##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31,
2003

Commission File Number 0-50397

AMIS Holdings, Inc.

(Exact name of Registrant as Specified in Its
Charter)


|                                                                                 |  |                                            
|-------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware                                                                         |  | 51-0309588                                 
|(State of incorporation)                                                         |  | (I.R.S. Employer Identification
    Number)
|                                                                                
|2300 Buckskin Road
    Pocatello, ID(Address of principal executive
    offices) |  | 83201(Zip Code)                            

(Registrants telephone number, including
area code)

(208) 233-4690


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|                              |  |                                          
|Common stock, $0.01 par value |  | Nasdaq National Market                   

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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the 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.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes o          No þ

State the aggregate market value of the voting
and non-voting common equity held by nonaffiliates computed by
reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of
the last business day of the registrants most recently
completed second fiscal quarter. Not applicable.

The number of shares of the registrants
common stock outstanding as of March 4, 2004 was 82,255,539.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants proxy statement
relating to the registrants 2004 Annual Meeting of
Stockholders to be held on or about June 10, 2004 are
incorporated by reference into Part III of this report.



---






---










TABLE OF CONTENTS

|             |  |                                                                                                                      |    |      |    | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                                                                      |    | Page
|             |  |                                                                                                                      |    |     
|PART I:      |  |                                                                                                                      | 2  |     
|Item 1.      |  | BUSINESS                                                                                                             |    |      | 2  | 
|Item 2.      |  | PROPERTIES                                                                                                           |    |      | 14 | 
|Item 3.      |  | LEGAL PROCEEDINGS                                                                                                    |    |      | 14 | 
|Item 4.      |  | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                                              |    |      | 15 | 
|PART II:     |  |                                                                                                                      | 15 |     
|Item 5.      |  | MARKET FOR REGISTRANTS
    COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
    OF EQUITY SECURITIES |    |      | 15 | 
|Item 6.      |  | SELECTED FINANCIAL DATA                                                                                              |    |      | 15 | 
|Item 7.      |  | MANAGEMENTS DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |    |      | 18 | 
|Item 7A.     |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                                       |    |      | 42 | 
|Item 8.      |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                                      |    |      | 43 | 
|Item 9.      |  | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |    |      | 84 | 
|Item 9A.     |  | CONTROLS AND PROCEDURES                                                                                              |    |      | 84 | 
|PART III:    |  |                                                                                                                      | 84 |     
|Item 10.     |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT                                                               |    |      | 84 | 
|Item 11.     |  | EXECUTIVE COMPENSATION                                                                                               |    |      | 85 | 
|Item 12.     |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS               |    |      | 85 | 
|Item 13.     |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                                   |    |      | 85 | 
|Item 14.     |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                                                           |    |      | 85 | 
|PART IV:     |  |                                                                                                                      | 85 |     
|Item 15.     |  | EXHIBITS, FINANCIAL
    STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                                  |    |      | 85 | 
|SIGNATURES   |  |                                                                                                                      | 87 |     
|EXHIBIT 3.1 
|EXHIBIT 3.2 
|EXHIBIT 10.6
|EXHIBIT 10.8
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



1



---



##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

This annual report on Form 10-K contains
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
expects, plans, target,
anticipates, believes,
estimates, predicts,
potential, continues or the negative of
these terms or other comparable terminology. These statements
are only predictions and speak only as of their dates. These
forward-looking statements are based largely on our current
expectations and are subject to a number of risks and
uncertainties, including those identified under Factors
that May Affect Our Business and Future Results in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and other risks and
uncertainties indicated from time to time in our filings with
the U.S. Securities and Exchange Commission (SEC). Actual
results could differ materially from these forward-looking
statements. Factors that could cause or contribute to such
differences include general economic and political uncertainty,
conditions in the semiconductor industry, changes in the
conditions affecting our target markets, manufacturing
underutilization, fluctuations in customer demand, raw material
costs, exchange rates, timing and success of new products,
competitive conditions in the semiconductor industry and risks
associated with international operations. In light of these
risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained
in this annual report will in fact occur.

Overview

We are a leader in the design and manufacture of
customer specific integrated analog mixed signal semiconductor
products. We focus on the automotive, medical and industrial
markets, which have many products with significant real world,
or analog, interface requirements. Integrated mixed signal
semiconductor products are an essential part of any electronic
system that interacts with the real world. Integrated mixed
signal products interpret and manage analog inputs such as
light, heat, pressure, power and radio waves so that these
inputs can be processed by digital control circuitry and used to
drive devices such as motor controllers or industrial switches
or to communicate with an external system. Integrated mixed
signal products combine analog and digital semiconductor
functionality on a single integrated circuit to perform complex
functions, such as monitoring human heart rates, as well as
simpler tasks, such as determining air pressure in tire pressure
gauges. We focus on developing our integrated mixed signal
semiconductor products based on our customers
specifications and requirements incorporating their proprietary
intellectual property. We work closely with each customer to
integrate their industry-specific intellectual property into a
custom semiconductor product that they use to differentiate
their products in the marketplace. We add value to our
customers products by providing significant mixed signal
design expertise, an extensive analog and mixed signal
intellectual property portfolio and systems-level design
expertise. We support our customers long product
lifecycles and manufacturing requirements with our proven
proprietary process technologies and our flexible manufacturing
model.

We are a holding company and conduct all our
business operations through AMI Semiconductor, Inc., our
wholly owned subsidiary, and its subsidiaries. We were
incorporated in Delaware in 1988. Our headquarters are located
in Pocatello, Idaho, and we have wafer fabrication
facilities in Pocatello, Idaho and Oudenaarde, Belgium.

Our predecessor company was founded in
Santa Clara, California in 1966 as American
Microsystems, Inc. to design and manufacture analog and
mixed signal integrated circuits. American Microsystems was
taken public in the late 1960s. In the 1980s, American
Microsystems shifted its focus to the design and manufacture of
mixed signal and digital custom integrated circuits and in 1985
American Microsystems entered the digital conversion ASIC
business when it completed its first significant conversion
project. Our predecessor was acquired by Gould Inc. in 1982,
which in turn was acquired by a company now known as Nippon
Mining Holdings Inc. (Nippon Mining) in 1988. Between 1988 and
2000 our predecessor operated at various times as subsidiary and
a division of Nippon Mining. In 2000 the division was spun out
into a

2



---



##### Table of Contents



subsidiary, and in December 2000 the subsidiary,
Nippon Mining and new investors engaged in a recapitalization
transaction pursuant to which the subsidiary was renamed AMI
Semiconductor, Inc. and became our wholly owned subsidiary.
In June 2002 we acquired the Mixed Signal Business of Alcatel
Microelectronics.


Our website is located at www.amis.com.
Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all
amendments to these reports are available free of charge on our
website as soon as reasonably practicable after such material
has been filed with, or furnished to, the SEC.

Industry

Semiconductors are critical components that serve
as a fundamental building block in a broad array of products.
Over time, semiconductor suppliers have continuously offered
more feature-rich, lower cost products. As a result,
semiconductors have played an important role in enabling and
enhancing computing, communications and consumer electronic
applications. As technology continues to penetrate most aspects
of daily life, semiconductors are increasingly playing an
important role in many other economic sectors, including the
automotive, medical and industrial markets. Semiconductors have
penetrated these real world applications, in part, due to their
ability to monitor, sense, control and communicate between
digital and analog environments. For example, in the automotive
sector, semiconductors are used to enhance vehicle performance
and safety as well as provide real time diagnostic information.
In the medical sector, semiconductors are used to improve the
quality of medical imaging and patient treatment and diagnostics
as well as enable high performance implantable and portable
devices such as pacemakers, glucose monitors and hearing aids.
In the industrial sector, semiconductors are used to augment the
performance of a broad range of products, including security
systems, home appliances and automation equipment. According to
Gartner Dataquest, the semiconductor content of electronic
systems used in automotive, medical and industrial products is
expected to represent 14.7% of the total cost of those systems
in 2006, up from 11.2% in 2002. The semiconductor industry is
estimated by Gartner Dataquest to have generated revenue of
$177 billion in 2003 of which the automotive, medical and
industrial end markets represent $26.9 billion, or 15.2%.

Our Solution

We design and manufacture customer specific
integrated mixed signal products for a broad range of markets,
with focus on our target automotive, medical and industrial
markets. Our integrated mixed signal products are characterized
by high quality and reliability, low power consumption and high
levels of integration and functionality. We have a detailed
systems-level understanding of our customers businesses,
and we often work as an extension of our customers
research and development teams to design and manufacture
differentiated integrated mixed signal products for specific end
markets. Our systems architects and integrated mixed signal
engineers utilize our extensive library of semiconductor
building block circuit designs, design tools and methodologies,
along with our proprietary process technologies, to quickly
integrate multiple, customer-specified functions into
cost-effective solutions.

Our products have long lifecycles and revenue
streams, with an average life of five to seven years. We believe
we are the sole-source provider for most of the integrated mixed
signal products we provide to our customers.

Key benefits of our integrated mixed signal
solutions are:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enabling Our Customers to Differentiate Their
    Products.Our products are the result
    of close collaboration with our customers and our thorough
    knowledge of our customers end markets. Together with our
    customers, we work to design their intellectual property into
    our semiconductor components to facilitate the differentiation
    of their products in the marketplace. We have an extensive
    intellectual property portfolio and over 30 years of
    experience in building complex, customer specific highly
    integrated mixed signal solutions. With approximately 220 design
    engineers as of December 31, 2003, we have developed an
    extensive library of integrated circuit designs optimized for
    our customers end use applications. We provide products
    that are feature-rich, power efficient, high performance and
    lower cost than our customers internally developed
    solutions or solutions built with standard semiconductors.

3



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improving Time-to-Market for Our
    Customers.We enable our customers to
    get to market quickly. We help our customers take advantage of
    our design expertise, proven process technology, intellectual
    property and flexible manufacturing facilities to create
    differentiated products quickly. By leveraging our core
    competencies, we eliminate the need for our customers to
    maintain large internal design teams, to design basic circuit
    blocks, to acquire expertise in integrating these blocks and to
    de-bug processes in their own fabs. As a result, we can deliver
    to our customers a wide variety of high quality products with
    capabilities that they would generally be unable to provide
    internally on a timely basis.                                                                                                                                 
|
| |  | Integrating Systems-Level Functionality into
    Our Products.We utilize our systems
    architects and their end market experience to optimize our
    product designs to meet our customers needs. These systems
    architects work with our customers to define the feature set,
    create design specifications and identify discrete building
    block circuit designs to be integrated into comprehensive
    integrated mixed signal solutions we build for our customers.
    The ability to integrate these building blocks quickly and
    efficiently permits our customers to achieve the desired system
    functionality using our integrated mixed signal products while
    maximizing performance and cost-effectiveness and minimizing
    time-to-market.                                                                                                                                   
|
| |  | Leveraging Proprietary Proven Process and
    Manufacturing Technology.Our wide
    ranging base of proprietary integrated mixed signal
    manufacturing technologies, including precision analog and high
    voltage technologies, enables us to maximize our product
    performance by matching the optimal technologies with our
    customers end use applications. Furthermore, we have
    developed advanced logistics and infrastructure to enable us to
    switch process technologies used in our fabrication facilities
    quickly and efficiently, which allows us to serve a broad array
    of customers with a wide variety of process technology needs.
    Finally, we focus on manufacturing integrated mixed signal and
    digital semiconductors with long lifecycles utilizing
    established and proven process technologies, thereby reducing
    technology risk for our customers.
|
| |  | Committing to Customers for the Long
    Term.We spend the required time and
    allocate sufficient design resources to our customers to help
    them get through the long product development and qualification
    process in the automotive, medical and industrial markets. We
    also support our customers manufacturing needs throughout
    their products lifecycle. Many of our largest customers by
    revenue have conducted business with us for over 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                 

The AMI Semiconductor Strategy

Our objective is to be the leading provider of
integrated mixed signal semiconductors. Key elements of our
strategy include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leveraging Our Integrated Mixed Signal
    Capabilities and Systems-Level Knowledge to Further Penetrate
    Our Target Markets.We intend to
    leverage our investment in our intellectual property, design
    platform and manufacturing process to continue helping our
    customers develop new products for the automotive, medical and
    industrial markets. We have built significant integrated mixed
    signal engineering, process technology and intellectual property
    capabilities. In addition, we possess a systems-level
    understanding of our customers businesses. We are
    positioned to address the challenges facing our customer base
    with higher functionality, smaller form factor, lower power,
    improved price for performance and faster time-to-market
    products. We are continuing to build new mixed signal and
    system-on-chip building blocks and process technologies to keep
    our customers at the leading edge of product functionality. We
    use our base of technologies and manufacturing capabilities to
    help customers in our target markets deliver differentiated
    products and to establish our company as a key supplier and
    partner for our customers.
|
| |  | Driving Market Share Through Our Focus on
    Targeted End Markets and Customers.We
    intend to continue to build and leverage close customer
    relationships to maintain our position as a leading provider of
    customer specific integrated mixed signal products for our
    target markets. By focusing on the automotive, medical and
    industrial markets, we develop a better understanding of the
    unique component solution requirements of our customers. Many of
    our customers depend on us for components that are fundamental
    to their products and use our engineering and design
    capabilities as                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

4



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | an extension of their research and development
    teams. We believe we are a sole source provider for
    approximately 85% of the products we sell.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Developing and Broadening Our Customer
    Relationships by Providing Mixed Signal Foundry Services and
    Structured Digital Products.In
    addition to our integrated mixed signal products, we provide
    mixed signal foundry services and structured digital products to
    our customer base. Our mixed signal foundry services allow us to
    develop relationships with existing foundry customers that may
    develop into integrated mixed signal customers over time. In
    addition, our mixed signal foundry services allow us to enhance
    utilization of our existing facilities, process technology and
    intellectual property. Our structured digital products represent
    a next generation approach to traditional custom digital
    semiconductor products and programmable logic conversions. This
    product offering enables our customers to benefit from faster
    time-to-market and reduced engineering and production costs. In
    combination, these businesses enable us to: (i) offer a
    more complete product and services offering to our target market
    customers; (ii) cross-sell various products and services to
    our customers; and (iii) participate in other end markets
    such as computing and communications.
|
| |  | Winning New Business by Offering Long-Term
    Support over the Complete Design and Production
    Lifecycle.We support our customers
    through the long lead time often associated with the design and
    qualification of custom semiconductors. We assure customers that
    sell products with long lifecycles of a dependable source for
    their critical semiconductor components by retaining processes,
    technologies and products in manufacturing as long as business
    demand remains at reasonable levels. Supporting our customers
    during both development and production, over a wide range of
    production volumes, differentiates us from our competition,
    enables us to maintain attractive pricing over the lifecycle of
    our products and helps us obtain new business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Pursuing Growth Through Targeted
    Acquisitions.We intend to evaluate
    acquisition opportunities that we believe will increase our
    market share in our target markets, improve our portfolio of
    intellectual property or strengthen our customer base. We
    believe that the semiconductor industry is undergoing a period
    of product rationalization and consolidation. Further, we
    believe that time-to-market and economic pressures are leading
    certain of our customers and competitors to seek to divest their
    captive or non-strategic businesses. We have participated in
    this consolidation by acquiring the Mixed Signal Business of
    Alcatel Microelectronics in June 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Products and Services

Our products and services are organized into
three business segments: integrated mixed signal products, mixed
signal foundry services and structured digital products. For
financial information concerning our segments, see note 18
to our consolidated financial statements included in this annual
report. The foundation of our business is based on our mixed
signal engineering and system level design expertise, extensive
library of proprietary mixed signal building blocks, proven
process technologies, flexible manufacturing model and
structured digital products platform. We provide our customers a
range of products and services including design and
manufacturing of complex integrated mixed signal products,
building blocks to complement our customers intellectual
property, manufacturing services for customer-designed silicon
products and cost optimization platforms and products. While
most of our customers initially use one of our products or
services, many are attracted to us because of the breadth of our
offering and the ability to utilize different parts of our
business over time. We help our customers differentiate their
products by embedding their intellectual property in silicon and
delivering products with expanded functionality and better cost
for performance.

Integrated
Mixed Signal Products (53.1% of 2003 revenue)

We design and manufacture complex customer
specific integrated mixed signal products for a variety of
markets. We work closely with our customers throughout the
design period, typically lasting from six to 24 months,
thereby establishing long-term working relationships. Our design
libraries and design software enable us and our customers to
design highly integrated mixed signal products more efficiently
and accelerate time-to-market by providing a common platform on
which both system designers and circuit designers can

5



---



##### Table of Contents



collaborate. Our integrated mixed signal products
combine analog and digital functions on a single chip to form a
customer defined system-level solution. We focus on integrating
the following three main building block interfaces to the real
world:


Sensor Interfaces.Sensors transform real world stimuli such as temperature and
pressure into analog electrical signals. The proliferation of
sensors and the requirement to interface with those sensors have
expanded the market for integrated mixed signal products. Our
integrated mixed signal sensor interfaces enable our customers
to create products that are small in size and consume less
power, which are attractive attributes for sensors in the
automotive, medical and industrial markets. In the automotive
field, we have worked with large automotive customers to provide
sensor interfaces for angular position sensing used in
applications such as steer-by-wire or throttle position sensing.
In the medical diagnostics field, we have worked with customers
in the medical end market to develop integrated mixed signal
solutions for high volume applications, such as blood glucose
monitoring, internal temperature measurement and body fat
measurement.

Controls.Most
equipment in the automotive, medical and industrial markets
operates in high voltage environments. Digital semiconductors
usually operate in low voltage environments. Our integrated
mixed signal high voltage control products can amplify,
condition and regulate analog signal inputs and outputs ranging
from five to 100 volts. Utilizing our proprietary design
techniques and proprietary high voltage manufacturing processes,
we can create cost-effective, energy efficient single chip
solutions for high voltage systems. High voltage control
applications include headlamp drivers and motor control for
positioning of headlamp systems for automotive suppliers, as
well as arc fault detection and circuit control for industrial
suppliers.

Communication
Products.Low data rate wireless
functionality enables digital messages to be sent over moderate
distances using a low power connection. Low data rate solutions
are widely used in the automotive, medical and industrial
markets. These markets are not addressed by the relatively high
cost, high power consumption, high data rate wireless products
such as those used in wireless phones. Our products are
optimized for low cost and low power and are used by industrial
and automotive end market customers in applications such as
wireless home security and keyless entry. One of our products in
development is a blood sugar monitor for diabetics that is
embedded under the skin to measure blood sugar levels and
communicates wirelessly to a display on a wristwatch. We also
offer wired communication products for such applications as
in-vehicle control and industrial networking.

Mixed Signal
Foundry Services (25.6% of 2003 revenue)

We provide mixed signal semiconductor
manufacturing services primarily to electronic systems
manufacturers and semiconductor companies that have completed
their own designs but do not have their own fabrication
facilities or have otherwise chosen to outsource to us. In 2003,
over 90% of our foundry services revenue came from the
manufacture of mixed signal products. We target the mixed signal
products market for automotive, medical and industrial
applications characterized by small to medium volume production
runs not targeted by our larger competitors. Furthermore, we
focus on customers and target markets that leverage our mixed
signal technology and manufacturing expertise. We manufacture
semiconductors with long lifecycles that utilize established
process technologies, thereby reducing technology risk for our
customers. Typical applications serviced by our mixed signal
manufacturing business include implantable medical devices and
sensing circuits for military and high voltage consumer and
communications devices. We are a leading supplier of
semiconductors for the cardiac rhythm management market.

We believe we are typically the sole-source
provider of a particular device for our foundry customers. We
also leverage our long-term relationships with foundry customers
to sell them our integrated mixed signal products and design
services and to expand our mixed signal and custom digital
intellectual property portfolio.



| |                                                        
| | -------------------------------------------------------
| | Structured Digital Products (21.3% of 2003
    revenue)

To address the rising costs associated with
digital semiconductor design and manufacturing, we work with
customers to convert programmable logic integrated circuits and
field programmable gate arrays, or FPGAs, into highly
cost-effective structured digital products. We offer customers
our proprietary architecture,

6



---



##### Table of Contents



processes and manufacturing expertise to enable
higher performance and efficiency in the conversion process and
the final structured digital product. We focus on moderate to
high volume products with intermediate degrees of design
complexity. We have been an innovator in the digital conversion
market since 1985 and have created many methodologies and
software tools, including our proprietary NETRANS®
software, that have enabled us to develop a leading position in
this market. Structured digital products are used in a wide
variety of applications, including communications
infrastructure, medical imaging, automotive and high-density
disk storage, and can vary in complexity.


Customers often would like to obtain the higher
performance and lower price of products customized for their
system, but instead settle, at least initially, for higher
priced programmable logic integrated circuits or FPGAs that
enable faster time-to-market. Once these products reach
production volumes, however, conversion to a custom product for
the balance of the product life can reduce costs considerably
while improving performance. While FPGAs offer greater
flexibility and faster time-to-market since they can be
configured by the customer on site rather than customized in a
fab, our structured digital products offer lower per unit cost,
higher levels of integration, greater processing speed and lower
power consumption.

Our XPressArrayTM product platform
became commercially available in 2003. Our
XPressArrayTM product platform allows our customers
to convert FPGAs into cost-effective structured digital products
with higher performance and efficiency using our proprietary
architecture, design software, processes and manufacturing
expertise. We have specifically focused our design efforts and
intellectual property in the XPressArrayTM product
platform to enable rapid and accurate conversion from an FPGA to
our product so that it will perform seamlessly in a system
initially designed with an FPGA.

We use Taiwan Semiconductor Manufacturing
Companys 0.18 micron leading-edge process technology to
manufacture elements common to each XPressArrayTM
product. Custom functionality is achieved using our internal,
low-cost 0.35 micron and 0.25 micron technologies to create the
final circuit connections. This unique hybrid manufacturing
approach enables a product that has very fast time-to-market
because of our flexible internal manufacturing capabilities and
low cost because we are able to use significantly fewer
expensive semiconductor photomasks when compared to a typical
custom digital product. We believe our XPressArrayTM
product platform will provide our customers with significant
reductions in development time and low engineering costs while
decreasing their semiconductor unit costs considerably.

Customers and Applications

The following table sets forth our principal end
markets, the percentage of revenue for 2003 in each end market
and some specific applications for our products during 2003:

|                               |  |                                                          |  |                                                                |  |                                                              |  |                                                      |  |                                                         |  |                                               
|------------------------------ |  | -------------------------------------------------------- |  | -------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ---------------------------------------------------- |  | ------------------------------------------------------- |  | ----------------------------------------------
|                               |  |                                                          |  |                                                                |  |                                                              |  |                                                      |  |                                                         |  | Computing,                                    
|                               |  |                                                          |  |                                                                |  |                                                              |  |                                                      |  |                                                         |  | Consumer and                                  
|End Markets                    |  | Automotive                                               |  | Industrial                                                     |  | Communications                                               |  | Medical                                              |  | Military                                                |  | Other                                         
|                               |  |                                                          |  |                                                                |  |                                                              |  |                                                      |  |                                                         |  |                                               
|Percentage of revenue for 2003 |  | 24.8%                                                    |  | 20.7%                                                          |  | 21.7%                                                        |  | 12.8%                                                |  | 8.2%                                                    |  | 11.8%                                         
|Applications                   |  | Digital compass Engine management
    Headlight controls |  | Industrial networking Circuit protection
    Wireless security |  | Broadband analog Wireless base stations
    Switches Routers |  | Medical imaging Pacemakers Blood
    glucose monitor |  | Cockpit displays Missile guidance
    Infrared  imaging |  | Printers Power management
    Storage  systems

In 2003, our 30 largest customers accounted for
63.6% of our revenue. Our only customer representing more than
5% of our revenue for that period was STMicroelectronics at
7.8%. In June 2004, the take-or-pay contract that is in place
with STMicroelectronics will expire (as discussed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations) and we expect STMicroelectronics to
decrease as a percentage of our total revenue at that point.
While no single customer made up 5% or more of our historical
revenue in 2002 or 2001, our 30 largest customers accounted for
61.2% and 58.3%, respectively, of our historical revenue in 2002
and 2001.

7



---



##### Table of Contents



Sales

We sell our products through direct sales
personnel, independent sales representatives and licensed
distributors worldwide.

We believe that maintaining a technically
competent and highly focused group of direct sales personnel is
the most efficient way to serve our current customers and to
develop and expand our markets and customer base worldwide. Our
direct sales organization includes regional sales managers,
field application engineers, account managers and manufacturers
representatives. Our direct sales personnel are divided
geographically throughout North America, Europe and the Asia
Pacific region to provide localized technical support. We have
strategically located our sales and technical support offices
near concentrations of major customers. As of December 31,
2003, we had 51 direct sales personnel, of which 27 people
covered North America, 21 covered Europe and three covered the
Asia Pacific region.

We use our independent sales representatives
network to service primarily integrated mixed signal and
structured digital products customers and distribute our
products primarily in North America and the Asia Pacific region,
and for a small percentage of our sales, in Europe. Our direct
sales personnel support independent sales representatives by
regularly calling on existing and prospective customers. Our
mixed signal foundry services direct sales personnel call on the
customer generally without use of the independent sales
representatives. During 2003, 2002 and 2001 we derived
approximately 50.5%, 68.4% and 90.9%, respectively, of our
historical revenue from independent sales representatives.
Independent sales representatives in North America do not offer
other products that compete directly with our products. Our
agreements with our independent sales representatives are
usually terminable by either party on relatively short notice.
Typically in North America, orders flow from the customer to one
of our independent sales representatives; in Europe, customers
tend to order directly from us. Our independent sales
representatives do not normally carry any product inventory.

We sell our products through authorized
distributors only upon the customers request. During 2003,
2002 and 2001 only 2.1%, 3.2% and 4.9%, respectively, of our
historical revenue were derived from authorized distributors.
Similar to our contracts with independent sales representatives,
our agreements with our authorized distributors are usually
terminable by either party on relatively short notice.

Research and Development

Our research and development efforts focus on
design methodology, intellectual property and process technology
for integrated mixed signal and structured digital products. We
have continued to improve our manufacturing processes, design
software and design libraries. We also work closely with our
major customers in many research and development activities,
including joint intellectual property development, to increase
the likelihood that our products will be more easily designed
into our customers products and consequently achieve rapid
and lasting market acceptance. Areas of focus in intellectual
property development include developing our library of
microcontroller, motor control, data conversion, wireless and
low power building blocks.

We enhance our research and development efforts
through our affiliations with the academic institutions or the
teaching staff in the United States at Idaho State University,
Montana State University, the University of Idaho, Boise State
University, Brigham Young University and the University of Utah.
We retain ownership or exclusive rights to any intellectual
property created under contract with these institutions. We
maintain all rights to information disclosed by us to these
institutions. We own or have license rights to intellectual
property created under contract with these institutions. We have
a research contract with Interuniversity MicroElectronics
Center, or IMEC, a large European independent microelectronics
research center that gives us non-exclusive rights to use
certain jointly-developed technologies. We also have
collaborations programs in Europe such as with the University of
Leuven, University of Gent, and the Research Institute in
Laussanne.

Our historical expenditures for research and
development for 2003, 2002 and 2001 were $70.3 million,
$52.1 million and $42.1 million, respectively,
representing 15.5%, 15.1% and 12.9% of revenue in each of the
respective periods.

8



---



##### Table of Contents



Intellectual Property

We rely on a combination of patent, copyright,
maskwork rights, trademark and trade secret laws and contractual
restrictions to establish the proprietary aspects of our
business and technology across all three of our principal
product and services groups. As of December 31, 2003, we
held 73 U.S. patents and 117 foreign patents. We also
had over 50 patent applications in progress. The patents
are based primarily on circuit design and process techniques.
Our patents have a typical duration of 20 years from
application date. At the end of 2004, approximately 21% of the
patents we currently have in place will be expiring. We do not
expect this to have a material impact on our results, as these
technologies are not revenue producing and we will be able to
continue using the technologies associated with these patents.
There can be no assurance that pending patent applications or
other applications that may be filed will result in issued
patents or that any issued patents will survive challenges to
their validity. However, we believe that the loss of any one of
our patents would not materially affect our business. We have
licensed our design libraries and software to selected customers
to design products that are then manufactured by us. We may also
license technology from third parties to incorporate into our
design libraries.

As part of the MSB acquisition, we acquired a
perpetual fully paid license from STMicroelectronics for certain
Complimentary Metal Oxide Semiconductor, or CMOS, and Bipolar
Complimentary Metal Oxide Semiconductor, or BiCMOS, mixed signal
process technology down to 0.35 micron, as well as other
intellectual property. CMOS and BiCMOS are two of the most
common methods used to manufacture semiconductors. We also have
an agreement with Hitachi relating to technology assistance for
our development of process technology down to 0.22 micron.
This agreement terminates in October 2004.

The semiconductor industry is characterized by
frequent litigation regarding patent and other intellectual
property rights. As is typical in the semiconductor industry, we
have from time to time received communications from third
parties asserting rights under patents that cover certain of our
technologies and alleging infringement of certain intellectual
property rights of others. We expect to receive similar
communications in the future. In the event that any third party
had a valid claim against us or our customers, we could be
required to:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | discontinue using certain process technologies
    which could cause us to stop manufacturing certain
    semiconductors;           
|
| |  | pay substantial monetary damages;                                                                                                   
|
| |  | seek to develop non-infringing technologies,
    which may not be feasible; or                                                      
|
| |  | seek to acquire licenses to the infringed
    technology which may not be available on commercially reasonable
    terms, if at all.

In the event that any third party causes us or
any of our customers to discontinue using certain process
technologies, we believe that such an outcome would not have a
long term material and adverse effect, as we could design around
such technologies. In any event, the process technologies we use
are widely employed throughout our competitive landscape, and
thus any such discontinuance would not only impact us, but would
also affect our competitors.

We were named as a defendant in a complaint filed
on January 21, 2003, by Ricoh Company, Ltd. in the
U.S. District Court for the Northern District of California
alleging infringement of a patent owned by Ricoh. See
Item 3. Legal Proceedings for a more complete
description of the Ricoh claim.

Manufacturing

We typically initiate production of our products
only after we receive orders from our customers. As a result, we
generally do not carry significant levels of finished goods
inventory.

9



---



##### Table of Contents



The production of our semiconductor products is a
complex process that can be broadly divided into three primary
stages:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fabricating the semiconductor circuit on a wafer,
    which is a round, flat piece of silicon on which one to several
    thousand semiconductor circuits can be built;                                 
|
| |  | packaging the semiconductor circuit by slicing
    the wafer into individual semiconductor circuits, or die and
    placing these die into a package for insertion onto a printed
    circuit board; and
|
| |  | testing the packaged semiconductor circuit.                                                                                                                                                             

We manufacture wafers at our 5-inch fab and an
8-inch fab located in Pocatello, Idaho and our 4-inch fab
and a 6-inch fab located in Oudenaarde, Belgium. Our wafer
fabrication technology is based on CMOS, BiCMOS and high voltage
processes.

Our integrated mixed signal products customers
and mixed signal foundry customers do not typically require us
to maintain process technologies below 0.35 micron. As a result,
our capital expenditure requirements are often less as a
percentage of revenue than purely digital semiconductor
companies which invest in higher cost process technologies below
0.35 micron. We purchase 0.18 micron CMOS wafers from TSMC which
we use in our XPressArrayTM product platform. Our
XPressArrayTM products are initially processed in an
advanced 0.18 micron digital CMOS process at TSMC and then
completed with our own 0.35 micron or 0.25 micron
process in our own fab. This process combination gives our
XPressArrayTM products 0.18 micron performance
without incurring the capital expenditure needed to maintain our
own 0.18 micron fab. In the future, we intend to either
process mixed signal devices below 0.18 micron internally
or seek an external source for technology of such geometry.

Fabricated wafers are transferred to packaging
facilities. We perform wafer and packaged die testing at our
facilities in Manila, Pocatello and Oudenaarde and we also use
subcontractors. A significant portion of our testing is
performed at our 85,600 square foot facility in Manila,
which was established in 1980 and is equipped with a variety of
testers and auto handling equipment that complement the variety
of packages and circuits that we manufacture. We also outsource
back-end packaging and testing to a number of subcontractors in
Asia. The table below sets forth information with respect to our
wafer fabrication facilities, products and technologies:

|           |  |                                                                 |  |           |         |          |  |  |    |    
|---------- |  | --------------------------------------------------------------- |  | --------- | ------- | -------- |  |  | -- | ---
|           |  |                                                                 |  | Installed |         |         
|           |  |                                                                 |  | Annual    |         |         
|           |  |                                                                 |  | Equipment |         | Wafer   
|Location   |  | Products/Functions                                              |  | Capacity  |         | Diameter
|           |  |                                                                 |  |           |         |         
|Pocatello  |  | CMOS Wafers, 1 micron and above, 2 to 3
    metal levels        |  |           | 170,000 |          |  |  | 5 |    
|           |  | CMOS Wafers, 0.6 micron to 1 micron, 2 to 3
    metal levels    |  |           | 110,000 |          |  |  | 5 |    
|Pocatello  |  | CMOS Wafers, 0.35 micron to 0.8 micron,
    2 to 5 metal levels |  |           | 57,000  | (1)      |  |  | 8 |    
|Oudenaarde |  | BiCMOS Wafers, 1 micron, 2 metal levels                         |  |           | 153,000 |          |  |  | 4 |    
|Oudenaarde |  | BiCMOS Wafers, 0.35 micron to 1 micron, 2 to
    5 metal levels |  |           | 116,000 | (2)      |  |  | 6 | (3)



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | By adding additional equipment, production
    capacity at our 8-inch fab could be increased to 225,000 wafers
    per year.
|   
|(2) | By adding additional equipment, production
    capacity at our 6-inch fab could be increased to 175,000 wafers
    per year.
|   
|(3) | The equipment at our 6-inch fab can be scaled to
    8-inch wafers.                                                         

Our manufacturing processes use many raw
materials, including silicon wafers, copper lead frames, molding
compounds, ceramic packages and various chemicals and gases. We
obtain raw materials and

10



---



##### Table of Contents



supplies from a large number of sources. Although
supplies of raw materials are currently adequate, shortages
could occur in various essential materials due to interruption
of supply or increased demand in the industry.


Our manufacturing groups also go through
stringent certifications to support our focus on our target
markets of automotive, medical and industrial. These markets
have very demanding requirements for quality and reliability.
The following standards require third party auditing to receive
certification. We were the first semiconductor company to
independently certify to the MIL-PRF-38535 QML standard. In 2002
we became the first pure-play custom integrated circuit
manufacturer to attain certification to the telecom TL9000 R3
standard. We became an ISO9000 certified company in 1994,
received the QS9000 automotive certification in 1997, a STACK
supplier certification in 2000, and earned several government
sponsored Quality Awards. Our current certification achievements
include the ISO/ TS16949:2002 worldwide automotive standard and
the ISO14001:1996 Environmental standard.

Backlog

Backlog is typically recorded only upon receipt
of a written purchase order from a customer. Reported backlog
represents products scheduled to be delivered within six months.
Backlog is influenced by several factors including market
demand, pricing, customer order patterns and changes in product
lead times. Backlog may fluctuate from booking to time of
delivery to reflect changes in customer needs or industry
conditions. Once manufacturing has commenced, orders generally
are not cancelable. In addition, because customers already have
invested significant time working with us (typically from six to
24 months before production of a custom semiconductor) and
have incurred the non-recurring engineering fee in full before
production begins, customers generally have given careful
consideration to the orders they place, and generally do not
cancel orders. However, there is no guarantee that backlog will
ultimately be realized as revenue. Backlog was
$128.4 million as of December 31, 2003 and
$97.7 million as of December 31, 2002.

Backlog should not be taken as an indicator of
our anticipated revenue for any particular future period. Line
items recorded in backlog may not result in revenue within six
months for several reasons, including: (a) certain customer
orders within backlog may not be able to be recognized as
revenue within six months (i.e., we, for various reasons, may be
unable to ship the product within the specified time frame
promised); (b) certain customer order delivery dates may be
delayed to a subsequent period by our customers; and
(c) certain customer orders may even be cancelled at our
customers request. These items have often been offset, and
exceeded by, both (a) new customer orders that are booked
subsequent to the backlog reporting date and delivered to the
customer within six months and (b) customer orders with
anticipated delivery dates outside six months and subsequently
shipped sooner than originally anticipated. The amount of
revenue recognized in excess of backlog during any six-month
period varies and depends greatly on overall capacity in the
semiconductor industry and capacity in our manufacturing
facilities. We do not routinely monitor the extent of backlog
cancelled, pushed out for later delivery or accelerated for
earlier delivery.

Financial Information About Geographic
Areas

For financial information about geographic areas,
see note 18 to our consolidated financial statements. For
risks relating to our foreign operations, see Factors that
May Affect Our Business and Future Results in
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Competition

We compete in highly competitive markets.
Although no one company competes with us in all of our product
lines, we face significant competition for products in each of
our three business areas from domestic, as well as
international, companies. Some of these companies have
substantially greater financial, technical, marketing and
management resources than we have.

Our integrated mixed signal product competitors
include larger diversified semiconductor suppliers, such as
STMicroelectronics and Texas Instruments, and smaller end market
focused suppliers, such as Elmos and Zarlink. In providing mixed
signal foundry services, we principally compete with the
internal manufacturing capabilities of our customers. Altera and
Xilinx are our principal competitors for our structured digital

11



---



##### Table of Contents



products. In addition, companies such as Maxim,
Microchip, Linear Technology, LSI Logic and IBM have skills and
base capabilities similar to ours but we do not generally
compete with these companies on a direct basis.


We compete with other customer specific
semiconductor solutions providers based on design experience,
manufacturing capability, depth and quality of mixed signal
intellectual property, the ability to service customer needs
from the design phase to the shipping of a completed product,
length of design cycle, longevity of technology support and
sales and technical support personnel. We compete with
programmable digital logic product suppliers on the basis of
chip size, performance and production costs. Our ability to
compete successfully depends on internal and external variables,
both within and outside of our control. These variables include,
but are not limited to, the timeliness with which we can develop
new products and technologies, product performance and quality,
manufacturing yields and availability, customer service,
pricing, industry trends and general economic trends.

Employees

Our worldwide workforce consisted of 2,569
employees (full- and part-time) as of December 31, 2003, of
which 1,152 were located in the United States, 913 were located
in Europe and 504 were located in Asia. None of our employees in
the United States or Asia are represented by collective
bargaining arrangements. The employees located in Belgium are
represented by unions and have collective bargaining
arrangements at the national, industry and company levels.

Environmental Matters

Our operations are subject to numerous
environmental, health and safety laws and regulations that
prohibit or restrict the discharge of pollutants into the
environment and regulate employee exposure to hazardous
substances in the workplace. Failure to comply with these laws
or our environmental permits could subject us to material costs
and liabilities, including costs to clean up contamination
caused by our operations. In addition, future changes to
environmental laws could require us to incur significant
additional expense or restrict our operations.

Some environmental laws hold current or previous
owners or operators of real property liable for the costs of
cleaning up contamination, even if these owners or operators did
not know of and were not responsible for such contamination.
These environmental laws also impose liability on any person who
arranges for the disposal or treatment of hazardous substances,
regardless of whether the affected site is owned or operated by
such person. Third parties may also make claims against owners
or operators of properties for personal inquiries and property
damage associated with releases of hazardous or toxic substances.

We are required pursuant to an order issued by
the California Regional Water Quality Control Board to clean up
trichloroethylene contaminated groundwater at our former
manufacturing facility located in Santa Clara, California.
We are currently pumping and treating the contaminated
groundwater and, based on the results of our clean-up efforts to
date, do not expect to be required to implement any other
remedial measures. We estimate that the annual cost of operating
the groundwater treatment system will be approximately
$0.2 million in 2004 and each of the two succeeding years
and have a remaining accrual of approximately $0.5 million
as of December 31, 2003 for this remediation project.
Nippon Mining Holdings Inc. (formerly known as Japan Energy
Corporation) and its subsidiary agreed to indemnify us for
certain existing environmental exposures and to pay certain
existing liabilities as part of our recapitalization in December
2000. However, there are no guarantees that Nippon Mining or the
other indemnifying party will have the ability to fulfill their
obligations in the future. Unexpected costs that we may incur
with respect to environmental matters may result in additional
loss contingencies.

12



---



##### Table of Contents



Executive Officers

The following table sets forth certain
information with respect to our executive officers as of
March 4, 2004.

|                   |  |     |    |       |  |                                                   
|------------------ |  | --- | -- | ----- |  | --------------------------------------------------
|Name               |  | Age |    | Title
|                   |  |     |    |      
|Executive Officers |  |     |    |       |  |                                                   
|Christine King     |  |     | 54 |       |  | President and Chief Executive Officer             
|Walter Mattheus    |  |     | 56 |       |  | Chief Operating Officer                           
|Michael Salvati    |  |     | 51 |       |  | Chief Financial Officer                           
|Jon Stoner         |  |     | 47 |       |  | Senior Vice President and Chief Technology Officer
|Charlie Lesko      |  |     | 45 |       |  | Senior Vice President, Sales & Marketing          

Christine King, President, Chief Executive
Officer and Director.Ms. King
joined us in September 2001 as President, Chief Executive
Officer and a director. From September 2000 to September 2001
Ms. King served as Vice President of Semiconductor Products
for IBM Microelectronics. From September 1998 to September 2000
Ms. King was Vice President of the Networking Technology
Business Unit for IBM. Ms. King also served as Vice
President of Marketing and Field Engineering at IBM from June
1995 to September 1998 and Manager of ASIC Products at IBM from
March 1992 to June 1995. While at IBM, Ms. King launched
the companys ASIC and networking businesses. Ms. King
holds a B.S. degree in electrical engineering from Fairleigh
Dickinson University. Ms. King serves on the board of
Analog Devices, Inc., a semiconductor company.

Walter Mattheus, Chief Operating
Officer.Mr. Mattheus joined us
in June 2002 following the MSB acquisition as Chief Operating
Officer, Managing Director of AMI Semiconductor Belgium BVBA and
Managing Director of AMI Semiconductor Leasing BVBA.
Mr. Mattheus began his career at Alcatel Microelectronics
in June 1983. At Alcatel Microelectronics, Mr. Mattheus
served as General Manager and Chief Operating Officer since
1995. Mr. Mattheus began his career with Bell Telephone
Manufacturing Company which later became Alcatel Bell.
Mr. Mattheus currently serves as a Director at the Chamber
of Commerce of East-Flanders, Belgium. Mr. Mattheus holds a
masters degree and a doctorate in electrical engineering from
the University of Leuven.

Michael Salvati, Chief Financial
Officer.Mr. Salvati has been
acting as our Chief Financial Officer since February 2004.
Mr. Salvati worked as a consultant for us since November
2003. Mr. Salvati has been a principal at Oakridge
Consulting since 2000, where he provides financial consulting
and interim management services for various companies. During
this time, Mr. Salvati has also served at Global Exchange
Services as Chief Financial Officer from November 2002 to August
2003. Prior to founding Oakridge Consulting, Mr. Salvati
served as Chief Operating Officer at National Financial Partners
from 1998 to 2000. Mr. Salvati has over 25 years of
financial and business experience, including as a partner at
KPMG LLP and Chief Financial Officer of Culligan Water
Technologies, Inc. Mr. Salvati holds both a B.S. in
Microbiology and M.S. in Accounting from the University of
Illinois in Champaign-Urbana.

Jon Stoner, Senior Vice President and Chief
Technology Officer.Mr. Stoner
joined us in 1980. Prior to his current position,
Mr. Stoner held various research and development positions,
including Senior Vice President, Technology and Product
Development, Director of Standard Products, Director of
Technology Planning and New Business Development and Director of
Process Technology. Mr. Stoner serves as a member of the
Advisory Council to the Idaho State Board of Education for
Engineering Education, is a member of Idahos Experimental
Program for Stimulation of Competitive Research committee and is
a volunteer member of the Boise State Engineering Advisory
Board. Mr. Stoner holds a B.A. degree in chemistry from the
University of Montana and a M.S. degree in physics from Idaho
State University.

Charlie Lesko, Senior Vice President, Sales
and Marketing.Mr. Lesko joined
us in 2003 from Broadcom Corporation where he was Vice President
of North American Sales from July 2002 to May 2003.
Mr. Lesko has an extensive sales and marketing background
in the semiconductor industry. Prior to working

13



---



##### Table of Contents



with Broadcom Corporation, Mr. Lesko was
Vice President of Worldwide Sales for Axcelis Technologies from
July 2000 to July 2002. Prior to joining Axcelis, Mr. Lesko
held various management positions at Teradyne, Inc. from
July 1990 to July 2000. Mr. Lesko holds an M.B.A. in
Finance from the University of Dallas. He earned a B.E. degree
in Engineering at State University of New York-Stony Brook.







|        |           
|------- | ----------
|Item 2. | Properties

In the United States, our corporate and
manufacturing headquarters and warehouse operations are located
in 443,000 square feet of space built on 33 acres of
land owned by us in Pocatello, Idaho. We also lease an
engineering and research center in Pocatello.

In Europe, our manufacturing and other facilities
are located in 15,601 square meters on 44,000 square
meters owned by us in Oudenaarde, Belgium.

In Manila, the Philippines, we lease
approximately 85,600 square feet of light manufacturing and
warehouse space. The lease will expire on November 20, 2006
and we are currently evaluating alternatives for when the lease
expires. Sort, test and administration functions are housed in
this facility.

We also lease space in many locations throughout
the United States for regional sales offices, field design
centers and remote engineering and development operations.

Outside the United States, we lease space for
regional offices in Europe and Asia. The leased space is for
sales, marketing, administrative offices or design engineering
and related support space.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We were named as a defendant in a complaint filed
on January 21, 2003, by Ricoh Company, Ltd. in the
U.S. District Court for the District of Delaware alleging
infringement of a patent owned by Ricoh. Ricoh is seeking an
injunction and damages in an unspecified amount relating to such
alleged infringement. The case was transferred to the
U.S. District Court for the Northern District of Delaware
on August 29, 2003 and was subsequently transferred to the
U.S. District Court for the Northern District of
California. The patents relate to certain methodologies for the
automated design of custom semiconductors. The allegations are
premised, at least in part, on the use of software we licensed
from Synopsys. Synopsys has agreed to assume the sole and
exclusive control of our defense relating to our use of the
Synopsys software pursuant to the indemnity provisions of the
Synopsys software license agreement, subject to the exceptions
and limitations contained in the agreement. Synopsys will bear
the cost of the defense as long as it is controlling the
defense. However, it is possible that we may become aware of
circumstances, or circumstances may develop, that result in our
defense falling outside the scope of the indemnity provisions of
the Synopsys software license agreement, in which case we would
resume control of our defense and bear its cost, or share the
cost of the defense with Synopsys and any other similarly
situated parties. Based on information available to us to date,
our belief is that the asserted claims against us are without
merit or, if meritorious, that we will be indemnified (with
respect to damages) for such claims by Synopsys and resolution
of this matter will not have a material adverse effect on our
future financial results or financial condition. However, if
Ricoh is successful, we could be subject to an injunction or
substantial damages or we could be required to obtain a license
from Ricoh, if available.

From time to time we are a party to various
litigation matters incidental to the conduct of our business.
There is no pending or threatened legal proceeding to which we
are a party that, in the opinion of management, is likely to
have a material adverse effect on our future financial results
or financial condition.

14



---



##### Table of Contents








|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matters were submitted to a vote of our
stockholders during the fourth quarter of 2003.




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Our common stock is traded on the Nasdaq National
Market under the symbol AMIS. Public trading of the
common stock began on September 24, 2003. 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
bid price per share of our common stock as quoted on the Nasdaq
National Market.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2003           |  |      |       |     |  |   |       | 
|Fourth Quarter |  | $    | 21.80 |     |  | $ | 16.42 | 
|Third Quarter  |  | $    | 21.85 |     |  | $ | 19.37 | 

As of March 4, 2004 there were approximately
3,569 stockholders of record of our common stock.

Dividend Policy

We have never paid cash dividends on our common
stock. We currently intend to retain earnings to finance future
growth, and therefore do not anticipate paying cash dividends in
the foreseeable future. Our senior credit facilities prohibit us
from paying cash dividends on our equity securities, except in
limited circumstances. See note 9 to our consolidated
financial statements for a more complete description of
limitations on our ability to pay dividends.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected historical financial data
for the years ended December 31, 2003, 2002 and 2001 and as
of December 31, 2003 and 2002 were derived from our
consolidated financial statements included elsewhere in this
annual report. The selected historical financial data for the
years ended December 31, 2000 and 1999 and as of
December 31, 2001, 2000 and 1999 were derived from our
combined/consolidated financial statements, which are not
included in this annual report. When comparing the 2003
consolidated financial position and operating results to prior
periods, you should note that the initial public offering of our
common stock and the issuance of our senior subordinated notes
during 2003 had a significant impact on our financial position
and operating results. When comparing the 2003 and 2002
consolidated financial position and operating results to prior
periods, you should note that the MSB acquisition in June 2002
had a significant impact on our 2003 and 2002 financial position
and operating results. From 1999 until our recapitalization on
December 21, 2000, our activities were conducted as part of
Nippon Mining Holdings Inc.s (formerly Japan Energy
Corporation) overall operations. As such, the
combined/consolidated financial statements for those periods
contain various allocations for costs and expenses attributable
to services provided by Nippon Mining Holdings Inc. Therefore,
the combined/consolidated statements of operations may not be
indicative of the results of operations that would have occurred
if we had operated on a stand-alone basis. You should read the
following tables in conjunction with other information contained
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, our
consolidated financial statements and related notes and other
financial information contained elsewhere in this annual report.

15



---



##### Table of Contents



Historical results are not necessarily indicative
of the results to be expected in the future.

|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |      |      | 
|----------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | - | ----- | ---- | ----- | - | ----- | ---- | ---- | 
|                                                                                          |                                          |                                            
|                                                                                          |                                          | Years Ended December 31,                   
|                                                                                          |                                          |                                            
|                                                                                          |                                          | 2003                                        |       | 2002  |       | 2001 |       | 2000  |       | 1999
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |     
|                                                                                          |                                          |                                            
|                                                                                          |                                          | (In millions, except per share information)
|Statement of Operations Data:                                                             |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Revenue                                                                                   |                                          | $                                           | 454.2 |       |       | $    | 345.3 |       |       | $    | 326.5 |       |       | $ | 382.2 |      |       | $ | 278.9 |     
|Gross profit                                                                              |                                          |                                             | 198.2 |       |       |      | 130.3 |       |       |      | 140.1 |       |       |   | 179.5 |      |       |   | 121.3 |     
|Operating expenses:                                                                       |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|                                                                                          | Research and development                 |                                             |       | 70.3  |       |      |       | 52.1  |       |      |       | 42.1  |       |   |       | 37.4 |       |   |       | 39.8 |     
|                                                                                          | Marketing and selling                    |                                             |       | 37.8  |       |      |       | 35.0  |       |      |       | 35.4  |       |   |       | 39.2 |       |   |       | 31.7 |     
|                                                                                          | General and administrative               |                                             |       | 26.8  |       |      |       | 25.0  |       |      |       | 25.6  |       |   |       | 19.9 |       |   |       | 19.6 |     
|                                                                                          | Restructuring and impairment charges(1)  |                                             |       | 21.7  |       |      |       | 0.6   |       |      |       | 5.0   |       |   |       |     |       |   |       |     |     
|                                                                                          | Nonrecurring charges(2)                  |                                             |       | 11.4  |       |      |       |      |       |      |       |      |       |   |       |     |       |   |       |     |     
|                                                                                          | Recapitalization and related expenses(3) |                                             |       |      |       |      |       |      |       |      |       |      |       |   |       | 18.4 |       |   |       |     |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|                                                                                          |                                          | Total operating expenses                    |       |       | 168.0 |      |       |       | 112.7 |      |       |       | 108.1 |   |       |      | 114.9 |   |       |      | 91.1 | 
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Operating income                                                                          |                                          |                                             | 30.2  |       |       |      | 17.6  |       |       |      | 32.0  |       |       |   | 64.6  |      |       |   | 30.2  |     
|Other income (expense):                                                                   |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|                                                                                          | Interest expense, net                    |                                             |       | (22.5 | )     |      |       | (11.5 | )     |      |       | (14.2 | )     |   |       | (5.9 | )     |   |       | (7.4 | )   
|                                                                                          | Other income (expense), net              |                                             |       | (16.2 | )     |      |       | 0.2   |       |      |       | 0.5   |       |   |       | 1.9  |       |   |       | (0.8 | )   
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Income (loss) before income taxes                                                         |                                          |                                             | (8.5  | )     |       |      | 6.3   |       |       |      | 18.3  |       |       |   | 60.6  |      |       |   | 22.0  |     
|Provision (benefit) for income taxes                                                      |                                          |                                             | (8.1  | )     |       |      | 1.2   |       |       |      | 5.6   |       |       |   | 27.0  |      |       |   | 10.9  |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Net income (loss)                                                                         |                                          |                                             | (0.4  | )     |       |      | 5.1   |       |       |      | 12.7  |       |       |   | 33.6  |      |       |   | 11.1  |     
|Preferred stock dividend                                                                  |                                          |                                             | 46.3  |       |       |      | 62.5  |       |       |      | 47.6  |       |       |   | 1.2   |      |       |   |      |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Net income (loss) attributable to common
    stockholders                                 |                                          | $                                           | (46.7 | )     |       | $    | (57.4 | )     |       | $    | (34.9 | )     |       | $ | 32.4  |      |       | $ | 11.1  |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Basic and diluted loss per common share(4)                                                |                                          | $                                           | (0.84 | )     |       | $    | (1.24 | )     |       | $    | (0.76 | )     |       |   |      |      |       |   |      |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     
|Weighted average number of common shares used to
    compute net loss per common share(4) |                                          |                                             | 55.4  |       |       |      | 46.4  |       |       |      | 46.1  |       |       |   |      |      |       |   |      |     
|                                                                                          |                                          |                                             |       |       |       |      |       |       |       |      |       |       |       |   |       |      |       |   |       |     

16



---



##### Table of Contents



|                                                                                                                                                                                                                          |  |                                     |       |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ----- | 
|                                                                                                                                                                                                                          |  |                                    
|                                                                                                                                                                                                                          |  | As of December 31,                 
|                                                                                                                                                                                                                          |  |                                    
|                                                                                                                                                                                                                          |  | 2003                                |       | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                                                                                                                                                                                          |  |                                     |       |      |  |      |        |      |  |     
|                                                                                                                                                                                                                          |  |                                    
|                                                                                                                                                                                                                          |  | (In millions, except share numbers)
|Balance Sheet Data:                                                                                                                                                                                                       |  |                                     |       |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       | 
|Cash                                                                                                                                                                                                                      |  | $                                   | 119.1 |      |  | $    | 62.2   |      |  | $    | 28.7   |   |  | $ | 20.1   |   |  | $ | 3.3   | 
|Accounts receivable, net                                                                                                                                                                                                  |  |                                     | 73.6  |      |  |      | 66.0   |      |  |      | 36.2   |   |  |   | 50.9   |   |  |   | 43.1  | 
|Inventories                                                                                                                                                                                                               |  |                                     | 45.6  |      |  |      | 39.4   |      |  |      | 26.0   |   |  |   | 41.7   |   |  |   | 24.4  | 
|Restricted cash                                                                                                                                                                                                           |  |                                     | 4.2   |      |  |      | 4.2    |      |  |      | 4.2    |   |  |   |       |   |  |   |      | 
|Total assets                                                                                                                                                                                                              |  |                                     | 550.1 |      |  |      | 502.5  |      |  |      | 384.3  |   |  |   | 427.6  |   |  |   | 291.7 | 
|Long-term liabilities                                                                                                                                                                                                     |  |                                     | 0.4   |      |  |      | 3.1    |      |  |      | 3.4    |   |  |   | 3.5    |   |  |   | 10.1  | 
|Long-term debt, including current portion(5)                                                                                                                                                                              |  |                                     | 254.7 |      |  |      | 160.1  |      |  |      | 173.3  |   |  |   | 175.0  |   |  |   |      | 
|Series A Senior Redeemable Preferred Stock,
    20,000,000 authorized, 0, 17,901,722, 17,893,954 and
    17,870,100 shares issued and outstanding at
    December 31, 2003, 2002, 2001 and 2000, respectively             |  |                                     |      |      |  |      | 233.7  |      |  |      | 204.2  |   |  |   | 178.7  |   |  |   |      | 
|Series B Junior Redeemable Convertible
    Preferred Stock, 20,000,000 authorized, 0, 14,317,788,
    14,313,538 and 14,296,084 shares issued and outstanding at
    December 31, 2003, 2002, 2001 and 2000, respectively |  |                                     |      |      |  |      | 190.5  |      |  |      | 164.9  |   |  |   | 143.0  |   |  |   |      | 
|Series C Senior Redeemable Preferred Stock,
    75,000 authorized, 0 and 75,000 issued and outstanding at
    December 31, 2003 and 2002, respectively                                                                    |  |                                     |      |      |  |      | 79.3   |      |  |      |       |   |  |   |       |   |  |   |      | 
|Total stockholders equity (deficit) and
    divisional equity(6)                                                                                                                                                         |  |                                     | 205.0 |      |  |      | (240.4 | )    |  |      | (189.2 | ) |  |   | (153.5 | ) |  |   | 207.5 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our restructuring and impairment charge in 2001
    relates to the termination of certain management and other
    employees as well as costs related to the closure of certain of
    our administrative and sales offices. The restructuring and
    impairment charge in 2002 relates primarily to the termination,
    following the MSB acquisition, of certain persons employed by us
    prior to the MSB acquisition. These were eliminated as a result
    of the cost reduction program implemented in connection with the
    acquisition. Severance costs related to the termination of MSB
    employees as part of the cost reduction program are not part of
    the restructuring and impairment charge for 2002 as such costs
    are part of the purchase price of the MSB acquisition. In 2003,
    our restructuring and impairment charges relate to the
    termination of certain employees, termination of services with
    certain sales representative firms and the non-cash write-off of
    the value of a non-competition provision of an agreement. See
    further discussion in Managements Discussion and
    Analysis of Financial Condition and Results of Operations.
|   
|(2) | In connection with our September 2003 initial
    public offering, we recorded nonrecurring charges of
    $11.4 million. This amount includes a one-time payment of
    $8.5 million associated with amendments to our advisory
    agreements, which also provided for the termination of future
    scheduled annual fees payable under advisory agreements, and
    compensation expense of $2.9 million related to the
    redemption of options to purchase our Series A and
    Series B Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | In connection with our December 2000
    recapitalization, we incurred transaction fees and expenses of
    $18.4 million, excluding capitalizable debt issuance costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) | Loss per common share is not a meaningful measure
    for any periods presented other than the years ended
    December 31, 2003, 2002 and 2001 due to our capital
    structure discussed in footnote 5 below and, as such, is
    not presented for any other period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) | From January 1, 1998 through July 29,
    2000, we operated as American Microsystems, Inc., a
    division of a subsidiary of Nippon Mining Holdings Inc. (Nippon
    Mining). As such, we did not have separate legal status or
    existence. No long-term debt was outstanding to third parties.
    From July 29, 2000 to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

17



---



##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | December 21, 2000, we operated as a
    wholly-owned subsidiary of the parent. Long-term debt for that
    period reflects amounts due to the parent under notes payable.
    Effective December 21, 2000, we issued notes payable to
    third parties for a total of $175.0 million with a term of
    six years.
|   
|(6) | For the period from January 1, 1998 through
    July 29, 2000, as discussed in footnote 5 above, we
    operated as a division of the parent. Therefore, during that
    period we had divisional equity rather than stockholders
    equity.                                                                     






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with, and is qualified in its entirety by reference
to, the attached consolidated financial statements. Except for
the historical information contained herein, the discussions in
this section contain forward-looking statements that involve
risks and uncertainties. Actual results could differ materially
from those discussed below.

Overview

We are a leader in the design and manufacture of
customer specific integrated analog mixed signal semiconductor
products. We focus on the automotive, medical and industrial
markets, which have many products with significant real world,
or analog, interface requirements. We have organized our
business into three operating segments: integrated mixed signal
products, mixed signal foundry services and structured digital
products. Integrated mixed signal products combine analog and
digital functions on a single chip to form a customer defined
system-level solution. We also provide outsourced mixed signal
foundry services for other semiconductor designers and
manufacturers. Mixed signal foundry services provide us with an
opportunity to further penetrate our target markets with our
products and increase the utilization of our fabrication
facilities. Structured digital products, which involve the
conversion of higher cost programmable digital logic integrated
circuits into lower cost digital custom integrated circuits
which provide us with growth opportunities and digital design
expertise which we use to support the design of system solutions
for customers in our target markets.

When evaluating our business, we generally look
at financial measures such as revenue and operating income. We
also use internal tracking measures, such as three-year revenue
from design wins and the capacity utilization of our fabrication
facilities. Our three-year design win revenue has increased in
2003 when compared with 2002. We are seeing the rewards of our
focus on winning designs that will strengthen our financial
position going in to the future. We are also seeing our capacity
utilization increase. This is a measure of the degree to which
our manufacturing assets are being used, thus sharing the fixed
costs of these items across multiple products. As this number
increases, our facilities become more efficient and a
correlating result is that our gross profit margin increases. We
anticipate that our capacity utilization will continue to
increase in the foreseeable future. However, if at some point
our capacity utilization begins to decrease (as is normal during
an industry downturn), then our gross margins could be
negatively affected.

In June 2002, we acquired the mixed signal
business of Alcatel Microelectronics NV from STMicroelectronics
NV. We refer to this as the MSB acquisition. The MSB acquisition
increased our analog and mixed signal engineering team, enhanced
our relationships with major European customers, provided us
with additional high voltage and wireless technologies that
enable us to offer new types of custom integrated circuits to
our end markets and provided us with two fabs in Oudenaarde,
Belgium. As part of the MSB acquisition, we entered into a
supply agreement with STMicroelectronics on a take-or-pay basis
under which STMicroelectronics is required to purchase a minimum
of
50 million
(or approximately $63.0 million, assuming an exchange rate
of 1.00 to
$1.26) of products from us during the two-year period ending
June 26, 2004. Since the inception of this agreement, we
have recognized
35.4 million
($44.6 million assuming an exchange rate of
1.00 to $1.26)
from STMicroelectronics under this agreement. The results of
operations for 2003 include MSB for the entire period whereas
the results of operations for 2002 includes MSB for only the
second half of 2002.

As part of the MSB acquisition, we prepared and
approved a plan of restructuring in connection with the
integration of MSB into our operations and included the costs of
those restructuring activities in the purchase

18



---



##### Table of Contents



price pursuant to EITF No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. The restructuring costs that were
accrued and included in the purchase price primarily include
costs associated with relocating and combining MSBs
testing facilities with our existing facilities. The majority of
these costs relate to employee severance. As of
December 31, 2003, we had terminated 42 employees as part
of this transfer of the testing facilities. This relocation was
completed during 2003. Additional costs, which were
substantially paid in 2002, represent employee severance for 79
MSB employees that had duplicative responsibilities as those of
our employees and were terminated as part of our plan.


Following is a rollforward of the restructuring
accrual from June 26, 2002 to December 31, 2003 (in
thousands):

|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 
|--------------------------- |  | ------------- | ----- | ------- |  | ------------- | ------ | ------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | - | 
|                            |  | Restructuring |       |         |  | Restructuring |        |         |  | Restructuring
|                            |  | Accrual at    |       |         |  | Accrual at    |        |         |  | Accrual at   
|                            |  | June 26,      |       | Paid in |  | December 31,  |        | Paid in |  | December 31, 
|                            |  | 2002          |       | 2002    |  | 2002          |        | 2003    |  | 2003         
|                            |  |               |       |         |  |               |        |         |  |              
|Employee severance costs    |  | $             | 3,700 |         |  | $             | (1,500 | )       |  | $             | 2,200 |  |  | $ | (2,200 | ) |  | $ |  | 
|Transfer of ownership taxes |  |               | 800   |         |  |               | (800   | )       |  |               |      |  |  |   |       |   |  |   |  | 
|Other                       |  |               | 100   |         |  |               | (100   | )       |  |               |      |  |  |   |       |   |  |   |  | 
|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 
|Total                       |  | $             | 4,600 |         |  | $             | 2,400  |         |  | $             | 2,200 |  |  | $ | (2,200 | ) |  | $ |  | 
|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 

Critical Accounting Policies

The preparation of our financial statements in
conformity with accounting principles generally accepted in the
United States requires our management to make estimates and
judgments that affect our reported amounts of assets and
liabilities, revenue and expenses and related disclosures. We
have identified revenue recognition, inventories, property,
plant and equipment, intangible assets, goodwill, income taxes
and stock options as areas involving critical accounting
policies and the most significant judgments and estimates.

We evaluate our estimates and judgments on an
ongoing basis. We base our estimates on historical experience
and on assumptions that we believe to be reasonable under the
circumstances. Our experience and assumptions form the basis for
our judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results
may vary from what we anticipate and different assumptions or
estimates about the future could change our reported results. We
believe the following accounting policies are the most critical
to us, in that they are important to the portrayal of our
financial statements and they require the most difficult,
subjective or complex judgments in the preparation of our
financial statements.



| |                    
| | -------------------
| | Revenue Recognition

Several criteria must be met before we can
recognize revenue from our products and revenue relating to
engineering design and product development. We must apply our
judgment in determining when revenue recognition criteria are
met.

We recognize revenue from products sold directly
to end customers when persuasive evidence of an arrangement
exists, the price is fixed and determinable, shipment is made
and collectibility is reasonably assured. In certain situations,
we ship products through freight forwarders where title does not
pass until product is shipped from the freight forwarder. In
other situations, by contract, title does not pass until the
product is received by the customer. In both cases, revenue and
related gross profit are not recognized until title passes to
the customer. Estimates of product returns and allowances, based
on actual historical experience, are recorded at the time
revenue is recognized and are deducted from revenue.

Revenue from contracts to perform engineering
design and product development are recognized as milestones are
achieved, which approximates the percentage-of-completion
method. Costs associated with such contracts are expensed as
incurred. A typical milestone billing structure is 40% at the
start of the project, 40% at the creation of the reticle set and
20% upon delivery of the prototypes.

19



---



##### Table of Contents



Since up to 40% of revenue is billed and
recognized at the start of the design development work and,
therefore, could result in the acceleration of revenue
recognition, we analyze those billings and the status of
in-process design development projects at the end of each
reporting period in order to determine that the milestone
billings approximate percentage-of-completion on an aggregate
basis. We compare each projects stage with the total level
of effort required to complete the project, which we believe is
representative of the cost-to-cost method of determining
percentage-of-completion. Based on this analysis, the relatively
short-term nature of our design development process and the
billing and recognition of 20% of the project revenue after
design development work is complete (which effectively defers
20% of the revenue recognition to the end of the contract), we
believe our milestone method approximates the
percentage-of-completion method in all material respects.

Our engineering design and product development
contracts generally involve pre-determined amounts of revenue.
We review each contract that is still in process at the end of
each reporting period and estimate the cost of each activity yet
to be performed under that contract. This cost determination
involves our judgment and the uncertainties inherent in the
design and development of integrated circuits. If we determine
that our costs associated with a particular development contract
exceed the revenue associated with such contract, we estimate
the amount of the loss and establish a corresponding reserve.



| |            
| | -----------
| | Inventories

We initiate production of a majority of our
semiconductors once we have received an order from a customer.
Based on forecasted demand from specific customers, we may build
up to two weeks of finished goods inventory. As a result, we
generally do not carry a significant inventory of finished
goods. However, we purchase and maintain raw materials at
sufficient levels to meet lead times based on forecasted demand.
If forecasted demand exceeds actual demand, we may need to
provide an allowance for excess or obsolete quantities on hand.
We provide an allowance for inventories on hand that are in
excess of six months of forecasted demand. Forecasted demand is
determined based on historical sales or inventory usage,
expected future sales or using backlog and other projections and
the nature of the inventories. We also review other inventories
for indicators of impairment and provide an allowance as deemed
necessary. We also provide an allowance for obsolete inventory,
which is written off at the time of disposal.

We state inventories at the lower of cost (using
the first-in, first-out method) or market.



| |                                                        
| | -------------------------------------------------------
| | Property, Plant and Equipment and
    Intangible Assets

We regularly evaluate the carrying amounts of
long-lived assets, including property, plant and equipment and
intangible assets, as well as the related amortization periods,
to determine whether adjustments to these amounts or to the
useful lives are required based on current circumstances or
events. The evaluation, which involves significant management
judgment, is based on various analyses including cash flow and
profitability projections. To the extent such projections
indicate that future undiscounted cash flows are not sufficient
to recover the carrying amounts of the related long-lived
assets, the carrying amount of the underlying assets will be
reduced, with the reduction charged to expense so that the
carrying amount is equal to fair value, primarily determined
based on future discounted cash flows. To the extent such
evaluation indicates that the useful lives of property, plant
and equipment are different than originally estimated, the
amount of future depreciation expense is modified such that the
remaining net book value is depreciated over the revised
remaining useful life. We entered into a non-compete agreement
with Nippon Mining and its subsidiary in connection with our
December 21, 2000 recapitalization. According to this
agreement, each of Nippon Mining and its subsidiary agreed to
not engage in the custom semiconductor business anywhere in the
world through December 2005. In our review of the carrying value
of intangible assets, we reached a determination that the
carrying value of the non-compete had been impaired based
primarily on a change in Nippon Minings and its
subsidiarys business focus and related capabilities such
that they did not intend to focus on custom semiconductors.
Effective June 26, 2003, we released Nippon Mining and its
subsidiary from the non-compete agreement and we recorded an
impairment charge of $20.0 million related to the non-cash
write-off of the remaining value of the non-compete provision of
this agreement.

20



---



##### Table of Contents





| |         
| | --------
| | Goodwill

Under the guidelines of Financial Accounting
Standards (FAS) 142, Goodwill and Other Intangible
Assets, we assess goodwill at least annually for
impairment using fair value measurement techniques.
Specifically, goodwill impairment is determined using a two-step
process. The first step is to identify potential impairment by
comparing the fair value of a reporting unit to which the
goodwill is assigned with the units net book value (or
carrying amount), including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, there is no deemed
impairment of goodwill and the second step of the impairment
test is unnecessary. However, if the carrying amount of the
reporting unit exceeds its fair value, the second step of the
goodwill impairment test is performed to measure the amount of
goodwill impairment loss, if any. The second step compares the
implied fair value of the reporting units goodwill with
the carrying amount of that goodwill. If the carrying amount of
the reporting units goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The implied fair value of goodwill
is determined in the same manner as the amount of goodwill
recognized in a business combination. That is, the fair value of
the reporting unit is allocated to all of the assets and
liabilities of that unit (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the
purchase price paid to acquire the reporting unit. We completed
the first step of the annual impairment test in 2003 and
determined that the fair value of our reporting units exceeded
their carrying values including goodwill; therefore, no
impairment charge was taken and there was no need to proceed to
the second step of the goodwill impairment test.

Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether an impairment charge is
recognized, including the magnitude of any such charge. To
assist in the process of determining goodwill impairment, we may
obtain appraisals from independent valuation firms. In addition
to the use of independent valuation firms, we perform internal
valuation analyses and consider other market information that is
publicly available. Estimates of fair value are primarily
determined using discounted cash flows and market comparisons of
recent transactions. These approaches use significant estimates
and assumptions including the amount and timing of projected
future cash flows, discount rates reflecting the risk inherent
in the future cash flows, perpetual growth rates, determination
of appropriate market comparables and the determination of
whether a premium or discount should be applied to these
comparables.



| |             
| | ------------
| | Income Taxes

Income taxes are recorded based on the liability
method, which requires recognition of deferred tax assets and
liabilities based on differences between financial reporting and
tax bases of assets and liabilities measured using enacted tax
rates and laws that are expected to be in effect when the
differences are expected to reverse. A valuation allowance is
recorded to reduce our deferred tax asset to an amount we
determine is more likely than not to be realized, based on our
analyses of past operating results, future reversals of existing
taxable temporary differences and projected taxable income,
including tax strategies available to generate future taxable
income. Our analyses of future taxable income are subject to a
wide range of variables, many of which involve our estimates and
therefore our deferred tax asset may not be ultimately realized.
Under the change of ownership provisions of the
Internal Revenue Code, utilization of our net operating loss
carryforwards may be subject to an annual limitation.

Stock
Options

We have elected to follow the intrinsic
value-based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations in
accounting for employee stock options rather than adopting the
alternative fair value accounting provided under
SFAS No. 123, Accounting for Stock-Based
Compensation. Therefore, we do not record any compensation
expense for stock options we grant to our employees where the
exercise price equals the fair

21



---



##### Table of Contents



market value of the stock on the date of grant
and the exercise price, number of shares eligible for issuance
under the options and vesting period are fixed. Deferred
stock-based compensation is recorded when stock options are
granted to employees at exercise prices less than the estimated
fair value of the underlying common stock on the grant date.
Historically, we generally determined the estimated fair value
of our common stock based on independent valuations. We recorded
deferred stock-based compensation of approximately $519,000 in
2003, prior to our initial public offering. We comply with the
disclosure requirements of SFAS No. 123 and
SFAS No. 148, which require that we disclose our pro
forma net income or loss and net income or loss per common share
as if we had expensed the fair value of the options in
determining net income or loss. In calculating such fair value,
there are certain assumptions that we use, as disclosed in
note 14 to our consolidated financial statements, included
herein.


Certain of our options that we issued in 2000
included options to purchase shares of our Series A
Preferred Stock and Series B Preferred Stock. Under the
terms of these options, the exercise prices changed in
conjunction with changes in the accreted value of the related
Preferred Stock. We recorded and adjusted compensation expense
each reporting period, as required under APB 25, for the
intrinsic value generated by the change in the exercise price.
During the third quarter of 2003, all options to purchase
preferred stock were redeemed, with accrued amounts due being
paid in October 2003. This redemption resulted in an additional
charge to compensation expense of approximately
$2.9 million during the third quarter of 2003.

Quarterly
Results

The following table sets forth the unaudited
historical revenue by operating segment and total gross profit
by quarter, which data has been derived from our unaudited
interim financial statements:

|                                 |  |                                   |       |      |  |    |       |    |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |      |   |  |   |      |  
|-------------------------------- |  | --------------------------------- | ----- | ---- |  | -- | ----- | -- |  | -- | ----- | -- |  | -- | ----- | -- |  | - | ----- | - |  | - | ----- | - |  | - | ---- | - |  | - | ---- | -
|                                 |  |                                   |       |     
|                                 |  | 2003                              |       | 2002
|                                 |  |                                   |       |     
|                                 |  | Q4                                |       | Q3   |  | Q2 |       | Q1 |  | Q4 |       | Q3 |  | Q2 |       | Q1
|                                 |  |                                   |       |      |  |    |       |    |  |    |       |    |  |    |       |   
|                                 |  |                                  
|                                 |  | (In millions, except percentages)
|Revenue:                         |  |                                   |       |      |  |    |       |    |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |      |   |  |   |      |  
|Integrated mixed signal products |  | $                                 | 62.3  |      |  | $  | 61.8  |    |  | $  | 60.5  |    |  | $  | 56.8  |    |  | $ | 58.6  |   |  | $ | 56.3  |   |  | $ | 26.5 |   |  | $ | 25.8 |  
|Mixed signal foundry services    |  |                                   | 32.3  |      |  |    | 30.8  |    |  |    | 27.0  |    |  |    | 26.0  |    |  |   | 25.0  |   |  |   | 26.5  |   |  |   | 21.9 |   |  |   | 19.7 |  
|Structured digital products      |  |                                   | 31.0  |      |  |    | 24.8  |    |  |    | 20.9  |    |  |    | 20.0  |    |  |   | 18.9  |   |  |   | 21.5  |   |  |   | 21.1 |   |  |   | 23.5 |  
|                                 |  |                                   |       |      |  |    |       |    |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |      |   |  |   |      |  
|Total                            |  | $                                 | 125.6 |      |  | $  | 117.4 |    |  | $  | 108.4 |    |  | $  | 102.8 |    |  | $ | 102.5 |   |  | $ | 104.3 |   |  | $ | 69.5 |   |  | $ | 69.0 |  
|                                 |  |                                   |       |      |  |    |       |    |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |      |   |  |   |      |  
|Gross profit                     |  | $                                 | 56.9  |      |  | $  | 51.5  |    |  | $  | 47.5  |    |  | $  | 42.3  |    |  | $ | 37.1  |   |  | $ | 42.0  |   |  | $ | 26.0 |   |  | $ | 25.2 |  
|Gross margin                     |  |                                   | 45.3  | %    |  |    | 43.9  | %  |  |    | 43.8  | %  |  |    | 41.1  | %  |  |   | 36.2  | % |  |   | 40.3  | % |  |   | 37.4 | % |  |   | 36.5 | %

Prior to the MSB acquisition, substantially all
of our historical revenue was denominated in U.S. dollars.
Following the MSB acquisition, approximately 27% of our revenue
in the second half of 2002 and 36% in 2003 was denominated in
euros. The semiconductor industry is cyclical in nature. Our
product sales track the general market conditions seen
throughout the semiconductor industry.

Revenue for the second half of 2002 increased
primarily due to the inclusion of MSB in our results. Revenue
during 2003 benefited from the MSB acquisition, improvements in
the overall semiconductor market and market share gain.

Year Ended December 31, 2003 Compared
With Year Ended December 31, 2002

Revenue

Revenue in 2003 increased 31.5% to
$454.2 million from $345.3 million in 2002. This
increase is partially due to the inclusion of MSBs results
for the entire year in 2003 compared to only the second half of
2002. In 2003, we also benefited from the revitalization of the
economy as well as our increased focus on sales and marketing
efforts. We saw the most significant growth in the
communications, automotive, medical and industrial end markets.

22



---



##### Table of Contents



According to Gartner Dataquest, the semiconductor
industry grew 13.6% and the application specific integrated
circuit segment of the semiconductor industry grew by 1.9% from
2002 to 2003. For both application specific integrated circuits,
and application specific standard products, the market grew by
10.6% in 2003. Our revenues grew by 31.3% over this same period,
and we gained significant market share. Most of this gain was
due to the significant increase in our capability as a result of
the MSB acquisition.

Integrated mixed signal sales of
$241.4 million increased 44.4% over 2002 sales of
$167.2 million. This increase is primarily due to the
inclusion of MSBs results for the entire year in 2003
compared to only the second half of 2002. In 2003, we saw steady
growth across all end markets for this segment. In to the
future, we expect this segment to show steady growth and
continue to provide the backbone of our business.

Mixed signal foundry services revenue grew to
$116.1 million, an increase of 24.7% over 2002 sales of
$93.1 million. Growth was due to increased unit sales in
the medical and computing end markets and strong sales to
STMicroelectronics, which is related to the take-or-pay
agreement put in place at the time of the MSB acquisition.
MSBs results were included for the entire period in 2003
compared to only the second half in 2002. As this take-or-pay
expires, we expect overall mixed signal foundry revenue to
decrease slightly as a percentage of total company revenue.

Structured digital products revenue was
$96.7 million, an increase of 13.8% over 2002 sales of
$85.0 million. Increased revenue from the communications
and military end markets, as well as revenue from our
XPressArrayTM products, helped to increase the
structured digital products sales in 2003. As
XPressArrayTM as well as other communications end
market products continue to show strength, we expect structured
digital products to increase as a percentage of total company
revenue in 2004.

Our 2003 revenue, as a percentage of total
revenue, from North America, Europe and Asia was 40.9%, 40.7%
and 18.4%, respectively, compared with 55.5%, 24.5% and 20.0%,
respectively, in 2002. This shift in revenue toward Europe is
primarily due to the MSB acquisition. We expect the geographic
mix of our revenue to remain stable through 2004.

Gross
Profit

Cost of revenue consists primarily of purchased
materials, labor and overhead (including depreciation)
associated with the design and manufacture of products sold.
Costs related to non-recurring engineering fees are included in
cost of revenue to the extent that they are reimbursed by our
customers under a development arrangement. Costs associated with
unfunded non-recurring engineering are classified as research
and development because we typically retain ownership of the
proprietary rights to intellectual property that has been
developed in connection with non-recurring engineering work.
Gross profit increased to $198.2 million, or 43.6% as a
percentage of revenue, in 2003 from $130.3 million, or
37.7% as a percentage of revenue, in 2002. The increase in gross
profit percentage is a result of our continued cost reduction
efforts, increased utilization of our fabrication facilities and
shifts in the mix of the products we sold. During 2003, a
greater percentage of integrated mixed signal products were
sold. This helped to increase our overall gross margin. We also
sold more high margin structured digital products, including
XPressArrayTM and high margin defense products, which
improved the margin in 2003.

Operating
Expenses

Research and development expenses consist
primarily of activities related to process engineering, cost of
design tools, investments in development libraries, technology
license agreements and product development activities. Research
and development expenses increased to $70.3 million, or
15.5% of revenue, in 2003 from $52.1 million, or 15.1% of
revenue, in 2002. This increase is primarily attributable to
expenses related to increased design wins and the associated
non-customer funded expenses, as well as the inclusion of
MSBs results for the entire period in 2003 compared to
only the second half of 2002. In 2004, we expect research and
development expenses to remain at approximately 15% of revenue.

Marketing and selling expenses consist primarily
of commissions to sales representatives, salaries and
commissions of sales and marketing personnel and advertising and
communication costs. Marketing and

23



---



##### Table of Contents



selling expenses increased to $37.8 million,
or 8.3% of revenue, in 2003 compared to $35.0 million, or
10.1% of revenue, in 2002. This increase is due to costs
associated with higher sales levels and the inclusion of
MSBs results for the entire period in 2003 compared to
only the second half of 2002.


General and administrative expenses consist
primarily of salaries of our administrative staff, professional
and advisory fees for various consulting projects and
amortization of intangible assets. General and administrative
expenses increased to $26.8 million, or 5.9% of revenue, in
2003 compared to $25.0 million, or 7.2% of revenue, in
2002. This increase in general and administrative expenses is
primarily due to the inclusion of MSBs results for the
entire year in 2003 compared with only the second half in 2002.
Other factors that affected general and administrative expenses
during 2003 include the elimination of amortization on the
non-compete agreement, which was written off at the end of the
second quarter 2003, as discussed below. This decrease was
partially offset by increases in professional fees associated
with various consulting projects. In 2004, we expect selling,
general and administrative expenses, combined, to decrease to
approximately 12% of revenue by the end of the year.

Restructuring
and Impairment Charges

In the second quarter of 2003, we recorded a
non-cash impairment charge of $20.0 million related to the
write off of the unamortized balance of an intangible asset that
had no remaining value. We entered into a non-compete agreement
with Nippon Mining and its subsidiary that was our former parent
in connection with our December 21, 2000 recapitalization
pursuant to which they agreed to not engage in the custom
semiconductor business anywhere in the world through December
2005. In our second quarter review of the carrying value of
intangible assets, we reached a determination that the carrying
value of the non-compete had been impaired based primarily on a
change in Nippon Minings and our former parents
business focus and related capabilities such that they did not
intend to focus on custom semiconductors. Effective
June 26, 2003, we released Nippon Mining and our former
parent from the non-compete agreement and we expensed the
$20.0 million remaining unamortized balance of the
agreement as of the effective date.

In the fourth quarter of 2003, we recorded
restructuring charges of $1.7 million. This amount was
primarily related to employee severance as a result of employee
terminations and the termination of services with certain sales
representative firms.

For a summary of the restructuring accrual
relating to the 2003, 2002 and 2001 plans, see the table under
Liquidity and Capital Resources below.

Nonrecurring
Charges

In September 2003, we recorded nonrecurring
charges of $11.4 million. This amount includes a one-time
payment of $8.5 million associated with amendments to our
advisory agreements as well as compensation expense of
$2.9 million related to the redemption of options to
purchase our Series A and Series B Preferred Stock.
The advisory agreements were in place prior to our initial
public offering and provided for Citigroup Venture Capital
(CVC) and Francisco Partners to provide financial,
advisory and consulting services to us. In conjunction with
our IPO, we terminated the advisory agreement and the associated
future scheduled annual fees.

Operating
Income

Operating income increased approximately
$12.6 million to approximately $30.2 million for 2003
compared with operating income of $17.6 million for 2002.
The components affecting the changes in operating income are
discussed above.

Integrated mixed signal products operating income
increased approximately $16.4 million to $28.3 million
from $11.9 million in 2003 compared to 2002. This increase
is attributable to increased revenue, including an increase in
customer funded development projects, as well as the inclusion
of MSBs results for the entire year in 2003 versus the
second half in 2002.

24



---



##### Table of Contents



Mixed signal foundry services operating income
increased approximately $12.6 million to $19.5 million
in 2003 from $6.9 million in 2002. This increase is
attributable to increased revenue and resulting higher gross
margin, as well as the inclusion of MSBs results for all
of 2003 compared to only the second half in 2002.

Structured digital products operating income
increased approximately $16.1 million to $15.5 million
in 2003 from $(0.6) million in 2002. This increase is
attributable to higher margin revenue coming from the
communications and military end markets and to cost reduction
efforts.

These increases are offset by the
Restructuring, Impairment and Nonrecurring Charges which
are not allocated to our segments.

Net Interest
Expense

Net interest expense for 2003 increased
$11.0 million over the same period in 2002 to
$22.5 million from $11.5 million. The higher interest
expense was primarily attributable to the increased debt levels
associated with our senior subordinated notes (see further
discussion in Liquidity and Capital Resources)
issued in January 2003.

Net Other
Expense

Net other expense for 2003 increased to
$16.2 million from $0.1 million of income in 2002.
This increase is primarily due to the $7.9 million non-cash
write-off of deferred financing fees, the $7.5 million
premium paid in conjunction with the redemption of
$70.0 million of our senior subordinated notes and
$0.8 million relating to the settlement of hedging
transactions. These expenses all related to the various debt
transactions that occurred during 2003. We do not expect these
types of expenses to be frequent in our ongoing business.

Income
Taxes

Our income tax benefit was $8.1 million on a
pre-tax loss of $8.5 million for 2003 compared with income
tax expense of $1.2 million on pre-tax income of
$6.3 million in 2002. The fact that we operate in multiple
tax jurisdictions is the primary reason that the 2003 income tax
benefit represents such a large portion of the 2003 pre-tax
loss. During 2003 we recorded pre-tax losses in certain
jurisdictions with higher statutory tax rates while in other
lower tax jurisdictions we recorded pre-tax income. Furthermore,
in certain foreign jurisdictions we consider the income to be
permanently invested in the foreign entities; therefore, no
additional U.S. income tax provision has been recorded on
the income from these lower tax jurisdictions. Because the
jurisdictions with pre-tax losses were recording tax benefits at
a relatively high statutory rate and the jurisdictions with
pre-tax income were recording tax expense at lower statutory
rates, the resulting 2003 tax benefit comprises an unusually
large percentage of the 2003 pre-tax loss.

As of December 31, 2003, we had deferred tax
assets of $47.6 million (net of deferred tax liabilities of
$40.3 million and a valuation allowance of
$50.2 million). In reaching a conclusion regarding the
amount of valuation allowance we believe is necessary to reduce
the net deferred tax asset to an amount that is expected to be
realized, we considered the following factors: (i) past
operating results, (ii) future reversals of existing
taxable temporary differences and (iii) the likelihood of
future taxable income exclusive of reversing temporary
differences and carryforwards based on projected pre-tax
operating results. We will continue to evaluate the need to
increase or decrease the valuation allowance on our deferred tax
assets based on the anticipated pre-tax operating results of
future periods. Under the change of ownership
provisions of the Internal Revenue Code, utilization of our net
operating loss carryforwards may be subject to an annual
limitation.

Backlog

Our six-month backlog was $128.4 million as
of December 31, 2003 compared to backlog of
$97.7 million as of December 31, 2002. Backlog is
typically recorded only upon receipt of a written purchase order
from a customer. Reported backlog represents products scheduled
to be delivered within six months. Backlog is influenced by
several factors including market demand, pricing, customer order
patterns and changes in

25



---



##### Table of Contents



product lead times. Backlog may fluctuate from
booking to time of delivery to reflect changes in customer needs
or industry conditions. Once manufacturing has commenced, orders
generally are not cancelable. In addition, because customers
already have invested significant time working with us
(typically from six to 24 months before production of a
custom semiconductor) and have incurred the non-recurring
engineering fee in full before production begins, they generally
have given careful consideration to the orders they place, and
generally do not cancel orders. However, there is no guarantee
that backlog will ultimately be realized as revenue.


Backlog should not be taken as an indicator of
our anticipated revenue for any particular future period. Line
items recorded in backlog may not result in revenue within six
months for several reasons, including: (a) certain customer
orders within backlog may not be able to be recognized as
revenue within six months (i.e., we, for various reasons, may be
unable to ship the product within the specified time frame
promised); (b) certain customer order delivery dates may be
delayed to a subsequent period by our customers; and
(c) certain customer orders may even be cancelled at our
customers request. These items have often been offset, and
exceeded by, both (a) new customer orders that are booked
subsequent to the backlog reporting date and delivered to the
customer within six months and (b) customer orders with
anticipated delivery dates outside six months and subsequently
shipped sooner than originally anticipated. The amount of
revenue recognized in excess of backlog during any six-month
period varies and depends greatly on overall capacity in the
semiconductor industry and capacity in our manufacturing
facilities. We do not routinely monitor the extent of backlog
cancelled, pushed out for later delivery or accelerated for
earlier delivery.

Year Ended December 31, 2002 Compared
With Year Ended December 31, 2001

Revenue

Revenue for 2002 increased 5.8% to
$345.3 million from $326.5 million in 2001. Excluding
the MSB acquisition, revenue decreased by $53.4 million
primarily due to the continued overall semiconductor industry
downturn. This was offset by an increase in revenue of
$72.2 million from the inclusion of MSBs results
following the acquisition.

According to Gartner Dataquest, the semiconductor
industry grew 1.9% and the application specific integrated
circuit segment of the semiconductor industry declined by 4.0%
from 2001 to 2002. While our decline in revenue, excluding
MSBs revenue, was greater than the overall decline in the
industry during 2002, we believe that difference relates to a
lag in our results versus the industrys results. While the
industry sales volumes declined appreciably beginning in the
fourth quarter of 2000, we did not see the full effect of the
industry downturn on our results until the third quarter of
2001. As a result of this lag, we believe that to fully
understand our operating results as compared to the industry, a
comparison for the two-year period of 2000 to 2002 is more
meaningful. During this period the semiconductor industry
declined 29.9% and the application specific integrated circuit
segment of the semiconductor industry declined 31.2% according
to Gartner Dataquest. Excluding MSBs revenue, our revenue
during the same period declined 28.5% indicating a slight gain
in market share. The MSB acquisition further enhanced our market
share position.

Revenue from the sale of our integrated mixed
signal products increased by 79.0% to $167.2 million in
2002 from $93.4 million in 2001. This increase was
primarily a result of the inclusion of MSBs results
following the acquisition, which contributed $58.1 million
in revenue during the second half of 2002, and the commencement
of production of new products for two large customers during the
same period.

Revenue from the sale of our structured digital
products decreased 39.2% to $85.0 million in 2002 from
$139.8 million in 2001. The communications market was
experiencing a severe downturn, which was primarily responsible
for this decline in revenue.

Revenue from the sale of our mixed signal foundry
services decreased 0.2% to $93.1 million in 2002 from
$93.3 million in 2001. Of the 2002 amount,
$12.5 million relates to the STMicroelectronics supply
agreement and back end services agreement. Excluding this
additional revenue, revenue from the sale of foundry services
declined 13.6% as a result of the industry conditions described
above.

26



---



##### Table of Contents



Revenue from our North American market decreased
in 2002 when compared to 2001. However, our European and Asian
markets experienced an increase between these periods.
Geographically, 55.5%, 24.5% and 20.0% of our revenue were
derived from North America, Europe and Asia, respectively, in
2002 compared with 83.5%, 6.6% and 9.9%, respectively, in 2001.
The growth in Europe was due to the MSB acquisition and the
growth in Asia was due to an increasing trend among our
customers to use contract manufacturers in Asia. These contract
manufacturers purchase the products on behalf of our end
customers. We believe that in future periods an increasing
portion of our revenue will be derived from markets outside of
North America. As a result of the MSB acquisition, the
percentage of our revenue in the European market increased to
approximately 36% in the second half of 2002.

Gross
Profit

Gross profit decreased to $130.3 million in
2002 from $140.1 million in 2001. Gross profit as a
percentage of revenue was 37.7% in 2002 compared to 42.8% in
2001. The decrease in gross profit percentage is primarily a
result of the MSB acquisition. MSBs products typically
have lower gross profit percentages than those of our historical
business due to MSBs lower sales prices. In the second
half of 2002, the gross profit percentage on products associated
with the MSB acquisition was 27% compared to 40.6% for products
associated with our historical business prior to the MSB
acquisition. Gross profit percentage was further depressed by
lower factory utilization in 2002 compared to 2001 as a result
of the semiconductor industry downturn. In general, our selling
prices remained stable during these periods.

Operating
Expenses

As a percentage of revenue, research and
development expenses increased to 15.1% in 2002 from 12.9% in
2001. Research and development expenses were $52.1 million
in 2002 compared with $42.1 million in 2001. The increase
in research and development expenses resulting from the MSB
acquisition was approximately $6.6 million in 2002 and
equated to approximately 9.1% of MSBs revenue.

Marketing and selling expenses, as a percentage
of revenue, decreased to 10.1% in 2002 compared with 10.8% for
2001. Marketing and selling expenses were $35.0 million in
2002 compared with $35.4 million in 2001. A
$3.8 million increase in marketing and selling expenses
associated with the MSB acquisition was offset by cost reduction
efforts in Europe and the United States.

As a percentage of revenue, general and
administrative expenses decreased slightly to 7.2% in 2002
compared with 7.8% in 2001. General and administrative expenses
were $25.0 million in 2002 and $25.6 million in 2001.
Contributing to the $0.6 million decrease from 2001 to 2002
is a $1.9 million decrease in goodwill amortization
resulting from the adoption of SFAS No. 142. A
$3.0 million increase in general and administrative
expenses associated with the MSB acquisition was partially
offset by cost reduction efforts in Europe and the United
States. General and administrative expenses also included
$2.0 million relating to advisory fees paid to Francisco
Partners and CVC and $8.1 million relating to amortization
of a non-compete provision of an agreement.

Restructuring
and Impairment Charges

Restructuring expense of $0.9 million,
consisting primarily of severance costs, occurred in 2002
concurrent with the MSB acquisition. Severance costs were
determined by estimating the amount that would have to be paid
out to each terminated employee. Of this amount,
$0.2 million was paid in 2002. During 2002,
$0.3 million of the 2001 accrual was reversed as original
estimates were revised. As of December 31, 2002,
$4.2 million of the total $5.0 million restructuring
charges recorded in 2001 had been paid. The remaining
$0.5 million from the 2001 restructuring plan is included
in the December 2002 restructuring accrual balance. Of this
$0.5 million, $0.2 million relates to severance costs,
which were substantially paid in the first six months of 2003
and $0.3 million relates to lease termination costs which
are expected to be paid over the lease terms, the longest of
which ends in July 2005. The restructuring charges were recorded
after adoption and approval of an exit plan in compliance with
the provisions of Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an

27



---



##### Table of Contents



Activity (Including Certain Costs Incurred in a
Restructuring). In the future, we may need to further
restructure our business and incur further restructuring charges.


For a summary of the restructuring accrual
relating to the 2003, 2002 and 2001 plans, see the table under
Liquidity and Capital Resources below.

Net Interest
Expense

Net interest expense for 2002 decreased
$2.7 million, or 18.9%, over the same period in 2001. The
lower interest expense was primarily attributable to the
decrease in our outstanding debt to $160.1 million at
December 31, 2002 compared with $173.3 million at
December 31, 2001 as well as a decrease in average interest
rates.

Income
Taxes

Income tax expense was $1.2 million (18.6%
effective rate) in 2002 compared with $5.6 million (30.8%
effective rate) in 2001. The decrease in income tax expense from
2001 to 2002 is primarily due to a decrease in pre-tax income.
In addition, income tax expense and the effective tax rate
decreased in 2002 because the income of certain foreign
subsidiaries is subject to income taxes at lower statutory tax
rates as compared to the U.S. statutory tax rate. No
additional provision for U.S. income taxes has been
recorded related to the foreign earnings because we consider
these amounts to be permanently invested in the foreign entities.

As of December 31, 2002, we had deferred tax
assets of $28.4 million (net of deferred tax liabilities of
$38.2 million and a valuation allowance of
$43.2 million). In reaching a conclusion regarding the
amount of valuation allowance we believe is necessary to reduce
the net deferred tax asset to an amount that is expected to be
realized, management considered the following factors:
(i) past operating results, (ii) future reversals of
existing taxable temporary differences and (iii) the
likelihood of future taxable income exclusive of reversing
temporary differences and carryforwards based on projected
pre-tax operating results. We will continue to evaluate the need
to increase or decrease the valuation allowance on our deferred
tax asset based on the anticipated pre-tax results of the coming
year.

Liquidity and Capital Resources

On September 26, 2003, we completed our
initial public offering of 25,145,000 shares of common
stock at a price to the public of $20 per share. Net of
total offering expenses, we raised approximately
$470.3 million in proceeds. We used the net proceeds of the
offering, together with the borrowings under our new
$125.0 million senior term loan, to redeem all of our
outstanding shares of preferred stock for approximately
$465.2 million, and to repay in full our original senior
term loan for approximately $39.9 million. Additionally, we
redeemed a portion of our senior subordinated notes (see
discussion below) and paid the related premium for a total of
approximately $77.5 million and redeemed options to
purchase shares of preferred stock for approximately
$4.2 million.

On January 29, 2003, AMI Semiconductor
issued and sold $200.0 million aggregate principal amount
of 10 3/4% senior subordinated notes due 2013. The
senior subordinated notes are guaranteed by us and our existing
and future domestic restricted subsidiaries. We cannot redeem
the notes before February 1, 2008 except that, until
February 1, 2006, we can choose to redeem up to an
aggregate of 35% of the original principal amount of the notes,
or $70.0 million, at a redemption price of 110.75% of the
principal amount of any notes we redeem with funds raised in
certain equity offerings or received as a capital contribution
from AMIS Holdings. In connection with our IPO, we redeemed
$70.0 million principal amount of notes, for an aggregate
payment of $77.5 million plus accrued interest. As of
December 31, 2003, we had total debt of $254.7 million.

Our principal capital requirements are to fund
working capital needs, meet required debt payments, including
debt service payments on the senior subordinated notes and the
senior credit facilities as amended, complete planned
maintenance of equipment and to equip our fabrication
facilities. We anticipate that operating cash flow, together
with available borrowings under our revolving credit facility,
will be sufficient to

28



---



##### Table of Contents



meet working capital, interest payment
requirements on our debt obligations and capital expenditures
for at least the next twelve months. Although we believe these
resources may also meet our liquidity needs beyond that period,
the adequacy of these resources will depend on our growth,
semiconductor industry conditions and the capital expenditures
to support capacity and technology improvements.


We generated $70.7 million in cash from
operating activities in 2003 compared to $81.1 million in
cash from operating activities in 2002. This decrease occurred
because of a decrease in net income offset by the non-cash
write-off of the value of a non-compete provision of an
agreement of $20.0 million and deferred financing costs of
$7.9 million and changes in working capital balances due to
normal fluctuations in the timing of cash receipts and payments.

Significant uses of cash can be divided into
investing activities and financing activities. During 2003 and
2002, we invested in capital equipment in the amounts of
$26.6 million and $22.0 million, respectively. See
Capital Expenditures below. Additionally, in 2002 we
paid approximately $85.4 million for the MSB acquisition.

During 2003, we generated net cash from financing
activities of $2.0 million. During this period we raised
$470.3 million, net of offering expenses, through our
initial public offering, issued the senior subordinated notes
for $200.0 million in cash, entered into a new senior term
loan for $125.0 million, repaid $160.1 million on an
existing term loan, paid $546.0 million to redeem our
Series A, Series B and Series C Preferred Stock
and $4.2 million to redeem outstanding preferred stock
options, paid $11.4 million in debt issuance costs related
to the senior subordinated notes and the new senior term loan
and redeemed a portion of our senior subordinated notes and paid
the related premium for $77.5 million. During 2002, we
generated $58.4 million of cash from financing activities.
During this time period, we issued 75,000 shares of
Series C Preferred Stock for $75.0 million. The
offsetting payments in 2002 were payments on our senior credit
facilities including the remittance of Excess Cash
Flow as required by the credit agreement and a prepayment
of $5.0 million.

For a description of the senior credit facilities
and the senior subordinated notes, see note 9 of the
accompanying consolidated financial statements.

As part of the MSB acquisition, we entered into a
supply agreement with STMicroelectronics on a take-or-pay basis
under which STMicroelectronics is required to purchase a minimum
of
50 million
(approximately $63.0 million, assuming an exchange rate of
1 to $1.26) of
products from us during the two-year period ending June 26,
2004.

Capital
Expenditures

During 2003, we spent $26.6 million for
capital expenditures compared with $22.0 million during
2002. Capital expenditures for 2004 are expected to be
approximately 6% to 7% of revenue. These capital expenditures
will primarily be used for equipment replacement, yield
improvement in our wafer fabrication facilities and expanding
our eight-inch fabrication facility capacity. Our annual capital
expenditures are limited by the terms of the senior credit
facilities. We believe we have adequate capacity under the
senior credit facilities to make planned capital expenditures.

Restructuring
and Impairment Charges

During 2003, we recorded $1.7 million of
restructuring costs related to the termination of certain
management and other employees as well as the services of
certain sales representative firms in the United States. This
amount includes $0.7 million related to the accelerated
vesting on certain options making them immediately exercisable
upon termination, as discussed in note 14 to our
consolidated financial statements. As of December 31, 2003,
approximately $0.4 million had been paid, with the balance
paid in early 2004. Restructuring expense of $0.9 million,
consisting primarily of severance costs, was recorded in 2002
concurrent with the MSB acquisition. This amount was paid during
2003. Additionally, during 2001, we recorded restructuring
expenses of $5.0 million. As of December 31, 2003,
approximately $4.5 million of the total $5.0 million
of 2001 restructuring charges had been paid and during 2002,
$0.3 million of the 2001 accrual was reversed as original
estimates were revised. The remaining $0.2 million from the
2001 restructuring plan is

29



---



##### Table of Contents



included in the December 2003 restructuring
accrual balance. This amount is primarily related to lease
termination costs, which are expected to be paid over the lease
terms, the last of which ends in July 2005. The restructuring
charges were taken after adoption and approval of an exit plan
in compliance with the provisions of FAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities for 2003 and Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a
Restructuring) for 2002 and 2001. In the future, we may
need to further restructure our business, and as a result, we
could incur further restructuring charges.


Following is a summary of the restructuring
accrual relating to the 2003, 2002 and 2001 plans (in millions):

|                             |  |           |      |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |      |  
|---------------------------- |  | --------- | ---- | ----------- |  | ---------- | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -- |  | - | ---- | -
|                             |  |           |      | Lease       |  | Legal Fees |      | Write-down |  |      
|                             |  | Severance |      | Termination |  | and Other  |      | of Fixed   |  |      
|                             |  | Costs     |      | Costs       |  | Costs      |      | Assets     |  | Total
|                             |  |           |      |             |  |            |      |            |  |      
|2001 Expense                 |  | $         | 3.6  |             |  | $          | 0.5  |            |  | $     | 0.5  |   |  | $ | 0.3  |    |  | $ | 5.0  |  
|Paid in 2001                 |  |           | (2.7 | )           |  |            | (0.2 | )          |  |       | (0.1 | ) |  |   | (0.3 | )* |  |   | (3.3 | )
|                             |  |           |      |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |      |  
|Balance at December 31, 2001 |  |           | 1.0  |             |  |            | 0.4  |            |  |       | 0.3  |   |  |   |     |    |  |   | 1.7  |  
|2002 Expense                 |  |           | 0.9  |             |  |            |     |            |  |       |     |   |  |   |     |    |  |   | 0.9  |  
|Paid in 2002                 |  |           | (1.0 | )           |  |            | (0.1 | )          |  |       | (0.0 | ) |  |   |     |    |  |   | (1.1 | )
|Reserve Reversal             |  |           | (0.0 | )           |  |            | 0.0  |            |  |       | (0.3 | ) |  |   |     |    |  |   | (0.3 | )
|                             |  |           |      |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |      |  
|Balance at December 31, 2002 |  |           | 0.9  |             |  |            | 0.3  |            |  |       |     |   |  |   |     |    |  |   | 1.2  |  
|2003 Expense                 |  |           | 1.7  |             |  |            |     |            |  |       |     |   |  |   |     |    |  |   | 1.7  |  
|Paid in 2003                 |  |           | (1.9 | )**         |  |            | (0.1 | )          |  |       |     |   |  |   |     |    |  |   | (2.0 | )
|                             |  |           |      |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |      |  
|Balance at December 31, 2003 |  | $         | 0.7  |             |  | $          | 0.2  |            |  | $     |     |   |  | $ |     |    |  | $ | 0.9  |  
|                             |  |           |      |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |      |  



---



| |   |         
| | - | --------
| | * | Non-cash



|   |                      
|-- | ---------------------
|** | $0.7 million non-cash

In connection with the MSB acquisition, we
initiated a plan to reduce operating expenses. The plan called
for the elimination of approximately $47 million in
expenses over a one-year period, commencing with actions in the
third quarter of 2002 to generate savings in the following
quarter. The $47 million expense reduction plan consisted
of approximately $35 million in manufacturing costs
($27 million in wafer fabrication costs and $8 million
in test/assembly costs) and approximately $12 million in
selling, general, and administrative costs. Specific actions
identified in our plan included headcount reductions, including
savings generated from transferring backend test operations from
our Belgium facility to our Philippines facility, which is now
complete; materials savings including negotiated volume
discounts for silicon and reduction in materials consumption
(generated by comparing and adopting best practices between U.S.
and Belgium operations); and savings in subcontracting, sales
commissions, miscellaneous manufacturing overhead and
administrative savings. We completed our cost reduction program
by the end of the second quarter of 2003, as planned.

Contractual Obligations and Contingent
Liabilities and Commitments

Other than operating leases for certain equipment
and real estate, purchase agreements for certain chemicals, raw
materials and services at fixed prices, or similar instruments,
we have no significant off-balance sheet transactions and we are
not a guarantor of any other entities debt or other
financial obligations. The

30



---



##### Table of Contents



following table presents a summary of our
contractual obligations and payments, by period, as of
December 31, 2003.


Cash Payments Due by Period (in
millions)

|                                   |  |       |       |        |  |           |     |           |  |         |     |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ----- | ----- | ------ |  | --------- | --- | --------- |  | ------- | --- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |       |       |        |  |           |     |           |  | After 5
|                                   |  | Total |       | 1 Year |  | 2-3 Years |     | 4-5 Years |  | Years  
|                                   |  |       |       |        |  |           |     |           |  |        
|Senior term loan                   |  | $     | 124.7 |        |  | $         | 1.3 |           |  | $       | 2.5 |  |  | $ | 120.9 |  |  | $ |      | 
|Senior subordinated notes          |  |       | 130.0 |        |  |           |    |           |  |         |    |  |  |   |      |  |  |   | 130.0 | 
|                                   |  |       |       |        |  |           |     |           |  |         |     |  |  |   |       |  |  |   |       | 
|Total long-term debt               |  |       | 254.7 |        |  |           | 1.3 |           |  |         | 2.5 |  |  |   | 120.9 |  |  |   | 130.0 | 
|Operating leases                   |  |       | 13.6  |        |  |           | 6.0 |           |  |         | 4.4 |  |  |   | 1.9   |  |  |   | 1.3   | 
|Other long-term obligations, net   |  |       | 0.4   |        |  |           |    |           |  |         | 0.4 |  |  |   |      |  |  |   |      | 
|                                   |  |       |       |        |  |           |     |           |  |         |     |  |  |   |       |  |  |   |       | 
|Total contractual cash obligations |  | $     | 268.7 |        |  | $         | 7.3 |           |  | $       | 7.3 |  |  | $ | 122.8 |  |  | $ | 131.3 | 
|                                   |  |       |       |        |  |           |     |           |  |         |     |  |  |   |       |  |  |   |       | 

During 2003, we and AMI Semiconductor, Inc.,
our wholly owned subsidiary, entered into new senior secured
credit facilities consisting of a $125.0 million term loan
and executed an increase of the revolving credit facility, the
amount available is now $90.0 million. The term loan
requires a principal payment of $312,500, together with accrued
and unpaid interest, on the last day of March, June, September
and December, with the balance due on September 26, 2008.
The revolving credit facility ($20.0 million of which may
be in the form of letters of credit) is available for working
capital and general corporate purposes. As of December 31,
2003, no amount was drawn on the revolving credit facility.

In 1999, Nippon Mining entered into an agreement
with a major semiconductor manufacturer pursuant to which the
semiconductor manufacturer provides certain technology and
related technological assistance to us. We agreed to reimburse
Nippon Mining for the amounts due under the agreement, which is
denominated in yen, totaling approximately
¥ 1,000,000,000 (or $9.5 million) over a
five-year period. Under the recapitalization agreement, Nippon
Minings subsidiary agreed to pay one-half of the remaining
outstanding obligation to this major semiconductor manufacturer.
As of December 21, 2000, the effective date of the
recapitalization agreement, the obligation totaled approximately
¥ 775,000,000, or approximately $6.8 million
using an estimated exchange rate of approximately
$0.00875/¥. Consequently, we recorded a contra-liability of
approximately $3.4 million, representing the portion of the
obligation that Nippon Minings subsidiary agreed to pay.

As of December 31, 2003, the remaining
obligation, which is scheduled to be paid in 2004, was
approximately ¥ 100,000,000, or approximately
$0.9 million using an estimated exchange rate of
approximately $0.00935/¥. The contra-liability as of
December 31, 2003 was approximately $1.1 million,
representing one-half of the liability remaining and one-half of
those items paid by us, but not yet invoiced to Nippon
Minings subsidiary during 2003.

Also, in conjunction with the recapitalization
agreement, Nippon Minings subsidiary agreed to indemnify
us for any property tax, foreign tax and sales and use tax
obligations outstanding at December 21, 2000 (totaling
approximately $6,343,000). As of December 31, 2003, we had
remaining accruals of approximately $275,000 in accrued expenses
and a corresponding receivable of $1,729,000 representing
remaining accruals and those items paid by us, but not yet
invoiced to Nippon Minings subsidiary, during 2003. As of
December 31, 2002, we had remaining accruals of
approximately $1,729,000 for these obligations in taxes payable
and accrued expenses in the accompanying consolidated balance
sheet and had recorded an offsetting receivable from affiliate
for this amount.

From time to time, we are party to various
litigation matters incidental to the conduct of our business.
There is no pending or threatened legal proceeding to which we
are a party that, in the opinion of management, is likely to
have a material adverse effect on our future financial results
or financial condition.

Currently, we are a primary responsible
party for environmental remediation and cleanup at our
former corporate headquarters in Santa Clara, California (a
liability for which we are able to seek indemnification from our
former parent). Costs incurred by us related to this liability
include implementation of the clean-up

31



---



##### Table of Contents



plan, operations and maintenance of remediation
systems and other project management costs. Our estimate of the
remaining cost to fulfill our obligations under the remediation
effort, as determined in consultation with our environmental
consultants and the governing regulatory agency, is
$0.5 million. We expect to pay $0.2 million per year
over the next three years and have recorded a liability, as well
as a receivable owing from our former parent, for
$0.5 million. Due to the inherent uncertainties surrounding
a contingency of this nature, there exists a reasonable
possibility that such estimates could change in the near term.


Recent Accounting Pronouncements

We have reviewed all recently issued accounting
standards, which have not yet been adopted, in order to
determine their potential effect, if any, on our results of
operations or financial position. Based on that review, we do
not currently believe that any of these recent accounting
pronouncements will have a significant effect on our current or
future financial position, results of operations, cash flows or
disclosures.

Factors that May Affect our Business and
Future Results

The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently believe to be
immaterial may also adversely affect our business.

Risks Relating to Our Company and the
Semiconductor Industry



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The cyclical nature of the semiconductor
    industry may limit our ability to maintain or increase revenue
    and profit levels.

The semiconductor industry is cyclical and our
ability to respond to downturns is limited. The semiconductor
industry experienced the effects of a significant downturn that
began in late 2000 and ended in 2003. Our business was impacted
by this downturn. Our financial performance was negatively
affected by various factors, including general reductions in
inventory levels by customers and excess production capacity. We
cannot predict when another downturn will begin or to what
extent business conditions will change in the future.

During industry downturns or otherwise, we may
need to record impairment or restructuring charges. In 2003, we
incurred a non-cash impairment charge of $20.0 million
related to the write-off of a non-compete provision of an
agreement with Nippon Mining and its subsidiary and
$1.7 million in restructuring charges related to employee
severance and the termination of relationships with certain
sales representative firms. In 2002, we incurred a net non-cash
restructuring charge of $0.6 million consisting primarily
of severance costs that occurred concurrently with the MSB
acquisition. In 2001, we incurred a restructuring charge of
$5.0 million related to our effort to manage costs by
reducing our worldwide workforce and consolidating operations.
In the future, we may need to record additional impairment
charges or further restructure our business and incur additional
restructuring charges.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Due to our relatively fixed cost structure,
    our margins will be adversely affected if we experience a
    significant decline in customer orders.

We make significant decisions, including
determining the levels of business that we will seek and accept,
production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our
estimates of customer requirements. The short-term nature of
commitments by many of our customers and the possibility of
rapid changes in demand for their products reduces our ability
to accurately estimate future customer requirements. On
occasion, customers may require rapid increases in production,
which can challenge our resources, reduce margins or harm our
relationships with our customers. We may not have sufficient
capacity at any given time to meet our customers demands.
Conversely, downturns in the semiconductor industry, such as the
downturn that commenced late in 2000 and ended in 2003, can and
have caused our customers to significantly reduce the amount of
products ordered from us. Significant rapid reductions in
customer orders have caused our wafer fabrication capacity to be
under-utilized. Because many of our costs and operating expenses
are relatively fixed, a reduction in customer

32



---



##### Table of Contents



demand has an adverse effect on our gross margins
and operating income. Reduction of customer demand also causes a
decrease in our backlog. There is also a higher risk that our
trade receivables will be uncollectible during industry
downturns.




| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | A significant portion of our revenue comes
    from a relatively limited number of customers and
    devices.

If we lose major customers or if customers cease
to place orders for our high volume devices, our financial
results will be adversely affected. While we served more than
490 customers in 2003, sales to our 16 largest customers
represented 50.0% of our revenue during this period. The
identities of our principal customers have varied from year to
year and our principal customers may not continue to purchase
products and services from us at current levels, or at all. In
addition, while we sold over 1,350 different products in the
2003, the 41 top selling devices represented 50.0% of our
revenue during this period. The devices generating the greatest
revenue have varied from year to year and our customers may not
continue to place orders for such devices from us at current
levels, or at all. Significant reductions in sales to any of
these customers, the loss of major customers or the curtailment
of orders for our high volume devices within a short period of
time would adversely affect our business.



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Our customers may cancel their orders,
    change production quantities or delay production.

We generally do not obtain firm, long-term
purchase commitments from our customers. Customers may cancel
their orders, change production quantities or delay production
for a number of reasons. Cancellations, reductions or delays by
a significant customer or by a group of customers, which we have
experienced as a result of the recent downturn in the
semiconductor industry, have adversely affected and may continue
to adversely affect our results of operations. In addition,
while we do not obtain long-term purchase commitments, we
generally agree to the pricing of a particular product for the
entire lifecycle of the product, which can extend over a number
of years. If we underestimate our costs when determining the
pricing, our margins and results of operations will be adversely
affected.



| |                                    
| | -----------------------------------
| | We depend on our key
    personnel.

Our success depends to a large extent upon the
continued services of our chief executive officer, Christine
King, and our other key executives, managers and skilled
personnel, particularly our analog and mixed signal engineers.
Generally our employees are not bound by employment or
non-competition agreements and we cannot assure you that we will
retain our key executives and employees. We may or may not be
able to continue to attract, retain and motivate qualified
personnel necessary for our business. Loss of the services of,
or failure to recruit, skilled personnel could be significantly
detrimental to our product development programs or otherwise
have a material adverse effect on our business.



| |                                                               
| | --------------------------------------------------------------
| | We depend on successful technological
    advances for growth.

Our industry is subject to rapid technological
change as customers and competitors create new and innovative
products and technologies. We may not be able to access leading
edge process technologies or to license or otherwise obtain
essential intellectual property required by our customers. If we
are unable to continue manufacturing technologically advanced
products on a cost-effective basis, our business would be
adversely affected.



| |                                                                  
| | -----------------------------------------------------------------
| | We depend on growth in the end markets that
    use our products.

Our continued success will depend in large part
on the growth of various industries that use semiconductors,
including our target automotive, medical and industrial markets,
as well as the communications, military and computing markets,
and on general economic growth. Factors affecting these markets
as a whole could seriously harm our customers and, as a result,
harm us. These factors include:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | recessionary periods or periods of reduced growth
    in our customers markets;                           
|
| |  | the inability of our customers to adapt to
    rapidly changing technology and evolving industry standards;

33



---



##### Table of Contents





| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the potential that our customers products
    may become obsolete or the failure of our customers
    products to gain widespread commercial acceptance; and
|
| |  | the possibility of reduced consumer demand for
    our customers products.                                                                                   

The declining average selling price of
communications equipment places significant pressure on the
prices of the components that are used in this equipment. If the
average selling prices of communications equipment continue to
decrease, the pricing pressure on components we produce may
reduce our revenue and our gross profit margin.

Our industry is highly competitive.

The semiconductor industry is highly competitive
and includes hundreds of companies, a number of which have
achieved substantial market share. Current and prospective
customers for our custom products evaluate our capabilities
against the merits of our direct competitors, as well as the
merits of continuing to use standard or semi-standard products.
Some of our competitors have substantially greater market share,
manufacturing, financial, research and development and marketing
resources than we do. We also compete with emerging companies
that are attempting to sell their products in specialized
markets. We expect to experience continuing competitive
pressures in our markets from existing competitors and new
entrants. Our ability to compete successfully depends on a
number of other factors, including the following:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to offer cost-effective products on a
    timely basis using our technologies;                                               
|
| |  | our ability to accurately identify emerging
    technological trends and demand for product features and
    performance characteristics;
|
| |  | product introductions by our competitors;                                                                                                
|
| |  | our ability to adopt or adapt to emerging
    industry standards;                                                                        
|
| |  | the number and nature of our competitors in a
    given market; and                                                                      
|
| |  | general market and economic conditions.                                                                                                  

Many of these factors are outside of our control.
In addition, in recent years, many participants in the industry
have substantially expanded their manufacturing capacity. If
overall demand for semiconductors should decrease, as it has
done recently, this increased capacity could result in
substantial pricing pressure, which could adversely affect our
operating results. Because our products are typically designed
for a specific customer and are not commodity products, we did
not decrease our prices as significantly as many other companies
in the semiconductor industry to try to maintain or increase
customer orders during the downturn in the semiconductor
industry from 2000 through 2003. However, we cannot assure you
that we will not face increased pricing pressure in the future.

We may incur costs to engage in future
acquisitions of companies or technologies and the anticipated
benefits of those acquisitions may never be realized.

In June 2002 we completed the MSB acquisition and
in September 2002 we purchased the Micro Power Products Division
of Microsemi Corporation. We may in the future make additional
acquisitions of complementary companies or technologies. Any
future acquisitions would be accompanied by risks, including the
following:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential inability to maximize our financial or
    strategic position, which could result in impairment charges if
    the acquired company or assets are later worth less than the
    amount paid for them in the acquisition;
|
| |  | difficulties in assimilating the operations and
    products of an acquired business or in realizing projected
    efficiencies, cost savings and revenue synergies;                                                              
|
| |  | entry into markets or countries in which we may
    have limited or no experience;                                                                                                                                                

34



---



##### Table of Contents





| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential increases in our indebtedness and
    contingent liabilities and potential unknown liabilities
    associated with any such acquisition;                                                                    
|
| |  | diversion of managements attention due to
    transition or integration issues;                                                                                                                                      
|
| |  | difficulties in managing multiple geographic
    locations;                                                                                                                                                           
|
| |  | cultural impediments that could prevent
    establishment of good employee relations, difficulties in
    retaining key personnel of the acquired business and potential
    litigation from terminated employees; and
|
| |  | difficulties in maintaining uniform standards,
    controls and procedures and information systems.                                                                                                                   

We cannot guarantee that we will be able to
successfully integrate any company or technologies that we might
acquire in the future and our failure to do so could harm our
business. The benefits of an acquisition may take considerable
time to develop and we cannot guarantee that any acquisition
will in fact produce the intended benefits.

In addition, our senior credit facilities and our
senior subordinated notes may prohibit us from making
acquisitions that we may otherwise wish to pursue.

Risks Relating to Our International
Operations

We expect
international sales and operations, which expose us to various
political and economic risks, to comprise a growing portion of
our business.

With the MSB acquisition, our exposure to risks
associated with international sales and operations has increased
significantly. As a percentage of total revenue, our historical
revenue outside of North America was approximately 59%, 44% and
17% in 2003, 2002 and 2001, respectively. We expect sales to
customers located in Europe and Asia to comprise an increasing
portion of our business. Our manufacturing operations are
located in the United States and Belgium, our test facilities
and outsourced primary packagers are located in Asia and we
maintain design centers in Germany and the Czech Republic and
sales offices in other locations in Europe and Asia.
International sales and operations are subject to a variety of
risks, including:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater difficulty in staffing and managing
    foreign operations;                                                                             
|
| |  | greater risk of uncollectible accounts;                                                                                                         
|
| |  | longer collection cycles;                                                                                                                       
|
| |  | logistical and communications challenges;                                                                                                       
|
| |  | potential adverse changes in laws and regulatory
    practices, including export license requirements, trade
    barriers, tariffs and tax laws;
|
| |  | changes in labor conditions;                                                                                                                    
|
| |  | burdens and costs of compliance with a variety of
    foreign laws;                                                                             
|
| |  | political and economic instability;                                                                                                             
|
| |  | increases in duties and taxation;                                                                                                               
|
| |  | greater difficulty in protecting intellectual
    property; and                                                                                 
|
| |  | general economic and political conditions in
    these foreign markets.                                                                         

In 1997 and 1998, business conditions in Asia
were severely affected by banking and currency issues. While
these conditions have stabilized since 1999, many countries in
Asia have recently been affected by the occurrence of severe
acute respiratory syndrome, or SARS, which could hamper our
operations and have an adverse effect on our business in the
affected countries. The continuance or worsening of adverse
business and financial conditions in Asia would likely affect
our operating results. As a percentage of total revenue, our
historical revenue in Asia was approximately 18% in 2003, 20% in
2002 and 10% in 2001.

35



---



##### Table of Contents



We are
subject to risks associated with currency
fluctuations.

A significant portion of our revenue and costs
are denominated in foreign currencies, including the euro and,
to a lesser extent, the Philippine Peso and the Japanese Yen.
Following the MSB acquisition, approximately 27% of our revenue
in the second half of 2002 and 36% in 2003 was denominated in
euros. As a result, changes in the exchange rates of these
foreign currencies to the U.S. dollar will affect our
revenue, cost of revenue and operating margins and could result
in exchange losses. The impact of future exchange rate
fluctuations on our results of operations cannot be accurately
predicted. In the future, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. However, we cannot assure you that any hedging
transactions we may enter into will be effective or will not
result in foreign exchange hedging losses.

Our exposure
to foreign labor laws due to our operational presence in
Europe.

We had 913 employees in Europe as of
December 31, 2003, most of whom were in Belgium. The
employees located in Belgium are represented by unions and have
collective bargaining arrangements at the national, industry and
company levels. In connection with any future reductions in work
force we may implement, we would be required to, among other
things, negotiate with these unions and make severance payments
to employees upon their termination. In addition, these unions
may implement work stoppages or delays in the event they do not
consent to severance packages proposed for future reductions in
work force or for any other reason. Furthermore, our substantial
operations in Europe subject us to compliance with labor laws
and customs that are generally more employee favorable than in
the United States. As a result, it may not be possible for us to
quickly or affordably implement workforce reductions in Europe.

Risks Relating to Manufacturing

Our success
depends on high utilization of our manufacturing
capacity.

An important factor in our success is the extent
to which we are able to utilize the available capacity in our
fabrication and test facilities. Utilization rates can be
negatively affected by periods of industry over-capacity, low
levels of customer orders, operating inefficiencies, mechanical
failures and disruption of operations due to expansion or
relocation of operations and fire or other natural disasters. In
addition, when the agreement with STMicroelectronics terminates
in June 2004 or if STMicroelectronics fails to meet its
take-or-pay obligation under the agreement, utilization of our
fabs could decline. Because many of our costs are fixed, a
reduction in capacity utilization, together with other factors
such as yield and product mix, could adversely affect our
operating results. The downturn in the semiconductor industry
from 2000 to 2003 resulted in a decline in the capacity
utilization at our wafer fabrication facilities. If we enter
another downturn, our wafer fabrication capacity may be
under-utilized again and our inability to quickly reduce fixed
costs, such as depreciation and other fixed operating expenses
necessary to operate our wafer manufacturing facilities, would
harm our operating results.

We could be
adversely affected by manufacturing interruptions and reduced
yields.

The fabrication of our integrated circuits is a
highly complex and precise process, requiring production in a
tightly controlled, clean room environment. Minute impurities,
difficulties in the fabrication process, defects in the masks
used to print circuits on a wafer or other factors can cause a
substantial percentage of wafers to be rejected or numerous die
on each wafer to be nonfunctional. We may experience problems in
achieving acceptable yields in the manufacture of
semiconductors, particularly in connection with the production
of a new product, the adoption of a new manufacturing process or
any expansion of our manufacturing capacity and related
transitions. The interruption of manufacturing, including power
interruptions or the failure to achieve acceptable manufacturing
yields at any of our wafer fabrication facilities, would
adversely affect our business.

36



---



##### Table of Contents



We are
dependent on successful alliance and outsourcing
relationships.

We have formed alliances with other wafer
fabrication foundries to supplement capacity and gain access to
more advanced digital process technologies. If we experience
problems with our alliance partners, we may face a shortage of
finished products available for sale. We believe that in the
future we will increasingly rely upon outsourced wafer
manufacturing to supplement our capacity and technology. If our
alliance partners, or any other foundries with which we form an
alliance, experience wafer yield problems or delivery delays,
which are common in our industry, or are unable to produce
silicon wafers that meet our specifications with acceptable
yields, our operating results could be adversely affected.

We rely on
packaging subcontractors.

Most of our products are assembled in packages
prior to shipment. The packaging of semiconductors is a complex
process requiring, among other things, a high degree of
technical skill and advanced equipment. We outsource our
semiconductor packaging to subcontractors, most of which are
located in Southeast Asia. In particular, we rely heavily on a
single packager for packaging. We depend on these subcontractors
to package our devices with acceptable quality and yield levels.
If our semiconductor packagers experience problems in packaging
our semiconductor devices or experience prolonged quality or
yield problems, our operating results would be adversely
affected.

We depend on
successful parts and materials procurement for our manufacturing
processes.

We use a wide range of parts and materials in the
production of our semiconductors, including silicon, processing
chemicals, processing gases, precious metals and electronic and
mechanical components. We procure materials and electronic and
mechanical components from domestic and foreign sources and
original equipment manufacturers. However, there is no assurance
that, if we have difficulty in supply due to an unforeseen
catastrophe, worldwide shortage or other reason, alternative
suppliers will be available or that these suppliers will provide
materials or electronic or mechanical components in a timely
manner or on favorable terms. If we cannot obtain adequate
materials in a timely manner or on favorable terms, our business
and financial results would be adversely affected.

We may need
to raise additional capital that may not be
available.

Semiconductor companies that maintain their own
fabrication facilities have substantial capital requirements. We
made capital expenditures of $26.6 million in 2003,
$22.0 million in 2002 and $20.7 million in 2001. These
expenditures were used to replace equipment and expand our test
and design capabilities. In the future, we intend to continue to
make capital investments to support business growth and achieve
manufacturing cost reductions and improved yields. We may seek
additional financing to fund further expansion of our wafer
fabrication capacity or to fund other projects. The timing and
amount of such capital requirements cannot be precisely
determined at this time and will depend on a number of factors,
including demand for products, product mix, changes in
semiconductor industry conditions and competitive factors.
Additional financing may not be available when needed or, if
available, may not be available on satisfactory terms.

Our ability
to compete successfully and achieve future growth will depend,
in part, on our ability to protect our proprietary technology,
as well as our ability to operate without infringing the
proprietary rights of others.

As of December 31, 2003, we held 73
U.S. patents and 117 foreign patents. We also had over 50
patent applications in progress. At the end of 2004,
approximately 21% of the patents we currently have in place will
be expiring. We do not expect this to have a material impact on
our results, as these technologies are not revenue producing and
we will be able to continue using the technologies associated
with these patents. We intend to continue to file patent
applications when appropriate to protect our proprietary
technologies. The process of seeking patent protection takes a
long time and is expensive. We cannot assure you that patents
will issue from pending or future applications or that, if
patents issue, they will not be challenged, invalidated or
circumvented, or that the rights granted under the patents will
provide us with meaningful protection or any

37



---



##### Table of Contents



commercial advantage. In addition, we cannot
assure you that other countries in which we market our services
will protect our intellectual property rights to the same extent
as the United States.


Our ability to compete successfully depends on
our ability to operate without infringing the proprietary rights
of others. We have no means of knowing what patent applications
have been filed in the United States until they are published.
In January 2003, Ricoh Company, Ltd. filed in the
U.S. District Court for the District of Delaware a
complaint against us and other parties alleging infringement of
a patent owned by Ricoh. The case was transferred to the
U.S. District Court for the Northern District of Delaware
in August 2003 and was subsequently transferred to the
U.S. District Court for the Northern District of
California. Ricoh is seeking an injunction and damages in an
unspecified amount relating to such alleged infringement. The
patents relate to certain methodologies for the automated design
of custom semiconductors. Based on information available to us
to date, our belief is that the asserted claims are without
merit or, if meritorious, that we will be indemnified (with
respect to damages) for these claims by Synopsys, Inc. and
resolution of this matter will not have a material adverse
effect on our future financial results or financial condition.

In addition, the semiconductor industry is
characterized by frequent litigation regarding patent and other
intellectual property rights. As is typical in the semiconductor
industry, we have from time to time received communications from
third parties asserting rights under patents that cover certain
of our technologies and alleging infringement of certain
intellectual property rights of others. We expect to receive
similar communications in the future. In the event that any
third party had a valid claim against us or our customers, we
could be required to:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | discontinue using certain process technologies
    which could cause us to stop manufacturing certain
    semiconductors;           
|
| |  | pay substantial monetary damages;                                                                                                   
|
| |  | seek to develop non-infringing technologies,
    which may not be feasible; or                                                      
|
| |  | seek to acquire licenses to the infringed
    technology which may not be available on commercially reasonable
    terms, if at all.

In the event that any third party causes us or
any of our customers to discontinue using certain process
technologies, such an outcome could have an adverse effect on us
as we would be required to design around such technologies,
which could be costly and time consuming.

Litigation, which could result in substantial
costs to us and diversion of our resources, may also be
necessary to enforce our patents or other intellectual property
rights or to defend us against claimed infringement of the
rights of others. If we fail to obtain a necessary license or if
litigation relating to patent infringement or any other
intellectual property matter occurs, our business could be
adversely affected.

We could
incur material costs to comply with environmental
laws.

Increasingly stringent environmental regulations
restrict the amount and types of pollutants that can be released
into the environment from our operations. We have incurred and
will in the future incur costs, including capital expenditures,
to comply with these regulations. Significant regulatory changes
or increased public attention to the impact of semiconductor
operations on the environment may result in more stringent
regulations, further increasing our costs or requiring changes
in the way we make our products. For example, Belgium is
expected to enact national legislation regulating emissions of
greenhouse gases, such as carbon dioxide. However, because we
cannot predict the scope or timing of such requirements, we are
unable to evaluate the ultimate cost of compliance with this
legislation.

In addition, because we use hazardous and other
regulated materials in our manufacturing processes, we are
subject to risks of accidental spills or other sources of
contamination, which could result in injury to the environment,
personal injury claims and civil and criminal fines, any of
which could be material to our cash flow or earnings. For
example, we currently are remediating contamination at one of
our former manufacturing sites pursuant to a government order.
The discovery of additional contamination at this site or other
sites where we currently have or historically have had
operations could result in material cleanup costs.

38



---



##### Table of Contents



Risks Relating to Our Substantial
Debt

Our
substantial consolidated indebtedness could adversely affect our
financial health and the value of your investment in our common
stock.

AMI Semiconductor, our wholly owned subsidiary
through which we conduct all our business operations, has a
substantial amount of indebtedness, most of which is guaranteed
by us. We are a holding company with no business operations and
no significant assets other than our ownership of AMI
Semiconductors capital stock. As of December 31,
2003, our long-term consolidated indebtedness was approximately
$254.7 million and our total consolidated debt as a
percentage of total capitalization was 55%. Subject to the
restrictions in the senior credit facilities and the senior
subordinated notes, we and our subsidiaries may incur certain
additional indebtedness from time to time.

Our substantial consolidated indebtedness could
have important consequences to you. For example, our substantial
indebtedness:



| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | will require our operating subsidiaries to
    dedicate a substantial portion of cash flow from operations to
    payments in respect of indebtedness, thereby reducing the
    availability of cash flow to fund working capital, capital
    expenditures, research and development efforts and other general
    corporate purposes;
|
| |  | could increase the amount of our consolidated
    interest expense because some of our borrowings are at variable
    rates of interest, which, if interest rates increase, could
    result in higher interest expense;                                                                                                               
|
| |  | will increase our vulnerability to adverse
    general economic or industry conditions;                                                                                                                                                                                                                                                
|
| |  | could limit our flexibility in planning for, or
    reacting to, changes in our business or the industry in which we
    operate;                                                                                                                                                                                                      
|
| |  | could restrict us from making strategic
    acquisitions, introducing new technologies or exploiting
    business opportunities;                                                                                                                                                                                                       
|
| |  | could place us at a competitive disadvantage
    compared to our competitors that have less debt; and                                                                                                                                                                                                                                  
|
| |  | could limit, along with the financial and other
    restrictive covenants in our indebtedness, among other things,
    our ability to borrow additional funds or dispose of assets.                                                                                                                                                    

To service
our consolidated indebtedness, we will require a significant
amount of cash.

Our ability to generate cash depends on many
factors beyond our control. Our ability to make payments on our
consolidated indebtedness and to fund working capital
requirements, capital expenditures and research and development
efforts will depend on our ability to generate cash in the
future. Our historical financial results have been, and we
expect our future financial results will be, subject to
substantial fluctuation based upon a wide variety of factors,
many of which are not within our control. These factors include:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | the cyclical nature of both the semiconductor
    industry and the markets for our products;
|
| |  | fluctuations in manufacturing yields;                                                       
|
| |  | the timing of introduction of new products;                                                 
|
| |  | the timing of customer orders;                                                              
|
| |  | changes in the mix of products sold and the end
    markets into which they are sold;       
|
| |  | the extent of utilization of manufacturing
    capacity;                                    
|
| |  | the length of the lifecycle of the semiconductors
    we are manufacturing;                 
|
| |  | availability of supplies and raw materials;                                                 
|
| |  | price competition and other competitive
    factors; and                                    
|
| |  | work stoppages, especially at our fabs in Belgium.                                          

39



---



##### Table of Contents



Unfavorable changes in any of these factors could
harm our operating results and our ability to generate cash to
service our indebtedness. If we are unable to service our debt
using our operating cash flow, we will be required to pursue one
or more alternative strategies, such as selling assets,
refinancing or restructuring our indebtedness or selling equity,
each of which could adversely affect the market price of our
common stock. However, we cannot assure you that any alternative
strategies will be feasible at the time or prove adequate. Also,
certain of these strategies would require the consent of our
senior secured lenders.

Restrictions
imposed by the senior credit facilities and the senior
subordinated notes limit our ability to take certain
actions.

We cannot assure you that the operating and
financial restrictions and covenants in our debt instruments,
including the senior credit facilities and the senior
subordinated notes, will not adversely affect our ability to
finance our future operations or capital needs or engage in
other business activities that may be in our interest. The
senior credit facility requires us to maintain certain financial
ratios which become more restrictive over time. Our ability to
comply with these ratios may be affected by events beyond our
control. In 2002, the lenders under our senior credit facility
and we agreed to certain amendments, including changes to our
financial covenants and restrictions on our capital
expenditures. We also sought and obtained certain waivers and
consents under our senior credit facilities. We may be required
to seek waivers or consents in the future. We cannot be sure
that these waivers or consents will be granted. A breach of any
of the covenants or our inability to comply with the required
financial ratios could result in a default under our senior
credit facilities. In the event of any default under the senior
credit facilities, the lenders under our senior credit
facilities will not be required to lend any additional amounts
to us and could elect to declare all outstanding borrowings,
together with accrued interest and other fees, to be due and
payable, and require us to apply all of our available cash to
repay these borrowings. If we are unable to repay any such
borrowings when due, the lenders could proceed against their
collateral, which consists of substantially all of our assets,
including 65% of the outstanding stock of certain of our foreign
subsidiaries. If the indebtedness under our senior credit
facilities were to be accelerated, there can be no assurance
that our assets would be sufficient to repay such indebtedness
in full.

In addition, the indenture governing the senior
subordinated notes contains covenants that, among other things,
limit our ability to incur additional indebtedness, pay
dividends on our capital stock or redeem, repurchase or retire
our capital stock or subordinated indebtedness, make
investments, engage in transactions with affiliates, sell
assets, including capital stock of subsidiaries, and
consolidate, merge or transfer assets.

Risks Related to our Common Stock

The price of
our common stock may be volatile and subject to wide
fluctuations.

The market price of the securities of technology
companies has been especially volatile. Thus, the market price
of our common stock may be subject to wide fluctuations. If our
revenue does not increase or increases less than we anticipate,
or if operating or capital expenditures exceed our estimates and
cannot be adjusted accordingly, or if some other event adversely
affects us, the market price of our common stock could decline.
In addition, if the market for semiconductor-related stocks or
the stock market in general experiences a loss in investor
confidence or otherwise falls, the market price of our common
stock could fall for reasons unrelated to our business, results
of operations or financial condition. The market price of our
common stock also might decline in reaction to events that
affect other companies in our industry, even if these events do
not directly affect us. In the past, companies that have
experienced volatility in the market price of their stock have
been the subject of securities class action litigation. If we
were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion
of managements attention and resources.

We may
experience significant period-to-period quarterly and annual
fluctuations in our revenue and operating results, which may
result in volatility in our stock price.

We may experience significant period-to-period
fluctuations in our sales and operating results in the future
due to a number of factors and any such variations may cause our
stock price to fluctuate. It is likely

40



---



##### Table of Contents



that in some future period our operating results
will be below the expectations of securities analysts or
investors. If this occurs, our stock price could drop
significantly.


A number of factors, in addition to those cited
in other risk factors, may contribute to fluctuations in our
sales and operating results, including:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing and volume of orders from our
    customers;                                                                                                                           
|
| |  | the rate of acceptance of our products by our
    customers, including the acceptance of design wins;                                                                             
|
| |  | the demand for and lifecycles of equipment
    incorporating our products;                                                                                                        
|
| |  | the rate of adoption of integrated mixed signal
    products in the end markets we target;                                                                                        
|
| |  | deferrals of customer orders in anticipation of
    new products or product enhancements from us or our competitors
    or other providers of integrated circuits;                
|
| |  | changes in product mix; and                                                                                                                                                       
|
| |  | the rate at which new markets emerge for products
    we are currently developing or for which our design expertise
    can be utilized to develop products for these new markets.

We are a
holding company that depends on dividends from our subsidiaries
to meet our cash requirements and we do not anticipate paying
any dividends on our common stock in the foreseeable
future.

We are a holding company with no business
operations. Our only significant asset is the outstanding
capital stock of AMI Semiconductor, our wholly owned subsidiary
through which we conduct all our business operations, and
certain other assets. We will not be able to pay cash dividends
on our common stock without receiving dividends or other
distributions from AMI Semiconductor. Furthermore, AMI
Semiconductor is restricted by the senior credit facilities and
the senior subordinated notes from paying dividends or making
distributions to us. In any event, we currently expect that our
earnings and cash flow will be retained for use in our
operations and to service our debt obligations. Even if we
determined to pay a dividend on or make a distribution in
respect of our common stock, we cannot assure you that our
subsidiaries will generate sufficient cash flow to pay a
dividend or distribute funds to us or that applicable state law
and contractual restrictions will permit such dividends or
distributions.

Our principal
stockholders exert substantial influence over us and may
exercise their control in a manner adverse to your
interests.

As of December 31, 2003, Francisco Partners,
Citigroup Venture Capital Equity Partners, or CVC, and Nippon
Mining together beneficially owned 53,499,753 shares, or
approximately 65.3%, of our outstanding common stock. These
stockholders are party to a shareholders agreement,
pursuant to which these stockholders have the power to direct
our affairs and will be able to determine the outcome of all
matters required to be submitted to stockholders for approval,
including the election of a majority of our directors, any
merger, consolidation or sale of all or substantially all of our
assets and amendment of our certificate of incorporation.
Because a limited number of persons control us, transactions
could be difficult or impossible to complete without the support
of those persons. It is possible that these persons will
exercise control over us in a manner adverse to your interests.

Delaware law
and provisions of our charter documents could discourage
potential acquisition proposals and could delay, deter or
prevent a change in control.

The anti-takeover provisions of Delaware law
impose various impediments to the ability of a third party to
acquire control of us, even if a change in control would be
beneficial to our existing stockholders. Additionally,
provisions of our amended and restated certificate of
incorporation and by-laws could deter, delay or prevent a third
party from acquiring us, even if doing so would benefit our
stockholders. These provisions include:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a requirement that special meetings of
    stockholders may be called only by our board of directors, the
    chairman of the board (if any), the president or the secretary;

41



---



##### Table of Contents





| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | advance notice requirements for stockholder
    proposals and nominations; and                                                        
|
| |  | the authority of the board to issue, without
    stockholder approval, preferred stock with such terms as the
    board may determine.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Market risk represents the risk of changes in
value of a financial instrument, derivative or non-derivative,
caused by fluctuations in interest rates, foreign exchange rates
and equity prices. Changes in these factors could cause
fluctuations in the results of our operations and cash flows. In
the ordinary course of business, we are exposed to foreign
currency and interest rate risks. These risks primarily relate
to the sale of products and services to foreign customers and
changes in interest rates on our long-term debt.

The majority of our revenue in 2002 and 2001 was
denominated in U.S. dollars. Additionally, the majority of
our operating costs were denominated in U.S. dollars for
those periods. Therefore, foreign currency fluctuations did not
materially impact our financial results in those periods.
However, MSBs operations were only consolidated with ours
for six months of 2002; therefore, our 2002 operating results
were not affected as greatly by transactions denominated in
foreign currencies as they were in 2003 when a substantial
portion of our annual sales and operating costs were denominated
in euros.

Additionally, we have foreign currency exposure
arising from the translation or remeasurement of our foreign
subsidiaries financial statements into U.S. dollars.
The primary currencies to which we are exposed to fluctuations
include the Euro, the Japanese Yen and the Philippine Peso. If
the U.S. dollar increases in value against these foreign
currencies, the value in U.S. dollars of the assets and
liabilities originally recorded in these foreign currencies will
decrease. Conversely, if the U.S. dollar decreases in value
against these foreign currencies, the value in U.S. dollars
of the assets and liabilities originally recorded in these
foreign currencies will increase. Thus, increases and decreases
in the value of the U.S. dollar relative to these foreign
currencies have a direct impact on the value in
U.S. dollars of our foreign currency denominated assets and
liabilities, even if the value of these items has not changed in
their original currency. As of December 31, 2003,
approximately 68% of our consolidated net assets were
attributable to subsidiaries that prepare their financial
statements in foreign currencies. As such, a 10% change in the
U.S. dollar exchange rates in effect as of
December 31, 2003 would cause a change in consolidated net
assets of approximately $9 million.

We currently do not hedge our foreign currency
exchange rate exposure.

Our exposure to interest rate risk consists of
floating rate debt based on the London Interbank Offered Rate
(LIBOR) plus an adjustable margin under our credit
agreement. A change of 10% in the interest rate would cause a
change of approximately $0.5 million in interest expense.

In January 2003, we issued $200.0 million of
fixed rate 10 3/4% Senior Subordinated Notes. As of
December 31, 2003, $130 million of this issuance was
outstanding. Because our interest rate is fixed, changes in
market interest rates do not impact our interest expense.

42



---



##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                       |  |      |    | 
|-------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                       |  | Page
|                                                                                       |  |     
|Report of Independent Auditors                                                         |  |      | 44 | 
|Consolidated Balance Sheets                                                            |  |      | 45 | 
|Consolidated Statements of Operations                                                  |  |      | 46 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) and Comprehensive Income |  |      | 47 | 
|Consolidated Statements of Cash Flows                                                  |  |      | 48 | 
|Notes to Consolidated Financial Statements                                             |  |      | 49 | 

43



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

The Board of Directors

AMIS Holdings, Inc.


We have audited the accompanying consolidated
balance sheets of AMIS Holdings, Inc. and subsidiaries as
of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity (deficit)
and comprehensive income, and cash flows for each of the three
years in the period ended December 31, 2003. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
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
consolidated financial position of AMIS Holdings, Inc. and
subsidiaries at December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP
| |                      
| | ERNST & YOUNG LLP    

Salt Lake City, Utah

February 6, 2004


44



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------- | -------- | ------- |  | - | -------- | ------ | 
|                                                                                                                                                                                                              |                                                                                                           |                          
|                                                                                                                                                                                                              |                                                                                                           | December 31,             
|                                                                                                                                                                                                              |                                                                                                           |                          
|                                                                                                                                                                                                              |                                                                                                           | 2003                      |          | 2002   
|                                                                                                                                                                                                              |                                                                                                           |                           |          |        
|                                                                                                                                                                                                              |                                                                                                           |                          
|                                                                                                                                                                                                              |                                                                                                           | (In thousands, except    
|                                                                                                                                                                                                              |                                                                                                           | share and per share data)
|ASSETS                                                                                                                                                                                                       
|Current assets:                                                                                                                                                                                               |                                                                                                           |                           |          |         |  |   |          |       
|                                                                                                                                                                                                              | Cash and cash equivalents                                                                                 |                           | $        | 119,063 |  |   | $        | 62,184 | 
|                                                                                                                                                                                                              | Accounts receivable, less allowances of $4,000
    and $4,791 at December 31, 2003 and 2002, respectively |                           |          | 73,585  |  |   |          | 65,994 | 
|                                                                                                                                                                                                              | Inventories                                                                                               |                           |          | 45,599  |  |   |          | 39,361 | 
|                                                                                                                                                                                                              | Receivable from affiliate                                                                                 |                           |          | 1,909   |  |   |          | 1,909  | 
|                                                                                                                                                                                                              | Deferred tax assets                                                                                       |                           |          | 8,987   |  |   |          | 9,077  | 
|                                                                                                                                                                                                              | Research and development grant receivable                                                                 |                           |          | 6,734   |  |   |          | 6,513  | 
|                                                                                                                                                                                                              | Prepaid expenses                                                                                          |                           |          | 11,724  |  |   |          | 8,543  | 
|                                                                                                                                                                                                              | Other current assets                                                                                      |                           |          | 410     |  |   |          | 6,031  | 
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total current assets                                                                                                                                                                                          |                                                                                                           |                           | 268,011  |         |  |   | 199,612  |       
|Property, plant and equipment, net                                                                                                                                                                            |                                                                                                           |                           | 205,909  |         |  |   | 222,507  |       
|Deferred financing costs, net                                                                                                                                                                                 |                                                                                                           |                           | 8,324    |         |  |   | 6,188    |       
|Goodwill, net                                                                                                                                                                                                 |                                                                                                           |                           | 1,211    |         |  |   | 1,211    |       
|Other intangibles, net                                                                                                                                                                                        |                                                                                                           |                           | 9,718    |         |  |   | 36,662   |       
|Deferred tax assets                                                                                                                                                                                           |                                                                                                           |                           | 38,627   |         |  |   | 19,369   |       
|Prepaid pension asset                                                                                                                                                                                         |                                                                                                           |                           | 13,103   |         |  |   | 11,847   |       
|Restricted cash                                                                                                                                                                                               |                                                                                                           |                           | 4,200    |         |  |   | 4,200    |       
|Other                                                                                                                                                                                                         |                                                                                                           |                           | 985      |         |  |   | 864      |       
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total assets                                                                                                                                                                                                  |                                                                                                           | $                         | 550,088  |         |  | $ | 502,460  |       
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|                                                                                                                                                                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)                                                                                                                                                           
|Current liabilities:                                                                                                                                                                                          |                                                                                                           |                           |          |         |  |   |          |       
|                                                                                                                                                                                                              | Accounts payable                                                                                          |                           | $        | 34,753  |  |   | $        | 29,643 | 
|                                                                                                                                                                                                              | Accrued expenses                                                                                          |                           |          | 24,973  |  |   |          | 23,780 | 
|                                                                                                                                                                                                              | Accrued employee compensation                                                                             |                           |          | 29,212  |  |   |          | 21,329 | 
|                                                                                                                                                                                                              | Income taxes payable                                                                                      |                           |          | 1,088   |  |   |          | 1,391  | 
|                                                                                                                                                                                                              | Current portion of long-term debt                                                                         |                           |          | 1,250   |  |   |          | 8,708  | 
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total current liabilities                                                                                                                                                                                     |                                                                                                           |                           | 91,276   |         |  |   | 84,851   |       
|Long-term debt, less current portion                                                                                                                                                                          |                                                                                                           |                           | 253,437  |         |  |   | 151,392  |       
|Other long-term liabilities                                                                                                                                                                                   |                                                                                                           |                           | 360      |         |  |   | 3,088    |       
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total liabilities                                                                                                                                                                                             |                                                                                                           |                           | 345,073  |         |  |   | 239,331  |       
|Commitments and contingencies                                                                                                                                                                                 |                                                                                                           |                           |          |         |  |   |          |       
|Series A Senior Redeemable Preferred Stock,
    20,000,000 shares authorized, 0 and 17,901,722 shares
    issued and outstanding at December 31, 2003 and 2002,
    respectively                              |                                                                                                           |                           |         |         |  |   | 233,671  |       
|Series B Junior Redeemable Convertible
    Preferred Stock, 20,000,000 shares authorized, 0 and
    14,317,788 shares issued and outstanding at
    December 31, 2003 and 2002, respectively                  |                                                                                                           |                           |         |         |  |   | 190,498  |       
|Series C Senior Redeemable Preferred Stock,
    0 and 75,000 shares authorized, issued and outstanding at
    December 31, 2003 and 2002, respectively                                                        |                                                                                                           |                           |         |         |  |   | 79,337   |       
|Stockholders Equity (Deficit)                                                                                                                                                                                |                                                                                                           |                           |          |         |  |   |          |       
|Common stock, $0.01 par value, 150,000,000
    and 133,333,333 shares authorized, 81,956,422 and
    46,651,721 shares issued and outstanding as of
    December 31, 2003 and December 31, 2002, respectively |                                                                                                           |                           | 820      |         |  |   | 467      |       
|Additional paid-in capital                                                                                                                                                                                    |                                                                                                           |                           | 510,691  |         |  |   | 38,901   |       
|Stockholder notes receivable                                                                                                                                                                                  |                                                                                                           |                           |         |         |  |   | (5,570   | )     
|Accumulated deficit                                                                                                                                                                                           |                                                                                                           |                           | (323,021 | )       |  |   | (276,278 | )     
|Deferred compensation                                                                                                                                                                                         |                                                                                                           |                           | (475     | )       |  |   |         |       
|Accumulated other comprehensive income                                                                                                                                                                        |                                                                                                           |                           | 17,000   |         |  |   | 2,103    |       
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total stockholders equity (deficit)                                                                                                                                                                          |                                                                                                           |                           | 205,015  |         |  |   | (240,377 | )     
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       
|Total liabilities and stockholders equity
    (deficit)                                                                                                                                                      |                                                                                                           | $                         | 550,088  |         |  | $ | 502,460  |       
|                                                                                                                                                                                                              |                                                                                                           |                           |          |         |  |   |          |       

See accompanying notes.

45



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                      |                                      |                                      
|                                                                                                      |                                      | Year Ended December 31,              
|                                                                                                      |                                      |                                      
|                                                                                                      |                                      | 2003                                  |         | 2002    |   | 2001
|                                                                                                      |                                      |                                       |         |         |   |     
|                                                                                                      |                                      |                                      
|                                                                                                      |                                      | (In thousands, except per share data)
|Revenue                                                                                               |                                      | $                                     | 454,152 |         |   | $    | 345,322 |         |   | $ | 326,510 |        
|Cost of revenue                                                                                       |                                      |                                       | 255,959 |         |   |      | 214,964 |         |   |   | 186,400 |        
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|                                                                                                      |                                      |                                       | 198,193 |         |   |      | 130,358 |         |   |   | 140,110 |        
|Operating expenses:                                                                                   |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|                                                                                                      | Research and development             |                                       |         | 70,256  |   |      |         | 52,140  |   |   |         | 42,112  |  
|                                                                                                      | Marketing and selling                |                                       |         | 37,801  |   |      |         | 35,002  |   |   |         | 35,373  |  
|                                                                                                      | General and administrative           |                                       |         | 26,779  |   |      |         | 24,961  |   |   |         | 25,566  |  
|                                                                                                      | Restructuring and impairment charges |                                       |         | 21,741  |   |      |         | 648     |   |   |         | 4,983   |  
|                                                                                                      | Nonrecurring charges                 |                                       |         | 11,401  |   |      |         |        |   |   |         |        |  
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|                                                                                                      |                                      |                                       | 167,978 |         |   |      | 112,751 |         |   |   | 108,034 |        
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Operating income                                                                                      |                                      |                                       | 30,215  |         |   |      | 17,607  |         |   |   | 32,076  |        
|Other income (expense):                                                                               |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|                                                                                                      | Interest expense                     |                                       |         | (23,930 | ) |      |         | (12,541 | ) |   |         | (15,401 | )
|                                                                                                      | Interest income                      |                                       |         | 1,452   |   |      |         | 1,062   |   |   |         | 1,241   |  
|                                                                                                      | Other income (expense), net          |                                       |         | (16,196 | ) |      |         | 147     |   |   |         | 407     |  
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|                                                                                                      |                                      |                                       | (38,674 | )       |   |      | (11,332 | )       |   |   | (13,753 | )      
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Income (loss) before income taxes                                                                     |                                      |                                       | (8,459  | )       |   |      | 6,275   |         |   |   | 18,323  |        
|Provision (benefit) for income taxes                                                                  |                                      |                                       | (8,043  | )       |   |      | 1,165   |         |   |   | 5,642   |        
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Net income (loss)                                                                                     |                                      |                                       | (416    | )       |   |      | 5,110   |         |   |   | 12,681  |        
|Preferred stock dividend                                                                              |                                      |                                       | (46,327 | )       |   |      | (62,502 | )       |   |   | (47,578 | )      
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Net loss attributable to common stockholders                                                          |                                      | $                                     | (46,743 | )       |   | $    | (57,392 | )       |   | $ | (34,897 | )      
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Basic and diluted net loss per common share                                                           |                                      | $                                     | (0.84   | )       |   | $    | (1.24   | )       |   | $ | (0.76   | )      
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        
|Weighted average number of shares used in
    calculating basic and diluted net loss per common share |                                      |                                       | 55,427  |         |   |      | 46,407  |         |   |   | 46,072  |        
|                                                                                                      |                                      |                                       |         |         |   |      |         |         |   |   |         |        

See accompanying notes.

46



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT) AND

COMPREHENSIVE INCOME


|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | -------------- | ------ | ---------- |  | ----------- | --- | ----------- |  | -------- | ------- | ------------- |  | ------------- | ------ | ----- |  | - | -------- | ------ | - | - | ---- | - |  | - | ------ | ------ | - | - | -------- | ------ | -
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         | Accumulated   |  |              
|                                                                                                                                                    |                                         | Common Stock   |        | Additional |  | Stockholder |     |             |  |          |         | Other         |  |              
|                                                                                                                                                    |                                         |                |        | Paid-in    |  | Notes       |     | Accumulated |  | Deferred |         | Comprehensive |  |              
|                                                                                                                                                    |                                         | Shares         |        | Amount     |  | Capital     |     | Receivable  |  | Deficit  |         | Compensation  |  | Income (Loss) |        | Total
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |      
|                                                                                                                                                    |                                         |               
|                                                                                                                                                    |                                         | (In thousands)
|Balance at January 1, 2001                                                                                                                          |                                         |                | 46,030 |            |  | $           | 460 |             |  | $        | 35,280  |               |  | $             | (5,005 | )     |  | $ | (183,989 | )      |   | $ |     |   |  | $ | (260   | )      |   | $ | (153,514 | )     
|Comprehensive income:                                                                                                                               |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|                                                                                                                                                    | Net income                              |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          | 12,681 |   |   |      |  |  |   |        |       |   |   |          | 12,681 |  
|                                                                                                                                                    | Unrealized derivative loss              |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | (726   | ) |   |          | (726   | )
|                                                                                                                                                    | Foreign currency translation adjustment |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | 98     |   |   |          | 98     |  
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Total comprehensive income                                                                                                                          |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | 12,681   |        |   |   |     |   |  |   | (628   | )      |   |   | 12,053   |       
|Interest on stockholder notes receivable                                                                                                            |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               | (523   | )     |  |   |         |        |   |   |     |   |  |   |       |        |   |   | (523     | )     
|Stock repurchase                                                                                                                                    |                                         |                | (40    | )          |  |             |    |             |  |          | (31     | )             |  |               | 210    |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 179      |       
|Exercise of stock options                                                                                                                           |                                         |                | 111    |            |  |             | 1   |             |  |          | 87      |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 88       |       
|Issuance of common stock                                                                                                                            |                                         |                | 64     |            |  |             | 1   |             |  |          | 49      |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 50       |       
|Accretion of dividends on Series A Senior
    Redeemable and Series B Junior Redeemable Convertible
    Preferred Stock                             |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | (47,578  | )      |   |   |     |   |  |   |       |        |   |   | (47,578  | )     
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Balance at December 31, 2001                                                                                                                        |                                         |                | 46,165 |            |  |             | 462 |             |  |          | 35,385  |               |  |               | (5,318 | )     |  |   | (218,886 | )      |   |   |     |   |  |   | (888   | )      |   |   | (189,245 | )     
|Comprehensive income:                                                                                                                               |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|                                                                                                                                                    | Net income                              |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          | 5,110  |   |   |      |  |  |   |        |       |   |   |          | 5,110  |  
|                                                                                                                                                    | Unrealized derivative gain              |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | 98     |   |   |          | 98     |  
|                                                                                                                                                    | Foreign currency translation adjustment |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | 2,893  |   |   |          | 2,893  |  
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Total comprehensive income                                                                                                                          |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | 5,110    |        |   |   |     |   |  |   | 2,991  |        |   |   | 8,101    |       
|Warrants issued in conjunction with the
    Series C Senior Redeemable Preferred Stock                                                              |                                         |                |       |            |  |             |    |             |  |          | 3,165   |               |  |               |       |       |  |   | (3,165   | )      |   |   |     |   |  |   |       |        |   |   |         |       
|Interest on stockholder notes receivable                                                                                                            |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               | (252   | )     |  |   |         |        |   |   |     |   |  |   |       |        |   |   | (252     | )     
|Exercise of stock options                                                                                                                           |                                         |                | 487    |            |  |             | 5   |             |  |          | 351     |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 356      |       
|Accretion of dividends on Series A Senior
    Redeemable, Series B Junior Redeemable Convertible and
    Series C Senior Redeemable Preferred Stock |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | (59,337  | )      |   |   |     |   |  |   |       |        |   |   | (59,337  | )     
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Balance at December 31, 2002                                                                                                                        |                                         |                | 46,652 |            |  |             | 467 |             |  |          | 38,901  |               |  |               | (5,570 | )     |  |   | (276,278 | )      |   |   |     |   |  |   | 2,103  |        |   |   | (240,377 | )     
|Comprehensive income:                                                                                                                               |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|                                                                                                                                                    | Net loss                                |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          | (416   | ) |   |      |  |  |   |        |       |   |   |          | (416   | )
|                                                                                                                                                    | Unrealized derivative gain              |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | 628    |   |   |          | 628    |  
|                                                                                                                                                    | Foreign currency translation adjustment |                |        |           |  |             |     |            |  |          |         |              |  |               |        |      |  |   |          |       |   |   |      |  |  |   |        | 14,269 |   |   |          | 14,269 |  
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Total comprehensive income                                                                                                                          |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | (416     | )      |   |   |     |   |  |   | 14,897 |        |   |   | 14,481   |       
|Exercise of stock options                                                                                                                           |                                         |                | 1,060  |            |  |             | 11  |             |  |          | 684     |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 695      |       
|Accretion of dividends on Series A Senior
    Redeemable, Series B Junior Redeemable Convertible and
    Series C Senior Redeemable Preferred Stock |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   | (46,327  | )      |   |   |     |   |  |   |       |        |   |   | (46,327  | )     
|Net exercise of warrants                                                                                                                            |                                         |                | 9,099  |            |  |             | 91  |             |  |          | (91     | )             |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   |         |       
|Issuance of shares from initial public offering                                                                                                     |                                         |                | 25,145 |            |  |             | 251 |             |  |          | 470,025 |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 470,276  |       
|Stock compensation on acceleration of stock
    option vesting                                                                                      |                                         |                |       |            |  |             |    |             |  |          | 653     |               |  |               |       |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 653      |       
|Interest on stockholder notes receivable                                                                                                            |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               | (250   | )     |  |   |         |        |   |   |     |   |  |   |       |        |   |   | (250     | )     
|Deferred compensation                                                                                                                               |                                         |                |       |            |  |             |    |             |  |          | 519     |               |  |               |       |       |  |   |         |        |   |   | (519 | ) |  |   |       |        |   |   |         |       
|Amortization of deferred compensation                                                                                                               |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               |       |       |  |   |         |        |   |   | 44   |   |  |   |       |        |   |   | 44       |       
|Proceeds from stockholder notes receivable                                                                                                          |                                         |                |       |            |  |             |    |             |  |          |        |               |  |               | 5,820  |       |  |   |         |        |   |   |     |   |  |   |       |        |   |   | 5,820    |       
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       
|Balance at December 31, 2003                                                                                                                        |                                         |                | 81,956 |            |  | $           | 820 |             |  | $        | 510,691 |               |  | $             |       |       |  | $ | (323,021 | )      |   | $ | (475 | ) |  | $ | 17,000 |        |   | $ | 205,015  |       
|                                                                                                                                                    |                                         |                |        |            |  |             |     |             |  |          |         |               |  |               |        |       |  |   |          |        |   |   |      |   |  |   |        |        |   |   |          |       

See accompanying notes.

47



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |        |         |  
|--------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------- | -------- | ------- | ------ | ---- | -------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                                                                |                                                                                  |                                       
|                                                                                                                |                                                                                  | Year Ended December 31,               
|                                                                                                                |                                                                                  |                                       
|                                                                                                                |                                                                                  | 2003                                   |          | 2002    |        | 2001
|                                                                                                                |                                                                                  |                                        |          |         |        |     
|                                                                                                                |                                                                                  |                                       
|                                                                                                                |                                                                                  | (In thousands)                        
|Cash flows from operating activities                                                                            |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Net income (loss)                                                                                               |                                                                                  | $                                      | (416     | )       |        | $    | 5,110    |        |        | $ | 12,681  |       
|Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:                    |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|                                                                                                                | Depreciation and amortization                                                    |                                        |          | 44,753  |        |      |          | 46,953 |        |   |         | 44,096 |        
|                                                                                                                | Amortization of deferred financing costs                                         |                                        |          | 1,282   |        |      |          | 1,315  |        |   |         | 1,072  |        
|                                                                                                                | Stock compensation expense                                                       |                                        |          | 3,880   |        |      |          | 532    |        |   |         | 777    |        
|                                                                                                                | Accrued restructuring charges                                                    |                                        |          | 692     |        |      |          | 387    |        |   |         | 1,683  |        
|                                                                                                                | Impairment of long-term asset                                                    |                                        |          | 20,028  |        |      |          |       |        |   |         |       |        
|                                                                                                                | Provision for (benefit from) deferred income taxes                               |                                        |          | (19,061 | )      |      |          | 823    |        |   |         | 4,453  |        
|                                                                                                                | Write-off of deferred financing charges and loss
    on settlement of derivative |                                        |          | 8,704   |        |      |          |       |        |   |         |       |        
|                                                                                                                | Loss on retirement of property, plant and
    equipment                          |                                        |          | 536     |        |      |          | 288    |        |   |         | 866    |        
|                                                                                                                | Income statement impact of change in value of
    derivatives                    |                                        |          | (24     | )      |      |          | (248   | )      |   |         | 248    |        
|                                                                                                                | Interest on stockholder notes receivable                                         |                                        |          | (250    | )      |      |          | (252   | )      |   |         | (523   | )      
|                                                                                                                | Changes in operating assets and liabilities:                                     |                                        |          |         |        |      |          |        |        |   |         |        |        
|                                                                                                                |                                                                                  | Accounts receivable                    |          |         | (1,654 | )    |          |        | (9,648 | ) |         |        | 14,764  |  
|                                                                                                                |                                                                                  | Inventories                            |          |         | (2,339 | )    |          |        | 7,493  |   |         |        | 15,629  |  
|                                                                                                                |                                                                                  | Prepaid expenses and other assets      |          |         | 6,483  |      |          |        | 1,060  |   |         |        | (2,423  | )
|                                                                                                                |                                                                                  | Receivable from/payable to affiliates  |          |         |       |      |          |        | 4,307  |   |         |        | (14,203 | )
|                                                                                                                |                                                                                  | Accounts payable                       |          |         | 3,561  |      |          |        | 10,079 |   |         |        | (24,968 | )
|                                                                                                                |                                                                                  | Accrued expenses and other liabilities |          |         | 446    |      |          |        | 3,917  |   |         |        | (2,567  | )
|                                                                                                                |                                                                                  | Accrued employee compensation          |          |         | 4,051  |      |          |        | 8,959  |   |         |        | (9,011  | )
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Net cash provided by operating activities                                                                       |                                                                                  |                                        | 70,672   |         |        |      | 81,075   |        |        |   | 42,574  |       
|Cash flows from investing activities                                                                            |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Purchases of property, plant and equipment                                                                      |                                                                                  |                                        | (26,553  | )       |        |      | (21,987  | )      |        |   | (20,720 | )     
|Proceeds from sale of property, plant and
    equipment                                                         |                                                                                  |                                        | 275      |         |        |      |         |        |        |   |        |       
|Purchase of businesses                                                                                          |                                                                                  |                                        |         |         |        |      | (85,438  | )      |        |   |        |       
|Changes in other assets                                                                                         |                                                                                  |                                        | (245     | )       |        |      |         |        |        |   |        |       
|Designation of restricted cash                                                                                  |                                                                                  |                                        |         |         |        |      |         |        |        |   | (4,200  | )     
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Net cash used in investing activities                                                                           |                                                                                  |                                        | (26,523  | )       |        |      | (107,425 | )      |        |   | (24,920 | )     
|Cash flows from financing activities                                                                            |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Payments on long-term debt                                                                                      |                                                                                  |                                        | (230,413 | )       |        |      | (13,150  | )      |        |   | (1,750  | )     
|Issuance of common and preferred stock                                                                          |                                                                                  |                                        | 470,276  |         |        |      | 75,000   |        |        |   | 250     |       
|Proceeds from Senior Term Loan                                                                                  |                                                                                  |                                        | 125,000  |         |        |      |         |        |        |   |        |       
|Redemption of preferred stock                                                                                   |                                                                                  |                                        | (550,244 | )       |        |      |         |        |        |   |        |       
|Payments on related-party debt                                                                                  |                                                                                  |                                        |         |         |        |      |         |        |        |   | (6,000  | )     
|Payments on long-term payables                                                                                  |                                                                                  |                                        | (1,401   | )       |        |      | (1,759   | )      |        |   | (1,830  | )     
|Proceeds from senior subordinated notes                                                                         |                                                                                  |                                        | 200,000  |         |        |      |         |        |        |   |        |       
|Stock repurchase, net of stockholder note
    receivable                                                        |                                                                                  |                                        |         |         |        |      |         |        |        |   | (122    | )     
|Exercise of stock options for common and
    preferred stock                                                    |                                                                                  |                                        | 939      |         |        |      | 454      |        |        |   | 270     |       
|Deferred financing costs                                                                                        |                                                                                  |                                        | (11,356  | )       |        |      | (2,170   | )      |        |   |        |       
|Payment to settle derivatives                                                                                   |                                                                                  |                                        | (788     | )       |        |      |         |        |        |   |        |       
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Net cash provided by (used in) financing
    activities                                                         |                                                                                  |                                        | 2,013    |         |        |      | 58,375   |        |        |   | (9,182  | )     
|Effect of exchange rate changes on cash and
    cash equivalents                                                |                                                                                  |                                        | 10,717   |         |        |      | 1,509    |        |        |   | 98      |       
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Net increase in cash and cash
    equivalents                                                                   |                                                                                  |                                        | 56,879   |         |        |      | 33,534   |        |        |   | 8,570   |       
|Cash and cash equivalents at beginning of
    year                                                              |                                                                                  |                                        | 62,184   |         |        |      | 28,650   |        |        |   | 20,080  |       
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Cash and cash equivalents at end of
    year                                                                    |                                                                                  | $                                      | 119,063  |         |        | $    | 62,184   |        |        | $ | 28,650  |       
|                                                                                                                |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Supplementary cash flow information                                                                             |                                                                                  |                                        |          |         |        |      |          |        |        |   |         |       
|Cash paid for interest                                                                                          |                                                                                  | $                                      | 16,721   |         |        | $    | 11,314   |        |        | $ | 14,776  |       
|Cash paid for income taxes (including $8,707 paid
    to our former parent under tax sharing agreement in 2001) |                                                                                  | $                                      | 9,257    |         |        | $    | 2,455    |        |        | $ | 9,213   |       
|Stock repurchase in exchange for stockholder note
    receivable                                                |                                                                                  | $                                      |         |         |        | $    |         |        |        | $ | (210    | )     
|Unrealized derivative gain (loss), net of income
    taxes                                                      |                                                                                  | $                                      |         |         |        | $    | 98       |        |        | $ | (726    | )     

See accompanying notes.

48



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003




|   |                          
|-- | -------------------------
|1. | Business and Organization



| |         
| | --------
| | Business

AMIS Holdings, Inc. and its subsidiaries
(the Company) are primarily engaged in designing, manufacturing
and marketing semi-custom and custom integrated circuits
worldwide.

Organization,
Recapitalization and Basis of Presentation

During 1997, American Microsystems, Inc.
(AMI) operated as a subsidiary of Nippon Mining
Holdings, Inc. (Nippon Mining). Effective January 1,
1998, AMI merged with Gould Electronics Inc. (GEI), another
subsidiary of Nippon Mining, to form a new entity, which became
the parent of AMI (the Parent), and was headquartered in
Eastlake, Ohio and was a subsidiary of Nippon Mining. AMI and
GEI continued to conduct business as American
Microsystems, Inc. and Gould Electronics Inc.,
respectively, and operated as separate business units of the
Parent.

Effective July 29, 2000, AMI
Spinco, Inc. (Spinco), a newly formed entity, and the
Parent entered into a separation agreement (the Separation
Agreement) whereby substantially all of the assets and
liabilities of AMI and its related operating entities were
transferred by the Parent to Spinco in exchange for all of the
Series A Preferred Stock of Spinco (see further discussion
of the Preferred Stock in Note 14). For the period from
July 29, 2000 through December 21, 2000, Spinco
operated as a subsidiary of the Parent.

On December 21, 2000, Spinco was
recapitalized and certain related transactions were effected
(the Recapitalization) pursuant to an agreement (the
Recapitalization Agreement) among Spinco, the Parent, certain
affiliates of Spinco and the Parent, an affiliate of Citicorp
Venture Capital Ltd. (CVC) and an affiliate of Francisco
Partners, L.P. (FP). In connection with the
Recapitalization, Spinco became a wholly owned operating
subsidiary of AMIS Holdings, Inc. (AMIS Holdings) and
Spinco was renamed AMI Semiconductor, Inc. (AMIS).

The Recapitalization was effected through the
following transactions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | AMIS Holdings was capitalized with three tranches
    of capital stock: 46,030,334 shares of common stock; 17,870,100
    shares of Series A Senior Redeemable Preferred Stock; and
    14,296,084 shares of Series B Junior Redeemable Convertible
    Preferred Stock.                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Parents ownership in Spinco was
    converted into the following securities of AMIS Holdings:
    (i) 45,077,001 shares of common stock, (ii) 17,500,000
    shares of Series A Senior Redeemable Preferred Stock, and
    (iii) 14,000,000 shares of Series B Junior Redeemable
    Convertible Preferred Stock. The Parent was also issued a
    warrant to purchase an additional 4,603,032 shares of
    common stock.                                                                                                                                                                                                
|
| |  | Current and former executives ownership in
    Spinco was converted into the following securities of AMIS
    Holdings: (i) 953,333 shares of common stock,
    (ii) 370,100 shares of Series A Senior Redeemable
    Preferred Stock, and (iii) 296,084 shares of Series B
    Junior Redeemable Convertible Preferred Stock.                                                                                                                                                                                                                                                                                                
|
| |  | CVC and FP each acquired the following securities
    of AMIS Holdings directly from the Parent:
    (i) 17,837,613 shares of common stock,
    (ii) 6,925,000 shares of Series A Senior Redeemable
    Preferred Stock, and (iii) 5,540,000 shares of
    Series B Junior Redeemable Convertible Preferred Stock in
    exchange for $138,500,000 in cash. Another third-party
    investment fund acquired the following securities of AMIS
    Holdings directly from the Parent: (i) 386,374 shares of
    common stock, (ii) 150,000 shares of Series A Senior
    Redeemable Preferred Stock, and (iii) 120,000 shares of

49



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Series B Junior Redeemable Convertible
    Preferred Stock in exchange for $3,000,000 in cash. The
    aggregate consideration paid by these third parties to the
    Parent was $280,000,000 in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | AMIS Holdings obtained $175,000,000 in bank debt
    and used the proceeds for the following: (i) redemption of
    outstanding Spinco Series B and C Preferred Stock and
    common stock warrants for total consideration of approximately
    $6,500,000; (ii) repayment of $72,200,000 of Spinco
    intercompany debt payable to the Parent; (iii) payment of
    $40,500,000 to the Parent for a non-compete agreement;
    (iv) payment of $29,200,000 to the Parent in satisfaction
    of the remaining liquidation preference on the Spinco
    Series A Preferred Stock; and (v) payment of
    Recapitalization related transaction expenses of approximately
    $24,856,000.
|
| |  | The Parent agreed to indemnify the Company for
    certain existing environmental contingencies and to pay certain
    existing liabilities of the Company. The estimated amount of
    these obligations at December 21, 2000 was approximately
    $11,232,000.                                                                                                                                                                                                                                                                                                                                                                                                                         

As a result of the foregoing transactions, CVC
and FP each held approximately 38.8%, the Parent held
approximately 19.6% and the remaining stockholders, including
certain current and former executive officers, held
approximately 2.8% of each class of capital stock of AMIS
Holdings immediately subsequent to the Recapitalization.

On September 26, 2003, the Company completed
its initial public offering (the IPO) of
25,145,000 shares of common stock at a price to the public
of $20 per share. Net of total offering expenses, the
proceeds to the Company were approximately $470,300,000. The
Company used the proceeds from the IPO, together with the
borrowings under a new $125,000,000 Senior Term Loan, to redeem
all of its outstanding shares of preferred stock and options to
purchase shares of such preferred stock, redeem 35% of the
Senior Subordinated Notes and repay an existing Senior Term
Loan. (See further discussion below.) The Company also settled
all outstanding stockholder loans.

Principles of
Consolidation

The consolidated financial statements include the
accounts of AMIS Holdings and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Unrealized gains on intercompany transfers of inventory are
eliminated and are recognized only upon sales to third parties.

Reclassifications

Certain prior year amounts shown have been
reclassified to conform to the current year presentation.

Reverse Stock
Split

On September 4, 2003, the Companys
Board of Directors and stockholders effected a one-for-three
reverse split of the Companys outstanding common stock.
All share and per share amounts have been retroactively restated
in the accompanying consolidated financial statements and notes
for all periods presented.



|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts in the consolidated
financial statements and the accompanying notes. Actual results
may differ from those estimates.

50



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenue
Recognition

The Company generally recognizes revenue from
products sold directly to end customers when persuasive evidence
of an arrangement exists, the price is fixed and determinable,
shipment is made and collectibility is reasonably assured.
However, in certain situations, the Company ships products
through freight forwarders where title does not pass until
product is shipped from the freight forwarder. In other
situations, by contract, title does not pass until the customer
receives the product. In both cases, revenue and related costs
are not recognized until title passes to the customer. Estimates
of product returns and allowances, based on actual historical
experience, the Companys knowledge of potential quality
issues and customer feedback, are recorded at the time revenue
is recognized and are deducted from revenues. Revenue from
contracts to perform engineering design and product development
is generally recognized as milestones are achieved, which
approximates the percentage-of-completion method. (See
Note 10 for further discussion.)

Shipping and handling costs are expensed as
incurred and included in cost of sales.

Research and
Development Expense

Research and development costs are expensed as
incurred. Certain specifically defined fundamental and prototype
research projects, executed by AMIS-B (see below) in
collaboration with other research centers, are partly funded by
research and development grants provided by the IWT (Flemish
Institute for the enhancement of scientific technologic research
in the industry) and the European Commission (the
Authorities). Such grants are recorded as a
reduction to research and development expense as costs are
incurred and when it is reasonably assured that all conditions
under the grant agreement will be met. Management regularly
evaluates whether it is reasonably assured that such conditions
will be met.

Capitalized
Software Development Costs for Internal Use

In accordance with the provisions of Statement of
Position (SOP) No. 98-1, Accounting for the
Costs of Software Developed or Obtained for Internal Use,
the Company capitalizes internal and external costs to develop
or obtain internal use software during the application
development stage. Costs incurred during the preliminary project
stage are expensed as incurred, as are training and maintenance
costs. The Company capitalized approximately $465,000,
$10,372,000 and $2,603,000 relating to software costs in 2003,
2002 and 2001, respectively. Amortization is computed using the
straight-line method over the estimated useful life of the
assets, which has been determined to be three years.

Concentrations
of Credit Risk

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of trade receivables. The Companys customers include, but
are not limited to, other U.S. and foreign semiconductor
manufacturers and manufacturers of computer systems,
automobiles, and medical, industrial and telecommunications
equipment. Management believes that any significant risk of
accounting loss is reduced due to the diversity of its products
and end customers. The Company performs ongoing credit
evaluations of its customers respective financial
condition and requires collateral, such as prepayments or
letters of credit, when deemed necessary. The Company monitors
the need for an allowance for doubtful accounts based on
historical losses, economic conditions and expected collections
of accounts receivable. No one customer accounted for greater
than 10% of revenue for the years ended December 31, 2003,
2002, or 2001.

The Companys foreign operations include
design and fabrication facilities in Belgium (AMI Semiconductor
Belgium BVBA or AMIS-B), product sort and test operations in the
Philippines (AMI Semiconductor Philippines, Inc. or AMIS-P)
and sales operations and/or product design centers in Germany,
the Czech Republic, Hong Kong and Japan.

51



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash and Cash
Equivalents

The Company considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents. Cash equivalents are stated at cost, which
approximates fair value.

Inventories

Inventories are stated at the lower of cost
(using the first-in, first-out method) or market. The Company
provides an allowance for inventories on hand that are in excess
of six months of forecasted demand. Forecasted demand is
determined based on historical sales or inventory usage,
expected future sales or inventory usage using backlog and other
projections, and the nature of the inventories. The Company also
reviews other inventories for indicators of impairment and
provides an allowance as deemed necessary.

The Company also provides an allowance for
obsolete inventories, which are written off when disposed of.

Property,
Plant and Equipment

Property, plant and equipment are stated at cost,
including capitalized interest. Any assets acquired as part of
the purchase of all or a portion of another companys
operations are stated at their relative fair values at the date
of acquisition. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the
assets ranging from three to thirty years. Repair and
maintenance costs are expensed as incurred.

Restricted
Cash

Restricted cash is comprised of an escrow
account, which was created to provide for the duties and
obligations associated with an employment agreement between the
Company and its Chief Executive Officer.

Other
Intangibles

Other intangibles are recorded at the lower of
cost or their net realizable value and are being amortized on a
straight-line basis over six months to fifteen years.

The following table summarizes the gross carrying
amount and accumulated amortization for each major class of
intangible assets as of December 31 based on the
Companys reassessment of previously recognized intangible
assets and their estimated remaining useful lives in conjunction
with the adoption of SFAS No. 142 (see below) (in
thousands):

|                                    |  |          |        |              |  |          |        |              |  |             |         |  |  |   |        |  |  |  |                  | 
|----------------------------------- |  | -------- | ------ | ------------ |  | -------- | ------ | ------------ |  | ----------- | ------- |  |  | - | ------ |  |  |  | ---------------- | 
|                                    |  |          |        |              |  |         
|                                    |  | 2003     |        | 2002         |  |         
|                                    |  |          |        |              |  |         
|                                    |  | Gross    |        |              |  | Gross    |        |              |  |            
|                                    |  | Carrying |        | Accumulated  |  | Carrying |        | Accumulated  |  |            
|                                    |  | Amount   |        | Amortization |  | Amount   |        | Amortization |  | Useful Life
|                                    |  |          |        |              |  |          |        |              |  |            
|Licenses                            |  | $        | 68,635 |              |  | $        | 59,161 |              |  | $           | 68,358  |  |  | $ | 56,121 |  |  |  | 0.5 to 15  years | 
|Non-compete agreement               |  |          |       |              |  |          |       |              |  |             | 40,500  |  |  |   | 16,422 |  |  |  | 5 years          | 
|Patents                             |  |          | 770    |              |  |          | 770    |              |  |             | 770     |  |  |   | 732    |  |  |  | 5 years          | 
|Contracts                           |  |          | 325    |              |  |          | 81     |              |  |             | 325     |  |  |   | 16     |  |  |  | 5 years          | 
|                                    |  |          |        |              |  |          |        |              |  |             |         |  |  |   |        |  |  |  |                  | 
|Total amortizable intangible assets |  | $        | 69,730 |              |  | $        | 60,012 |              |  | $           | 109,953 |  |  | $ | 73,291 |  |  |  |                  | 
|                                    |  |          |        |              |  |          |        |              |  |             |         |  |  |   |        |  |  |  |                  | 

Amortization expense relating to other
intangibles, excluding deferred financing costs, was
approximately $7,162,000, $10,994,000 and $10,576,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.
These amounts are allocated between research and development and
general and administrative expenses in the accompanying
statements of operations, depending on the nature and use of the
intangible asset.

52



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The scheduled amortization expense for the next
five years is as follows (in thousands): 2004 
$2,427; 2005  $942; 2006  $857;
2007  $833; and 2008  $784.

Impairment of
Long-Lived Assets

The Company regularly evaluates the carrying
amounts of long-lived assets, including its property, plant and
equipment and other intangible assets, as well as the related
depreciation and amortization periods, to determine whether
adjustments to these amounts or to the useful lives are required
based on current circumstances or events. The evaluation, which
involves significant judgment by management, is based on various
analyses including cash flow and profitability projections. To
the extent such projections indicate that future undiscounted
cash flows are not sufficient to recover the carrying amounts of
the related long-lived assets, the carrying amount of the
underlying assets will be reduced, with the reduction charged to
expense so that the carrying amount is equal to fair value,
primarily determined based on future discounted cash flows.

In conjunction with the Recapitalization
Agreement, the Company entered into a non-competition agreement
with Nippon Mining and its subsidiary (our former Parent).
According to this agreement, each of Nippon Mining and its
subsidiary agreed to not engage in the custom semiconductor
business anywhere in the world through December 2005. During
2003, the Company reached a determination that the carrying
value of the non-compete had been impaired based primarily on a
change in Nippon Minings and its subsidiarys
business focus and related capabilities such that they did not
intend to focus on custom semiconductors. Effective
June 26, 2003, the Company released Nippon Mining and its
subsidiary from the non-compete agreement and expensed the
$20,028,000 remaining unamortized balance of the agreement,
which is included as part of the 2003 Restructuring and
impairment charges on the accompanying consolidated statements
of operations.

Deferred
Financing Costs

Deferred financing costs relate to fees incurred
to obtain and amend bank term loans and revolving credit
facilities and fees incurred in connection with senior
subordinated notes issued in January 2003 (see Note 9).
These costs are being amortized to interest expense over the
respective lives of the debt issues on a straight-line basis,
which approximates the effective interest method. Amortization
expense was approximately $1,282,000, $1,315,000 and $1,072,000
for the years ended December 31, 2003, 2002 and 2001,
respectively. As explained below, during 2003, the Company
repaid the original term loan and a portion of the senior
subordinated notes. In connection with this repayment, the
Company expensed approximately $7,884,000 of unamortized
deferred financing costs, which are included as part of the 2003
Other income (expense) charges on the accompanying
consolidated statements of operations.

Goodwill

Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible
Assets. In accordance with the guidelines of this
accounting principle, goodwill and intangible assets with
indefinite lives are no longer amortized, but are assessed for
impairment on at least an annual basis. The Company completed
Step 1 (determining and comparing the fair value of the
Companys reporting units to their carrying values) of the
annual impairment test. The fair value of the Companys
reporting units exceeds their carrying values including
goodwill; therefore, no impairment of the Companys
goodwill exists and Step 2 does not need to be completed
for 2003. As of December 31, 2003 and 2002, the
Companys gross goodwill balance is approximately
$23,033,000, with accumulated amortization of approximately
$21,822,000.

53



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Provided below is a reconciliation of previously
reported financial statement information to adjusted amounts
that reflect the elimination of goodwill amortization for the
years ended December 31 (in thousands except per share
data):

|                                                          |                                 |      |         |         |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------- | ------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                          |                                 | 2003 |         | 2002    |   | 2001
|                                                          |                                 |      |         |         |   |     
|Net loss attributable to common stockholders:             |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                                          | As reported                     |      | $       | (46,743 | ) |      | $       | (57,392 | ) |   | $       | (34,897 | )
|                                                          | Add back: Goodwill amortization |      |         |        |   |      |         |        |   |   |         | 1,872   |  
|                                                          |                                 |      |         |         |   |      |         |         |   |   |         |        
|Adjusted net loss attributable to common
    stockholders |                                 | $    | (46,743 | )       |   | $    | (57,392 | )       |   | $ | (33,025 | )      
|                                                          |                                 |      |         |         |   |      |         |         |   |   |         |        
|Adjusted basic and diluted loss per common share          |                                 | $    | (0.84   | )       |   | $    | (1.24   | )       |   | $ | (0.72   | )      
|                                                          |                                 |      |         |         |   |      |         |         |   |   |         |        
|Weighted average number of common shares
    outstanding  |                                 |      | 55,427  |         |   |      | 46,407  |         |   |   | 46,072  |        

Foreign
Currency

The U.S. dollar is the functional currency
for AMIS-P. Remeasurement adjustments that result from the
process of remeasuring this entitys financial statements
into U.S. dollars are included in other income
(expense) and have not been significant for the years ended
December 31, 2003, 2002 and 2001.

The local currencies are the functional
currencies for the Companys fabrication facilities, sales
operations and/or product design centers in Belgium, Germany,
Czech Republic, Hong Kong and Japan. Cumulative translation
adjustments that result from the process of translating these
entities financial statements into U.S. dollars are
included as a component of comprehensive income and total
approximately $17,000,000 and $2,103,000 as of December 31,
2003 and 2002, respectively.



| |             
| | ------------
| | Income Taxes

Income taxes are recorded based on the liability
method, which requires recognition of deferred tax assets and
liabilities based on differences between financial reporting and
tax bases of assets and liabilities measured using enacted tax
rates and laws that are expected to be in effect when the
differences are expected to reverse. A valuation allowance is
recorded to reduce the deferred tax asset to an amount that is
determined to be more likely than not to be realized, based on
an analyses of past operating results, future reversals of
existing taxable temporary differences and projected taxable
income, including tax strategies available to generate future
taxable income. The Companys analyses of future taxable
income are subject to a wide range of variables, many of which
involve managements estimates and therefore the deferred
tax asset may not be ultimately realized.



| |              
| | -------------
| | Stock Options

The Company has elected to follow the intrinsic
value-based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related interpretations in
accounting for its employee stock options rather than adopting
the alternative fair value accounting provided for under
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123).

Stock compensation expense for options and/or
warrants granted to non-employees has been determined in
accordance with SFAS 123 and the Emerging Issues Task Force
consensus on Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling Goods or
Services (EITF 96-18). The fair value of options or
warrants granted to non-employees is periodically re-measured as
the underlying options or warrants vest.

On December 31, 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based

54



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Compensation, to provide alternative
methods of transition to SFAS No. 123s fair
value method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion
No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of
the effects of an entitys accounting policy with respect
to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements.
While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for
employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable
to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using
the fair value method of SFAS No. 123 or the intrinsic
value method of APB Opinion No. 25, Accounting for
Stock Issued to Employees.

The following table provides pro forma
information for the years ended December 31 that
illustrates the net income (loss), net loss attributable to
common stockholders (in thousands, except per share data), and
net loss per common share as if the fair value method had been
adopted under SFAS No. 123.

|                                                                                                        |                                                                       |      |         |      |  |      |         |   |  |   |         |   | 
|------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - | 
|                                                                                                        |                                                                       | 2003 |         | 2002 |  | 2001
|                                                                                                        |                                                                       |      |         |      |  |     
|Net income (loss) as reported                                                                           |                                                                       | $    | (416    | )    |  | $    | 5,110   |   |  | $ | 12,681  |  
|Less: Stock compensation expense determined under
    the fair value method, net of related tax effects |                                                                       |      | (301    | )    |  |      | (383    | ) |  |   | (489    | )
|Add: Compensation expense associated with
    accelerated stock options, net of related tax effects     |                                                                       |      | 385     |      |  |      |        |   |  |   |        |  
|                                                                                                        | Amortization of deferred compensation, net of
    related tax effects |      |         | 26   |  |      |         |  |  |   |         |  | 
|                                                                                                        |                                                                       |      |         |      |  |      |         |   |  |   |         |  
|Pro forma net income (loss)                                                                             |                                                                       |      | (306    | )    |  |      | 4,727   |   |  |   | 12,192  |  
|                                                                                                        |                                                                       |      |         |      |  |      |         |   |  |   |         |  
|Preferred stock dividend as reported                                                                    |                                                                       |      | (46,327 | )    |  |      | (62,502 | ) |  |   | (47,578 | )
|                                                                                                        |                                                                       |      |         |      |  |      |         |   |  |   |         |  
|Pro forma net loss attributable to common
    stockholders                                              |                                                                       | $    | (46,633 | )    |  | $    | (57,775 | ) |  | $ | (35,386 | )
|                                                                                                        |                                                                       |      |         |      |  |      |         |   |  |   |         |  
|Net loss per common share:                                                                              |                                                                       |      |         |      |  |      |         |   |  |   |         |  
|Basic and diluted as reported                                                                           |                                                                       | $    | (0.84   | )    |  | $    | (1.24   | ) |  | $ | (0.76   | )
|Pro forma basic and diluted                                                                             |                                                                       | $    | (0.84   | )    |  | $    | (1.24   | ) |  | $ | (0.77   | )

The weighted-average fair value of options
granted during the years ended December 31, 2003, 2002 and
2001 was $2.16, $0.09 and $0.12, respectively. The fair value of
these options was estimated at the date of grant using the Black
Scholes Value option pricing model subsequent to the IPO in 2003
and the Minimum Value option pricing model prior to the IPO. The
following weighted-average assumptions were used for 2003, 2002
and 2001, respectively: risk-free interest rates of 2.07%, 2.88%
and 4.37%, dividend yield of 0%, a weighted-average expected
life of the options of 2.5 years and a volatility factor of
8% for 2003 and 0% for 2002 and 2001.

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and that are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock
price volatility. Because AMIS stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect their fair value, in managements
opinion, the existing models do not necessarily provide a
reliable measure of the fair value of stock options.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized on a
straight-line basis over the options vesting period.
Because the effect of SFAS 123 is prospective, the impact
on pro forma net income and earnings per share may not be
representative of compensation expense in future years.

55



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                   
| | ------------------
| | Earnings Per Share

Options to purchase 4,865,119; 5,491,034 and
5,126,102 shares of common stock and warrants to purchase
4,674,735; 13,787,883 and 4,603,032 shares of common stock
were outstanding as of December 31, 2003, 2002 and 2001,
respectively, but were not included in the computation of
diluted earnings per share as the effect would be antidilutive
because of the net loss attributable to common stockholders
recorded during 2003, 2002 and 2001.



| |            
| | -----------
| | Derivatives

In 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was subsequently
amended by SFAS No. 137, Accounting for
Derivative Financial Instruments and Hedging
Activities  Deferral of the Effective Date of SFAS
No. 133, and SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain 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 in the balance sheet as either an asset
or liability and measured at its fair value. The statement also
requires that changes in the derivatives fair value be
recognized in earnings unless specific hedge accounting criteria
are met. The Company has followed the guidance of SFAS
No. 133 in accounting for its derivative instruments
entered into in June 2001. (See Note 15 for further
discussion.)



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

The Company has reviewed all recently issued
accounting standards, which have not yet been adopted, in order
to determine their potential effect, if any, on the results of
operations of financial position of the Company. Based on that
review, the Company does not currently believe that any of these
recent accounting pronouncements will have a significant effect
on its current or future financial position, results of
operations, cash flows or disclosures.



|   |                                                                                              
|-- | ---------------------------------------------------------------------------------------------
|3. | Purchase of the Mixed Signal Business of
    Alcatel Microelectronics from STMicroelectronics

On June 26, 2002, the Company acquired the
assets and assumed certain liabilities of the mixed signal
business (MSB) of Alcatel Microelectronics NV from
STMicroelectronics NV (the MSB acquisition) in a purchase that
closed concurrently with STMicroelectronics purchase of
100% of the capital stock of Alcatel Microelectronics NV from
Alcatel S.A. The results of MSB have been consolidated with the
Company since the date of acquisition. The Company used existing
cash along with the proceeds from the issuance of $75,000,000 of
Series C Preferred Stock to finance the purchase price.

Following is a summary of the MSB purchase price
(in thousands):

|                                                                                                                                                                                                |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | 
|Cash paid to STMicroelectronics                                                                                                                                                                 |  | $ | 68,300  | 
|Acquisition related expenses                                                                                                                                                                    |  |   | 11,200  | 
|Restructuring accrual                                                                                                                                                                           |  |   | 4,600   | 
|Operating liabilities assumed (including accounts
    payable of approximately $8,300, accrued compensation of
    approximately $7,100 and other accrued expenses of approximately
    $3,700) |  |   | 19,100  | 
|                                                                                                                                                                                                |  |   |         | 
|Total purchase price                                                                                                                                                                            |  | $ | 103,200 | 
|                                                                                                                                                                                                |  |   |         | 

The foregoing purchase price includes the
allocation of certain operating liabilities between MSB and
STMicroelectronics. Additionally, as part of the MSB
acquisition, the Company prepared and approved a plan of
restructuring in connection with the integration of MSB into the
Company and included the costs of those

56



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

restructuring activities in the purchase price
pursuant to EITF No. 95-3, Recognition of Liabilities
in Connection with a Purchase Business Combination. The
restructuring costs that have been accrued and included in the
purchase price primarily include costs associated with
relocating and combining MSBs testing facilities with the
Companys existing facilities. The majority of these costs
relate to employee severance. As of December 31, 2003, the
Company had terminated 42 employees as part of this transfer of
the testing facilities. This relocation was substantially
completed during 2003. Additional costs, which were
substantially paid in 2002, represent employee severance for 79
MSB employees that had duplicative responsibilities as those of
the Companys employees and were terminated as part of the
Companys plan.

Following is a rollforward of the restructuring
accrual from acquisition date to December 31, 2003 (in
thousands):

|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 
|--------------------------- |  | ------------- | ----- | ------- |  | ------------- | ------ | ------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | - | 
|                            |  |               |       |         |  | Restructuring |        |         |  | Restructuring
|                            |  | Restructuring |       |         |  | Accrual at    |        |         |  | Accrued at   
|                            |  | Accrual at    |       | Paid in |  | December 31,  |        | Paid in |  | December 31, 
|                            |  | June 26, 2002 |       | 2002    |  | 2002          |        | 2003    |  | 2003         
|                            |  |               |       |         |  |               |        |         |  |              
|Employee severance costs    |  | $             | 3,700 |         |  | $             | (1,500 | )       |  | $             | 2,200 |  |  | $ | (2,200 | ) |  | $ |  | 
|Transfer of ownership taxes |  |               | 800   |         |  |               | (800   | )       |  |               |      |  |  |   |       |   |  |   |  | 
|Other                       |  |               | 100   |         |  |               | (100   | )       |  |               |      |  |  |   |       |   |  |   |  | 
|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 
|Total                       |  | $             | 4,600 |         |  | $             | 2,400  |         |  | $             | 2,200 |  |  | $ | (2,200 | ) |  | $ |  | 
|                            |  |               |       |         |  |               |        |         |  |               |       |  |  |   |        |   |  |   |   | 

Following is a summary of the allocation of the
MSB purchase price (in thousands):

|                               |  |   |         | 
|------------------------------ |  | - | ------- | 
|Trade accounts receivable      |  | $ | 18,300  | 
|Inventory                      |  |   | 19,500  | 
|Prepaid and other assets       |  |   | 13,200  | 
|Deferred pension asset         |  |   | 11,600  | 
|Property, plant and equipment  |  |   | 32,300  | 
|Intangible assets              |  |   | 8,300   | 
|                               |  |   |         | 
|Total purchase price allocated |  | $ | 103,200 | 
|                               |  |   |         | 

The foregoing allocation is based on the fair
values of the assets acquired, including valuations of
intangible assets completed by the Companys independent
financial consulting firm, LECG, LLC, and the final allocation
of certain trade receivables between MSB and STMicroelectronics.
The intangible assets acquired through the MSB acquisition
consist of licensed technology and a contract. The contract was
amortized over six months, the life of the contract, and the
licensed technology is being amortized over 15 years.

Unaudited pro forma information as if MSB had
been acquired on January 1, 2001 is as follows for the
years ended December 31 (rounded, in thousands, except per
share data). The pro forma information is not necessarily
indicative of the results of operations had the acquisition
actually occurred on the assumed acquisition date.

|                                                        |  |      |         |      |  |   |         |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                        |  | 2002 |         | 2001
|                                                        |  |      |         |     
|Revenue                                                 |  | $    | 400,400 |      |  | $ | 460,700 |  
|Net income                                              |  |      | 1,400   |      |  |   | 9,300   |  
|Net loss attributable to common stockholders            |  |      | (61,100 | )    |  |   | (38,300 | )
|Loss per share attributable to common
    stockholders: |  |      |         |      |  |   |         |  
|Basic and diluted                                       |  |      | (1.32   | )    |  |   | (0.83   | )

57



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |            
|-- | -----------
|4. | Inventories

Inventories consist of the following as of
December 31 (in thousands):

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                |  | 2003 |        | 2002
|                |  |      |        |     
|Raw materials   |  | $    | 5,307  |      |  | $ | 7,368  | 
|Work-in-process |  |      | 27,213 |      |  |   | 23,657 | 
|Finished goods  |  |      | 13,079 |      |  |   | 8,336  | 
|                |  |      |        |      |  |   |        | 
|                |  | $    | 45,599 |      |  | $ | 39,361 | 
|                |  |      |        |      |  |   |        | 



|   |                              
|-- | -----------------------------
|5. | Property, Plant and Equipment

Property, plant and equipment consists of the
following as of December 31 (in thousands):

|                              |  |      |          |      |  |   |          |  
|----------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                              |  | 2003 |          | 2002
|                              |  |      |          |     
|Land and buildings            |  | $    | 63,094   |      |  | $ | 63,415   |  
|Machinery and equipment       |  |      | 386,004  |      |  |   | 379,631  |  
|Construction-in-progress      |  |      | 12,326   |      |  |   | 2,185    |  
|                              |  |      |          |      |  |   |          |  
|                              |  |      | 461,424  |      |  |   | 445,231  |  
|Less accumulated depreciation |  |      | (255,515 | )    |  |   | (222,724 | )
|                              |  |      |          |      |  |   |          |  
|                              |  | $    | 205,909  |      |  | $ | 222,507  |  
|                              |  |      |          |      |  |   |          |  

Depreciation expense related to property, plant
and equipment was approximately $37,657,000, $35,959,000 and
$31,648,000 for the years ended December 31, 2003, 2002 and
2001, respectively.



|   |                                                     
|-- | ----------------------------------------------------
|6. | Accrued Expenses and Other Long-Term
    Liabilities

Accrued expenses consist of the following as of
December 31 (in thousands):

|                                               |  |      |        |      |  |   |        | 
|---------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                               |  | 2003 |        | 2002
|                                               |  |      |        |     
|Reserve for restructuring charges              |  | $    | 856    |      |  | $ | 3,183  | 
|Reserve for product development project losses |  |      | 6,281  |      |  |   | 4,660  | 
|Research and development grant payable         |  |      | 3,596  |      |  |   | 2,984  | 
|Preferred stock dividend payable               |  |      |       |      |  |   | 2,805  | 
|Property, sales and use and other taxes        |  |      | 1,736  |      |  |   | 2,442  | 
|Employee medical insurance reserve             |  |      | 1,000  |      |  |   | 1,766  | 
|Accrued sales representatives commissions     |  |      | 884    |      |  |   | 1,107  | 
|Interest payable                               |  |      | 6,045  |      |  |   | 162    | 
|Other                                          |  |      | 4,575  |      |  |   | 4,671  | 
|                                               |  |      |        |      |  |   |        | 
|                                               |  | $    | 24,973 |      |  | $ | 23,780 | 
|                                               |  |      |        |      |  |   |        | 

58



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Other long-term liabilities consist of the
following as of December 31 (in thousands):

|                                               |  |      |     |      |  |   |       | 
|---------------------------------------------- |  | ---- | --- | ---- |  | - | ----- | 
|                                               |  | 2003 |     | 2002
|                                               |  |      |     |     
|Unrealized loss on derivatives                 |  | $    |    |      |  | $ | 1,064 | 
|Liability for purchase of developed technology |  |      |    |      |  |   | 1,484 | 
|Other long-term liabilities                    |  |      | 360 |      |  |   | 540   | 
|                                               |  |      |     |      |  |   |       | 
|                                               |  | $    | 360 |      |  | $ | 3,088 | 
|                                               |  |      |     |      |  |   |       | 



|   |            
|-- | -----------
|7. | Commitments

The Company leases certain facilities and
equipment under noncancelable operating lease arrangements, some
of which include various renewal options and escalation clauses.
During the years ended December 31, 2003, 2002 and 2001,
rental expense under such arrangements was approximately
$6,650,000, $2,509,000 and $3,266,000, respectively.

Approximate future minimum annual rental
commitments at December 31, 2003 are as follows:
2004  $6,003,000; 2005  $2,791,000;
2006  $1,582,000; 2007  $1,155,000; and
2008  $741,000.

In order to achieve more favorable pricing and
ensure delivery when demanded, the Company contracts for certain
chemicals, raw materials, and services at fixed prices but not
fixed quantities. These contracts are renegotiated on either a
quarterly or annual basis. As no fixed quantities are required
and terms are less than one year, no reportable commitment is
deemed to exist for these contracts.

From time to time, the Company enters into
contracts with customers in which the Company provides some
indemnification to the customer in the event of claims of patent
or other intellectual property infringement resulting from the
customers use of the Companys technology. Such
provisions are customary in the semiconductor industry and do
not reflect an assessment by the Company of the likelihood of a
claim. The Company has not recorded a liability for potential
obligations under these indemnification provisions and would not
record such a liability unless the Company believed that the
likelihood of a material obligation was probable.



|   |                                  
|-- | ---------------------------------
|8. | Transactions with Related Parties

Pursuant to the terms of the Recapitalization
Agreement, the Company entered into advisory agreements with
affiliates of Citigroup Venture Capital Equity Partners, L.P.
(CVC) and Francisco Partners, L.P. (Francisco Partners)
(the Sponsors) pursuant to which the Sponsors may provide
financial, advisory and consulting services to the Company. For
2002 and 2001, expenses totaling $2,000,000 were recorded
related to these advisory agreements. For 2003, expenses
totaling approximately $1,500,000 were recorded related to these
advisory agreements. During September 2003, the Company entered
into amendments to these advisory agreements whereby the annual
advisory fees payable under these agreements ceased. The
amendments called for a one-time payment of $8,500,000 for
investment banking and financial advisory services, which was
paid in September 2003 and is included in nonrecurring charges
in the accompanying statements of operations.

In 1999, Nippon Mining entered into an agreement
with a major semiconductor manufacturer pursuant to which the
semiconductor manufacturer provides certain technology and
related technological assistance to the Company. The Company
agreed to reimburse Nippon Mining for the amounts due under the
agreement, which is denominated in yen, totaling approximately
¥1,000,000,000 (or $9,515,000) over a five-year period.
Under the Recapitalization Agreement, Nippon Minings
subsidiary agreed to pay one-half of the remaining outstanding
obligation to this major semiconductor manufacturer. As of
December 21, 2000, the effective date of the
Recapitalization Agreement, the obligation totaled approximately
¥775,000,000, or $6,778,000 using an

59



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

estimated exchange rate of approximately
$0.00875/¥. Consequently, the Company recorded a
contra-liability of $3,389,000, representing the portion of the
obligation that Nippon Minings subsidiary agreed to pay.

As of December 31, 2003, the remaining
obligation, which is scheduled to be paid in 2004, was
approximately ¥100,000,000, or $935,000 using an estimated
exchange rate of approximately $0.00935/¥. The
contra-liability as of December 31, 2003 was $1,100,000,
representing one-half of the liability remaining and one-half of
those items paid by the Company, but not yet invoiced to Nippon
Minings subsidiary during 2003.

Also, in conjunction with the Recapitalization
Agreement, Nippon Minings subsidiary agreed to indemnify
the Company for any property tax, foreign tax and sales and use
tax obligations outstanding at December 21, 2000 (totaling
approximately $6,343,000). As of December 31, 2003, the
Company had remaining accruals of approximately $275,000 in
accrued expenses and a corresponding receivable of $1,729,000
representing remaining accruals and those items paid by the
Company, but not yet invoiced to Nippon Minings
subsidiary, during 2003. As of December 31, 2002, the
Company had remaining accruals of approximately $1,729,000 for
these obligations in taxes payable and accrued expenses in the
accompanying consolidated balance sheet and had recorded an
offsetting receivable from affiliate for this amount.

Certain retention and incentive plans were
instituted as part of the Recapitalization. In accordance with
these plans, $2,838,000 was paid out to certain executives of
the Company in 2001 and 2000. Such amounts were reimbursed by
Nippon Minings subsidiary in accordance with the
Recapitalization Agreement.



|   |               
|-- | --------------
|9. | Long-Term Debt

In conjunction with the Recapitalization
Agreement entered into in December 2000, AMI
Semiconductor, Inc., the Companys wholly owned
subsidiary, obtained $250,000,000 of Senior Secured Credit
Facilities consisting of a $75,000,000 Revolving Credit Facility
and a $175,000,000 Term Loan. At December 31, 2002
approximately $160,100,000 was outstanding under the Term Loan.
The Company used proceeds from the issuance of the Senior
Subordinated Notes (see discussion below) to pay approximately
$111,800,000 on the Term Loan in January 2003 and proceeds from
the IPO and the new Term Loan (see discussion below) to pay the
balance outstanding under the Term Loan of approximately
$39,900,000 in September 2003.

On September 26, 2003, the Company and AMIS
entered into amended and restated Senior Secured Credit
Facilities (the Facilities) consisting of a $125,000,000 Term
Loan and an extension of the Revolving Credit Facility,
discussed above, increasing the amount available to $90,000,000.
The new Term Loan requires a principal payment of $312,500,
together with accrued and unpaid interest, on the last day of
March, June, September and December, with the balance due on
September 26, 2008. The Revolving Credit Facility
($20,000,000 of which may be in the form of letters of credit)
is available for working capital and general corporate purposes.
As of December 31, 2003, no amount was drawn on the
Revolving Credit Facility.

The interest rate on the new Term Loan at
December 31, 2003 was 3.64%. The interest rate on the
original Term Loan at December 31, 2002 was 5.2% with an
effective rate of 6.5% after considering the impact of certain
hedging arrangements. As discussed in Note 15, no hedging
arrangements existed as of December 31, 2003.

The Facilities require the Company to maintain a
consolidated interest coverage ratio and a maximum senior
leverage ratio and contain certain other nonfinancial covenants,
all as defined within the credit agreement, as amended. The
Facilities also generally restrict payment of dividends to
parties outside of the consolidated entity. The Company was in
compliance with these covenants as of December 31, 2003.

The Facilities are unconditionally guaranteed by
AMIS Holdings and each existing domestic subsidiary and by each
subsequently acquired or organized domestic subsidiary. The
Facilities are secured by substantially all of the assets of the
domestic subsidiaries including but not limited to: (a) a
first-priority pledge of (i) all the capital stock of AMI
Semiconductor, and (ii) all the capital stock of any
subsidiary

60



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

guarantor, and (b) perfected first-priority
security interests in substantially all tangible and intangible
assets of AMI Semiconductor and each guarantor.

On January 29, 2003, AMIS issued
$200,000,000 aggregate principal amount of
10 3/4% Senior Subordinated Notes maturing on
February 1, 2013 (Senior Subordinated Notes). The proceeds
were used to repay approximately $111,800,000 of the original
Term Loan and redeem the Series C Preferred Stock for a
total, including cumulative dividends, of approximately
$80,764,000. Interest on the Senior Subordinated Notes is
payable semi-annually on February 1 and August 1 of
each year, commencing August 1, 2003.

AMIS cannot redeem the Senior Subordinated Notes
before February 1, 2008 except that, until February 1,
2006 AMIS can choose to redeem up to an aggregate of 35% of
the sum of the original principal amount of the Senior
Subordinated Notes and the original principal amount of any
other Senior Subordinated Notes issued under the same indenture,
with money AMIS raises in certain equity offerings or receives
as a capital contribution from the Company, as long as:
(i) AMIS pays the holders of the Senior Subordinated Notes
a redemption price of 110.75% of the principal amount of the
Senior Subordinated Notes it redeems, plus accrued interest to
the date of redemption; (ii) at least 65% of the original
aggregate principal amount of the Senior Subordinated Notes and
such other Senior Subordinated Notes issued remains outstanding
after each such redemption; and (iii) AMIS redeems the
Senior Subordinated Notes within 90 days of completing the
equity offering or receiving the capital contribution. On or
after February 1, 2008, AMIS can redeem some or all of the
Senior Subordinated Notes at certain specified prices, plus
accrued interest to the date of redemption.

On November 1, 2003, the Company used
proceeds from the IPO and the new Term Loan to redeem 35% of the
Senior Subordinated Notes for $77,525,000, plus accrued interest
to the date of redemption. This amount includes the
aforementioned premium of 10.75% of the principal amount, which
was charged to expense in 2003. In connection with the repayment
of the Senior Subordinated Notes, the Company wrote off
approximately $2,773,000 of deferred financing costs. The
premium and write-off of the deferred financing costs were
charged to Other income (expense) in 2003 on the accompanying
consolidated statements of operations. As of December 31,
2003, the remaining balance of the Senior Subordinated Notes of
$130,000,000 had a fair market value of approximately
$154,700,000.

If AMIS experiences a Change of Control (as such
term is defined in the indenture governing the Senior
Subordinated Notes), subject to certain conditions, AMIS must
give holders of the Senior Subordinated Notes an opportunity to
sell to AMIS the Senior Subordinated Notes at a purchase price
of 101% of the principal amount of the Senior Subordinated
Notes, plus accrued interest.

The payment of the principal, premium and
interest on the Senior Subordinated Notes is fully and
unconditionally guaranteed on a senior subordinated basis by the
Company and AMIS existing and future domestic restricted
subsidiaries that have outstanding or incur certain
indebtedness. The guarantee by the Company and AMIS
domestic restricted subsidiaries is subordinated to all of the
Companys existing and future Senior Indebtedness (as such
term is defined in the indenture governing the Senior
Subordinated Notes) and the existing and future Senior
Indebtedness of AMIS domestic restricted subsidiaries,
including their guaranty of AMIS obligations under the
Facilities.

The indenture governing the Senior Subordinated
Notes contains covenants that, among other things,
(i) limit AMIS ability and certain of its
subsidiaries ability to incur additional indebtedness;
(ii) pay dividends on AMIS capital stock or redeem,
repurchase or retire AMIS capital stock or subordinated
indebtedness; (iii) make investments; (iv) engage in
transactions with affiliates; (v) sell assets, including
capital stock of subsidiaries; and (vi) consolidate, merge
or transfer assets.

The Senior Subordinated Notes are unsecured and
subordinated to existing and future Senior Indebtedness (as such
term is defined in the indenture governing the Senior
Subordinated Notes) of AMIS. The

61



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Senior Subordinated Notes will rank pari passuin right of payment with any future senior subordinated
indebtedness AMIS might issue and rank senior to any other
subordinated indebtedness AMIS might issue.

In connection with the issuance of the Senior
Subordinated Notes, the Company paid underwriting fees and other
transaction costs of approximately $7,800,000 that were
capitalized and are being amortized over the term of the notes.
In connection with the new Term Loan, the Company paid
underwriting fees and other transaction costs of approximately
$3,600,000 that were capitalized and are being amortized over
the term of the loan. In connection with the repayment of the
original Term Loan, the Company expensed approximately
$3,700,000 of unamortized deferred financing costs in February
2003 and approximately $1,400,000 in September 2003, which were
charged to Other income (expense) in 2003 on the
accompanying consolidated statements of operations.



|    |                                                   
|--- | --------------------------------------------------
|10. | Customer-Funded Product Development
    Activities

Customer-funded product development activities
are accounted for as contracts. The Company evaluates individual
contracts and, where appropriate, records an accrual for any
contracts that individually are expected to result in an overall
loss. Revenue earned and costs incurred on product development
contracts for the years ended December 31, 2003, 2002 and
2001, are as follows: 2003  $34,645,000 and
$25,840,000, respectively 2002  $30,495,000 and
$23,557,000, respectively; and 2001  $26,059,000 and
$20,677,000, respectively.



|    |                           
|--- | --------------------------
|11. | Provision for Income Taxes

The provision for income taxes for the years
ended December 31 is as follows (in thousands):

|         |          |      |         |         |   |      |       |       |   |   |       |       |  
|-------- | -------- | ---- | ------- | ------- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|         |          | 2003 |         | 2002    |   | 2001
|         |          |      |         |         |   |     
|Federal: |          |      |         |         |   |      |       |       |   |   |       |      
|         | Current  |      | $       | 11      |   |      | $     | 10    |   |   | $     | (306  | )
|         | Deferred |      |         | (12,522 | ) |      |       | (202  | ) |   |       | 4,316 |  
|         |          |      |         |         |   |      |       |       |   |   |       |      
|         |          |      | (12,511 | )       |   |      | (192  | )     |   |   | 4,010 |      
|State:   |          |      |         |         |   |      |       |       |   |   |       |      
|         | Current  |      |         | 2       |   |      |       | 1     |   |   |       | (53   | )
|         | Deferred |      |         | (2,147  | ) |      |       | (34   | ) |   |       | 740   |  
|         |          |      |         |         |   |      |       |       |   |   |       |      
|         |          |      | (2,145  | )       |   |      | (33   | )     |   |   | 687   |      
|Foreign: |          |      |         |         |   |      |       |       |   |   |       |      
|         | Current  |      |         | 11,372  |   |      |       | 331   |   |   |       | 1,548 |  
|         | Deferred |      |         | (4,759  | ) |      |       | 1,059 |   |   |       | (603  | )
|         |          |      |         |         |   |      |       |       |   |   |       |      
|         |          |      | 6,613   |         |   |      | 1,390 |       |   |   | 945   |      
|         |          |      |         |         |   |      |       |       |   |   |       |      
|Total    |          | $    | (8,043  | )       |   | $    | 1,165 |       |   | $ | 5,642 |      
|         |          |      |         |         |   |      |       |       |   |   |       |      

62



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision (benefit) for income taxes differs
from the amount computed by applying the federal statutory
income tax rate of 35% for the following years ended
December 31 as follows (in thousands):

|                                     |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                     |  | 2003 |        | 2002 |  | 2001
|                                     |  |      |        |      |  |     
|Federal tax at statutory rate        |  | $    | (2,960 | )    |  | $    | 2,196  |   |  | $ | 6,413  |  
|State taxes (net of federal benefit) |  |      | (508   | )    |  |      | 376    |   |  |   | 1,099  |  
|Foreign taxes, net of federal impact |  |      | (6,259 | )    |  |      | (1,564 | ) |  |   | 719    |  
|Nondeductible goodwill amortization  |  |      |       |      |  |      |       |   |  |   | 768    |  
|Change in valuation allowance        |  |      | 1,869  |      |  |      |       |   |  |   | (3,728 | )
|Other, net                           |  |      | 185    |      |  |      | 157    |   |  |   | 371    |  
|                                     |  |      |        |      |  |      |        |   |  |   |        |  
|Total                                |  | $    | (8,043 | )    |  | $    | 1,165  |   |  | $ | 5,642  |  
|                                     |  |      |        |      |  |      |        |   |  |   |        |  
|Effective tax rate                   |  |      | (95.1  | )%   |  |      | 18.6   | % |  |   | 30.8   | %
|                                     |  |      |        |      |  |      |        |   |  |   |        |  

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities are as
follows as of December 31 (in thousands):

|                               |                                                           |      |         |         |   |   |         |         |  
|------------------------------ | --------------------------------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|                               |                                                           | 2003 |         | 2002   
|                               |                                                           |      |         |        
|Deferred tax assets:           |                                                           |      |         |         |   |   |         |        
|                               | Foreign research and development investment
    deduction |      | $       | 10,827  |   |   | $       | 4,448   |  
|                               | Reserves not currently deductible                         |      |         | 7,945   |   |   |         | 6,274   |  
|                               | Intangible asset basis difference                         |      |         | 78,078  |   |   |         | 74,731  |  
|                               | Net operating loss carryforwards                          |      |         | 37,578  |   |   |         | 20,869  |  
|                               | Tax credit carryforwards                                  |      |         | 2,409   |   |   |         |        |  
|                               | Inventory valuation                                       |      |         | 968     |   |   |         |        |  
|                               | Other                                                     |      |         | 401     |   |   |         | 3,484   |  
|                               |                                                           |      |         |         |   |   |         |        
|Total deferred tax assets      |                                                           |      | 138,206 |         |   |   | 109,806 |        
|Deferred tax liabilities:      |                                                           |      |         |         |   |   |         |        
|                               | Tax in excess of book depreciation                        |      |         | (33,420 | ) |   |         | (30,352 | )
|                               | Inventory valuation                                       |      |         |        |   |   |         | (1,645  | )
|                               | Prepaid pension asset                                     |      |         | (4,430  | ) |   |         | (4,759  | )
|                               | Other                                                     |      |         | (2,496  | ) |   |         | (1,404  | )
|                               |                                                           |      |         |         |   |   |         |        
|Total deferred tax liabilities |                                                           |      | (40,346 | )       |   |   | (38,160 | )      
|                               |                                                           |      |         |         |   |   |         |        
|                               |                                                           |      | 97,860  |         |   |   | 71,646  |        
|Valuation allowance            |                                                           |      | (50,246 | )       |   |   | (43,200 | )      
|                               |                                                           |      |         |         |   |   |         |        
|Net deferred tax assets        |                                                           | $    | 47,614  |         |   | $ | 28,446  |        
|                               |                                                           |      |         |         |   |   |         |        

Pretax income from foreign operations was
approximately $31,395,000 for 2003, $7,199,000 for 2002, and
$552,000 for 2001. As of December 31, 2003, unremitted
pretax earnings of certain foreign subsidiaries in the amount of
approximately $54,000,000 is considered by the Company to be
permanently invested outside the U.S. and, accordingly,
U.S. income taxes have not been provided on this amount.

The separation of AMI from the Parent on
July 29, 2000 was effected as a taxable transaction.
Accordingly, the assets and liabilities of AMI were revalued for
tax purposes to their fair value at July 29,

63



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2000. The increase in the tax basis of the assets
as a result of this transaction gave rise to an increase in the
Companys deferred tax assets of approximately
$159,192,000. A valuation allowance of $78,450,000 was
established to reduce the deferred tax asset to an amount that
is more likely than not to be realized. This net increase was
credited to additional paid-in capital as of July 29, 2000
in connection with this transaction.

The December 21, 2000 Recapitalization was
treated as an asset acquisition for tax purposes; therefore, the
assets and liabilities of Spinco were restated for tax purposes
to their fair value at December 21, 2000. The decrease in
the tax basis of the assets as a result of the Recapitalization
caused a decrease in the Companys deferred tax assets of
$60,723,000. The valuation allowance also decreased by
$31,522,000. The reduction in the deferred tax assets, net of
the valuation allowance, as of December 21, 2000, was
offset against equity, in connection with the Recapitalization.

As of December 31, 2003, 2002 and 2001, the
Company prepared an analysis of projected future taxable income,
including tax strategies available to generate future taxable
income. Based on that analysis, the Company believes its
valuation allowance reduces the net deferred tax asset to an
amount that will more likely than not be realized.

In 2003, 2002 and 2001, the Company generated
approximately $90,764,000 of state and federal net operating
loss carryforwards. If not used, it is expected that the
majority of these carryforwards will begin to expire in 2021. In
2002, the Company generated approximately $4,300,000 of foreign
net operating loss carryforwards. Under the change of
ownership provisions of the Internal Revenue Code
utilization of the Companys net operating loss
carryforwards are subject to an annual limitation. Approximately
$365,000 of these foreign net operating loss carryforwards
remain as of December 31, 2003. The tax credit
carryforwards include federal and state research and development
and state investment tax credits, which begin expiring in 2015.



|    |                       
|--- | ----------------------
|12. | Employee Benefit Plans



| |                             
| | ----------------------------
| | Retirement Plan 
    AMIS-P

AMIS-P has a noncontributory defined benefit
retirement plan (the Plan) for the benefit of all permanent
employees in the Philippines. The Plan provides employees with a
lump-sum retirement benefit equivalent to one months
salary per year of service based on the final monthly gross
salary before retirement. Total benefit obligations under the
Plan and contributions to the Plan are not material to the
consolidated financial statements.



| |                                              
| | ---------------------------------------------
| | Defined Contribution Plan  AMIS
    Holdings

As of January 1, 2001, substantially all
United States employees are eligible to participate in a 401(k)
plan sponsored by AMIS Holdings. This plan requires the Company
to match 50% of employee contributions, as defined, up to 6% of
the employees annual salary. For the years ended
December 31, 2003, 2002 and 2001, employer contributions
totaled approximately $1,660,000, $1,531,000, and $1,643,000,
respectively.



| |                                       
| | --------------------------------------
| | Defined Contribution Plan 
    AMIS-B

Certain Belgian employees are eligible to
participate in a defined contribution plan sponsored by AMIS-B.
Under the terms of the plan, AMIS-B is required to contribute
amounts based on each respective employees pay grade. For
the years ended December 31, 2003 and 2002, employer
contributions totaled approximately $592,000 and $237,000.

64



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                  
| | ---------------------------------
| | Defined Benefit Plan 
    AMIS-B

Certain Belgian employees are also eligible to
participate in a defined benefit retirement plan. The benefits
of this plan are for all professional employees who are at least
20 years old and have an employment agreement for an
indefinite period of time. The prepaid pension asset recorded on
the accompanying 2003 and 2002 balance sheets represents the
amount of the net assets in the pension fund in excess of the
post-retirement obligation.

The following disclosures regarding this pension
plan are based upon an actuarial valuation prepared for the
period from June 26, 2002 to December 31, 2002 and for
the year ended December 31, 2003 (in thousands):

|                                                        |  |              |        |               |  |   |        |  
|------------------------------------------------------- |  | ------------ | ------ | ------------- |  | - | ------ | -
|                                                        |  |              |        | Period from  
|                                                        |  |              |        | June 26, 2002
|                                                        |  | Year Ended   |        | to           
|                                                        |  | December 31, |        | December 31, 
|                                                        |  | 2003         |        | 2002         
|                                                        |  |              |        |              
|Change in benefit obligation:                           |  |              |        |               |  |   |        |  
|Benefit obligation at beginning of period               |  | $            | 15,950 |               |  | $ | 14,801 |  
|Service cost                                            |  |              | 1,889  |               |  |   | 876    |  
|Interest cost                                           |  |              | 1,035  |               |  |   | 446    |  
|Benefits, administrative expenses and premiums
    paid |  |              | (403   | )             |  |   |       |  
|Actuarial gain                                          |  |              | (140   | )             |  |   | (1,142 | )
|Foreign currency translation loss                       |  |              | 3,585  |               |  |   | 969    |  
|                                                        |  |              |        |               |  |   |        |  
|Benefit obligation at end of period                     |  |              | 21,916 |               |  |   | 15,950 |  
|Change in plan assets:                                  |  |              |        |               |  |   |        |  
|Fair value of plan assets at beginning of period        |  | $            | 28,479 |               |  | $ | 26,450 |  
|Actual return on plan assets                            |  |              | 949    |               |  |   | 299    |  
|Benefits, administrative expenses and premiums
    paid |  |              | (403   | )             |  |   |       |  
|Foreign currency translation gain                       |  |              | 5,970  |               |  |   | 1,730  |  
|                                                        |  |              |        |               |  |   |        |  
|Fair value of plan assets at end of period              |  |              | 34,995 |               |  |   | 28,479 |  
|                                                        |  |              |        |               |  |   |        |  
|Excess of plan assets over benefit obligation           |  |              | 13,079 |               |  |   | 12,529 |  
|Unrecognized net actuarial gain (loss)                  |  |              | 21     |               |  |   | (644   | )
|Foreign currency translation gain (loss)                |  |              | 3      |               |  |   | (38    | )
|                                                        |  |              |        |               |  |   |        |  
|Prepaid pension asset                                   |  | $            | 13,103 |               |  | $ | 11,847 |  
|                                                        |  |              |        |               |  |   |        |  
|Components of net periodic benefit
    cost:            |  |              |        |               |  |   |        |  
|Service cost                                            |  | $            | 1,889  |               |  | $ | 876    |  
|Interest cost                                           |  |              | 1,035  |               |  |   | 446    |  
|Expected return on plan assets                          |  |              | (1,847 | )             |  |   | (797   | )
|                                                        |  |              |        |               |  |   |        |  
|Net periodic pension cost                               |  | $            | 1,077  |               |  | $ | 525    |  
|                                                        |  |              |        |               |  |   |        |  
|Weighted average assumptions:                           |  |              |        |               |  |   |        |  
|Discount rate                                           |  |              | 6.00   | %             |  |   | 6.00   | %
|Expected return on plan assets                          |  |              | 6.00   | %             |  |   | 6.00   | %
|Compensation rate increase                              |  |              | 5.00   | %             |  |   | 5.00   | %

65



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Collective
Bargaining Agreements

As of December 31, 2003, the employees
located in Belgium, representing 36% of the Companys
worldwide labor force, are represented by unions and have
collective bargaining arrangements at the national, industry and
company levels.



|    |              
|--- | -------------
|13. | Contingencies

The Company is subject to various claims and
legal proceedings covering matters that arise in the ordinary
course of its business activities. Management believes any
liability that may ultimately result from the resolution of
these matters will not have a material adverse effect on the
Companys consolidated financial position, operating
results, or cash flows.

In addition, the Company is a primary
responsible party to an environmental remediation and
cleanup at its former corporate headquarters in
Santa Clara, California (see discussion below regarding
indemnification by Nippon Minings subsidiary). Costs
incurred by the Company include implementation of the clean-up
plan, operations and maintenance of remediation systems, and
other project management costs. Managements estimate of
the remaining cost to fulfill its obligations under the
remediation effort, as determined in consultation with its
environmental consultants and the governing regulatory agency,
is $540,000. The Company has accrued $540,000 at
December 31, 2003 and $720,000 at December 31, 2002.
The short-term portion of this accrual, or $180,000, is included
in accrued expenses and the long-term portion, or $360,000 is
included in other long-term liabilities within the accompanying
consolidated balance sheets. Due to the inherent uncertainties
surrounding a contingency of this nature, there exists a
reasonable possibility that such estimates could change in the
near term.

In conjunction with the Recapitalization
Agreement, Nippon Minings subsidiary agreed to indemnify
the Company for any obligation relating to this environmental
issue. In accordance with Statement of Position
(SOP) No. 96-1, Environmental Remediation
Liabilities, because amounts to be paid by the Company and
reimbursed by Nippon Minings subsidiary are not fixed and
determinable, the Company has not offset the receivable from
Nippon Minings subsidiary against the estimated liability
on the consolidated balance sheets. Therefore, a receivable from
Nippon Minings subsidiary is recorded for $540,000 and
$720,000 on the accompanying consolidated balance sheets as of
December 31, 2003 and 2002, respectively, related to this
matter.



|    |                               
|--- | ------------------------------
|14. | Stockholders Equity (Deficit)

Common and
Preferred Stock

In accordance with the Recapitalization Agreement
dated December 21, 2000, the Company issued 46,030,334
shares of its 133,333,333 authorized shares of common stock,
17,870,107 shares of its 20,000,000 authorized shares of
Series A Senior Redeemable Preferred Stock (Senior
Preferred Stock) and 14,296,086 shares of its 20,000,000
authorized shares of Series B Junior Redeemable Convertible
Preferred Stock (Junior Preferred Stock). As discussed in
Note 1, during 2003 the Company used the proceeds from the
IPO, together with the borrowings under a new $125,000,000
Senior Term Loan, to redeem all of its outstanding shares of
Senior Preferred Stock, Junior Preferred Stock, options to
purchase shares of such preferred stock and associated
cumulative dividends for approximately $469,480,000, net of
stockholder notes receivable.

The Senior Preferred Stock holders and Junior
Preferred Stock holders were entitled to cumulative quarterly
dividends when, as and if declared by the Board of Directors in
an amount per share equal to 13.5% and 14.5%, respectively, of
the accreted value per annum. The accreted value was
$10 per share plus the amount of any cumulative unpaid
dividends. As of December 31, 2002, cumulative unpaid
dividends for totaled approximately $103,648,000.

66



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In order to fund a portion of the MSB acquisition
described in Note 3, the Company issued 75,000 shares
of Series C Senior Redeemable Preferred Stock
(Series C Preferred Stock) on June 26, 2002 resulting
in net proceeds to the Company of $75,000,000. The Series C
Preferred Stock was entitled to quarterly cash dividends when,
as and if declared by the Board of Directors. Such dividends
were cumulative, whether or not earned or declared, and accrued
at an annual compounding rate of 12.0%, and 16.0% after
December 27, 2002, because the Series C Preferred
Stock had not been redeemed by December 26, 2002. As of
December 31, 2002 cumulative unpaid dividends totaled
approximately $4,513,000. As discussed in Note 9, during
2003, the Company used proceeds from the Senior Subordinated
Notes to redeem the Series C Preferred Stock for a total,
including cumulative dividends, of approximately $80,764,000.

The Company grants stock options pursuant to its
Amended and Restated 2000 Equity Incentive Plan, which was
originally adopted by Spinco on July 29, 2000. In general,
options granted vest over three and a half to four years. In
2003, the Board of Directors amended and restated the 2000
Equity Incentive Plan and revised the share reserve such that it
shall not exceed in the aggregate 11,853,635 shares of
common stock, plus an annual increase on the first day of each
fiscal year during the term of the Plan beginning
January 1, 2005 through January 1, 2010, in each case
in an amount equal to the lesser of (i) 1,829,300 shares,
(ii) 2.5% of the number of shares of the common stock
outstanding on such date, or (iii) an amount determined by
the Board.

Effective September 20, 2000, certain key
executives (with Board approval) executed early exercise stock
purchase agreements with Spinco to exercise options granted to
them during 2000 in exchange for full recourse notes. The notes
bore interest at an annual rate of 7% and payment of principal
and interest was due September 20, 2005. The notes and all
unpaid interest were fully secured by the underlying stock and
the Company had full recourse against the borrowers in the event
of default. In connection with this arrangement, the following
shares were issued: 953,333 shares of common stock,
370,100 shares of Senior Preferred Shares and 296,084
shares of Junior Preferred Shares. In connection with the
redemption of the Senior Preferred Shares and Junior Preferred
Shares in 2003, all notes were repaid by offsetting the amounts
paid for the redemption by the full amount of the notes.

In conjunction with the recapitalization in
December 2000, outstanding options to purchase common stock of
Spinco were converted to options to purchase a unit consisting
of the following shares of AMIS Holdings: (a) two-thirds of
a share of common stock, (b) .2588164 shares of
Series A Senior Preferred Stock and (c) .2070531
shares of Series B Junior Preferred Stock. As discussed
above, using proceeds from the IPO and the new Term Loan, all
options for preferred stock were redeemed during September 2003.
As part of this redemption, the Company recognized compensation
expense of approximately $2,901,000 during the third quarter of
2003, which is included in nonrecurring charges on the
accompanying statement of operations.

Under the guidance of Financial Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation  An Interpretation of APB Opinion
25, to the extent that the exercise price of the original
options, as compared to the fair value of the underlying stock
at the time of the Recapitalization, is consistent with the
relationship of the exercise price of the replacement options to
the fair value of the underlying stock, a new measurement date
does not exist and no compensation expense is required to be
recorded at the time of the Recapitalization. However, under the
terms of the replacement options, the exercise price of the
Senior and Junior Preferred Stock portions of the units
increases as dividends accrete on the underlying Senior and
Junior Preferred Stock. As such, these components of the unit
are variable. Therefore, compensation expense is measured and
recorded each period based upon the incremental change in the
exercise price of these components. For the years ended
December 31, 2003, 2002 and 2001, the Company has recorded
approximately $282,000, $532,000 and $527,000, respectively as
compensation expense with regard to these components.

In 2001, the Company awarded 32,051 shares
of common stock, 11,360 shares of Senior Preferred Stock and
9,025 shares of Junior Preferred Stock to the interim chief
executive officer for a total of $250,000, which

67



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

represented the fair value of such shares, as
determined by the Board of Directors, at the date of grant.
Compensation expense was recorded for this stock award.
Additionally, the Company sold 32,051 shares of common stock,
11,146 shares of Senior Preferred Stock and 8,843 shares of
Junior Preferred Stock to this same individual for $250,000. The
number of Preferred Shares changed between the two issuances
while the values of the transactions remained the same because
of dividend accretion on the Preferred Shares prior to the sale
of stock.

A certain member of the Companys Board of
Directors was granted an option to purchase 26,667 shares
of AMIS Holdings common stock upon joining the Board. The
options granted to this member of the Board have an exercise
price equal to $0.78 per share, which was the fair market
value of the common stock on the date of grant. These options
vest over a four-year period at a rate of 25% of the total
shares granted on the first anniversary of the date of grant,
and ratably over the next 36 months, so long as this member
of the Board remains the Companys director or consultant.
This member of the Board was also granted the right to exercise
these options before vesting and acted on that right in 2001. If
this member of the Board were to cease acting as a director, the
Company has the right to redeem the shares underlying the
unvested options at the original exercise price of
$0.78 per share.

In conjunction with the IPO, the Company
re-evaluated its prior estimates of the fair value of its common
stock. As a result, the Company determined that certain options
issued during 2003 were issued with exercise prices that were
less than the deemed fair value of the Companys common
stock. As a result, deferred stock-based compensation of
approximately $519,000 was recorded. The deferred stock-based
compensation has been recorded as a component of
stockholders equity and is being recognized over the
vesting period of the underlying stock options using the
straight-line method under FIN 28 Accounting for
Stock Appreciation Rights and Other Variable Stock Options or
Award Plans.

During 2003, as part of the restructuring plan,
the vesting on certain options was accelerated making them
immediately exercisable upon termination of employment. In
accordance with FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion
No. 25, the Company expensed approximately $653,000
which is included in Restructuring and impairment charges on the
accompanying consolidated statements of operations.

68



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of option activity under the Plan from
inception to December 31, for both option units and common
stock options is as follows:

|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |             |       |  |  |   |      |  |  |   |      |  |  |  |            | 
|---------------------------- |  | --------- | ---------- | --------- |  | --------- | -------- | ------------------------------- |  | --------- | -------- | --------- |  | ----------- | ----- |  |  | - | ---- |  |  | - | ---- |  |  |  | ---------- | 
|                             |  |           |            |           |  |           |          |                                 |  |          
|                             |  |           |            |           |  |           |          | Weighted Average Exercise Price |  | Weighted-
|                             |  |           |            | Number of |  | Number of |          |                                 |  | average  
|                             |  | Number of |            | Senior    |  | Junior    |          |                                 |  | Senior    |          | Junior    |  | Remaining  
|                             |  | Common    |            | Preferred |  | Preferred |          | Common                          |  | Preferred |          | Preferred |  | Contractual
|                             |  | Shares    |            | Shares    |  | Shares    |          | Shares                          |  | Shares    |          | Shares    |  | Life       
|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |            
|Balance at January 1, 2001   |  |           | 1,803,100  |           |  |           | 700,008  |                                 |  |           | 560,006  |           |  | $           | 0.54  |  |  | $ | 6.76 |  |  | $ | 6.76 |  |  |  | 9.75 years | 
|Options granted              |  |           | 4,097,823  |           |  |           |         |                                 |  |           |         |           |  |             | 0.78  |  |  |   |     |  |  |   |     |  |  |  |            | 
|Options exercised            |  |           | (110,363   | )         |  |           | (16,870  | )                               |  |           | (12,009  | )         |  |             | 0.63  |  |  |   | 7.01 |  |  |   | 6.98 |  |  |  |            | 
|Options canceled             |  |           | (664,458   | )         |  |           | (106,641 | )                               |  |           | (85,200  | )         |  |             | 0.69  |  |  |   | 6.76 |  |  |   | 7.07 |  |  |  |            | 
|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |             |       |  |  |   |      |  |  |   |      |  |  |  |            | 
|Balance at December 31, 2001 |  |           | 5,126,102  |           |  |           | 576,497  |                                 |  |           | 462,797  |           |  |             | 0.72  |  |  |   | 7.70 |  |  |   | 7.78 |  |  |  | 8.60 years | 
|Options granted              |  |           | 1,218,300  |           |  |           |         |                                 |  |           |         |           |  |             | 0.78  |  |  |   |     |  |  |   |     |  |  |  |            | 
|Options exercised            |  |           | (486,922   | )         |  |           | (7,775   | )                               |  |           | (4,250   | )         |  |             | 0.72  |  |  |   | 8.01 |  |  |   | 8.18 |  |  |  |            | 
|Options canceled             |  |           | (367,493   | )         |  |           | (44,194  | )                               |  |           | (35,412  | )         |  |             | 0.75  |  |  |   | 8.13 |  |  |   | 8.24 |  |  |  |            | 
|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |             |       |  |  |   |      |  |  |   |      |  |  |  |            | 
|Balance at December 31, 2002 |  |           | 5,489,987  |           |  |           | 524,528  |                                 |  |           | 423,135  |           |  |             | 0.72  |  |  |   | 8.80 |  |  |   | 8.97 |  |  |  | 8.27 years | 
|Options granted              |  |           | 682,065    |           |  |           |         |                                 |  |           |         |           |  |             | 10.58 |  |  |   |     |  |  |   |     |  |  |  |            | 
|Options exercised            |  |           | (1,060,231 | )         |  |           | (15,662  | )                               |  |           | (10,146  | )         |  |             | .66   |  |  |   | 9.35 |  |  |   | 9.59 |  |  |  |            | 
|Options canceled             |  |           | (246,702   | )         |  |           | (18,068  | )                               |  |           | (14,859  | )         |  |             | .82   |  |  |   | 9.20 |  |  |   | 9.41 |  |  |  |            | 
|Options redeemed             |  |           |           |           |  |           | (490,798 | )                               |  |           | (398,130 | )         |  |             |      |  |  |   | 9.72 |  |  |   | 9.98 |  |  |  |            | 
|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |             |       |  |  |   |      |  |  |   |      |  |  |  |            | 
|Balance at December 31, 2003 |  |           | 4,865,119  |           |  |           |         |                                 |  |           |         |           |  | $           | 2.11  |  |  | $ |     |  |  | $ |     |  |  |  | 7.75 years | 
|                             |  |           |            |           |  |           |          |                                 |  |           |          |           |  |             |       |  |  |   |      |  |  |   |      |  |  |  |            | 

The following table summarizes exercisable
options as of December 31, 2003, 2002 and 2001:

|                       |  |                    |           | 
|---------------------- |  | ------------------ | --------- | 
|                       |  | Exercisable Shares
|                       |  |                   
|December 31, 2003:     |  |                    |           | 
|Common Stock           |  |                    | 2,549,871 | 
|December 31, 2002:     |  |                    |           | 
|Common Stock           |  |                    | 2,150,113 | 
|Senior Preferred Stock |  |                    | 376,334   | 
|Junior Preferred Stock |  |                    | 304,627   | 
|December 31, 2001:     |  |                    |           | 
|Common Stock           |  |                    | 1,024,962 | 
|Senior Preferred Stock |  |                    | 276,142   | 
|Junior Preferred Stock |  |                    | 221,680   | 

69



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following information relates to common stock
options outstanding and exercisable as of December 31, 2003:

|                         |  |                     |           |                  |  |                  |      |                     |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | ------------------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                  |  |                 
|                         |  | Options Outstanding |           |                  |  |                 
|                         |  |                     |           |                 
|                         |  |                     |           | Weighted         |  |                  |      | Options Exercisable
|                         |  |                     |           | Average          |  |                  |      |                    
|                         |  | Number              |           | Remaining        |  | Weighted-Average |      | Number              |  | Weighted-Average
|Range of Exercise Prices |  | Outstanding         |           | Contractual Life |  | Exercise Price   |      | Exercisable         |  | Exercise Price  
|                         |  |                     |           |                  |  |                  |      |                     |  |                 
|$0.53                    |  |                     | 766,878   |                  |  |                  | 6.03 |                     |  | $                | 0.53  |  |  |  | 732,451   |  |  | $ | 0.53  | 
|$0.78                    |  |                     | 3,545,167 |                  |  |                  | 7.82 |                     |  | $                | 0.78  |  |  |  | 1,817,112 |  |  | $ | 0.78  | 
|$3.96                    |  |                     | 247,041   |                  |  |                  | 9.58 |                     |  | $                | 3.96  |  |  |  |          |  |  | $ |      | 
|$19.95-$20.00            |  |                     | 306,033   |                  |  |                  | 9.75 |                     |  | $                | 19.99 |  |  |  | 308       |  |  | $ | 19.95 | 
|                         |  |                     |           |                  |  |                  |      |                     |  |                  |       |  |  |  |           |  |  |   |       | 
|$0.53-$20.00             |  |                     | 4,865,119 |                  |  |                  | 7.75 |                     |  | $                | 2.11  |  |  |  | 2,549,871 |  |  | $ | 0.71  | 
|                         |  |                     |           |                  |  |                  |      |                     |  |                  |       |  |  |  |           |  |  |   |       | 

The Company has 4,377,761 options for common
stock available for grant as of December 31, 2003. The
Company has reserved shares of common stock for issuance for all
outstanding options and options available for grant.

During 2003, the Company adopted the Amended and
Restated Employee Stock Purchase Plan and reserved
2,308,827 shares. This plan will provide employees the
opportunity to purchase common stock of the Company through
payroll deductions. Under this Employee Stock Purchase Plan, the
Companys employees, subject to certain restrictions, may
purchase shares of common stock at the lesser of 85% of fair
market value at either the enrollment date or the exercise date.
The plan consists of overlapping offering periods of
18 months, divided into three purchase periods of six
months each. As of December 31, 2003, no shares had been
granted from this plan.

Warrants

In conjunction with the Recapitalization
Agreement, AMIS Holdings issued a warrant to Nippon
Minings subsidiary to purchase 4,603,032 shares of
common stock for an initial exercise price of $19.41 per
share. The warrants, which became exercisable upon the initial
public offering in 2003, expire on December 31, 2010. At
December 31, 2003 and 2002, AMIS Holdings had
4,603,032 shares of its authorized, unissued common shares
reserved for issuance pursuant to the warrant obligation.

In connection with the issuance of the
Series C Preferred Stock, the Company issued warrants to
purchase an aggregate of 4,220,979 shares of common stock
at an exercise price of $0.03 per share. The number of
warrants increased to 9,184,851 on December 27, 2002, since
the Company had not redeemed the Series C Preferred Stock
prior to December 26, 2002. The number of shares subject to
the warrants and the exercise price are subject to customary
anti-dilution adjustments. The warrants are immediately
exercisable and expire on June 26, 2012. During October
2003, 9,113,148 of these warrants were net exercised by reducing
the number of shares issued to the holders by the number of
shares having a fair market value equal to the exercise price.
Net of the shares surrendered, 9,099,223 common shares were
issued in exchange for the exercise of these warrants. As of
December 31, 2003, warrants representing 71,703 shares
of common stock remain outstanding and shares have been reserved
for this issuance.

The relative fair value of the warrants of
approximately $3,200,000 (as determined using the Black-Scholes
model and the following assumptions: volatility: 60%; dividend
yield: 0%; expected life: 10 years; and risk-free interest
rate: 4.5%) has been reflected as a preferential dividend and
has been deducted in determining the net loss attributable to
common stockholders in the accompanying statement of operations
for the year ended December 31, 2002.

70



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                        
|--- | -----------------------
|15. | Derivatives and Hedging

The Company paid a variable rate of interest
under its original Term Loan. Under the terms of the Credit
Agreement for the original Term Loan, the Company was required
to enter into agreements to effectively fix the
interest rate on one half of the outstanding balance of its Term
Loan. On June 21, 2001, the Company entered into certain
derivative instruments with major banks in order to manage its
exposure to interest rate fluctuations. Such instruments were
designated and qualified as cash flow hedges in accordance with
SFAS No. 133.

Two such instruments were interest rate swap
agreements that effectively converted interest rate exposure
from variable rates to fixed rates of interest. During the
quarter ended March 29, 2003 in conjunction with the
Companys repayment of a portion of the Term Loan one of
these swap agreements was settled. The Company was required to
pay approximately $365,000 to settle the instrument before its
scheduled maturity in June 2003. This amount is recorded as
other expense in the accompanying consolidated statements of
operations. The remaining swap agreement matured during the
quarter ended June 28, 2003. At December 31, 2002, the
aggregate notional principal amount of these agreements was
$42,000,000. Under the swap agreements, the Company paid fixed
rates of interest of 4.5% and 4.7% and received a floating rate
of interest based on the three month LIBOR. The difference
between amounts to be paid or received on the interest rate swap
agreements was recorded as an increase or reduction of interest
expense.

The Company also entered into an interest rate
cap agreement and an interest rate floor agreement on
June 21, 2001 for a notional amount of $45,500,000. Both
agreements were settled during the three months ended
March 29, 2003 in conjunction with the Companys
repayment of a portion of the Term Loan. The interest rate cap
agreement granted the Company the right to limit the LIBOR rate
it would have paid on its variable rate debt to a maximum of
7.25%. The interest rate floor agreement restricted the Company
from paying a LIBOR rate of less than 3.15% on its variable rate
debt. The Company paid approximately $423,000 to settle the
agreements. This is recorded as other expense in the
accompanying consolidated statements of operations.

The fair value of the interest rate swap and cap
and floor agreements as of December 31, 2002 totaled
approximately $(1,064,000) and is recorded in other long-term
liabilities on the accompanying consolidated balance sheet.
Accumulated other comprehensive loss related to unrealized
derivatives losses total $(1,064,000) or $(628,000), net of
taxes as of December 31, 2002 and $(1,231,000) or
$(726,000), net of taxes as of December 31, 2001.



|    |                                     
|--- | ------------------------------------
|16. | Restructuring and Impairment Charges

The Company entered into a non-compete agreement
with Nippon Mining and its subsidiary in conjunction with the
December 21, 2000 Recapitalization pursuant to which each
of Nippon Mining and its subsidiary agreed to not engage in the
custom semiconductor business anywhere in the world through
December 2005. In connection with the Companys 2003 review
of the carrying value of its intangible assets, the Company
reached a determination that the carrying value of the
non-compete had been impaired based primarily on a change in
Nippon Minings and its subsidiarys business focus
and related capabilities. Effective June 26, 2003, the
Company released each of Nippon Mining and its subsidiary from
all of its obligations under the non-compete agreement.
Therefore, the Company wrote off the remaining unamortized
balance of this non-compete agreement of approximately
$20,028,000 as of the effective date. This amount is included in
impairment charges in the accompanying statement of operations.

Pursuant to FASB Statement 146,
Accounting for Costs Associated with Exit or Disposal
Activities, in 2003, and EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring), in 2002 and 2001,
senior management and the Board of Directors approved plans to
restructure certain of the Companys operations.

71



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The 2003 plan involves the termination of certain
management and other employees as well as certain sales
representative firms in the United States. Internal sales
employees will replace these sales representative firms. In
total, 32 employees, from various departments within the
Company, were terminated as part of this program. All terminated
employees and sales representative firms were notified in the
period in which the charge was recorded. Expenses related to the
plan totaled approximately $1,713,000, which includes $653,000
related to the accelerated vesting on certain options making
them immediately exercisable upon termination, as discussed in
Note 14. As of December 31, 2003, approximately
$377,000 had been paid out, with the balance paid in early 2004.

The 2002 plan involved the curtailment of
redundant functions between the U.S. and Belgian entities
resulting from the MSB acquisition discussed in Note 3. In
total 90 people employed by the Company prior to the MSB
acquisition were terminated in connection with this
restructuring program. The Company recorded related
restructuring expense of approximately $457,000, all of which
had been paid as of December 31, 2003. Additionally,
relationships with certain sales representative firms in Europe
were terminated because their duties were transferred to MSB.
The expense associated with these terminations was approximately
$478,000, all of which has been paid out at December 31,
2003.

The 2001 plan involved the closure of certain
offices and the termination of certain management and other
employees. The objectives of the plan were to increase the
competitiveness of the Company and manage costs during the
semiconductor industry downturn that began in 2000. In total,
265 employees were terminated as part of this program. Such
terminations affected virtually all departments within the
Companys business. All terminated employees were notified
in the period in which the charge was recorded.

Expenses relating to the plan totaled
approximately $4,983,000 during the year ended December 31,
2001 and were comprised of approximately $3,643,000 for
termination benefits and other related costs and approximately
$1,340,000 for lease termination, other office closure costs,
legal fees and other costs. Such other office closure costs
relate primarily to a loss on the sale of a significant portion
of the assets of the Dresden, Germany office, which was sold to
a third party in October 2001. The assets were sold for
approximately $456,000. The Company realized a loss of
approximately $331,000 on the sale of these assets. The Company
also closed certain offices in California, Texas and North
Carolina and accrued its remaining lease obligations related to
these facilities.

As of December 31, 2003, approximately
$4,493,000 of the 2001 restructuring expenses had been paid or
the fixed assets had been written off. The remaining accrual for
the 2001 plan, which represents lease termination and other
costs of approximately $164,000, is included in accrued expenses
on the accompanying balance sheet as of December 31, 2003.
The remaining lease termination costs will be paid over the
remaining lease terms, which end in July 2005. During 2002,
approximately $287,000 of the 2001 restructuring accrual was
reversed because certain estimates were revised.

72



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Following is a summary of the restructuring
accrual relating to the 2003, 2002 and 2001 plans (in thousands):

|                             |  |           |        |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |        |  
|---------------------------- |  | --------- | ------ | ----------- |  | ---------- | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -- |  | - | ------ | -
|                             |  |           |        | Lease       |  | Legal Fees |      | Write-Down |  |      
|                             |  | Severance |        | Termination |  | and Other  |      | of Fixed   |  |      
|                             |  | Costs     |        | Costs       |  | Costs      |      | Assets     |  | Total
|                             |  |           |        |             |  |            |      |            |  |      
|2001 Expense                 |  | $         | 3,643  |             |  | $          | 546  |            |  | $     | 463  |   |  | $ | 331  |    |  | $ | 4,983  |  
|Paid in 2001                 |  |           | (2,690 | )           |  |            | (165 | )          |  |       | (114 | ) |  |   | (331 | )* |  |   | (3,300 | )
|                             |  |           |        |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |        |  
|Balance at December 31, 2001 |  |           | 953    |             |  |            | 381  |            |  |       | 349  |   |  |   |     |    |  |   | 1,683  |  
|2002 Expense                 |  |           | 935    |             |  |            |     |            |  |       |     |   |  |   |     |    |  |   | 935    |  
|Paid in 2002                 |  |           | (968   | )           |  |            | (161 | )          |  |       | (19  | ) |  |   |     |    |  |   | (1,148 | )
|Reserve Reversal             |  |           | (32    | )           |  |            | 75   |            |  |       | (330 | ) |  |   |     |    |  |   | (287   | )
|                             |  |           |        |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |        |  
|Balance at December 31, 2002 |  |           | 888    |             |  |            | 295  |            |  |       |     |   |  |   |     |    |  |   | 1,183  |  
|2003 Expense                 |  |           | 1,713  |             |  |            |     |            |  |       |     |   |  |   |     |    |  |   | 1,713  |  
|2003 Paid                    |  |           | (1,909 | )**         |  |            | (131 | )          |  |       |     |   |  |   |     |    |  |   | (2,040 | )
|                             |  |           |        |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |        |  
|Balance at December 31, 2003 |  | $         | 692    |             |  | $          | 164  |            |  | $     |     |   |  | $ |     |    |  | $ | 856    |  
|                             |  |           |        |             |  |            |      |            |  |       |      |   |  |   |      |    |  |   |        |  



---



|  |         
|- | --------
|* | Non-cash



|   |              
|-- | -------------
|** | $653 non-cash



|    |                                                                           
|--- | --------------------------------------------------------------------------
|17. | Purchase of the Micro Power Products Division
    of Microsemi Corporation

On September 29, 2002, the Company acquired
the Micro Power Products Division of Microsemi Corporation for
approximately $1,500,000 in cash. The Company received
approximately $300,000 of fixed assets and approximately
$900,000 of contracts and licenses. Goodwill of approximately
$300,000 was also recorded. The value of the contracts and
licenses was determined based upon an independent appraisal by
the Companys independent financial consulting firm, LECG,
LLC. The contracts and licenses are being amortized over
approximately 5 to 8 years. This acquisition provided the
Company with additional mixed signal ASIC engineers and customer
relationships in the medical device manufacturing industry.



|    |                                                  
|--- | -------------------------------------------------
|18. | Operating Segments and Geographic
    Information

The Company designs, develops, manufactures and
sells custom and semi-custom integrated circuits of high
complexity. The Company focuses on selling its integrated
circuits primarily to original equipment manufacturers in the
automotive, medical and industrial markets through worldwide
direct sales, commissioned representatives and distributors.

In order to better focus its business, the
Company reorganized its product families into three business
units beginning in 2002, each of which is a reportable segment.
The segments represent managements view of the
Companys business lines and are based on the financial
information used by management to monitor the business. In
addition, each segment comprises product families with similar
requirements for design, development and marketing. The Company
has three reportable segments:

Integrated Mixed Signal
Products:designs, manufactures and
markets system-level integrated mixed signal products using the
Companys proprietary wafer fabrication process
technologies and the expertise of the Companys analog and
mixed signal engineers. The Company applies its mixed signal
expertise primarily for sensors, high voltage outputs and
wireless or radio frequency communication.

Mixed Signal Foundry
Services:provides semiconductor
manufacturing services primarily to original equipment
manufacturers, or OEMs, and fabless semiconductor companies. The
mixed signal foundry services

73



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

segment focuses on manufacturing customized mixed
signal semiconductors with long lifecycles and established
process technologies that are also characterized by small to
medium volume production runs.

Structured Digital
Products:designs, manufactures and
markets structured digital products both through digital
conversion semiconductors, which involve the conversion of
higher cost, semi-standard programmable digital logic integrated
circuits into lower cost digital semiconductors, and medium
complexity prime digital semiconductors, which are customized
solutions developed directly from customer specifications rather
than from a pre-existing semi-standard integrated circuits.

The accounting policies of the segments are the
same as those described in the summary of significant accounting
policies. Management evaluates performance based on income or
loss from operations before interest, nonrecurring gains and
losses, foreign exchange gains and losses and income taxes.

The Companys wafer manufacturing facilities
fabricate integrated circuits for all business units as
necessary and their operating costs are reflected in the
segments cost of revenues on the basis of product costs.
Financial information, other than revenues, was not tracked by
segment prior to 2002; accordingly, for periods prior to 2002,
segment information is presented for revenues only. Because
operating segments are defined by the products they design and
sell, they do not make sales to each other. Management does not
report assets, or track expenditures on long-lived assets by
operating segments.

Information about segments (in thousands):

|                              |                                     |              |   |                  |  |            |   |         |  |  |   |         |   |  |   |         | 
|----------------------------- | ----------------------------------- | ------------ | - | ---------------- |  | ---------- | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                              |                                     | Integrated   |   |                  |  | Structured |   |        
|                              |                                     | Mixed Signal |   | Mixed Signal     |  | Digital    |   |        
|                              |                                     | Products     |   | Foundry Services |  | Products   |   | Total  
|                              |                                     |              |   |                  |  |            |   |        
|Year ended December 31, 2003: |                                     |              |   |                  |  |            |   |         |  |  |   |         |   |  |   |        
|                              | Net revenue from external customers |              | $ | 241,359          |  |            | $ | 116,104 |  |  | $ | 96,689  |   |  | $ | 454,152 | 
|                              | Segment operating income            |              |   | 28,312           |  |            |   | 19,512  |  |  |   | 15,533  |   |  |   | 63,357  | 
|Year ended December 31, 2002: |                                     |              |   |                  |  |            |   |         |  |  |   |         |   |  |   |        
|                              | Net revenue from external customers |              | $ | 167,196          |  |            | $ | 93,095  |  |  | $ | 85,031  |   |  | $ | 345,322 | 
|                              | Segment operating income (loss)     |              |   | 11,942           |  |            |   | 6,902   |  |  |   | (589    | ) |  |   | 18,255  | 
|Year ended December 31, 2001: |                                     |              |   |                  |  |            |   |         |  |  |   |         |   |  |   |        
|                              | Net revenue from external customers |              |   | 93,345           |  |            |   | 93,324  |  |  |   | 139,841 |   |  |   | 326,510 | 

Reconciliation of segment information to
financial statements (in thousands):

|                                     |                                      |      |        |         |   |   |        |      |  
|------------------------------------ | ------------------------------------ | ---- | ------ | ------- | - | - | ------ | ---- | -
|                                     |                                      | 2003 |        | 2002   
|                                     |                                      |      |        |        
|Total income for reportable segments |                                      | $    | 63,357 |         |   | $ | 18,255 |     
|Unallocated amounts:                 |                                      |      |        |         |   |   |        |     
|                                     | Restructuring and impairment charges |      |        | (21,741 | ) |   |        | (648 | )
|                                     | Nonrecurring charges                 |      |        | (11,401 | ) |   |        |     |  
|                                     |                                      |      |        |         |   |   |        |     
|Operating income                     |                                      | $    | 30,215 |         |   | $ | 17,607 |     
|                                     |                                      |      |        |         |   |   |        |     

There are intercompany sales and transfers
recorded between geographical subsidiaries. Major operations
outside the United States include fabrication facilities, sales
offices and technology centers in Europe and Asia-Pacific, as
well as subcontract assembly and test operations in the
Asia-Pacific region. Foreign operations are subject to risks of
economic and political instability and foreign currency exchange
rate fluctuations.

Transfers between geographic areas are accounted
for at amounts that are generally above cost and consistent with
the rules and regulations of governing tax authorities. Such
transfers are eliminated in the consolidated financial
statements. Although assets are tracked by geographical
locations, they are not reported separately for internal
decision-making purposes.

74



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Geographic information about revenue based on
shipments to customers by region is as follows for the years
ended December 31 (in thousands):

|                        |             |               |         |      |         |      |         |   |         |   |         |   |         | 
|----------------------- | ----------- | ------------- | ------- | ---- | ------- | ---- | ------- | - | ------- | - | ------- | - | ------- | 
|                        |             | 2003          |         | 2002 |         | 2001
|                        |             |               |         |      |         |     
|Geographic information: |             |               |         |      |         |      |         |   |         |   |         |  
|                        | Revenue(1): |               |         |      |         |      |         |   |         |   |         |   |        
|                        |             | North America |         | $    | 185,930 |      |         | $ | 191,840 |   |         | $ | 272,670 | 
|                        |             | Europe        |         |      | 184,567 |      |         |   | 84,532  |   |         |   | 21,692  | 
|                        |             | Asia-Pacific  |         |      | 83,655  |      |         |   | 68,950  |   |         |   | 32,148  | 
|                        |             |               |         |      |         |      |         |   |         |   |         |  
|Total                   |             | $             | 454,152 |      |         | $    | 345,322 |   |         | $ | 326,510 |  
|                        |             |               |         |      |         |      |         |   |         |   |         |  

Geographic information about long-lived assets
associated with particular regions is as follows as of
December 31 (in thousands):

|                      |               |      |         |         |  |   |         |         | 
|--------------------- | ------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                      |               | 2003 |         | 2002   
|                      |               |      |         |        
|Long-lived assets(2): |               |      |         |         |  |   |         |        
|                      | United States |      | $       | 160,099 |  |   | $       | 177,315 | 
|                      | Europe        |      |         | 29,843  |  |   |         | 36,559  | 
|                      | All other     |      |         | 15,967  |  |   |         | 8,633   | 
|                      |               |      |         |         |  |   |         |        
|Total                 |               | $    | 205,909 |         |  | $ | 222,507 |        
|                      |               |      |         |         |  |   |         |        



---



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Revenue is attributed to geographic regions based
    on the shipments to customers located in those regions.
|   
|(2) | Represents those material long-lived assets that
    can be associated with a particular geographic area.    

U.S. export sales were approximately
$92,956,000, $116,157,000 and $63,301,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Levels of
export sales varied by country in all periods. Thailand
accounted for 16% of total export sales during 2003. No one
foreign country accounted for greater than 10% of total export
sales in 2002 or 2001.



|    |                                                 
|--- | ------------------------------------------------
|19. | Condensed Consolidating Financial
    Statements

The Senior Term Loan is fully and unconditionally
guaranteed by AMIS Holdings and each existing domestic
subsidiary and by each subsequently acquired or organized
domestic subsidiary on a joint and several basis. Similarly,
AMIS Holdings and each existing domestic subsidiary fully and
unconditionally guarantee the Senior Subordinated Notes issued
on January 29, 2003 (the Notes) on a joint and
several basis. The Companys foreign subsidiaries do not
provide guarantees for the Senior Term Loan or the Notes. Below
are condensed consolidating balance sheets, statements of
operations and statements of cash flows of AMIS
Holdings, Inc. as of December 31, 2003 and 2002 and
for each of the three years in the period ended
December 31, 2003, reflecting the financial position,
results of operations and cash flows of those entities that
guarantee the Senior Term Loan and the Notes and those that do
not.

75



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2003


|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |        | 
|-------------------------------------------------------- | --------------------------------- | -------------- | -------- | ------------ |  | -------------- | -------- | -------------- | - | ----------- | -------- | -------------- |  | ------------- | ------- | ------- | - | - | ------- | - |  | - | ----- | - |  | - | ------- | ------ | 
|                                                         |                                   |                |          |              |  |                |          | AMI            |   | AMI         |          | AMI            |  |              
|                                                         |                                   |                |          |              |  | AMIS           |          | Semiconductor, |   | Acquisition |          | Acquisition II |  | Non-Guarantor
|                                                         |                                   | Consolidated   |          | Eliminations |  | Holdings, Inc. |          | Inc.           |   | LLC         |          | LLC            |  | Subsidiaries 
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |              
|                                                         |                                   |               
|                                                         |                                   | (In thousands)
|ASSETS                                                  
|Current assets:                                          |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Cash and cash equivalents                                |                                   | $              | 119,063  |              |  | $              |         |                |   | $           | 10,407   |                |  | $             | 49,446  |         |   | $ |        |   |  | $ |      |   |  | $ | 59,210  |       
|Accounts receivable, net                                 |                                   |                | 73,585   |              |  |                |         |                |   |             |         |                |  |               | 33,474  |         |   |   |        |   |  |   |      |   |  |   | 40,111  |       
|Intercompany accounts receivable                         |                                   |                |         |              |  |                | (16,150  | )              |   |             | 696      |                |  |               | 13,420  |         |   |   |        |   |  |   | 118   |   |  |   | 1,916   |       
|Inventories                                              |                                   |                | 45,599   |              |  |                |         |                |   |             |         |                |  |               | 23,860  |         |   |   |        |   |  |   |      |   |  |   | 21,739  |       
|Receivable from affiliate                                |                                   |                | 1,909    |              |  |                |         |                |   |             |         |                |  |               | 1,909   |         |   |   |        |   |  |   |      |   |  |   |        |       
|Deferred tax assets                                      |                                   |                | 8,987    |              |  |                |         |                |   |             |         |                |  |               | 4,163   |         |   |   |        |   |  |   |      |   |  |   | 4,824   |       
|Prepaid expenses and other current assets                |                                   |                | 18,868   |              |  |                | (51      | )              |   |             |         |                |  |               | 7,778   |         |   |   |        |   |  |   |      |   |  |   | 11,141  |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total current assets                                     |                                   |                | 268,011  |              |  |                | (16,201  | )              |   |             | 11,103   |                |  |               | 134,050 |         |   |   |        |   |  |   | 118   |   |  |   | 138,941 |       
|Property, plant and equipment, net                       |                                   |                | 205,909  |              |  |                |         |                |   |             |         |                |  |               | 168,322 |         |   |   |        |   |  |   |      |   |  |   | 37,587  |       
|Investment in subsidiaries                               |                                   |                |         |              |  |                | (542,701 | )              |   |             | 278,619  |                |  |               | 144,505 |         |   |   | 113,283 |   |  |   | 6,294 |   |  |   |        |       
|Deferred financing costs, net                            |                                   |                | 8,324    |              |  |                |         |                |   |             |         |                |  |               | 8,324   |         |   |   |        |   |  |   |      |   |  |   |        |       
|Goodwill and other intangibles, net                      |                                   |                | 10,929   |              |  |                |         |                |   |             |         |                |  |               | 3,628   |         |   |   |        |   |  |   |      |   |  |   | 7,301   |       
|Deferred tax assets                                      |                                   |                | 38,627   |              |  |                |         |                |   |             | 5,534    |                |  |               | 33,737  |         |   |   |        |   |  |   |      |   |  |   | (644    | )     
|Pension asset                                            |                                   |                | 13,103   |              |  |                |         |                |   |             |         |                |  |               |        |         |   |   |        |   |  |   |      |   |  |   | 13,103  |       
|Restricted cash                                          |                                   |                | 4,200    |              |  |                |         |                |   |             | 4,200    |                |  |               |        |         |   |   |        |   |  |   |      |   |  |   |        |       
|Other                                                    |                                   |                | 985      |              |  |                |         |                |   |             |         |                |  |               | 685     |         |   |   |        |   |  |   |      |   |  |   | 300     |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total assets                                             |                                   | $              | 550,088  |              |  | $              | (558,902 | )              |   | $           | 299,456  |                |  | $             | 493,251 |         |   | $ | 113,283 |   |  | $ | 6,412 |   |  | $ | 196,588 |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)      
|Current liabilities:                                     |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|                                                         | Accounts payable                  |                | $        | 34,753       |  |                | $        |               |   |             | $        |               |  |               | $       | 14,752  |   |   | $       |  |  |   | $     |  |  |   | $       | 20,001 | 
|                                                         | Intercompany accounts payable     |                |          |             |  |                |          | (16,171        | ) |             |          | 94,680         |  |               |         | (78,509 | ) |   |         |  |  |   |       |  |  |   |         |       | 
|                                                         | Accrued expenses                  |                |          | 24,973       |  |                |          | (270           | ) |             |          |               |  |               |         | 14,783  |   |   |         |  |  |   |       |  |  |   |         | 10,460 | 
|                                                         | Accrued employee compensation     |                |          | 29,212       |  |                |          |               |   |             |          |               |  |               |         | 8,553   |   |   |         |  |  |   |       |  |  |   |         | 20,659 | 
|                                                         | Taxes payable                     |                |          | 1,088        |  |                |          |               |   |             |          |               |  |               |         | 6       |   |   |         |  |  |   |       |  |  |   |         | 1,082  | 
|                                                         | Current portion of long-term debt |                |          | 1,250        |  |                |          |               |   |             |          |               |  |               |         | 1,250   |   |   |         |  |  |   |       |  |  |   |         |       | 
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total current liabilities                                |                                   |                | 91,276   |              |  |                | (16,441  | )              |   |             | 94,680   |                |  |               | (39,165 | )       |   |   |        |   |  |   |      |   |  |   | 52,202  |       
|Other long-term liabilities                              |                                   |                | 360      |              |  |                |         |                |   |             |         |                |  |               | 360     |         |   |   |        |   |  |   |      |   |  |   |        |       
|Long-term debt                                           |                                   |                | 253,437  |              |  |                |         |                |   |             |         |                |  |               | 253,437 |         |   |   |        |   |  |   |      |   |  |   |        |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total liabilities                                        |                                   |                | 345,073  |              |  |                | (16,441  | )              |   |             | 94,680   |                |  |               | 214,632 |         |   |   |        |   |  |   |      |   |  |   | 52,202  |       
|Stockholders Equity (Deficit)                           |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Common stock                                             |                                   |                | 820      |              |  |                | (3,717   | )              |   |             | 820      |                |  |               |        |         |   |   |        |   |  |   |      |   |  |   | 3,717   |       
|Additional paid-in capital                               |                                   |                | 510,691  |              |  |                | (387,952 | )              |   |             | 510,691  |                |  |               | 229,561 |         |   |   | 71,357  |   |  |   | 4,062 |   |  |   | 82,972  |       
|Retained earnings (accumulated deficit)                  |                                   |                | (323,021 | )            |  |                | (101,732 | )              |   |             | (323,260 | )              |  |               | 32,058  |         |   |   | 27,838  |   |  |   | 1,566 |   |  |   | 40,509  |       
|Deferred Compensation                                    |                                   |                | (475     | )            |  |                |         |                |   |             | (475     | )              |  |               |        |         |   |   |        |   |  |   |      |   |  |   |        |       
|Accumulated other comprehensive income                   |                                   |                | 17,000   |              |  |                | (49,060  | )              |   |             | 17,000   |                |  |               | 17,000  |         |   |   | 14,088  |   |  |   | 784   |   |  |   | 17,188  |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total stockholders equity (deficit)                     |                                   |                | 205,015  |              |  |                | (542,461 | )              |   |             | 204,776  |                |  |               | 278,619 |         |   |   | 113,283 |   |  |   | 6,412 |   |  |   | 144,386 |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       
|Total liabilities and stockholders equity
    (deficit) |                                   | $              | 550,088  |              |  | $              | (558,902 | )              |   | $           | 299,456  |                |  | $             | 493,251 |         |   | $ | 113,283 |   |  | $ | 6,412 |   |  | $ | 196,588 |       
|                                                         |                                   |                |          |              |  |                |          |                |   |             |          |                |  |               |         |         |   |   |         |   |  |   |       |   |  |   |         |       

76



---



##### Table of Contents



AMIS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2003


|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |        |  
|------------------------------------ | ------------------------------------ | -------------- | ------- | ------------ | - | -------------- | ------- | -------------- | - | ----------- | ------- | -------------- |  | ------------- | ------- | ------- | - | - | ------ | ------ | - | - | ----- | ----- |  | - | ------- | ------ | -
|                                     |                                      |                |         |              |   |                |         | AMI            |   | AMI         |         | AMI            |  |              
|                                     |                                      |                |         |              |   | AMIS           |         | Semiconductor, |   | Acquisition |         | Acquisition II |  | Non-Guarantor
|                                     |                                      | Consolidated   |         | Eliminations |   | Holdings, Inc. |         | Inc.           |   | LLC         |         | LLC            |  | Subsidiaries 
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |              
|                                     |                                      |               
|                                     |                                      | (In thousands)
|Revenue                              |                                      | $              | 454,152 |              |   | $              | (30,671 | )              |   | $           |        |                |  | $             | 273,990 |         |   | $ |       |        |   | $ |      |       |  | $ | 210,833 |       
|Cost of revenue                      |                                      |                | 255,959 |              |   |                | (24,701 | )              |   |             |        |                |  |               | 144,983 |         |   |   |       |        |   |   |      |       |  |   | 135,677 |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|                                     |                                      |                | 198,193 |              |   |                | (5,970  | )              |   |             |        |                |  |               | 129,007 |         |   |   |       |        |   |   |      |       |  |   | 75,156  |       
|Operating expenses:                  |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|                                     | Research and development             |                |         | 70,256       |   |                |         | (2,070         | ) |             |         |               |  |               |         | 48,140  |   |   |        |       |   |   |       |      |  |   |         | 24,186 |  
|                                     | Marketing and selling                |                |         | 37,801       |   |                |         | (4,014         | ) |             |         |               |  |               |         | 26,865  |   |   |        |       |   |   |       |      |  |   |         | 14,950 |  
|                                     | General and administrative           |                |         | 26,779       |   |                |         | (47            | ) |             |         | 1,838          |  |               |         | 19,052  |   |   |        |       |   |   |       |      |  |   |         | 5,936  |  
|                                     | Restructuring and impairment charges |                |         | 21,741       |   |                |         |               |   |             |         |               |  |               |         | 21,749  |   |   |        |       |   |   |       |      |  |   |         | (8     | )
|Nonrecurring charges                 |                                      |                | 11,401  |              |   |                |        |                |   |             | 8,500   |                |  |               | 2,901   |         |   |   |       |        |   |   |      |       |  |   |        |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|                                     |                                      |                | 167,978 |              |   |                | (6,131  | )              |   |             | 10,338  |                |  |               | 118,707 |         |   |   |       |        |   |   |      |       |  |   | 45,064  |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|Operating income (loss)              |                                      |                | 30,215  |              |   |                | 161     |                |   |             | (10,338 | )              |  |               | 10,300  |         |   |   |       |        |   |   |      |       |  |   | 30,092  |       
|Other income (expense):              |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|                                     | Interest income (expense), net       |                |         | (22,478      | ) |                |         | (15            | ) |             |         | 261            |  |               |         | (23,453 | ) |   |        |       |   |   |       | 14    |  |   |         | 715    |  
|                                     | Other income (expense), net          |                |         | (16,196      | ) |                |         | (146           | ) |             |         | 4              |  |               |         | (16,641 | ) |   |        | (3     | ) |   |       |      |  |   |         | 590    |  
|                                     | Equity earnings in subsidiaries      |                |         |             |   |                |         | (53,846        | ) |             |         | 5,525          |  |               |         | 24,795  |   |   |        | 22,288 |   |   |       | 1,238 |  |   |         |       |  
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|                                     |                                      |                | (38,674 | )            |   |                | (54,007 | )              |   |             | 5,790   |                |  |               | (15,299 | )       |   |   | 22,285 |        |   |   | 1,252 |       |  |   | 1,305   |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|Income (loss) before income taxes    |                                      |                | (8,459  | )            |   |                | (53,846 | )              |   |             | (4,548  | )              |  |               | (4,999  | )       |   |   | 22,285 |        |   |   | 1,252 |       |  |   | 31,397  |       
|Provision (benefit) for income taxes |                                      |                | (8,043  | )            |   |                |        |                |   |             | (4,132  | )              |  |               | (10,524 | )       |   |   |       |        |   |   |      |       |  |   | 6,613   |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       
|Net income (loss)                    |                                      | $              | (416    | )            |   | $              | (53,846 | )              |   | $           | (416    | )              |  | $             | 5,525   |         |   | $ | 22,285 |        |   | $ | 1,252 |       |  | $ | 24,784  |       
|                                     |                                      |                |         |              |   |                |         |                |   |             |         |                |  |               |         |         |   |   |        |        |   |   |       |       |  |   |         |       

77



---



##### Table of Contents



AMIS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended in December 31, 2003


|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |         |  
|---------------------------------------------------------------- | ------------------------------------------------------------ | -------------- | ------- | ------------ | - | -------------- | - | -------------- |  | ----------- | ------- | -------------- | - | ------------- | ------- | -------- | - | - | - | - |  | - | - | - |  | - | ------- | ------- | -
|                                                                 |                                                              |                |         |              |   |                |   | AMI            |  | AMI         |         | AMI            |   |              
|                                                                 |                                                              |                |         |              |   | AMIS           |   | Semiconductor, |  | Acquisition |         | Acquisition II |   | Non-Guarantor
|                                                                 |                                                              | Consolidated   |         | Eliminations |   | Holdings, Inc. |   | Inc.           |  | LLC         |         | LLC            |   | Subsidiaries 
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |              
|                                                                 |                                                              |               
|                                                                 |                                                              | (In thousands)
|Cash flows provided by operating activities                      |                                                              | $              | 70,672  |              |   | $              |  |                |  | $           | 6,762   |                |   | $             | 28,074  |          |   | $ |  |   |  | $ |  |   |  | $ | 35,836  |        
|Cash flows from investing activities:                            |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|                                                                 | Purchases of property, plant, and equipment                  |                |         | (26,553      | ) |                |   |               |  |             |         |               |   |               |         | (14,210  | ) |   |   |  |  |   |   |  |  |   |         | (12,343 | )
|                                                                 | Other                                                        |                |         | 30           |   |                |   |               |  |             |         |               |   |               |         | 30       |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Investment in subsidiaries                                   |                |         |             |   |                |   |               |  |             |         | 80,764         |   |               |         | (80,764  | ) |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|Cash provided by (used in) investing activities                  |                                                              |                | (26,523 | )            |   |                |  |                |  |             | 80,764  |                |   |               | (94,944 | )        |   |   |  |   |  |   |  |   |  |   | (12,343 | )      
|Cash flows from financing activities:                            |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|                                                                 | Payments on long-term debt                                   |                |         | (230,413     | ) |                |   |               |  |             |         |               |   |               |         | (230,413 | ) |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Issuance of common stock                                     |                |         | 470,276      |   |                |   |               |  |             |         | 470,276        |   |               |         |         |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Proceeds from Senior Term Loan                               |                |         | 125,000      |   |                |   |               |  |             |         |               |   |               |         | 125,000  |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Redemption of Preferred Stock                                |                |         | (550,244     | ) |                |   |               |  |             |         | (550,244       | ) |               |         |         |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Payments on long-term payables                               |                |         | (1,401       | ) |                |   |               |  |             |         |               |   |               |         | (1,401   | ) |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Proceeds from senior subordinated notes                      |                |         | 200,000      |   |                |   |               |  |             |         |               |   |               |         | 200,000  |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Exercise of stock options for common and
    preferred stock |                |         | 939          |   |                |   |               |  |             |         | 939            |   |               |         |         |   |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Deferred financing costs                                     |                |         | (11,356      | ) |                |   |               |  |             |         |               |   |               |         | (11,356  | ) |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 | Payment to settle derivatives                                |                |         | (788         | ) |                |   |               |  |             |         |               |   |               |         | (788     | ) |   |   |  |  |   |   |  |  |   |         |        |  
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|Cash provided by (used in) financing activities                  |                                                              |                | 2,013   |              |   |                |  |                |  |             | (79,029 | )              |   |               | 81,042  |          |   |   |  |   |  |   |  |   |  |   |        |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                              |                | 10,717  |              |   |                |  |                |  |             |        |                |   |               |        |          |   |   |  |   |  |   |  |   |  |   | 10,717  |        
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|Net change in cash and cash equivalents                          |                                                              |                | 56,879  |              |   |                |  |                |  |             | 8,497   |                |   |               | 14,172  |          |   |   |  |   |  |   |  |   |  |   | 34,210  |        
|Cash and cash equivalents at beginning of period                 |                                                              |                | 62,184  |              |   |                |  |                |  |             | 1,910   |                |   |               | 35,274  |          |   |   |  |   |  |   |  |   |  |   | 25,000  |        
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        
|Cash and cash equivalents at end of period                       |                                                              | $              | 119,063 |              |   | $              |  |                |  | $           | 10,407  |                |   | $             | 49,446  |          |   | $ |  |   |  | $ |  |   |  | $ | 59,210  |        
|                                                                 |                                                              |                |         |              |   |                |   |                |  |             |         |                |   |               |         |          |   |   |   |   |  |   |   |   |  |   |         |        

78



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2002


|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|---------------------------------------------------------- |  | -------------- | -------- | ------------ |  | -------------- | -------- | -------------- |  | ----------- | -------- | -------------- |  | ------------- | ------- | - |  | - | ------ |  |  | - | ----- |  |  | - | ------- | -
|                                                           |  |                |          |              |  |                |          | AMI            |  | AMI         |          | AMI            |  |              
|                                                           |  |                |          |              |  | AMIS           |          | Semiconductor, |  | Acquisition |          | Acquisition II |  | Non-Guarantor
|                                                           |  | Consolidated   |          | Eliminations |  | Holdings, Inc. |          | Inc.           |  | LLC         |          | LLC            |  | Subsidiaries 
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |              
|                                                           |  |               
|                                                           |  | (In thousands)
|ASSETS                                                    
|Current assets:                                            |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Cash and cash equivalents                                  |  | $              | 62,184   |              |  | $              |         |                |  | $           | 1,910    |                |  | $             | 35,274  |   |  | $ |       |  |  | $ |      |  |  | $ | 25,000  |  
|Accounts receivable, net                                   |  |                | 65,994   |              |  |                |         |                |  |             |         |                |  |               | 32,860  |   |  |   |       |  |  |   |      |  |  |   | 33,134  |  
|Intercompany accounts receivable                           |  |                |         |              |  |                | (11,024  | )              |  |             |         |                |  |               | 10,920  |   |  |   |       |  |  |   | 104   |  |  |   |        |  
|Inventories                                                |  |                | 39,361   |              |  |                | 10       |                |  |             |         |                |  |               | 19,290  |   |  |   |       |  |  |   |      |  |  |   | 20,061  |  
|Receivable from affiliate                                  |  |                | 1,909    |              |  |                |         |                |  |             |         |                |  |               | 1,909   |   |  |   |       |  |  |   |      |  |  |   |        |  
|Deferred tax assets                                        |  |                | 9,077    |              |  |                |         |                |  |             |         |                |  |               | 2,258   |   |  |   |       |  |  |   |      |  |  |   | 6,819   |  
|Prepaid expenses and other current assets                  |  |                | 21,087   |              |  |                | 69       |                |  |             | 250      |                |  |               | 5,908   |   |  |   |       |  |  |   |      |  |  |   | 14,860  |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total current assets                                       |  |                | 199,612  |              |  |                | (10,945  | )              |  |             | 2,160    |                |  |               | 108,419 |   |  |   |       |  |  |   | 104   |  |  |   | 99,874  |  
|Property, plant and equipment, net                         |  |                | 222,507  |              |  |                |         |                |  |             |         |                |  |               | 183,597 |   |  |   |       |  |  |   |      |  |  |   | 38,910  |  
|Investment in subsidiaries                                 |  |                |         |              |  |                | (443,449 | )              |  |             | 257,019  |                |  |               | 103,978 |   |  |   | 78,112 |  |  |   | 4,340 |  |  |   |        |  
|Deferred financing costs, net                              |  |                | 6,188    |              |  |                |         |                |  |             |         |                |  |               | 6,188   |   |  |   |       |  |  |   |      |  |  |   |        |  
|Goodwill and other intangibles, net                        |  |                | 37,873   |              |  |                |         |                |  |             |         |                |  |               | 29,931  |   |  |   |       |  |  |   |      |  |  |   | 7,942   |  
|Deferred tax assets                                        |  |                | 19,369   |              |  |                |         |                |  |             | 1,402    |                |  |               | 25,541  |   |  |   |       |  |  |   |      |  |  |   | (7,574  | )
|Pension asset                                              |  |                | 11,847   |              |  |                |         |                |  |             |         |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   | 11,847  |  
|Restricted cash                                            |  |                | 4,200    |              |  |                |         |                |  |             | 4,200    |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   |        |  
|Other                                                      |  |                | 864      |              |  |                |         |                |  |             |         |                |  |               | 540     |   |  |   |       |  |  |   |      |  |  |   | 324     |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total assets                                               |  | $              | 502,460  |              |  | $              | (454,394 | )              |  | $           | 264,781  |                |  | $             | 458,194 |   |  | $ | 78,112 |  |  | $ | 4,444 |  |  | $ | 151,323 |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)        
|Current liabilities:                                       |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Accounts payable                                           |  | $              | 29,643   |              |  | $              |         |                |  | $           |         |                |  | $             | 11,881  |   |  | $ |       |  |  | $ |      |  |  | $ | 17,762  |  
|Intercompany accounts payable                              |  |                |         |              |  |                | (10,917  | )              |  |             | 263      |                |  |               | 10,030  |   |  |   |       |  |  |   |      |  |  |   | 624     |  
|Accrued expenses                                           |  |                | 23,780   |              |  |                | (268     | )              |  |             | 2,805    |                |  |               | 11,395  |   |  |   |       |  |  |   |      |  |  |   | 9,848   |  
|Accrued employee compensation                              |  |                | 21,329   |              |  |                |         |                |  |             |         |                |  |               | 4,722   |   |  |   |       |  |  |   |      |  |  |   | 16,607  |  
|Taxes payable                                              |  |                | 1,391    |              |  |                |         |                |  |             |         |                |  |               | (41     | ) |  |   |       |  |  |   |      |  |  |   | 1,432   |  
|Current portion of long-term debt                          |  |                | 8,708    |              |  |                |         |                |  |             |         |                |  |               | 8,708   |   |  |   |       |  |  |   |      |  |  |   |        |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total current liabilities                                  |  |                | 84,851   |              |  |                | (11,185  | )              |  |             | 3,068    |                |  |               | 46,695  |   |  |   |       |  |  |   |      |  |  |   | 46,273  |  
|Other long-term liabilities                                |  |                | 3,088    |              |  |                |         |                |  |             |         |                |  |               | 3,088   |   |  |   |       |  |  |   |      |  |  |   |        |  
|Long-term debt                                             |  |                | 151,392  |              |  |                |         |                |  |             |         |                |  |               | 151,392 |   |  |   |       |  |  |   |      |  |  |   |        |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total liabilities                                          |  |                | 239,331  |              |  |                | (11,185  | )              |  |             | 3,068    |                |  |               | 201,175 |   |  |   |       |  |  |   |      |  |  |   | 46,273  |  
|Series A Senior Redeemable Preferred Stock                 |  |                | 233,671  |              |  |                |         |                |  |             | 233,671  |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   |        |  
|Series B Junior Redeemable Convertible
    Preferred Stock |  |                | 190,498  |              |  |                |         |                |  |             | 190,498  |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   |        |  
|Series C Senior Redeemable Preferred Stock                 |  |                | 79,337   |              |  |                |         |                |  |             | 79,337   |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   |        |  
|Stockholders Equity (Deficit)                             |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Common stock                                               |  |                | 467      |              |  |                | (3,717   | )              |  |             | 467      |                |  |               |        |   |  |   |       |  |  |   |      |  |  |   | 3,717   |  
|Additional paid-in capital                                 |  |                | 38,901   |              |  |                | (387,952 | )              |  |             | 38,901   |                |  |               | 229,561 |   |  |   | 71,357 |  |  |   | 4,062 |  |  |   | 82,972  |  
|Stockholder notes receivable                               |  |                | (5,570   | )            |  |                |         |                |  |             | (5,570   | )              |  |               |        |   |  |   |       |  |  |   |      |  |  |   |        |  
|Retained earnings (accumulated deficit)                    |  |                | (276,278 | )            |  |                | (47,886  | )              |  |             | (276,517 | )              |  |               | 26,532  |   |  |   | 5,553  |  |  |   | 315   |  |  |   | 15,725  |  
|Accumulated other comprehensive loss                       |  |                | 2,103    |              |  |                | (3,654   | )              |  |             | 926      |                |  |               | 926     |   |  |   | 1,202  |  |  |   | 67    |  |  |   | 2,636   |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total stockholders equity (deficit)                       |  |                | (240,377 | )            |  |                | (443,209 | )              |  |             | (241,793 | )              |  |               | 257,019 |   |  |   | 78,112 |  |  |   | 4,444 |  |  |   | 105,050 |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  
|Total liabilities and stockholders equity
    (deficit)   |  | $              | 502,460  |              |  | $              | (454,394 | )              |  | $           | 264,781  |                |  | $             | 458,194 |   |  | $ | 78,112 |  |  | $ | 4,444 |  |  | $ | 151,323 |  
|                                                           |  |                |          |              |  |                |          |                |  |             |          |                |  |               |         |   |  |   |        |  |  |   |       |  |  |   |         |  

79



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2002


|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |       |  
|------------------------------------ | ------------------------------------ | -------------- | ------- | ------------ | - | -------------- | ------- | -------------- | - | ----------- | ------ | -------------- |  | ------------- | ------- | ------- | - | - | ----- | ----- |  | - | --- | --- |  | - | ------- | ----- | -
|                                     |                                      |                |         |              |   |                |         | AMI            |   | AMI         |        | AMI            |  |              
|                                     |                                      |                |         |              |   | AMIS           |         | Semiconductor, |   | Acquisition |        | Acquisition II |  | Non-Guarantor
|                                     |                                      | Consolidated   |         | Eliminations |   | Holdings, Inc. |         | Inc.           |   | LLC         |        | LLC            |  | Subsidiaries 
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |              
|                                     |                                      |               
|                                     |                                      | (In thousands)
|Revenue                              |                                      | $              | 345,322 |              |   | $              | (9,790  | )              |   | $           |       |                |  | $             | 250,941 |         |   | $ |      |       |  | $ |    |     |  | $ | 104,171 |      
|Cost of revenue                      |                                      |                | 214,964 |              |   |                | (9,091  | )              |   |             |       |                |  |               | 145,867 |         |   |   |      |       |  |   |    |     |  |   | 78,188  |      
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|                                     |                                      |                | 130,358 |              |   |                | (699    | )              |   |             |       |                |  |               | 105,074 |         |   |   |      |       |  |   |    |     |  |   | 25,983  |      
|Operating expenses:                  |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|                                     | Research and development             |                |         | 52,140       |   |                |         | (593           | ) |             |        |               |  |               |         | 44,667  |   |   |       |      |  |   |     |    |  |   |         | 8,066 |  
|                                     | Marketing and selling                |                |         | 35,002       |   |                |         |               |   |             |        |               |  |               |         | 27,463  |   |   |       |      |  |   |     |    |  |   |         | 7,539 |  
|                                     | General and administrative           |                |         | 24,961       |   |                |         | (106           | ) |             |        | 2,284          |  |               |         | 19,674  |   |   |       |      |  |   |     |    |  |   |         | 3,109 |  
|                                     | Restructuring and impairment charges |                |         | 648          |   |                |         |               |   |             |        |               |  |               |         | 302     |   |   |       |      |  |   |     |    |  |   |         | 346   |  
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|                                     |                                      |                | 112,751 |              |   |                | (699    | )              |   |             | 2,284  |                |  |               | 92,106  |         |   |   |      |       |  |   |    |     |  |   | 19,060  |      
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|Operating income (loss)              |                                      |                | 17,607  |              |   |                |        |                |   |             | (2,284 | )              |  |               | 12,968  |         |   |   |      |       |  |   |    |     |  |   | 6,923   |      
|Other income (expense):              |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|                                     | Interest income (expense), net       |                |         | (11,479      | ) |                |         | (56            | ) |             |        | 265            |  |               |         | (12,035 | ) |   |       |      |  |   |     | 6   |  |   |         | 341   |  
|                                     | Other income (expense), net          |                |         | 147          |   |                |         | 57             |   |             |        | 62             |  |               |         | 94      |   |   |       |      |  |   |     |    |  |   |         | (66   | )
|                                     | Equity earnings in subsidiaries      |                |         |             |   |                |         | (17,948        | ) |             |        | 6,268          |  |               |         | 5,818   |   |   |       | 5,553 |  |   |     | 309 |  |   |         |      |  
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|                                     |                                      |                | (11,332 | )            |   |                | (17,947 | )              |   |             | 6,595  |                |  |               | (6,123  | )       |   |   | 5,553 |       |  |   | 315 |     |  |   | 275     |      
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|Income (loss) before income taxes    |                                      |                | 6,275   |              |   |                | (17,947 | )              |   |             | 4,311  |                |  |               | 6,845   |         |   |   | 5,553 |       |  |   | 315 |     |  |   | 7,198   |      
|Provision (benefit) for income taxes |                                      |                | 1,165   |              |   |                |        |                |   |             | (799   | )              |  |               | 577     |         |   |   |      |       |  |   |    |     |  |   | 1,387   |      
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      
|Net income (loss)                    |                                      | $              | 5,110   |              |   | $              | (17,947 | )              |   | $           | 5,110  |                |  | $             | 6,268   |         |   | $ | 5,553 |       |  | $ | 315 |     |  | $ | 5,811   |      
|                                     |                                      |                |         |              |   |                |         |                |   |             |        |                |  |               |         |         |   |   |       |       |  |   |     |     |  |   |         |      

80



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended in December 31, 2002


|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |        |  
|---------------------------------------------------------------- | ------------------------------------------------------------ | -------------- | -------- | ------------ | - | -------------- | ---- | -------------- | - | ----------- | ------- | -------------- | - | ------------- | ------- | ------- | - | - | - | - |  | - | --- | -- |  | - | ------ | ------ | -
|                                                                 |                                                              |                |          |              |   |                |      | AMI            |   | AMI         |         | AMI            |   |              
|                                                                 |                                                              |                |          |              |   | AMIS           |      | Semiconductor, |   | Acquisition |         | Acquisition II |   | Non-Guarantor
|                                                                 |                                                              | Consolidated   |          | Eliminations |   | Holdings, Inc. |      | Inc.           |   | LLC         |         | LLC            |   | Subsidiaries 
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |              
|                                                                 |                                                              |               
|                                                                 |                                                              | (In thousands)
|Cash flows provided by (used in) operating
    activities        |                                                              | $              | 81,075   |              |   | $              | 103  |                |   | $           | (4,768  | )              |   | $             | 75,229  |         |   | $ |  |   |  | $ | (98 | )  |  | $ | 10,609 |       
|Cash flows from investing activities:                            |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|                                                                 | Purchases of property, plant, and equipment                  |                |          | (21,987      | ) |                |      |               |   |             |         |               |   |               |         | (18,118 | ) |   |   |  |  |   |     |   |  |   |        | (3,869 | )
|                                                                 | Purchase of businesses                                       |                |          | (85,438      | ) |                |      |               |   |             |         |               |   |               |         | (85,438 | ) |   |   |  |  |   |     |   |  |   |        |       |  
|                                                                 | Investment in subsidiaries                                   |                |          |             |   |                |      |               |   |             |         | (69,296        | ) |               |         | 59,044  |   |   |   |  |  |   |     | 98 |  |   |        | 10,154 |  
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|Cash provided by (used in) investing activities                  |                                                              |                | (107,425 | )            |   |                |     |                |   |             | (69,296 | )              |   |               | (44,512 | )       |   |   |  |   |  |   | 98  |    |  |   | 6,285  |       
|Cash flows from financing activities:                            |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|                                                                 | Payments on long-term debt                                   |                |          | (13,150      | ) |                |      |               |   |             |         |               |   |               |         | (13,150 | ) |   |   |  |  |   |     |   |  |   |        |       |  
|                                                                 | Issuance of common and preferred stock                       |                |          | 75,000       |   |                |      | (103           | ) |             |         | 75,000         |   |               |         |        |   |   |   |  |  |   |     |   |  |   |        | 103    |  
|                                                                 | Payments on long-term payables                               |                |          | (1,759       | ) |                |      |               |   |             |         |               |   |               |         | (1,759  | ) |   |   |  |  |   |     |   |  |   |        |       |  
|                                                                 | Deferred financing costs                                     |                |          | (2,170       | ) |                |      |               |   |             |         |               |   |               |         | (2,170  | ) |   |   |  |  |   |     |   |  |   |        |       |  
|                                                                 | Exercise of stock options for common and
    preferred stock |                |          | 454          |   |                |      |               |   |             |         | 454            |   |               |         |        |   |   |   |  |  |   |     |   |  |   |        |       |  
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|Cash provided by (used in) financing activities                  |                                                              |                | 58,375   |              |   |                | (103 | )              |   |             | 75,454  |                |   |               | (17,079 | )       |   |   |  |   |  |   |    |    |  |   | 103    |       
|Effect of exchange rate changes on cash and cash
    equivalents |                                                              |                | 1,509    |              |   |                |     |                |   |             |        |                |   |               |        |         |   |   |  |   |  |   |    |    |  |   | 1,509  |       
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|Net change in cash and cash equivalents                          |                                                              |                | 33,534   |              |   |                |     |                |   |             | 1,390   |                |   |               | 13,638  |         |   |   |  |   |  |   |    |    |  |   | 18,506 |       
|Cash and cash equivalents at beginning of period                 |                                                              |                | 28,650   |              |   |                |     |                |   |             | 520     |                |   |               | 21,636  |         |   |   |  |   |  |   |    |    |  |   | 6,494  |       
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       
|Cash and cash equivalents at end of period                       |                                                              | $              | 62,184   |              |   | $              |     |                |   | $           | 1,910   |                |   | $             | 35,274  |         |   | $ |  |   |  | $ |    |    |  | $ | 25,000 |       
|                                                                 |                                                              |                |          |              |   |                |      |                |   |             |         |                |   |               |         |         |   |   |   |   |  |   |     |    |  |   |        |       

81



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2001


|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |       |  
|------------------------------------ | ------------------------------------ | -------------- | ------- | ------------ | - | -------------- | ------- | -------------- | - | ------------- | ------ | ------ |  | - | ------- | ------- | - | - | ------ | ----- | -
|                                     |                                      |                |         |              |   |                |         | AMI            |   |              
|                                     |                                      |                |         |              |   | AMIS           |         | Semiconductor, |   | Non-Guarantor
|                                     |                                      | Consolidated   |         | Eliminations |   | Holdings, Inc. |         | Inc.           |   | Subsidiaries 
|                                     |                                      |                |         |              |   |                |         |                |   |              
|                                     |                                      |               
|                                     |                                      | (In thousands)
|Revenue                              |                                      | $              | 326,510 |              |   | $              | (7,867  | )              |   | $             |       |        |  | $ | 304,762 |         |   | $ | 29,615 |      
|Cost of revenue                      |                                      |                | 186,400 |              |   |                | (7,867  | )              |   |               |       |        |  |   | 172,013 |         |   |   | 22,254 |      
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|                                     |                                      |                | 140,110 |              |   |                |        |                |   |               |       |        |  |   | 132,749 |         |   |   | 7,361  |      
|Operating expenses:                  |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|                                     | Research and development             |                |         | 42,112       |   |                |         |               |   |               |        |       |  |   |         | 40,620  |   |   |        | 1,492 |  
|                                     | Marketing and selling                |                |         | 35,373       |   |                |         |               |   |               |        |       |  |   |         | 31,896  |   |   |        | 3,477 |  
|                                     | General and administrative           |                |         | 25,566       |   |                |         |               |   |               |        | 1,999  |  |   |         | 22,504  |   |   |        | 1,063 |  
|                                     | Restructuring and impairment charges |                |         | 4,983        |   |                |         |               |   |               |        |       |  |   |         | 4,007   |   |   |        | 976   |  
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|                                     |                                      |                | 108,034 |              |   |                |        |                |   |               | 1,999  |        |  |   | 99,027  |         |   |   | 7,008  |      
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|Operating income (loss)              |                                      |                | 32,076  |              |   |                |        |                |   |               | (1,999 | )      |  |   | 33,722  |         |   |   | 353    |      
|Other income (expense):              |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|                                     | Interest income (expense), net       |                |         | (14,160      | ) |                |         |               |   |               |        | 535    |  |   |         | (14,917 | ) |   |        | 222   |  
|                                     | Other income (expense), net          |                |         | 407          |   |                |         |               |   |               |        |       |  |   |         | 430     |   |   |        | (23   | )
|                                     | Equity earnings in subsidiaries      |                |         |             |   |                |         | (13,152        | ) |               |        | 13,545 |  |   |         | (393    | ) |   |        |      |  
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|                                     |                                      |                | (13,753 | )            |   |                | (13,152 | )              |   |               | 14,080 |        |  |   | (14,880 | )       |   |   | 199    |      
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|Income (loss) before income taxes    |                                      |                | 18,323  |              |   |                | (13,152 | )              |   |               | 12,081 |        |  |   | 18,842  |         |   |   | 552    |      
|Provision (benefit) for income taxes |                                      |                | 5,642   |              |   |                |        |                |   |               | (600   | )      |  |   | 5,297   |         |   |   | 945    |      
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      
|Net income (loss)                    |                                      | $              | 12,681  |              |   | $              | (13,152 | )              |   | $             | 12,681 |        |  | $ | 13,545  |         |   | $ | (393   | )    
|                                     |                                      |                |         |              |   |                |         |                |   |               |        |        |  |   |         |         |   |   |        |      

82



---



##### Table of Contents



AMIS HOLDINGS, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended December 31, 2001


|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |        |  
|---------------------------------------------------------------- | ------------------------------------------------------------ | -------------- | ------- | ------------ | - | -------------- | --- | ------------------- | - | ------------- | ------ | ------ | - | - | ------- | ------- | - | - | ------ | ------ | -
|                                                                 |                                                              |                |         |              |   | AMIS           |     | AMI                 |   | Non-Guarantor
|                                                                 |                                                              | Consolidated   |         | Eliminations |   | Holdings, Inc. |     | Semiconductor, Inc. |   | Subsidiaries 
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |              
|                                                                 |                                                              |               
|                                                                 |                                                              | (In thousands)
|Cash flows provided by operating activities                      |                                                              | $              | 42,574  |              |   | $              | 101 |                     |   | $             | 4,322  |        |   | $ | 34,505  |         |   | $ | 3,646  |       
|Cash flows from investing activities:                            |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|                                                                 | Purchases of property, plant, and equipment                  |                |         | (20,720      | ) |                |     |                    |   |               |        |       |   |   |         | (18,983 | ) |   |        | (1,737 | )
|                                                                 | Designation of restricted cash                               |                |         | (4,200       | ) |                |     |                    |   |               |        | (4,200 | ) |   |         |        |   |   |        |       |  
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|Cash used in investing activities                                |                                                              |                | (24,920 | )            |   |                |    |                     |   |               | (4,200 | )      |   |   | (18,983 | )       |   |   | (1,737 | )     
|Cash used in financing activities:                               |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|                                                                 | Payments on long-term debt                                   |                |         | (1,750       | ) |                |     |                    |   |               |        |       |   |   |         | (1,750  | ) |   |        |       |  
|                                                                 | Payments on related-party debt/advances from
    parent      |                |         | (6,000       | ) |                |     |                    |   |               |        |       |   |   |         | (6,000  | ) |   |        |       |  
|                                                                 | Payments on long-term payables                               |                |         | (1,830       | ) |                |     |                    |   |               |        |       |   |   |         | (1,830  | ) |   |        |       |  
|                                                                 | Stock repurchase, net of stockholder note
    receivable     |                |         | (122         | ) |                |     |                    |   |               |        | (122   | ) |   |         |        |   |   |        |       |  
|                                                                 | Exercise of stock options for common and
    preferred stock |                |         | 270          |   |                |     |                    |   |               |        | 270    |   |   |         |        |   |   |        |       |  
|                                                                 | Issuance of common and preferred stock                       |                |         | 250          |   |                |     | (4                  | ) |               |        | 250    |   |   |         |        |   |   |        | 4      |  
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|Cash (used in) provided by financing activities                  |                                                              |                | (9,182  | )            |   |                | (4  | )                   |   |               | 398    |        |   |   | (9,580  | )       |   |   | 4      |       
|Effect of exchange rate changes on cash and cash
    equivalents |                                                              |                | 98      |              |   |                | (97 | )                   |   |               |       |        |   |   | 98      |         |   |   | 97     |       
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|Net change in cash and cash equivalents                          |                                                              |                | 8,570   |              |   |                |    |                     |   |               | 520    |        |   |   | 6,040   |         |   |   | 2,010  |       
|Cash and cash equivalents at beginning of period                 |                                                              |                | 20,080  |              |   |                |    |                     |   |               |       |        |   |   | 15,596  |         |   |   | 4,484  |       
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       
|Cash and cash equivalents at end of period                       |                                                              | $              | 28,650  |              |   | $              |    |                     |   | $             | 520    |        |   | $ | 21,636  |         |   | $ | 6,494  |       
|                                                                 |                                                              |                |         |              |   |                |     |                     |   |               |        |        |   |   |         |         |   |   |        |       

83



---



##### Table of Contents





|    |                                     
|--- | ------------------------------------
|20. | Quarterly Financial Data (unaudited)

|                                                                                                        |  |                                      |       |         |  |       |       |       |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ------- |  | ----- | ----- | ----- |  | -- | ----- | -- |  | -- | ----- | -- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                                                                        |  |                                     
|                                                                                                        |  | Year                                
|                                                                                                        |  |                                     
|                                                                                                        |  |                                      |       |        
|                                                                                                        |  | 2003(1)                              |       | 2002(1)
|                                                                                                        |  |                                      |       |        
|                                                                                                        |  | Q1                                   |       | Q2(2)   |  | Q3(3) |       | Q4(4) |  | Q1 |       | Q2 |  | Q3 |       | Q4
|                                                                                                        |  |                                      |       |         |  |       |       |       |  |    |       |    |  |    |       |   
|                                                                                                        |  |                                     
|                                                                                                        |  | (In millions, except loss per share)
|Revenue                                                                                                 |  | $                                    | 102.8 |         |  | $     | 108.4 |       |  | $  | 117.4 |    |  | $  | 125.6 |    |  | $ | 69.0  |   |  | $ | 69.5  |   |  | $ | 104.3 |   |  | $ | 102.5 |  
|Gross profit                                                                                            |  | $                                    | 42.3  |         |  | $     | 47.5  |       |  | $  | 51.5  |    |  | $  | 56.9  |    |  | $ | 25.2  |   |  | $ | 26.0  |   |  | $ | 42.0  |   |  | $ | 37.1  |  
|Net income (loss)                                                                                       |  | $                                    | 1.8   |         |  | $     | (7.3  | )     |  | $  | 1.7   |    |  | $  | 3.4   |    |  | $ | (1.1  | ) |  | $ | (2.5  | ) |  | $ | 5.7   |   |  | $ | 3.0   |  
|Preferred stock dividend                                                                                |  | $                                    | (15.8 | )       |  | $     | (15.4 | )     |  | $  | (15.1 | )  |  |    |      |    |  | $ | (12.7 | ) |  | $ | (16.8 | ) |  | $ | (16.0 | ) |  | $ | (17.0 | )
|                                                                                                        |  |                                      |       |         |  |       |       |       |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|Net income (loss) attributable to common
    stockholders                                               |  | $                                    | (14.0 | )       |  | $     | (22.6 | )     |  | $  | (13.5 | )  |  | $  | 3.4   |    |  | $ | (13.8 | ) |  | $ | (19.3 | ) |  | $ | (10.3 | ) |  | $ | (14.0 | )
|                                                                                                        |  |                                      |       |         |  |       |       |       |  |    |       |    |  |    |       |    |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|Basic net income (loss) per common share                                                                |  | $                                    | (0.30 | )       |  | $     | (0.48 | )     |  | $  | (0.28 | )  |  | $  | 0.04  |    |  | $ | (0.30 | ) |  | $ | (0.42 | ) |  | $ | (0.22 | ) |  | $ | (0.30 | )
|Diluted net income (loss) per common share                                                              |  | $                                    | (0.30 | )       |  | $     | (0.48 | )     |  | $  | (0.28 | )  |  | $  | 0.04  |    |  | $ | (0.30 | ) |  | $ | (0.42 | ) |  | $ | (0.22 | ) |  | $ | (0.30 | )
|Weighted average number of common shares used to
    compute basic net income (loss) per common share   |  |                                      | 46.7  |         |  |       | 46.7  |       |  |    | 48.0  |    |  |    | 79.1  |    |  |   | 46.2  |   |  |   | 46.3  |   |  |   | 46.5  |   |  |   | 46.6  |  
|Weighted average number of common shares used to
    compute diluted net income (loss) per common share |  |                                      | 46.7  |         |  |       | 46.7  |       |  |    | 48.0  |    |  |    | 86.3  |    |  |   | 46.2  |   |  |   | 46.3  |   |  |   | 46.5  |   |  |   | 46.6  |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each quarter represents 13 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | In the second quarter of 2003, the Company
    recorded an impairment charge of $20 million related to the
    write-off of the remaining balance of a non-compete agreement,
    which was deemed by the Company to have no remaining value.                                                                                                                                                                                                                     
|   
|(3) | During the third quarter of 2003, the Company
    recorded nonrecurring charges of $8.5 million related to
    amendments to investment banking and financial advisory services
    arrangements, and for compensation expense of $2.9 million
    related to the redemption of options on preferred stock.                                                                                                                                                       
|   
|(4) | During the fourth quarter of 2003, the Company
    recorded restructuring charges of $1.7 million related to
    the termination of certain management and other employees as
    well as certain sales representatives in the United States. The
    Company also recorded other expenses of $7.5 million during
    the fourth quarter of 2003 for a premium paid in connection with
    the early redemption of a portion of the Senior Subordinated
    Notes.

84



---



##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Under the supervision and with the participation
of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e)
under the Securities Exchange Act) as of the end of the period
covered by this report. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that
our disclosure controls and procedures are effective in timely
making known to them material information relating to us and our
consolidated subsidiaries required to be disclosed in our
reports filed or submitted under the Exchange Act. There has
been no change in our internal control over financial reporting
during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item with
respect to directors and executive officers is incorporated by
reference to our proxy statement for the 2004 annual meeting of
stockholders, which will be filed on or before April 29,
2004.

We have adopted a code of business conduct and
ethics applicable to our Directors, officers (including our
principal executive officer, principal financial officer and
controller) and employees, known as the Code of Ethics. The Code
of Ethics is available on our website at www.amis.com. In the
event that we amend or waive certain provisions of the Code of
Ethics applicable to our principal executive officer, principal
financial officer or controller, we intend to disclose the same
on our website.

85



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated by reference to our 2004 proxy statement.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information required by this item is
incorporated by reference to our 2004 proxy statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to our 2004 proxy statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this item is
incorporated by reference to our 2004 proxy statement.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) The following documents are filed as
part of this report:



| |                                                                                 
| | --------------------------------------------------------------------------------
| | (1) Financial Statements. See the
    Index to Financial Statements in Item 8.
|
| | (2) Exhibits.                                                                   

|        |    |          |  |                                                                                                                                                                                                                                                                                        
|------- | -- | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |         
|No.     |    | Document
|        |    |         
|        | 3  | .1       |  | Restated Certificate of Incorporation of AMIS
    Holdings, Inc.                                                                                                                                                                                                                       
|        | 3  | .2       |  | Amended and Restated By-Laws of AMIS
    Holdings, Inc.                                                                                                                                                                                                                                
|        | 4  | .1       |  | Indenture dated as of January 29, 2003 among
    AMI Semiconductor, Inc., AMIS Holdings, Inc., AMI
    Acquisition LLC, AMI Acquisition II LLC and
    J.P. Morgan Trust Company, N.A.*                                                                                                
|        | 4  | .2       |  | Form of Certificate of Common Stock, par value
    $0.01 per share, of AMIS Holdings, Inc. **                                                                                                                                                                                          
|        | 10 | .1       |  | Credit Agreement dated as of December 21,
    2000 among the Company, AMIS Holdings, Inc. (formerly named
    AMI Holdings, Inc.), the lenders party thereto and Credit
    Suisse First Boston Corporation, as Collateral Agent and
    Administrative Agent (the Credit Agreement)*
|        | 10 | .2       |  | Global Assignment and Acceptance and Amendment
    dated as of February 20, 2001 relating to the Credit
    Agreement*                                                                                                                                                                 
|        | 10 | .3       |  | Amendment No. 2, Waiver and Agreement dated
    as of February 6, 2002, relating to the Credit Agreement*                                                                                                                                                                              
|        | 10 | .4       |  | Amendment No. 3, Wavier and Agreement dated
    as of May 2, 2002, relating to the Credit Agreement*                                                                                                                                                                                   
|        | 10 | .5       |  | Amendment No. 4, Waiver and Agreement dated
    as of September 6, 2002, relating to the Credit Agreement*                                                                                                                                                                             
|        | 10 | .6       |  | Amended and Restated Credit Agreement among AMI
    Semiconductor, Inc., AMIS Holdings, Inc., the lenders
    party thereto and Credit Suisse First Boston, as Administrative
    Agent and Collateral Agent                                                                           
|        | 10 | .7       |  | Amended and Restated Employment Agreement dated
    as of August 15, 2001 by and between AMIS
    Holdings, Inc. and Christine King**                                                                                                                                                  
|        | 10 | .8       |  | Amended and Restated Shareholders Agreement
    among AMIS Holdings, Inc. and the holders named therein                                                                                                                                                                               
|        | 10 | .9       |  | Supply Agreement between STMicroelectronics, NV
    and AMI Semiconductor Belgium BVBA dated June 26, 2002*                                                                                                                                                                            
|        | 10 | .10      |  | Form of warrant held by Merchant
    Capital, Inc. to purchase shares of common stock of AMIS
    Holdings, Inc.*                                                                                                                                                                      

86



---



##### Table of Contents



|        |    |          |  |                                                                                                                                                                                                                                                            
|------- | -- | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |         
|No.     |    | Document
|        |    |         
|        | 10 | .11      |  | Form of warrant held by Nippon Mining
    Holdings, Inc. (formerly Japan Energy Electronic
    Materials, Inc.) to purchase shares of common stock of AMIS
    Holdings, Inc.*                                                                             
|        | 10 | .12      |  | Agreement dated May 8, 2002 between AMI
    Semiconductor Belgium BVBA, AMI Semiconductor, Inc. and
    STMicroelectronics NV for the acquisition of the business of the
    Mixed Signal Division of Alcatel Microelectronics*                            
|        | 10 | .13      |  | Advisory Agreement dated December 21, 2000
    by and between AMI Holdings, Inc., AMI Spinco Inc. and
    Francisco Partners GP, LLC*                                                                                                                      
|        | 10 | .14      |  | Advisory Agreement dated December 21, 2000
    by and between AMI Holdings, Inc., AMI Spinco, Inc.
    and TBW LLC*                                                                                                                                        
|        | 10 | .15      |  | Amended and Restated AMIS Holdings, Inc.
    2000 Equity Incentive Plan***                                                                                                                                                                                 
|        | 10 | .16      |  | Form of Indemnification Agreement for directors
    and executive officers of AMIS Holdings, Inc.**                                                                                                                                                        
|        | 10 | .17      |  | Appendix to the Minutes of the General
    Shareholders Meeting regarding the Appointment of
    Mr. Walter Mattheus in the Office of Compensated Director
    of AMI Semiconductor Belgium BVBA dated June 26, 2002*                                     
|        | 10 | .18      |  | Assignment and Assumption Agreement dated
    June 26, 2002 between STMicroelectronics NV and AMI
    Semiconductor, Inc.; Assignment and Assumption Agreement
    dated June 26, 2002 between Alcatel Microelectronics NV and
    AMI Semiconductor, Inc.*
|        | 10 | .19      |  | AMIS Holdings, Inc. 2003 Employee Stock
    Purchase Plan***                                                                                                                                                                                               
|        | 10 | .20      |  | Form of Amendment No. 1 to the Advisory
    Agreement filed as Exhibit 10.13**                                                                                                                                                                             
|        | 10 | .21      |  | Form of Amendment No. 1 to the Advisory
    Agreement filed as Exhibit 10.14**                                                                                                                                                                             
|        | 21 | .1       |  | Direct and Indirect Subsidiaries of AMIS
    Holdings, Inc.*                                                                                                                                                                                               
|        | 23 | .1       |  | Consent of Ernst & Young LLP,
    independent auditors                                                                                                                                                                                                     
|        | 31 | .1       |  | Certification of Principal Executive Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003                                                                                                                                                 
|        | 31 | .2       |  | Certification of Principal Financial Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003                                                                                                                                                 
|        | 32 | .1       |  | Certification of Principal Executive Officer
    Pursuant to Section 906 of Sarbanes-Oxley Act of 2003                                                                                                                                                     
|        | 32 | .2       |  | Certification of Principal Financial Officer
    Pursuant to Section 906 of Sarbanes-Oxley Act of 2003                                                                                                                                                     



---



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| | * | Incorporated by reference to our registration
    statement on Form S-4 (No. 333-103070).



| |    |                                                                                          
| | -- | -----------------------------------------------------------------------------------------
| | ** | Incorporated by reference to our registration
    statement on Form S-1 (No. 333-108028).



|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|*** | Incorporated by reference to our registration
    statement on Form S-8 (No. 333-111856).

(b) Reports of Form 8-K.

On October 20, 2003 the Company filed a
report on Form 8-K, on item 9, announcing increased
penetration into real world applications for the automotive
market.

On October 28, 2003 the Company filed a
report on Form 8-K, on items 7 and 12, announcing the
Companys results for its quarter ended September 27,
2003.

87



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                    
| | -------------------
| | AMIS HOLDINGS, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ MICHAEL SALVATI

| |                        
| | -----------------------
| |                        
| | Michael Salvati        
| | Chief Financial Officer
|
| | Date: March 23, 2004   

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Christine King and Michael Salvati, jointly and severally, his
or her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes may do or cause to be done by
virtue hereof.

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

|                                           |  |                                                                          |  |                |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------ |  | -------------- |  | 
|                                           |  |                                                                          |  |               
|Signature                                  |  | Title                                                                    |  | Date          
|                                           |  |                                                                          |  |               
|                                          
|/s/ CHRISTINE KINGChristine King           |  | President and Chief Executive Officer (Principal
    Executive Officer)  |  | March 23, 2004
|                                          
|/s/ MICHAEL SALVATIMichael Salvati         |  | Chief Financial Officer (Principal Financial and
    Accounting Officer) |  | March 23, 2004
|                                          
|/s/ DIPANJAN DEBDipanjan Deb               |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ COLIN SLADEColin Slade                 |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ DAVID M. RICKEYDavid M. Rickey         |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ GREGORY L. WILLIAMSGregory L. Williams |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ PAUL C. SCHORR IVPaul C. Schorr IV     |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ TOMOHIRO SHIBATATomohiro Shibata       |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ DAVID STANTONDavid Stanton             |  | Director                                                                 |  | March 23, 2004
|                                          
|/s/ JAMES A. URRYJames A. Urry             |  | Director                                                                 |  | March 23, 2004

88