customer for these
materials at all times. Accordingly, the cost of the customer-supplied materials
is not included in the consolidated financial statements. Risk of loss for the
Company's packaging costs passes upon completion of the packaging process and
shipment to the customer. In regards to wafer fabrication services, the Company
records revenues upon shipment of completed wafers to its customers.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.

SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
Early adoption at the beginning of any quarter after issuance is permitted, but
cannot be applied retroactively. The provisions of the statement must be applied
to derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.

The Company believes that the impact of adopting SFAS No. 133 on its
financial statements will not be material and has not determined the timing of
adoption.

55
58
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Reclassifications

Certain previously reported amounts have been reclassified to conform with
the current presentation.

2. INITIAL PUBLIC OFFERING

On May 6, 1998, the Company completed its Initial Public Offering of
30,000,000 shares of its common stock at a price to the public of $11.00 per
share and $180,000 aggregate principal amount of Convertible Notes ("Initial
Public Offering" or "Offerings"). Also on May 8, 1998, the Company sold
5,250,000 additional shares of its common stock and $27,000 additional principal
amounts of Convertible Notes in conjunction with the underwriters'
over-allotment options. The net proceeds were approximately $558,121, after
deducting the underwriter discounts and offering expenses. The convertible notes
1) are convertible into the Company's common stock at $13.50 per share; 2) are
callable in certain circumstances after three years; 3) are unsecured and
subordinate to senior debt; 4) carry a coupon rate of 5 3/4%; and 5) mature at
the end of five years. Approximately $264,000 of the proceeds were used to
reduce short-term and long-term borrowings. Approximately $86,000 of the
proceeds were used to reduce amounts due to Anam USA, Inc., ASI's wholly owned
financing subsidiary ("AUSA"). Approximately $34,000 of the proceeds was used to
purchase ASI's 40% interest in AAP. (See Note 17.) In connection with the
Offerings, one existing stockholder sold approximately 5,000,000 of his shares.

3. ACCOUNTS RECEIVABLE SALE AGREEMENT

Effective July 7, 1997, the Company entered into an agreement to sell
receivables (the "Agreement") with certain banks (the "Purchasers"). The
transaction qualifies as a sale under the provisions of SFAS No. 125 "Accounting
For Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Under the Agreement, the Purchasers have committed to purchase,
with limited recourse, all right, title and interest in selected accounts
receivable of the Company, up to a maximum of $100,000. In connection with the
Agreement, the Company established a wholly owned, bankruptcy remote subsidiary,
Amkor Receivables Corp., to purchase accounts receivable at a discount from the
Company on a continuous basis, subject to certain limitations as described in
the Agreement. Amkor Receivables Corp. simultaneously sells the accounts
receivable at the same discount to the Purchasers. The Agreement is structured
as a three year facility subject to annual renewals based upon the mutual
consent of the Company and purchasers. Prior to December 31, 1997, the Company
applied approximately $83,400 of the Receivables Sale proceeds together with
approximately $17,000 of working capital to reduce the Company's indebtedness to
AUSA which amounts were advanced by AUSA to entities controlled by members of
James Kim's family.

The first annual renewal under the Agreement was effective December 30,
1998 and the next renewal date is December 29, 1999. ASI had guaranteed the
Company's obligations under the agreement (See Note 14), however, ASI was
released from its obligations as guarantor effective December 30, 1998.

Proceeds, net of reduction in selected accounts receivable from the sale of
receivables were $84,400 in 1997 which has decreased by $12,900 during 1998 due
to a further reduction in selected accounts receivable. Losses on receivables
sold under the Agreement were approximately $2,414 and $4,693 in 1997 and 1998,
respectively and are included in other expense, net. As of December 31, 1997 and
1998, approximately $6,300 and $2,700, respectively, is included in current
liabilities for amounts to be refunded to the Purchasers as a result of a
reduction in selected accounts receivable.

56
59
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

4. INVENTORIES

Inventories consist of raw materials and purchased components which are
used in the semiconductor packaging process. The Company's inventories are
located at its facilities in the Philippines or at ASI on a consignment basis.
Components of inventories follow:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Raw materials and purchased components................. $105,748 $ 77,351
Work-in-process........................................ 10,122 8,277
-------- --------
$115,870 $ 85,628
======== ========
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Land................................................... $ 2,346 $ 2,346
Buildings and improvements............................. 109,528 142,252
Machinery and equipment................................ 448,032 534,314
Furniture, fixtures and other equipment................ 33,050 40,502
Construction in progress............................... 31,964 8,282
-------- --------
624,920 727,696
Less -- Accumulated depreciation and amortization...... 197,859 311,585
-------- --------
$427,061 $416,111
======== ========
</TABLE>

6. INVESTMENTS

The Company's investments include investments in affiliated companies which
provide services to the Company (see Note 14) and certain other technology based
companies. Investments are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Equity Investment in ASI (8.1% at December 31, 1997)..... $13,863 $ --
------- -------
Other Equity Investments (20% - 50% owned)
Taiwan Semiconductor Technology Corporation............ -- 20,052
Other.................................................. 738 738
------- -------
Total other equity investments................. 738 20,790
------- -------
Available for Sale....................................... 5,220 4,686
------- -------
$19,821 $25,476
======= =======
</TABLE>

On October 21, 1998, the Company announced that it entered into a joint
venture, Taiwan Semiconductor Technology Corporation ("TSTC"), with Taiwan
Semiconductor Manufacturing Corporation, Acer Inc., United Test Center and
Chinfon Semiconductor & Technology Company. TSTC, which is expected to commence
operations during the first quarter of 1999, will provide independent advanced
integrated circuit ("IC") packaging services primarily for the Taiwan market and
Taiwan foundry output. The Company plans to invest an estimated total of $40,000
in TSTC. In October 1998, the Company invested $10,000 as part of
57
60
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

the second round of joint venture financing. In December, 1998, the Company
purchased additional TSTC shares from ASI for $10,000 which represented ASI's
investment as part of the joint venture's initial round of financing in which
ATI did not participate. ASI did not participate in the joint venture's second
round of financing. As of December 31, 1998 the Company owns approximately a 25%
interest in TSTC and accordingly, the Company's investment in TSTC is accounted
for using the equity method of accounting.

The Company's investment in ASI was accounted for using the equity method
of accounting. Although the Company did not own in excess of 20% of the
outstanding common stock of ASI, the Company, through its common ownership with
the Kim family and entities controlled by the Kim family, owned 40.7% of the
outstanding common stock of ASI at December 31, 1997 and could have exercised a
significant influence over ASI. Accordingly the Company applied the equity
method based on its ownership interest.

In 1997, the Company recognized a loss of $17,291, resulting principally
from the impairment of value of its investment in ASI as well as the Company's
equity in loss of ASI for the year ended December 31, 1997. The amount of the
impairment loss was determined based upon the market value of the ASI shares on
the Korean Stock Exchange on February 16, 1998, the date that the Company sold
its investment in ASI common stock to AK Investments, Inc., an entity owned by
James J. Kim. In exchange for the shares, AK Investments, Inc. assumed $13,863
of the Company's long-term borrowings from Anam USA, Inc.

ASI's independent auditors' report indicates that the financial statements
of ASI have been prepared assuming that ASI will continue as a going concern.
ASI's business has been severely affected by the economic crisis in Korea. ASI
has traditionally operated with a significant amount of debt relative to its
equity and had a significant working capital deficit at December 31, 1997 and
has contractually guaranteed the debt obligations of certain affiliates and
subsidiaries. These significant uncertainties may affect ASI's future operations
and its ability to maintain or refinance certain debt obligations as they
mature, which raise substantial doubt regarding ASI's ability to continue as a
going concern. ASI's plans to address these matters, which are disclosed in
ASI's financial statements, include entering into the Korean financial
restructuring program known as "Workout" in October 1998. The Workout program is
the result of an accord among Korean financial institutions to assist in the
restructuring of Korean business enterprises and does not involve the judicial
system. The ultimate outcome of these uncertainties cannot be determined
presently and ASI's financial statements do not include any adjustments that
might result from these uncertainties. See Note 14 for more information
regarding the Workout.

ASI's financial statements are prepared on the basis of Korean GAAP, which
differs from U.S. GAAP in certain significant respects. The Company's equity in
loss of ASI is based upon the Korean GAAP information noted above and the
Company's estimate of significant U.S. GAAP adjustments. These adjustments were
not significant in 1996. In 1997, ASI recognized a W349 billion loss principally
as a result of foreign exchange losses on U.S. dollar denominated liabilities
due to the significant depreciation of the won relative to the U.S. dollar. For
purposes of determining the Company's equity in loss of ASI under U.S. GAAP,
losses on remeasuring U.S. dollar denominated liabilities are not recognized as
the U.S. dollar is the functional currency for ASI. Such U.S. dollar denominated
liabilities were W2,144 billion at December 31, 1997. Also, at December 31,
1997, the carrying value of the investment in ASI, adjusted for the loss on the
1998 disposition discussed above, is less than the Company's portion of ASI's
net assets after consideration of the estimated U.S. GAAP adjustments. The most
significant such adjustment affecting net assets is the remeasurement of
property, plant and equipment to historical costs as required as the U.S. dollar
is the functional currency.

58
61
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

The following summary of consolidated financial information pertaining to
ASI for 1996 and 1997 was derived from the consolidated financial statements
referred to above. No amounts are presented for 1998 as the investment was sold
in February 1998. All amounts are in millions of Korean Won:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
SUMMARY INCOME STATEMENT INFORMATION:
Sales............................................. W1,338,718 W1,786,457
Net income (loss)................................. W (9,385) W (348,729)
SUMMARY BALANCE SHEET INFORMATION:
Total assets...................................... W2,225,288 W3,936,030
Total liabilities................................. W1,975,431 W3,834,096
</TABLE>

7. SHORT-TERM CREDIT FACILITIES

At December 31, 1997 and 1998, short-term borrowings consisted of various
operating lines of credit and working capital facilities maintained by the
Company. These borrowings are secured by receivables, inventories or property.
These facilities, which are typically for one-year renewable terms, generally
bear interest at current market rates appropriate for the country in which the
borrowing is made (ranging from 11.25% to 16.0% at December 31, 1998). For 1997
and 1998, the weighted average interest rate on these borrowings was 8.6% and
11.9%, respectively. Included in cash and cash equivalents is $11,200 of
certificates of deposit pledged as collateral for certain of these lines. The
unused portion of lines of credit total $54,077 at December 31, 1998.

59
62
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

8. DEBT

Following is a summary of the Company's short-term borrowings and long-term
debt excluding the $207,000 of Convertible Notes discussed in Note 2.:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Short-term borrowings (see Note 7).......................... $ 187,659 $ 30,430
Bank loan, interest at LIBOR plus annual spread (6.78% at
December 31, 1997), due October, 2000..................... 50,000 --
Bank loan, interest at LIBOR plus annual spread (6.68% at
December 31, 1997), due in installments beginning March,
1998 through April, 2001.................................. 71,250 --
Bank debt, interest at LIBOR plus annual spread (9.37% at
December 31, 1997), due December, 2001.................... 20,000 --
Bank debt, interest at LIBOR plus annual spread (12.22% at
December 31, 1997,) due October, 1998..................... 5,000 --
Bank debt, interest at LIBOR plus annual spread (9.09% at
December 31, 1997), due in installments with balance due
September, 1999........................................... 3,500 --
Bank debt, interest at LIBOR plus annual spread (11.88% at
December 31, 1997), due in equal installments through
January, 2001............................................. 5,502 --
Note payable, interest at bank's prime (12.25% at December
31, 1998), due in installments with balance due April,
2004...................................................... 9,530 12,747
Note payable, interest at LIBOR plus annual spread (10.25%
at December 31, 1998), due in installments with balance
due November, 1999........................................ 9,000 7,000
Other, primarily capital lease obligations and other debt... 2,810 3,326
--------- --------
364,251 53,503
Less -- Short-term borrowings and current portion of
long-term debt............................................ (167,317) (38,657)
--------- --------
$ 196,934 $ 14,846
========= ========
</TABLE>

The Bank loans were obtained to finance the expansion of the Company's
factories in the Philippines. The Company had the option to prepay all or part
of the loans on any interest payment date. These Bank loans were unconditionally
and irrevocably guaranteed by ASI. The Bank loans contained provisions
pertaining to the maintenance of specified debt-to-equity ratios, restrictions
with respect to corporate reorganization, acquisition of capital stock or
substantially all of the assets of any other corporations and advances and
dispositions of all or a substantial portion of the borrower's assets, except in
the ordinary course of business. AAP was not in compliance with covenants
regarding the maintenance of certain debt-to-equity ratios and advances to
affiliates at December 31, 1997. As a result of the receipt of the net proceeds
from the Initial Public Offering (see Note 2), amounts due under these
agreements, certain other agreements with cross-default clauses and $42,500 of
short-term borrowings which were refinanced were classified as non-current
liabilities at December 31, 1997 in the accompanying consolidated balance sheet.

Other bank debt instruments have interest rates based on Singapore
interbank rates and LIBOR plus an annual spread. The loans are secured by assets
of the Company including assets acquired through proceeds from the loans.

60
63
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Interest expense related to short-term borrowings and long-term debt,
including the Convertible Notes, is presented net of interest income of $5,471,
$5,752 and $9,072 in 1996, 1997 and 1998, respectively, in the Company's
Consolidated Statements of Income.

The $207,000 of Convertible Notes mature in May, 2003. The principal
payments required under other long-term debt borrowings at December 31, 1998 are
as follows:

<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1999....................................................... $ 8,227
2000....................................................... 3,731
2001....................................................... 3,215
2002....................................................... 2,802
2003....................................................... 2,549
Thereafter................................................. 2,549
-------
Total...................................................... $23,073
=======
</TABLE>

9. EMPLOYEE BENEFIT PLANS

U.S. Defined Contribution Plan

ATI has a defined contribution benefit plan covering substantially all U.S.
employees under which employees can contribute up to 13% of salary to the plan
and ATI matches 75% of the employee's contributions up to a defined maximum on
an annual basis. The expense for this plan was $776, $959 and $1,394 in 1996,
1997 and 1998, respectively.

Philippine Pension Plan

AAAP, AAP and AMI sponsor a defined benefit plan that covers substantially
all employees who are not covered by statutory plans. Charges to expense are
based upon costs computed by independent actuaries.

During 1998, the Company adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132
revise employers' disclosures about pensions and other postretirement benefit
plans. It does not change the measurement or recognition of this plan.

The components of net periodic pension cost for the defined benefit plan
are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service cost of current period................... $1,542 $1,274 $1,618
Interest cost on projected benefit obligation.... 1,228 957 1,209
Expected return on plan assets................... (672) (534) (879)
Amortization of transition obligation............ 93 81 79
------ ------ ------
Total pension expense.................. $2,191 $1,778 $2,027
====== ====== ======
</TABLE>

It is the Company's policy to make contributions sufficient to meet the
minimum contributions required by law and regulation.

61
64
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

The following table sets forth the funded status of the Company's defined
benefit pension plan and the related changes in the projected benefit obligation
and plan assets:

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of
year........................................ $12,699 $10,428
Service cost................................... 1,274 1,618
Interest cost.................................. 957 1,209
Actuarial loss/(gain).......................... 94 194
Foreign exchange(gain)/loss.................... (4,483) 348
Benefits paid.................................. (113) (230)
------- -------
Projected benefit obligation at end of year.... $10,428 $13,567
------- -------
Change in plan assets:
Fair value of plan assets at beginning of
year........................................ $ 6,077 $ 6,614
Actual return on plan assets................... 585 (461)
Employer contribution.......................... 2,322 2,137
Foreign exchange (loss)/gain................... (2,257) 144
Benefits paid.................................. (113) (230)
------- -------
Fair value of plan assets at end of year....... $ 6,614 $ 8,204
------- -------
Funded status:
Projected benefit obligation in excess of plan
assets...................................... $ 3,814 $ 5,363
Unrecognized actuarial loss.................... (953) (2,546)
Unrecognized transition obligation............. (967) (906)
------- -------
Accrued pension costs.......................... $ 1,894 $ 1,911
======= =======
</TABLE>

The discount rate used in determining the projected benefit obligation was
12% as of December 31, 1997 and 1998. The rates of increase in future
compensation levels was 11% as of December 31, 1997 and 1998. The expected
long-term rate of return on plan assets was 12% as of December 31, 1997 and
1998. These rates reflect economic and market conditions in the Philippines.

The fair value of plan assets include an investment in our Company's common
stock of approximately $1,100 at December 31, 1998.

62
65
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

10. INCOME TAXES

The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and the tax bases of assets and liabilities. The
components of the provision for income taxes follow:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $5,880 $ 16,126 $18,316
State............................................... 60 2,639 4,426
Foreign............................................. 2,260 28 724
------ -------- -------
8,200 18,793 23,466
------ -------- -------
Deferred:
Federal............................................. (226) (4,991) 282
Foreign............................................. (98) (6,724) 968
------ -------- -------
(324) (11,715) 1,250
------ -------- -------
Total provision............................. $7,876 $ 7,078 $24,716
====== ======== =======
</TABLE>

The reconciliation between the tax payable based upon the U.S. federal
statutory income tax rate and the recorded provision follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Federal statutory rate............................... $15,054 $ 21,352 $35,257
State taxes, net of federal benefit.................. 60 1,285 2,877
S Corp. status of AEI through April 28, 1998......... (2,900) (3,613) (4,500)
Deferred taxes established at termination of S Corp.
status of AEI...................................... -- -- (1,954)
(Income) losses of foreign subsidiaries subject to
tax holiday........................................ 4,957 (5,106) (9,129)
Foreign exchange (losses)/gains recognized only for
income taxes....................................... -- (21,147) 12,602
Change in valuation allowance........................ -- 22,000 (8,079)
Difference in rates on foreign subsidiaries.......... (9,295) (7,693) (3,377)
Goodwill and other permanent differences............. -- -- 1,019
------- -------- -------
Total...................................... $ 7,876 $ 7,078 $24,716
======= ======== =======
</TABLE>

The Company has structured its global operations to take advantage of lower
tax rates in certain countries and tax incentives extended to encourage
investment. AAAP has a tax holiday in the Philippines which expires at the end
of 2002. Foreign exchange (losses)/gains recognized for income taxes relate to
unrecognized net foreign exchange (losses)/gains on U.S. dollar denominated
monetary assets and liabilities. These (losses)/gains, which are not recognized
for financial reporting purposes as the U.S. dollar is the functional currency
(see Note 1), result in deferred tax assets that will be realized, for
Philippine tax reporting purposes, upon settlement of the related asset or
liability. The net deferred tax asset related to these losses increased in 1997
as a result of the dramatic devaluation of the Philippine peso relative to the
U.S. dollar. These assets decreased in 1998 as they were realized for Philippine
tax reporting purposes. The Company's ability to utilize these assets depends on
the timing of the settlement of the related assets or liabilities and the amount
of taxable income recognized within the Philippine statutory carryforward limit
of three years.

63
66
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

Accordingly, a valuation allowance was established for a portion of the related
deferred tax assets. As of December 31, 1998, foreign net operating loss
carryforwards of $11,050 are available to offset future foreign income through
2001. In addition, minimum corporate income tax credits of $1,182 are available
to offset future foreign tax obligations through 2001.

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets (liabilities):
Retirement benefits.................................. $ 816 $ 1,038
Other accrued liabilities............................ 100 4,571
Receivables.......................................... 227 1,717
Inventories.......................................... 6,509 2,583
Property, plant and equipment........................ -- (2,139)
Unrealized foreign exchange losses................... 37,447 15,805
Unrealized foreign exchange gains.................... (9,084) (3,530)
Loss on sale of investment in ASI.................... -- 1,620
Net foreign operating loss carryforward.............. -- 3,646
Minimum corporate income tax......................... -- 1,182
Other................................................ (2) 191
-------- --------
Net deferred tax asset............................... 36,013 26,684
Valuation allowance.................................. (22,000) (13,921)
-------- --------
Net deferred tax asset............................... $ 14,013 $ 12,763
======== ========
</TABLE>

Non-U.S. income before taxes and minority interest of the Company was
$20,420, $32,920 and $53,937 in 1996, 1997 and 1998, respectively.

The company does not pay or record U.S. income taxes on the undistributed
earnings of its foreign subsidiaries as long as those earnings are permanently
reinvested in the companies that produced them. These cumulative undistributed
earnings are included in consolidated retained earnings on the balance sheet and
amounted to approximately $37,000 as of December 31, 1998. An estimated $12,000
in U.S. income and foreign withholding taxes would be due if these earnings were
remitted as dividends.

At December 31, 1997 and 1998 current deferred tax assets of $13,439 and
$9,838, respectively, are included in other current assets and noncurrent
deferred tax assets of $574 and $2,925, respectively, are included in other
assets in the consolidated balance sheet. The Company's net deferred tax assets
include amounts which, in the opinion of management, are more likely than not to
be realizable through future taxable income.

The Company's tax returns have been examined through 1993 in the
Philippines and through 1994 in the U.S. The tax returns for open years are
subject to changes upon final examination of these. Changes in the mix of income
from the Company's foreign subsidiaries, expiration of tax holidays and changes
in tax laws or regulations could result in increased effective tax rates for the
Company.

In connection with the Initial Public Offering, the Company and the
stockholders of AEI entered into a Tax Indemnification Agreement providing that
the Company and AEI will be indemnified by such stockholders, with respect to
their proportionate share of any federal or state corporate income taxes

64
67
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

attributable to the failure of AEI to qualify as an S Corporation for any period
or in any jurisdiction for which S Corporation status was claimed through the
date AEI terminated its S Corporation status. The Tax Indemnification Agreement
provides that the Company and AEI will indemnify the stockholders if such
stockholders are required to include in income additional amounts attributable
to taxable years on or before the date AEI terminated its S Corporation status
as to which AEI filed or files tax returns claiming status as an S Corporation.

Prior to AEI's termination of its S Corporation status, Mr. and Mrs. James
Kim and the Kim Family Trusts had been obligated to pay U.S. federal and certain
state income taxes on their allocable portion of AEI's income. AEI has made
various distributions to Mr. and Mrs. Kim and the Kim Family Trusts which have
enabled them to pay these income taxes. Upon finalization of the AEI tax
returns, approximately $3,000 of these distributions will be refunded to the
Company.

11. STOCKHOLDERS' EQUITY

The common stock and additional paid-in-capital of the Company are
reflected at the original cost of the Amkor Companies. In connection with the
Reorganization (see Note 1), the Company authorized 500,000,000 shares of $.001
par value common stock, of which 82,610,000 shares were issued to the
stockholders of the Amkor Companies in exchange for their interests in these
Companies.

At the date of the Reorganization consolidated retained earnings included
$3,243 related to AKI. This amount is reflected as a reduction in retained
earnings in 1998 as a result of the purchase of AKI by the Company.

In addition, the Company authorized 10,000,000 shares of $.001 par value
preferred stock, designated as Series A.

Changes in the division equity account reflected in the consolidated
statement of stockholders' equity represent the net cash flows resulting from
the operations of the Chamterry semiconductor packaging and test business for
the periods indicated. Such cash flows have been presented as distributions or
capital contributions since these amounts were retained in Chamterry
Enterprises, Ltd. for the benefit of the owners.

The line items included in Other Comprehensive Income, as presented in the
Consolidated Statements of Stockholders' Equity, relate to S Corporation
activity prior to 1998. Accordingly, the related amounts reflected in Other
Comprehensive Income and Accumulated Other Comprehensive Income in the
Consolidated Statements of Stockholders' Equity and the Consolidated Balance
Sheets are net of taxes at an effective tax rate of 0%.

12. EARNINGS PER SHARE

Net income per common share was calculated by dividing net income and pro
forma net income by the weighted average number of shares outstanding for the
respective periods, adjusted for the effect of the Reorganization (see Note 1)
and the Initial Public Offering (see Note 2).

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. Basic EPS is computed using only the weighted average
number of common shares outstanding for the period while diluted EPS is computed
assuming conversion of all dilutive securities, such as options. In accordance
with the statement, all prior period per share amounts were revised to reflect
this presentation. Both the Company's basic and diluted as

65
68
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

well as the Company's basic pro forma and diluted pro forma per share amounts
are the same for all periods presented except for the year ended December 31,
1998 which are calculated as follows:

<TABLE>
<CAPTION>
WEIGHTED
EARNINGS AVG. SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
EARNINGS PER SHARE -- YEAR ENDED
DECEMBER 31, 1998
Basic earnings per share..................... $75,460 106,221,000 $0.71
Impact of Convertible Notes.................. 5,672 10,334,000
Dilutive effect of options................... -- 41,000
------- ----------- -----
Diluted earnings per share................... $81,132 116,596,000 $0.70
======= =========== =====
PRO FORMA EARNINGS PER SHARE -- YEAR ENDED
DECEMBER 31, 1998 (UNAUDITED)
Basic pro forma earnings per share........... $70,960 106,221,000 $0.67
Impact of Convertible Notes.................. 5,672 10,334,000
Dilutive effect of options................... -- 41,000
------- ----------- -----
Diluted pro forma earnings per share......... $76,632 116,596,000 $0.66
======= =========== =====
</TABLE>

13. STOCK COMPENSATION PLANS

1998 Director Option Plan. The Company's 1998 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in January 1998 and was
approved by the Company's stockholders in April 1998. A total of 300,000 shares
of Common Stock have been reserved for issuance under the Director Plan. The
option grants under the Director Plan are automatic and non-discretionary.
Generally, the Director Plan provides for an initial grant of options to
purchase 15,000 shares of Common Stock to each new non-employee director of the
Company (an "Outside Director") when such individual first becomes an Outside
Director. In addition, each Outside Director will automatically be granted
subsequent options to purchase 5,000 shares of Common Stock on each date on
which such Outside Director is re-elected by the stockholders of the Company,
provided that as of such date such Outside Director has served on the Board of
Directors for at least six months. The exercise price of the options is 100% of
the fair market value of the Common Stock on the grant date, except that with
respect to initial grants to directors on the effective date of the Director
Plan the exercise price was 94% of the Initial Public Offering price per share
of Common Stock in the Initial Public Offering. The term of each option is ten
years and each option granted to an Outside Director vests over a three year
period. The Director Plan will terminate in January 2008 unless sooner
terminated by the Board of Directors. As of December 31, 1998, there were 60,000
options outstanding under the Director Plan.

1998 Stock Plan. The Company's 1998 Stock Plan (the "1998 Plan") generally
provides for the grant to employees, directors and consultants of stock options
and stock purchase rights. The 1998 Plan was adopted by the Board of Directors
in January 1998 and was approved by the Company's stockholders in April 1998.
Unless terminated sooner, the 1998 Plan will terminate automatically in January
2008. The maximum aggregate number of shares which may be optioned and sold
under the 1998 Plan is 5,000,000 plus an annual increase to be added on each
anniversary date of the adoption of the 1998 Plan.

Unless determined otherwise by the Board of Directors or a committee
appointed by the Board of Directors, options and stock purchase rights granted
under the 1998 Plan are not transferable by the optionee. Generally, the
exercise price of all stock options granted under the 1998 Plan must be at least
equal to the fair market value of the shares on the date of grant. In general,
the options granted will vest over a four year period

66
69
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

and the term of the options granted under the 1998 Plan may not exceed ten
years. As of December 31, 1998, there were 3,695,300 options outstanding under
the 1998 Plan.

1998 Stock Option Plan for French Employees. The 1998 Stock Option Plan for
French Employees (the "French Plan") was approved by the Board of Directors in
April 1998. Unless terminated sooner, the French Plan will continue in existence
for 5 years. The French Plan provides for the granting of options to employees
for AAES and AWFS, the Company's French subsidiaries (the "French
Subsidiaries"). A total of 250,000 shares of Common Stock have been reserved for
issuance under the French Plan plus an annual increase to be added on each
anniversary date of the adoption of the French Plan. In general, stock options
granted under the French Plan vest over a four year period, the exercise price
for each option granted under the French Plan shall be 100% of the fair market
value of the shares of Common Stock on the date the option is granted and the
maximum term of the option must not exceed ten years. Shares subject to the
options granted under the French Plan may not be transferred, assigned or
hypothecated in any manner other than by will or the laws of descent or
distribution before the date which is five years after the date of grant. As of
December 31, 1998, there were 68,600 options outstanding under the French Plan.

A summary of the status of the Company's stock option plans follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Balance at January 1, 1998..................... -- $ --
Granted........................................ 3,974,200 $10.01
Exercised...................................... -- $ --
Cancelled...................................... 150,300 $11.00
--------- ------
Balance at December 31, 1998................... 3,823,900 $ 9.97
--------- ------
Exercisable at December 31, 1998............... -- $ --
========= ======
</TABLE>

Significant option groups outstanding at December 31, 1998 and the related
weighted average exercise price and remaining contractual life information are
as follows:

<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING EXERCISABLE AVERAGE
------------------ ------------------ REMAINING
SHARES PRICE SHARES PRICE LIFE (YEARS)
--------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C>
Options with Exercise Price
of:
$11.00...................... 3,038,200 $11.00 -- $11.00 9.3
$10.34...................... 30,000 $10.34 -- $10.34 9.3
$ 9.14...................... 30,000 $ 9.14 -- $ 9.14 9.5
$ 5.66...................... 725,700 $ 5.66 -- $ 5.66 9.9
--------- ------ ------ ---
Options outstanding at
December 31, 1998........... 3,823,900 --
========= =========
</TABLE>

67
70
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

A summary of the weighted average fair value of options at grant date
granted during the year ended December 31, 1998 follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE GRANT DATE
SHARES PER SHARE FAIR VALUES
--------- ---------------- ----------------
<S> <C> <C> <C>
Options whose exercise price is greater
than the market price on grant date...... 42,600 $11.00 $2.22
--------- ------ -----
Options whose exercise price equals market
price on grant date...................... 3,901,600 $ 9.99 $4.31
--------- ------ -----
Options whose exercise price is less than
the market price on grant date........... 30,000 $10.34 $4.97
========= ====== =====
</TABLE>

In order to calculate the fair value of stock options at date of grant, the
Company used the Black-Scholes option pricing model. The following assumptions
were used: expected option term -- 4 years, stock price volatility
factor -- 47%, dividend yield -- 0%, and risk free interest rate -- 5.38%.

1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
January 1998 and was approved by the stockholders in April 1998. A total of
1,000,000 shares of common stock have been made available for sale under the
Purchase Plan and an annual increase is to be added on each anniversary date of
the adoption of the Purchase Plan. Employees (including officers and employee
directors of the Company but excluding 5% or greater stockholders) are eligible
to participate if they are customarily employed for at least 20 hours per week
and for more than five months in any calendar year. The Purchase Plan permits
eligible employees to purchase common stock through payroll deductions, which
may not exceed 15% of the compensation an employee receives on each payday. The
initial offering period began on October 1, 1998 with a seven-month offering
period. All subsequent offering periods will be consecutive six-month periods
beginning on May 1, 1999, subject to change by the Board of Directors. Each
participant will be granted an option on the first day of an offering period,
and shares of Common Stock will be automatically purchased on the last date of
each offering period. The purchase price of the Common Stock under the Purchase
Plan will be equal to 85% of the lesser of the fair market value per share of
Common Stock on the start date of the offering period or on the purchase date.
Employees may end their participation in an offering period at any time, and
participation ends automatically on termination of employment with the Company.
The Purchase Plan will terminate in January 2008, unless sooner terminated by
the Board of Directors.

Under the Purchase Plan, the Company has withheld approximately $600
through payroll deductions as of December 31, 1998. The fair market value per
share of the Company's common stock was $4.56 on October 1, 1998, the start date
of the first offering period. The fair value of the purchase rights granted
during 1998 was $1.29 which was estimated using the Black Scholes option pricing
model with the following assumptions: expected option term -- 7 months, stock
price volatility factor -- 47%, dividend yield -- 0% and risk free interest
rate -- 4.31%.

The Company accounts for its stock compensation plans as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. Accordingly, no compensation cost
has been recognized in the Consolidated Statements of Income. Had the Company
recorded compensation expense for its stock compensation plans, as provided by
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's reported
net income and basic and diluted earnings per

68
71
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

share, which reflects pro forma adjustments for income taxes (see Note 19),
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Net Income:
As reported.................................... $30,022 $39,668 $70,960
Pro forma...................................... $30,022 $39,668 $69,313
Earnings per share:
Basic:
As reported.................................... $ 0.36 $ 0.48 $ 0.67
Pro forma...................................... $ 0.36 $ 0.48 $ 0.65
Diluted:
As reported.................................... $ 0.36 $ 0.48 $ 0.66
Pro forma...................................... $ 0.36 $ 0.48 $ 0.64
</TABLE>

14. RELATED-PARTY TRANSACTIONS

At December 31, 1997, the Company owned 8.1% of the outstanding stock of
ASI (see Note 6), and ASI owned 40% of AAP. On February 16, 1998, the Company
sold its investment in ASI common stock for $13,863 to AK Investments, Inc.
based on the market value of ASI shares on the Korean Stock Exchange. On June 1,
1998 the Company purchased ASI's interest in AAP for approximately $34,000 (see
Note 17). In 1996, 1997, and 1998, approximately 72%, 68% and 67%, respectively,
of the Company's packaging and test revenues as well as 100% of the Company's
wafer fabrication revenues (see Note 1) were derived from services performed for
the Company by ASI, a Korean public company in which certain of the Company's
principal stockholders hold a minority interest. By the terms of a long-standing
agreement, the Company has been responsible for marketing and selling ASI's
semiconductor packaging and test services, except to customers in Korea and
Japan to whom ASI has historically sold such services directly. During 1998, the
Company became responsible for marketing and selling ASI's semiconductor
packaging and test services to the majority of ASI's customers in Japan. The
Company has worked closely with ASI in developing new technologies and products.
Effective January 1, 1998, the Company entered into five-year supply agreements
with ASI giving the Company the first right to market and sell substantially all
of ASI's packaging and test services and the exclusive right to market and sell
all of the wafer output of ASI's new wafer foundry, both of which have
negotiable pricing terms. These agreements are cancellable by either party upon
five years prior written notice at any time after the fifth anniversary of the
effective date. The Company's business, financial condition and operating
results have been and will continue to be significantly dependent on the ability
of ASI to effectively provide the contracted services on a cost-efficient and
timely basis. The termination of the Company's relationship with ASI for any
reason, or any material adverse change in ASI's business resulting from
underutilization of its capacity, the level of its debt and its guarantees of
affiliate debt, labor disruptions, fluctuations in foreign exchange rates,
changes in governmental policies, economic or political conditions in Korea or
any other change could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company previously met a significant portion of its financing from
financing arrangements provided by AUSA. A majority of the amount due to AUSA
represented outstanding amounts under financing obtained by AUSA for the benefit
of the Company with the balance representing payables to AUSA for packaging and
69
72
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

test service charges and wafer fabrication service charges from ASI. Based on
guarantees provided by ASI, AUSA obtained for the benefit of the Company a
continuous series of short-term financing arrangements which generally were less
than six months in duration, and typically were less than two months in
duration. Because of the short-term nature of these loans, the flows of cash to
and from AUSA under this arrangement were significant. Purchases from ASI
through AUSA were $460,282, $527,858 and $573,791 for 1996, 1997 and 1998,
respectively. Charges from AUSA for interest and bank charges were $7,074,
$6,002 and $2,215 for 1996, 1997 and 1998, respectively. Excluding the $20,000
balance due from ASI at December 31, 1998 for prepaid wafer foundry service
charges (see discussion below), the net amounts payable to ASI and AUSA were
$156,350 and $8,357 at December 31, 1997 and 1998, respectively.

ASI's ability to continue to provide services to the Company will depend on
ASI's financial condition and performance. ASI currently has a significant
amount of debt relative to its equity, which debt the Company expects will
continue to increase in the foreseeable future. The Company is advised that ASI
has published its most recent annual unconsolidated financial statements as of
December 31, 1998. These unconsolidated financial statements are prepared on the
basis of Korean GAAP, which differs from U.S. GAAP. U.S. GAAP financial
statements are not available (See Note 6). As of December 31, 1998, ASI, on an
unconsolidated basis, had current liabilities of approximately W1,716 billion,
including approximately W924 billion of short-term borrowings and approximately
W214 billion of current maturities of long-term debt, and had long-term
liabilities of approximately W1,182 billion, including approximately W448
billion of long-term debt and approximately W655 billion of long-term capital
lease obligations. As of such date, the total shareholders' equity of ASI
amounted to approximately W164 billion. ASI's business has been severely
affected by the economic crisis in Korea. In late 1997, the Republic of Korea
began to undergo a foreign currency liquidity crisis resulting in significant
adverse economic circumstances and significant depreciation in the value of the
Korea Won against the U.S. dollar. ASI historically operated with a significant
amount of debt relative to its equity. The economic crisis in Korea led to
sharply higher interest rates and significantly reduced opportunities for
refinancing maturing debts. Because ASI maintained a substantial amount of
short-term debt, its inability to refinance this debt created a liquidity crisis
for ASI.

As of December 31, 1998, ASI was contingently liable under guarantees in
respect of debt of its non-consolidated subsidiaries and affiliates in the
aggregate amount of approximately W668 billion. As of December 31, 1998, such
guarantees included those in respect of all of AUSA's debt totaling
approximately $225,000. Prior to the Initial Public Offering, the Company met a
significant portion of its financing needs through financing arrangements
obtained by AUSA for the benefit of the Company based on guarantees provided by
ASI. The Company currently does not depend on such financing arrangements. In
addition, if any relevant subsidiaries or affiliates of ASI were to fail to make
interest or principal payments or otherwise default under their debt obligations
guaranteed by ASI, ASI could be required under its guarantees to repay such
debt, which event could have a material adverse effect on its financial
condition and results of operations.

In response to this situation, in October 1998, ASI announced that it had
applied for and was accepted into the Korean financial restructuring program
known as "Workout." The Workout program is the result of an accord among Korean
financial institutions to assist in the restructuring of Korean business
enterprises. This process involves negotiation between the related banks and
ASI, and does not involve the judicial system. The Workout process also does not
impact debts outstanding with trade creditors, including balances due to/or from
the Company. ASI's operations have continued uninterrupted during the process,
and we expect ASI's operations to continue uninterrupted for the duration of the
process.

The Company has received the report of the meeting of ASI's creditor banks
at which the principal terms of a workout plan for ASI were approved. We
understand from ASI's management that many of the details of the Workout program
will be contained in definitive agreements between ASI and the creditor banks
and none

70
73
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

of these agreements have yet been finalized. The terms of ASI's Workout set
forth below are based upon the reported information provided to us by ASI's
management. References to "won" or "W" are to the currency of Korea.

The Workout as approved by the creditor banks contains the following relief
provisions for ASI:

N The creditor banks will allow ASI to defer repayment on principal of
ordinary loans until December 31, 2003. After December 31, 2003, bank
loans with repayment terms will be payable through readjustment of
repayment schedules on the basis of the repayment period as of October
24, 1998. For loans without repayment terms the schedule to repay
principal amounts will be determined by ASI and the creditor banks at the
end of such period.

N The creditor banks will allow ASI to defer repayment of principal under
capital leases until December 31, 1999, with payments of principal to
resume under a 7 year installment plan thereafter.

N The creditor banks will allow ASI to roll over the maturity of its
Won-denominated debentures held by the creditor banks for an additional
three year term after currently scheduled maturity dates.

N The creditor banks will allow ASI to make no interest payments on
ordinary loans until December 31, 1999. The creditor banks will add
accrued interest to the principal amounts of these loans every three
months.

N The creditor banks will reduce interest rates on ASI's remaining
outstanding Won-denominated ordinary bank loans to 10% or the prime rate
of each creditor bank, whichever is greater. This would reduce ASI's
weighted average interest rate from 12.9% before the Workout to 10.5%
after the Workout.

N The creditor banks will give ASI a five year grace period until December
31, 2003 against enforcement of guarantees made by ASI for liabilities of
ASI's affiliates. In addition, interest will not accrue on guaranteed
obligations during the five year period.
N The creditor banks will provide to ASI a short-term loan of W50 billion
at the prime rate plus 1%, to be repaid with proceeds from the sale of
K4.
N The creditor banks will convert W250 billion ($208,000, using the
December 31, 1998 exchange rate of W1207 to $1.00) of ASI debt held by
the creditor banks into: (1) W122.3 billion ($102,000 using the December
31, 1998 exchange rate) in equity shares of ASI, (2) W108.1 billion
($90,000 using the December 31, 1998 exchange rate) in five-year
non-interest bearing convertible debt and (3) W19.6 billion ($16,000) in
non-interest bearing loans. The conversion would take place in
installments over four years and at a conversion rate equal to W5,000 per
share, the par value of ASI's common stock. In order for the initial
conversion of debt to take place in accordance with the terms of the
Workout, ASI will have to undergo a series of corporate actions,
including a reverse stock split to bring the fair market value of its
equity shares to a price at least equal to the par value of such shares.
The creditor banks would time their conversions of ASI debt to coincide
with equity investments made in ASI by a third-party foreign investor
company, in the aggregate amount of $150,000 over a four year period.

The conversion of debt by the creditor banks depends upon ASI obtaining a
commitment from a third party foreign investor to invest $150,000 in ASI equity
over a four-year period. We have sent a letter to ASI's creditor banks
committing, subject to certain conditions, to make an investment of $41,000 in
1999 and, assuming certain additional conditions are met, we will invest an
additional $109,000 between years 2000 and 2002. As a result of our commitment
to invest, ASI agreed to reduce the K4 purchase price from $607,000 to $582,000.
Our letter to ASI's creditor banks committing to an investment in ASI is
contingent upon completion of the acquisition of K4, the continuation of the
Workout plan as approved, the continued

71
74
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

effectiveness of our Supply Agreements with Anam and coordination of proposed
equity investments with the conversion by the creditor banks of their ASI debt
to equity. Our commitment letter provides that upon meeting these conditions, we
would invest $41,000 in 1999, 2000, and 2001 with a final investment of $27,000
in 2002. We would purchase the ASI shares at W5,000 per share. Since our
commitment is in U.S. dollars, the number of shares we would purchase will vary
based on the exchange rate of Korean won to U.S. dollars. The letter has not yet
been accepted by ASI's creditor banks and we cannot be certain that the banks
will agree to the terms we have proposed for the investment. Our commitment to
invest in ASI must be finalized before the Workout agreements will be
implemented. If the Company reaches an agreement with ASI's creditor banks on
the terms of Amkor's commitment, ASI has indicated that it will reduce the K4
purchase price to $582 million from $607 million. The Company does not believe
that any other third party is considering investing in ASI.

ASI has not finalized the Workout agreement with the creditor banks.
Assuming the creditor banks and ASI finalize and implement the Workout, upon
completion of the first installment of the conversion of debt of the creditor
banks to equity or convertible debt and the first installment of our equity
investment, the relative equity of ownership of ASI among the creditor banks,
the Kim family and the Company would be approximately 27%, 21% and 21%,
respectively (assuming an exchange rate of W1.200 to $1.00 and without any
future sales of ASI stock by these parties). Upon completion of all debt
conversions and equity investments contemplated by the Workout through 2002, the
relative equity ownership of ASI among the creditor banks, the Kim family and
the Company would be approximately 29%, 11% and 43%, respectively (assuming an
exchange rate of W1,200 to $1.00 and without any future sales of ASI stock by
these parties.) Upon conversion of all of the convertible debt issued to
creditor banks, which would be permitted beginning one year after the date of
issuance of such debt, the ownership of ASI among the creditor banks, the Kim
family and our company would be approximately 43%, 9% and 34%, respectively
(assuming an exchange rate of W1,200 to $1.00 and without any future sales of
ASI stock by these parties).

The creditor banks have the right to terminate the Workout if ASI fails to
meet the conditions of the Workout, which includes conditions related to ASI's
financial performance. We believe that if the Workout is not finalized by the
creditor banks and ASI or if the creditor banks subsequently terminate the
Workout, the debt relief afforded to ASI pursuant to the Workout would be
terminated, and the creditor banks could reinstate and enforce the original
terms of ASI's debt, including accelerating ASI's obligations. If this were to
occur, ASI's and our businesses could be harmed.

There can be no assurance that ASI will be able to satisfy the terms of the
proposed Workout Agreement. Any inability of ASI to comply with the terms of the
proposed Workout Agreement, generate cash flow from operations sufficient to
fund its capital expenditures and other working capital and liquidity
requirements could have a material adverse effect on ASI's ability to continue
to provide services and otherwise fulfill its obligations to the Company.

As previously discussed, the Company incurs charges from ASI for assembly
and test services performed on a monthly basis. Historically the Company has
paid ASI for these services on net 30-day terms. On July 21, 1998 the Company
entered into a prepayment agreement with ASI relating to assembly and test
services. In accordance with the agreement, the Company made a $50,000
non-interest bearing advance to ASI, representing approximately one month's
charges for assembly and test services. The Company offset this advance against
billings by ASI for assembly and test services provided in the fourth quarter of
1998. During the fourth quarter of 1998, the Company has reduced this advance to
ASI in full by offsetting the balance against amounts due to ASI for fourth
quarter packaging and test services.

In connection with its wafer foundry agreement with Texas Instruments, Inc.
("TI"), the Company and TI agreed to revise certain payment and other terms
contained in the Master Purchase Agreement entered
72
75
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

into during 1998 ("Master Purchase Agreement"). As part of this agreement, TI
agreed to advance the Company $20,000 in June 1998 and an additional $20,000 in
December 1998, as prepayments of wafer foundry services to be provided in the
fourth quarter of 1998 and first quarter of 1999, respectively. The Company
recorded these amounts in accrued expenses. The Company in turn advanced these
funds to ASI as prepayments for foundry service charges. The Company has fully
offset the $20,000 advance made in June 1998 against billings by ASI in the
fourth quarter of 1998. The December 1998 advance is reflected in the current
portion of Due from Affiliates as of December 31, 1998. As of February 28, 1999,
the December 1998 advance from TI and the related advance to ASI have both been
reduced to $6,640. The Company expects both advances to be fully repaid by the
end of the first quarter of 1999.

To facilitate capacity expansion for new product lines, certain customers
advanced the Company funds to purchase certain equipment to fulfill such
customers forecasts. In certain cases, the customer has requested that the
equipment be installed in the ASI factories. In these cases, the Company
receives funds from the customer and advances the funds to ASI. ASI in turn
purchases the necessary equipment. ASI repays the Company through a reduction of
the monthly processing charges related to the customer product being assembled.
The Company will reduce its obligation to the customer through a reduction in
the accounts receivable, due from the customer, at the time services are billed.
As of December 31, 1998 this amount was approximately $2,600.

On August 1, 1997, the Company sold its equity investment in Anam
Semiconductor & Technology Co., Ltd. ("AST"), an affiliate of ASI, and certain
investments and notes receivable from companies unrelated to the semiconductor
packaging and test business to AK Investments, Inc., at cost ($49,740) and AK
Investments, Inc. assumed $49,740 of the Company's long-term borrowings from
Anam USA, Inc. Management estimates that the fair value of these investments and
notes receivable approximated the carrying value at August 1, 1997. Subsequent
to the sale on August 1, 1997 the Company loaned AK Investments, Inc. $12,800
for the purchase of additional investments. The amount outstanding on this loan
at December 31, 1997 and 1998 was $4,350 and $59, respectively.

The Company utilizes AST as a key supplier of leadframes. Historically, the
Company has paid AST for these services on net 30-day terms. Effective at the
end of July 1998, the Company changed its payment policy from net 30-days, to
paid-in advance. Accordingly the Company now pays for its materials before
shipment. This change in payment policy resulted in an advance to AST which is
reflected in the current portion of Due from Affiliate. As of December 31, 1998,
the balance paid in advance to AST was approximately $3,500. Payments to AST
were approximately $27,300, $26,000 and $32,500 during 1996, 1997 and 1998,
respectively.

Anam Engineering and Construction, an affiliate of ASI, built the packaging
facility for AAAP in the Philippines. Payments to Anam Engineering and
Construction were $22,167, $3,844 and $869 in 1996, 1997 and 1998, respectively.
Anam Precision Equipment and Anam Instruments manufacture certain equipment used
by the Philippine operations. Payments to Anam Precision Equipment and Anam
Instruments were $6,652, $4,211 and $10,272 in 1996, 1997 and 1998,
respectively.

During 1996, the Company extended guarantees on behalf of an affiliate to
vendors used by this affiliate. Outstanding guarantees as of December 31, 1996
and 1997 were $25,100 and $24,655 respectively. During the third quarter of
1998, the Company was released from its obligations under these guarantees.
Amounts guaranteed under this agreement fluctuated due to the cyclical nature of
the affiliate's retail business. Balances guaranteed at December 31 were
generally the largest.

The Company had executed a surety and guarantee agreement on behalf of an
affiliate. The Company had unconditionally guaranteed the affiliate's obligation
under a $17,000 line of credit and a $9,000 term loan note. The Company had also
unconditionally guaranteed another affiliate's obligation under a $4,000 term
loan

73
76
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

agreement and a $1,000 line of credit. During the third quarter of 1998, the
Company was released from its obligations under these guarantees.

A principal stockholder of the Company has extended guarantees on behalf of
the Company in the amount of $91,000 at December 31, 1998. Also in 1997, a
company controlled by this stockholder purchased investments in the amount of
$49,740 (see Note 6).

The Company leases office space in West Chester, PA from certain
stockholders of the Company. The lease expires in 2006. The Company has the
option to extend the lease for an additional 10 years through 2016. On September
11, 1997, the office previously being leased in Chandler, Arizona was purchased
from certain stockholders of the Company. The total purchase price of the
building ($5,710) represented the carrying value to the stockholders. Amounts
paid for these leases in 1997 and 1998 were $1,458 and $1,118, respectively.

At December 31, 1997 and 1998, the Company had net balances due from
affiliates other than ASI and AUSA of $36,501 and $27,510, respectively.
Realization of these balances is dependent upon the ability of the affiliates to
repay the amounts due. In management's opinion, these receivables are recorded
at the net realizable value.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop the estimates for fair value. Accordingly, these estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major
financial institutions and expose the Company to market and credit risks and may
at times be concentrated with certain counterparties or groups of
counterparties. The creditworthiness of counterparties is continually reviewed,
and full performance is anticipated.

The carrying amounts reported in the balance sheet for short-term
investments, due from affiliates, other accounts receivable, due to affiliates,
accrued expenses and accrued income taxes approximate fair value due to the
short-term nature of these instruments. The methods and assumptions used to
estimate the fair value of other significant classes of financial instruments is
set forth below:

Cash and Cash Equivalents. Cash and cash equivalents are due on demand or
carry a maturity date of less than three months when purchased. The carrying
amount of these financial instruments is a reasonable estimate of fair value.

Available for sale investments. The fair value of these financial
instruments was estimated based on market quotes, recent offerings of similar
securities, current and projected financial performance of the company and net
asset positions.

Short-term borrowings. Short-term borrowings have variable rates that
reflect currently available terms and conditions for similar borrowings. The
carrying amount of this debt is a reasonable estimate of fair value.

Long-term debt. Long-term debt balances have variable rates that reflect
currently available terms and conditions for similar debt. The carrying amount
of this debt is a reasonable estimate of fair value.

Convertible Subordinated Notes. The fair value of these financial
instruments at December 31, 1998 is estimated to be $199,755 based on available
market quotes.

16. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims incidental to the conduct of its
business. Based on consultation with legal counsel, management does not believe
that any claims, either individually or in the
74
77
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

aggregate, to which the Company is a party will have a material adverse effect
on the Company's financial condition or results of operations.

Net future minimum lease payments under operating leases that have initial
or remaining noncancelable lease terms in excess of one year at December 31,
1998, are:

<TABLE>
<S> <C>
1999...................................................... $ 8,461
2000...................................................... 7,676
2001...................................................... 6,097
2002...................................................... 4,830
2003...................................................... 4,360
Thereafter................................................ 80,980
--------
Total (net of minimum sublease income of
$4,507)....................................... $112,404
========
</TABLE>

Rent expense, net of sublease income of $131, $366 and $575 for 1996, 1997
and 1998, respectively, amounted to $5,520, $6,709 and $7,751 for 1996, 1997 and
1998, respectively.

The Company has various purchase commitments for materials, supplies and
capital equipment incidental to the ordinary conduct of business. As of December
31, 1998 the Company had commitments for capital equipment of approximately
$31,000. In the aggregate, such commitments are not at prices in excess of
current market.

17. ACQUISITIONS

On September 30, 1996, AEI and a principal stockholder each acquired 50% of
the outstanding common stock of Amkor Anam Test Services, Inc. (AATS), formerly
Navell Test Consultants, Inc., a provider of test engineering services for the
semiconductor industry located in San Jose, California, for approximately
$2,860. Subsequent to September 30, 1996, AEI purchased the 50% interest owned
by a principal stockholder at the stockholder's original cost. The acquisition
was accounted for using the purchase method of accounting and the results of
AATS' operations are included in the Company's consolidated statements of income
effective October 1, 1996. Accordingly, the total purchase price was allocated
to the assets and liabilities based upon their estimated respective fair values.
This acquisition resulted in goodwill of approximately $2,356, which is being
amortized over 20 years.

On June 1, 1998, the Company purchased ASI's 40% interest in AAP for
$33,750. The acquisition was accounted for using the purchase method of
accounting which resulted in the elimination of the minority interest liability
reflected on the consolidated balance sheet and the recording of approximately
$23,910 of goodwill which is being amortized over 10 years.

18. SEGMENT INFORMATION

The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," during the fourth quarter of 1998.

The Company has identified two reportable segments (packaging and test
services and wafer fabrication services) that are managed separately because the
services provided by each segment require different technology and marketing
strategies.

Packaging and test services: Through its three factories located in the
Philippines as well as the four ASI factories in Korea, under contract, the
Company offers a complete and integrated set of packaging and test

75
78
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

services including IC packaging design, leadframe and substrate design, IC
package assembly, final testing, burn-in, reliability testing and thermal and
electrical characterization.

Wafer fabrication services: Through its wafer fabrication services
division, the Company provides marketing, engineering, and support services for
ASI's deep submicron CMOS foundry, under a long-term supply agreement.

During the years ended December 31, 1996, 1997 and 1998, sales to Intel
Corporation accounted for approximately $275,000, $340,000 and $324,000,
respectively, of packaging and test revenues.

The accounting policies for segment reporting are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
evaluates its operating segments based on operating income.

Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes the
elimination of inter-segment balances and corporate assets which include cash
and cash equivalents, non-operating balances due from affiliates, investment in
TSTC (see Note 6) and other investments.

<TABLE>
<CAPTION>
PACKAGING WAFER
AND TEST FABRICATION OTHER TOTAL
--------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Net Revenues................................. $1,452,285 $115,698 $ -- $1,567,983
Gross Profit................................. $ 243,479 $17,354 $ -- $ 260,833
Operating Income............................. $ 124,462 $ 8,274 $ -- $ 132,736
Depreciation and Amortization................ $ 118,676 $ 563 $ -- $ 119,239
Capital Expenditures......................... $ 102,142 $ 5,747 $ -- $ 107,889
Total Assets................................. $ 655,695 $65,941 $281,961 $1,003,597
Year ended December 31, 1997:
Net Revenues................................. $1,455,761 $ -- $ -- $1,455,761
Gross Profit................................. $ 213,092 $ -- $ -- $ 213,092
Operating Income............................. $ 104,903 $(4,062) $ -- $ 100,841
Depreciation and Amortization................ $ 81,770 $ 94 $ -- $ 81,864
Capital Expenditures......................... $ 176,858 $ 2,132 $ -- $ 178,990
Total Assets................................. $ 703,662 $ 2,068 $149,862 $ 855,592
Year ended December 31, 1996:
Net Revenues................................. $1,171,001 $ -- $ -- $1,171,001
Gross Profit................................. $ 148,923 $ -- $ -- $ 148,923
Operating Income............................. $ 71,368 $ -- $ -- $ 71,368
Depreciation and Amortization................ $ 57,825 $ -- $ -- $ 57,825
Capital Expenditures......................... $ 185,112 $ -- $ -- $ 185,112
Total Assets................................. $ 656,024 $ -- $148,840 $ 804,864
</TABLE>

76
79
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

The following table presents net revenues by country based on the location
of the customer:

<TABLE>
<CAPTION>
NET REVENUES
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
United States.................................. $ 852,675 $1,050,048 $1,124,764
Foreign countries.............................. 318,326 405,713 443,219
--------- --------- ---------
Consolidated................................... $1,171,001 $1,455,761 $1,567,983
========= ========= =========
</TABLE>

The following table presents property, plant and equipment based on the
location of the asset:

<TABLE>
<CAPTION>
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
United States...................................... 10,470 37,845 48,851
Philippines........................................ 313,869 388,653 366,717
Other foreign countries............................ 556 563 543
------- ------- -------
Consolidated....................................... 324,895 427,061 416,111
======= ======= =======
</TABLE>

The following supplementary information presents net revenues allocated by
product family for the packaging and test segment:

<TABLE>
<CAPTION>
NET REVENUES
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Traditional Leadframe.................. $ 818,589 $ 833,527 $ 603,222
Advanced Leadframe..................... 202,373 311,988 342,866
Laminates.............................. 108,790 251,257 438,034
Test and Other......................... 41,249 58,989 68,163
---------- ---------- ----------
Consolidated........................... $1,171,001 $1,455,761 $1,452,285
========== ========== ==========
</TABLE>

19. PRO FORMA ADJUSTMENTS (UNAUDITED)

Statement of Income

Pro forma adjustments are presented to reflect a provision for income taxes
as if AEI had not been an S Corporation for all of the periods presented. Pro
forma net income per common share is based on the weighted average number of
shares outstanding as if the Reorganization had occurred at the beginning of the
period presented.

20. THE ACQUISITION OF K4 AND INVESTMENT IN ASI

The Company has entered into an asset purchase agreement with ASI to
purchase the assets of ASI's packaging and test facility located in Kwangju,
Korea ("K4"), excluding cash and cash equivalents, notes and accounts
receivables, intercompany accounts and existing claims against third parties.
This purchase price would be reduced to $582,000 if the Company signs an
agreement to make an equity investment of $150,000. The purchase price for K4 is
$607,000, including the assumption of up to $7,000 of employee benefit
liabilities in ASI over a four year period, pursuant to the proposed financial
restructuring of ASI with its creditor banks, called "Workout." The Company has
sent ASI's creditor banks a letter committing to make an equity investment in
ASI (see Note 14). K4 provides packaging and test services for advanced
leadframe and laminate packages that are used in high-performance electronic
products such as cellular telephones, laptop computers, digital cameras and
microprocessors. K4 began operating in October 1996 and is ASI's newest
semiconductor packaging and test facility. In addition to other conditions,
including the satisfactory
77
80
AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND DOLLAR PER SHARE DATA)

completion of due diligence, the receipt of a fairness opinion and final board
approval, the Company's acquisition of K4 is subject to its ability to obtain
financing of the entire amount of the purchase price on reasonable terms. We
cannot be certain that we will be able to obtain this financing on reasonable
terms. The Company intends to finance the full purchase price of K4.

K4 is situated on approximately 100 acres and currently consists of a
1,000,000 square foot facility, including 782,000 square feet of manufacturing
and administrative space. K4 provides packaging and test services for many of
our most advanced packages. In addition, the K4 site has the infrastructure in
place to accommodate four pre-configured modules for a total of 1,600,000 square
feet of incremental capacity.

In connection with the acquisition of K4, the Company will enter into a
Transition Services Agreement with ASI. Pursuant to this agreement, ASI will
continue to provide many of the same non-manufacturing related services to K4
that it provided prior to the Acquisition, including transportation and
shipping, human resources and accounting and general administrative services.

The Company will also enter into an Intellectual Property License Agreement
with ASI that will become effective upon the closing of the acquisition.

78
81

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
Anam Industrial Co., Ltd.

We have audited the consolidated balance sheets of Anam Industrial Co.,
Ltd. and its subsidiaries (the "Company") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, capital surplus and retained
earnings (accumulated deficit), and cash flows for each of the three years in
the period ended December 31, 1997 (which financial statements are prepared
under generally accepted accounting principles in the Republic of Korea and are
not included in this Annual Report on Form 10-K). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Anam USA, Inc. ("Anam USA"), a wholly-owned
subsidiary, and Anam Engineering and Construction Co., Ltd. ("Anam
Construction"), a 59.6% owned subsidiary, which statements reflect total assets
of W913,721 million and W660,729 million as of December 31, 1997 and 1996,
respectively, and total net income (loss) of W(10,011) million in 1997, W5,738
million in 1996 and W(2,925) million in 1995. Additionally, we did not audit the
financial statements of Amkor/Anam Pilipinas, Inc. ("AAPI"), a 40% owned
affiliate, the investment in which is reflected in the financial statements
using the equity method of accounting. The Company's investment in AAPI was
W38,612 million and W19,077 million as of December 31, 1997 and 1996,
respectively, and the equity in its net income (loss) was W(44,491) million in
1997, W2,050 million in 1996 and W(1,570) million in 1995. The aforementioned
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Anam USA, Anam Construction and AAPI, is based solely on the reports of the
other auditors. The auditors of Anam Construction and AAPI expressed
uncertainties in their audit reports about the respective companies' ability to
continue as a going concern.

We conducted our audits in accordance with generally accepted auditing
standards in the Republic of Korea, which are substantially the same as those
followed in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Anam Industrial Co., Ltd. and its
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles
in the Republic of Korea.

As discussed in Note 2 to the financial statements, in accordance with
revised Financial Accounting Standards in the Republic of Korea effective in
1997 and 1996, respectively, the Company changed it methods of accounting for
unrealized foreign currency translation gains or losses on long-term assets and
liabilities denominated in foreign currencies. In 1997, such gains or losses are
deferred and amortized over the lives or maturities of corresponding assets and
liabilities using the straight-line method. In 1996, such gains or losses had
been recorded, as a capital adjustment to shareholders' equity. Prior to 1996,
such gains or losses had been recognized currently.

The financial statements referred to above have been prepared assuming that
the Company, will continue as a going concern. As discussed in Note 3 to the
financial statements, the operations of the Company have been significantly
affected, and will continue to be affected for the foreseeable future, by
Korea's unstable economy caused by currency volatility and unstable finance
markets in Korea. The Company has traditionally operated with a significant
amount of debt relative to its equity, has a significant working capital deficit
at December 31, 1997 and has contractually guaranteed the debt obligations of
certain affiliates and subsidiaries.

79
82

These significant uncertainties may affect the Company's future operations and
its ability to maintain or refinance certain debt obligations as they mature,
which raise substantial doubt regarding the Company's ability to continue as a
going concern. Management's plans to address these matters, which are also
disclosed in Note 3, include entering into the Korean financial restructuring
program known as "Workout" in October 1998. The Workout program is the results
of an accord among Korea financial institutions to assist in the restructuring
of Korean business enterprises and does not involve the judicial system. The
ultimate outcome of these uncertainties cannot be determined presently and the
financial statements do not include any adjustments that might result from these
uncertainties.

SAMIL ACCOUNTING CORPORATION

March 20, 1998 except for Note 3
as to which the date is October 23, 1998
Seoul, Korea

80
83

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Anam Engineering & Construction Co., Ltd.

We have audited the balance sheets of Anam Engineering & Construction Co.,
Ltd. (the Company) as of December 31, 1997, 1996 and 1995, and the related
statements of operations and accumulated deficit and cash flows for the years
then ended (which financial statements are prepared under generally accepted
accounting principles in the Republic of Korea and are not included in this
prospectus or elsewhere in this Registration Statement). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the Republic of Korea, which are substantially the same as those
followed in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anam Engineering &
Construction Co., Ltd. as of December 31, 1997, 1996 and 1995, and the results
of its operations and the changes in its accumulated deficit and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles in the Republic of Korea.

The financial statements referred to above have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 20 to the
financial statements, the operations of the Company have been significantly
affected, and will continue to be affected for the foreseeable future, by
Korea's unstable economy caused by currency volatility and unstable finance
markets in Korea. The Company has traditionally operated with a significant
amount of debt relative to its equity. Because of Korea's unstable economy and
the Company's dependence on debt financing, there are significant uncertainties
that may affect the Company's future operations and its abilities to maintain or
regarding the Company's ability to continue as a going concern. The Company
applied to the District Court of Seoul in Korea for permission to enter into the
Korean debts rescheduling plan known as "court receivership" in October 24,
1998. And the Company was bankrupted in October 29, 1998. It is presently
uncertain whether the application shall be approved by the court. The ultimate
outcome of these uncertainties cannot be determined presently and the financial
statements do not include adjustments that might result from these
uncertainties.

As discussed in Note 17 to the financial statements, the Company executed a
merger in which the operations of Hanyong Corporation were combined with the
Company as of July 31, 1997. This merger was accounted for as a transfer of
assets and liabilities under common control at historical costs in a manner
similar to a pooling of interest of U.S. GAAP reporting purposes.

As discussed in Note 14 to financial statements, the Company sales its
product to Anam Semiconductor Inc. (Anam Industrial Co., Ltd.) and other
affiliated companies. The amounts of sales are W244,013 million, W313,894
million and W47,109 million during the year ended December 31, 1997, 1996 and
1995, and balance of account receivable are W31,844 million, W53,816 million and
W79,316 million at December 31, 1997, 1996 and 1995 respectively and balances of
account payable are W4,834 million, W122 million and W403 million at December 31
of 1997, 1996 and 1995 respectively.

The amounts expressed in U.S. Dollars, presented solely for the convenience
of the reader, have been translated on the basis set forth in Note 3 to
financial statements.

CHONG UN & COMPANY

Seoul, Korea
March 4, 1998 except for Note 20
as to which the date is October 29, 1998

81
84

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Stockholders and the Board of Directors
Amkor/Anam Pilipinas, Inc.
NSC Compound, Km. 22 East Service Road
South Superhighway, Muntinlupa City

We have audited the accompanying consolidated balance sheets of Amkor/Anam
Pilipinas, Inc. and Subsidiary as of December 31, 1997 and December 29, 1996,
and the related consolidated statements of income and retained earnings
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amkor/Anam
Pilipinas, Inc. and Subsidiary as of December 31, 1997 and December 29, 1996,
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles in the Philippines.

SyCip Gorres Velayo & Co

January 30, 1998 (except with respect to the
Initial Public Offering discussed in
Note 1 which is dated May 8, 1998).
Makati City, Philippines

82
85

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Anam USA, Inc.
West Chester, Pennsylvania

We have audited the balance sheets of Anam USA, Inc. (a Pennsylvania
Corporation and a wholly-owned subsidiary of Anam Industrial Co., Ltd., Seoul,
ROK) as of December 31, 1997 and 1996 and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anam USA, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

SIANA CARR & O'CONNOR, LLP

Paoli, Pennsylvania
February 13, 1998

83
86

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A)
OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

Reference is made to the information regarding our directors and officers
under the heading "Directors and Officers" in our proxy statement for the annual
meeting of stockholders to be held May 18, 1999, which information is hereby
incorporated by reference.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. Such officers, Directors and ten-percent stockholders are also
required by SEC rules to furnish the Company with copies of all forms that they
file pursuant to Section 16(a). Based solely on its review of the copies of such
forms received by it, or written representations from certain reporting persons
that no other reports were required for such persons, the Company believes that
all Section 16(a) filing requirements applicable to its officers, Directors and
ten-percent stockholders were complied with in a timely fashion.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the information regarding executive compensation
appearing under the heading "Executive Compensation" in our proxy statement for
the annual meeting of stockholders to be held May 18, 1999, which information is
hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to the information regarding security ownership under the
heading "Security Ownership of Certain Beneficial Owners and Management" in our
proxy statement for the annual meeting of stockholders to be held May 18, 1999,
which information is hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the information regarding relationships and related
transactions under the heading "Certain Relationships and Related Transactions"
in our proxy statement for the annual meeting of stockholders to be held May 18,
1999, which information is hereby incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements and Financial Statement Schedules. The financial
statements and schedule filed as part of this Annual Report on Form 10-K are
listed in the index under Item 8.

84
87

(b) REPORTS ON FORM 8-K

We filed the following reports on Form 8-K during the fourth quarter of the
fiscal year ended December 31, 1998:

Press release issued October 15, 1998 announcing preliminary financial
results for the third quarter ended September 30, 1998.

(c) EXHIBITS

<TABLE>
<C> <S>
2.1 Asset Purchase Agreement between Amkor Technology Inc. and
Anam
Semiconductor, Inc., dated December 30, 1998.
3.1 Certificate of Incorporation.**
3.2 Certificate of Correction to Certificate of
Incorporation.***
3.3 Restated Bylaws.***
4.1 Specimen Common Stock Certificate.**
4.2 Form of Indenture.**
10.1 Form of Indemnification Agreement for directors and
officers.**
10.2 1998 Stock Plan and form of agreement thereunder.**
10.3 Receivables Purchase Agreement between Amkor Electronics,
Inc. and Amkor Receivables Corp., dated June 20, 1997.**
10.4 Form of Tax Indemnification Agreement between Amkor
Technology, Inc., Amkor Electronics, Inc. and certain
stockholders of Amkor Technology, Inc.**
10.8 Commercial Office Lease between Chandler Corporate Center
Phase II, G.P. and Amkor Electronics, Inc., dated September
6, 1993.**
10.9 Commercial Office Lease between the 12/31/87 Trusts of Susan
Y., David D. and John T. Kim and Amkor Electronics, Inc.,
dated October 1, 1996.**
10.10 Commercial Office Lease between the 12/31/87 Trusts of Susan
Y., David D., and John T. Kim and Amkor Electronics, Inc.,
dated June 14, 1996.**
10.11 Contract of Lease between Corinthian Commercial Corporation
and Amkor/Anam Pilipinas Inc., dated October 1, 1990.**
10.12 Contract of Lease between Salcedo Sunvar Realty Corporation
and Automated Microelectronics, Inc., dated May 6, 1994.**
10.13 Lease Contract between AAP Realty Corporation and Amkor/Anam
Advanced Packaging, Inc., dated November 6, 1996.**
10.14 Immunity Agreement between Amkor Electronics, Inc. and
Motorola, Inc., dated June 30, 1993.+**
10.15 Assembly Agreement between Amkor Electronics, Inc. and Intel
Corporation, dated July 17, 1991.+**
10.16 1998 Director Option Plan and form of agreement
thereunder.**
10.17 1998 Employee Stock Purchase Plan.**
10.18 Amendment No. 1 dated December 31, 1998 to the Receivables
Purchase Agreement between Amkor Electronics, Inc. and Amkor
Receivables Corp., dated June 20, 1997.
10.19 Packaging and Test Services Agreement by and among Amkor
Technology, Inc., Amkor Electronics, Inc., C.I.L. Limited,
Anam USA, Inc. and Anam Industrial Co., Ltd. dated January
1, 1998.**
10.20 Foundry Services Agreement by and among Amkor Electronics,
Inc., C.I.L. Limited, Anam Industries Co., Ltd. and Anam USA
dated as of January 1, 1998.**
</TABLE>

85
88
<TABLE>
<C> <S>
10.21 Amendment to Technical Assistance Agreement dated as of
September 29, 1997 between Texas Instruments Incorporated
and Anam Industrial Co., Ltd. and related portions of
Technical Assistance Agreement dated as of January 28,
1997.+**
10.22 Manufacturing and Purchase Agreement between Texas
Instruments Incorporated, Anam Industrial Co., Ltd. and
Amkor Electronics, Inc., dated as of January 1, 1998.+**
10.23 1998 Stock Option Plan for French Employees.**
10.24 Loan Agreement between Amkor Electronics, Inc. and John
Boruch dated January 30, 1998.
10.25 Shareholders Agreement, dated April 10, 1998, by and among
Amkor Electronics, Inc., Anam Industrial Co. Ltd., Scientek
International Investment Co. Ltd., Chinfon Semiconductor &
Technology Co., Ltd., Taiwan Semiconductor Manufacturing
Company Ltd., and Acer Incorporated.+
10.26 Technical Assistance Agreement, dated as of January 1, 1998
between Texas Instruments Incorporated and Anam Industrial
Co., Ltd.+
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Samil Accounting Corporation.
23.3 Consent of Chong Un & Company.
23.4 Consent of SyCip Gorres Velayo & Co.
23.5 Consent of Siana Carr & O'Connor, LLP.
27.1 Financial Data Schedule.
99.1 Translation of the Principle Terms of the ASI Workout.
</TABLE>

- ---------------
** Incorporated by reference to the Company's Registration Statement on Form
S-1 filed October 6, 1997, as amended (File No. 333-37235).

*** Incorporated by reference to the Company's Registration Statement on Form
S-1 filed August 26, 1998, as amended (File No. 333-49645).

+ Confidential Treatment requested as to certain portions of this exhibit.

86
89

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed, on its behalf by the undersigned, thereunto duly authorized.

AMKOR TECHNOLOGY, INC.

By: /s/ JAMES J. KIM
------------------------------------
James J. Kim
Chairman and Chief Executive Officer

Date:

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James J. Kim and Frank J. Marcucci, and
each of them, his attorneys-in-fact, and agents, each with the power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, herby ratifying and conforming all
that said attorneys-in-fact and agents of any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>

/s/ JAMES J. KIM Chief Executive Officer and March 31, 1999
- ----------------------------------------------------- Chairman
James J. Kim

/s/ JOHN N. BORUCH President and Director March 31, 1999
- -----------------------------------------------------
John N. Boruch

/s/ FRANK J. MARCUCCI Chief Financial Officer March 31, 1999
- ----------------------------------------------------- (Principal Financial and
Frank J. Marcucci Accounting Officer)

/s/ WINSTON J. CHURCHILL Director March 31, 1999
- -----------------------------------------------------
Winston J. Churchill

/s/ ROBERT E. DENHAM Director March 31, 1999
- -----------------------------------------------------
Robert E. Denham

/s/ THOMAS D. GEORGE Director March 31, 1999
- -----------------------------------------------------
Thomas D. George

/s/ GREGORY K. HINCKLEY Director March 31, 1999
- -----------------------------------------------------
Gregory K. Hinckley

/s/ JOHN B. NEFF Director March 31, 1999
- -----------------------------------------------------
John B. Neff
</TABLE>

87
90

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Amkor Technology, Inc.:

We have audited in accordance with generally accepted auditing standards,
the Consolidated Financial Statements of Amkor Technology, Inc. and its
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 10, 1999 (except with respect to the Company's proposed investment in
ASI pursuant to the financial restructuring of ASI discussed in Note 14, as to
which the date is March 29, 1999). Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the index above is the responsibility of the Company's management and
is presented for the purpose of complying with the Securities an Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Philadelphia, Pennsylvania ARTHUR ANDERSEN LLP
February 10, 1999 (except with respect
to the Company's proposed investment
in ASI pursuant to the financial
restructuring of ASI discussed in Note
14, as to which the date is March 29,
1999)

88
91

AMKOR TECHNOLOGY, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED
BEGINNING TO BALANCE AT
OF PERIOD EXPENSE WRITE-OFFS OTHER END OF PERIOD
---------- ---------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts..... $1,043 $ 660 $(564) $40 $1,179
Year ended December 31, 1997:
Allowance for doubtful accounts..... $1,179 $3,490 $(435) -- $4,234
Year ended December 31, 1998:
Allowance for doubtful accounts..... $4,234 $1,720 $ (2) -- $5,952
</TABLE>

89
92

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ------------------------------------------------------------ ------------
<C> <S> <C>
2.1 Asset Purchase Agreement between Amkor Technology Inc. and
Anam
Semiconductor, Inc., dated December 30, 1998.
3.1 Certificate of Incorporation.**
3.2 Certificate of Correction to Certificate of
Incorporation.***
3.3 Restated Bylaws.***
4.1 Specimen Common Stock Certificate.**
4.2 Form of Indenture.**
10.1 Form of Indemnification Agreement for directors and
officers.**
10.2 1998 Stock Plan and form of agreement thereunder.**
10.3 Receivables Purchase Agreement between Amkor Electronics,
Inc. and Amkor Receivables Corp., dated June 20, 1997.**
10.4 Form of Tax Indemnification Agreement between Amkor
Technology, Inc., Amkor Electronics, Inc. and certain
stockholders of Amkor Technology, Inc.**
10.8 Commercial Office Lease between Chandler Corporate Center
Phase II, G.P. and Amkor Electronics, Inc., dated September
6, 1993.**
10.9 Commercial Office Lease between the 12/31/87 Trusts of Susan
Y., David D. and John T. Kim and Amkor Electronics, Inc.,
dated October 1, 1996.**
10.10 Commercial Office Lease between the 12/31/87 Trusts of Susan
Y., David D., and John T. Kim and Amkor Electronics, Inc.,
dated June 14, 1996.**
10.11 Contract of Lease between Corinthian Commercial Corporation
and Amkor/ Anam Pilipinas Inc., dated October 1, 1990.**
10.12 Contract of Lease between Salcedo Sunvar Realty Corporation
and Automated Microelectronics, Inc., dated May 6, 1994.**
10.13 Lease Contract between AAP Realty Corporation and Amkor/Anam
Advanced Packaging, Inc., dated November 6, 1996.**
10.14 Immunity Agreement between Amkor Electronics, Inc. and
Motorola, Inc., dated June 30, 1993.+**
10.15 Assembly Agreement between Amkor Electronics, Inc. and Intel
Corporation, dated July 17, 1991.+**
10.16 1998 Director Option Plan and form of agreement
thereunder.**
10.17 1998 Employee Stock Purchase Plan.**
10.18 Amendment No. 1 dated December 31, 1998 to the Receivables
Purchase Agreement between Amkor Electronics, Inc. and Amkor
Receivables Corp., dated June 20, 1997.
10.19 Packaging and Test Services Agreement by and among Amkor
Technology, Inc., Amkor Electronics, Inc., C.I.L. Limited,
Anam USA, Inc. and Anam Industrial Co., Ltd. dated January
1, 1998.**
10.20 Foundry Services Agreement by and among Amkor Electronics,
Inc., C.I.L. Limited, Anam Industries Co., Ltd. and Anam USA
dated as of January 1, 1998.**
</TABLE>
93

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.21 Amendment to Technical Assistance Agreement dated as of
September 29, 1997 between Texas Instruments Incorporated
and Anam Industrial Co., Ltd. and related portions of
Technical Assistance Agreement dated as of January 28,
1997.+**
10.22 Manufacturing and Purchase Agreement between Texas
Instruments Incorporated, Anam Industrial Co., Ltd. and
Amkor Electronics, Inc., dated as of January 1, 1998.+**
10.23 1998 Stock Option Plan for French Employees.**
10.24 Loan Agreement between Amkor Electronics, Inc. and John
Boruch dated January 30, 1998.
10.25 Shareholders Agreement, dated April 10, 1998, by and among
Amkor Electronics, Inc., Anam Industrial Co. Ltd., Scientek
International Investment Co. Ltd., Chinfon Semiconductor &
Technology Co., Ltd., Taiwan Semiconductor Manufacturing
Company Ltd., and Acer Incorporated.+
10.26 Technical Assistance Agreement, dated as of January 1, 1998
between Texas Instruments Incorporated and Anam Industrial
Co., Ltd.+
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Samil Accounting Corporation.
23.3 Consent of Chong Un & Company.
23.4 Consent of SyCip Gorres Velayo & Co.
23.5 Consent of Siana Carr & O'Connor, LLP.
27.1 Financial Data Schedule.
99.1 Translation of Principle Terms of the ASI Workout.
</TABLE>

- -------------------------
** Incorporated by reference to the Company's Registration Statement on Form
S-1 filed October 6, 1997, as amended (File No. 333-37235).

*** Incorporated by reference to the Company's Registration Statement on Form
S-1 filed August 26, 1998, as amended (File No. 333-49645).

+ Confidential Treatment requested as to certain portions of this exhibit.