##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
   FORM 20-F (Mark One) o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934orþ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2004oro
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to
 Commission file number 1-14700 (COMPANY NAME)
(Exact Name of Registrant as Specified in Its Charter) Siliconware Precision Industries Co., Ltd.  Taiwan, Republic of China
(Jurisdiction of Incorporation or Organization) No. 123, Sec. 3, Da Fong Road, Tantzu, Taichung, Taiwan, ROC
(Address of Principal Executive Offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each
Class
    
    Name of Each Exchange On Which RegisteredNone
 Securities registered or to be registered pursuant to Section 12(g) of the Act: Common Shares, par value NT$10 per share Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the Issuers classes of capital or common
stock as of the close of the period covered by the annual report. As of December 31, 2004, 2,105,073,060 Common Shares were outstanding   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 which financial statement item the registrant has elected to follow. Item 17
o  Item 18 þ (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.) Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
o  No o




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SILICONWARE PRECISION INDUSTRIES CO., LTD.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2004 TABLE OF CONTENTS PageForward Looking Statements in This Annual Report May Not Be Accurate
    
    
    1PART I
    
    
    2Item 1. Identity of Directors, Senior Management and Advisers
    
    
    2Item 2. Offer Statistics and Expected Timetable
    
    
    2Item 3. Key Information
    
    
    2Item 4. Information on the Company
    
    
    16Item 5. Operating and Financial Review and Prospects
    
    
    34Item 6. Directors, Senior Management and Employees
    
    
    55Item 7. Major Shareholders and Related Party Transactions
    
    
    60Item 8. Financial Information
    
    
    62Item 9. The Offer and Listing
    
    
    63Item 10. Additional Information
    
    
    65Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    78Item 12. Description of Securities Other Than Equity Securities
    
    
    79PART II
    
    
    79Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    79Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    79Item 15. Controls and Procedures
    
    
    79Item 16A. Audit Committee Financial Expert
    
    
    80Item 16B. Code of Ethics
    
    
    80Item 16C. Principal Accountant Fees and Services
    
    
    80Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    81Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    81PART III
    
    
    81Item 17. Financial Statements
    
    
    81Item 18. Financial Statements
    
    
    81Item 19. Exhibit Index
    
    
    82Signatures
    
    
    83EX-8.1 LIST OF SIGNIFICANT SUBSIDIARIESEX-12.1 CERTIFICATION OF CEOEX-12.2 CERTIFICATION OF CFOEX-13.1 CERTIFICATION OF PERIODIC FINANCIAL REPORTEX-13.2 CERTIFICATION OF PERIODIC FINANCIAL REPORTEX-15.1 CONSENT OF INDP REGISTERED PUBLIC ACCT FIRM
  - i -




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Forward Looking Statements in This Annual Report May Not Be Accurate Our disclosure and analysis in this annual report contain or incorporate by reference some
forward-looking statements. Our forward-looking statements contain information regarding, among
other things, our financial condition, future expansion plans and business strategy. We have based
these forward-looking statements on our current expectations and projections about future events.
You can identify these statements by the fact that they do not relate strictly to historical or
current facts. Although we believe that these expectations and projections are reasonable, such
forward-looking statements are inherently subject to risks, uncertainties and assumptions about us,
including, among other things:  
    the intensely competitive semiconductor and personal computer industries and markets;
    risks associated with international business activities;
    our dependence on key personnel;
    natural disasters, such as earthquakes and droughts, which are beyond our control;
    general economic and political conditions, including those related to the semiconductor
and personal computer industries;
    possible disruptions in commercial activities caused by human-induced disasters,
including terrorist activity and armed conflict, and outbreaks of contagious diseases,
such as severe acute respiratory syndrome, or SARS, which reduce end-user purchases
relative to expectations and orders;
    fluctuations in foreign currency exchange rates;
    additional disclosures we make in our previous and future Form 20-F annual reports and
Form 6-K periodic reports to the Securities and Exchange Commission, or the SEC; and
    those other risks identified in Item 3. Key InformationD. Risk Factors of this
annual report. The words anticipate, believe, estimate, expect, intend, plan, will, shall and
similar expressions, as they relate to us, are intended to identify a number of these
forward-looking statements. We undertake no obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in this annual report
might not occur and our actual results could differ materially from those anticipated in these
forward-looking statements. 1




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##### Table of Contents



PART I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information A. Selected Financial Data The selected financial data shown below should be read in conjunction with Item 5. Operating
and Financial Review and Prospects, and the financial statements and the notes to those statements
included elsewhere in this annual report. The selected statement of income data for the years ended
December 31, 2002, 2003 and 2004 and the selected balance sheet data as of December 31, 2003 and
2004 have been derived from our audited financial statements included elsewhere in this annual
report. The selected statement of income data for the years ended December 31, 2000 and 2001 and
the selected balance sheet data as of December 31, 2000, 2001 and 2002 have been derived from our
audited financial statements not included in this annual report. The financial statements have been
prepared and presented according to generally accepted accounting principles in the Republic of
China, or ROC GAAP, which differ in many important respects from generally accepted accounting
principles in the United States, or US GAAP. For a discussion of the material differences, see note
28 to our financial statements included elsewhere in this annual report. Some of our statement of
income and balance sheet data items have been reconciled to US GAAP as shown below. Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(6)(in millions, except earnings (loss) or dividends per share and per ADS data)Income Statement Data:ROC GAAPNet operating
revenues
    
    
    18,846
    
    
    
    16,530
    
    
    
    22,299
    
    
    
    27,411
    
    
    
    35,252
    
    
    
    1,110.6Cost of goods sold
    
    
    (14,907
    )
    
    
    (15,109
    )
    
    
    (20,210
    )
    
    
    (23,298
    )
    
    
    (28,871
    )
    
    
    (909.6
    )Gross profit
    
    
    3,939
    
    
    
    1,421
    
    
    
    2,089
    
    
    
    4,113
    
    
    
    6,381
    
    
    
    201.0Operating expenses
    
    
    (999
    )
    
    
    (1,428
    )
    
    
    (1,542
    )
    
    
    (1,592
    )
    
    
    (2,048
    )
    
    
    (64.5
    )Operating income
    
    
    2,940
    
    
    
    (7
    )
    
    
    547
    
    
    
    2,521
    
    
    
    4,333
    
    
    
    136.5Equity investment
income (loss)(1)
    
    
    192
    
    
    
    (1,199
    )
    
    
    61
    
    
    
    (533
    )
    
    
    308
    
    
    
    9.7Other non-operating
income(1)
    
    
    662
    
    
    
    608
    
    
    
    469
    
    
    
    882
    
    
    
    732
    
    
    
    23.1Other non-operating
expenses
    
    
    (599
    )
    
    
    (884
    )
    
    
    (797
    )
    
    
    (667
    )
    
    
    (1,548
    )
    
    
    (48.8
    )Income (loss) before
income tax(1)
    
    
    3,195
    
    
    
    (1,482
    )
    
    
    280
    
    
    
    2,203
    
    
    
    3,825
    
    
    
    120.5Income tax benefit
    
    
    26
    
    
    
    283
    
    
    
    145
    
    
    
    636
    
    
    
    457
    
    
    
    14.4Net income
(loss)(1)(2)
    
    
    3,221
    
    
    
    (1,183
    )
    
    
    425
    
    
    
    2,839
    
    
    
    4,282
    
    
    
    134.9Earnings (loss) per
share(3)Basic
    
    
    1.83
    
    
    
    (0.58
    )
    
    
    0.21
    
    
    
    1.40
    
    
    
    2.09
    
    
    
    0.07Diluted
    
    
    1.83
    
    
    
    (0.58
    )
    
    
    0.21
    
    
    
    1.27
    
    
    
    1.63
    
    
    
    0.05Shares used in per
share calculation
(average, as
adjusted)(2)Basic
    
    
    1,763
    
    
    
    2,032
    
    
    
    2,008
    
    
    
    2,020
    
    
    
    2,052
    
    
    
    2,052Diluted
    
    
    1,763
    
    
    
    2,032
    
    
    
    2,008
    
    
    
    2,267
    
    
    
    2,411
    
    
    
    2,411Earnings (loss) per
ADS(3)Basic
    
    
    9.12
    
    
    
    (2.91
    )
    
    
    1.05
    
    
    
    6.35
    
    
    
    10.44
    
    
    
    0.33Diluted
    
    
    9.12
    
    
    
    (2.91
    )
    
    
    1.05
    
    
    
    6.27
    
    
    
    8.15
    
    
    
    0.29Dividends per
share(4)
    
    
    1.40
    
    
    
    1.45
    
    
    
    
    
    
    
    
    
    
    
    1.35
    
    
    
    0.04ADSs used in per ADS
calculation
(average, as adjusted)(3)
 2




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Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(6)(in millions, except earnings (loss) or dividends per share and per ADS data)Basic
    
    
    353
    
    
    
    406
    
    
    
    402
    
    
    
    404
    
    
    
    410
    
    
    
    410Diluted
    
    
    353
    
    
    
    406
    
    
    
    402
    
    
    
    453
    
    
    
    482
    
    
    
    482US GAAPNet income (loss)
    
    
    1,982
    
    
    
    (1,790
    )
    
    
    (223
    )
    
    
    3,248
    
    
    
    3,667
    
    
    
    115.5Earnings (loss) per
share(5)Basic
    
    
    1.15
    
    
    
    (0.89
    )
    
    
    (0.11
    )
    
    
    1.61
    
    
    
    1.78
    
    
    
    0.06Diluted
    
    
    1.15
    
    
    
    (0.89
    )
    
    
    (0.11
    )
    
    
    1.43
    
    
    
    1.52
    
    
    
    0.05Shares used in per
share calculation
(average, as
adjusted)(5)Basic
    
    
    1,729
    
    
    
    2,015
    
    
    
    2,008
    
    
    
    2,020
    
    
    
    2,060
    
    
    
    2,060Diluted
    
    
    1,729
    
    
    
    2,015
    
    
    
    2,008
    
    
    
    2,267
    
    
    
    2,419
    
    
    
    2,419Earnings (loss) per
ADSBasic
    
    
    5.73
    
    
    
    (4.44
    )
    
    
    (0.55
    )
    
    
    8.04
    
    
    
    8.90
    
    
    
    0.24Diluted
    
    
    5.73
    
    
    
    (4.44
    )
    
    
    (0.55
    )
    
    
    7.15
    
    
    
    7.58
    
    
    
    0.24ADSs used in per ADS
calculation (average,
as adjusted)(5)Basic
    
    
    346
    
    
    
    403
    
    
    
    402
    
    
    
    404
    
    
    
    412
    
    
    
    412Diluted
    
    
    346
    
    
    
    403
    
    
    
    402
    
    
    
    453
    
    
    
    484
    
    
    
    484
 Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(6)(in millions)Other Data:ROC GAAPCapital expenditures
    
    
    6,535
    
    
    
    5,474
    
    
    
    6,445
    
    
    
    4,885
    
    
    
    9,785
    
    
    
    308.3Depreciation and
amortization
    
    
    2,257
    
    
    
    4,323
    
    
    
    4,902
    
    
    
    5,185
    
    
    
    6,153
    
    
    
    193.9
 Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(6)(in millions)Balance Sheet Data:ROC GAAPCash and cash
equivalents
    
    
    6,566
    
    
    
    6,310
    
    
    
    5,970
    
    
    
    12,203
    
    
    
    10,922
    
    
    
    344.1Working capital
    
    
    8,361
    
    
    
    6,176
    
    
    
    6,856
    
    
    
    4,766
    
    
    
    13,492
    
    
    
    425.1Total assets
    
    
    41,740
    
    
    
    42,566
    
    
    
    46,236
    
    
    
    54,658
    
    
    
    58,962
    
    
    
    1,857.6Short-term debt
and current
portion of
long-term debt
    
    
    1,272
    
    
    
    2,667
    
    
    
    2,968
    
    
    
    10,342
    
    
    
    4,013
    
    
    
    126.4Long-term debt
    
    
    9,291
    
    
    
    10,640
    
    
    
    14,143
    
    
    
    8,813
    
    
    
    16,639
    
    
    
    524.2Total liabilities
    
    
    13,884
    
    
    
    16,519
    
    
    
    20,057
    
    
    
    24,960
    
    
    
    25,469
    
    
    
    802.4Total
stockholders
equity
    
    
    27,856
    
    
    
    26,047
    
    
    
    26,179
    
    
    
    29,698
    
    
    
    33,493
    
    
    
    1,055.2US GAAPTotal assets
    
    
    47,179
    
    
    
    47,852
    
    
    
    50,333
    
    
    
    61,756
    
    
    
    65,118
    
    
    
    2,051.6Total liabilities
    
    
    14,474
    
    
    
    16,517
    
    
    
    20,071
    
    
    
    25,322
    
    
    
    25,927
    
    
    
    816.9Total
stockholders
equity
    
    
    32,705
    
    
    
    31,335
    
    
    
    30,262
    
    
    
    36,434
    
    
    
    39,191
    
    
    
    1,234.7
   (1)
    
    The ROC Securities and Futures Bureau has allowed us to delay our recognition of investment
income in certain investee companies accounted for under equity method. In particular, we
derive a significant amount of our investment income in ChipMOS Technologies Inc., or ChipMOS,
which we owned 28.7% equity interest as of March 31, 2005. In 2002, because ChipMOS did not
provide its financial statements to us in time to enable us to recognize its financial results
for such period, we were permitted to delay the recognition of the investment loss of ChipMOS
until 2003. As a result, we did not recognize investment loss of ChipMOS for 2002 in our
financial results under ROC GAAP until the first 3




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quarter of 2003. For the three months ended March 31, 2003, we recognized an investment loss of
NT$366 million for ChipMOS in 2002. If this investment loss had been included in our results for
2002, our non-operating income, income before income tax and net income for 2002 would have been
reduced by the same amount and our basic and diluted earnings per share in 2002 would have been
reduced by NT$0.2. In 2003 and 2004, we also experienced a delay in recognition of investment
income. For the three months ended March 31, 2004, we recognized an investment income of NT$247
million from ChipMOSs financial results in 2003. For the three months ended March 31, 2005, we
recognized an investment income of NT$667 million (US$21.0 million) from ChipMOSs financial
results in 2004. We also experienced a delay in recognition of investment income in Double Win
Enterprise Co., Ltd. and Taiwan High-tech Corporation in 2002, 2003 and 2004 and Universal
Communication Technology Inc. in 2002, and recognized their financial results in the subsequent
year. Our investment income (loss) from Double Win Enterprise Co., Ltd., Taiwan High-tech
Corporation and Universal Communication Technology Inc. for the aforementioned years was not
material.Under US GAAP, there is no provision that allows us to delay recognition of financial results of
ChipMOS or any other investee accounted for under the equity method. In 2002, 2003 and 2004, our
investment income (loss) under US GAAP from ChipMOS were (NT$342 million), NT$250 million and
NT$664 million (US$20.9 million), respectively. As a result, our financial results under US GAAP
would not provide meaningful year-to-year comparison to our financial results under ROC GAAP.(2)
    
    Net income in 2000 and 2001 was net of minority interest loss of NT$3,000 and NT$16 million,
respectively. The company does not have minority interest in 2002, 2003 and 2004, and is
therefore not presented separately in this table.(3)
    
    Retroactively adjusted for all subsequent stock dividends and employee share bonuses.(4)
    
    Adjusted to reflect 123,980,637 shares, 235,421,212 shares and 189,447,578 shares distributed
as stock dividends in 2000, 2001 and 2004, respectively, with respect to the earnings of 1999,
2000 and 2003. No stock dividend was declared in 2002 and 2003.(5)
    
    Retroactively adjusted for all subsequent stock dividends only.(6)
    
    Amounts translated for convenience at the Federal Reserve Bank of New York noon buying
exchange rate of NT$31.74 to US$1.00 on December 31, 2004. Currency Translations and Exchange Rates In portions of this annual report, we have translated New Taiwan dollars, or NT dollars,
amounts into US dollars for the convenience of the readers. The rate we used for the translations
was NT$31.74 = US$1.00, which was the noon buying rate announced by the Federal Reserve Bank of New
York on December 31, 2004. The translation does not mean that NT dollars could actually be
converted into US dollars at that rate. The following table shows the noon buying rates for NT
dollars expressed in NT dollar per US$1.00. Year Ended December 31,
    
    Average(1)
    
    High
    
    Low
    
    At Period-End2000
    
    31.37
    
    33.25
    
    30.35
    
    33.172001
    
    33.91
    
    35.13
    
    32.23
    
    35.002002
    
    34.53
    
    35.16
    
    32.85
    
    34.702003
    
    34.41
    
    34.98
    
    33.72
    
    33.992004
    
    33.27
    
    34.16
    
    31.74
    
    31.74November
    
    32.78
    
    33.48
    
    32.17
    
    32.20December
    
    32.17
    
    32.49
    
    31.74
    
    31.742005January
    
    31.85
    
    32.22
    
    31.65
    
    31.71February
    
    31.50
    
    31.79
    
    31.06
    
    31.06March
    
    31.11
    
    31.73
    
    30.65
    
    31.46April
    
    31.47
    
    31.70
    
    31.23
    
    31.23May
    
    31.27
    
    34.47
    
    30.98
    
    31.13
   Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.  (1)
    Annual averages are calculated using the average of the exchange rates on the last day of
each month during the period. Monthly averages are calculated using the average of the daily
rates during the relevant period. B. Capitalization and Indebtedness Not applicable. 4




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C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors Our business and operations are subject to various risks, many of which are beyond our
control. If any of the risks described below actually occurs, our services, financial condition or
results of operations could be seriously harmed. Risks Relating to Our Financial Condition and Business Our operating results fluctuate significantly, which may affect the value of your investments Our historical net operating revenues and results of operations have varied, at times
significantly, from quarter to quarter. Our future net operating revenues, gross profit and
operating income may vary significantly due to a combination of factors. These factors include:  
    our ability to develop and implement new technologies. If we are unable to successfully
implement new technologies in a timely manner, our operating results could suffer because
we would allow our competitors to seize the opportunities in developing new markets.
    changes in our product mix or our customers preferences. When we discontinue or add a
product or when our customers demand change, our operating results usually fluctuate.
    changes in capacity utilization. When capacity utilization is low, such as in times of
market downturns, we may need to adjust our product mix to respond to changes in demand
and to adjust our prices sufficiently enough to maintain the level of our capacity
utilization. Moreover, the growing demand for substrate packaging which uses higher-cost raw materials has
caused the costs of production for semiconductor packaging to rise significantly. If our revenues
do not grow and we are unable to reduce our expenses, our profitability will suffer. The cyclical nature of the semiconductor industry makes us particularly vulnerable to economic
downturns and changes in the semiconductor industry Because our services is, and will continue to be, dependent on the requirements of
semiconductor companies for independent testing and assembly services, any downturn in the highly
cyclical semiconductor industry may reduce demand for our services and adversely affect our results
of operations. All of our customers operate in this industry and variations in order levels from
our customers and in service fee rates may result in volatility in our net operating revenues and
earnings. The markets for semiconductors are also characterized by rapid technological change,
evolving industry standards and periods of heightened competition. If demand for semiconductor
capacity does not keep pace with the growth of supply, or further declines, our services would be
subject to more intense competition and our results of operations may suffer because of the
resulting downward pricing pressure and capacity underutilization. From the last quarter of 2000 to
early 2003, we also experienced intense competition in the semiconductor industry worldwide and
oversupply of packaging and testing capacities in the local market. This increased competition
caused average selling prices of many of our semiconductor packages and testing services to
decrease significantly. Downward pressure on average selling prices led to pressure on our gross
margins which negatively affected our operating results. Future downturns in the semiconductor
industry may be severe. In the event of any future downturn, our average selling prices may decline
without a corresponding decrease in our high fixed costs. This could lead to a decline in our gross
margin, which would seriously harm our services. The general recovery in the semiconductor industry since 2003 could be temporary and could be
adversely affected by general economic uncertainties created by the possibility of future terrorist
attacks, retaliatory actions, hostilities and outbreaks of contagious diseases. Since we cannot
predict results for 2005 and subsequent periods with 5




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confidence at this time, we cannot assure you that our results would continue to improve; any
unfavorable factors such as those described above could materially and adversely affect our results
of operations. We are highly dependent on the personal computer industry and any downturn in the personal computer
industry would harm our operating results A significant percentage of our net operating revenues is derived from customers who use our
manufacturing services to make semiconductors for personal computers. In 2002, 2003 and 2004, more
than half of our net operating revenues were attributable to customers whose products are primarily
used in personal computers or personal computer peripherals. Our results of operations were
negatively affected in 2001 due to reduced demand for personal computer products as a result of the
global economic downturn between late 2000 and 2002. However, our net operating revenues improved
in 2002 and 2003 compared to 2001 due partially to increased demand for personal computers as
market conditions in 2002 and 2003 have generally improved compared to 2001. Our net operating
revenues increased in 2004 compared to 2003 due in part to general improvement in the personal
computer industry. Any future decrease in the demand for personal computers may decrease the demand
for our services and would likely to seriously harm our operating results. In addition, the
declining average selling price of personal computers has placed significant pressure on the price
of the components that are used in these personal computers. We believe the average selling price
of personal computers will continue to decrease, and the resulting pricing pressure on the
semiconductor components we package and test may reduce our net operating revenues and reduce our
gross profit margin significantly. We do not have any significant backlog because our customers do not place purchase orders far in
advance, which makes us vulnerable to sudden changes in customer demand Our customers generally do not place purchase orders far in advance, and our contracts with
major domestic customers do not generally require minimum purchase of our products or services. In
addition, our customers purchase orders have varied significantly from period to period because
demand for their products is often volatile. As a result, we do not typically operate with any
significant backlog. The lack of a significant backlog makes it difficult for us to forecast our
net operating revenues in future periods and causes our operating results to fluctuate from period
to period. Moreover, our expense levels are based in part on our expectations of future revenue and
we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. For
example, in 1999 and early 2000, we incurred significant costs in expectation of strong demand in
the semiconductor market, but this demand did not fully materialize because of the market downturn
between late 2000 and early 2003. We expect that in the future our net operating revenues in any
quarter will continue to be substantially dependent upon purchase orders received in that quarter.
We cannot assure you that any of our customers will continue to place orders with us in the future
at the same levels as in prior periods. We also cannot assure you that our customers orders will
be consistent with our expectations when we made or will make the necessary investments in raw
materials, labor and equipment. A decline in the operating results of ChipMOS would reduce our participation in the memory chip
package market and harm our financial performance As of March 31, 2005, we owned 28.7% equity interest in ChipMOS, a provider of semiconductor
packaging and testing services. If ChipMOS requires guarantees of its indebtedness to obtain
financing, we and Mosel Vitelic Inc., or Mosel Vitelic, the other major investor in ChipMOS, are
required under the joint venture agreement establishing ChipMOS to provide these guarantees in the
ratios of 30% and 70%, respectively. Because ChipMOS did not provide its financial statements to us
in time to enable us to recognize its financial results for 2002, the Securities and Futures Bureau
of the ROC, or ROC SFB, allows us to delay the recognition of the income (loss) of ChipMOS in our
financial results until a subsequent year. Thus, we recorded no investment income or loss of
ChipMOS in our financial results under ROC GAAP for 2002. The audited financial results of ChipMOS
in 2002 were available to us in the first quarter of 2003, and we recorded an investment loss
amounting to NT$366 million. This investment loss was included in our financial results for the
three months ended March 31, 2003. If this investment loss had been included in our results for
2002, our net income for 2002 would have been decreased by the same amount. In 2003 and 2004, we
also experienced similar delays in recognition of investment income. For the three months ended
March 31, 2004, we recognized an investment income of NT$247 million from ChipMOSs financial
results in 2003. For the three months ended March 31, 2005, we recognized an investment income of
NT$667 million (US$21.0 million) from ChipMOSs financial results in 2004. Under US GAAP, however,
there is no provision that allows us to delay recognition of 6




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ChipMOSs income or loss. In 2003, our investment loss from ChipMOS was NT$250 million under
US GAAP. In 2004, our investment income from ChipMOS was NT$664 million (US$20.9 million) under US
GAAP. We cannot assure you that ChipMOS will maintain its positive operating results in the future.
A decline in the operating results of ChipMOS would reduce our participation in the memory chip
package and testing market and adversely affect our non-operating income (loss) and net income
(loss). Potential conflicts of interest with ChipMOS may cause us to lose opportunities to expand and
improve our operations As of March 31, 2005, we owned 28.7% equity interest in ChipMOS. Since ChipMOS is a provider
of semiconductor packaging and testing services, our substantial interest in ChipMOS may lead to
potential conflicts of interest in the expansion and development of the semiconductor packaging and
testing markets. These conflicts may result in lost corporate opportunities or actions that may
prevent us from taking advantage of opportunities to expand and improve our operations. If we are unable to maintain a steady return to our former capacity utilization rates, our
profitability would be adversely affected For 2001, our capacity utilization rates were negatively affected by a general global economic
downturn and decreased market demand in the semiconductor industry in general. As a result, our
profitability suffered severely in 2001. For 2002, 2003 and 2004, our capacity utilization rates
increased significantly due to improved demand for our products and services as market conditions
in 2002, 2003 and 2004 have generally improved compared to 2001. We cannot assure you that we will
be able to achieve or sustain a high utilization rate in the future. Nor can we assure you that
declines in the semiconductor industry or other factors will not harm our capacity utilization or
our profitability in the future. Given the high fixed costs of our services, high capacity utilization allows us to maintain
higher gross margins because it allows us to allocate fixed costs over a greater number of units we
package and test. Increases or decreases in capacity utilization rates can have a significant
effect on our services. Accordingly, our ability to enhance our gross margins will depend, in part,
on our ability to continue to increase our capacity utilization rates. In addition, in order to continue to increase or sustain our capacity utilization we must:  
    ensure that our packaging and testing technologies meet our customers needs;
    install advanced equipment in anticipation of new business; and
    prevent disruption of operations due to fire, accidents, mechanical and technical
failures, expansion, introduction of new packages or relocation of equipment. If demand for our services does not meet our expectations, our capacity utilization would
decrease and our gross margins would suffer. We depend on a small number of customers for a substantial portion of our revenues and a loss of
any one of these customers would result in the loss of a significant portion of our revenues We are dependent on a small group of customers for a substantial portion of our services. In
2002, 2003 and 2004, 66.3%, 66.8% and 64.8% of our net operating revenues, respectively, were
derived from sales to our top ten customers. In 2004, our top two customers accounted for 11% and
11%, respectively, of our net operating revenues. We expect that we will continue to depend on a
relatively limited number of customers for a significant portion of our net operating revenues
because of the concentration of demand in the semiconductor industry for our products and services.
Our ability to maintain close and satisfactory relationships with our customers is important to the
ongoing success and profitability of our services. Few of our customers are presently obligated to
purchase packaging or testing services or to provide us with binding forecasts of product purchases
for any period. If any of our significant customers 7




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reduces, delays or cancels its orders, our services would be seriously harmed because each of
these customers accounts for a significant portion of our net operating revenues. If capital resources required for our future expansion plans are not available, we may be unable to
successfully implement our services strategy We have engaged in equipment and facilities expansion in recent years to upgrade our
technology and equipment. Our business growth in the future will continue to require substantial
capital expenditures to fund such equipment and facilities expansions. The growing demand for
substrate products has and will continue to require significant capital expenditures on substrate
packaging technology and equipment. In making these planned capital expenditures, we may need to
obtain additional capital. In addition, we may be unable to accurately estimate the timing and
amount of our capital requirements, which depend on a number of factors including demand for our
services and availability of equipment and whether or when the market will recover. In addition, we
cannot assure you that additional financing will be available on satisfactory terms to us, or at
all, when we require additional financing. If we are unable to obtain the necessary capital
resources or financing, we will not be able to achieve our future business growth. If we cannot compete successfully in our industry, our current and potential customers would likely
decide not to use our services, which would seriously harm our services The independent semiconductor packaging and testing industry is very competitive. We face
substantial competition from established packaging and testing companies, including Advanced
Semiconductor Engineering, Inc. (Taiwan), ASE Test Limited (Taiwan and Malaysia), Amkor Technology
Inc. (USA), ASAT, Ltd. (Hong Kong), STATS ChipPAC Ltd. (Singapore), Hana Microelectronics Public
Co. Ltd. (Thailand), Orient Semiconductor Electronics, Limited (Taiwan), Astra International
(Indonesia), Carsem Bhd. (Malaysia) and Shinko Electric Industries Co., Ltd. (Japan). We may face
additional competition from new competitors in our industry in emerging countries, such as the
Peoples Republic of China, or the PRC, where demand is expected to grow for our products and
services. To a lesser extent, we also compete with the internal packaging and testing capabilities
of our customers who have in-house packaging and testing capabilities. Some of our competitors have
greater resources in substrate technology. Some of our competitors have greater financial and other
resources than we have, including established relationships with many large semiconductor companies
which are our current or potential customers. These relationships and lengthy qualification periods
required by most of our potential customers may prevent us from securing new customers. If the outsourcing trend for packaging and testing services does not continue, we could lose a
significant number of our current customers and we may be unable to implement our services strategy
plan in the future We depend on outsourcing of packaging and testing services by fabless semiconductor companies
and integrated device manufacturers. In recent years, semiconductor companies have increasingly
subcontracted parts of the semiconductor production process, including packaging and testing, to
independent companies to reduce costs and shorten production cycles. However, we cannot assure you
that the outsourcing trend will continue. If integrated device manufacturers become dissatisfied
with the services of independent semiconductor packaging and testing companies, they may return to
utilizing in-house packaging and testing capabilities. A reversal of, or slowdown in, the
outsourcing trend would seriously harm our services and make it difficult for us to implement our
growth plan in the future. If demand for the services of Taiwans wafer foundries decreases, a significant source of our sales
would decrease, which would seriously harm our services We depend on Taiwans independent wafer foundries to source our sales orders. In recent years,
more than half of our net operating revenues were derived from packaging and testing semiconductor
wafers manufactured at Taiwans wafer foundries. If the demand for foundry services offered by
Taiwans wafer foundries decreases for any reason, including shifts in demand for these services to
wafer foundries in other countries, an important source of our sales would be lost and our
profitability would suffer. 8




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If we are unable to obtain raw materials from our suppliers, our production schedules would be
delayed and we may lose customers We must obtain sufficient quantities of raw materials at acceptable prices in a timely manner.
We source most of our raw materials, including critical materials like lead-frames and substrates,
from a limited group of suppliers. We purchase all of our materials on a purchase order basis and
have no long-term contracts with any of our suppliers. From time to time, suppliers have extended
lead times or limited the supply of required materials to us because of supply capacity constraints
during market upturns for the semiconductor industry. Consequently, we have experienced from time
to time difficulty in obtaining acceptable quantities of raw materials on a timely basis. In
addition, from time to time, we may reject materials that do not meet our specifications, resulting
in declines in output or yield. We cannot assure you that we will be able to obtain in the future
sufficient quantities of raw materials and other supplies of an acceptable quality. Our inability
to obtain raw materials in a timely and cost effective manner would cause us to delay our
production and delivery schedules, which may result in the loss of our customers and revenues. If we are unable to obtain equipment from our suppliers, we may be forced to delay any future
expansion plans We need to purchase new packaging and testing equipment if we decide to expand our operations
in anticipation of a market recovery. From time to time, increased demand for new equipment may
cause lead times to extend beyond those normally required by equipment vendors. For example, in the
past, increased demand for equipment caused some equipment suppliers to only partially satisfy our
equipment orders in the normal lead time frame during market upturns for the semiconductor
industry. The unavailability of equipment or failures to deliver equipment could delay
implementation of our future expansion plans and impair our ability to meet customer orders. If we
are unable to implement our future expansion plans or meet customer orders, we could lose potential
and existing customers. Generally, we do not enter into binding equipment purchase agreements and
we acquire our equipment on a purchase order basis, which exposes us to substantial risks. For
example, sudden changes in foreign currency exchange rates, particularly the US dollar and Japanese
yen, could result in increased prices for equipment purchased by us, which could seriously harm our
results of operations. If we are unable to manage our growth effectively, our expansion plans could be jeopardized We have in the past and again recently experienced growth in the scope and complexity of our
operations and in the number of our employees. This growth has strained our managerial, financial,
manufacturing and other resources. In order to manage our future growth, we must continue to
implement additional operating and financial controls and hire and train additional personnel. We
cannot assure you that we will be able to do so in the future, and our failure to do so could
jeopardize our future expansion plans. We are exploring the possibility of expanding our operations or making additional investments in
the PRC, which may expose us to additional political, regulatory, economic and foreign investment
risks Some of our customers and foreign competitors have expanded their operations to the PRC. In
order to remain competitive and to position ourselves to gain market share, we are exploring
potential opportunities for expansion to or investments in the PRC. In December 2001 and June 2004,
we obtained foreign investment approval from the Investment Commission of the ROC Ministry of
Economic Affairs to invest up to US$50 million in aggregate in Suzhou, PRC. We established a
subsidiary named Siliconware Technology (Suzhou) Limited, and, as of March 31, 2005, we have
invested a total of US$30 million in this subsidiary. We are in the stage of ramping up our
facilities in Suzhou for the manufacturing of DRAM modules, flash memory cards, transistors and
other electronic components. With this investment in the PRC, our financial condition, results of
operations and future prospects are subject, to a significant degree, to the political and economic
situation, regulatory control and general legal developments in the PRC and other foreign
investment risks. In addition, these expansions or investments could be adversely affected if
relations between the PRC and the ROC deteriorate. We depend on key management and the loss of any key management personnel may disrupt our services Our success depends upon the continued service of key senior management. Members of our senior
management have served us for an average of over 10 years and have made substantial contributions
to our growth. We do not have 9




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employment contracts with many of our senior management and none of our senior management is
bound by any non- competition agreement. If we lose the services of key senior management it would
be very difficult to find and integrate replacement personnel, which would seriously harm our
services expansion. We depend on our technical personnel and the inability to attract and retain them would jeopardize
our operations and future expansion plans Our business depends on technology and, accordingly, our success depends on our ability to
attract, retain and motivate highly skilled employees, particularly engineering and technical
personnel. Without sufficient numbers of skilled employees, our operations would suffer, resulting
in deteriorating ability to solve operating and other issues in a timely and effective manner.
Competition for qualified engineering and technical employees in Taiwan is intense and replacement
of qualified employees is difficult. If we are unable to attract, retain and motivate our technical
personnel, our operations would be jeopardized and our operating efficiency would deteriorate. Our failure to comply with environmental regulations or to defend against environmental claims
could expose us to serious liabilities The semiconductor packaging and testing processes require the use of chemicals and gases which
are regulated by the government. For example, liquid waste is produced when silicon wafers are
diced into chips using diamond saws and cooled with running water. Liquid waste is also produced
when lead-frames are plated onto wafer chips and cleansed with water. Moreover, excess material on
leads and moldings are removed from packaged semiconductors in the trim and form process.
Environmental claims or the failure to comply with any environmental regulations could result in
damages or fines against us or suspension of production. We may be required by new regulations to
acquire costly equipment or to incur other significant expenses. If we fail to control the use of
hazardous substances, we could incur future liabilities, including clean up costs. We and many Taiwan customers and suppliers are vulnerable to natural disasters and other events
outside our control, the occurrence of which may seriously harm our services Our operations and those of our customers and suppliers are particularly vulnerable to fires,
earthquakes, typhoons, droughts, floods, power losses, and similar events. The occurrence of any of
these events could interrupt services. For instance, our operations were interrupted for
approximately ten days in September 1999 because of an earthquake. Our property and business
interruption insurance did not cover all damages incurred during the interruption. Most recently,
in November 2004, Taiwan experienced significant earthquakes registering up to 6.7 on the Richter
scale. We did not experience any significant damage as a result of these earthquakes. We cannot
guarantee that future earthquakes will not cause material damage to our facilities or property,
including work in progress, or cause significant business interruptions. Although we maintain
property and business interruption insurance for such risks, there is no guarantee that future
damages or business loss from earthquakes will be covered by such insurance, that we will be able
to collect from our insurance carriers, should we choose to claim under our insurance policies, or
that such coverage will be sufficient. In addition, the production facilities of many of our suppliers and customers providers of
complementary semiconductor manufacturing services, including foundries, are located in Taiwan. If
our customers are affected, it could result in a decline in the demand for our testing and assembly
services. If our suppliers and providers of complementary semiconductor manufacturing services are
affected, our production schedule could be interrupted or delayed. As a result, a major
earthquake, natural disaster or other disruptive event in Taiwan could severely disrupt the normal
operation of business and have a material adverse effect on our financial condition and results of
operations. Disruptions in the international trading environment may seriously decrease our international sales A substantial portion of our net operating revenues is derived from sales to customers located
outside of Taiwan. In 2002, 2003 and 2004, sales to our overseas customers accounted for 54.6%,
56.8% and 59.9%, respectively, of our net operating revenues. We expect sales to customers outside
of Taiwan to continue to represent a significant portion of our net operating revenues. As a
result, our services will continue to be vulnerable to disruptions in the international 10




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trading environment, including adverse changes in foreign government regulations, political
unrest and international economic downturns. These disruptions in the international trading environment affect the demand for our products
and change the terms upon which we sell our products overseas, which could seriously decrease our
international sales. The differences between Taiwan and U.S. accounting standards resulted in different amounts of our
net income under those standards, which makes evaluating our financial performance difficult Our financial statements are prepared under ROC GAAP, which differ in many respects from US
GAAP. For example, ROC GAAP does not require the recognition of the fair market value of shares
distributed as bonuses to employees when calculating net income. Largely as a result of the
differences in accounting for employee bonuses and equity investments, our net income (loss) in
2002, 2003 and 2004 under US GAAP was NT$(223) million, NT$3,248 million and NT$3,667 million
(US$115.5 million), respectively, as compared to net income under ROC GAAP of NT$425 million,
NT$2,839 million and NT$4,282 million (US$134.9 million), respectively. In addition, the ROC SFB allowed us to delay recognition of investment income (loss) from
certain of our investee companies in our financial results under the ROC GAAP until June 30 of the
following year until the end of fiscal year 2004. After the adoption of amended ROC Statement of
Financial Accounting Standard No. 5, Accounting for Long-term Equity Investment which became
effective on January 1, 2005, we cease to delay recognizing investment income (loss) from certain
investee companies accounted for under the equity method. Therefore, our financial results in 2004
may not contain investment income (loss) of certain investee companies in such year. See Item 5.
Operating and Financial Review and ProspectsA. Operating Results-Delay in Recognition of
Investment Income in Certain Investee Companies Accounted for under Equity Method. Under US GAAP,
however, there is no provision that allows us to delay recognition of our investment income from
our investee companies. As a result, you may not be able to perform a meaningful year-to-year
comparison of our financial results. In addition, year-to-year comparison of our financial results
under ROC GAAP may significantly differ from year-to-year comparison under US GAAP. Investor confidence in us may be adversely impacted if we or our independent registered public
accountants are unable to attest to the effectiveness of our internal control over financial
reporting as of December 31, 2006 as required by Section 404 of the Sarbanes-Oxley Act of 2002. We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404
of the U.S. Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a
report of management on the companys internal control over financial reporting in its Annual
Report on Form 10-K or Form 20-F, as the case may be, that contains an assessment by management of
the effectiveness of the companys internal control over financial reporting. In addition, the
companys independent registered public accountants must attest to and report on managements
assessment of the effectiveness of the companys internal control over financial reporting. These
requirements will first apply to our Annual Report on Form 20-F for the fiscal year ending on
December 31, 2006. In the course of their audit, our independent auditors PricewaterhouseCoopers have identified
certain weaknesses in our current internal accounting processes. While we have taken actions to
address these weaknesses, additional measures may be necessary and these measures, along with other
measures expected to be taken to improve our internal controls, may not be sufficient to address
the issues identified by us or to ensure that our internal controls are effective. See Item 15.
Controls and Procedures. Moreover, even if our management does conclude that our internal
controls over financial reporting are effective, if our independent accountants are not satisfied
with our internal controls, the level at which our controls are documented, designed, operated or
reviewed, or if the independent accountants interpret the requirements, rules or regulations
differently from us, they may decline to attest to our managements assessment or may issue a
report with adverse opinion. Any of these possible outcomes could result in a loss of investor
confidence in the reliability of our financial statements, which could negatively impact the market
price of our ADSs. Risks Relating to Our Technologies If we cannot respond to rapid technology changes in the semiconductor packaging and testing
industry, our 11




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profitability will suffer The semiconductor packaging and testing industry is characterized by rapid increases in the
diversity and complexity of semiconductor packaging and testing products. As a result, we expect
that we will need to continue to develop and offer more advanced packaging and testing processes in
order to respond to our customers requirements as industry conditions change. Developing and
maintaining advanced packaging and testing processes requires significant research and development
and capital expenditures. In addition, advances in technology typically lead to rapid and significant price erosion and
decreased margins for older products and services and may cause our current products and services
to become less competitive. Our failure to develop or obtain advanced packaging or testing designs
will materially and adversely affect our product mix and would seriously harm our profitability. If we are unable to successfully package and test our products within the acceptable range of
precision, we will not be able to achieve satisfactory production yields and our results of
operations will suffer The semiconductor packaging and testing processes are complex and involve a number of precise
steps. Defective packaging and testing can result from a number of factors, including:  
    the level of contaminants in the manufacturing environment;
    human error;
    equipment malfunction;
    defective plating services;
    use of defective raw materials; and
    inadequate sample testing. From time to time, we expect to experience lower than anticipated production yields as a
result of the above factors, particularly in connection with the expansion of our capacity or
change in our processing methods. In addition, our yield on new products will be lower than average
as we develop the necessary expertise and experience to produce those products. If we fail to
maintain high quality production standards, our reputation may suffer and our customers may cancel
their orders or return our products. We rely on technology provided by third parties We have licensed from Motorola, Inc., or Motorola, the technology for ball grid array for
which we make royalty payments based on the number of pads or balls used in our packages. We also
implement new package design by enter into technology alliances and by licensing package
technologies from certain technology companies. For 2002, 2003 and 2004, our royalty expenses were
NT$426 million, NT$161 million and NT$143 million (US$4.5 million), respectively, which accounted
for 1.9%, 0.6% and 0.4%, respectively, of our net operating revenues. There can be no assurance
that third parties will continue to license advanced technologies to us on terms satisfactory or
acceptable to us, or at all. In the event that we are unable to license advanced technologies from
third parties, we may be required to develop such technologies internally. There can be no
assurance that we will be able to develop such technologies internally. Disputes over intellectual property rights could be costly and could deprive us of technologies to
stay competitive We may suffer legal liabilities and damages if we infringe on the proprietary rights of others
or incur costs resulting from legal claims and adverse proceedings against us. Despite this, we
have no means of knowing what patent applications have been filed in the United States or elsewhere
until they are granted. The semiconductor packaging and testing industry is characterized by
frequent litigation regarding patent and other intellectual property 12




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rights. If any third party were to make valid intellectual property infringement claims
against us or our customers, we could be required to:  
    discontinue using disputed process technologies which would prevent us from offering
some of our packaging and testing products;
    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. We could also be required to expend substantial resources to defend any claim alleging our
infringement of patents or other intellectual property rights. If we fail to obtain necessary
licenses or if litigation relating to patent infringement or other intellectual property matters
occurs, it could seriously harm our company. In addition, we have acquired patents and trademarks to protect some of our proprietary
technologies and products. We cannot assure you, however, that these measures will provide
meaningful protection of our intellectual property. For example, our competitors may be able to
develop similar or superior products, or we may not have sufficient financial and legal resources
to protect and enforce our rights. Political and Economic Risks We face substantial political risks associated with doing business in Taiwan, particularly due to
the tense relationship between the ROC and the PRC. Our principal executive offices and substantially all of our assets are located in Taiwan.
Accordingly, our services, financial condition and results of operations and the market price of
our common shares and the ADSs may be affected by changes in Republic of China governmental
policies, taxation, inflation or interest rates and by social instability and diplomatic and social
developments in or affecting Taiwan which are outside of our control. Taiwan has a unique
international political status. Since 1949, Taiwan and the Chinese mainland have been separately
governed. The PRC claims that it is the sole government in China and that Taiwan is part of China.
Although significant economic and cultural relations have been established during recent years
between the ROC and the PRC, relations have often been strained. The PRC government has refused to
renounce the use of military force to gain control over Taiwan. Furthermore, the PRC government
passed an Anti-Secession Law in March 2005, which authorizes non-peaceful means and other necessary
measures should Taiwan move to gain independence from the PRC. Past developments in relations
between the ROC and the PRC have on occasion depressed the market prices of the securities of
companies in the ROC. Relations between the Republic of China and the PRC and other factors
affecting military, political or economic conditions in Taiwan could materially and adversely
affect our financial condition and results of operations, as well as the market price and the
liquidity of our securities. The trading price of our American Depositary Shares may be adversely affected by the general
activities of the Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our shares,
increases in interest rates and the economic performance of Taiwan markets Our shares are listed on the Taiwan Stock Exchange. The trading price of our ADSs may be
affected by the trading price of our shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange
is a smaller market and, more volatile than the securities markets in the United States and a
number of European countries. The Taiwan Stock Exchange has experienced substantial fluctuations in
the prices and volumes of sales of listed securities, and there are currently limits on the range
of daily price movements on the Taiwan Stock Exchange. In the past fifteen years, the Taiwan Stock
Exchange Index peaked at 12,495.34 in February 1990 and subsequently fell to a low of 2,560.47 in
October 1990. On March 13, 2000, the Taiwan Stock Exchange Index experienced a 617-point drop,
which represented the single largest decrease in the Taiwan Stock Exchange Index in its history.
During 2004, the Taiwan Stock Exchange Index peaked at 7,135 on March 5, 2004, and reached a low of
5,255 on August 5, 2004. From 13




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January 2, 2004 to May 31, 2005, daily closing values of our shares ranged from NT$21.20 per
share to NT$42.40 per share. The Taiwan Stock Exchange is particularly volatile during times of
political instability including when relations between Taiwan and the PRC are strained. Moreover,
the Taiwan Stock Exchange has experienced problems including market manipulation, insider trading
and settlement defaults. The recurrence of these or similar problems could decrease the market
price and liquidity of our shares and ADSs. The market price of the ADSs may also be affected by general trading activities on the U.S.
stock exchanges, which have experienced significant price volatility with respect to shares of
technology companies. Increases in interest rates and other general economic conditions may also
have an effect on the market price of our ADSs. Daily closing values of our ADSs ranged from
US$1.88 to US$6.00 between June 7, 2000, the date our ADSs were listed on NASDAQ, and May 31, 2005.
Over the same period, the NASDAQ Composite Index ranged from 1,114.11 to 2,178.34. On May 31, 2005, the Taiwan Stock Exchange Index closed at 6,011.56, and the daily closing
value of our shares was NT$29.90 per share. Currency fluctuations could increase our costs relative to our revenues, which could adversely
affect our profitability. More than half of our net operating revenues are denominated in currencies other than NT
dollars, primarily US dollars and Japanese Yen. On the other hand, more than half of our costs of
direct labor, raw materials and overhead are incurred in NT dollars. We are affected by
fluctuations in exchange rates among the US dollar, the Japanese Yen, the NT dollar and other
currencies. Any significant fluctuation in exchange rates may be harmful to our financial
condition. In addition, fluctuations in the exchange rate between the US dollar and the NT dollar
will affect the US dollar value of the ADSs and the US dollar value of any cash dividends we pay,
which could have a corresponding effect on the market price of the ADSs. Any future outbreak of contagious diseases may materially and adversely affect our services and
operations, as well as our financial condition and results of operations. Any future outbreak of contagious diseases, such as severe acute respiratory syndrome or avian
influenza, may disrupt our ability to adequately staff our services, and may generally disrupt our
operations. If any of our employees is suspected of having contracted any contagious disease, we
may under certain circumstances be required to quarantine such employees and the affected areas of
our premises. As a result, we may have to temporarily suspend part of or all of our operations.
Furthermore, any future outbreak may restrict the level of economic activity in affected regions,
including Taiwan, which may also adversely affect our services and prospects. As a result, we
cannot assure you that any future outbreak of contagious diseases would not have a material adverse
effect on our financial condition and results of operations. Assessment regarding our value-added tax obligation may adversely affect our profitability We have historically treated certain of our revenues as service revenues for the purpose of
determining our value-added tax, or VAT, obligations. Service revenues have an applicable VAT rate
of 0%. The relevant tax authority has determined that a certain amount of such revenues should be
taxable and is currently in the process of assessing the aggregate amount of our VAT obligations.
Although we believe that our VAT provisions of NT$468 million recorded as of December 31, 2004 are
sufficient to cover the liability associated with the tax assessment, we can provide no assurance
that the amount of the final assessment will not adversely affect our profitability. 14




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Risks Related to Ownership of Our Shares or ADSs Restrictions on the ability to deposit shares into our ADS program may adversely affect the
liquidity and price of the ADSs The ability to deposit shares into our ADS program is restricted by ROC law. Under current ROC
law, no person or entity, including you and us, may deposit shares into our ADS program without
specific approval of the ROC SFB except for the deposit of the shares into our ADS program and for
the issuance of additional ADSs in connection with:  
    distribution of share dividends or free distribution of our shares;
    exercise of the preemptive rights of ADS holders applicable to the shares evidenced by
ADSs in the event of capital increases for cash; or
    if permitted under the deposit agreement and the custody agreement, purchases of our shares in the domestic market in Taiwan by the investor directly or through the depositary
or the surrender of shares under the possession of investors and then delivery of such shares to the custodian for deposit into our ADS program, subject to the following
conditions: (a) the depositary may accept deposit of those shares and issue the
corresponding number of ADSs with regard to such deposit only if the total number of ADSs
outstanding after the deposit does not exceed the number of ADSs previously approved by
ROC SFB, plus any ADSs issued pursuant to the events described in the above two bullet
points; and (b) this deposit may only be made to the extent previously issued ADSs have
been cancelled. As a result of the limited ability to deposit shares into our ADS program, the prevailing
market price of our ADSs on the NASDAQ National Market, or NASDAQ, may differ from the prevailing
market price of the equivalent number of our shares on the Taiwan Stock Exchange. Holders of our ADSs will not have the same voting rights as the holders of our shares, which may
affect the value of your investment Due to the amendment to the ROC Company Act and the amendment made to our articles of
incorporation accordingly, except for treasury shares, each common share is generally entitled to
one vote and no voting discount will be applied. However, except as described in this annual
report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights
attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will
appoint the depositary or its nominee as their representative to exercise the voting rights
attaching to the shares represented by the ADSs. The voting rights attaching to the shares
evidenced by our ADSs must be exercised as to all matters brought to a vote of shareholders
collectively in the same manner. If holders of at least 51% of the ADSs outstanding at the relevant record date instruct the
depositary to vote in the same manner regarding a resolution, including election of directors
and/or supervisors, the depositary will appoint our Chairman, or his designee, to represent the ADS
holders at the shareholders meetings and to vote the shares represented by the ADSs outstanding in
the manner so instructed. If by the relevant record date the depositary has not received
instructions from holders of ADSs holding at least 51% of the ADSs to vote in the same manner for
any resolution, then the holders will be deemed to have instructed the depositary to authorize and
appoint our Chairman, or his designee, to vote all the shares represented by ADSs at his sole
discretion, which may not be in your interest. The rights of holders of our ADSs to participate in our rights offerings may be limited, which may
cause dilution to their holdings We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. Under the deposit agreement, the depositary will not offer those rights to ADS
holders unless both the rights and the underlying securities to be distributed to ADS holders are
either registered under the Securities Act or exempt from registration under the Securities Act. We
are under no obligation to file a registration statement with respect to any such rights or
underlying securities or to endeavor to cause such a registration statement to be declared
effective. 15




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##### Table of Contents



Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may
experience dilution in their holdings. Our public shareholders may have more difficulty protecting their interests than they would as
shareholders of a U.S. corporation Our corporate affairs are governed by our articles of incorporation and by laws governing ROC
corporations. The rights of our shareholders to bring shareholders suits against us or our board
of directors under ROC law are much more limited than those of the shareholders of U.S.
corporations. Therefore, our public shareholders may have more difficulty protecting their
interests in connection with actions taken by our management, members of our board of directors or
controlling shareholders than they would as shareholders of a U.S. corporation. Please refer to
Item 10. Additional InformationB. Memorandum and Articles of Association included elsewhere in
this annual report for a detailed discussion of the rights of our shareholders to bring legal
actions against us or our directors under ROC law. Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw
shares from our ADS program and become our shareholders, which may make ownership burdensome Non-ROC persons wishing to withdraw shares represented by their ADSs from our ADS program and
hold our shares represented by those ADSs are required to appoint a local agent or representative
with qualifications set forth by the ROC SFB to open a securities trading account with a local
brokerage firm, pay ROC taxes, remit funds and exercise shareholders rights. In addition, the
withdrawing holders are also required to appoint a custodian bank with qualifications set forth by
the Ministry of Finance to hold the securities in safekeeping, make confirmations, settle trades
and report all relevant information. Without making this appointment and opening of the accounts,
the withdrawing holders would not be able to subsequently sell our shares withdrawn from a
depositary receipt facility on the Taiwan Stock Exchange. Under ROC law and regulations, citizens
of the PRC are not permitted to hold our shares or withdraw shares represented by ADSs from our ADS
program. You may not be able to enforce a judgment of a foreign court in the ROC We are a company limited by shares incorporated under the ROC Company Act. Most of our assets
and most of our directors, supervisors and executive officers and experts named in the registration
statement are located in Taiwan. As a result, it may be difficult for you to enforce judgments
obtained outside Taiwan upon us or such persons in Taiwan. Any judgment obtained against us in any
court outside the ROC arising out of or relating to the ADSs will not be enforced by ROC courts if
any of the following situations shall apply to such final judgment:  
    the court rendering the judgment does not have jurisdiction over the subject matter
according to ROC law;
    the judgment or the court procedures resulting in the judgment is contrary to the
public order or good morals of the ROC;
    the judgment was rendered by default, except where the summons or order necessary for
the commencement of the action was duly served on us within the jurisdiction of the court
rendering the judgment within a reasonable period of time and in accordance with the laws
and regulations of such jurisdiction, or with judicial assistance of the ROC; or
    judgments of ROC courts are not recognized and enforceable in the jurisdiction of the
court rendering the judgment on a reciprocal basis. 
 Item 4. Information on the Company A. History and Development of the Company Our legal and commercial name is Siliconware Precision Industries Co., Ltd. We were
incorporated under the ROC Company Act as a company limited by shares on May 17, 1984 and our
shares were listed on the Taiwan Stock Exchange in 1993. On June 7, 2000, we issued 30,000,000
ADSs, each representing five shares. Our ADSs have been 16




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##### Table of Contents



listed on the NASDAQ National Market under the symbol SPIL since June 2, 2000. Our principal
executive offices are located at No. 123, Sec. 3, Da Fong Road, Tantzu, Taichung, Taiwan, Republic
of China, and our telephone number is 886-4-2534-1525. Our Internet website address is
www.spil.com.tw. We are one of the worlds leading independent providers of semiconductor packaging and testing
services. We offer a full range of both standard and customized packaging and testing solutions,
including advanced lead-frame packages and substrate packages such as the flip-chip ball grid
array, as well as testing for logic, mixed signal and embedded memory devices. We also offer our
customers turnkey solutions from packaging and testing to direct shipment of semiconductor devices
to end users designated by our customers. Our headquarters and packaging facilities are located in Taichung, Taiwan, where we had 2,999
wire bonders as of December 31, 2004. In addition, we had 249 testers in Hsinchu and Taichung,
Taiwan as of the same date. Taiwan is home to the worlds largest independent wafer foundries and
as such is home to one of the worlds leading suppliers of outsourcing semiconductor manufacturing.
Our close proximity to and relationships with Taiwans leading wafer foundries allow us to benefit
significantly from the trend towards outsourcing in the semiconductor industry and to quickly
respond to our customers needs. Our location in Taiwan also enables our customers to secure
seamless services within Taiwan for all of their manufacturing needs, thereby minimizing the time
required to deliver finished semiconductor devices to the market. We provide packaging and testing services to more than 100 customers worldwide. For 2004, our
top customers included the following leading semiconductor suppliers: ATI Technologies, Inc.,
Broadcom Corporation, Intel Corporation, LSI Logic Corporation, Marvell Semiconductor Inc.,
MediaTek, NVIDIA, SanDisk Corporation, VIA Technologies Inc. and Xilinx, Inc. We currently target
customers in the personal computer, communications, consumer ICs and non-commodity memory
semiconductor markets. We strive to provide the highest level of customer service to meet and
anticipate our customers current and future requirements. We have established technical and sales
teams near major customer facilities, including the Hsinchu Science Park, to work with our
customers on developing and implementing new packaging and testing technologies as semiconductors
become smaller and more sophisticated. Our objective is to be the leading worldwide, full service independent provider of
semiconductor packaging and testing services. Key elements of our strategy include:  
    providing a full range of packaging and testing services including turnkey capabilities
to simplify our customers supply chain management;
    offering leading packaging and testing technology to attract and retain customers;
    focusing on customer service and working with our customers on developing and
fulfilling their current and future semiconductor packaging and testing needs;
    leveraging our existing foundry relationships and Taiwan location to enable our
customers to easily integrate all of their outsourced semiconductor manufacturing needs;
    diversifying and expanding our customer base geographically, by customer type and by
end-market application to capitalize on growing markets including communications and
increased outsourcing from vertically integrated semiconductor device manufacturers and
systems original equipment manufacturers; and
    expanding in the PRC to remain competitive and position ourselves to achieve greater
market share as some of our customers and foreign competitors have expanded their
operations in the PRC. For information relating to our capital expenditure, see 3⁄4 B. Business Overview 3⁄4
Capital Expenditures and Divestitures. 17




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B. Business Overview Our Business We offer semiconductor packaging and testing services to the semiconductor industry for
applications in communications, computing, consumer, automotive and industrial end markets. We
offer full back-end turnkey services from wafer probe to final test and drop shipment. The services
we offer are customized to the needs of our individual customers. In 2004, 88.3% of our net
operating revenues were from packaging services and 11.7% of our net operating revenues were from
testing and other services. The following table shows, for the periods indicated, the amount of our packaging and testing
revenues by product type and the products revenues as a percentage of our total net operating
revenues: Year Ended December 31,2002
    
    
    2003
    
    

    2004NT$
    
    
    %
    
    
    NT$
    
    
    %
    
    
    NT$
    
    
    %(audited) (consolidated)(in millions, except for percentages)Ball grid array packages
    
    
    8,576
    
    
    
    38.5
    
    
    
    11,698
    
    
    
    42.7
    
    
    
    16,416
    
    
    
    46.6Quad flat packages
    
    
    7,659
    
    
    
    34.3
    
    
    
    8,635
    
    
    
    31.5
    
    
    
    9,435
    
    
    
    26.7Small outline packages
    
    
    2,744
    
    
    
    12.3
    
    
    
    3,160
    
    
    
    11.5
    
    
    
    3,800
    
    
    
    10.8Other packages
    
    
    677
    
    
    
    3.0
    
    
    
    956
    
    
    
    3.5
    
    
    
    1,467
    
    
    
    4.2Total packaging revenues
    
    
    19,656
    
    
    
    88.1
    
    
    
    24,449
    
    
    
    89.2
    
    
    
    31,118
    
    
    
    88.3Testing and other revenues
    
    
    2,643
    
    
    
    11.9
    
    
    
    2,962
    
    
    
    10.8
    
    
    
    4,134
    
    
    
    11.7Total net operating revenues
    
    
    22,299
    
    
    
    100.0
    
    
    
    27,411
    
    
    
    100.0
    
    
    
    35,252
    
    
    
    100.0
 Because our services is, and will continue to be, dependent on the requirements of
semiconductor companies for independent testing and assembly services, any downturn in the highly
cyclical semiconductor industry may reduce demand for our services and adversely affect our results
of operations. Our operations, however, are not subject to any clear seasonal effects. Our Packaging Services We offer a broad range of package formats designed to provide our customers with a full array
of packaging solutions. The packaging solutions we currently offer to our customers include
lead-frame packages and substrate packages, which include ball grid array and module packages
(incorporating multiple semiconductor chips) and flip-chip ball gird array packages. Our flip-chip
ball grid array packages, which we began to offer in the first quarter of 2001, are based on the
proprietary Flex-On-Cap wafer bumping and redistribution technologies we license from Flip Chip
Technologies L.L.C., or Flip Chip. Semiconductor packaging serves to protect semiconductor chips,
to facilitate their integration into electronic systems and to enable the dissipation of heat
produced by the final product. The packaging process begins when patterned silicon wafers received
from our customers are diced using diamond saws into separate die. Each die is attached to a
lead-frame or substrate either directly in a substrate package or first to a die-attached pad in a
lead-frame package, by silver paste made with epoxy resin. Leads on the lead-frame or substrate are
then connected by extremely fine gold wires to the input/output terminals on the chip, using
machines called wire bonders. Each chip is then encapsulated, generally in a plastic casing molded
from a molding compound, with only the leads protruding from the finished casing. To complete the
packaging process, excess molding compound is eliminated from the packaged semiconductor chip and
the leads are trimmed and formed into various shapes. Semiconductor packages have evolved from lead-frame packages to substrate packages in response
to the increasing demands of todays high-performance electronics products. The differentiating
characteristics of these packages include:  
    the size of the package; 18




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##### Table of Contents




    the number of electrical connections the package can support; and
    the thermal and electrical requirements of the package. As modern applications for semiconductor devices require smaller chips, the size of packages
has also decreased. In leading-edge packages, the size of the package is reduced to just slightly
larger than the size of the individual chip itself through a process known as chip scale packaging. As semiconductor devices increase in complexity, the number of required electrical connections
also increases. Our lead-frame products have electrical connections from the semiconductor device
to the electronic product through leads on the perimeter of the package. Our substrate products
have balls on the bottom of the package that create the electrical connections with the electronic
system and can support larger numbers of electrical connections. New methods of packaging have also enhanced the thermal and electrical characteristics of
semiconductor packages to meet the high-bandwidth, high-speed and high-power demands of modern
semiconductor devices. Substrate packages with cavity design considerably enhance heat-dissipation
without necessitating a change in the substrate or chip layout. Flip-chip packages enable direct
interconnection from the chip to the substrate. Electrical connection is first deposited on one
side of a chip; then, the chip is flipped onto the substrate. Flip-chip technology eliminates the
need for wire bonding and provides superior electrical performances. Chip scale packages have been
designed for devices which require reduced height, board space and weight by reducing the size of
the package to be only slightly larger than the size of the die and are ideally suited for the
latest generation of wireless and consumer electronics. Multi-chip module packages allow for the
combination of multiple chips into a single packages, enabling increased application functionality
while minimizing overall size. We price our packaging products on a per unit basis, taking into account the complexity of the
product, the prevailing market conditions, the order size, the strength and history of our
relationship with the customer and our capacity utilization at the time. Lead-Frame Packages Lead-frame packages are the most widely used package category and are characterized by a
semiconductor chip encapsulated in a plastic molding compound with metal leads on the perimeter.
This package category has evolved from a design where the leads are plugged into holes on the
circuit board to a design where the leads are soldered to the surface of the circuit board.
Lead-frame packages are divided into two general types of packages: quad flat packages and small
outline packages. To satisfy the demand for miniaturization of portable electronic products, we are developing
increasingly smaller versions of lead-frame packages to keep pace with continually shrinking
semiconductor device sizes. Our advanced lead-frame packages are similar in design to our older
lead-frame packages. However, our advanced lead-frame packages generally are thinner and smaller,
have more leads and have advanced thermal and electrical characteristics. As a result of continued
product development, we offer lead-frame products with a wide range of lead counts and body sizes
to satisfy variations in the size of customers semiconductor devices. The following diagram presents the basic component parts of a standard lead-frame package: (STANDARD LEAD-FRAME PACKAGE DIAGRAM) The following tables present our standard quad flat packages and small outline packages,
including the number of leads in each package, a description of each package and the end uses of
each package. Quad Flat Packages Package
    
    Lead-count
    
    Major Applications
    
    End UsesQuad Flat Package
    
    100-256
    
    Package with leads
on four sides
designed for
advanced
    
    Desktop personal
computers, consumer
and industrial
 19




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End Usesprocessors,
consumer and
industrial
controllers,
digital signal
processors and
application
specific integrated
circuits
    
    products, commercial and
office equipment,
automotive systemsLow-Profile Quad Flat
Package
    
    32-256
    
    Low-profile and
lightweight package
designed for
application
specific integrated
circuits, digital
signal processors,
microprocessors/cont
rollers, graphic
processors, gate
arrays, static
random access
memory and personal
computer chipsets
    
    Wireless
communication
products, laptop
computers, digital
cameras,
cordless/radiofrequency devicesThin Quad Flat Package
    
    44-176
    
    Designed for
lightweight,
portable
electronics
requiring broad
performance
characteristics
    
    Laptop computers,
personal computers,
disk drives, office
equipment, audio
and video products,
wireless
communication
productsVery Thin Quad Flat Package
    
    80-100
    
    Designed for
lightweight,
portable
electronics
requiring low
profile packages
    
    Laptop computers,
personal computers,
disk drives, office
equipment, audio,
video products,
wireless
communication
productsQuad Flat No-lead Package
    
    5-88
    
    Small and light
package with
improved thermal
and electrical
performance makes
it suitable for
wireless
transmitters RF
front end, hard
disk devices and
micro-controllers
    
    Wireless
communication
products, disk
drives, portable
products, consumer
productsThin Quad Flat No-lead
Package
    
    48-56
    
    This device offers
similar features to
those of Quad Flat
No-lead Package,
but can process
smaller and lighter
packages
    
    Wireless
communication
products, disk
drives, portable
products, consumer
products
 Small Outline Packages Package
    
    Lead-count
    
    Major Applications
    
    End UsesPlastic Dual In-line
Package
    
    28-42
    

    General purpose
plastic package
used in consumer
electronic products
    
    Games, telephones,
televisions,
audioequipment,
computer
peripheralsSmall Outline Package
    
    24-44
    
    Small lead-frame
package designed
for applications
requiring reduced
height
    
    Pagers, cordless
telephones, fax
machines, copiers,
printers, computer
peripherals, audio
and video products,
automotive systems
 20




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End UsesShrink Small Outline
Package
    
    
    28-70
    
    
    Small lead-frame
package designed
for applications
requiring reduced
height
    
    Pagers, cordless
telephones, fax
machines, copiers,
printers, computer
peripherals, audio
and video products,
automotive systemsSmall Outline J-Bend
Package
    
    
    24-44
    
    
    Package designed
for memory and low
pin-count
applications
    
    Consumer
(audio/video/entertainment),
communications
(pagers/cordless
phones),
radiofrequency
devices, cable TV,
office appliances
(fax/copiers/printer
s/personal computer
peripherals)Thin Small Outline
Package I
    
    
    28-56
    
    
    Package designed
for high-volume
production of
low-lead count
memory devices
including flash
memory, static
random access
memory and dynamic
random access
memory
    
    Laptop computers,
personal computers,
still and video
cameras and
standard
connections for
peripherals to
computersVery Thin Small
Outline Package I
    
    
    48
    
    
    Package designed for a variety of
applications where
small sized memory
devices are
required, such as
static random
access memory,
flash memory and
electrically
erasable
programmable
read-only-memory
    
    Memory module,
mobile phones,
PDAs, laptop
computers, and
digital still
camerasDual DIC TSOP I
    
    
    48-56
    
    
    Package designed
for a variety of
applications where
small sized memory
devices are
required, such as
static random
access memory,
flash memory and
electrically
erasable
programmable
read-only-memory
    
    Memory module,
mobile phones,
PDAs, laptop
computers and
digital still
camerasThin Small Outline
Package II
    
    
    32-86
    
    
    Smaller version of
Thin Small Outline
Package I designed
for logic and
analog devices and
memory devices
including flash
memory, static
random access
memory, erasable
and electrically
erasable
programmable read
only memory, and
dynamic random
access memory
    
    Disk drives,
recordable optical
disks, audio and
video products,
consumer
electronics,
communication
products
 21




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##### Table of Contents



Substrate Packages This category generally employs the ball grid array design which utilizes a plastic or tape
laminate substrate rather than a lead-frame and places the electrical connections on the bottom of
the package rather than around the perimeter. The ball grid array format was developed to address the need for higher lead counts required
by advanced semiconductor devices. Benefits of ball grid array packaging over leaded packaging
include:  
    smaller size;
    greater pin count;
    greater reliability;
    better electrical signal integrity; and
    easier attachment to a printed circuit board. As the number of leads surrounding the package increased, the proximity of the leads to one
another became closer in an attempt to maintain the size of the package. The close proximity of one
lead to another resulted in electrical shorting problems, and required the development of
increasingly sophisticated and expensive techniques for producing circuit boards to accommodate the
high number of leads. The ball grid array format solved this problem by effectively creating leads on the bottom of
the package in the form of solder balls. These balls can be evenly distributed across the entire
bottom surface of the package, allowing greater distance between the individual leads. For the
highest lead count devices, the ball grid array configuration can be manufactured less expensively
and requires less delicate handling at installation. The following diagram presents the basic component parts of a standard ball grid array
packages: (IMAGE) To address the electronics market demand for higher frequency, higher input/output, and better
thermal performance, we have made efforts to develop high value-added advanced packaging
technologies, such as flip-chip and wafer bumping technologies. In addition to the development of
the 8-inch wafer bumping technology, in order to meet the trend of wafer size moving to 12-inch
from 8-inch, we have successfully established the first 12-inch wafer bumping technology in the
world. Flip-chip ball grid array is a high-end, high-growth product typically used in advanced
semiconductor products such as microprocessor units, micro peripherals, field programmable gate
arrays and application specific ICs. The flip-chip technology enables direct interconnection from
the chip to the substrate, eliminates the need for wire bonding and provides superior electrical
performance. We licensed the flip-chip assembly technology from Flip-Chip to enhance our assembly
process capability in flip-chip products. We have also developed thin and small package, or CSPs,
on flexible or rigid substrates as well as lead-frames, which are suitable for the portable
consumer market. Furthermore, we have developed module packages, with multiple chips integrated
into one package, in order to meet the growing demand for system-in-package, or SIP, for
applications in personal computers, communications devices and consumer products. The following diagram presents the cross section of a flip-chip ball grid array package: (IMAGE) The following table presents our substrate packages, including the number of leads and the
description of and uses for each package format: 22




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End UsesFlip-Chip Ball Grid Array
    
    
    36-1,936
    
    
    Much higher
electrical
performance than
traditional ball
grid array for
modern, more
demanding
applications
    
    Workstations,
networking,
graphics,
application
specific integrated
circuits, personal
digital assistants,
processorsChip Scale Package
    
    
    14-448
    
    
    Low cost solution
for low
input/output count
suitable for
semiconductors that
require a smaller
package size than
plastic ball grid
array
    
    Memory, analog,
flash memory,
application
specific integrated
circuits, radio
frequency devices,
personal digital
assistants,
communications,
mobile phones,
laptop computers,
sub-notebooks,
wireless systemsStacked-Die Chip Scale
Package
    
    
    21-400
    
    
    Low cost solution
for low
input/output count
suitable for
semiconductors that
require a smaller
package size than
plastic ball grid
array. This device
offers double
memory capacity
with increased
device
functionality while
allowing
manufacturers to
maintain size
reduction roadmaps
    
    Memory, analog,
flash memory,
application
specific integrated
circuits, radio
frequency devices,
personal digital
assistants,
communications,
mobile phones,
laptop computers,
sub-notebooks,
wireless systemsBall Grid Array
    
    
    119-1,156
    
    
    Ball grid array
package designed
for applications
which require high
performance
    
    Laptop computers,
disk drives, video
cameras, global
positioning
systems, wireless
communication
products, standard
connections for
peripherals to
computersThermal Enhanced Ball Grid
Array
    
    
    241-1,152
    
    
    Optimum low cost
solution for high
speed, high power
applications with
multiple routing
layers for high
performance
applications
    
    Application
specific integrated
circuits,
microprocessors,
gate arrays,
personal digital
assistants,
communications,
mobile phones,
laptops,
sub-notebooks,
boardsLow Profile Ball Grid Array
    
    
    176-352
    
    
    Low-profile and
light-weight
package designed
for applications
which require high
performance
    
    Laptop computers,
wireless
communication
products, computer
peripherals
 23




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End UsesLand Grid Array
    
    
    23-68
    
    
    Land grid array
package designed
for applications
which require high
performance
    
    Laptop computers,
disk drives, video
cameras, global
positioning
systems, wireless
communication
products, standard
connections for
peripherals to
computersOrganic Leadless Chip Carrier
    
    
    28-48
    
    
    Package designed
for CMOS image
sensor chip, which
offers small and
light-weight for
image applications
    
    Mobile phones,
PDAs, laptop
computers, digital
still cameras,
personal computer
cameras, toys,
automobile,
security and
surveillanceCeramic Leadless Chip Carrier
    
    
    48
    
    
    Offers similar
feature as organic
leadless chip
carrier, but only
using ceramic
substrate material
    
    Mobile phones,
PDAs, laptop
computers, digital
still cameras,
personal computer
cameras, toys,
automobile,
security and
surveillanceOrganic Leadless Grid Array
    
    
    28-48
    
    
    Offers small and
light-weight for
image sensor
applications and is
made of organic
substrate designed
for better thermal
performance
    
    Mobile phones,
PDAs, laptop
computers, digital
still cameras,
personal computer
cameras, toys,
automobile,
security and
surveillanceCMOS Image Sensor Module
    
    
    
    
    
    Offers
manufacturing
flexibility for
customized
solutions for image
sensor applications
that require short
time-to-market
    
    Mobile phones,
PDAs, laptop
computers, digital
still cameras,
personal computer
cameras, toys,
automobile,
security and
surveillance
 Testing and Other Services Semiconductor testing measures and ensures the performance, functionality and reliability of a
packaged semiconductor device. Testing semiconductor devices requires significant technical
expertise and knowledge of the specific applications and functions of the device under testing. In
addition to maintaining different types of advanced testing equipment which enable us to test a
variety of semiconductor device functions, we work closely with our customers to develop and
convert programs to test particular semiconductor products on multiple equipment platforms
effectively. The cost of any specific test is dependent on the test time (usually measured in
seconds) required to run a test which varies depending on the complexity of the semiconductor
device and the customers specification with the percentage of fault coverage. We also conduct wafer probing and final testing of digital logic and mixed signal products. In
addition, many of our customers request drop shipment of their tested integrated circuits directly
to designated final destinations. Wafer Probing.Wafer probing is the step immediately before packaging of integrated circuits
and involves sorting the processed wafer for defects to ensure that it meets customer acceptance
criteria. Integrated circuits on an accepted wafer are then individually inspected visually and
with scanners before packaging and final testing. 24




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##### Table of Contents



Logic and Mixed Signal Final Testing.We conduct final testing of a wide variety of logic and
mixed signal integrated circuits, including complex, high-performance, as well as lower-performance
integrated circuits. High-performance products include personal computer-related components such as
CPU chipsets and graphic processors, while major lower performance products include integrated
circuits used in consumer electronics products. Other Testing Services.In addition to wafer probing and final testing services, we also
provide system-level testing for testing products on mother board with automatic load and unload
features, dynamic burn-in service to screen out device infant mortality, laser repair to modify
device connection structure for specific product applications, lead/ball scanner to screen out
abnormal products, including bent lead or ball defective devices from being shipped to end
customers, marking to specify the unique customer logo and batch identification on product as for
traceability and tape and reel to packing devices into one complete reel for surface mount
operation. We offer drop shipment services by providing for shipment of integrated circuits directly to
final destinations designated by our customers. Since drop shipment eliminates the additional step
of inspection by the customer before shipment to the customer, quality of service is a key
consideration. We believe that our ability to successfully execute our full range of services,
including drop shipment services, is an important factor in maintaining existing customers as well
as attracting new customers. Customers We currently have more than 100 customers worldwide, and our customers include many of the
largest semiconductor companies in the world. In 2002, 2003 and 2004, 48.3%, 48.7% and 45.0% of our
net operating revenues were derived from sales to our top five customers, respectively, and 66.3%,
66.8% and 64.8% of our net operating revenues were derived from sales to our top ten customers,
respectively. In 2004, our top two customers provided approximately 11% and 11%, respectively, of
our net operating revenues. Our representative customers as of December 31, 2004 include: ATI
Technologies, Inc., Broadcom Corporation, Intel Corporation, LSI Logic Corporation, Marvell
Semiconductor Inc., MediaTek, NVIDIA Corp., SanDisk Corporation, VIA Technologies Inc. and Xilinx,
Inc. Industry-leading companies require early access to advanced packages because they manufacture
products which have first-to-market technologies. Our close relationships with industry leading
customers help us to further develop their technology and position us to benefit from the high unit
volumes of these major semiconductor customers. Set forth below is a geographic breakdown of our net operating revenues for the periods
presented below: Year Ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    %
    
    
    NT$
    
    
    %
    
    
    NT$
    
    
    %(audited) (consolidated)(in millions, except for percentages)Taiwan
    
    
    10,123
    
    
    
    45.4
    
    
    
    11,875
    
    
    
    43.3
    
    
    
    14,127
    
    
    
    40.1U.S. and Canada
    
    
    11,525
    
    
    
    51.7
    
    
    
    14,775
    
    
    
    53.9
    
    
    
    20,001
    
    
    
    56.7Others (1)
    
    
    650
    
    
    
    2.9
    
    
    
    761
    
    
    
    2.8
    
    
    
    1,124
    
    
    
    3.2
   (1)
    
    Includes primarily Japan, Germany, Singapore and Hong Kong. Sales from outside of Taiwan accounted for 54.6%, 56.7% and 59.9% of our net operating
revenues in 2002, 2003 and 2004, respectively. We primarily target those U.S. and Canadian
semiconductor companies that contract their wafer foundry services to major independent ROC
foundries. Our U.S. and Canadian customers, including ATI Technologies, Inc. and NVIDIA Corp., are
world-leading suppliers of graphic chipsets. Our U.S. customers mainly require quad flat packages
and substrate packages. We also focus on marketing our packaging and testing services in Japan and
expect sales to Japan to increase in the near future. 25




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We believe we have benefited from our location in Taiwan where outsourced semiconductor
manufacturing infrastructure is well established. Our long-term relationships with two of the
worlds largest independent wafer foundries are important to the continued growth of our services.
The majority of the semiconductor devices we package and test have been manufactured in Taiwans
leading wafer foundries. As these wafer foundries grow, we expect that their demand for our
services will continue to grow. Moreover, we believe that we can leverage these relationships to
jointly market seamless outsourced semiconductor manufacturing services from design to drop
shipment and remain at the forefront in semiconductor technology. We also believe that our close
proximity and close relationships to wafer foundries enables our customers to more efficiently
manage their supply chains and find comprehensive solutions to their semiconductor needs. Due to the ever-changing technology and functionality of semiconductor chip design, customers
requiring semiconductor packaging and testing services generally do not place purchase orders far
in advance. However, we engage customers in advance of the placement of purchase orders based on
each customers expected packaging and testing requirements. In addition, our customers generally
agree to purchase from us any unused materials that we purchase to meet their forecasted demand.
Although we have long-term sales relationships with a number of customers, our customers generally
may cancel or reschedule orders without significant penalty. In the past, very few customers have
cancelled firm orders for our packaging and testing services. This is due in part to the fact that
firm orders usually immediately precede shipment of wafers to be packaged by us. Our customers do,
however, routinely change their forecasts for future purchases from us, and we adjust our
production plans accordingly. We do not maintain reserves for customer cancellations and variations
in customer orders. Accordingly, our backlog as of any particular date may not be indicative of
future sales. In addition, packaging and testing service customers generally require that our facilities
undergo a stringent qualification process during which the customer evaluates our operations and
production processes. The qualification process can take many weeks. Due to this lengthy
qualification process, we believe semiconductor manufacturers are generally reluctant to switch
semiconductor packaging and testing companies once these companies have been qualified. For test
qualification, after we have been qualified by a customer and before the customer delivers
semiconductors to us for testing in volume, a process known as correlation is undertaken. During
the correlation process, the customer provides us with test criteria, information regarding process
flow and sample semiconductors to be tested and either provides us with the test program or
requests that we develop a new or conversion program. In some cases, the customer also provides us
with a data log of results of any testing of the semiconductor that the customer may have conducted
previously. The correlation process typically takes up to two weeks but can take longer depending
on the requirements of the customer. Sales and Marketing Our sales and marketing strategy is focused on providing high-quality advanced semiconductor
device packaging and testing services, consistent on-time delivery and competitive pricing. We
believe that this strategy is best implemented by servicing a select number of customers whom we
consider to have a high level of anticipated growth. We work on a cooperative basis with these
customers so that we can best meet their needs. We engage in semi-annual and quarterly reviews of all of our customers; we regularly collect
data from different segments of the semiconductor industry and, when possible, we work closely with
our customers to design and develop packaging and testing solutions for their new products. These
co-development or sponsorship projects can be critical when customers seek large-scale, early
market entry with a significant new product. Our sales and marketing efforts are primarily carried out by our sales team in Taichung and
Hsinchu near many of Taiwans leading domestic semiconductor companies. In addition, our subsidiary
Siliconware U.S.A., with sales offices in San Jose and Irvine, California, Boston, Massachusetts
and Lewisville, Texas, is responsible for our sales in the United States. We have signed annual or two-year contracts with our major domestic customers. These contracts
normally provide that the quantities of products furnished by us are updated by the customer every
month, generally through three-month non-binding rolling forecasts. We have such formal contracts
with some of our overseas customers. 26




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Quality Control We employ quality control procedures at every critical manufacturing stage, with the aim of
identifying and solving problems at the earliest possible stage of the production process. Our
quality control procedures include statistical process control, which involves sampling tests to
control and monitor the production process. Such tests include optical scanning and reliability
tests, which include temperature and humidity tests, pressure and stress tests and test for
resistance to solvents. If a problem is detected, failure analysis will be used to determine the
cause. Visual inspection and optical scanning are performed on all assembled semiconductor devices
to test for lead coplanarity and integrity. Final products are tested on a sample basis for open
shorts in wire connections. To ensure that our quality control procedures are effectively applied,
production line employees are provided with periodic training. Our comprehensive quality control and environmental protection programs have received numerous
accredited International Standards Organization certifications, including ISO 9002 in 1992, ISO
9001 in 1994, QS 9000 in 1998 and ISO 14001 in May 1999. We undergo periodic audits to maintain our
ISO certifications. Although some semiconductor companies view the ISO certification as a basis for
initiating contact with a potential subcontractor, they generally perform separate production and
quality audits of the subcontractors themselves. We also received TS16949 certification for our
quality control in August 2003 and OHSAS 18001 certification for safety and health management
system in December 2004. As a result of our ongoing focus on quality, we achieved average quarterly packaging yields of
99.9% for leader frame base, 99.9% for substrate base, 99.9% for flip-chip and 99.6% for wafer
bumping products in 2004. Packaging yield, which is the industry standard for measuring production
yield, is equal to the number of integrated circuit packages that are shipped for packaging divided
by the number of individual integrated circuits that are attached to lead-frames or substrates. As part of our overall focus on quality service, we also closely monitor our product delivery
performance against scheduled delivery times. Research and Development We focus our research and development efforts on developing new package designs and improving
the efficiency and capabilities of our production process technologies. Production process
enhancements include:  
    reduction of the size and thickness of semiconductor device packages;
    increasing input/output density of semiconductor device packages;
    enhancement of the electrical, thermal and reliability performance of semiconductor device packages;
    reduction of spacing between leads;
    reduction of the height of gold wire used in the wire bonding process;
    increasing packaging yields;
    shortening cycle times; and
    investigating the use of new or replacement raw materials. We believe that technology development is one of the key success factors in the semiconductor
packaging and testing industry. We work with our customers, equipment manufacturers and materials
suppliers to develop advanced processing capabilities and materials for use in our production
process. For example, we are currently conducting a research project with Kinsus Interconnect
Technology Corp., a substrate developer in Taiwan, to develop the advanced flip-chip substrate
technology. In addition, we and Sumitomo Bakelite Co., Ltd., a raw material supplier in Japan, are
jointly developing low-cost and high-performance underfill materials. Moreover, we work with
customers 27




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including Xilinx, Inc. early in the process of wafer design to ensure that their packaging
needs are met and that our packaging products provide our customers with the flexibility they
require when designing their products. Our research and development personnel are divided among our design department,
characterization department and product development department. In addition, our quality assurance
and manufacturing personnel also participate in research and development activities. For 2002, 2003
and 2004, we spent NT$507 million, NT$559 million and NT$753 million (US$23.7 million),
respectively, on research and development. We maintain laboratory facilities to analyze the characteristics of semiconductor device
packages by computer simulation and verify their performance by measurement devices. The use of
computer-aided engineering tools substantially reduces the time required to validate the proper
function of packages, as compared to physical testing methods. Supplies Raw Materials Our packaging operations require adequate supplies of materials and equipment on a timely
basis. The principal raw materials used in packaging are lead-frames, substrate, gold wire and
molding compound. We purchase materials based on customer forecasts and our customers are generally
responsible for any unused materials in excess of the quantity that they indicated they would need. Our major suppliers of raw materials, including Sumitomo Metal Mining Asia Pacific Pte Ltd.,
Shinko Electric Industries Co., Ltd., Phoenix Precision Technology Corporation, Sumitomo Bakelite
(Taiwan) Co., Ltd. and Nippon Micrometal Corp., are leading companies in the types of materials
they supply. We work closely with them, provide them with rolling forecasts, weekly requirement
schedules and update them on the status of our new products. Due to the growth of substrate
packaging products that are sold, our raw material costs have also increased. For 2002, 2003 and
2004, our raw material costs were 48.7%, 52.9% and 54.7%, respectively, of cost of goods sold. We
expect that raw materials will continue to constitute a significant portion of our cost of goods
sold as demand for substrate packaging products continues to increase. We do not maintain large inventories of raw materials; we usually only maintain enough for one
months production based upon regular estimates of orders from customers. Our principal suppliers
usually dedicate portions of their inventories as reserves to meet our production requirements.
Nevertheless, on occasion when customer orders have exceeded the supply of raw materials, we have
typically been able to obtain extensions from our customers to allow sufficient supply to become
available. Such arrangements help us remain cost competitive in todays market. In the past, prices
of our principal raw materials have not been volatile. Equipment In addition to raw materials, the availability of packaging and testing equipment is critical
to our services. We generally seek to maintain equipment from different suppliers with broad
functionality and flexibility for different packaging types to enhance capacity utilization. We
purchase packaging equipment from major international manufacturers, including Apic Yamada
Corporation, Kulicke & Soffa Industries Inc., ASM Technology Singapore PTE LTD. and TOWA
Corporation. As of December 31, 2004, we operated 2,999 wire bonders. We also had 249 testers in
Taichung and Hsinchu, Taiwan. We must order equipment in advance of customer demand to expand our
capacity, based on our expectation of future demand for our packaging and testing services. Testing equipment is one of the critical components of the wafer probing and device testing
process. We generally seek to maintain testers from different vendors with similar functionality
and the ability to test a variety of different semiconductors. In general, certain semiconductors
can only be tested on a limited number of specially configured testers. Our major suppliers of
testing equipment are Agilent Technologies, Inc., Advantest Taiwan Inc. and Teradyne Inc. 28




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Competition We face substantial competition from established packaging and testing service providers,
including companies with greater manufacturing, financial and other resources. These companies
include Advanced Semiconductor Engineering, Inc. (Taiwan), ASE Test Limited (Taiwan and Malaysia),
Amkor Technology Inc. (USA), ASAT, Ltd. (Hong Kong), STATS ChipPAC Ltd. (Singapore), Hana
Microelectronics Public Co. Ltd. (Thailand), Orient Semiconductor Electronics, Limited (Taiwan),
Astra International (Indonesia), Carsem Bhd. (Malaysia) and Shinko Electric Industries Co., Ltd.
(Japan). These companies have also established relationships with many large semiconductor
companies that are our current or potential customers. To a lesser extent, we also compete with the
internal semiconductor packaging and testing capabilities of many of our customers. The principal elements of competition in the independent semiconductor packaging and testing
market include:  
    the breadth of package and test offerings;
    technical competence;
    manufacturing yields;
    manufacturing cycle times;
    customer service; and
    price. Integrated Device Makers, or IDMs, that use our services continually evaluate our performance
against their own in-house testing and assembly capabilities. These IDMs may have access to more
advanced technologies and greater financial and other resources than we do. We believe, however,
that we can offer greater efficiency and lower costs while maintaining an equivalent or higher
level of quality for three reasons:  
    we offer a broader and more complex range of services as compared to the IDMs, which
tend to focus their resources on improving their front-end operations;
    we generally have lower unit costs because of our higher utilization rates; and
    we offer a wider range of services in terms of complexity and technology. Strategic Investments We, together with Siliconware Investment Company Ltd., our subsidiary, make equity joint
ventures and strategic investments in companies located in Taiwan and the United States engaged in
the semiconductor packaging and testing businesses. We believe that our participation in these
companies allows us to enhance and complement our product offerings, secure access to raw materials
and keep us up to date with technological changes in the semiconductor industry. We are able to
maintain close relationships with these companies and influence strategic management decisions
through representation on the boards of many of these companies. These participations include:  
    ChipMOS.As of March 31, 2005, we held a 28.7% equity interest in ChipMOS. We acquired
this equity interest in 1997 as part of a joint-venture arrangement with Mosel Vitelic
Inc. to create a company concentrating on the packaging and testing of memory chips. Mr.
Jerome Tsai, one of our supervisors, is a director of ChipMOS. 29




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##### Table of Contents




    Sigurd Microelectronics Corp.As of March 31, 2005, we held, directly and indirectly, a
26.5% equity interest in Sigurd Microelectronics Corp. Sigurd provides lower-end packaging
and testing services. Mr. Byron Chiang, one of our officers, is a director of Sigurd.
    Double Win Enterprise Co. Ltd.As of March 31, 2005, we held a 24.1% equity interest in
Double Win Enterprise Co. Ltd., which is engaged in the business of printed circuit boards
and surface mount technology. Mr. Jerome Tsai, one of our supervisors, and Mr. Byron
Chiang and Mr. Chao-Hong Huang, two of our officers, are directors of Double Win
Enterprise Co. Ltd.
    Phoenix Precision Technology Corporation.As of March 31, 2005, we held, directly and
indirectly, a 17.9% equity interest in Phoenix Precision, a supplier of semiconductor raw
materials, including substrates. Mr. Bough Lin, our Chairman, and Ms. Teresa Wang, one of
our supervisors, are directors of Phoenix Precision.
    King Yuan Electronics Co., Ltd.As of March 31, 2005, we held a 9.1% equity interest in
King Yuan, which is engaged in the business of IC testing. Mr. Bough Lin, our Chairman, is
a director of King Yuan.
    ThaiLin Technology Corporation.As of March 31, 2005, we held a 2.9% equity interest in
ThaiLin, which is engaged in the business of memory testing. In May 2004, we sold all of our interest in Taiwan Hi-tech Corporation, a company engaged in
the business of solder plating, for NT$100 million (US$3.1 million). On March 1, 2005, Universal Communication Technology Inc., or Universal Communication, merged
with Sigurd Microelectronics Corp. and Universal Communication was subsequently liquidated. Intellectual Property As of December 31, 2004, we held 254 Taiwan patents and 156 U.S. patents related to various
semiconductor packaging technologies, including patents for improvements of thermal and electrical
performance used in the semiconductor packaging process. As of December 31, 2004, we also had a
total of 103 pending patent applications in the United States, 112 in Taiwan and 77 in the PRC. In
addition, we had registered SPIL as a trademark and as a servicemark in Taiwan. We have licensed from Motorola the technology for ball grid array for which we make royalty
payments based upon the number of pads or balls used in our packages. This license will expire in
December 2010. We have also implemented package designs by entering into other technology alliances
and by licensing leading-edge package technologies, including:  
    Flip Chips flip-chip ball grid package design technology, whereby silicon die is
directly attached to the substrate using solder bumping rather than wire bonding. A
flip-chip ball grid package can support semiconductor devices with more than 1,000 leads.
This license will expire in November 2009.
    Flip Chips flip-chip wafer bumping technology and technology of redistributing bond
pads on IC using a redistribution layer enables us to facilitate wafer bumping in the
manufacturing of flip-chip ICs. This license will expire in January 2011.
    FujiTsu Limiteds electroplating bumping technology which enables us to produce a
bumped wafer with cost-effective, fine-pitch and high-reliability features instead of
screen printing bump to meet current market requirements. This license will expire in
December 2007.
    LSI Logic Corporations packaging technology pertaining to flip-chips, which offer us a
cost-effective solution for high performance ASIC and system-on-chip, or SoC, designs. We
acquired this license in August 2001. This license will terminate at the expiration of the
patent. 30




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##### Table of Contents




    Industrial Technology Research Institutes thermally enhanced-PBGA technology, which
enables us to produce small sized, high speed and high density devices to provide PBGA the
capability of spreading heat more effectively. This license will terminate at the
expiration of the patent.
    Tessera, Inc.s TCC technology which enables us to produce micro ball grid array
products. This license will terminate at the expiration of the patent. In 2002, 2003 and 2004, ongoing royalty payments to the companies from which we license
intellectual property were NT$426 million, NT$161 million and NT$143 million (US$4.5 million),
respectively, which accounted for 1.9%, 0.6% and 0.4%, respectively, of our net operating revenues.
With the increasing pace of technological change in the semiconductor industry, however, we expect
that royalty payments will increase in the future. We expect to continue to file patent applications where appropriate to protect our proprietary
technologies. We may need to enforce our patents or other intellectual property rights or to defend
ourselves against claimed infringement of the rights of others through litigation, which could
result in substantial cost and diversion of our resources. Although we are not currently and have not been a party to any material litigation, the
semiconductor industry is characterized by frequent claims regarding patent and other intellectual
property rights. If a third party were to bring a valid legal claim against us, we could be
required to:  
    discontinue the use of disputed process technologies;
    pay substantial damages;
    develop non-infringing technologies; or
    acquire licenses to the technologies that we had allegedly infringed. Environmental Matters The principal pollutants produced during semiconductor packaging are waste water and gases
from solder plating, and waste water from the wafer dicing and grinding processes. During these
processes, waste water is produced when water is used to cool and rinse wafers while they are being
diced and ground, or to rinse semiconductor chips when lead-frames are being plated. Solid waste
materials produced during the process include metal lead-frame and substrate scrap and excess
molding resin. As for the newly developed bumping process, wastewater is produced when water is used to rinse
the wafers in the processes of etching and solder deposition. Gases are come from the emissions of
solvents that are used to clean the wafers while they are in the bumping process. To mitigate environmental claims, we maintain pollution control facilities at all of our
facilities. We have installed various types of pollution control equipment for the treatment of
gaseous waste and waste water in our facilities. As part of our pollution control programs, we also
subcontract certain waste disposal and resource recycling of our facilities to third parties that
have the requisite environmental protection agency permits. Furthermore, we also actively monitor
any changes in the international requirements for environmental protection in the electronic and
semiconductor industries. We believe that we are in compliance with the existing environmental laws
and regulations in Taiwan in all respects. Insurance Our insurance policies on buildings, equipment and inventories cover damages due to natural
disasters, excluding earthquakes. We maintain insurance policies on both our old and new
production facilities in Taichung and Hsinchu, Taiwan and on inland transit of inventories. Our
property insurance covers replacement costs for our assets. Our insurance also includes protection
from losses caused by business interruption for seven to fourteen consecutive 31




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##### Table of Contents



working days and, as of December 31, 2004, had a maximum coverage of NT$63,125 million
(US$1,988.8 million) and other specified limits and exclusions. We also maintain insurance on the silicon wafers delivered to us. These insurance policies
cover the risk of loss of the silicon wafers while they are in our possession or consigned by our
customers and/or during inland transportation. Employees See Item 6. Directors, Senior Management and Employees  D. Employees for certain
information relating to our employees. Capital Expenditures and Divestitures Our capital expenditures amounted to NT$6,445 million, NT$4,885 million and NT$9,785 million
(US$308.3 million) in 2002, 2003 and 2004, respectively. Our initial budget for capital
expenditures for 2005 is approximately US$175.0 million. We may adjust the amount of our capital
expenditures upward or downward based on the progress of our capital projects, market conditions
and our anticipation of future business outlook. See Item 5. Operating and Financial Review and
ProspectsB. Liquidity and Capital Resources. We have made, and expect to continue to make, capital expenditures in connection with the
expansion of our production capacity. The table below sets forth our principal capital
expenditures, paid or committed, for the periods indicated. Year Ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(in millions)Equipment purchases
    
    
    6,380
    
    
    
    4,627
    
    
    
    8,777
    
    
    
    276.5Land and building construction and
purchases
    
    
    65
    
    
    
    258
    
    
    
    1,008
    
    
    
    31.8
 Litigation We are not involved in any material litigation or other proceedings which outcome we believe
could have a material adverse effect on our services. C. Organizational Structure The following table sets forth certain information as of March 31, 2005 regarding certain
companies in which we consolidated and the principal business of each such entity. Total Paid-in
    
    Direct/IndirectCapital(1)of
    
    EquityCompany
    
    Main Activities
    
    Location
    
    Such Entity
    
    Interest(in millions)SPIL (B.V.I.) Holding
Limited
    
    Investment activities
    
    British Virgin
Islands
    
    US$57.8
    
    
    100.0
    %Siliconware Investment
Company Ltd.
    
    Investment activities
    
    Taipei, Taiwan
    
    NT$1,770
    
    
    100.0
    %Siliconware U.S.A. Inc.
    
    Sales, solicitation,
marketing and order
collection ordering
in
    
    San Jose, CA, USA
    
    US$1.3
    
    
    100.0
    %
 32




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##### Table of Contents



Total Paid-in
    
    Direct/IndirectCapital(1) of
    
    EquityCompany
    
    Main Activities
    
    Location
    
    Such Entity
    
    Interest(in millions)SPIL (Cayman) Holding
Limited
    
    North America
Investment activities
    
    Cayman Islands
    
    US$30.1
    
    
    100.0
    %Siliconware Technology
(Suzhou) Limited
    
    Design and
manufacturing of
DRAM modules, flash
memory cards,
transistor and other
electronic
components
    
    Suzhou, Jiangsu,
China
    
    US$30.0
    
    
    100.0
    %
   (1)
    
    Aggregate par value of all issued shares. The following table sets forth certain information regarding our equity investees that are
accounted for under equity method and cost method as of March 31, 2005. Total Paid-in
    
    Direct/IndirectCapital(1) of
    
    EquityCompany
    
    Main Activities
    
    Location
    
    Such Entity
    
    Interest(in millions)Artest Corporation
    
    Testing and
development of
integrated circuits
    
    Sunnyvale, CA, USA
    
    US$15.6
    
    
    30.1
    %ChipMOS Technologies Inc.
    
    Testing and
assembly of
integrated circuits
    
    Hsinchu, Taiwan
    
    NT$8,872
    
    
    28.7
    %Sigurd Microelectronics
Corp.
    
    Testing and
assembly of
integrated circuits
    
    Hsinchu, Taiwan
    
    NT$1,573
    
    
    26.6
    %Double Win Enterprise
Co., Ltd.
    
    PCB, SMT process
and hand insert
    
    Taoyuan, Taiwan
    
    NT$280
    
    
    24.1
    %Phoenix Precision
Technology Corp.
    
    Researching,
developing,
manufacturing and
selling ball grid
array substrate
    
    Hsinchu, Taiwan
    
    NT$5,409
    
    
    17.9
    %King Yuan Electronics
Co., Ltd.
    
    IC testing
    
    Hsinchu, Taiwan
    
    NT$7,692
    
    
    9.1
    %ThaiLin Technology
Corporation
    
    IC memory testing
    
    Hsinchu, Taiwan
    
    NT$2,333
    
    
    2.9
    %
   (1)
    
    Aggregate par value of all issued shares. 33




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##### Table of Contents



D. Property, Plants and Equipment We provide packaging services through our three facilities in Taichung, Taiwan. In addition,
we provide testing services through our facilities in Hsinchu and Taichung, Taiwan. We own all of
our packaging and testing facilities. The following table shows the location, size and wire bonding or testing capacity of each of
our facilities and the property on which each facility is located as of December 31, 2004. Wire Bonding orFacility
    
    Location of Facility
    
    Size of Facility
    
    Size of Land(1)
    
    Testing CapacityFacility I
    
    Taichung, Taiwan
    
    6,755 square meters
    
    7,881 square meters
    
    348 wire bondersFacility II
    
    Taichung, Taiwan
    
    81,146 square meters
    
    26,246 square meters
    
    1,788 wire bondersFacility III
    
    Taichung, Taiwan
    
    134,620 square
meters
    
    39,455 square meters
    
    86 testers, 863
wire bondersFacility IV
    
    Hsinchu, Taiwan
    
    32,645 square meters
    
    14,215 square meters
    
    163 testers
   (1)
    
    We own all of our properties except otherwise noted. Our principal executive offices are located at Facility II in Taichung, Taiwan. Our
research and development activities are also located at this facility. In 2003, we have started the
construction of a new plant in Facility III, which was completed in the second half of 2004. The
size of Facility III is approximately 134,620 square meters. This facility is now used for testing
and 12-inch wafer bumping and other assembly purposes. We also have plans to expand our operations to the PRC in anticipation of future market demand
sourced from our existing and new customers based in China. Many of our customers and competitors
have announced plans to begin operation in the PRC. We believe that, as a leading packaging and
testing company, we are in a competitive position to gain a significant market share in this
developing market. In December 2001 and June 2004, we obtained foreign investment approval from the
Investment Commission of the ROC Ministry of Economic Affairs to invest up to US$50 million in
aggregate in Suzhou, PRC. As of March 31, 2005, we had invested a total of US$30 million in this
subsidiary. We are in the stage of ramping up our facilities in Suzhou for the manufacturing of
DRAM modules, flash memory cards, transistors and other electronic components. 
 Item 5. Operating and Financial Review and Prospects Unless stated otherwise, the discussion and analysis of our financial condition and results of
operations in this section apply to our financial information as prepared according to ROC GAAP.
You should read the following discussion of our financial condition and results of operations
together with the financial statements and the notes to these statements included in this annual
report. Our financial statements are prepared according to ROC GAAP, which differ from US GAAP. For
a discussion of the material differences, see note 28 to our financial statements included
elsewhere in this annual report. A. Operating Results Overview We are one of the worlds leading independent providers of semiconductor packaging services.
We also provide semiconductor testing services to our customers. We offer a complete portfolio of
packaging and testing solutions, including advanced lead-frame and substrate packages such as
flip-chip ball grid packages, and testing services for
logic, mixed signal and embedded memory devices. We also offer our customers complete turnkey
solutions, including packaging, testing and direct shipment of semiconductor devices to end users
designated by our customers. The semiconductor industry experienced moderate recovery in 2002, 2003 and 2004. As a result,
we recorded operating income of NT$547 million, NT$2,521 million and NT$4,333 million (US$136.5
million) in 2002, 2003 and 2004, respectively. Increases in our operating income were also
attributable to increases in our offering more advanced packaging services and testing of
high-performance semiconductor products. 34




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Intense competition in the semiconductor industry worldwide resulted in decreases in the
average selling prices of our products. We expect that average selling prices for most of our
semiconductor packages to continue to decline in the future. A decline in average selling prices of
our semiconductor packages, coupled with high depreciation cost resulting from our purchase of
additional equipment during the previous periods, if not offset by reductions in the other cost of
producing those packages, would decrease our gross margins. To counter the effects of decreasing average selling prices, we will continue to attempt to:  
    negotiate better pricing terms with our suppliers, including quantity discounts;
    find alternative, less expensive sources of raw materials;
    maximize production efficiency of our employees; and
    engage in utility conservation programs. We do not maintain reserves for cancellations or variations in customer orders. Consolidation Under ROC GAAP, we are required on an annual basis to consolidate the financial results of any
subsidiary whose total assets or net sales exceed 10% of our unconsolidated total assets or net
sales, as the case may be. In addition, the ROC SFB requires us to consolidate the financial
statements of each subsidiary whose total assets or net sales exceed 3% of our unconsolidated total
assets or net sales, as the case may be, if the total assets or net sales of all unconsolidated
subsidiaries exceed 30% of our unconsolidated total assets or net sales, as the case may be. For
each of 2002, 2003 and 2004, we consolidated five subsidiaries: Siliconware Investment Company
Ltd., SPIL (B.V.I.) Holding Limited, Siliconware U.S.A. Inc., SPIL (Cayman) Holding Limited and
Siliconware Technology (Suzhou) Limited, each in which we own a 100% equity interest. Upon adoption of the amended ROC GAAP Statement of Financial Accounting Standards, or SFAS,
No. 1 Consolidated Financial Statements and SFAS No. 7, which became effective on January 1,
2005, we are required to prepare consolidated financial statements on a semiannual basis. Such
consolidated financial statements should include all entities over which we hold more than 50% of
voting shares or has common control as defined under SFAS No. 7. Delay in Recognition of Investment Income in Certain Investee Companies Accounted for Under Equity
Method ChipMOS As of March 31, 2005, we owned a 28.7% equity interest in ChipMOS, a semiconductor packaging
and testing and LCD driver integrated circuit manufacturing company, located in Hsinchu, Taiwan. We entered into a joint venture agreement with Mosel Vitelic in July 1997 to establish
ChipMOS. We contributed NT$1,400 million in the form of cash and NT$100 million in the form of
packaging technology know-how in exchange for a 30% equity interest in ChipMOS. Mosel Vitelic
received a 48% interest in ChipMOS, and the remaining ownership interests in ChipMOS were allocated
to several institutions and individuals selected by Mosel
Vitelic. We are entitled to appoint two out of the seven-member board of directors of ChipMOS.
Pursuant to the joint venture agreement, we must maintain a minimum 18% equity interest in ChipMOS
for five years from the date of any initial public listing of ChipMOS. If ChipMOS requires
guarantees of its indebtedness to obtain financing, we and Mosel Vitelic are required under the
joint venture agreement to provide these guarantees in the ratios of 30% and 70%, respectively. As
of December 31, 2004, we had not provided any guarantees with respect to ChipMOSs indebtedness. The ROC SFB has allowed us to delay our recognition of investment income in certain investee
companies accounted for under the equity method. In 2002, because ChipMOS did not provide its
financial statements to us in 35




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time to enable us to recognize its financial results for such period,
we were permitted by the ROC SFB to delay the recognition of the investment loss of ChipMOS in our
financial results until 2003. As a result, we did not recognize investment loss of ChipMOS for 2002
in our financial results under ROC GAAP until the first quarter of 2003. For the first three months
ended March 31, 2003, we recognized an investment loss amounting to NT$366 million. If this
investment loss had been included in our results for 2002, our non-operating income, income before
income tax and net income for 2002 would have been reduced by the same amount and our basic and
diluted earnings (loss) per share in 2002 would have been reduced by NT$0.2. In 2003 and 2004, we
also experienced delays in recognition of investment income. For the first three months ended March
31, 2004, we recognized an investment income of NT$247 million from ChipMOSs financial results in
2003. For the three months ended March 31, 2005, we recognized an investment income of NT$667
million (US$21.0 million) from ChipMOSs financial results in 2004. Under US GAAP, however, there is no provision that allows us to delay recognition of ChipMOSs
financial results. In 2002, 2003 and 2004, our investment income (loss) from ChipMOS were (NT$342
million), NT$250 million and NT$664 million (US$20.9 million) under US GAAP. As a result, our
financial results under US GAAP would not provide meaningful year-to-year comparison to our
financial results under ROC GAAP. Universal Communication Our investment income (loss) from Universal Communication Technology Inc., or Universal
Communication, was accounted for under the cost method in 2001. In 2002, as a result of increasing
our stake in Universal Communication from 16.2% to 42.8%, we changed our method of recognizing
investment income (loss) from the cost method to the equity method. At the same time, we delayed
the recognition of the income (loss) of Universal Communication until 2003 because we were not able
to obtain the statements of Universal Communication for the same period of time and hence our
financial results for 2002 do not reflect the performance of Universal Communication in 2002. In
2003, following the appointment of three directors to the board of Universal Communication, we are
no longer eligible for a delay in recognition of investment income (loss) of this investee. For
2003, we recognized investment loss of Universal Communication of NT$47 million, which was based on
the financial statements of the investee for the years ended December 31, 2002 and 2003 and in
accordance with the preference of the preferred stock of Universal Communication. On March 1, 2005,
Universal Communication merged with Sigurd Microelectronics Corp. and Universal Communication was
subsequently liquidated. Double Win and Taiwan High-tech Recognition of our investment income (loss) in Double Win Enterprise Co., Ltd. and Taiwan
Hi-tech Corporation has consistently been recorded in the subsequent year on a delayed basis.
Accordingly, the combined investment income (loss) of NT$(15) million, NT$3 million and NT$5
million (US$0.2 million) from investments in these two companies for 2002, 2003 and 2004,
respectively, were based on the audited financial statements of the investee companies for 2001,
2002 and 2003, respectively. CAESAR CAESAR was dissolved on December 26, 2001. At the time of its dissolution, we owned a 34.65%
equity interest in CAESAR, the financial results of which were accounted for under the equity
method. We incurred investment loss of NT$716 million for 2001 for CAESAR. Under ROC GAAP, we were
required to recognize a one-time write-off of our investment loss on the day of dissolution subject
to further write off or reversal, depending on the residual value of CAESAR upon the completion of
the liquidation procedure, which was completed in 2003. Under US GAAP, we are required to review the carrying value of an asset for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, we estimate the future discounted cash flows expected to
result from the use of the asset and our eventual disposition. If the discounted expected future
cash flows are less than the carrying amount of the asset, an impairment loss is recognized.
Accordingly, US GAAP has also required that an impairment review be performed for our investment in
CAESAR in 2001 and an impairment loss could also be recognized for the amount not recoverable. 36




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Change in Product Mix Since January 1998, our lead-frame products including quad flat packages have made a
substantial contribution to our net operating revenues. However, substrate packages have been
accounting for an increasing proportion of our net operating revenues. We expect this trend to
continue in the future and, we also expect substrate packages to become our highest-revenue
product. The following table shows, for the periods indicated, the amount of our packaging and testing
revenues by product type (which are more fully described in Item 4. Information on the CompanyB.
Business OverviewOur Business) and each products revenues as a percentage of our total net
operating revenues: Year Ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    %
    
    
    NT$
    
    
    %
    
    
    NT$
    
    
    %(audited) (consolidated)(in millions, except for percentages)Ball grid array packages
    
    
    8,576
    
    
    
    38.5
    
    
    
    11,698
    
    
    
    42.7
    
    
    
    16,416
    
    
    
    46.6Quad flat packages
    
    
    7,659
    
    
    
    34.3
    
    
    
    8,635
    
    
    
    31.5
    
    
    
    9,435
    
    
    
    26.7Small outline packages
    
    
    2,744
    
    
    
    12.3
    
    
    
    3,160
    
    
    
    11.5
    
    
    
    3,800
    
    
    
    10.8Other packages
    
    
    677
    
    
    
    3.0
    
    
    
    956
    
    
    
    3.5
    
    
    
    1,467
    
    
    
    4.2Total packaging revenues
    
    
    19,656
    
    
    
    88.1
    
    
    
    24,449
    
    
    
    89.2
    
    
    
    31,118
    
    
    
    88.3Testing and other revenues
    
    
    2,643
    
    
    
    11.9
    
    
    
    2,962
    
    
    
    10.8
    
    
    
    4,134
    
    
    
    11.7Total net operating revenues
    
    
    22,299
    
    
    
    100.0
    
    
    
    27,411
    
    
    
    100.0
    
    
    
    35,252
    
    
    
    100.0
 Expansion and Utilization Rate In 2000, we expanded our packaging capacity significantly, increasing the number of wire
bonders to 1,829, and added testing capacity to our operations through our acquisition of
Siliconware Corp., through which acquisition we acquired 140 testers. However, in 2001, our
capacity utilization rate declined significantly due to a downturn in the semiconductor industry
and, as a result, we expanded less aggressively than we did in 2000. Our wire bonders and testers
increased from 2,056 and 167, respectively, as of December 31, 2001, to 2,481 and 198,
respectively, as of December 31, 2002. Our wire bonders further increased to 2,869, as of December
31, 2003, whereas our number of testers remains nearly the same to 196 as of December 31, 2003. As
of December 31, 2004, our number of wire bonders and testers increased to 2,999 and 249,
respectively, as we continue to expand our capacity in order to meet increasing demand from our
clients. Our operating results are characterized by relatively high fixed costs. For example, a wire
bonder typically costs between US$70,000 and US$75,000. As a result, capacity utilization rates can
significantly affect margins as the unit cost of packaging and testing services generally decreases
as fixed charges, including depreciation expenses on our equipment, are allocated over a larger
number of units. Our utilization rates have varied from period to period as we have expanded our
production capacity. We have been successful in minimizing the industry-wide fluctuation in
capacity utilization rates by deploying flexible packaging equipment for use in the production of
different packages and by utilizing our test equipment also for probing purposes. Our ability to
maintain or enhance our margins will continue to depend in part on our ability to effectively
manage capacity utilization rates. The capacity utilization of our facilities decreased
significantly in the first eight months of 2001 but has since increased through 2002, 2003 and
2004. Applications of Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements included elsewhere in this annual report, which have
been prepared in accordance with ROC GAAP. ROC GAAP vary in certain significant respects from US
GAAP. These differences and their effects on our financial statements are described in note 28 to
our audited consolidated financial statements included in this annual report. The preparation of
our audited consolidated financial statements requires us to make estimates and judgments 37




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that affect the reported amounts of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition, accounts receivable and allowance for doubtful
accounts, inventory, marketable securities, deferred tax asset valuation allowance, employee
bonuses, impairment of long-lived assets and goodwill impairment. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates using different assumptions or conditions. We believe the following critical accounting policies involve significant judgments and
estimates used in the preparation of our audited consolidated financial statements. Revenue Recognition We principally provide assembly and testing services of integrated circuits, which may be
assembly only, test only or turnkey solutions. Revenues are recognized when services have been
provided based on transaction terms and when collectibility is reasonably assured. We also record
sales allowances for estimated pricing discounts and sales returns. These estimates are based on
historical experiences and the managements judgment. Actual returns and discounts may differ from
the estimates. Accounts Receivable and Allowances for Doubtful Accounts The allowances for doubtful accounts are provided based on evaluations of collectibility,
aging analyses of the accounts and the managements judgment. A considerable amount of judgment is
required in assessing the ultimate realization of these receivable including the current credit
worthiness and the past collection history of each customer. If the financial conditions of our
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be recorded. Inventory Reserves In general, raw materials are purchased based on the customers forecasted demand. If our
customers change their forecasted requirements and we are unable to cancel our excess raw material
orders, we would experience a build up in our raw material inventory. We could either seek to
recover the cost of the materials from our customers or utilize the inventory in production.
However, we may not be successful in recovering the cost from our customers or in using such excess
inventory in production, which we would consider as part of our reserve estimate. Our reserve for
excess and obsolete inventory is based on forecasted demand we receive from our customers. When a
determination is made that the inventory would not be utilized in production, it is written off and
disposed of. Actual demand may differ from our forecast and may result in additional reserve. We also recognize losses from declines in the market value of inventories. The market value of
raw materials and supplies are determined on the basis of replacement cost. The market value of
finished goods and work in progress are determined on the basis of net realizable value. If the
market value of inventories further drops, additional loss may be recorded. Impairment of Long-Lived Assets We review equity investments and other long-lived assets for the purpose of determining the
amount of impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be
recoverable. The carrying value of a long-lived asset is considered impaired when the
anticipated cash flows are less than the assets carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair value of the long-lived
asset. The estimate of fair value is generally based on quoted market prices or on the best
available information, including prices for similar assets and the results of using other valuation
techniques. 38




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We evaluate our equity investments for impairment due to declines in the market value that are
considered other than temporary. Such evaluations include an assessment of general economic and
company-specific considerations, such as customer forecasts and regularly updated projections of
operating results. In the event of a determination that a decline in market value is non-temporary,
loss is recognized in the current years income. The evaluation of whether a decline in market
value is other than temporary requires considerable management judgment. For an investee who
resolves to liquidate or dissolve, a one-time write-off would be recorded to the extent that the
estimated proceeds would be obtained and the amount of investment balance would not be recovered. Artest Corporation, an investee accounted for under the equity method, incurred significant
losses since the dates of our investments and there is no indication of recovery in the near
future. During 2003, we concluded that the impairment loss was other than temporary. Accordingly,
in 2003, we recorded an impairment charge of NT$157 million on this long-term equity investment to
write off the carrying value of the investment to its fair value. The amount of the write off is
determined as follows: (1) whether there is a quoted market value to determine its fair value; and
(2) based on our evaluation, whether the carrying value of the assets and liabilities of the
investee approximated its fair value. If the fair value of the investee was lower than its carrying
value, additional impairment may be recorded. We further recorded an impairment charge of NT$8
million during 2004 on our long-term equity investment in Artest Corporation to write down the
carrying value of the investment to fair value. As of December 31, 2004, the carrying amount of
our investment in Artest Corporation was NT$0. In 2003, we also recognized an impairment charge of NT$132 million for packaging and testing
assets to be disposed of to reduce the carrying value of the assets to their estimated fair value
less cost of sale. The fair value of the assets to be disposed of was determined by the estimated
net realizable value of the assets. We determined the estimated net realizable value of these
assets to be disposed to be zero based on the condition and anticipated future cash flows. The
impairment charge was mainly related to our decision to dispose certain machinery and equipment due
to technology phase out and replacement in 2003. In 2004, we recognized an impairment charge of NT$461 million for packaging and testing assets
to be disposed of to reduce the carrying value of the assets to their estimated fair value less
cost of sale. The fair value of the assets to be disposed of was determined by the estimated net
realizable value of the assets. We determined the estimated net realizable value of these assets to
be disposed to be zero based on the condition and anticipated future cash flows of these assets.
The impairment charge was mainly related to our decision to dispose certain machinery and
equipments due to technology phase out and replacement in 2004. Provision for Income Taxes and Deferred Tax Asset Valuation Allowances As of December 31, 2004, we had approximately NT$2,309 million (US$72.7 million) of net
deferred tax assets related principally to investment tax credits that expire at various dates
through 2008, the unrealized loss on long-term investments and loss carryforwards. Valuation
allowance was provided to reduce the deferred tax assets to the amount that we believe is more
likely than not to be realized. We have considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation allowances. In the event
we determined that we would be able to realize our deferred tax assets in the future in excess of
our net recorded amount, an adjustment to our deferred tax assets would increase income in the
period such determination was made. Similarly, should we determine that we would not be able to
realize all or part of our net deferred tax assets in the future, an adjustment of our deferred tax
assets would be charged to income in the period such determination was made. Employee Bonuses Some of our employees are entitled to bonuses in accordance with applicable provisions of our
articles of incorporation. Employee bonuses are determined at 10% of distributable retained
earnings. Distributable retained earnings are calculated as retained earnings after various
reserves are made in accordance with ROC law and our
articles of incorporation and after appropriation for remuneration to directors are made.
Employee bonuses may be granted in cash, shares or a combination of both. Under ROC GAAP, such
bonuses are appropriated from retained earnings during the accounting period during which such
shareholders approval is obtained. If such employee bonuses are settled through the issuance of
our shares, the amount charged against retained earnings would be based on the par value of the
common shares issued. Under US GAAP, the employee bonus expense is initially accrued at the end of
the period when services are rendered, at 10% of the distributable retained earnings. When bonuses
are 39




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approved by the shareholders in the subsequent year, an additional compensation expense is
recorded for the difference between the par value and the fair market value of shares granted to
employees. Goodwill Goodwill arising from business combination is recognized under US GAAP as the difference
between the fair market value of shares issued and the fair market value of net assets acquired.
Before the adoption of SFAS No. 142 on January 1, 2002, goodwill is amortized on a straight-line
basis over its economic useful life. Actual life may differ from estimated life and may result in
additional amortization expenses. Under US GAAP, we also assess the impairment of goodwill whenever
events or changes in circumstances indicate that the carrying value may not be recoverable.
Goodwill amounted to, after amortization, NT$4,874 million as of December 31, 2001 under US GAAP.
We did not recognize any goodwill under ROC GAAP. Effective January 1, 2002, SFAS No. 142 requires that we cease amortization of goodwill and
perform an impairment review, at the reporting unit level, upon adoption and at least annually
thereafter. Since we operate on an integrated basis, we have only one reporting unit. Based on the
comparison of the fair value and carrying value of our company, we concluded that goodwill was not
impaired as of the adoption of SFAS No. 142 and as of December 31, 2004. Embedded Derivatives Under US GAAP, the convertible or exchangeable option embedded in investments in convertible
bonds or exchangeable bonds is separated from the host and accounted for as though it was a
discrete derivative instrument. The derivative instrument is measured at fair value, with changes
in the fair value reported in earnings. We recorded a gain of NT$237 million in 2003 in relation to mark-to-market adjustments on the
embedded derivatives. In 2004, the embedded derivatives were either sold or converted into common
stocks and, as a result, we recorded a realized loss of NT$84 million with respect to such sale or
conversion of the embedded derivatives. Description of Revenue and Cost Items Net Operating Revenues We generate our net operating revenues primarily from semiconductor packaging and testing
operations. Net operating revenues from our semiconductor packaging activities consist of our
service fees and the cost of raw materials we purchase to provide semiconductor packaging services.
Our net operating revenues do not include the cost of semiconductors, which are our customers
property. We price our packaging products on a per unit basis taking into account the complexity of the
product, the prevailing market conditions, the order size, the strength and history of our
relationship with the customer and our capacity utilization. We charge our testing services based on the specific test and the time, usually measured in
seconds, to run a test, taking into account the complexity of the semiconductor device and the
customers test program. We also generate net operating revenues from the provision of semiconductor turnkey services,
which include packaging, testing and drop-shipment services. Net operating revenues are recognized when services are rendered and the payment is realized
or realizable. Our customers are generally invoiced at the time services are rendered, with varying
terms of credit between 30 and 90 days from the time of billing. Cost of Goods Sold Our cost of goods sold consists principally of: 40




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
    cost of raw materials purchased for semiconductor packaging services;
    direct labor costs; and
    overhead including depreciation and maintenance of production equipment, indirect labor
costs, indirect material costs, utilities and royalties. Due to the growth of substrate packaging products, our raw material costs as a percentage of
total cost of goods sold have increased significantly because of high cost of substrate. For 2002,
2003 and 2004, our raw material costs were 48.7%, 52.9% and 54.7%, respectively, of our cost of
goods sold. Due to our capacity expansion, depreciation expense has increased significantly. For
2002, 2003 and 2004, depreciation, included in overhead, was NT$4,450 million, NT$4,732 million and
NT5,364 million (US$169.0 million), respectively, and was approximately 22.0%, 20.4% and 18.8%,
respectively, of our cost of goods sold. The increases in depreciation expenses in 2002, 2003 and
2004 were the result of putting into operation additional 425, 388 and 130 wire bonders during
2002, 2003 and 2004, respectively. Increasing depreciation expense increases our cost of goods sold
and decreases our gross profit and gross margin. Although we may not expand our packaging capacity
as aggressively as we did before the recent downturn in the semiconductor industry, we expect our
depreciation costs to increase in absolute terms in the future. Operating Expenses Our operating expenses consist of the following:  
    Selling expenses. Selling expenses consist primarily of salaries and related personnel
expenses and other marketing expenses.
    General and administrative expenses. General and administrative expenses consist
primarily of salaries for our executive, administrative, finance and human resource
personnel, fees for professional services, and the cost of computers to support our
operations.
    Research and development expenses. Research and development expenses consist primarily
of salaries, bonuses and related costs for product and technology development, technology
license fees allocated to research and development, and depreciation on and maintenance of
equipment and various materials used in our research and development processes. We expect
our research and development expenses to grow as we hire additional staff and purchase
additional equipment for research and development purposes. Results of Operations The following table shows some of our results of operations data as a percentage of our net
operating revenues for the periods indicated. Year Ended December 31,2002
    
    
    2003
    
    
    2004%
    
    
    %
    
    
    %(audited) (consolidated)Net operating revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of goods sold
    
    
    90.6
    
    
    
    85.0
    
    
    
    81.9Gross profit
    
    
    9.4
    
    
    
    15.0
    
    
    
    18.1Operating expenses:Selling expenses
    
    
    1.1
    
    
    
    1.5
    
    
    
    1.6General and administrative expenses
    
    
    3.5
    
    
    
    2.3
    
    
    
    2.1Research and development expenses
    
    
    2.3
    
    
    
    2.0
    
    
    
    2.1Operating expenses
    
    
    6.9
    
    
    
    5.8
    
    
    
    5.8Operating income
    
    
    2.5
    
    
    
    9.2
    
    
    
    12.3Investment income (loss)
    
    
    0.3
    
    
    
    (1.9
    )
    
    
    0.9Net non-operating income (loss)
    
    
    (1.5
    )
    
    
    0.8
    
    
    
    (2.3
    )
 41




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Year Ended December 31,2002
    
    
    2003
    
    
    2004%
    
    
    %
    
    
    %(audited) (consolidated)Income (loss) before income tax and
minority interest
    
    
    1.3
    
    
    
    8.1
    
    
    
    10.9Income tax benefit
    
    
    0.6
    
    
    
    2.3
    
    
    
    1.3Net income (loss)
    
    
    1.9
    
    
    
    10.4
    
    
    
    12.2
 2004 Compared to 2003 Net operating revenues.Net operating revenues increased by 28.6% from NT$27,411 million in
2003 to NT$35,252 million (US$1,110.7 million) in 2004. Net operating revenues from our packaging
business increased by 27.3% from 2003 to 2004, whereas net operating revenues from our testing and
other services increased by 39.6% in the same periods. These increases were primarily due to the
general growth in the semiconductor industry and the increase in demand for personal computers,
mobile phones and wireless networks. Due to market competition, the prices of our package products
generally declined during 2003 and 2004. Ball grid array package sales increased by 40.3% from NT$11,698 million in 2003 to NT$16,416
million (US$517.2 million) in 2004. The increase in ball grid array package sales was attributable
to the increase in unit sales of ball grid array package products, which increased by 11.2% from
221.5 million units in 2003 to 246.3 million units in 2004. In 2004, ball grid array package
products accounted for 46.6% of our net operating revenues, up from 42.7% in 2003. Quad flat package sales increased by 9.3% from NT$8,635 million in 2003 to NT$9,436 million
(US$297.3 million) in 2004. The increase in quad flat package sales was attributable to increase in
unit sales of quad flat package products, which increased by 29.2% from 536.1 million units in 2003
to 692.9 million units in 2004. In 2004, quad flat package products accounted for 26.7% of our net
operating revenues, down from 31.5% in 2003. Small outline package sales increased by 20.3% from NT$3,160 million in 2003 to NT$3,800
million (US$119.7 million) in 2004. The increase in our small outline package sales was
attributable to increase in unit sales of small outline package products, which increased by 0.3%
from 631.7 million units in 2003 to 633.4 million units in 2004. In 2004, small outline package
products accounted for 10.8% of our net operating revenues, down from 11.5% in 2003. Gross profit and gross margin.Our gross profit increased by 55.1% from NT$4,114 million in
2003 to NT$6,381 million (US$201.0 million) in 2004. Our gross margin (gross profit as a percentage
of net operating revenues) increased from 15.0% in 2003 to 18.1% in 2004. Our cost of goods sold
increased by 23.9% from NT$23,298 million in 2003 to NT$28,871 million (US$909.6 million) in 2004,
primarily due to a greater emphasis on higher quality package and testing services as well as a
continuing environment of rising variable costs such as for raw materials (in particular, the cost
of substrate), labor and overhead. The increases in gross profit and gross margin were primarily
due to higher equipment utilization, depreciation savings and cost control measures. Operating expenses.Operating expenses increased by 28.5% from NT$1,593 million in 2003 to
NT$2,048 million (US$64.5 million) in 2004. Operating expenses as a percentage of net operating
revenues remained relatively the same at 5.8% in 2003 and 2004.  
    Selling expenses.Selling expenses increased by 32% from NT$415 million in 2003 to
NT$549 million (US$17.3 million) in 2004 mainly due to commission fees paid to
Siliconware USA Inc. for sales of our products in North America.
    General and administrative expenses. General and administrative expenses increased by
20.7% from NT$618 million in 2003 to NT$747 million (US$23.5 million) in 2004 due primary
to increased salaries paid to administrative personnel. 42




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
    Research and development expenses.Research and development expenses increased by 34.6%
from NT$559 million in 2003 to NT$753 million (US$23.7 million) in 2004 due to increased
salaries paid to R&D personnel and cost for developing new products. Operating income and operating margin.We recorded an operating income of NT$2,521 million and
an operating margin of 9.2% (operating income as a percentage of net operating revenues) in 2003
and generated operating income of NT$4,333 million (US$136.5 million) and operating margin of 12.3%
in 2004. The increase in operating margin was primarily due to an increase of gross profit as a
percentage of operating revenues. Net non-operating loss.Our net non-operating loss increased by 59.4% from NT$318 million in
2003 to NT$508 million (US$16.0 million) in 2004. The increase in net non-operating loss was
primarily due to higher other non-operating loss, offset by a decrease in investment loss. The
increase in other non-operating loss in 2004 was due to a provision of NT$468 million for the
estimated liabilities arising in connection with our VAT-related tax assessment and increase in the
recognition of impairment loss on idle property, plants and equipment from NT$132 million in 2003
to NT$461 million in 2004. The decrease in investment loss was due to our investment in ChipMOS.
For the three months ended March 31, 2004, we recognized an investment income of NT$247 million
from ChipMOSs financial results in 2003, whereas for the three months ended March 31, 2003, we
recognized an investment loss of NT$366 million from ChipMOSs financial results in 2002. If the
investment loss and gain were recorded in their respective years, our net operative loss would have
been different. Under US GAAP, there is no provision that allows us to delay recognition of
ChipMOSs income or loss. Income tax benefit.We recognized an income tax benefit of NT$636 million and NT$457 million
(US$14.4 million) in 2003 and 2004, respectively, primarily due to investment tax credits, the
unrealized loss on long-term investments, and loss carryforward in both years. The decrease in
income tax benefit was mainly due to the change in allowance taken in respect of deferred taxable
assets. A valuation allowance has been provided against the deferred taxable assets to the extent
that the tax benefit will more likely than not be realized. Net income (loss).As a result of the factors discussed above, we recorded a net income of
NT$2,839 million in 2003, compared with a net income of NT$4,282 million (US$134.9 million) in
2004. 2003 Compared to 2002 Net operating revenues.Net operating revenues increased by 22.9% from NT$22,299 million in
2002 to NT$27,411 million in 2003. Net operating revenues from our packaging business increased by
24.4% from 2003 to 2004, whereas net operating revenues from our testing and other services
increased by 12.1% in the same periods. The unit sales of ball grid array packages, small outline
packages, and other packages increased during the same periods, even though the prices of these
products generally declined. Ball grid array package sales increased by 36.4% from NT$8,576 million in 2002 to NT$11,698
million in 2003. The increase in ball grid array package sales was attributable to increases in
unit sales of ball grid array package products. Unit sales of ball grid array packages increased by
42.4% from 155.5 million units in 2002 to 221.5 million units in 2003. In 2003, ball grid array
package products accounted for 42.7% of our net operating revenues, up from 38.5% in 2002. Quad flat package sales increased by 12.7% from NT$7,660 million in 2002 to NT$8,635 million
in 2003. The increase in sales of our quad flat packages was primarily attributable to an increase
in unit sales. Unit sales of quad flat packages increased by 15.6% from 463.9 million units in 2002
to 536.2 million units in 2003. In 2003, quad flat package products accounted for 31.5% of our net
operating revenues, down from 34.3% in 2002. Sales of small outline packages increased by 15.2% from NT$2,744 million in 2002 to NT$3,160
million in 2003. The increase in sales of our small outline packages was attributable to an
increase in unit sales. Unit sales of small outline packages increased by 11.0% from 569.3 million
units in 2002 to 631.7 million units in 2003. In 2003, small outline package products accounted for
11.5% of our net operating revenues, almost the same as in 2002. 43




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Gross profit and gross margin.Our gross profit increased by 97.0% from NT$2,089 million in
2002 to NT$4,114 million in 2003. Our gross margin (gross profit as a percentage of net operating
revenues) increased from 9.4% in 2002 to 15.0% in 2003. Our cost of goods sold increased by 15.3%
from NT$20,210 million in 2002 to NT$23,298 million in 2003, primarily due to increases in costs of
raw materials for our increased production of ball grid array, small outline and quad flat
packages. We experienced increases in gross profit and gross margin in 2003 because of an increase
in unit sales, which led to higher utilization rates and lower unit costs. Operating expenses.Operating expenses increased by 3.3% from NT$1,542 million in 2002 to
NT$1,593 million in 2003. Operating expenses as a percentage of net operating revenues decreased
6.9% in 2002 to 5.8% in 2003.  
    Selling expenses.Selling expenses slightly increased by 1.5% from NT$409 million in
2002 to NT$415 million in 2003.
    General and administrative expenses. General and administrative expenses slightly
decreased by 1.1% from NT$626 million in 2002 to NT$618 million in 2003.
    Research and development expenses.Research and development expenses increased by 10.3%
from NT$507 million in 2002 to NT$559 million in 2003 due to increase in salaries paid to
R&D personnel and maintenance cost of equipment. Operating income and operating margin.We recorded an operating income of NT$547 million and
an operating margin of 2.5% (operating income as a percentage of net operating revenues) in 2002
and generated operating income of NT$2,521 million and operating margin of 9.2% in 2003. The
increase in operating margin was primarily due to increase of gross profit as a percentage
operating revenues. Net non-operating loss.Our net non-operating loss increased by 19.3% from NT$267 million in
2002 to NT$318 million in 2003. Our investment loss in 2003 was NT$533 million. This is largely
attributable to investment loss in ChipMOS. In 2002, we recorded no investment loss for our
investment in ChipMOS because ChipMOS did not provide its financial statements to us in time to
enable us to recognize its financial results for 2002. The ROC SFB allowed us to delay the
recognition of the loss of ChipMOS in our financial results until June 30, 2003. Thus, we recorded
no investment income (loss) of ChipMOS in our financial results under ROC GAAP for 2002. The
unaudited financial results of ChipMOS for 2002 were available to us in the first quarter of 2003,
and we recorded an investment loss of NT$366 million in our financial results for the three months
ended March 31, 2003. If this investment loss had been included in our results for 2002, our
non-operating income (loss) for 2002 would have been reduced by the same amount. Under US GAAP,
there is no provision that allows us to delay recognition of ChipMOSs income or loss. Income tax benefit.We recognized an income tax benefit of NT$145 million and NT$636 million
in 2002 and 2003, respectively, because of the deferred tax benefit on tax credits primarily
resulting from the purchases of certain machinery and equipment, expenditures on research and
development and personnel training. A valuation allowance has been provided against the deferred
tax assets to the extent that the tax benefit will more likely not be realized. Net income (loss).As a result of the factors discussed above, we recorded a net income of
NT$425 million in 2002, compared with a net income of NT$2,839 million in 2003. Summary Unaudited Historical Quarterly Results of Operations The unaudited unconsolidated financial data of our company shown below for the eight fiscal
quarters ended December 31, 2004 was prepared under ROC GAAP governing interim financial reporting.
The preparation of the unaudited financial data presented below differs from the preparation of the
consolidated financial data and financial statements included elsewhere in this annual report
because, pursuant to the Rules Governing Preparation of the Financial Statements by Securities
Issuers issued by the ROC SFB, it does not consolidate the financial results of our subsidiaries:
Siliconware Investment Company Ltd., SPIL (B.V.I.) Holding Limited, Siliconware U.S.A. Inc., SPIL
(Cayman) Holding Limited and Siliconware Technology (Suzhou) Limited. These treatments under ROC
GAAP may differ from those proscribed by US GAAP and may result in differences in net income (loss)
under each accounting standard. See US GAAP Reconciliation for a description of other
differences between ROC GAAP and US 44




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GAAP. Accordingly, the unaudited unconsolidated financial data shown below are not indicative
of the results of operations for our company on a consolidated basis and do not conform to US GAAP. Our results of operations have varied and may continue to vary from quarter to quarter and are
therefore not necessarily indicative of the results for the full fiscal year or for any future
period. Our future revenues and results of operations may vary significantly due to a combination
of factors, including the factors described in Item 3. Key InformationD. Risk FactorsOur
operating results fluctuate significantly, which may affect the value of your investment. In
addition, we believe that you should not rely on period-to-period comparisons as an indication of
our future performance. We believe that we have included in the amounts stated below all necessary adjustments,
consisting of only normal recurring adjustments, to fairly represent our selected quarterly data.
You should read our selected quarterly data in conjunction with our financial statements and the
notes thereto included elsewhere in this annual report. Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004(unaudited and unconsolidated)Net operating revenues.
    
    
    5,601
    
    
    
    6,533
    
    
    
    7,200
    
    
    
    8,049
    
    
    
    8,248
    
    
    
    8,712
    
    
    
    8,946
    
    
    
    9,103Cost of goods sold
    
    
    (5,084
    )
    
    
    (5,587
    )
    
    
    (5,876
    )
    
    
    (6,687
    )
    
    
    (6,688
    )
    
    
    (7,028
    )
    
    
    ( 7,259
    )
    
    
    (7,581
    )Gross profit
    
    
    517
    
    
    
    946
    
    
    
    1,325
    
    
    
    1,362
    
    
    
    1,560
    
    
    
    1,684
    
    
    
    1,687
    
    
    
    1,522Operating expenses
    
    
    (382
    )
    
    
    (383
    )
    
    
    (398
    )
    
    
    (408
    )
    
    
    (465
    )
    
    
    (499
    )
    
    
    (519
    )
    
    
    (538
    )Operating income (loss)
    
    
    135
    
    
    
    564
    
    
    
    926
    
    
    
    954
    
    
    
    1,094
    
    
    
    1,185
    
    
    
    1,169
    
    
    
    984
 B. Liquidity and Capital Resources We need cash primarily for capacity expansion, equipment purchases and working capital. We
believe that our working capital is sufficient for our present requirements. Although we have
historically been able to satisfy our working capital needs from cash flow from operations, our
ability to expand our capacity has been largely dependent upon, and will continue to depend upon,
our ability to finance these activities through the issuance of equity securities, long-term
borrowings and the issuance of convertible and other debt securities. Our ability to meet our
working capital needs from cash flow from operations will be affected by the demand for our
services and products, which in turn may be affected by several factors. Many of these factors are
outside of our control, such as economic downturns and declines in the average selling prices of
our products caused by oversupply in the market. To the extent that we do not generate sufficient
cash flow from our operations to meet our cash requirements, we may rely on external borrowings and
securities offerings. We have not historically relied, and we do not plan to rely in the
foreseeable future, on off-balance sheet financing arrangements to finance our operations or
expansion. Liquidity As of December 31, 2004, our primary source of liquidity was NT$10,922 million (US$344.1
million) of cash and cash equivalents. As of December 31, 2004, we had total availability under
existing short-term lines of credit, short-term commercial paper and trade facilities of NT$6,027
million (US$189.9 million) available from seven domestic and foreign financial institutions, of
which NT$1,111 million (US$35.0 million) were used as borrowings, letters of credit or guarantees.
In 2004, none of our short-term facilities was used. All of our short-term facilities are revolving
facilities with a term of one year, which may be extended for terms of one year each with lenders
consent. None of our current short-term commercial paper facilities have received a credit rating.
As of December 31, 2004, we had no short-term borrowing outstanding under these short-term
commercial paper facilities. The following table sets forth our cash flows with respect to operating activities, investing
activities, financing activities and the effect of exchange rate changes on cash for the periods
indicated. 45




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Year Ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(in millions)Net cash provided by operating activities
    
    
    5,006
    
    
    
    8,053
    
    
    
    8,767
    
    
    
    276.2Net cash used in investing activities
    
    
    (8,805
    )
    
    
    (4,228
    )
    
    
    (11,620
    )
    
    
    (366.1
    )Net cash provide by financing activities
    
    
    3,467
    
    
    
    2,408
    
    
    
    1,659
    
    
    
    52.3Effect of exchange rate changes on cash
    
    
    (8
    )
    
    
    
    
    
    
    (86
    )
    
    
    (2.7
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (340
    )
    
    
    6,233
    
    
    
    (1,280
    )
    
    
    (40.3
    )
 Net Cash Provided by Operating Activities In 2003, net cash provided by operations was NT$8,053 million compared to NT$8,767 million
(US$276.2 million) in 2004. The increase in net cash provided by operating activities was
primarily the result of an increase in net income (post adjustment for non-cash related expenses)
despite an offset due to an increase in foreign currency exchange gains on bonds payable. Our
changes in accounts receivable decreased from NT$1,221 million in 2003 to NT$405 million in 2004
and our changes in accounts payable also decreased from NT$781 million in 2003 to a negative NT$35
million in 2004, partly offset by an increase in changes in other payables from NT$60 million in
2003 to NT$471 million in 2004. Our depreciation and amortization expenses increased from NT$5,185
million in 2003 to NT$6,153 million (US$193.9 million) in 2004. The increase in our depreciation
and amortization expenses in 2004 compared to 2003 was due to additional equipment installed in
connection with our capacity expansion program. Net cash provided by operations was NT$5,006 million in 2002 compared to NT$8,053 million in
2003. The increase in net cash provided by operating activities was primarily the result of
increases in net income (post adjustment for non-cash related expenses) and gains in long-term
investments accounted for under equity method. Our changes in accounts receivable increased from
NT$441 million in 2002 to NT$1,221 million in 2003 and our changes in accounts payable also
increased from NT$397 million in 2002 to NT$781 million in 2003. Our depreciation and amortization
expenses increased from NT$4,902 million in 2002 to NT$5,185 million in 2003 due to additional
equipment installed in connection with our capacity expansion program. Net Cash Used in Investing Activities In 2003, cash used in investing activities was NT$4,228 million compared to NT$11,620 million
(US$366.1 million) in 2004. Net cash used in investing activities primarily reflected capital
expenditures for property, plants and equipment. These capital expenditures were primarily funded
with net cash provided by financing activities. We are sometimes required to prepay our purchases
of land and equipment. As of December 31, 2003 and 2004, we did not have any outstanding balance
of any prepayments for purchases of land. Prepayments for purchases of equipment result from
contractual agreements involving down payments to suppliers when we place an order for the
equipment. As of December 31, 2003 and 2004, outstanding balances of prepayments for purchases of
equipment amounted to NT$2,327 million and NT$1,024 million (US$32.3 million), respectively. We
have entered into agreements with third parties in connection with our expansion plans. As of
December 31, 2004, we had outstanding obligations of approximately NT$181 million (US$5.7 million)
under these agreements. We do not have any written options on non-financial assets. We made
short-term investments of NT$4,760 million in 2004, compared to nil in 2003. Cash used in investing activities was NT$8,805 million in 2002 compared to NT$4,228 million in
2003. The primary usage of cash in investing activities were related to the acquisition of
property and equipment of NT$4,885 million during 2003 and NT$6,445 million during 2002. The
increase in capital expenditure is directly related to our increase in revenues and forecasted
demand from customers. In 2002, we made short-term investments of NT$6,872 million, compared to
compared to nil in 2003. Net Cash Provided by Financing Activities In 2003, net cash provided by financing activities was NT$2,408 million as compared to cash
provided by financing activities of NT$1,659 million (US$52.3 million) in 2004. In 2003, net cash
provided by financing activities reflected primarily our long-term borrowings of NT$5,129 million
and the repayment of long-term borrowings of NT$2,330 million. In 2004, cash provided by financing
activities reflected primarily our long-term borrowings of NT$6,300 million, repayment of long-term
borrowings of NT$9,149 million and proceeds from our issuance of NT$6,646 million (US$200.0
million) zero-coupon convertible bonds due 2009. 46




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In 2002, net cash provided by financing activities was NT$3,467 million, which reflects the
proceeds from issuance of NT$7,608 million (US$200.0 million) zero coupon convertible bonds due
2007, partially offset by our redemption of the remaining outstanding convertible bonds due 2004 in
the amount of NT$4,469 million. Tabular Disclosure of Contractual Obligations The following table sets forth our contractual obligations and commitments with definitive
payment terms which will require significant cash outlays in the future as of December 31, 2004. Payments Due by PeriodLess Than 1
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(in NT$ millions) (consolidated)Long-term debt (1)Secured long-term loans
    
    $
    3,154
    
    
    $
    3,154
    
    
    
    
    
    
    
    
    
    
    
    Unsecured long-term loans
    
    
    5,165
    
    
    
    57
    
    
    $
    5,108
    
    
    
    
    
    
    
    Secured bonds
    
    
    800
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (2)
    
    
    124
    
    
    
    34
    
    
    
    33
    
    
    $
    15
    
    
    $
    41Purchase obligations (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    9,243
    
    
    $
    4,045
    
    
    $
    5,141
    
    
    $
    15
    
    
    $
    41
   (1)
    
    Excludes our payment obligations of convertible bonds of NT$11,533 million due to the
number of bondholders that will elect conversion or early redemption of their bonds within the
periods specified above cannot be determined.(2)
    
    Represents our obligations to make lease payments to use the land on which our facilities are
located, primarily in Taichung and Hsinchu in Taiwan.(3)
    
    Represents the agreements to purchase goods or services that are enforceable and legally
binding on us that specify all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Capital Resources We have made, and expect to continue to make, substantial capital expenditures in connection
with the expansion of our production capacity in Taichung, Hsinchu and Suzhou. See Item 4.
Information on the Company  B. Business Overview  Capital Expenditures and Divestitures. Our
initial budget for capital expenditures for 2005 is approximately US$175.0 million. We believe that
our cash on hand, existing credit facilities and anticipated cash flows from operations will be
sufficient to meet our currently anticipated capital requirements as well as our capital lease and
debt service repayment obligations for 2005. If our anticipated market outlook changes, we may need to adjust the amount of our capital
expenditures upward or downward. As a result, we may need to invest in new capacity to improve our
economies of scale and reduce our production cost, which would require us to raise additional
capital. We cannot assure you that we will be able to raise additional capital should it become
necessary on terms acceptable to us or at all. The sale of additional equity or equity-linked
securities may result in additional dilution to our shareholders. As of December 31, 2004, we had outstanding long-term borrowings (including current portion
but excluding convertible bonds of NT$11,533 million) of NT$9,120 million (US$287.3 million) owed
to foreign and domestic financial institutions. The interest rates of these long-term borrowings
dollars are at fixed and variable rates, which were and as of December 31, 2004 ranged from 1.79%
to 5.18% per year. We have pledged a substantial portion of our assets, with a carrying value of
NT$1,964 million (US$61.9 million) as of December 31, 2004, to secure our obligations under two
facilities. Our material long-term borrowings (excluding convertible bonds) as of December 31,
2004 consist of the following:  
    A multiple-purpose credit facility entered into on December 26, 2001 in the aggregate
principal amount of NT$3,470 million for the purposes of (i) refinancing certain of our
long-term indebtedness at a lower interest 47




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rate and (ii) buying back the convertible bonds due 2004 in any amount at any time after the
closing of the offering of our convertible bonds due 2007, or meeting our cash requirement
in the event that holders of the convertible bonds due 2004 exercise their put options on
July 21, 2002. This facility consists of: (i) secured corporate bonds due 2005 in the
aggregate amount of NT$800 million issued between January 16, 2002 and January 18, 2002,
which are guaranteed by several banks, including ABN-AMRO Rothschild, Taiwan branch, each
with the maturity date of January 18, 2005, (ii) a medium-term loan facility in the amount
of NT$1.17 billion, and (iii) a NIF commercial paper facility in the amount of NT$1.5
billion renewable until January 18, 2005, each for a period not to exceed 180 days. The
extent to which we will draw on this facility will depend on interest rates, exchange rates
and other relevant factors, including whether we should exhaust the proceeds of our
convertible bonds due 2007 before we apply the proceeds of the credit facility in the event
that certain of the holders of the convertible bonds due 2004 exercise their put options on
July 21, 2002. As of December 31, 2004, we had drawn NT$1,015 million (US$32.0 million) from
this facility to redeem our convertible bonds due 2004 and NT$2,455 million (US$77.3
million) for working capital purposes.
    A multiple-purpose credit facility led by China Trust Commercial Bank entered into on
July 14, 2004 in the aggregate principal amount of NT$5.0 billion for the purposes of
refinancing certain of our long-term indebtedness at a lower interest rate. This facility
is a mid-term credit facility. As of December 31, 2004, we had drawn NT$4.8 billion
(US$151.2 million) from the credit facility to refinance our exiting indebtedness. In addition, we entered into a multiple-purpose credit facility led by Citibank on June 5,
2003 in the aggregate principal amount of NT$5.2 billion for the purposes of (i) refinancing
certain of our long-term indebtedness at a lower interest rate and (ii) funding our operating
capital. This facility is a mid-term credit facility. We had repaid all of the borrowings under the
facility on August 30, 2004. Our credit facilities for long-term borrowings include certain provisions that would trigger a
requirement for early payment. Under the terms of our credit facilities for long-term borrowings,
we are also required to comply with financial covenants, including current ratio and debt-equity
ratio and other technical requirements. Our debt under these facilities may be accelerated if there
is a default, including defaults triggered by failure to comply with these financial covenants and
other technical requirements. As of December 31, 2004, we complied with all financial covenants of
existing facilities. Our long-term bonds payable consists of US$200 million zero coupon convertible bonds due 2007
that we issued in early 2002 and US$200 million zero coupon convertible bonds due 2009 that we
issued in early 2004.  
    On January 28, 2002, we issued convertible bonds in the amount of US$200 million due
2007, the proceeds of which were used to purchase raw materials and to finance the
exercise of the put options by bondholders on July 21, 2002 with respect to, and for our
repurchase of, certain convertible bonds due 2004, which we issued in 1997 and are no
longer outstanding. The zero coupon convertible bonds due 2007 are
convertible into our shares or ADSs. As of December 31, 2004, US$8.8 million of these convertible bonds had
been converted. We had repurchased US$33.7 million of these convertible bonds and had
redeemed US$7.2 million of these convertible bonds at the option of the bondholders.
    On February 5, 2004, we issued another series of convertible bonds in the amount of
US$200 million due 2009, the proceeds of which were used to purchase equipment and raw
materials. The zero coupon convertible bonds due 2009 are convertible into our shares or
ADSs. None of these convertible bonds had been converted as of December 31, 2004. These
bonds are scheduled to mature in February 2009 and will be redeemable by us on February 5,
2008 at the option of the bondholder. Transactions with Related Parties We have not extended any loans or credit to any of our directors, supervisors or executive
officers, and we have not provided guarantees for borrowings by any of these persons. We have not
entered into any fee-paying contract with any of these persons to provide services not within the
capacity of director, supervisor or executive officer of our company. 48




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We have, from time to time, purchased raw materials and sold our services and products to our
affiliated companies. We believe that these transactions with related parties have been conducted
either on arms-length terms or on terms more favorable to us than arms-length terms. See Item 7.
Major Shareholders and Related Party TransactionsB. Related Party Transactions. Inflation/Deflation The inflation rate in Taiwan was (0.2)% in 2002, (0.3)% in 2003 and 1.6% in 2004. We do not
believe that inflation in Taiwan has had a material impact on our results of operations. Taxation The corporate income tax rate in Taiwan which applies to us is 25%. Based on our status as a
company engaged in the semiconductor packaging business in Taiwan, we have been granted exemptions
from income taxes in Taiwan because we used the proceeds raised through the offering of global
depository receipts in 1995 to purchase packaging equipment. As permitted by Taiwan tax regulation,
we can use these exemptions for five years from the date when we begin to generate income from the
use of this packaging equipment. As a result, we began to use these exemptions in 1998. These tax
exemptions resulted in tax savings of approximately NT$160 million in 2000. Because we incurred net
loss for income tax return purposes in 2001 and 2002, we cannot take advantage of these tax
exemptions for years 2001 and 2002. These tax exemptions expired at the end of 2002. The ROC
government enacted new tax regulations applicable to several industries, including the
semiconductor industry. The new regulations exclude certain products in the semiconductor industry,
including some of our products, from these tax exemptions. We continue to use this tax exemption
since 2004. For example, our quad flat packaging products, certain fine pitch products and small outline
packaging products would no longer be tax-exempt. However, our other products and services,
including our substrate packaging products and testing services, are expected to continue to enjoy
tax exemptions under the new regulations. We are also entitled to apply for exemptions from income
taxes in 2003 from the proceeds of ADSs we issued in early 2000. We also benefit from other tax incentives generally available to technology companies,
including tax credits of no more than 35% for research and development and employee training
expenses and tax credits ranging from 5% to 20% for investment in automation equipment and
technology and certain qualifying investments. According to the amended Statute for Upgrading
Industries and relevant regulations effective in 2002, the tax credit for research and development
and employee training expenses is 30%. Historically, these tax incentives have resulted in
decreases of income tax payable by approximately nil, NT$399 million and NT$436 million (US$13.7
million) in 2002, 2003 and 2004, respectively. In 2002, 2003 and 2004, our effective income tax
rates were 51.95%, 28.89% and 11.95%, respectively, as tax benefits more than offset income taxes
payable. According to the ROC tax credit rules, we currently enjoy a tax credit of 11% for the
purchase of equipment. In 1997, the ROC Income Tax Law was amended to integrate the corporate income tax and
shareholder dividend tax to eliminate the double taxation effect for resident shareholders of ROC
companies. Under the amendment, all retained earnings generated beginning January 1, 1998 and not
distributed to shareholders as dividends in the following year are assessed a 10% retained earnings
tax. As a result, if we do not distribute all of our annual retained earnings as dividends in the
following year, our effective tax rate would exceed 25%. US GAAP Reconciliation Our financial statements have been prepared in accordance with ROC GAAP, which differs in
certain significant respects from US GAAP. The US GAAP information in note 28 to the consolidated
financial statements summarize the principal differences between the amounts determined in
accordance with our accounting policy, which is based on ROC GAAP, and determined in accordance
with US GAAP together with reconciliation of net income and shareholders equity from a ROC GAAP
basis to a US GAAP basis. The following table shows a comparison of our net income and
stockholders equity according to ROC GAAP and US GAAP for the periods indicated. Reconciliation of Consolidated Net Income 49




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##### Table of Contents



For the Years Ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(consolidated)(in millions)Net income as reported under ROC GAAP
    
    
    425
    
    
    
    2,839
    
    
    
    4,282
    
    
    
    134.9US GAAP adjustments:Compensated absences
    
    
    (7
    )
    
    
    (1
    )
    
    
    1
    
    
    
    0.0Compensation
    
    
    
    
    
    
    (341
    )
    
    
    (699
    )
    
    
    (22.0
    )Treasury stock transfer to employee
    
    
    
    
    
    
    (154
    )
    
    
    (193
    )
    
    
    (6.1
    )Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment on long-term investments
    
    
    (213
    )
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of long-term investment
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    0.0Embedded derivative
    
    
    (53
    )
    
    
    237
    
    
    
    (84
    )
    
    
    (2.6
    )Marketable securities
    
    
    (6
    )
    
    
    5
    
    
    
    
    
    
    
    Equity investments:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Timing differences
    
    
    (362
    )
    
    
    631
    
    
    
    398
    
    
    
    12.5Net income/(loss) variance between US
GAAP and ROC GAAP
    
    
    22
    
    
    
    (30
    )
    
    
    (8
    )
    
    
    (0.3
    )Accounting for income in preferred stock
    
    
    (45
    )
    
    
    87
    
    
    
    (29
    )
    
    
    (0.9
    )Technology and know-how contributed to
a joint venture investee
    
    
    (6
    )
    
    
    (6
    )
    
    
    
    
    
    
    Total US GAAP adjustments
    
    
    (670
    )
    
    
    428
    
    
    
    (615
    )
    
    
    (19.4
    )Taxation effect
    
    
    22
    
    
    
    (19
    )
    
    
    
    
    
    
    Net income under US GAAP
    
    
    (223
    )
    
    
    3,248
    
    
    
    3,667
    
    
    
    115.5
 Reconciliation of Consolidated Shareholders Equity As of December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(consolidated)(in millions)Total shareholders equity as reported
under ROC GAAP
    
    
    26,179
    
    
    
    29,698
    
    
    
    33,493
    
    
    
    1,055.2US GAAP adjustments:Compensated absences
    
    
    (20
    )
    
    
    (21
    )
    
    
    (20
    )
    
    
    (0.6
    )Compensation
    
    
    
    
    
    
    (341
    )
    
    
    (438
    )
    
    
    (13.8
    )Impairment on long-term investments
    
    
    (213
    )
    
    
    (213
    )
    
    
    (213
    )
    
    
    (6.7
    )Embedded derivative
    
    
    (53
    )
    
    
    184
    
    
    
    100
    
    
    
    3.2Equity investments:Timing differences
    
    
    (372
    )
    
    
    259
    
    
    
    658
    
    
    
    20.7Net income variance between US GAAP
and ROC GAAP
    
    
    126
    
    
    
    97
    
    
    
    88
    
    
    
    2.8Accounting for income in preferred stock
    
    
    (66
    )
    
    
    29
    
    
    
    
    
    
    
    Technology and know-how contributed to
a joint venture investee
    
    
    (204
    )
    
    
    (210
    )
    
    
    (210
    )
    
    
    (6.6
    )Marketable securities
    
    
    (14
    )
    
    
    2,072
    
    
    
    853
    
    
    
    26.9Acquisition of Siliconware Corp.
    
    
    4,873
    
    
    
    4,873
    
    
    
    4,873
    
    
    
    153.5Taxation effect
    
    
    26
    
    
    
    7
    
    
    
    7
    
    
    
    0.2Shareholders equity under US GAAP
    
    
    30,262
    
    
    
    36,434
    
    
    
    39,191
    
    
    
    1,234.8
 50




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##### Table of Contents



The following are the most significant differences between ROC GAAP and US GAAP as they relate
to our net income and shareholders equity. For other GAAP differences, please refer to note 28 to
our consolidated financial statements included elsewhere in this annual report. Employee Bonuses Certain employees of our company are entitled to bonuses in accordance with applicable
provisions of our articles of incorporation. Employee bonuses are determined at 10% of
distributable retained earnings. Distributable retained earnings are calculated as retained
earnings after various reserves in accordance with ROC regulations and our articles of
incorporation and after appropriation for remuneration to directors. Employee bonuses may be
granted in cash, shares or a combination of both. Under ROC GAAP, such bonuses are appropriated
from retained earnings in the accounting period during which such shareholders approval is
obtained. If such employee bonuses are in the form of our shares, the amount charged against
retained earnings is based on the par value of the shares issued. Under US GAAP, any employee bonus
expense is initially accrued at the end of the period when services are rendered, at 10% of the
distributable retained earnings. When bonuses are approved by the shareholders in the subsequent
year, an additional compensation expense is recorded for the difference between the par value and
the fair market value of shares granted to employees. The difference between US GAAP and ROC GAAP
in this area would result in adjustments to net income and shareholders equity as shown in the
above schedules. In addition to the adjustments to net income and shareholders equity as shown in
the above schedules, application of US GAAP on employee bonuses would also result in a
reclassification from retained earnings to additional paid-in capital. Equity Investments Under the equity method, our proportionate share of the income (loss) of the investee is
generally recognized in the year the income (loss) is earned. However, under ROC GAAP, if financial
statements of an investee are not sufficiently timely for us to apply the equity method in the
current period and such equity interests are below certain materiality threshold, we are permitted
to delay the recognition of income (loss) until the subsequent year. US GAAP, however, does not
allow the investor company to delay recognition of its equity in the investees income or loss. The
US GAAP adjustment deducts the delayed income from subsequent years net income and adds it back to
the prior year to arrive at net income under US GAAP. Our proportionate share of the income (loss) from an equity investee may differ if the equity
investees net income (loss) under ROC GAAP differs from US GAAP. Any difference would be
recognized if and when we sell the equity investment. Under ROC GAAP, when an investment is made in non-accumulative, convertible preferred shares,
investment income is recognized for the amount of actual dividends when dividends are declared.
Investment loss is recognized to the extent that the investees net book value is less than our
liquidation preference. Under US GAAP, we recognize the proportionate share of both the investees
income and loss. Under a joint venture agreement with Mosel Vitelic Inc., we contributed cash as well as
technological know-how in exchange for an equity interest in ChipMOS. Under ROC GAAP, we recognized
as initial cost of investment for cash and the value of know-how contributed. Under US GAAP, the
technological know-how transfer is not valued and not recognized as cost of investment. Taxation Effect Under ROC GAAP, a 10% tax on undistributed earnings is recognized as a tax expense in the
period when the amount of undistributed earnings is determined. In addition, the effect of the 10%
tax on temporary differences is not recognized for ROC GAAP purposes. Under US GAAP, the 10% tax on
undistributed earnings is accrued in the period during which related income is generated and the
impact of the 10% tax is measured for both current and deferred tax perspectives. Goodwill Acquired through Acquisition 51




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The fair value of the net assets we received was used as the value of the consideration for
the acquisition of the remaining interests in Siliconware Corp. on December 31, 2000 and reflected
in the common stock and capital reserve in our balance sheet. As the consideration is equal to the
fair value of the net assets received, no goodwill is recorded under ROC GAAP. Under US GAAP, the
acquisition has been accounted for using the purchase method of accounting, and the purchase price
was determined using the market value of our shares issued in connection with the acquisition. The
difference between the fair value of our shares issued in connection with the acquisition and the
fair value of the net assets acquired results in goodwill. Goodwill is amortized on a straight-line
basis over ten years. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we no longer amortize
goodwill beginning 2002. We have elected to perform our annual impairment review in each fiscal
year. We have completed our annual goodwill impairment test for fiscal 2004 and concluded that
there was no impairment. Impairment of Long-lived Assets Before SFAS No. 35 Asset Impairment is effective on January 1, 2005, there was no specific
standards under ROC GAAP that address impairment of long-lived assets. US GAAP, however, requires
that long-lived assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. During 2002, several of our
investees accounted for under the equity method, including ChipMOS Technologies Inc., Artest
Corporation and Double Win Enterprise Co., Ltd., incurred significant losses since the dates of our
investments and there was no indication of recovery in the near future. We concluded that the
impairment loss was other than temporary. Accordingly, we recorded impairment charges totaling
NT$213 million (US$6.7 million) on these long-term equity investments and wrote off the carrying
value of the investments to their fair value in 2002. Embedded Derivatives Under ROC GAAP, investment in convertible or exchangeable bonds is carried at the lower of
cost or market value. Under US GAAP, the convertible or exchangeable option is considered an
embedded derivative instrument and must be separated from the host contract and accounted for as
though it was a discrete derivative instrument. The derivative instrument is measured at fair
value, with changes in the fair value reported in earnings. Such adjustments to the carrying amount
of the embedded derivative would remain part of the carrying amount of that asset until the asset
is sold, at which time the entire carrying amount of the embedded derivative would be recognized as
the cost of the item sold in determining earnings. If an entity were unable to reliably identify
and measure the embedded derivative instrument for separation from the host contract, the entire
contract would have to be measured at fair value, with gains and losses recognized in earnings. Stock Dividends Under ROC GAAP, an issuance of stock dividends is recorded at par with a charge to retained
earnings. Under US GAAP, if the ratio of distribution is less than 25% of shares of the same class
outstanding, the fair value of the shares issued should be charged to retained earnings. This
different treatment will result in, under US GAAP, a reclassification from retained earnings to
additional paid-in capital of NT$21,620 million (US$681.1 million) on December 31, 2004. This
adjustment has no effect on our shareholders equity. Marketable Securities Under ROC GAAP, marketable equity securities and long-term equity investments in which the
company owns less than 20% of the voting rights of a publicly listed investee company are carried
at the lower of cost or market value, and debt securities at cost. The market value of listed
stocks is determined by the average closing price during the last month of the accounting period.
Under US GAAP FAS 115, Accounting for Certain Investments in Debt and Equity Securities, debt and
equity securities that have readily determinable fair values are to be classified as either
trading, available-for-sale or held-to-maturity securities. Debt securities that the company has
the positive intent and ability to hold to maturity are classified as held-to-maturity securities
and reported at amortized cost. Debt and equity securities that are bought and traded for
short-term profit are classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not classified as either
held-to-maturity or 52




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##### Table of Contents



trading are classified as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate component of
shareholders equity. The fair value of listed stock under US GAAP is generally determined by the
closing price at the balance sheet date. For individual securities classified as either
available-for-sale or held-to-maturity, the company performs analysis to determine whether a
decline in fair value below the cost is other than temporary. No such impairment has been
identified during the periods presented. Treasury Stock Transferred to Employees Under ROC GAAP, treasury shares transferred to employees are recorded as capital contribution
for the cash amount received from the employees. Under US GAAP, in addition to the capital
contribution recorded for the cash amount received from the employees, compensation expense would
be recorded, for the difference between the shares transfer price and the fair market value of the
shares issued at the issuance date, during the period when such transfers were made. Calculation of EPS In calculating weighted average number of shares outstanding for EPS purposes under ROC GAAP,
employee bonus shares have been treated as outstanding for all periods, in a manner similar to a
stock split or dividend. Under US GAAP, employee bonus shares have been considered separately from
the stock dividend or split and have been treated as outstanding from the date when they were
issued. The numbers of employee bonus shares issued in 2002, 2003 and 2004 were nil, nil and
21,049,700 shares, respectively. Recent Accounting Pronouncements In May 2003, the Financial Accounting Standard Board (FASB) issued SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The
statement establishes standards for how an issuer classifies and measures certain financial
instruments that are within its scope as a liability. Many of those instruments were previously
classified as equity. SFAS No. 150 is to be implemented by reporting a cumulative effect of a
change in accounting principle for financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim period of adoption. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15, 2003. We adopted
the statement in accordance with the pronouncement. The statement had no material impact on our
results of operations or financial position. In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on EITF No. 03-06,
Participating Securities and Two-Class Method under FASB Statement No. 128, Earnings Per Share.
EITF 03-6 is intended to clarify what is a participating security and how to apply the two-class
method of computing earnings per share once it is determined that a security is participating,
including how to allocate undistributed earnings to such a security. ETIF 03-6 is effective for
reporting periods beginning after March 31, 2004. As we currently do not issue securities other
than common stock that contractually entitle the holder to participate in our dividends and
earnings, the adoption of this pronouncement had no impact on our consolidated financial position,
results of operations or cash flows. In September 2004, the EITF delayed the effective date for the recognition and measurement
guidance previously discussed under EITF Issue No. 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-01) as included in paragraphs
10-20 of the proposed statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt and equity securities,
in particular investments within the scope of FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and investment accounted for under the cost method. We
have evaluated the effects of this proposed statement on its financial position and results of
operations and do not expect the adoption of the accounting provisions of EITF 03-01 to have a
significant impact on the company. In September 2004, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board reached a conclusion in EITF Issue No. 04-8 pertaining to including contingently convertible
debt in fully diluted 53




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##### Table of Contents



earnings per share. Our zero-coupon convertible notes, which are convertible into its common
stock, will be included in current and prior periods fully diluted earnings per share calculation.
As we currently do not issue contingently convertible debt securities, the adoption of this
pronouncement had no impact on our diluted earnings per share. In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 151, Inventory Costs  an amendment of ARB No. 43, Chapter
4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material. SFAS No. 151 requires that abnormal amounts be recognized as
current period charges regardless of whether they meet the criterion of so abnormal. In addition,
SFAS No. 151 required that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. This standard does not effect our
financial position, cash flows or results of operations. In December 2004, the FASB issued FAS No. 123(R), Share-Based Payment, (FAS 123 (R)). FAS
123(R) requires employee stock options and rights to purchase shares under stock participation
plans to be accounted for under the fair-value method, and eliminates the ability to account for
these instruments under the intrinsic-value method prescribed by APB Opinion No. 25, which was
allowed under the original provisions of FAS 123. FAS 123(R) requires the use of an option-pricing
model for estimating fair value, which is amortized to expenses over the requisite periods. The
requirements of FAS 123(R) were effective for interim periods beginning after June 15, 2005. The
Securities and Exchange Commission (SEC) has postponed the effective date of FAS 123(R), giving
companies more time to develop their implementation strategies. Under the SECs rule, FAS 123(R) is
now effective for public companies for annual, rather than interim, periods that begin after June
15, 2005. We plan to adopt FAS 123(R) beginning in fiscal 2006 and is currently evaluating the
various transition methods allowed under FAS 123(R). In December 31, 2004, the FASB issued SFAS No. 153, Exchanges of Non-Monetary Assets, an
Amendment of APB Opinion No. 29, effective for non-monetary asset exchanges occurring in the
fiscal year beginning January 1, 2006. SFAS No. 153 requires that exchanges of productive assets
be accounted for at fair value unless fair value cannot be reasonably determined or the transaction
lacks commercial substance. We are currently evaluating the effects on our financial statements. C. Research and Development, Patents and Licenses, etc. See Item 4. Information on our Company  B. Business Overview  Research and Development and
Item 4. Information on our Company  B. Business Overview  Intellectual Property. D. Trend Information Please refer to  A. Operating Results  Overview for a discussion of the most significant
recent trends in our production, sales and inventory, costs and selling prices since the end of
2004. In addition, please refer to discussions included in this Item for a discussion of known
trends, uncertainties, demands, commitments or events that we believe are reasonably likely to have
a material effect on our net sales or operating revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported financial information
not necessarily to be indicative of future operating results or financial condition. E. Off-Balance Sheet Arrangements As of December 31, 2004, we had unused letters of credit for imported machinery and equipment
in the aggregate amount of approximately NT$222 million (US$7.0 million). See note 25 to our
consolidated financial statements included in this annual report. We do not engage in trading
activities involving non-exchange traded contracts or enter into any other off-balance sheet
arrangements. F. Tabular Disclosure of Contractual Obligations See Item 8. Operating and Financial Review and Prospectus  B. Liquidity and Capital
Resources  Liquidity for the tabular disclosure of our contractual obligations. 54




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##### Table of Contents



Item 6. Directors, Senior Management and Employees A. Directors and Senior Management The following table shows information regarding all of our directors, supervisors and
executive officers as of March 31, 2005. The business address of our directors, supervisors and
executive officers is the same as our registered address. Years
    
    Principal Business Activitieswith
    
    Performed Outside OurName
    
    Age
    
    Position
    
    Us
    
    CompanyBough Lin
    
    
    53
    
    
    Chairman
    
    
    22
    
    
    Director of Siliconware
Investment Co., Ltd., Artest
Corporation, King Yuan
Electronics Co., Ltd., APTOS
Corporation and SPIL
(B.V.I.) Holding Limited and
supervisor of Integrated
Technology Express Inc., V
Inc.Chi Wen Tsai
    
    
    57
    
    
    Vice Chairman; President
    
    
    22
    
    
    Director of Siliconware USA,
Inc.Li Ping Wang
    
    
    50
    
    
    Director; Senior Vice President
    
    
    22
    
    
    NoneYen Chun Chang
    
    
    50
    
    
    Director; Senior Vice President
    
    
    22
    
    
    NoneWen Jung Lin
    
    
    58
    
    
    Director
    
    
    16
    
    
    NoneWen Chung Lin
    
    
    52

    
    
    Director; Chief Financial Officer
    
    
    21
    
    
    Director of Siliconware USA,
Inc.Hsiu Li Liu
    
    
    50
    
    
    Director
    
    
    15
    
    
    NoneC.Y. Lin(1)
    
    
    52
    
    
    Director
    
    
    13
    
    
    NoneJohnson Tien(1)
    
    
    51
    
    
    Director; Senior Vice President
    
    
    9
    
    
    NoneWen Lung Cheng
    
    
    57
    
    
    Supervisor
    
    
    4
    
    
    NoneTeresa Wang(1)
    
    
    49
    
    
    Supervisor
    
    
    14
    
    
    Director of Phoenix
Precision Technology
CorporationJerome Tsai(2)
    
    
    52
    
    
    Supervisor
    
    
    8
    
    
    Director of ChipMOS
Technologies Inc., Double
Win Enterprise Co., Ltd.J. Y. Hung
    
    
    51
    
    
    Senior Vice President
    
    
    3
    
    
    NoneTzu Fu Lee
    
    
    54
    
    
    Vice President
    
    
    6
    
    
    NoneChien An Chen
    
    
    55
    
    
    Vice President
    
    
    14
    
    
    NoneChien Hua Chen
    
    
    50
    
    
    Vice President
    
    
    6
    
    
    NoneCliff Liao
    
    
    46
    
    
    Director of Management Information
System Division
    
    
    2
    
    
    NoneAndy Chu
    
    
    56
    
    
    Director of Administrative Division
    
    
    5
    
    
    NonePatrick Lin
    
    
    48
    
    
    Director of Operation Support
Division
    
    
    4
    
    
    NoneWen Hsien Chang
    
    
    55
    
    
    Director of Facility Division
    
    
    7
    
    
    None
   (1)
    
    Representing Siliconware Investment Company Ltd.(2)
    
    Representing Joinwin Investment Company Ltd. Mr. Tsai was officially appointed by Joinwin to
be its representative on June 6, 2002. Bough Linis our Chairman. He has been our Director since 1984. Mr. Lin is also currently
a director of Phoenix Precision Technology Corporation, APTOS Corporation, Siliconware Investment
Company Ltd. and SPIL (B.V.I.) Holding Limited and supervisor of Integrated Technology Express,
Inc., as our representative on these companies boards. Mr. Lin also serves on the board of
Siliconware USA, Inc. as a representative of SPIL (B.V.I.) Holding Limited. Mr. Lin is also the
chairman of Phoenix Precision Technology Corporation. In addition, Mr. Lin serves on the boards of
Artest Corporation and Integrated Technology Express Inc. as a representative of Siliconware
Investment Company Ltd. He graduated from National Chiao Tung University in Taiwan in 1973 with a
Bachelors degree in electronic physics. In addition, Mr. Lin is a cousin of Messrs. Wen Chung Lin
and Wen Jung Lin, who are also our Directors. Wen Lung Cheng, one of our supervisors, is the
brother-in-law of our Chairman. 55




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Chi Wen Tsaiis currently our Vice Chairman and President and has been our Director since
1984. Mr. Tsai is also a director of Siliconware USA, Inc. He received a Bachelors degree in
electrical engineering from National Taipei Institute of Technology in Taiwan in 1969. Li Ping Wanghas been our Director since 1984. She graduated from Hsin Min Commerce and
Industry College in Taiwan in 1973. Yen Chun Changis our Director and one of two officers of our manufacturing group. Mr. Chang
received a Bachelors degree in electrical engineering from Nan Tai College in Taiwan in 1976. Wen Jung Linis our Director. He received a Bachelors degree in architecture from Feng Chia
University in Taiwan in 1970. Mr. Lin is a cousin of Mr. Bough Lin, our Chairman. Mr. Lin is also a
cousin of Mr. Wen Chung Lin, our Director. Wen Chung Linhas been our Director since 1993. Mr. Lin is also our chief financial officer.
Mr. Lin is also a director of Siliconware USA, Inc. Mr. Lin studied in the MBA program of Sanno
College in Japan in 1984. Mr. Lin is a cousin of Mr. Bough Lin, our Chairman. Mr. Lin is also a
cousin of Mr. Wen Jung Lin, our Director. Hsiu Li Liuis our Director. She received a Bachelors degree in international trade from Ming
Chuang College in Taiwan in 1975. C.Y. Linhas been our Director since June 2002. Mr. Lin received his Bachelors degree in
Electronic Engineering from Nan-Jeon College. Johnson Tienhas been our Director since June 2002. Mr. Tien is our Senior Vice President in
charge of the Hsinchu branch. He received a Bachelors degree in industrial engineering from
Chung-Yuan Christian University in 1976. Wen Lung Chenghas been our supervisor since June 2002. Mr. Cheng received a Bachelors degree
in bank and insurance from Tamkang University in Taiwan in 1969. He is the brother-in-law of Mr.
Bough Lin, our Chairman. Teresa Wanghas been our supervisor since June 2002. Ms. Wang is the chief financial officer
of Phoenix Precision Technology Corporation. She received a Bachelors degree in accounting and
statistics from Ming Chuang College in 1978. Jerome Tsaihas been our supervisor since June 2002. He received Bachelors degree in
statistics from National Cheng Kung University and a Masters degree in technology management from
National Chiao Tung University. J. Y. Hunghas been a Senior Vice President since 2001. Before joining us, Mr. Hung was the
general manager of Hua Tung Co. Mr. Hung holds a Masters degree in industrial engineering from
Cheng Kung University. Tzu Fu Leehas been a Vice President of since 1999. Before joining us, Mr. Lee was an
assistant manager at VLSI. Mr. Lee received a Bachelors degree in electrical engineering from Ta
Tung Institute of Technology Chien An Chenhas been a Vice President of since 2000. Mr. Chen holds an MBA from University
of War in England. Chien Hua Chenhas been a Vice President of since 1999. Before joining us, Mr. Chen was the
general manager of Ling Sheng Co. Mr. Chen holds a Masters degree in electrical engineering from
Arizona State University. Kuo Jui Taihas been a Vice President of since 2003. Before joining us, Mr. Tai was the
vice-general manager of You Li Co. Mr. Tai received a Bachelors degree in electrical engineering
from Chunyuan University. 56




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Cliff Liaohas been our Director of Management Information System Division since 2003. Before
joining us, Mr. Liao was the manager of Hewlett-Packard in Taiwan. Mr. Liao received a Bachelors
degree in computer science and information engineering from Feng Chia University. Andy Chuhas been our Director of Administrative Division since 2000. Before joining us, Mr.
Chu was the director of Universal Scientific Industrial Co., Ltd. Mr. Chu received an MBA degree
from Chaoyang University of Technology. Patrick Linhas been our Director of Operation Support Division since 2001. Before joining
us, Mr. Lin was the director of Orient Semiconductor Electronics, Ltd. Mr. Lin received a
Bachelors degree in international trade from Tamkang University. Wen Hsien Changhas been our Director of Facility Division since 1998. Mr. Chang majored in
electronic engineering from National Taichung Industrial High School. B. Compensation of Directors, Supervisors and Executive Officers The aggregate compensation paid and in-kind benefits granted to our directors, supervisors and
executive officers in 2004 was NT$168 million (US$5.3 million). According to our articles of
incorporation, 2% of the balance of net income after the payment of income taxes, recovery of past
losses and deduction of 10% as legal reserve may be provided as remuneration to our directors and
supervisors. The remaining amount may be distributed or reserved in a ratio of 10% and 90% as
bonuses to our employees and as dividends to our shareholders, respectively. In addition, in 2003
we granted a total of 2,950 options to purchase up to 2,950,000 shares under the 2002 Employee
Stock Option Plan to certain of our executive officers. Some of our executive officers receiving
options are also directors of our company. C. Board Practices All of our directors and supervisors were elected on June 3, 2002 for a term of three years.
Neither we nor any of our subsidiaries have entered into a contract with any of our directors and
supervisors by which our directors or supervisors are expected to receive benefits upon termination
of their employment. Audit Committee At the date of this filing, we do not have any independent director to constitute an audit
committee. Our shareholders meeting is scheduled to be held on June 13, 2005. We anticipate that
three independent directors will be elected during the shareholders meeting, all of whom will
serve on our audit committee. We require our audit committee members to be financially literate
with accounting or related financial management expertise in accordance with the Securities
Exchange Act of 1934, as amended (the Exchange Act). We are in the process of preparing the
audit committee charter in accordance with Rule 10A-3 of the Exchange Act and NASD Marketplace Rule
4350. We expect to be in compliance with the requirements thereunder by July 31, 2005. Difference between NASDAQ Requirement and Home Country Practices In general, corporate governance principles for Taiwanese companies are set forth in the
Company Act of the Republic of China, or ROC Company Act, the ROC Securities and Exchange Act and,
to the extent they are listed on the Taiwan Stock Exchange, listing rules of the Taiwan Stock
Exchange. Corporate governance principles under provisions of ROC law may differ in significant
ways to corporate governance standards for U.S. NASDAQ-listed companies. Under the latest
amendment to the NASD Marketplace Rule 4350(a)(1), foreign private issuers are permitted to follow
certain home country corporate governance practices in lieu of the requirements of Rule 4350.
Under the amendment, foreign private issuers must disclose alternative home country practices they
follow. The following are the requirements of Rule 4350 we do not follow and the home country
practices we follow. Under the Rule4350(c)(1), a majority of the board of directors must comprise of independent
directors.We plan to have three independent directors out of a total of nine directors on our
board after our shareholders meeting to be 57




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held on June 13, 2005. Our standards in determining director independence substantially comply
with the NASDAQ requirements, which include detailed tests for determining director independence.
In Taiwan, to strengthen corporate governance of Taiwanese companies, the government has proposed
an amendment to the ROC Securities and Exchange Act to require public companies to have at least
one-fourth of their board of directors be comprised of independent directors. Such proposal is
currently being reviewed by the Legislative Yuan of the ROC. Under Rule4350(c)(2), the company is required to have regularly scheduled meetings at which
only independent directors are present.We do not hold executive sessions of non-management
directors as the election of independent directors is not required by the ROC Company Act.
However, once our independent directors are elected, they will participate in committee meetings of
which they are committee members. In particular, we expect our independent directors to serve on
our audit committee. Our audit committee will meet regularly. Rule4350(c)(3)requires that compensation of the chief executive officer of the company must
be determined, or recommended to the board, either by a majority of the independent director or an
independent compensation committee.We currently follow the practice under ROC Company Act, which
requires that the compensation of directors be approved by shareholders. In addition, we also
follow Article 29 of the ROC Company Act, which provides that the compensation of executive
officers of the company shall be decided by resolutions adopted by the majority of the board at a
meeting satisfying a quorum of more than one-half of the directors. Under Rule4350(c)(4), director nominees must either be selected, or recommended for the
Boards selection, either by a majority of the independent directors or an independent nominations
committee.The ROC Company Act expressly grants the power of nomination to the shareholders, as
well as to the board of directors. Under the ROC Company Act and the interpretations thereof,
candidates to serve as directors are nominated either by the board of directors prior to the
shareholders meeting or by the shareholders during the election of the director. In addition, the
Legislative Yuan of the ROC has approved an amendment to the ROC Company Act specially granting
director nomination powers to holders of at least one percent of the total issued and outstanding
shares of the company. Therefore, the requirement of a nominations committee is in conflict with
the ROC Company Act. We currently follow the home country practice. Under the Rule4350(h), each issuer shall conduct a review of all related party transactions
on an ongoing basis and all such transactions shall be approved by the companys audit committee or
another comparable independent body.Prior to the formation of our audit committee, our board of
directors reviewed and approved the companys related party transactions. After the formation of
our audit committee, we will require that our audit committee review related party transactions in
accordance with the NASDAQ requirement. Under Rule4350(i)(1)(A), each issuer shall require shareholder approval when a stock option
or purchase plan is to be established or materially amended or other equity compensation
arrangement made or materially amended, pursuant to which stock may be acquired by officers,
directors, employees, or consultants.Under the corresponding domestic requirements in the ROC
Company Act and the ROC Securities and Exchange Act, shareholders approval is required for the
distribution of employee bonuses in the form of stock, while the board of director has authority,
subject to the approval of the ROC SFB, to approve employee stock option plans and to grant options
to employees pursuant to such plans. We follow the home country practice. ROC law provides for
specific safeguards on employee stock option grants. Options granted under the plans are subject
to certain statutory volume limitations. Under the ROC Company Act, the directors of a company may
not receive stock options because they are not considered employees of the company. D. Employees As of December 31, 2004, we had 10,003 full-time employees. Of these employees, 5,813 were
engaged in packaging and testing production, 2,426 were engaged in engineering and other technical
operations and 1,764 were engaged in finance, business management and administration. As of
December 31, 2003 and 2002, we had 9,123 and 9,160 full-time employees, respectively. Employee salaries are reviewed once or twice a year. Salaries are adjusted based on industry
standards, inflation and individual performance. As an incentive, additional bonuses in cash may be
paid at the discretion of the 58




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management based on the performance of individuals. In addition, ROC law requires that
employees be given preemptive rights to subscribe to between 10% and 15% of any of our rights
issues or share offerings. In accordance with the newly enacted ROC Labor Pension Act, all ROC companies, including us,
will be required, effective July 1, 2005, to contribute at least 6% of our employees monthly
salary to the pension fund accounts of those employees who decide to participate in the portable
pension schemes available under the Labor Pension Act. Under the ROC Labor Standards Act, which
governed pension schemes prior to the Labor Pension Act, ROC companies were required to contribute
at least 2% of such monthly income to the pension fund accounts. It is not yet clear how many
employees will decide to participate in the portable pension schemes under the Labor Pension Act.
However, we anticipate that our pension costs will increase as a result of this new legislation. Our employees participate in our profit distribution under our articles of incorporation.
Employees are entitled to receive bonus shares based on a percentage of our allocable surplus
income. We paid employees stock in the aggregate amount of 21,049,700 shares and cash bonuses of
NT$74 million in 2004. In July 2002, we adopted the 2002 Employee Stock Option Plan that authorizes the grant of
options to our full-time regular employees, including those of our domestic and overseas
subsidiaries, for purchase up to an aggregate of 40,000,000 shares of our common shares. The
exercise price for the options would be the closing price of our common shares on the Taiwan Stock
Exchange on the day the options are granted, while the expiration date for such options is 5 years
from the date of grant. In February and May 2003, we granted a total of 35,828 options to purchase
up to 35,828,000 shares under the 2002 Employee Stock Option Plan, of which 2,950 options were
granted to certain of our executive officers. Some of our executive officers receiving options are
also directors of our company, and the options granted to our officers have an initial exercise
price of NT$13.7. The options granted in February 2003 and May 2003 had an exercise price of
NT$15.6 and NT$16.3 and a purchase price of nil. In August 2004, we adjusted the exercise price of
the February 2003 and May 2003 options to NT$13.7 and NT$14.3, respectively, and the options will
expire 5 year from the date of grant if not previously exercised. Number of shares issuableupon exercise of options
    
    Expiration Date
    
    Exercise price32,356,000
    
    February 2008
    
    NT$13.73,472,000
    

May 2008
    
    NT$14.3
 Under the 2002 Employee Stock Option Plan, an option holder may exercise an increasing portion
of his or her options starting two years after the grant of the options. According to the vesting
schedule, 30%, 70% and 100% of such option holders options shall vest two, three and four years
after the grant of the options, respectively. Upon termination of employment, the option holder
shall exercise his or her vested options within one month, subject to exceptions provided therein,
and otherwise after the termination, such options shall terminate. If termination of employment was
due to death, the heirs of such option holder have one year starting from the date of the death to
exercise his or her vested options. If termination of employment was due to retirement or
occupational casualty, the option holder or his or her heirs may exercise all his or her options
within certain period as provided. The options are generally not transferable or pledgeable by the
option holders. We do not have any collective bargaining arrangement with our employees, and we have never
experienced a work stoppage caused by our employees. We believe we have good relations with our
employees. We do not have any labor union. E. Share Ownership Each of our directors, supervisors and executive officers holds our shares either directly for
their own account or indirectly as the representative of another legal entity on our board of
directors. The following table sets forth the share ownership of our directors, supervisors and
executive officers as of April 15, 2005, our most recent record date. 59




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Number ofOrdinary Shares
    
    
    Per ShareIssuable on
    
    
    ExerciseNumber of
    
    
    Percentage of
    
    
    Exercise of
    
    
    PriceName
    
    Shares Owned
    
    
    Shares Owned
    
    
    Option
    
    
    (NT$)
    
    Exercisable PeriodBough Lin
    
    
    44,479,265
    
    
    
    2.11
    %
    
    
    360,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Chi Wen Tsai
    
    
    34,049,299
    
    
    
    1.61
    %
    
    
    360,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Li Ping Wang
    
    
    46,241,103
    
    
    
    2.19
    %
    
    
    
    
    
    13.7
    
    Yen Chun Chang
    
    
    12,937,259
    
    
    
    
    *

    
    
    240,000
    
    
    13.7
    
    Feb. 2003 to Feb.2008Wen Jung Lin
    
    
    6,358,026
    
    
    
    
    *

    
    
    
    
    
    13.7
    
    Wen Chung Lin
    
    
    32,961,477
    
    
    
    1.56
    %
    
    
    270,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Hsiu Li Liu
    
    
    12,179,960
    
    
    
    
    *
    
    
    
    
    
    13.7
    
    C.Y. Lin(1)
    
    
    29,717,353
    
    
    
    1.41
    %
    
    
    
    
    
    13.7
    
    Johnson Tien(1)
    
    
    
    
    
    
    
    
    
    
    240,000
    
    
    13.7
    
    Feb. 2003 to Feb.2008Wen Lung Cheng
    
    
    5,837,253
    
    
    
    
    *

    
    
    
    
    
    13.7
    
    Teresa Wang(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.7
    
    Jerome Tsai(2)
    
    
    2,750,000
    
    
    
    
    
    
    
    
    
    
    13.7
    
    J. Y. Hung
    
    
    142,700
    
    
    
    
    *

    
    
    240,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Tzu Fu Lee
    
    
    83,891
    
    
    
    
    *

    
    
    120,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Chien An Chen
    
    
    492,066
    
    
    
    
    *

    
    
    140,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Chien Hua Chen
    
    
    0
    
    
    
    
    
    
    
    60,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Kuo Jui Ta
    
    
    85,000
    
    
    
    
    *

    
    
    300,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Cliff Liao
    
    
    217,916
    
    
    
    
    *
    
    
    140,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Andy Chu
    
    
    0
    
    
    
    
    *

    
    
    140,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Patrick Lin
    
    
    74,200
    
    
    
    
    *

    
    
    200,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008Wen Hsien Chang
    
    
    6,628,286
    
    
    
    
    *

    
    
    140,000
    
    
    13.7
    
    Feb. 2003 to Feb. 2008
   *
    
    Less than 1%.(1)
    
    Representing Siliconware Investment Company Ltd.(2)
    
    Representing Joinwin Investment Company Ltd. See D. Employees for a description of the 2002 Employee Stock Option Plan. 
 Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders The following table presents information known to us concerning the record ownership of our
shares as of December 31, 2002, December 31, 2003, December 31, 2004 and April 15, 2005 (our most
recent record date) by (i) the ten largest shareholders of our company (as of April 15, 2005) and
(ii) all directors, supervisors and executive officers as a group. Other than Citibank, as the
record owner of our American Depositary Shares, we are not aware that any of our shareholders
beneficially own more than 5% of our shares. December 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004
    
    
    April 15, 2005(6)Number of
    
    
    Percentage
    
    
    Number of
    
    
    Percentage
    
    
    Number of
    
    
    Percentage
    
    
    Number of
    
    
    PercentageShares
    
    
    of Shares
    
    
    Shares
    
    
    of Shares
    
    
    Shares
    
    
    of Shares
    
    
    Shares
    
    
    of SharesName of beneficial owner
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    OwnedCitibank(1)
    
    
    99,194,619
    
    
    
    5.26
    %
    
    
    67,711,044
    
    
    
    3.59
    %
    
    
    151,548,541
    
    
    
    7.20
    %
    
    
    145,371,541
    
    
    
    6.89
    %JP Morgan Chase
-Emerging Market Growth
Fund
    
    
    50,667,000
    
    
    
    2.69
    %
    
    
    17,932,000
    
    
    
    0.95
    %
    
    
    48,480,000
    
    
    
    2.30
    %
    
    
    28,280,000
    
    
    
    1.34
    %Bough Lin(2)
    
    
    70,080,423
    
    
    
    3.72
    %
    
    
    60,080,423
    
    
    
    3.19
    %
    
    
    44,479,265
    
    
    
    2.11
    %
    
    
    44,479,265
    
    
    
    2.11
    %Kuming Investment
Company Ltd.(3)
    
    
    48,583,204
    
    
    
    2.58
    %
    
    
    34,687,655
    
    
    
    1.84
    %
    
    
    48,583,204
    
    
    
    2.31
    %
    
    
    53,441,524
    
    
    
    2.53
    %Li Ping Wang(4)
    
    
    42,037,367
    
    
    
    2.23
    %
    
    
    42,037,367
    
    
    
    2.23
    %
    
    
    46,241,103
    
    
    
    20.20
    %
    
    
    46,241,103
    
    
    
    2.19
    %Chi Wen Tsai
    
    
    33,895,272
    
    
    
    1.8
    %
    
    
    31,645,272
    
    
    
    1.68
    %
    
    
    34,049,299
    
    
    
    1.62
    %
    
    
    34,049,299
    
    
    
    1.61
    %
 60




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December 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004
    
    
    April 15, 2005(6)Number of
    
    
    Percentage
    
    
    Number of
    
    
    Percentage
    
    
    Number of
    
    
    Percentage
    
    
    Number of
    
    
    PercentageShares
    
    
    of Shares
    
    
    Shares
    
    
    of Shares
    
    
    Shares
    
    
    of Shares
    
    
    Shares
    
    
    of SharesName of beneficial owner
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    OwnedChunghwa Post Co., Ltd.
    
    
    51,534,200
    
    
    
    2.73
    %
    
    
    59,678,200
    
    
    
    3.17
    %
    
    
    36,215,470
    
    
    
    1.72
    %
    
    
    
    
    
    
    Wen Chung Lin(5)
    
    
    26,187,167
    
    
    
    1.39
    %
    
    
    29,583,161
    
    
    
    1.57
    %
    
    
    32,961,477
    
    
    
    1.57
    %
    
    
    32,961,477
    
    
    
    1.56
    %Workers Retirement
Fund Supervisory
Committee
    
    
    25,772,255
    
    
    
    1.37
    %
    
    
    25,772,255
    
    
    
    1.37
    %
    
    
    
    
    
    
    
    
    
    
    30,118,480
    
    
    
    1.43
    %Siliconware Investment
Company Ltd.
    
    
    27,015,776
    
    
    
    1.43
    %
    
    
    27,015,776
    
    
    
    1.43
    %
    
    
    
    
    
    
    
    
    
    
    29,717,353
    
    
    
    1.41
    %Directors and
Supervisors as a group
    
    
    243,002,272
    
    
    
    14.32
    %
    
    
    236,646,272
    
    
    
    12.55
    %
    
    
    227,718,995
    
    
    
    10.82
    %
    
    
    227,510,995
    
    
    
    10.78
    %
   (1)
    
    As record owner of our shares.(2)
    
    Mr. Lin is a cousin of Mr. Wen Chung Lin.(3)
    
    The president of Kuming Investment Company Ltd. is the husband of Ms. Li Ping Wang.(4)
    
    Ms. Wangs husband also serves as the president of Kuming Investment Company Ltd.(5)
    
    Mr. Lin is a cousin of Mr. Bough Lin.(6)
    
    Our most recent record date. Except for holders of our ADSs, none of our major shareholders have different voting
rights from those of other shareholders. As of May 31, 2005, a total of 28,237,605 ADSs and 2,111,122,560 of our shares (including the
shares represented by these ADSs) were outstanding. With certain limited exceptions, holders of
common shares that are not ROC persons are required to hold these commons shares through a
brokerage or custodial account in the ROC. As of May 31, 2005, 141,188,025 common shares were
registered in the name of a nominee of Citibank, N.A., the depositary of our ADS facility.
Citibank, N.A. has advised us that, as of May 31, 2005, 141,127,930 common shares were held of
record by Cede & Co. We have no further information as to common shares held, or beneficially
owned, by U.S. persons. None of our major shareholders have different voting rights from those of other shareholders. B. Related Party Transactions Related Party Transactions Policies We from time to time have engaged in a variety of transactions with our affiliates. We conduct
transactions with our affiliates on terms substantially as favorable to us as would be obtainable
at the time in a comparable arms-length transaction with non-affiliates. ChipMOS Technologies Inc. Prior to 2002, we provided packaging services to ChipMOS. These packaging services were
rendered directly to ChipMOSs customers through customer referrals from ChipMOS. For 2002 and
2004, we had no sales to ChipMOS. For 2003, we had total sales to ChipMOS of NT$102 million. We are obligated under a joint venture agreement with Mosel Vitelic to severally guarantee up
to 30% of ChipMOSs indebtedness if ChipMOS requires a guarantee to secure financing. We currently
do not guarantee any of ChipMOSs indebtedness. Mr. Jerome Tsai, one of our Supervisors, is a
director of ChipMOS. Phoenix Precision Technology Corporation We purchased semiconductor raw materials from Phoenix Precision Technology totaling NT$1,716
million, NT$2,610 million and NT$2,876 million (US$90.6 million) in 2002, 2003 and 2004,
respectively. The purchase price and payment terms for such purchases were generally comparable to
those provided by non-related parties. The 61




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average payment period is approximately 30 days from the date of completion of service or
purchase. As of December 31, 2002, 2003 and 2004, we owed NT$195 million, NT$302 million and NT$231
million (US$7.3 million), respectively, in accounts payable, to Phoenix Precision Technology. Mr. Bough Lin, our Chairman, is also the chairman of Phoenix Precision Technology. Two of our
Supervisors, Ms. Teresa Wang and Mr. Jerome Tsai, are a director and a supervisor, respectively, of
Phoenix Precision Technology. CAESAR Technology Inc. In 2002, we purchased machinery and equipment from CAESAR Technology totaling NT$60 million.
CAESAR completed its liquidation in 2003. C. Interests of Experts and Counsel Not applicable. 
 Item 8. Financial Information A. Consolidated Statements and Other Financial Information Please refer to Item 18 for a list of all financial statements filed as part of this annual
report on Form 20-F. Litigation We are not involved in any material litigation or other proceedings, the outcome of which we
believe would have a material adverse effect on our services. Dividend Policy and Distributions As for our policy on dividend distributions, see Item 10. Additional Information  Memorandum
and Articles of Association  Dividends and Distributions. The following table sets forth the
stock dividends per Share as a percentage of Shares outstanding paid during each of the years
indicated in respect of Shares outstanding at the end of each such year, except as otherwise noted. Total NumberStock
    
    
    of Shares
    
    
    
    
    
    
    
    
    
    
    OutstandingDividend Per
    
    
    Issued as Stock
    
    
    
    
    
    
    
    
    
    
    SharesShare(1)
    
    
    Dividend(2)
    
    
    Stock Dividend Amount
    
    
    at Year EndNT$(3)
    
    
    US$(4)(in thousands)1995
    
    
    40.0
    %
    
    
    70,048,800
    
    
    
    6,059,221
    
    
    
    234,581
    
    
    
    280,668,0001996
    
    
    60.0
    %
    
    
    168,400,800
    
    
    
    6,432,911
    
    
    
    233,245
    
    
    
    457,800,0001997
    
    
    40.0
    %
    
    
    183,120,000
    
    
    
    17,213,280
    
    
    
    618,738
    
    
    
    654,200,0001998
    
    
    36.0
    %
    
    
    235,512,000
    
    
    
    11,752,049
    
    
    
    341,928
    
    
    
    904,162,0001999
    
    
    23.0
    %
    
    
    207,957,260
    
    
    
    12,269,478
    
    
    
    378,805
    
    
    
    1,127,092,4022000
    
    
    14.0
    %
    
    
    157,793,537
    
    
    
    5,964,596
    
    
    
    190,684
    
    
    
    1,449,882,8702001
    
    
    14.5
    %
    
    
    235,421,212
    
    
    
    4,237,582
    
    
    
    122,793
    
    
    
    1,852,761,6832002(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,853,668,6832003(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,876,625,6832004
    
    
    13.5
    %
    
    
    189,447,578
    
    
    
    3,788,952
    
    
    
    119,375
    
    
    
    2,105,073,060
   (1)
    
    Our stock dividend is declared in NT dollar amount per Share. The number of Shares received
by a shareholder equals to the NT dollar amount per share of dividend declared multiplied by
the number of Shares owned by the shareholder and divided by the par value of NT$10 per Share.(2)
    
    Total number of Shares issued as stock dividends include Shares issued from retained earnings
and from capital reserve. 62




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(3)
    
    The NT dollar amount of stock dividends paid is calculated based upon the closing price per
Share on the Taiwan Stock Exchange on the date when the Shares issued as stock dividends
commenced trading.(4)
    
    The US dollar amount of stock dividends paid is calculated based upon the noon buying rate
announced by the Federal Reserve Bank of New York on the date when shareholders possessed the
right to ownership of the stock dividends.(5)
    
    We did not declare a dividend in 2002 because we incurred a net loss in 2001.(6)
    
    We did not declare a dividend in 2003 because our shareholders did not elect to declare such
dividend, even though we generated net income in 2002. B. Significant Changes Our net operating revenues on an unconsolidated basis for the first three months of 2005
amounted to NT$7,982 million, representing a 3.2% decrease from NT$8,248 million of our net
operating revenues on an unconsolidated basis for the first three months of 2004. Our net operating
revenues for the first three months of 2004 are not indicative of our financial performance on
either an unconsolidated or a consolidated basis for the remaining months of 2004. In addition, we
cannot predict whether the demand for our products and services will continue to improve in the
near future. 
 Item 9. The Offer and Listing A. Offer and Listing Details Market Price Information for Our Shares Our shares have been listed on the Taiwan Stock Exchange since April 7, 1993. The table below
shows, for the periods indicated, the high and low closing prices and the average daily volume of
trading activity on the Taiwan Stock Exchange for our shares and the highest and lowest of the
daily closing values of the Taiwan Stock Exchange Index. Closing Price forEach Share(1)
    
    
    
    
    
    
    Taiwan Stock Exchange IndexAverage DailyTradingPeriod
    
    High
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low(in thousandsNT$
    
    
    NT$
    
    
    of shares)2000
    
    
    81.5
    
    
    
    17.8
    
    
    
    13,921
    
    
    
    10,202.20
    
    
    
    4,555.912001
    
    
    32.0
    
    
    
    14.0
    
    
    
    16,058
    
    
    
    6,104.24
    
    
    
    3,446.262002
    
    
    39.6
    
    
    
    15.3
    
    
    
    18,277
    
    
    
    6,462.30
    
    
    
    3,850.042003
    
    
    37.4
    
    
    
    15.3
    
    
    
    19,698
    
    
    
    6,182.20
    
    
    
    4,044.73First Quarter
    
    
    19.5
    
    
    
    15.6
    
    
    
    16,648
    
    
    
    5,141.80
    
    
    
    4,240.60Second Quarter
    
    
    22.5
    
    
    
    16.1
    
    
    
    20,649
    
    
    
    5,089.08
    
    
    
    4,044.73Third Quarter
    
    
    30.8
    
    
    
    23.1
    
    
    
    25,113
    
    
    
    5,809.43
    
    
    
    4,893.58Fourth Quarter
    
    
    36.9
    
    
    
    27.4
    
    
    
    15,990
    
    
    
    6,182.20
    
    
    
    5,560.552004
    
    
    42.4
    
    
    
    19.8
    
    
    
    20,556
    
    
    
    7,135.00
    
    
    
    5,255.06First Quarter
    
    
    42.4
    
    
    
    31.5
    
    
    
    20,997
    
    
    
    7,135.00
    
    
    
    5,907.15Second Quarter
    
    
    38.2
    
    
    
    21.5
    
    
    
    21,247
    
    
    
    6,916.31
    
    
    
    5,450.72Third Quarter
    
    
    27.5
    
    
    
    19.8
    
    
    
    19,258
    
    
    
    5,970.29
    
    
    
    5,255.06Fourth Quarter
    
    
    28.4
    
    
    
    22.6
    
    
    
    21,036
    
    
    
    6,160.96
    
    
    
    5,597.80November
    
    
    28.4
    
    
    
    24.2
    
    
    
    27,038
    
    
    
    6,088.12
    
    
    
    5,628.25December
    
    
    26.8
    
    
    
    24.0
    
    
    
    16,235
    
    
    
    6,160.96
    
    
    
    5,745.052005 (up to May 31)
    
    
    70.8
    
    
    
    21.9
    
    
    
    20,048
    
    
    
    6,267.32
    
    
    
    5,565.41First Quarter
    
    
    29.6
    
    
    
    21.9
    
    
    
    21,717
    
    
    
    6,267.52
    
    
    
    5,734.87
 63




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Closing Price forEach Share(1)
    
    
    
    
    
    
    Taiwan Stock Exchange IndexAverage DailyTradingPeriod
    
    High
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low(in thousandsNT$
    
    
    NT$
    
    
    of shares)January
    
    
    26.7
    
    
    
    21.9
    
    
    
    18,963
    
    
    
    6,183.15
    
    
    
    5,734.87February
    
    
    29.6
    
    
    
    25.0
    
    
    
    37,708
    
    
    
    6,233.53
    
    
    
    5,979.92March
    
    
    29.5
    
    
    
    26.1
    
    
    
    15,649
    
    
    
    6,267.52
    
    
    
    5,940.18Second Quarter (up to May 31)
    
    
    30.8
    
    
    
    26.1
    
    
    
    17,729
    
    
    
    6,048.37
    
    
    
    5,565.41April
    
    
    29.2
    
    
    
    26.1
    
    
    
    16,313
    
    
    
    6,048.37
    
    
    
    5,565.41May
    
    
    30.8
    
    
    
    26.4
    
    
    
    19,077
    
    
    
    6,011.56
    
    
    
    5,803.68
   Sources:
    
    Taiwan Stock Exchange Statistical Data 1999-2004, Taiwan Stock Exchange and
Bloomberg.(1)
    
    As reported. There is no public market outside Taiwan for our shares. The Taiwan Stock Exchange has
experienced significant fluctuations in the prices of listed securities and there are currently
limits on the range of daily price movements. Market Price Information for Our American Depositary Shares Our ADSs have been listed on the NASDAQ Stock Markets National Market since June 7, 2000. The
table below shows, for the periods indicated, the high and low closing prices and the average daily
volume of trading activity on the NASDAQ Stock Markets National Market. Closing Price
    
    
    Average Dailyfor Each ADS(1)
    
    
    Trading VolumePeriod
    
    High
    
    
    LowUS$
    
    
    US$2000 (from June 7)
    
    
    5.62
    
    
    
    2.18
    
    
    
    431,4332001
    
    
    4.30
    
    
    
    1.88
    
    
    
    247,5422002
    
    
    5.48
    
    
    
    2.23
    
    
    
    394,0062003
    
    
    5.27
    
    
    
    1.98
    
    
    
    730,026First Quarter
    
    
    2.60
    
    
    
    1.98
    
    
    
    253,110Second Quarter
    
    
    3.02
    
    
    
    2.09
    
    
    
    417,523Third Quarter
    
    
    4.29
    
    
    
    2.96
    
    
    
    768,707Fourth Quarter
    
    
    5.27
    
    
    
    3.59
    
    
    
    1,480,7652004
    
    
    6.00
    
    
    
    2.83
    
    
    
    1,047,141First Quarter
    
    
    6.00
    
    
    
    4.24
    
    
    
    2,040,297Second Quarter
    
    
    5.21
    
    
    
    2.83
    
    
    
    1,052,894Third Quarter
    
    
    3.85
    
    
    
    2.84
    
    
    
    551,108Fourth Quarter
    
    
    4.40
    
    
    
    3.23
    
    
    
    544,267November
    
    
    4.40
    
    
    
    3.62
    
    
    
    716,548December
    
    
    4.18
    
    
    
    3.65
    
    
    
    445,1472005 (up to May 31)
    
    
    5.45
    
    
    
    3.32
    
    
    
    431,983First Quarter
    
    
    5.45
    
    
    
    3.32
    
    
    
    461,689January
    
    
    4.19
    
    
    
    3.32
    
    
    
    397,592February
    
    
    5.45
    
    
    
    3.90
    
    
    
    569,621March
    
    
    4.70
    
    
    
    4.11
    
    
    
    426,744Second Quarter (up to May 31)
    
    
    4.80
    
    
    
    4.10
    
    
    
    388,838April
    
    
    4.55
    
    
    
    4.10
    
    
    
    396,185May
    
    
    4.80
    
    
    
    4.28
    
    
    
    381,491
   Source: NASDAQ Stock Exchange.(1)  As reported. 64




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B. Plan of Distribution Not applicable. C. Markets Our shares are listed on the Taiwan Stock Exchange and our ADSs are quoted on the NASDAQ
National Market. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. 
 Item 10. Additional Information A. Share Capital Not applicable. B. Memorandum and Articles of Association The following statements summarize the material elements of our capital structure and the more
important rights and privileges of our shareholders conferred by Taiwan law and our articles of
incorporation. Objects and Purpose The scope of business of our company as set forth in Article 2 of our articles of
incorporation includes: (a) The production, processing and purchase and sale of products, including integrated
circuit, transistors, light emitting diode digital displays, light emitting diode display lamps,
liquid crystal clock cores, photo diodes, hybrid circuits, thin film circuits and thick film
circuits; and (b) The import and export of the products mentioned in the preceding paragraph. Directors The ROC Company Act and our articles of incorporation provide that our board of directors is
elected by shareholders and is responsible for the management of our services. Our board of
directors is composed of nine 65




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directors. The Chairman of our board is elected by our directors. The Chairman presides at all
meetings of our board of directors and also has the authority to represent us. The term of office
for our directors is three years and our directors are elected by our shareholders by means of
cumulative voting. The next election for all of the directors and supervisors is expected to be
held in June 2005. In addition, our shareholders also elect three supervisors whose duties include
investigating our services and financial condition, inspecting corporate records, calling
shareholders meetings when our board of directors does not or cannot convene a shareholders
meeting or when such a meeting is necessary for our benefit, representing us in negotiations with
our directors and notifying our board of directors to cease acting in contravention of law, our
articles of incorporation or the resolutions of our shareholders meetings. The supervisors cannot
concurrently serve as our directors or officers. A person may serve as our director or supervisor
in his personal capacity or as the representative of one of our shareholder entities. A director or
supervisor who serves as the representative of a legal entity may be removed or replaced at any
time, and the replacement director or supervisor may serve the remainder of the term of office of
the replaced director or supervisor. According to the ROC Company Act, a director who has a personal interest in a matter to be
discussed at the meeting of the board of directors, the outcome of which may impair the companys
interests, shall abstain from voting on such matter. Our articles of incorporation also provide
that the traveling expenses for all directors and supervisors shall be determined at the board of
directors meeting based on common practice regardless of the profit or loss to our company. In
addition, according to our articles of incorporation, we should distribute 2.0% of the balance of
our earnings after deduction of payment of all taxes and dues, deduction of any past losses and
allocation of 10% of our net income as a legal reserve as remuneration to directors and
supervisors. Our articles of incorporation do not impose a mandatory retirement age limit for our
directors. Furthermore, our articles of incorporation do not impose a shareholding qualification
for each director; however, our articles of incorporation require that our directors and
supervisors should hold our issued shares at the ratios as required by the regulatory authority. Shares As of May 31, 2005, our authorized share capital was NT$26 billion, divided into 2.6 billion
shares, of which NT$21,111,225,600, divided into 2,111,122,560 shares, were issued and outstanding.
We issued US$200 million of convertible bonds due 2007 in January 2002, of which an aggregate
amount of US$150.2 million remained outstanding as of May 31, 2005. We issued US$200 million of
convertible bonds due 2009 in February 2004, none of which has been converted into shares. Other
than our shares, ADSs and our convertible bonds, we do not have any other equity interests
outstanding, including any preferential subscription rights, exchangeable debt securities or
warrants as of May 31, 2005. All shares presently issued are fully paid and in registered form, and existing shareholders
are not obligated to contribute additional capital. The shares underlying the ADSs are fully paid,
in registered form and will not be obligated by any capital calls. We generally are not permitted
to directly acquire our shares, except under limited circumstances as permitted by ROC law. According to our 2002 Employee Stock Option Plan, options may be granted to our full-time
regular employees, including those of our domestic and overseas subsidiaries, for purchase up to an
aggregate of 40,000,000 shares. The exercise price for the options would be the closing price of
our common shares on the Taiwan Stock Exchange on the day the options are granted, while the
expiration date for such options is 5 years from the date of grant. In February and May 2003, we
granted a total of 35,828 options to purchase up to 35,828,000 shares under our 2002 Employee Stock
Option Plan, of which 2,950 options to purchase up to 2,950,000 shares were granted to our
executive officers. Some of our executive officers receiving options are also directors of our
company. Under our 2002 Employee Stock Option Plan, an option holder may exercise an increasing portion
of his or her options starting two years after the grant of the options. According to the vesting
schedule, 30%, 70% and 100% of such option holders options shall vest two, three and four years
after the grant of the options, respectively. Upon termination of employment, the option holder
shall exercise his or her vested options within one month, subject to exceptions provided therein,
and otherwise after the termination, such options shall terminate. If termination of employment was
due to death, the heirs of such option holder have one year starting from the date of the death to
exercise his or her vested options. If termination of employment was due to retirement or
occupational casualty, the option holder or his or her heirs may exercise all his or her options
within certain period as provided. The options are generally not transferable or pledgeable by the
option holders. 66




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New Shares and Preemptive Rights New shares may only be issued with the prior approval of our board of directors. If our
issuance of any new shares will result in any change in our authorized share capital, we are
required under ROC law to amend our articles of incorporation and obtain approval of our
shareholders in a shareholders meeting. We must also obtain the approval of, or submit a
registration with, the ROC SFB and the Ministry of Economic Affairs. According to the ROC Company
Act, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its
employees. In addition, if a listed company intends to offer new shares for cash, at least 10% of
the issue must also be offered to the public pursuant to the Securities and Exchange Law. This
percentage can be increased by a resolution passed at a shareholders meeting, which will reduce
the number of new shares in which existing shareholders may have preemptive rights. Unless the
percentage of the shares offered to the public is increased by a resolution, existing shareholders
of the company have a preemptive right to acquire the remaining 75% to 80% of the issue in
proportion to their existing shareholdings. Shareholders We only recognize persons registered in our register as our shareholders. We may set a record
date and close our register of shareholders for specified periods to determine which shareholders
are entitled to various rights pertaining to our shares. Transfer of Shares Under the ROC Company Act, a public company, such as us, may issue individual share
certificates, one master certificate or scripless shares to evidence common shares. Shares in
registered form are transferred by endorsement and delivery of the related share certificates.
Transferees must have their names and addresses registered on our register in order to assert
shareholders rights against us. Our shareholders are required to file their respective specimen
seals with our share registrar, Chinatrust Commercial Bank. Shareholders Meetings We are required to hold an annual ordinary shareholders meeting once every fiscal year and
within six months after the end of each fiscal year. Our board of directors may convene an
extraordinary meeting whenever the directors think fit, and they must do so if requested in writing
by shareholders holding not less than 3% of our paid-in share capital who have held these shares
for more than a year. In addition, any of our supervisors may convene a shareholders meeting when
our board of directors do not or cannot convene a shareholders meeting and/or when such a meeting
is necessary for our benefit. At least 15 days advance written notice must be given of every
extraordinary shareholders meeting and at least 30 days advance written notice must be given of
every annual ordinary shareholders meeting. Unless otherwise required by law or by our articles of
incorporation, voting for an ordinary resolution requires an affirmative vote of a simple majority
of those present. A distribution of cash dividends would be an example of an ordinary resolution.
The ROC Company Act also provides that in order to approve certain major corporate actions,
including any amendment of our articles of incorporation, dissolution, merger or spin-off, the
transfer of the whole of the business or assets to any other company which would have a significant
impact in our operations, removing directors or the distribution of any stock dividend, a special
resolution may be adopted by the holders of at least two-thirds of our shares represented at a
meeting of shareholders at which holders of at least a majority of our issued and outstanding
shares are present. However, if we are the controlling company and hold not less than 90% of our
subordinate companys outstanding shares, our merger with the subordinate company can be approved
by a board resolution adopted by majority consent at a meeting with two-thirds of our directors
present without shareholders approval. Voting Rights Except for treasury shares, each share is generally entitled to one vote. Except as otherwise
provided for by law or by our articles of incorporation, a resolution can be adopted by the holders
of a simple majority of the total issued and outstanding shares represented at a shareholders
meeting. The quorum for a shareholders meeting to discuss the ordinary resolutions is a majority
of the total issued and outstanding shares. The election of directors and supervisors 67




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by our shareholders may be conducted by means of cumulative voting or other voting mechanisms
adopted in our articles of incorporation. In all other matters, a shareholder must cast all his
votes in the same manner when voting on any of these matters. Our shareholders may be represented at an ordinary or extraordinary shareholders meeting by
proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or
extraordinary shareholders meeting. Voting rights attached to our shares exercised by our
shareholders proxy are subject to the proxy regulation promulgated by the ROC SFB. Any shareholder who has a personal interest in a matter to be discussed at our shareholders
meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on
behalf of another shareholder on such matter. Any holder of our ADSs generally will not be able to exercise voting rights on the shares
underlying its holding of ADSs on an individual basis. Dividends and Distributions We may distribute dividends in any year in which we have current or retained earnings
(excluding reserves). Before distributing a dividend to shareholders, we must recover any past
losses, pay all outstanding taxes and set aside a legal reserve equivalent to 10% of our net income
until our legal reserve equals our paid-in capital. At the shareholders annual ordinary meeting, our board of directors submits to the
shareholders for their approval proposals for the distribution of a dividend or the making of any
other distribution to shareholders from our net retained earnings or reserves. Dividends are paid
to shareholders proportionately. Dividends may be distributed either in cash or in shares or a
combination of cash and shares, as determined by the shareholders at such meeting. Distribution of
stock dividends requires approvals from the ROC SFB and the Ministry of Economic Affairs, as
necessary. Beginning in 1999, our articles of incorporation provide that our earnings after payment of
all income taxes and deduction of any past losses shall be distributed as follows:  
    allocation of 10% of our net income as legal reserve; and
    payment of 2% of the balance after deducting the 10% legal reserve as remuneration to
our directors and supervisors. The remaining amount may be distributed or reserved in a
ratio of 10% and 90%, respectively, to our employees as their bonuses and to our
shareholders as their dividends. Before 1999, our articles of incorporation provided that our earnings after payment of all
income taxes, deduction of any past losses, allocation of 10% of our net income as legal reserve
and allocation of an interest on our capital at a rate not to exceed 3% shall be distributed as
follows:  
    10% is distributable as bonus shares for employees.
    4% is set aside as remuneration of directors and supervisors.
    86% is allocated as a dividend to shareholders. In addition to permitting dividends to be paid out of net income, we are permitted under the
ROC Company Act to make distributions to our shareholders of additional shares by capitalizing
reserves, including the legal reserve and capital surplus of premiums from issuing stock and
earnings from gifts received if we do not have losses. However, the capitalized portion payable out
of our legal reserve is limited to 50% of the total accumulated legal reserve and is payable only
if and to the extent the accumulated legal reserve exceeds 50% of our paid-in capital. 68




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Acquisition of Our Shares by Us An ROC company may not acquire its own common shares except under certain exceptions provided
in the ROC Company Act or the ROC Securities and Exchange Law. Under Article 28-2 of the Securities and Exchange Law, we may, by a board resolution adopted
by majority consent at a meeting with two-thirds of our directors present, purchase up to 10% of
our issued shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the
procedures prescribed by the ROC SFB, for the following purposes:  
    to transfer shares to our employees;
    to transfer upon conversion of bonds with warrants, preferred shares with warrants,
convertible bonds, convertible preferred shares or certificates of warrants issued by us;
and
    if necessary, to maintain our credit and our
shareholders interests; provided that the shares so purchased shall be cancelled thereafter. In addition, we may not spend more than the aggregate amount of the retained earnings, the
premium from issuing stock and the realized portion of the capital reserve to purchase our shares. We may not pledge or hypothecate any purchased shares. In addition, we may not exercise any
shareholders rights attaching to such shares. In the event that we purchase our shares on the
Taiwan Stock Exchange, our affiliates, directors, supervisors, managers and their respective
spouses and minor children and/or nominees are prohibited from selling any of our shares during the
period in which we purchase our shares. Liquidation Rights In the event of our liquidation, the assets remaining after payment of all debts, liquidation
expenses, taxes and distributions to holders of preferred shares, if any, will be distributed pro
rata to our shareholders in accordance with the ROC Company Act. Other Rights of Shareholders Under the ROC Company Act, dissenting shareholders are entitled to appraisal rights in the
event of a spin-off or a merger and various other major corporate actions. Dissenting shareholders
may request us to redeem all their shares at a fair price to be determined by mutual agreement. If
no agreement can be reached, the valuation will be determined by a court. Subject to applicable
law, dissenting shareholders may, among other things, exercise their appraisal rights by notifying
us before the related shareholders meeting and/or by raising and registering their dissent at the
shareholders meeting. One or more shareholders who have held more than 3% of the issued and outstanding shares for
more than one year may require our board of directors to call an extraordinary shareholders
meeting by sending a written request to our board of directors. Voting of Deposited Securities A holder may direct the exercise of voting rights regarding the shares represented by the ADSs
only pursuant to the deposit agreement as described below and applicable ROC law. See Risk
factorsHolders of our ADSs will not have the same voting rights as the holders of our shares,
which may affect the value of your investment. Except as described below, a holder will not be able to exercise voting rights attaching to
the shares on an individual basis. According to the ROC Company Act, a shareholders voting rights
must, as to all matters brought to a vote of shareholders, other than the election of directors
and/or supervisors, be exercised as to all shares held by the shareholder in the same manner.
Accordingly, the voting rights of the shares represented by ADSs must be exercised 69




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collectively in the same manner, except in the case of an election of directors and/or
supervisors, which may be conducted by means of cumulative voting or other mechanisms adopted in
our articles of incorporation. Pursuant to ROC Company Act and our articles of incorporation, the
election of directors and/or supervisors is by means of cumulative voting. By accepting and continuing to hold ADSs or any interest therein, a holder will authorize and
direct the depositary to appoint our chairman or the chairmans designee as his representative to
exercise the voting rights attaching to the shares underlying the ADSs. Once notified of a shareholders meeting, the depositary will, subject to the terms of the
deposit agreement, fix a record date for determining the owners entitled to receive information
about this meeting. The depositary will mail to the owners:  
    the notice of the meeting sent by us; and
    a statement that the owners will be entitled to instruct the depositary or its nominee
as to the exercise of the voting rights. If the depositary timely receives voting instructions from holders of at least 51% of the
outstanding ADSs to vote in the same manner on a resolution, including election of directors and/or
supervisors, the depositary will cause all of the shares underlying the outstanding ADSs to be
voted in the manner instructed. If for any reason, other than our failure to provide timely notice
to the depositary of a shareholders meeting, the depositary does not receive timely instructions
from holders of at least 51% of all ADSs outstanding to vote in the same manner on a resolution,
including a resolution for the election of directors and/or supervisors, the holders of all ADSs
outstanding shall be deemed, subject to our satisfying the applicable requirements of the deposit
agreement, to have authorized and directed the depositary to give a discretionary proxy to the
chairman of our board of directors, or the chairmans designee, to vote the shares on deposit in
respect of their ADSs in his discretion, which may not be in the interest of the holders of ADSs. An ADS holder will not be able to exercise cumulative voting rights on an individual basis in
the elections of directors and/or supervisors under the deposit agreement. This means that if at
least 51% of the votes represented by outstanding ADSs are cast for a particular director or
supervisor for a particular open position in an election, the depositary shall, subject to the
terms of the deposit agreement, cause all of the shares underlying the outstanding ADSs to be voted
in favor o f the director or supervisor. By accepting and continuing to hold ADSs or any interest therein, a holder will be deemed to
have agreed to the voting provisions set forth in the deposit agreement, as such provisions may be
amended from time to time to comply with applicable ROC law. There can be no assurance that a holder will receive notice of shareholders meetings
sufficiently prior to the date established by the depositary for receipt of instructions to enable
him to give timely voting instructions. C. Material Contracts Immunity Agreement with Motorola, Inc. We entered into a license agreement with Motorola in November 1996 under which Motorola
licensed to us the technology for ball grid array as well as any future technology relating to ball
grid array. Under the terms of the agreement, we make royalty payments based on the number of pads
or balls used in our packages. This agreement will expire in December 2010. In April 2004, Motorola spun off its semiconductor product business into a subsidiary
Freescale Semiconductor, Inc. Motorola has assigned this agreement to Freescale Semiconductor,
Inc., and Freescale Semiconductor, Inc. has assumed all of its rights, duties and obligations under
the agreement, in connection with the spin-off. 70




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License Agreement with Flip Chip Technologies, L.L.C. We entered into a license agreement with Flip Chip in November 1999, under which Flip Chip
licensed to us the package design technology that enables us to attach silicon dies directly to
substrates using solder bumping rather than wire bonding technology. This license will expire in
November 2009. Joint Venture Agreement with Mosel Vitelic, Inc. We entered into a joint venture agreement with Mosel Vitelic in 1997 to create ChipMOS, a
company concentrating on the packaging and testing of memory chips. Under the joint venture
agreement, we must maintain a minimum 18% equity interest in ChipMOS for five years from the date
of any initial public listing of ChipMOS. If ChipMOS requires guarantees of its indebtedness to
obtain financing, we and Mosel Vitelic are required under the joint venture agreement to provide
these guarantees in the ratios of 30% and 70%, respectively. Under the terms of the joint venture
agreement, we are entitled to nominate two of the seven board members of ChipMOS. D. Exchange Controls ROC Foreign Exchange Control Statute and regulations provide that all foreign exchange
transactions must be executed by banks designated to handle such business by the Ministry of
Finance or by the Central Bank of China. Current regulations favor trade-related foreign exchange
transactions. Consequently, foreign currency earned from exports of merchandise and services may
now be retained and used freely by exporters, and all foreign currency needed for the importation
of merchandise and services may be purchased freely from the designated foreign exchange banks. Aside from trade-related foreign exchange transactions, ROC companies and resident individuals
may, without foreign exchange approval, remit outside the ROC foreign currency of up to US$50
million (or its equivalent) and US$5 million (or its equivalent), respectively, in each calendar
year. In addition, ROC companies and resident individuals may, without foreign exchange approval,
remit into the ROC foreign currency of up to US$50 million (or its equivalent) and US$5 million (or
its equivalent), respectively, in each calendar year. Furthermore, any remittance of foreign
currency into ROC by and ROC company or resident individual in a year will be offset by the amount
remitted out of ROC by the company or individual (as applicable) within its annual quota and will
not use up its annual inward remittance quota to the extent of such offset. The above limits apply
to remittances involving a conversion of NT dollars to a foreign currency and vice versa. A
requirement is also imposed on all enterprises to register medium- and long-term foreign debt with
the Central Bank of China. In addition, foreign persons may, subject to certain requirements but without foreign exchange
approval of the Central Bank of China, remit outside and into the ROC foreign currencies of up to
US$100,000 (or its equivalent) for each remittance. The above limit applies to remittances
involving a conversion of NT dollars to a foreign currency and vice versa. The above limit does
not, however, apply to the conversion of NT dollars into other currencies, including US dollars, in
respect of the proceeds of sale of any underlying shares withdrawn from a depositary receipt
facility. E. Taxation ROC Tax Considerations The following summarizes the principal Taiwan tax consequences of owning and disposing of ADSs
and shares for non-residents of Taiwan. Investors in our ADSs are advised to consult their own tax
advisers as to United States, Taiwan or other tax consequences of the purchase, ownership and
disposition of ADSs. The following is a general summary of the principal ROC tax consequences of the ownership and
disposition of ADSs representing common shares to a non-resident individual or entity. The summary
description applies only to a holder that is:  
    an individual who is not an ROC citizen, who owns ADSs and who is not physically
present in the ROC for 183 days or more during any calendar year; or 71




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
    a corporation or a non-corporate body that is organized under the laws of a
jurisdiction other than the ROC for profit-making purposes and has no fixed place of
business or other permanent establishment in the ROC. Holders of ADSs are urged to consult their own tax advisors as to their particular ROC tax
consequences from owning the ADSs. Dividends Dividends declared by us out of our retained earnings and distributed to the holders are
subject to ROC withholding tax, currently at the rate of 20%, on the amount of the distribution, in
the case of cash dividends, or on the par value of the common shares in the case of stock
dividends. However, a 10% ROC retained earnings tax paid by us on our undistributed after-tax
earnings, if any, would provide a credit of up to 10% of the gross amount of any dividends declared
out of those earnings that would reduce the 20% ROC tax imposed on those distributions. It is currently unclear whether dividends paid by us out of our capital reserves are subject
to ROC withholding tax. Capital Gains Under ROC law, capital gains on transactions in the common shares are currently exempt from
income tax. In addition, transfers of ADSs are not regarded as a sale of an ROC security and, as a
result, any gains on such transactions are not subject to ROC income tax. Subscription Rights Distributions of statutory subscription rights for common shares in compliance with ROC law
are not subject to any ROC tax. Proceeds derived from sales of statutory subscription rights
evidenced by securities are exempted from income tax but are subject to securities transaction tax
at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
subscription rights that are not evidenced by securities are subject to capital gains tax at the
rate of:  
    35% of the gains realized if you are a natural person; or  
    25% of the gains realized if you are an entity that is not a natural person. Subject to compliance with ROC law, we, at our sole discretion, can determine whether
statutory subscription rights shall be evidenced by the issuance of securities. Securities Transaction Tax A securities transaction tax, at the rate of 0.3% of the sales proceeds, will be withheld upon
a sale of common shares in the ROC. Transfers of ADSs are not subject to ROC securities transaction
tax. Withdrawal of common shares from the deposit facility is not subject to ROC securities
transaction tax. Estate and Gift Tax ROC estate tax is payable on any property within the ROC of a deceased who is an individual,
and ROC gift tax is payable on any property within the ROC donated by an individual. Estate tax is
currently payable at rates ranging from 2% of the first NT$600,000 to 50% of amounts over
NT$100,000,000. Gift tax is payable at rates ranging from 4% of the first NT$600,000 to 50% of
amounts over NT$45,000,000. Under ROC estate and gift tax laws, common shares issued by ROC
companies are deemed located in the ROC regardless of the location of the holder. It is unclear
whether a holder of ADSs will be considered to hold common shares for this purpose. 72




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Tax Treaty The ROC does not have a double taxation treaty with the United States. On the other hand, the
ROC has double taxation treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New
Zealand, Malaysia, Macedonia, Swaziland, Gambia, The Netherlands, the United Kingdom, Senegal and
Sweden which may limit the rate of ROC withholding tax on dividends paid with respect to common
shares in ROC companies. It is unclear whether ADS holders will be considered holders of common
shares for the purposes of these treaties. Accordingly, if the holders may otherwise be entitled to
the benefits of the relevant income tax treaty, the holders should consult their tax advisors
concerning their eligibility for the benefits with respect to the ADSs. U.S. Federal Income Tax Considerations For U.S. Persons The following is a summary of the material U.S. federal income tax consequences for beneficial
owners of our shares or ADSs that have purchased such shares or ADSs, that hold the shares or ADSs
as capital assets, and that are U.S. holders and non-residents of the ROC. You are a U.S. holder if
you are, for United States federal income tax purposes, any of the following:  
    an individual citizen or resident of the United States;
    a corporation (or other entity treated as a corporation) created or organized in or
under the laws of the United States or any state thereof or the District of Columbia;
    an estate the income of which is subject to U.S. federal income taxation regardless of
its source;
    a trust that is subject to the primary supervision of a court within the United States
and the control of one or more U.S. persons; or
    a trust that has a valid election in effect under applicable U.S. Treasury regulations
to be treated as a U.S. person. This summary is based on current law, which is subject to change, perhaps retroactively. It is
for general purposes only and you should not consider it to be tax advice. In addition, it is also
based in part on representations by the depositary and assumes that each obligation under the
deposit agreement and any related agreement will be performed in accordance with its terms. This
summary does not represent a detailed description of all the U.S. federal income tax consequences
to you in light of your particular circumstances. In addition, it does not represent a detailed
description of the U.S. federal income tax consequences applicable to you if you are subject to
special treatment under the U.S. federal income tax laws including if you are:  
    a dealer in securities or currencies;
    a trader in securities if you elect to use a mark-to-market method of accounting for
your securities holdings;
    a financial institution or an insurance company;
    a tax-exempt organization;
    a regulated investment company;
    a real estate investment trust;
    a person liable for alternative minimum tax;
    a person holding shares as part of a hedging, integrated or conversion transaction,
constructive sale or straddle; 73




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
    a person owning, actually or constructively, 10% or more of our voting stock; or
    a U.S. holder whose functional currency is not the United States dollar. We cannot assure you that a later change in law will not alter significantly the tax
considerations that we describe in this summary. If a partnership holds our shares or ADSs, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If you are a partner
of a partnership holding our shares or ADSs, you should consult your tax advisor. You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the ownership and disposition of the shares or ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction. In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of
an ADS will be treated as the owner of the shares underlying its ADS. However, the U.S. Treasury
has expressed concerns that parties involved in transactions in which depositary shares are
pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits
by the holders of ADSs. Accordingly, the analysis of the creditability of ROC taxes described below
could be affected by future actions that may be taken by the U.S. Treasury. Deposits or withdrawals
of shares by U.S. holders for ADSs generally will not be subject to U.S. federal income tax. Taxation of Dividends Except as discussed below with respect to the passive foreign investment company rules, the
amount of distributions (other than certain pro rata distributions of shares to all shareholders)
you receive on your shares or ADSs, including net amounts withheld in respect of ROC withholding
taxes, will generally be treated as dividend income to you if the distributions are made from our
current and accumulated earnings and profits as calculated according to U.S. federal income tax
principles. In determining the net amounts withheld in respect of ROC taxes, any reduction in the
amount withheld on account of a ROC credit in respect of the 10% retained earnings tax imposed on
us is not considered a withholding tax and will not be treated as distributed to you or creditable
by you against your U.S. federal income tax. Such income will be includible in your gross income as
ordinary income on the day you actually or constructively receive it, which in the case of an ADS
will be the date received by the depositary. The amount of any distribution of property other than
cash will be the fair market value of such property on the date it is distributed. You will not be
entitled to claim a dividend received deduction with respect to distributions you receive from us. With respect to U.S. holders who are individuals, certain dividends received from a foreign
corporation before January 1, 2009, on shares (or ADSs backed by such shares) that are readily
tradable on an established securities market in the United States may be subject to reduced rates
of taxation. We believe that our ADSs, which are listed on the NASDAQ, are readily tradable on an
established securities market in the United States. There can be no assurance that our ADSs will
continue to be regularly tradable on an established securities market in later years (or that our
shares will be readily tradable on an established securities market in any given year). Individuals
that do not meet a minimum holding period requirement during which they are not protected from the
risk of loss or that elect to treat the dividend income as investment income pursuant to section
163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of the
trading status of our shares or ADSs. Holders should consult their own tax advisors regarding the
application of these rules given their particular circumstances. The amount of any dividend paid in a currency other than the United States dollar, which we
refer to as foreign currency, will equal the US dollar value of the foreign currency you receive,
calculated by reference to the exchange rate in effect on the date you actually or constructively
receive the dividend, which in the case of an ADS will be the date received by the depositary,
regardless of whether the foreign currency is actually converted into US dollars. If the foreign
currency received as a dividend is not converted into US dollars on the date of receipt, you will
have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain
or loss you realize if you subsequently 74




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sell or otherwise dispose of the foreign currency will be ordinary income or loss from sources
within the United States for foreign tax credit limitation purposes. Subject to certain limitations under the Internal Revenue Code, you may be entitled to a
credit or deduction against your federal income taxes for the net amount of any ROC taxes that are
withheld from dividend distributions made to you. The election to receive a credit or deduction
must be made annually, and applies to all foreign taxes for the applicable tax year. The limitation
on foreign taxes eligible for credit is calculated separately with respect to specific classes of
income. For this purpose, dividends we pay with respect to shares or ADSs will generally be
considered passive income (which also includes certain interest, royalties, rents, annuities or
income from property transactions) or, for certain holders, financial services income. You may be
subject to special rules if your foreign source income during the taxable year consists entirely of
qualified passive income and if you have $300 or less, or $600 or less if you file a joint
return, of creditable foreign taxes which you have paid or accrued during the taxable year.
Furthermore, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends
paid on shares or ADSs if you (1) have held shares or ADSs for less than a specified minimum period
during which you are not protected from risk of loss or, (2) are obligated to make payments related
to the dividends. The rules governing the foreign tax credit are complex. We therefore urge you to
consult your tax advisor regarding the availability of the foreign tax credit under your particular
circumstances. To the extent that the amount of any distribution you receive exceeds our current and
accumulated earnings and profits for a taxable year, the distribution will first be treated as a
tax-free return of capital, causing a reduction in your adjusted basis in the shares or ADSs and
thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a
subsequent disposition of the shares or ADSs. The balance in excess of adjusted basis, if any, will
be taxable to you as capital gain recognized on a sale or exchange. It is possible that pro rata distributions of shares to all shareholders may be made in a
manner that is not subject to U.S. federal income tax. In the event that such distributions are
tax-free, the basis of any new shares so received will be determined by allocating the U.S.
holders basis in the old shares between the old shares and the new shares, based on their relative
fair market values on the date of distribution. For U.S. tax purposes, any such tax-free share
distribution and any distributions in excess of current and accumulated earnings and profits and
distributions of shares generally would not result in foreign source income to you. Consequently,
you may not be able to use the foreign tax credit associated with any ROC withholding tax imposed
on such distributions unless you can use the credit against United States tax due on other foreign
source income in the appropriate category for foreign tax credit purposes. Taxation of Capital Gains Except as discussed below with respect to the passive foreign investment company rules, when
you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss in an
amount equal to the difference between the US dollar value of the amount realized for the shares or
ADSs and your basis in the shares or ADSs, determined in US dollars. For foreign tax credit
limitation purposes, such gain or loss will generally be treated as U.S. source. If you are an
individual, and the shares or ADSs being sold or otherwise disposed of are capital assets that you
have held for more than one year, your gain recognized will be taxed at a maximum rate of 15%. Your
ability to deduct capital losses is subject to limitations. If you pay any ROC securities transaction tax, such tax is not treated as an income tax for
U.S. federal income tax purposes, and therefore will not be a creditable foreign tax for U.S.
federal income tax purposes. However, subject to limitations under the Internal Revenue Code, such
tax may be deductible. You are urged to consult your tax advisors regarding the U.S. federal income
tax consequences of these taxes. Passive Foreign Investment Company Based on the composition of our income and valuation of our assets, including goodwill, we do
not believe we were a passive foreign investment company for 2004 and do not expect to become one
in the future, although there can be no assurance in this regard. In general, a company is considered a passive foreign investment company for any taxable year
if either: 75




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
    at least 75% of its gross income is passive income, which is income derived from
certain dividends, interest, royalties, rents, annuities or property transactions; or
    at least 50% of the value of its assets is attributable to assets that produce or are
held for the production of passive income. The 50% of value test is based on the average of the value of our assets for each quarter
during the taxable year. If we own at least 25% by value of another companys stock, we will be
treated, for purposes of the passive foreign investment company rules, as owning our proportionate
share of the assets and receiving our proportionate share of the income of that company. In determining that we do not expect to be a passive foreign investment company, we are
relying on our projected capital expenditure plans and projected revenue for the current year and
for future years. In addition, our determination is based on a current valuation of our assets,
including goodwill. In calculating goodwill, we have valued our total assets based on our total
market value, which is based on the market value of our shares and is subject to change. In
addition, we have made a number of assumptions regarding the amount of this value allocable to
goodwill. We believe our valuation approach is reasonable. However, it is possible that the
Internal Revenue Service will challenge the valuation of our goodwill, which may also result in us
being classified as a passive foreign investment company. In addition, the determination of whether we are a passive foreign investment company is made
annually. Accordingly, it is possible that we may become a passive foreign investment company in
the current or any future taxable year due to changes in our asset or income composition. Because
we have valued our goodwill based on the market value of our shares, a decrease in the price of our
shares may result in our becoming a passive foreign investment company. If we are a passive foreign investment company for any taxable year during which you hold our
shares or ADSs, you will be subject to special tax rules with respect to any excess distribution
that you receive and any gain you realize from a sale or other disposition (including a pledge) of
our shares or ADSs. Distributions you receive in a taxable year that are greater than 125% of the
average annual distributions you received during the shorter of the three preceding taxable years
or your holding period for our shares or ADSs will be treated as excess distributions. Under these
special tax rules:  
    the excess distribution or gain will be allocated ratably over your holding period for
our shares or ADSs;
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a passive foreign investment company, will be treated
as ordinary income; and
    the amount allocated to each other year will be subject to tax at the highest tax rate
in effect for that year and the interest charge generally applicable to underpayments of
tax will be imposed on the resulting tax attributable to each such year. If you hold our shares or ADSs in any year in which we are a passive foreign investment
company, you are required to file Internal Revenue Service Form 8621. In certain circumstances, a U.S. holder, in lieu of being subject to the passive foreign
investment company rules discussed above, may make an election to include gain on the stock of a
passive foreign investment company as ordinary income under a mark-to-market method provided that
such stock is regularly traded on a qualified exchange. Under this method, any difference between
the stocks fair market value and its adjusted basis at the end of the year is accounted for by
either an inclusion in income or a deduction from income. Under current law, the mark-to-market
election may be available to you because the ADSs are listed on the NASDAQ Stock Markets National
Market which constitutes a qualified exchange as designated in the Code, although there can be no
assurance that the ADSs will be regularly traded. You should also note that only the ADSs and not
the shares are listed on the NASDAQ Stock Markets National Market. The shares are listed on the
Taiwan Stock Exchange and must meet certain trading, listing, financial disclosure and other
requirements to be treated as a qualified exchange under applicable U.S. Treasury 76




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regulations for purposes of the mark-to-market election, and no assurance can be given that
the shares will be regularly traded for purposes of the mark-to-market election. If you make an effective mark-to-market election, you will include in income each year as
ordinary income the excess of the fair market value of your passive foreign investment company
shares or ADSs at the end of the year over your adjusted tax basis in the shares. You will be
entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the
shares or ADSs over their fair market value at the end of the year, but only to the extent of the
net amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in passive foreign investment company shares or ADSs will be increased
by the amount of any income inclusion and decreased by the amount of any deductions under the
mark-to-market rules. If you make a mark-to-market election, it will be effective for the taxable
year for which the election is made and all subsequent taxable years, unless the shares or ADSs
cease to be passive foreign investment company stock that is regularly traded on a qualified
exchange or the Internal Revenue Service consents to the revocation of the election. You should
consult your tax advisor about the availability of the mark-to-market election, and whether making
the election would be advisable in your particular circumstances. Alternatively, a U.S. holder of shares or ADSs in a passive foreign investment company can
sometimes avoid the rules described above by electing to treat the company as a qualified electing
fund under section 1295 of the Internal Revenue Code. This option is not available to you because
we do not intend to comply with the requirements necessary to permit you to make this election. U.S. holders who are individuals will not be eligible for reduced rates of taxation on any
dividends received from us prior to January 1, 2009, if we are a passive foreign investment company
in the taxable year in which such dividends are paid or in the preceding taxable year. You should
consult your own tax advisors concerning the U.S. federal income tax consequences of holding our
shares or ADSs if we are considered a passive foreign investment company in any taxable year. Information Reporting and Backup Withholding In general, unless you are an exempt recipient such as a corporation, information reporting
will apply to dividends in respect of the shares or ADSs and to the proceeds from the sale of your
shares or ADSs paid within the United States (and in some cases, outside of the United States).
Additionally, if you fail to provide your taxpayer identification number, or fail either to report
in full dividend and interest income or to make the necessary certifications, you will be subject
to backup withholding. Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against your U.S. federal income tax liability, provided you furnish the required
information to the Internal Revenue Service. Inheritance and Gift Tax Certain ROC inheritance and gift taxes may be imposed on holders of ADSs. You should consult
your own tax advisor regarding the effect of such taxes on your particular situation. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. 77




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H. Documents on Display We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by
the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed
with the SEC. This means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by reference is
considered to be part of this annual report. You may read and copy this annual report, including the exhibits incorporated by reference in
this annual report, at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SECs regional offices in New York, New York, and Chicago, Illinois. You can also
request copies of this annual report, including the exhibits incorporated by reference in this
annual report, upon payment of a duplicating fee, by writing to the SECs Public Reference Room for
information. The SEC also maintains a website at www.sec.govthat contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC. Our annual report
and some of the other information submitted by us to the SEC may be accessed through this website. I. Subsidiary Information Not applicable. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss related to adverse changes in market prices, including
interest rates and foreign exchange rates, of financial instruments. We are exposed to various
types of market risks, including changes in interest rates and foreign currency exchange rates, in
the normal course of business. Foreign Exchange Risk Substantial portions of our revenues and expenses are denominated in currencies other than the
NT dollar. In 2004, sales in the amount of US$650.8 million were denominated in US dollars. In
2004, material purchases from our overseas vendors in the amounts of US$167.4 million and ¥3,332
million were denominated in US dollars and Japanese yen, respectively. As of December 31, 2004, we
had certificates of deposit, bank deposits and accounts receivable denominated in US dollars of
US$289.2 million. As of December 31, 2004, we also had accounts payable, bonds payable and other
liabilities denominated in US dollars and the Japanese yen of US$389.9 million and of ¥1,512
million, respectively. However, we did not utilize any derivative financial instrument to hedge our
currency exposure. Interest Rate Risk Our major market risk exposure is changing interest rates. Our exposure to market risk for
changes in interest rates relates primarily to our long-term debt obligations. We primarily enter
into debt obligations to support general corporate purposes including capital expenditures and
working capital needs. We have not entered into any interest rate swaps, caps or any contracts
hedge to modify our exposure to interest rate movements. The table below presents annual principal amounts due and related weighted average interest
rates by year of maturity for our debt obligations outstanding as of December 31, 2004. DebtObligations
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009 and thereafter(in millions, except percentages)US$-denominated debt:Fix rate
    
    
    
    
    
    
    
    
    
    
    5,181
    
    
    
    6,352
    
    
    Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 78




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DebtObligations
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009 and thereafter(in millions, except percentages)NT$-denominated debt:Variable rate
    
    
    3,156
    
    
    
    1,600
    
    
    
    3,200
    
    
    
    
    
    
    Average interest rate
    
    
    2.1
    %
    
    
    1.8
    %
    
    
    1.8
    %
    
    
    
    
    
    Fix rate
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate
    
    
    3.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    RMB-denominated debt:Variable rate
    
    
    57
    
    
    
    308
    
    
    
    
    
    
    
    
    
    
    Average interest rate
    
    
    4.9
    %
    
    
    4.0
    %
    
    
    
    
    
    
    
    
    
    Fair value
    
    
    4,013
    
    
    
    1,908
    
    
    
    8,578
    
    
    
    5,868
    
    
    
 
 Item 12. Description of Securities Other Than Equity Securities Not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None of these events occurred in any of the years ended December 31, 2002, 2003 and 2004. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds See Item 10. Additional Information for a description of the rights of securities holders,
which remain unchanged. 
 Item 15. Controls and Procedures As of the end of the period covered by this report, our Chief Executive Officer and Chief
Financial Officer have performed an evaluation of the effectiveness of our disclosure controls and
procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of Exchange Act. Based upon that
evaluation, they have concluded that our disclosure controls and procedures were effective in
ensuring that the information required to be disclosed by us in the reports that we file and
furnish under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified by the SECs rules and regulations, except as disclosed in the following
paragraphs. In preparation for certain internal control reporting requirements set forth in Section 404 of
the Sarbanes-Oxley Act of 2002, we are currently performing the necessary system and process
evaluation and testing required (and any necessary remediation) to comply with such section by the
effective date for compliance. Our efforts to implement standardized internal control procedures
and develop internal tests necessary to verify the proper application of the internal control
procedures are a key area of focus for our board of directors and our senior management. In the course of their audit, our independent auditors PricewaterhouseCoopers have identified
certain weaknesses in our current internal accounting processes. The weaknesses that we have
discovered did not relate to fraud or require any material adjustments to our accounts.
Specifically, our auditors noted that we had weaknesses that would require us to: enhance our
internal control environment, including closely implementing and observing our internal control
policies by our staff, properly document certain transactions with our customers and accurately
record certain loans that have been repaid. 79




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In response to such findings, we undertook remedial measures to make improvements to such
processes as soon as practicable. Our board of directors has been advised of these issues. Under
the supervision and with the participation of our senior management, including our Chief Executive
Officer and Chief Financial Officer, we are in the process of conducting further evaluation of our
internal control over financial reporting. We plan to implement enhanced processes and controls to
address these and any other issues that might be identified through our review. As we are still in
the evaluation process, we may identify other conditions that may result in weaknesses in the
future; should we discover such conditions, we will take action to correct them. We are committed
to taking appropriate steps for remediation, as needed. Except as disclosed herein, there were no changes in our internal control over financial
reporting that occurred during the period covered by this annual report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting. 
 Item 16A. Audit Committee Financial Expert At the date of this filing, we do not have any independent directors to constitute an audit
committee. Our shareholders meeting is scheduled to be held on June 13, 2005. We anticipate
that three independent directors will be elected during the shareholders meeting. At least one of
the independent directors will be qualified as an audit committee financial expert as defined in
Item 16A of the instruction to Form 20-F. 
 Item 16B. Code of Ethics We have adopted a code of ethics which applies to our directors, employees and officers,
including our Chief Executive Officer and Chief Financial Officers (our principal accounting
officer). No changes have been made to the code of ethics since its adoption and no waivers have
been granted therefrom to our directors or employees. We have filed this code of ethics as an
exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2003, which
exhibit is incorporated by reference as an exhibit to this annual report, and a copy is available
to any shareholder upon request. 
 Item 16C. Principal Accountant Fees and Services PricewaterhouseCoopers has served as our independent public accountant for each of the fiscal
years in the three-year period ended December 31, 2004, for which audited financial statements
appear in this annual report. The following table presents the aggregate fees for professional services and other services
rendered by PricewaterhouseCoopers to us in 2003 and 2004. 2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(in thousand)Audit Fees (1)
    
    $
    6,905
    
    
    $
    6,683
    
    
    $
    210.6Audit-related Fees (2)
    
    
    3,903
    
    
    
    830
    
    
    
    26.1Tax Fees (3)
    
    
    850
    
    
    
    900
    
    
    
    28.4All Other Fees (4)
    
    
    22
    
    
    
    404
    
    
    
    12.7Total
    
    $
    11,680
    
    
    $
    8,817
    
    
    $
    277.8
   (1)
    
    Audit fees consist of fees billed for the annual audit of the companys consolidated
financial statements and the statutory financial statements of the companys subsidiaries.
They also include fees billed for other audit services, which are those services that only the
external auditor reasonably can provide, and include the provision of comfort letters and
consents and the review of documents filed with the SEC.(2)
    
    Audit-related fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the companys financial
statements or that are traditionally performed by the external auditor, and include
consultations concerning financial accounting and reporting standards; internal control
reviews; review of security controls and operational effectiveness of systems; due diligence
related to acquisitions; and employee benefit plan audits. 80




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##### Table of Contents



(3)
    
    Tax fees include fees billed for tax compliance services, including the preparation of
original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers
and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing
authorities; tax planning services; and expatriate tax compliance, consultation and planning
services.(4)
    
    All other fees include fees billed for forensic accounting and occasional training services. Pre-approval Policies and Procedures Prior to forming an audit committee, our board of directors is responsible for the oversight
of our independent accountants work. The policy of our board of directors is to pre-approve all
audit and non-audit services provided by PricewaterhouseCoopers, including audit services,
audit-related services, tax services and other services, as described above. 
 Item 16D. Exemptions from the Listing Standards for Audit Committees None. 
 Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers None. 
 PART III 
 Item 17. Financial Statements We have elected to provide the financial statements and related information specified in Item
18. 
 Item 18. Financial Statements The following is a list of the audited financial statements and reports of independent
accountants included in this annual report beginning on page F-1. PageSILICONWARE PRECISION INDUSTRIES CO., LTD.Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-4Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the Years Ended December
31, 2002, 2003 and 2004
    
    F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004
    
    F-9Notes to Consolidated Financial Statements
    
    F-11CHIPMOS TECHNOLOGIES INC.Report of Independent Registered Public Accounting Firm
    
    F-74Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-75Consolidated Statements of Operations for the Years Ended December 31, 2002, 2003 and 2004
    
    F-77Consolidated Statements of Changes in Shareholders Equity for the Years Ended December
31, 2002, 2003 and 2004
    
    F-79Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004
    
    F-80Notes to Consolidated Financial Statements
    
    F-82
 81




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##### Table of Contents



Item 19. Exhibit Index ExhibitNumber
    
    Description of Exhibits1.1
    
    Articles of Incorporation of Siliconware Precision Industries Co., Ltd. (English translation)(1)2.1
    
    Form of the Second Amended and Restated Deposit Agreement among Siliconware Precision Industries Co.,
Ltd., Citibank, N.A. and Holders and Beneficial owners of American
Depositary Shares issued thereunder, including the form of American Depositary Receipts(2)4.1
    
    Immunity Agreement with Motorola, Inc. (effective from November 5, 1996 to December 31, 2010)(3)4.2
    
    License Agreement with Flip Chip
Technologies, L.L.C. (effective from November 28, 1999 to
November 27, 2009)(4)4.3
    
    Joint Venture Agreement with Mosel Vitelic, Inc. (English translation)(5)*8.1
    
    List of Significant Subsidiaries of Siliconware Precision Industries Co., Ltd.11.1
    
    Code of Ethics (6)*12.1
    
    Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*12.2
    
    Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*13.1
    
    Certification by our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002*13.2
    
    Certification by our Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002*15.1
    
    Consent of Independent Registered Public Accounting Firm
   *
    
    filed herewith.1
    
    Incorporated by reference to Exhibit 3.1 to our Year 2001 Form 20-F filed with the SEC
on June 25, 2002.2
    
    Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1
(File No. 333-11812) filed with the SEC on April 29, 2000.3
    
    Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1
(File No. 333-11812) filed with the SEC on April 29, 2000.4
    
    Incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1
(File No. 333-11812) filed with the SEC on April 29, 2000.5
    
    Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1
(File No. 333-11812) filed with the SEC on April 29, 2000.6
    
    Incorporated by reference to Exhibit 11.1 to our Year 2003 Form 20-F filed with the
Commission on June 28, 2004. 82




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf. SILICONWARE PRECISION INDUSTRIES CO., LTD.By:
    
    /s/ Wen Chung LinName: Wen Chung LinTitle:   Chief Financial Officer
 Date: June 10, 2005 83




---



INDEX TO THE FINANCIAL STATEMENTS PageSILICONWARE PRECISION INDUSTRIES CO., LTD.Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated
Balance Sheets as of December 31, 2003 and 2004
    
    F-4Consolidated
Statements of Income for the Years Ended December 31, 2002, 2003
and 2004
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the Years Ended December
31, 2002, 2003 and 2004
    
    F-7Consolidated
Statements of Cash Flows for the Years Ended December 31, 2002,
2003 and 2004
    
    F-9Notes
to Consolidated Financial Statements
    
    F-11CHIPMOS
TECHNOLOGIES INC.Report of Independent Registered Public Accounting Firm
    
    F-74Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-75Consolidated Statements of Operations for the Years Ended December 31, 2002, 2003 and 2004
    
    F-77Consolidated Statements of Changes in Shareholders Equity for the Years Ended December
31, 2002, 2003 and 2004
    
    F-79Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004
    
    F-80Notes to Consolidated Financial Statements
    
    F-82
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders
of Siliconware Precision Industries Co., Ltd. We have audited the accompanying consolidated balance sheets of Siliconware Precision Industries
Co., Ltd. and its subsidiaries as of December 31, 2004 and 2003, and the related consolidated
statements of income, of changes in stockholders equity and of cash flows for each of the three
years ended December 31, 2004. 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. As discussed in Note 8, the Company delayed recognition of investment income (loss) for
certain investee companies under the equity method until the subsequent year. Accordingly, the
investment amount s of $2,995,619 thousand and $2,748,559 thousand at December 31, 2004 and 2003,
respectively, and the investment income of $247,238 thousand and investment loss of $365,669
thousand recognized for these investee companies for the years ended December 31, 2004 and 2003,
respectively, were based on the investees financial statements for the years ended December 31,
2003 and 2002, which were audited by other independent accountants. We conducted our audits in accordance with Rules Governing Examination of Financial Statements by
Certified Public Accountants, generally accepted auditing standards in the Republic of China and
the standards of the Public Company Accounting Oversight Board (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 and
the reports of other auditors provide a reasonable basis for our opinion. F - 2




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##### Table of Contents



In our opinion, based on our audits and the reports of other auditors, the accompanying
consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Siliconware Precision Industries Co., Ltd. and its subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for
each of the three years ended December 31, 2004 in conformity with the Rules Governing the
Preparation of Financial Statements of Securities Issuers and accounting principles generally
accepted in the Republic of China. As discussed in Note 3, commencing from January 1, 2002, the Company delayed the recognition of
investment income (loss) for ChipMos Technologies Inc. under the equity
method until the subsequent year. Accounting principles generally accepted in the Republic of China vary in certain
significant respects from accounting principles generally accepted in the United States.
Information relating to the nature and effect of such differences is presented in Note 28 to the
consolidated financial statements. (PRICEWATERHOUSECOPPERS) Taichung, Taiwan Republic of China February 18, 2005
(except for the information in Note 28 for which the date is
April 13, 2005) F - 3




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF DOLLARS) December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(Note 2)ASSETSCurrent AssetsCash and cash equivalents (Note 4)
    
    $
    12,202,601
    
    
    $
    10,922,393
    
    
    $
    344,121Short-term investments (Note 5)
    
    
    7,989
    
    
    
    1,942,970
    
    
    
    61,215Notes receivable, net
    
    
    118,531
    
    
    
    72,083
    
    
    
    2,271Accounts receivable, net (Notes 6 and 23)
    
    
    5,311,273
    
    
    
    5,720,274
    
    
    
    180,223Other financial assets - current (Note 24)
    
    
    343,853
    
    
    
    407,087
    
    
    
    12,826Inventories (Note 7)
    
    
    1,896,966
    
    
    
    1,977,001
    
    
    
    62,287Deferred income tax assets - current (Note 20)
    
    
    463,150
    
    
    
    709,093
    
    
    
    22,341Other current assets - other
    
    
    550,913
    
    
    
    533,924
    
    
    
    16,82220,895,276
    
    
    
    22,284,825
    
    
    
    702,106Long-term Investments (Note 8)Long-term investments under the equity method
    
    
    3,820,417
    
    
    
    3,952,489
    
    
    
    124,527Long-term investments under the cost method
    
    
    2,566,249
    
    
    
    2,863,849
    
    
    
    90,228Long-term investment in bonds
    
    
    641,350
    
    
    
    
    
    
    
    7,028,016
    
    
    
    6,816,338
    
    
    
    214,755Property, Plant and Equipment (Notes 9, 24)Cost:Land
    
    
    2,128,476
    
    
    
    2,128,476
    
    
    
    67,060Buildings
    
    
    5,368,157
    
    
    
    6,609,819
    
    
    
    208,249Machinery and equipment
    
    
    30,072,783
    
    
    
    34,710,602
    
    
    
    1,093,592Utility equipment
    
    
    535,180
    
    
    
    696,662
    
    
    
    21,949Furniture and fixtures
    
    
    411,907
    
    
    
    507,134
    
    
    
    15,978Other equipment
    
    
    1,166,431
    
    
    
    1,417,708
    
    
    
    44,66639,682,934
    
    
    
    46,070,401
    
    
    
    1,451,494Accumulated depreciation
    
    
    (17,607,422
    )
    
    
    (19,905,800
    )
    
    
    (627,152
    )Construction in progress and prepayments for equipment
    
    
    2,326,759
    
    
    
    1,024,283
    
    
    
    32,27124,402,271
    
    
    
    27,188,884
    
    
    
    856,613Other AssetsRefundable deposits
    
    
    15,733
    
    
    
    11,557
    
    
    
    364Deferred charges
    
    
    697,932
    
    
    
    826,984
    
    
    
    26,055Deferred income tax asset - noncurrent (Note 20)
    
    
    1,381,780
    
    
    
    1,600,223
    
    
    
    50,417Other assets  other (Note 10)
    
    
    236,733
    
    
    
    233,529
    
    
    
    7,3572,332,178
    
    
    
    2,672,293
    
    
    
    84,193TOTAL ASSETS
    
    $
    54,657,741
    
    
    $
    58,962,340
    
    
    $
    1,857,667
 (Continued) F - 4




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (EXPRESSED IN THOUSANDS OF DOLLARS) December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(Note 2)LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesNotes payable
    
    $
    1,072,896
    
    
    $
    984
    
    
    $
    31Accounts payable (Note 23)
    
    
    2,139,759
    
    
    
    2,104,797
    
    
    
    66,314Income tax payable (Note 20)
    
    
    40,608
    
    
    
    36,352
    
    
    
    1,145Accrued expenses (Note 11)
    
    
    821,710
    
    
    
    1,077,473
    
    
    
    33,947Other payables (Note 12)
    
    
    1,492,501
    
    
    
    1,508,061
    
    
    
    47,513Current portion of long-term loans (Notes 13 and 14)
    
    
    10,342,339
    
    
    
    4,013,376
    
    
    
    126,445Other current liabilities
    
    
    219,848
    
    
    
    51,486
    
    
    
    1,62216,129,661
    
    
    
    8,792,529
    
    
    
    277,017Long-term LiabilitiesBonds payable (Note 13)
    
    
    800,000
    
    
    
    11,533,146
    
    
    
    363,363Long-term loans (Note 14)
    
    
    8,013,164
    
    
    
    5,106,346
    
    
    
    160,8818,813,164
    
    
    
    16,639,492
    
    
    
    524,244Other Liabilities
    
    
    16,707
    
    
    
    37,276
    
    
    
    1,174Total Liabilities
    
    
    24,959,532
    
    
    
    25,469,297
    
    
    
    802,435Stockholders EquityCapital stock (Notes 1 and 16)
    
    
    18,851,737
    
    
    
    21,050,731
    
    
    
    663,224Capital reserve (Note 17)Additional paid in capital
    
    
    6,126,478
    
    
    
    6,339,617
    
    
    
    199,736Premium arising from merger
    
    
    1,951,563
    
    
    
    1,951,563
    
    
    
    61,486Others
    
    
    21,069
    
    
    
    14,652
    
    
    
    462Retained earnings (Note 18)Legal reserve
    
    
    467,014
    
    
    
    750,886
    
    
    
    23,658Special reserve
    
    
    302,780
    
    
    
    
    
    
    
    Unappropriated earnings
    
    
    2,918,612
    
    
    
    4,320,831
    
    
    
    136,132Cumulative translation adjustments
    
    
    3,278
    
    
    
    (141,053
    )
    
    
    (4,444
    )Treasury stock (Note 19)
    
    
    (944,322
    )
    
    
    (794,184
    )
    
    
    (25,022
    )Total Stockholders Equity
    
    
    29,698,209
    
    
    
    33,493,043
    
    
    
    1,055,232Commitments and Contingencies (Note 25)TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    54,657,741
    
    
    $
    58,962,340
    
    
    $
    1,857,667
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent
registered public accounting firm dated February 18, 2005. F - 5




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) For the years ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 2)Net Operating Revenues
    
    $
    22,298,530
    
    
    $
    27,411,427
    
    
    $
    35,252,156
    
    
    $
    1,110,654Cost of Goods Sold (Note 23)
    
    
    (20,209,935
    )
    
    
    (23,297,669
    )
    
    
    (28,871,540
    )
    
    
    (909,626
    )Gross Profit
    
    
    2,088,595
    
    
    
    4,113,758
    
    
    
    6,380,616
    
    
    
    201,028Operating ExpensesSelling expenses
    
    
    (409,448
    )
    
    
    (415,433
    )
    
    
    (548,694
    )
    
    
    (17,287
    )General and administrative expenses
    
    
    (625,490
    )
    
    
    (618,397
    )
    
    
    (746,695
    )
    
    
    (23,525
    )Research and development expenses
    
    
    (506,981
    )
    
    
    (559,076
    )
    
    
    (752,473
    )
    
    
    (23,708
    )(1,541,919
    )
    
    
    (1,592,906
    )
    
    
    (2,047,862
    )
    
    
    (64,520
    )Operating Income
    
    
    546,676
    
    
    
    2,520,852
    
    
    
    4,332,754
    
    
    
    136,508Non-operating Income and GainInterest income
    
    
    191,551
    
    
    
    88,379
    
    
    
    157,015
    
    
    
    4,947Investment income accounted for under
the equity method
    
    
    61,059
    
    
    
    
    
    
    
    307,728
    
    
    
    9,695Gain on disposal of investments
    
    
    
    
    
    
    344,385
    
    
    
    
    
    
    
    Others
    
    
    277,726
    
    
    
    448,763
    
    
    
    575,965
    
    
    
    18,146530,336
    
    
    
    881,527
    
    
    
    1,040,708
    
    
    
    32,788Non-operating Expenses and LossesInterest expenses
    
    
    (521,117
    )
    
    
    (375,111
    )
    
    
    (353,321
    )
    
    
    (11,132
    )Investment loss accounted for under equity method
    
    
    
    
    
    
    (533,061
    )
    
    
    
    
    
    
    Others (Note 12)
    
    
    (276,064
    )
    
    
    (291,783
    )
    
    
    (1,194,922
    )
    
    
    (37,647
    )(797,181
    )
    
    
    (1,199,955
    )
    
    
    (1,548,243
    )
    
    
    (48,779
    )Income Before Income Tax
    
    
    279,831
    
    
    
    2,202,424
    
    
    
    3,825,219
    
    
    
    120,517Income Tax Benefit (Note 20)
    
    
    145,364
    
    
    
    636,292
    
    
    
    456,958
    
    
    
    14,397Net Income
    
    $
    425,195
    
    
    $
    2,838,716
    
    
    $
    4,282,177
    
    
    $
    134,914Earnings Per Share (in dollars) (Note 21)Basic Earnings Per ShareIncome before income tax
    
    $
    0.14
    
    
    $
    1.09
    
    
    $
    1.86
    
    
    $
    0.06Net income
    
    $
    0.21
    
    
    $
    1.40
    
    
    $
    2.09
    
    
    $
    0.07Diluted Earnings Per ShareIncome before income tax
    
    $
    0.14
    
    
    $
    0.99
    
    
    $
    1.42
    
    
    $
    0.04Net income
    
    $
    0.21
    
    
    $
    1.27
    
    
    $
    1.63
    
    
    $
    0.05
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent
registered public accounting firm dated February 18, 2005. F - 6




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (CONTINUED)
(EXPRESSED IN THOUSANDS OF DOLLARS) UnrealizedCapital Stock Issued
    
    
    
    
    
    
    Retained Earnings
    
    
    Loss on Long-
    
    
    CumulativeShares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special
    
    
    Unappropriated
    
    
    term
    
    
    Translation(Thousand)
    
    
    Capital Stock
    
    
    Capital Reserve
    
    
    Legal Reserve
    
    
    Reserve
    
    
    Earnings
    
    
    Investments
    
    
    Adjustments
    
    
    Treasury Stock
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$2002Balance at January 1, 2002
    
    
    1,885,174
    
    
    $
    18,851,737
    
    
    $
    8,087,905
    
    
    $
    1,321,835
    
    
    $
    269,154
    
    
    ($
    1,166,494
    )
    
    $
    
    
    
    $
    45,388
    
    
    ($
    1,363,135
    )
    
    $
    26,046,390Accumulated deficit offset by legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (897,340
    )
    
    
    
    
    
    
    897,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reversal of special reserve to unappropriated earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (269,154
    )
    
    
    269,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment for investee companies cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,705
    )
    
    
    
    
    
    
    (9,705
    )Adjustment to capital reserve due to non-proportional
investment in investees increase in capital
    
    
    
    
    
    
    
    
    
    
    (1,242
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,242
    )Adjustment for unrealized loss on long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302,780
    )
    
    
    
    
    
    
    
    
    
    
    (302,780
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425,195Transfer of treasury stock to employees
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,244
    
    
    
    20,694Balance at December 31, 2002
    
    
    1,885,174
    
    
    $
    18,851,737
    
    
    $
    8,087,113
    
    
    $
    424,495
    
    
    $
    
    
    
    $
    425,195
    
    
    ($
    302,780
    )
    
    $
    35,683
    
    
    ($
    1,342,891
    )
    
    $
    26,178,5522003Balance at January 1, 2003
    
    
    1,885,174
    
    
    $
    18,851,737
    
    
    $
    8,087,113
    
    
    $
    424,495
    
    
    $
    
    
    
    $
    425,195
    
    
    ($
    302,780
    )
    
    $
    35,683
    
    
    ($
    1,342,891
    )
    
    $
    26,178,552Appropriation for legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,519
    
    
    
    
    
    
    
    (42,519
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Appropriation for special reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302,780
    
    
    
    (302,780
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reversal of unrealized loss on long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302,780
    
    
    
    
    
    
    
    
    
    
    
    302,780Long-term investment adjustments for investee
companys additional paid in capital
    
    
    
    
    
    
    
    
    
    
    617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    617Long-term investment adjustments for investee
companys cummulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,405
    )
    
    
    
    
    
    
    (32,405
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,838,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,838,716Transfer of treasury stock to employees
    
    
    
    
    
    
    
    
    
    
    11,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398,569
    
    
    
    409,949Balance at December 31, 2003
    
    
    1,885,174
    
    
    $
    18,851,737
    
    
    $
    8,099,110
    
    
    $
    467,014
    
    
    $
    302,780
    
    
    $
    2,918,612
    
    
    $
    
    
    
    $
    3,278
    
    
    ($
    944,322
    )
    
    $
    29,698,209
 (Continued) F - 7




---



##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) UnrealizedCapital Stock Issued
    
    
    
    
    
    
    Retained Earnings
    
    
    Loss on Long-
    
    
    CumulativeShares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special
    
    
    Unappropriated
    
    
    term
    
    
    Translation(Thousand)
    
    
    Capital Stock
    
    
    Capital Reserve
    
    
    Legal Reserve
    
    
    Reserve
    
    
    Earnings
    
    
    Investments
    
    
    Adjustments
    
    
    Treasury Stock
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$2004Balance at January 1, 2004
    
    
    1,885,174
    
    
    $
    18,851,737
    
    
    $
    8,099,110
    
    
    $
    467,014
    
    
    $
    302,780
    
    
    $
    2,918,612
    
    
    $
    
    
    
    $
    3,278
    
    
    ($
    944,322
    )
    
    $
    29,698,209Appropriation for legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,872
    
    
    
    
    
    
    
    (283,872
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reversal of special reserve to unapppropriated earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302,780
    )
    
    
    302,780
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remuneration to directors and supervisors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,153
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,153
    )Employees cash bonus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,674
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,674
    )Employees stock bonus
    
    
    21,050
    
    
    
    210,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210,497
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (663,066
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (663,066
    )Stock dividends
    
    
    189,447
    
    
    
    1,894,476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,894,476
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Euro convertible bonds
    
    
    9,402
    
    
    
    94,021
    
    
    
    213,140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307,161Long-term investment adjustments for investee
companys additional paid in capital
    
    
    
    
    
    
    
    
    
    
    (10,862
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,862
    )Long-term investment adjustments for investee
companys cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144,331
    )
    
    
    
    
    
    
    (144,331
    )Cash dividends for treasury stock held by subsidiaries
    
    
    
    
    
    
    
    
    
    
    9,455
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,455Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,282,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,282,177Transfer of treasury stock to employees
    
    
    
    
    
    
    
    
    
    
    (5,011
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,138
    
    
    
    145,127Balance at December 31, 2004
    
    $
    2,105,073
    
    
    $
    21,050,731
    
    
    $
    8,305,832
    
    
    $
    750,886
    
    
    $
    
    
    
    $
    4,320,831
    
    
    $
    
    
    
    ($
    141,053
    )
    
    ($
    794,184
    )
    
    $
    33,493,043
 The accompanying notes are an integral part of these consolidated financial statements See report of independent
registered public accounting firm dated February 18, 2005. F - 8




---



##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (EXPRESSED IN THOUSANDS OF DOLLARS) December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 2)Cash flows from operating activitiesNet income
    
    $
    425,195
    
    
    $
    2,838,716
    
    
    $
    4,282,177
    
    
    $
    134,914Adjustments to reconcile net income to net cash provided
by operating activitiesDepreciation
    
    
    4,575,422
    
    
    
    4,854,558
    
    
    
    5,727,223
    
    
    
    180,442Amortization
    
    
    326,266
    
    
    
    330,768
    
    
    
    425,383
    
    
    
    13,402Bad debts expense
    
    
    
    
    
    
    4,834
    
    
    
    
    
    
    
    Provision for (recovery of) decline in market value of
short-term investments
    
    
    6,360
    
    
    
    (6,349
    )

    
    
    (12
    )
    
    
    Provision for reserve for sales allowance
    
    
    29,262
    
    
    
    27,294
    
    
    
    36,082
    
    
    
    1,137Gain on disposal of investments and recovery of decline
in market value of short-term investments
    
    
    (51,626
    )
    
    
    (340,950
    )
    
    
    (69,584
    )
    
    
    (2,192
    )Recovery of loss on obsolescence and decline
in market value of inventory
    
    
    (10,312
    )
    
    
    (109,910
    )
    
    
    (12,746
    )
    
    
    (402
    )Long-term investment (income) loss under the equity method
    
    
    (41,399
    )
    
    
    313,010
    
    
    
    (307,728
    )
    
    
    (9,695
    )Impairment loss on long-term investments
    
    
    24,934
    
    
    
    189,454
    
    
    
    17,803
    
    
    
    561Cash dividend received from long-term investment under
the equity method
    
    
    
    
    
    
    12,684
    
    
    
    27,832
    
    
    
    877Loss on decline in market value upon reclassification of
long-term / short-term investment
    
    
    
    
    
    
    30,597
    
    
    
    
    
    
    
    (Gain) loss on disposal of property, plant and equipment
    
    
    (15,794
    )
    
    
    (39,395
    )
    
    
    52,291
    
    
    
    1,647Provision for loss on idle assets
    
    
    17,243
    
    
    
    131,828
    
    
    
    460,539
    
    
    
    14,510Amortization of discount on commercial paper
    
    
    2,986
    
    
    
    2,762
    
    
    
    
    
    
    
    Amortization of discount on long-term notes
    
    
    17,487
    
    
    
    6,385
    
    
    
    2,367
    
    
    
    75Compensation interest on bonds payable
    
    
    285,977
    
    
    
    204,873
    
    
    
    172,127
    
    
    
    5,423Foreign currency exchange gain on bonds payable
    
    
    (97,163
    )
    
    
    (163,751
    )
    
    
    (668,742
    )
    
    
    (21,070
    )(Gain) loss on redemption of bonds payable
    
    
    (16,798
    )
    
    
    
    
    
    
    8,117
    
    
    
    256Reversal of deferred credit account
    
    
    
    
    
    
    (23,506
    )
    
    
    
    
    
    
    (Increase) decrease in assets:Notes receivable
    
    
    53,525
    
    
    
    8,706
    
    
    
    46,448
    
    
    
    1,463Accounts receivable
    
    
    (441,191
    )
    
    
    (1,220,618
    )
    
    
    (405,172
    )
    
    
    (12,765
    )Other financial assets - current
    
    
    (61,381
    )
    
    
    17,566
    
    
    
    14,937
    
    
    
    471Inventories
    
    
    41,427
    
    
    
    (414,850
    )
    
    
    (68,977
    )
    
    
    (2,173
    )Other current assets
    
    
    (187,224
    )
    
    
    (128,401
    )
    
    
    16,989
    
    
    
    535Deferred income tax assets
    
    
    (196,413
    )
    
    
    (631,184
    )
    
    
    (464,386
    )
    
    
    (14,631
    )Increase (decrease) in liabilities:Notes payable
    
    
    (393,956
    )
    
    
    1,071,607
    
    
    
    (1,071,912
    )
    
    
    (33,772
    )Accounts payable
    
    
    397,210
    
    
    
    780,972
    
    
    
    (34,962
    )
    
    
    (1,102
    )Income tax payable
    
    
    48,879
    
    
    
    (9,362
    )
    
    
    (4,256
    )
    
    
    (134
    )Accrued expenses
    
    
    117,212
    
    
    
    106,157
    
    
    
    255,763
    
    
    
    8,058Other payables
    
    
    144,367
    
    
    
    60,611
    
    
    
    471,388
    
    
    
    14,851Other current liabilities
    
    
    18,556
    
    
    
    148,890
    
    
    
    (168,362
    )
    
    
    (5,304
    )Other liabilities
    
    
    3,775
    
    
    
    (1,288
    )
    
    
    (4,987
    )
    
    
    (157
    )Accrued pension liabilities
    
    
    (16,627
    )
    
    
    
    
    
    
    31,008
    
    
    
    977Net cash provided by operating activities
    
    
    5,006,199
    
    
    
    8,052,708
    
    
    
    8,766,648
    
    
    
    276,202
 (Continued) F - 9




---



##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (EXPRESSED IN THOUSANDS OF DOLLARS) December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 2)Cash flows from investing activitiesPayment for pledged time deposits
    
    ($
    423,000
    )
    
    ($
    44,800
    )
    
    ($
    503,500
    )
    
    ($
    15,863
    )Refund of pledged time deposits
    
    
    3,320
    
    
    
    304,400
    
    
    
    425,300
    
    
    
    13,399Purchase of short-term investments
    
    
    (6,872,467
    )
    
    
    
    
    
    
    (4,759,999
    )
    
    
    (149,967
    )Proceeds from disposal of short-term investments
    
    
    6,821,740
    
    
    
    54,097
    
    
    
    2,830,000
    
    
    
    89,161Purchase of long-term investments
    
    
    (1,329,915
    )
    
    
    (219,292
    )
    
    
    (265,156
    )
    
    
    (8,354
    )Proceeds on capital reduction from equity investee
    
    
    
    
    
    
    
    
    
    
    16,900
    
    
    
    532Purchase of long-term investments in bonds
    
    
    (346,350
    )
    
    
    (295,000
    )
    
    
    
    
    
    
    Proceeds from disposal of long-term investments
    
    
    129,877
    
    
    
    1,155,114
    
    
    
    736,118
    
    
    
    23,192Acquisition of property, plant and equipment
    
    
    (6,444,535
    )
    
    
    (4,884,707
    )
    
    
    (9,784,816
    )
    
    
    (308,280
    )Proceeds from disposal of property, plant and equipment
    
    
    79,875
    
    
    
    116,853
    
    
    
    259,587
    
    
    
    8,179Payment for deferred charges
    
    
    (341,878
    )
    
    
    (380,103
    )
    
    
    (578,977
    )
    
    
    (18,241
    )Payment for refundable deposits
    
    
    (3,141
    )
    
    
    (2,094
    )
    
    
    (1,825
    )
    
    
    (57
    )Proceeds from refundable deposits
    
    
    686
    
    
    
    4,995
    
    
    
    5,995
    
    
    
    189Acquisition of other assets
    
    
    (79,792
    )
    
    
    (37,416
    )
    
    
    
    
    
    
    Proceeds from disposal of other assets
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (8,805,580
    )
    
    
    (4,227,941
    )
    
    
    (11,620,373
    )
    
    
    (366,110
    )Cash flows from financing activitiesProceeds from short-term loans
    
    
    8,102,000
    
    
    
    2,875,700
    
    
    
    
    
    
    
    Repayment of short-term loans
    
    
    (8,590,000
    )
    
    
    (3,177,700
    )
    
    
    
    
    
    
    Proceeds from issuance of commercial paper
    
    
    1,796,917
    
    
    
    2,397,441
    
    
    
    
    
    
    
    Repayment of commercial paper
    
    
    (1,400,000
    )
    
    
    (2,900,000
    )
    
    
    
    
    
    
    Proceeds from long-term loans
    
    
    2,245,947
    
    
    
    5,128,639
    
    
    
    6,300,000
    
    
    
    198,488Repayment of long-term loans
    
    
    (1,847,760
    )
    
    
    (2,329,760
    )
    
    
    (9,149,169
    )
    
    
    (288,254
    )Proceeds from issuance of bonds payable
    
    
    7,608,260
    
    
    
    
    
    
    
    6,646,000
    
    
    
    209,389Proceeds from deposit-in
    
    
    250
    
    
    
    334
    
    
    
    110
    
    
    
    3Repayment of deposit-in
    
    
    (90
    )
    
    
    (371
    )
    
    
    
    
    
    
    Increase (decrease) in deferred credit accounts
    
    
    
    
    
    
    4,028
    
    
    
    (5,562
    )
    
    
    (175
    )Redemption of bonds payable
    
    
    (4,469,051
    )
    
    
    
    
    
    
    (1,483,391
    )
    
    
    (46,736
    )Proceeds from disposal of treasury stock
    
    
    20,694
    
    
    
    409,877
    
    
    
    145,128
    
    
    
    4,572Remuneration to directors and supervisors
    
    
    
    
    
    
    
    
    
    
    (57,153
    )
    
    
    (1,801
    )Remuneration of employees cash bonuses and stockholders
dividends
    
    
    
    
    
    
    
    
    
    
    (736,712
    )
    
    
    (23,211
    )Net cash provided by financing activities
    
    
    3,467,167
    
    
    
    2,408,188
    
    
    
    1,659,251
    
    
    
    52,276Effect on foreign currency exchange
    
    
    (8,103
    )
    
    
    
    
    
    
    (85,734
    )
    
    
    (2,701
    )Net (decrease) increase in cash and cash equivalents
    
    
    (340,317
    )
    
    
    6,232,955
    
    
    
    (1,280,208
    )
    
    
    (40,334
    )Cash and cash equivalents at beginning of year
    
    
    6,309,963
    
    
    
    5,969,646
    
    
    
    12,202,601
    
    
    
    384,455Cash and cash equivalents at end of year
    
    $
    5,969,646
    
    
    $
    12,202,601
    
    
    $
    10,922,393
    
    
    $
    344,121Supplemental disclosures of cash flow information:Cash paid for interest (excluding capitalized interest)
    
    $
    763,383
    
    
    $
    170,287
    
    
    $
    324,148
    
    
    $
    10,213Cash paid for income tax
    
    $
    3,276
    
    
    $
    5,279
    
    
    $

    17,242
    
    
    $
    543Supplemental disclosures of partial cash paid for investing
activitiesAcquisition of property, plant and equipment
    
    $
    5,868,868
    
    
    $
    5,572,254
    
    
    $
    9,320,818
    
    
    $
    293,661Add: Payable at beginning of the year
    
    
    1,035,695
    
    
    
    482,790
    
    
    
    1,170,337
    
    
    
    36,873Notes payable at beginning of the year
    
    
    22,762
    
    
    
    
    
    
    
    
    
    
    
    Less: Payable at end of the year
    
    
    (482,790
    )
    
    
    (1,170,337
    )
    
    
    (706,339
    )
    
    
    (22,254
    )Cash paid
    
    $
    6,444,535
    
    
    $
    4,884,707
    
    
    $
    9,784,816
    
    
    $
    308,280
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent
registered public accounting firm dated February 18, 2005. F - 10




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  1.
    History and OrganizationSiliconware Precision Industries Co., Ltd. (the Company or SPIL) was incorporated as a
company limited by shares under the Company Law of the Republic of China (the
ROC) in May 1984 and was listed on the Taiwan Stock Exchange in April 1993. As of December
31, 2004, issued common stock was $21,050,731. The main activities of the Company are the
assembly, testing and turnkey services of integrated circuits. As of December 31, 2004, SPIL
has 10,613 employees.2.
    Summary of Significant Accounting PoliciesThe accompanying financial statements have been prepared in conformity with the Rules
Governing the Preparation of Financial Statements of Securities Issues and
accounting principles generally accepted in the Republic of China. Accounting principles
generally accepted in the Republic of China vary in certain significant respects from
accounting principles generally accepted in the United States. The application of accounting
principles in the United States would have affected the
determination of consolidated net income expressed in New Taiwan dollars, for each of the
three years ended December 31, 2004 and the determination of consolidated shareholders
equity and consolidated financial position also expressed in New Taiwan dollars, as of
December 31, 2003 and 2004 to the extent summarized in Note 28 to the consolidated financial
statements.The Companys significant accounting policies are summarized as follows:ConsolidationPursuant to ROC Securities and Futures Bureaus (SFB) (formally Securities and Futures
Commission) regulations, if the total assets and the operating revenue of the subsidiary are
less than 10% of the total non-consolidated assets and operating revenue of SPIL, the
subsidiarys financial statements may, at the option of SPIL, not be included in the
consolidation. Irrespective of the above test, when the total combined assets or operating
revenue of all such non-consolidated subsidiaries constitute more than 30% of SPILs
non-consolidated assets or operating revenue, then each individual subsidiary with total
assets or operating revenue greater than 3% of SPILs non-consolidated assets or operating
revenue is included in the consolidation. SPILs consolidation policy is to consolidate all
subsidiaries in which SPIL has majority voting ownership.The Companys consolidated financial statements include the following subsidiaries:Siliconware Investment Company Ltd. (SIC), a 100% owned subsidiary of SPIL, was
incorporated in September 1996 to engage in investment activities. As of December 31, 2004,
the issued capital of SIC was NT$1,770,000. F - 11




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) SPIL (B.V.I.) Holding Limited (SPIL BVI), a 100% owned subsidiary of SPIL, was
incorporated in April 2001 to engage in investment activities. As of December 31, 2004,
the issued capital of SPIL BVI was US$57,800. Siliconware USA, Inc. (SUI), a 100% owned subsidiary of SPIL BVI, was incorporated
in October 1997 to engage
as sales agent in North America. As of December 31, 2004,
the issued capital of SUI
was US$1,250. SPIL (Cayman) Holding Limited (SPIL Cayman), a 100% owned subsidiary of
SPIL BVI, was incorporated in January 2002 to engage in investment activities. As of
December 31, 2004, the issued capital of SPIL Cayman was US$30,050. Siliconware Technology (Suzhou) Limited (Siliconware Technology), a 100% owned subsidiary of
SPIL Cayman, was incorporated in February 2002 to engage in the design and manufacture of
transistor and electronic component. As of December 31, 2004, the issued capital of
Siliconware Technology was US$30,000. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts
of assets and liabilities and the disclosures of contingencies at the date of the
financial statements and the reported amount of revenue, costs of revenue and expenses
during the reporting period. Actual results could differ from those estimates. Translation of Foreign Currency Transactions on Subsidiaries Financial Statements The financial statements of foreign subsidiaries and investee are translated into New
Taiwan dollars using the spot rate as of each financial statement date for asset and
liability accounts, average exchange rate for profit and loss accounts, spot rate for
dividend and historical exchange rates for equity accounts. The cumulative translation
effects for subsidiaries and investees using functional currencies other than the New
Taiwan dollar are included in the cumulative translation adjustment in stockholders
equity. Foreign Currency Transactions The accounts of the Company are maintained in New Taiwan dollars. Transactions denominated
in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing
on the transaction dates. Receivables, other monetary assets and liabilities denominated in
foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing at
the balance sheet date. Exchange gains or losses F - 12




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) are included in the current years results. Convenience Translation into US Dollars The Company maintains its accounting records and prepares its financial statements in New
Taiwan (NT) dollars. The United States (US) dollar amounts disclosed in the 2004 financial
statements are presented solely for the convenience of the reader and were translated at the
rate of NT$ 31.74 (in dollars) to US$1.00 (in dollars), the U.S. Federal Reserve Bank of New
York noon buying exchange rate on December 31, 2004. Such translation amounts are unaudited
and should not be construed that the NT dollar amounts represent, or have been, or could be,
converted into US dollars at that or any other rate. Cash and Cash Equivalents Cash includes cash deposits in banks, certificates of deposits and time deposits. Cash
equivalents are short-term, highly liquid investments which are readily convertible to
known amounts of cash and with maturity dates that do not present significant risk of
changes in value because of changes in interest rates. Short-term Investments Short-term investments are recorded at cost when acquired and are stated at the lower of
aggregate cost or market value at the balance sheet date. The market value of listed stocks
and close-end mutual funds is determined by the average closing price of the last month of the
accounting period. The market value of open-end funds is determined by the equity per unit at
the balance sheet date. The excess of aggregate cost over market value is recorded as a loss
in the current year. In subsequent periods, recovery of market value is recognized as gain to
the extent that the market value does not exceed the original cost of the investment. Allowance for Doubtful Accounts The allowance for doubtful accounts is provided based on the evaluation of
collectibility and aging analysis of notes receivable, accounts receivables and other
receivables. Allowance for Sales Discounts The allowance for sales discounts is provided based on the estimated allowance to be
incurred and is recorded as deduction of accounts receivable. Inventories Inventories are recorded at cost when acquired and are stated at the lower of aggregate cost,
based on weighted average method, or market value at the balance sheet date. F - 13




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) The market values of raw materials and supplies are determined on the basis of
replacement cost. The market values of finished goods and work in processes are
determined on the basis of net realizable value. The allowance for loss on obsolescence
and decline in market value is provided, when necessary. Long-term Investments in Stocks  A.
    Long-term equity investments in which the Company owns less than 20% of the voting
rights of the investee company are accounted for (a) at cost, if the investee company is
not listed or (b) at the lower of cost or market value, if the investee
company is listed. Allowance for the unrealized loss under this method is shown in
stockholders equity. When it becomes evident that there has been a permanent impairment
in value and the chance of recovery is minimal, loss is recognized in the current years
income. If there is evidence that the Company has significant influence over the
investee company, the investment is accounted for under the equity method.B.
    Long-term equity investments in which the Company owns at least 20% of the voting
rights of the investee company are accounted for under the equity method, unless the
Company cannot exercise significant influence over the investee company, in which case,
the investment is accounted for as indicated in A above.
The excess of the acquisition cost over the investees net book value is capitalized and
amortized over 10 years.C.
    The Company delays recognition of investment income (loss) on long- term equity
investments in which the Company owns less than 50% of the voting rights of the investee
company, if the financial statements of the investee for the same period are not available
in time. The Company consistently recognizes the investment income (loss) in the
subsequent year based on prior years weighted average share holdings in the investee.
However, if the investee meets certain criteria set by the ROC SFB in the Rule Governing
the Preparation of Financial Statements of Securities Issuers, delay in recognition of
income (loss) is not permitted.D.
    Unrealized gains and losses from transactions between the Company and investee
companies accounted for under the equity method are deferred. Profit (loss) from sales
of depreciable assets between the investee and the Company is amortized to income or
expense over the assets economic service lives. Profit (loss) from other types of
intercompany transactions is recognized when realized.E.
    When the Companys proportional interest in an equity investee changes after the
equity investee issues new shares, the effect of change in the Companys holding
ratio on long-term investment is adjusted first to capital reserve. If capital reserve amount is
insufficient, the effect is then charged to retained earnings. F - 14




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  F.
    The Companys proportionate share of the foreign investees cumulative translation
adjustments related to the translation of the foreign investees financial statements into
New Taiwan dollars is recognized by the Company and is included in the stockholders equity
as Cumulative Translation Adjustment. Long-term Investments in Bonds Long-term investments in bonds are recorded at amortized cost, which is the par value after
adjustment by the unamortized premium or discount. Property, Plant and Equipment  A.
    Property, plant and equipment are stated at cost. Interest incurred relating to the
acquisition and construction of property, plant and equipment is capitalized and
depreciated accordingly.  B.
    Depreciation is provided on the straight-line method over the assets estimated
economic service lives, plus one additional year as salvage value. Salvage value of fixed
assets which are still in use after their estimated economic service lives are depreciated
over their new estimated remaining service lives. The service lives of the fixed assets
are 3 to 15 years, except for buildings, which are 35 to 55 years.  C.
    Maintenance and repairs are charged to expense as incurred. Significant renewals and
improvements are treated as capital expenditures and are depreciated accordingly. When
fixed assets are disposed of, their original cost and accumulated depreciation are
written-off. Gain or loss on disposal of fixed assets is recorded as non-operating income
or loss.  D.
    Idle assets are stated at the lower of book value or net realizable value and are
reclassified to other assets.  E.
    According to the regulation of People Republic of China, depreciation for the property,
plant and equipment of Siliconware Technology is provided on the straight-line method over
5 years with one-tenth of the cost as salvage value. Deferred Charges The costs of computer software system purchased externally and tooling cost are recognized as
deferred charges and amortized on the straight-line method over the estimated useful lives of 2
to 5 years. Convertible bonds issuance costs are amortized over the period of the bonds. F - 15




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) Land Use Right The rental cost for Siliconware Technology to lease the land from the local government is
recognized as land use right and amortized on the straight-line method over the contract period
of 50 years. Convertible Bonds  A.
    The excess of the stated redemption price over the par value is recognized as interest
expense and compensation interest payable using the effective interest method during the
period from the issuance date to the last day of redemption period.  B.
    When a bondholder exercises its conversion rights, the book value of bonds is credited
to common stock at an amount equal to the par value of the stock and the excess is credited
to capital reserve; no gain or loss is recognized on bond conversion.  C.
    The related issuance costs for convertible bonds are recorded as deferred charges, and
are amortized over the period of the bonds.  D.
    For convertible bonds with redemption options, the right of redemption becomes invalid
if the bondholder failed to exercise its redemption right during the redemption period.
The balance of the compensation interest payable is amortized over the period from the date
following the redemption period to the maturity date using the effective interest method.  E.
    The convertible bonds with redemption options are classified into current or
non-current liabilities based on the date of redemption. Retirement Plan SPIL has a funded defined benefit pension plan covering all regular employees in accordance with
the ROC Labor Standards Law. The net pension cost, which is computed based on an actuarial
valuation, includes service cost, interest cost, expected return on plan assets and amortization
of net asset/obligation at transition. The unrecognized net asset or obligation at transition
is amortized equally over 15 years. The pension fund is managed by an independently
administered pension fund committee. SUI has established a 401(k) profit-sharing plan covering substantially all employees. The plan
provides for voluntary salary reduction contributions by eligible participants in accordance
with Section 401(k) of the Internal Revenue Code, as well as discretionary matching and profit
sharing contributions from SUI. Profit-sharing and 401(k) matching contributions are determined
annually by the SUIs Board of F - 16




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) Directors. Siliconware Technology has a funded defined contribution plan covering certain employees who are
qualified as permanent residents of Suzhou. According to the retirement plan, Siliconware
Technology contributes monthly an amount equal to certain percentage of employees monthly
salaries and wages to the Bureau of Social Insurance and recognizes as pension expense. The
employees are entitled to the benefit after 15 years of service. Income Tax  A.
    In accordance with ROC FAS No. 22, Accounting for Income Taxes, the income tax effect
resulting from temporary differences and investment tax credits is recorded as income tax
assets or liabilities using the assets and liability method. Deferred tax assets or
liabilities are further classified into current or noncurrent items and are presented on
the financial statements at net balance. Valuation allowance on deferred tax assets is
provided to the extent that it is more likely than not that the tax benefit will not be
realized.  B.
    The Company adopted ROC FAS No. 12 Accounting for Investment Tax Credits in
determining the investment tax credit. The investment tax credits relating to the
acquisition cost of qualifying machinery and technology, qualifying research and
development, qualifying personnel training and qualifying investments in significant
technology companies are recognized as income tax adjustment in the period the tax credits
arise.  C.
    Over or under provisions of prior years income tax liabilities are included in the
current years income tax expense.  D.
    The Taiwan imputation tax system requires that any undistributed earnings be subject to
an additional 10% corporate income tax which is recognized as expense at the time the
stockholders resolve to retain the earnings. Revenue Recognition Revenues are recognized when services are provided based on transaction terms and when
collectibility is reasonably assured. Research and Development Costs incurred by the Company in research and development activities are expensed as incurred. F - 17




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) Treasury Stock  A.
    Treasury stock, representing issued stock reacquired by the Company for cash, is stated
at cost, and is presented as a deduction under stockholders equity.  B.
    Upon subsequent disposal of the treasury stock, the excess of the proceeds from
disposal over the book value, using the weighted average method, is credited to capital
reserve. However, if the book value of the treasury stock exceeds the proceeds from
disposal, the excess is first charged against capital reserve arised from treasury stock
and the remainder, if any, is charged against retained earnings. 3. Effects of Changes in Accounting Principle None. 4. Cash and Cash Equivalents December 31,2003
    
    
    2004NT$
    
    
    NT$CashCash on hand
    
    $
    2,271
    
    
    $
    1,293Savings accounts
    
    
    785,758
    
    
    
    610,091Checking accounts
    
    
    334,673
    
    
    
    (653,132
    )Time deposits
    
    
    7,452,532
    
    
    
    7,498,9478,575,234
    
    
    
    7,457,199Cash equivalentBonds with
re-purchase
options
    
    
    
    
    
    
    158,300Commercial paper
    
    
    3,627,367
    
    
    
    3,306,894$
    12,202,601
    
    
    $
    10,922,393
  A.
    As of December 31, 2004, checking account had a credit balance because the Company
credited checking account based on the due date of the notes payable issued, while the
notes payable were still uncashed.  B.
    As of December 31, 2003 and 2004, the interest rates for time deposits ranged from 0.5%
to 2.35%, and from 0.8% to 2.53%, respectively. F - 18




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)   5. Short-term Investment December 31,2003
    
    
    2004NT$
    
    
    NT$Investment in stock
    
    $
    8,001
    
    
    $
    Investment in bond fund
    
    
    
    
    
    
    1,942,970Less: Allowance for
loss on decline in
market
value
of
short-term
investments
    
    
    (12
    )
    
    
    $
    7,989
    
    
    $
    1,942,970
 6. Accounts Receivable December 31,2003
    
    
    2004NT$
    
    
    NT$Accounts receivable
    
    $
    5,377,198
    
    
    $
    5,822,281Less: Allowance
for doubtful
accounts
    
    
    (56,556
    )
    
    
    (92,638
    )Allowance
for sales
discounts
    
    
    (9,369
    )
    
    
    (9,369
    )$
    5,311,273
    
    
    $
    5,720,274
 7. Inventories December 31,2003
    
    
    2004NT$
    
    
    NT$Raw materials and
supplies
    
    $
    1,644,032
    
    
    $
    1,675,384Work in process
    
    
    183,949
    
    
    
    211,004Finished goods
    
    
    127,180
    
    
    
    136,0621,955,161
    
    
    
    2,022,450Less: Allowance
for loss on
obsolescence and
decline in
market
value
of
inventory
    
    
    (58,195
    )
    
    
    (45,449
    )$
    1,896,966
    
    
    $
    1,977,001
 F - 19




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 8. Long-term Investments 1. Details of long-term investments were summarized as follows: December 31,2003
    
    
    2004Investee company
    
    Amount
    
    
    % of ownership
    
    
    Amount
    
    
    % of ownershipNT$
    
    
    
    
    
    
    NT$Equity methods:Sigurd
Microelectronics
Corp.
    
    $
    520,843
    
    
    
    27.36
    %
    
    $
    617,264
    
    
    
    24.75
    %Double Win
Enterprise Co.,
Ltd.
    
    
    120,563
    
    
    
    24.14
    %
    
    
    101,712
    
    
    
    24.14
    %ChipMOS
Technologies Inc.
    
    
    2,748,559
    
    
    
    28.73
    %
    
    
    2,995,619
    
    
    
    28.73
    %Universal
Communication
Technology Inc.
    
    
    266,888
    
    
    
    42.82
    %
    
    
    237,894
    
    
    
    42.82
    %Taiwan Hi-tech
Corporation
    
    
    115,995
    
    
    
    38.53
    %
    
    
    
    
    
    
    Artest Corporation
    
    
    47,569
    
    
    
    30.09
    %
    
    
    
    
    
    
    30.09
    %3,820,417
    
    
    
    
    
    
    
    3,952,489Cost methods:Phoenix
Precision
Technology
Corporation
    
    
    1,129,402
    
    
    
    14.53
    %
    
    
    1,429,939
    
    
    
    18.03
    %ThaiLin
Semiconductor
Corp.
    
    
    216,420
    
    
    
    4.75
    %
    
    
    190,512
    
    
    
    3.15
    %King Yuan
Electronics Co.,
Ltd.
    
    
    910,270
    
    
    
    9.45
    %
    
    
    910,270
    
    
    
    9.08
    %Others
    
    
    310,157
    
    
    
    
    
    
    
    333,128
    
    
    
    2,566,249
    
    
    
    
    
    
    
    2,863,849$
    6,386,666
    
    
    
    
    
    
    $
    6,816,338
  2.
    The recognition of investment income (loss) for ChipMOS Technologies Inc. (ChipMOS),
an investee accounted for under the equity method, was based on the financial statements
of the investee for the same period in 2001 and before. Commencing from January 1, 2002,
with the approval from ROC SFB, recognition of investment income (loss) has been delayed
until the subsequent year for ChipMOS. Therefore, the Company recognized investment loss
of NT$365,669 and investment income of NT$247,238 for the years ended December 31, 2003
and 2004, based on ChipMOS audited financial statement for the years ended December 31,
2002 and 2003, respectively. The Company did not recognize investment loss for ChipMos
for the year ended December 31, 2002.  3.
    During 2002, the Company made an investment in Universal Communication Technology
Inc. (Universal), an investee accounted for under the equity method. The Companys
investment in Universal consists of cumulative preferred stock and
common stock, both with voting right. The holders of the preferred stock are entitled to
receive cumulative dividends at the rate of 10% per annum. In the event of any
liquidation of the investee, the holders of the preferred stock shall be entitled to
receive, in preference to the holders of the common stock, an amount equal to original
investment amount plus any undeclared and unpaid dividends. The recognition of investment
income (loss) for Universal has been delayed until the subsequent year. Commencing from
January 2003, the Company recognizes the F - 20




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  investment income (loss) for Universal based on
the financial statements of the investee for the same period. For the years ended
December 31, 2002, 2003 and 2004, the Company recognized investment income of NT$0,
NT$15,471 and NT$7,600 for preferred stock in accordance with the preference of the
preferred stock of Universal. As for the common stock investment in Universal, no
investment gain or loss were recognized in 2002. In 2003, the investment loss of $62,135
was recognized based on the audited financial statements of Universal for the years ended
December 31, 2003 and 2002. In 2004, the investment loss of $23,825 for common stock was
recognized based on Universals audited financial statements for the year ended December
31, 2004.4.
    Recognition of investment income (loss) has been consistently delayed until the
subsequent year for Taiwan Hi-tech Corporation and Double Win Enterprise Co., Ltd.
Accordingly, the combined investment (loss) income of NT$(14,972), NT$3,000 and NT$4,585
in these two companies for the years ended December 31, 2002, 2003 and 2004, were based on
the audited financial statements of the investee companies for the years ended December
31, 2001, 2002 and 2003, respectively.  5.
    For the years ended December 31, 2002, 2003 and 2004, the Company recognized
investment income of NT$69,166, NT$69,560 and NT$11,523, respectively, for other investees
accounted for under equity method which was based on the investee companies audited
financial statements in the respective periods.  6.
    For Artest Corporation, the Company owns non-cumulative preferred stock with voting
right. According to ROC FAS No. 5, Accounting For Long-term Investments, the
recognition of investment income (loss) for investments in preferred stock are based on
the right to the earning distribution. Since the preferred stock is non-cumulative,
investment income (loss) is recognized upon dividend declaration. No dividend was
declared in 2001, 2002 and 2003. Therefore, no investment income was recognized in 2002,
2003 and 2004. However, for the years ended December 31, 2002, 2003 and 2004, Artest
Corporation, has incurred significant losses since our investments and there is no
indication of recovery in the near future, we concluded that the impairment loss was other
than temporary. Accordingly, we recorded impairment charges of NT$24,934, NT$189,454 and
NT$7,720 in 2002, 2003 and 2004 on this long-term equity investment to write off the
carrying value of the investment to its fair value. As of December 31, 2004, the carrying
amount of investment in Artest was written down to $0. F - 21




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)   7. Details of long-term investments in bonds were summarized as follows: December 31,2003
    
    
    2004Amount
    
    
    Market value
    
    
    Amount
    
    
    Market valueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$United
Microelectronics
Corporation
exchangeable
bonds
    
    $
    346,350
    

    
    $
    361,742
    
    
    $
    
    
    
    $
    Phoenix Precision
Technology
Corporation
convertible
bonds
    
    
    295,000
    
    
    
    588,968
    
    
    
    
    
    
    
    $
    641,350
    
    
    $
    950,710
    
    
    $
    
    
    
    $
    
 As of December 31, 2002, 2003 and 2004, the unamortized premium for long-term
investments in bonds was $0. The main terms of the issue of United Microelectronics Corporation exchangeable bonds
were as follows: (1) Maturity: May 10, 2007 (2) Interest rate: 0%  (3)
    Redemption period: The bondholders may redeem the bonds on February 10,
2005 at 100% of the face value.  (4)
    Exchangeable period: The bondholders may exchange the bonds for the common
share of AU Optronics Corp. from June 19, 2003 to April 10, 2007.  (5)
    Exchangeable ratio: The bondholders may exchange the bonds for common
 shares of AU Optronics Corp. at 5,838.389 shares per bond, denominated at US$ 10,000
per bond. The main terms of the issue of Phoenix Precision Technologies Corporation convertible
bonds were as follows:  (1)
    Maturity: May 26, 2008  (2)
    Interest rate: 0%  (3)
    Redemption period: The bondholders may redeem the bonds on May 26, 2006 at 104.57% of the
principal amount, on May 26, 2007 at 106.14% of the principal amount, or on May 26, 2008 at the
principal amount. F - 22




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)   9. Property, Plant and Equipment December 31, 2003Cost
    
    
    Accumulated depreciation
    
    
    Book valueNT$
    
    
    NT$
    
    
    NT$Land
    
    $
    2,128,476
    
    
    $
    
    
    
    $
    2,128,476Buildings
    
    
    5,368,157
    
    
    
    (           1,121,315
    )
    
    
    4,246,842Machinery and
equipment
    
    
    30,072,783
    
    
    
    (          15,488,964
    )
    
    
    14,583,819Utility equipment
    
    
    535,180
    
    
    
    (              231,821
    )
    
    
    303,359Furniture and
fixtures
    
    
    411,907
    
    
    
    (              220,281
    )
    
    
    191,626Other equipment
    
    
    1,166,431
    
    
    
    (              545,041
    )
    
    
    621,390Construction in
progress and
prepayments for
equipment
    
    
    2,326,759
    
    
    
    
    
    
    
    2,326,759$
    42,009,693
    
    
    
    ($17,607,422
    )
    
    $
    24,402,271
 December 31, 2004Cost
    
    
    Accumulated depreciation
    
    
    Book valueNT$
    
    
    NT$
    
    
    NT$Land
    
    $
    2,128,476
    
    
    $
    
    
    
    $
    2,128,476Buildings
    
    
    6,609,819
    
    
    
    (           1,384,875
    )
    
    
    5,224,944Machinery and
equipment
    
    
    34,710,602
    
    
    
    (          17,251,132
    )
    
    
    17,459,470Utility equipment
    
    
    696,662
    
    
    
    (              299,735
    )
    
    
    396,927Furniture and
fixtures
    
    
    507,134
    
    
    
    (              273,446
    )
    
    
    233,688Other equipment
    
    
    1,417,709
    
    
    
    (              696,612
    )
    
    
    721,097Construction in
progress and
prepayments for
equipment
    
    
    1,024,282
    
    
    
    
    
    
    
    1,024,282$
    47,094,684
    
    
    
    ($19,905,800
    )
    
    $
    27,188,884
 For the years ended December 31, 2002, 2003 and 2004, total interest expense amounted to
NT$605,180, NT$414,607 and NT$364,347, respectively, of which NT$84,063, NT$39,496 and
NT$11,026 was capitalized to property, plant and equipment, respectively. The interest
rates used to calculate the capitalized interest were ranged from 4.04% to 4.94%, 2.92% to
4.54% and 0.73% in the respective periods. F - 23




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 10. Other Assets - Others December 31,2003
    
    
    2004NT$
    
    
    NT$Land
    
    $
    108,087
    
    
    $
    108,087Land use right
    
    
    94,671
    
    
    
    86,961Others
    
    
    33,975
    
    
    
    38,481$
    236,733
    
    
    $
    233,529
 As of December 31, 2004, SPIL designated one of its officers to purchase the parcel of
land, Da-Pu-Chu No. 123-2, and registered the title of the land under the officers
personal name. The land purchase has been completed and SPIL had made payments for the
purchase. SPIL entered into a trust contract with the designated officer, which provides
the land use right for nil consideration to SPIL. The trust contract prohibits the title
owner from transferring the title of the land under any circumstances. 11. Accrued expenses December 31,2003
    
    
    2004Accrued salaries
    
    $
    476,586
    
    
    $
    546,933Accrued interest
    
    
    23,242
    
    
    
    25,660Other accrued
expenses
    
    
    321,882
    
    
    
    504,880$
    821,710
    
    
    $
    1,077,473
 12. Other Payables December 31,2003
    
    
    2004NT$
    
    
    NT$Payables for
equipment
    
    $
    1,170,337
    
    
    $
    706,339Accrued
value-added tax
payable
    
    
    
    
    
    
    468,000Other payables
    
    
    322,164
    
    
    
    333,722$
    1,492,501
    
    
    $
    1,508,061
 As of December 31, 2004, the Company recorded NT$468,000 of accrued value-added tax
payable due to certain revenues previously applied zero percent of value-added tax were deemed
taxable by the Tax Authority. The assessment is still in process and the
Company believes the provision is sufficient to cover the liability arising from the tax
assessment. F - 24




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  13.
    Bonds Payable December 31,2003
    
    
    2004NT$
    
    
    NT$Euro convertible bonds
payable
    
    $
    6,804,000
    
    
    $
    11,121,558Secured bonds payable
    
    
    800,000
    
    
    
    800,000Add: Compensation interest
payable
    
    
    384,979
    
    
    
    411,5887,988,979
    
    
    
    12,333,146Less: Current portion of
long-term
bonds payable
    
    
    (7,188,979
    )
    
    
    (800,000
    )$
    800,000
    
    
    $
    11,533,146
  A.
    On January 28, 2002, the Company issued five-year (from January 28, 2002 to January
28, 2007) Euro Convertible bonds amounting to US$200,000 (in thousands) with zero interest
rate on the Luxembourg Stock Exchange. Main terms of the issue are as follows:  (1)
    The Company may redeem the bonds at any time on or after July 29, 2004 and
prior to December 29, 2006 at their principal amount together with accrued interest,
if (i) the market price of the shares of the Company for 20 out of 30 consecutive
trading days is at least 130% of the conversion price or (ii) at least 90% in
principal amount of the bonds has already been redeemed, repurchased and cancelled or
converted.(2)
    Redemption at the option of the bondholders:The Company will, at the option of the bondholders, redeem such bonds on July 28, 2004
at 105.9185% of its principal amount, or on January 28, 2007 at 111.837% of its
principal amount.(3)
    Conversion period:At any time between April 16, 2002 and December 29, 2006.(4)
    Conversion price and adjustment:The conversion price was established on the issuance date at NT$32.9 (in dollar) per
share. The conversion price is subject to adjustment for bonus issues, right issues,
distributions of cash and stock dividends and other dilution. As of F - 25




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  December 31, 2004, the conversion price was NT$29.91 (in dollar) per share.(5)
    As of December 31, 2004, the convertible bonds with the principal amount of
US$8,840 (in thousands) has been converted into 9,402 thousand shares, which
resulted in an increase of capital reserve in the amount of NT$213,140. Also, during
2004, the Company repurchased and cancelled the bonds with the principal amount of
US$40,985 (in thousands) from open market and recognized a loss of NT$8,117, which was
shown in other non-operating expenses and losses.  B.
    On February 5, 2004, the Company issued five-year (from February 5, 2004 to February
5, 2009) Euro Convertible bonds amounting to US$200,000 (in thousands) with zero interest
rate on the Luxembourg Stock Exchange. Main terms of the issue are as follows:  (1)
    The Company may redeem the bonds at any time on or after February 5, 2006
and prior to January 29, 2009 at their principal amount, if (i) the market price of
the shares of the Company for 20 out of 30 consecutive trading days is at least 120%
of the conversion price or (ii) at least 90% in principal amount of the bonds has
already been redeemed, repurchased and cancelled or converted.(2)
    Redemption at the option of the bondholders:The Company will, at the option of the bondholders, redeem such bonds on February 5,
2008 at the principal amount.(3)
    Conversion period:At any time between March 17, 2004 and January 29, 2009.(4)
    Conversion price and adjustment:The conversion price was established on the issuance date at NT$47.035 (in dollars)
per share. The conversion price will be subject to adjustment for bonus issues,
right issues, distributions of cash and stock dividends and other dilution. As of
December 31, 2004, the conversion price was NT$42.76 (in dollars) per share. F - 26




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  C.
    In January 2002, SPIL issued NT$800,000 of three-year secured bonds. The interest
rate on these bonds is 2.7% per annum. Main terms of the bonds payables were as follows: Nature of bonds
    
    Issued date
    
    
    Maturity date
    
    
    Amount
    
    
    Interest payment dateNT$Secured bonds payable
    
    January 16, 2002
    
    January 16, 2005
    
    $
    300,000
    
    
    January 16, each yearSecured bonds payable
    
    January 17, 2002
    
    January 17, 2005
    
    
    300,000
    
    
    January 17, each yearSecured bonds payable
    
    January 18, 2002
    
    January 18, 2005
    
    
    200,000
    
    
    January 18, each year$
    800,000
  14.
    Long-term Loans December 31,Nature of loans
    
    Repayment period
    
    2003
    
    2004NT$
    
    NT$Secured loans
    
    Repayable in 15 quarterly installments
from March 2002
    
    $
    933,240
    
    
    $
    Secured loans
    
    Repayable in 8 semi-annual installments
from April 2002
    
    
    496,000
    
    
    
    236,000Secured loans
    
    Repayable in 7 semi-annual installments
from June 2002
    
    
    1,379,840
    
    

    Secured loans
    
    Repayable in January 2005
    
    
    1,170,000
    
    
    
    1,170,000Credit loans
    
    Repayable in 4 semi-annual installments
from December 2004
    
    
    4,800,000
    
    
    Commercial papers
    
    Repayable in January 2005
    
    
    1,500,000
    
    
    
    1,500,000Commercial papers
    
    Repayable in 7 semi-annual
installments from April 2002
    
    
    500,000
    
    
    
    250,000Commercial papers
    
    Repayable in 3 semi-annual
installments from July 2006
    
    
    
    
    
    
    4,800,000Credit loans
    
    Repayable in October and November 2005
    
    
    62,885
    
    
    
    57,376Credit loans
    
    Repayable in October and November 2006
    
    
    328,638
    
    
    
    308,05811,170,603
    
    
    
    8,321,434Less: Current portion
of long-term loans

    
    
    (3,153,360
    )
    
    
    (3,213,376
    )Discount on
commercial paper
    
    
    (4,079
    )
    
    
    (1,712
    )$
    8,013,164
    
    
    $
    5,106,346Interest rates
    
    
    
    
    1.72% ~ 4.54
    %
    
    
    1.79% ~ 5.18
    %
  The loan agreements require, among other things, the maintenance of specific financial
covenants and consent by the banks on important transactions, such as merger, changes in
operations and asset transfer. As of December 31, 2004, the Company was in compliance with
all such financial covenants. F - 27




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  15.
    Pension Plan and Net Pension Cost  A.
    Substantially all of the regular employees of SPIL are covered by SPILs pension plan.
Under the funding policy of the plan, SPIL contributes monthly an amount equal to 5% of the
employees monthly salaries and wages to the pension fund deposited with the Central Trust
of China, the custodian. Pension benefits are generally based on service years (two units
earned per year for the first 15 years of service, with one unit for each additional year
of service with a maximum of 45 units). One unit represents the six-month average wages or
salaries before the retirement of the employee. Retirement benefits are paid from the
pension fund.B.
    The following tables set forth the actuarial assumptions, funded status and amounts
recognized for SPILs defined benefit pension plan:  (1)
    Assumptions used in actuarial calculations as of December 31, 2002, 2003 and
2004: 2002
    
    
    2003
    
    
    2004Discount rate
    
    
    5.00
    %
    
    
    4.00
    %
    
    
    2.50
    %Long-term rate of compensation increase
    
    
    3.50
    %
    
    
    2.00
    %
    
    
    2.00
    %Expected rate on plan assets
    
    
    5.00
    %
    
    
    4.00
    %
    
    
    2.50
    %
 2003
    
    
    2004NT$
    
    
    NT$Vested benefit
    
    ($
    6,524
    )

    
    ($
    13,499
    )Vested benefit obligation
    
    ($
    6,466
    )
    
    ($
    13,157
    )Accumulated benefit obligation
    
    ($
    659,704
    )
    
    ($
    779,075
    )
  (2)
    Changes in benefit obligation during the years ended to December 31, 2003 and
2004: 2003
    
    
    2004NT$
    
    
    NT$Project benefit obligation at beginning of year
    
    ($
    687,492
    )
    
    ($
    1,046,896
    )Service cost
    
    
    (100,276
    )
    
    
    (145,610
    )Interest cost
    
    
    (27,500
    )
    
    
    (26,172
    )Loss on projected benefit obligation
    
    
    (233,748
    )
    
    
    175,500Benefit paid
    
    
    2,120
    
    
    
    1,683Projected benefit obligation at end of year
    
    ($
    1,046,896
    )
    
    ($
    1,041,495
    )
 F - 28




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (3)
    Changes in plan assets during the years ended to December 31, 2003 and 2004: 2003
    
    
    2004NT$
    
    
    NT$Fair value of plan assets at beginning of year
    
    $
    551,988
    
    
    $
    670,396Actual return on plan assets
    
    
    8,427
    
    
    
    8,526Employer contributions
    
    
    112,101
    
    
    
    131,586Benefits paid
    
    
    (2,120
    )
    
    
    (1,683
    )Fair value of plan assets at end of year
    
    $
    670,396
    
    
    $
    808,825
  (4)
    Funded status at December 31, 2003 and 2004: 2003
    
    
    2004NT$
    
    
    NT$Fair value of plan assets
    
    $
    670,396
    
    
    $
    808,825Projected benefit obligation
    
    
    (1,046,896
    )
    
    
    (1,041,495
    )Funded status
    
    
    (376,500
    )
    
    
    (232,670
    )Unrecognized transition assets
    
    
    (6,390
    )
    
    
    (5,477
    )Unrecognized net actuarial loss
    
    
    388,716
    
    
    
    207,249Prepaid pension expense
    
    $
    5,826
    
    
    ($
    30,898
    )
  (5)
    Components of net periodic cost for the years ended December 31, 2002, 2003
and 2004: 2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$Service cost
    
    $
    79,402
    
    
    $
    100,276
    
    
    $
    145,610Interest cost
    
    
    26,662
    
    
    
    27,500
    
    
    
    26,172Expected return on plan assets
    
    
    (21,899
    )
    
    
    (22,080
    )
    
    
    (16,760
    )Recognition of transition assets
    
    
    (913
    )
    
    
    (913
    )
    
    
    (913
    )Recognition of actuarial loss
    
    
    1,676
    
    
    
    3,819
    
    
    
    14,201Net periodic cost
    
    $
    84,928
    
    
    $
    108,602
    
    
    $
    168,310
  (6)
    Plan assets:As of December 31, 2002, 2003 and 2004, the plan assets consist of all cash deposited
with the Central Trust of China.  16.
    Capital Stock  A.
    As of December 31, 2004, the authorized capital of the Company was NT$26,000,000, F - 29




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  represented by 2,600,000,000 common shares with par value of NT$10 (in dollars) per share.
As of December 31, 2004, issued common stock was NT$21,050,731, represented by
2,105,073,100, shares.B.
    On June 11, 2004, the stockholders of the Company resolved to capitalize the dividend
in the amount of NT$1,894,476 and the employee bonus in the amount of NT$210,497 by
issuing 210,497 thousand new shares. The capital increase has been approved by SFB.C.
    The Company issued $1,500,000 American Depositary Shares (ADSs), represented by
30,000,000 units of ADSs, in June 2000. Each ADS was issued in respect of five shares of
common stock of the Company with an offering price of US$8.49 (in dollars) per ADS. Main
terms and conditions of the ADSs are summarized as follows:  (1)
    Voting RightsADS holders will have no rights to vote directly in shareholders meetings with respect
to the Deposited Shares. The Depositary shall provide voting instruction to the
Chairman of the Company and vote on behalf of the Deposited shares evidenced by ADSs.
If the Depositary receives voting instructions from holders of at least 51% of the
outstanding ADSs to vote in the same direction on a resolution, the Depositary will
cause the shares underlying the ADSs to be voted in the manner instructed.(2)
    Distribution of DividendsADS holders are deemed to have the same rights as holders of common shares
with respect to the distribution of dividends.  D.
    In July 2002, the Board of directors of the Company resolved to issue up to 40,000
units of employee stock option. Each unit of employee stock option is entitled to
subscribe 1,000 shares of the Companys common stock. The Company has to issue additional
40,000,000 shares of common stock if all of the employee stock options are exercised. The
exercise price of the employee stock option is subject to adjustment for distribution of
cash dividend or changes in capital stock in accordance with certain formula. The granted
employee stock option expires in five years and will be exercisable in certain percentage
annually after two years of service in accordance with the employee stock option plan. F - 30




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  (1)
    For the year ended December 31, 2004, details of the employee stock option
granted, exercised and cancelled and exercise price of the employee stock option were
as follows: WeightedaverageAvailable
    
    
    Number
    
    
    exercise pricefor grant
    
    
    of shares
    
    
    (in NT dollars)Outstanding options at January 1, 2002
    
    
    
    
    
    
    
    
    
    $
    Granted
    
    
    40,000
    
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding options at December 31, 2002
    
    
    40,000
    
    
    
    
    
    
    
    Granted/cancelled
    
    
    (40,000
    )
    
    
    40,000
    
    
    
    15.66Forfeited
    
    
    2,489
    
    
    
    (2,489
    )
    
    
    15.60Outstanding options at December 31, 2003
    
    
    2,489
    
    
    
    37,511
    
    
    
    15.67Granted
    
    
    
    
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    
    
    
    
    (1,683
    )
    
    
    13.76Outstanding options at December 31, 2004
    
    
    2,489
    
    
    
    35,828
    
    
    
    13.76
  (2)
    As of December 31, 2004, the details of the outstanding employee stock option
were as follows: Options granted
    
    
    Options vestedWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    averageExercise price
    
    Number of
    
    
    remaining
    
    
    exercise price
    
    
    Number of
    
    
    exercise price(in NT dollars)
    
    options
    
    
    contractual life
    
    
    (in NT dollars)
    
    
    options
    
    
    (in NT dollars)$13.7 ~ $14.3
    
    
    35,828
    
    
    3.13 years
    
    $
    13.76
    
    
    
    
    
    
    $
    
  17.
    Capital Reserve  A.
    According to the Company Law of the ROC, the capital reserve arising from paid-in
capital in excess of par on the issuance of stocks, from merger, from the conversion of
convertible bonds or from donation shall be exclusively used to cover accumulated deficit
or be transferred to capital. Other capital reserve shall be exclusively used to cover
accumulated deficit. The capital reserve can only be used to cover accumulated deficit
when the legal reserve is insufficient to cover the deficits.B.
    According to the Company Law of the ROC, the capital reserve arising from paid-in
capital in excess of par on the issuance of stocks can only be transferred to capital once
every year. The transfer of capital reserve to capital can not be made in the year the
company issued new shares and the amount to be capitalized is subject to certain
limitation. F - 31




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  18.
    Retained Earnings  A.
    According to the Companys Articles of Incorporation, current years earnings before
tax, if any, shall be distributed in the following order:  (1)
    Offset prior years operating losses, if any;(2)
    Pay all taxes and dues;(3)
    Set aside 10% of the remaining amount after deducting (1) and (2) as legal
reserve;(4)
    Set aside 2% of the remaining amount after deducting items (1), (2), and
(3) as directors and supervisors remunerations.(5)
    After deducting items (1), (2), (3), and (4) above from the current years
earnings, any portion of the remaining amount may be allocated as follows: 10% as
employee bonus and 90% as stockholders dividend.(6)
    The distribution of (5) above shall be made in accordance with the
resolution adopted by the Board of Directors and approved at the stockholders
meeting.  B.
    The appropriation for legal reserve can only be used to offset a deficit or increase
capital. The legal reserve can be used to increase capital only when the reserve balance
exceeds 50% of the capital stock, and the amount capitalized should be limited to 50% of
the portion of the reserve in excess of 25% of the capital stock.C.
    In accordance with the ROC SFB regulation, in addition to legal reserve and prior to
distribution of earnings, the Company should set aside a special reserve in an amount
equal to the net change in the reduction of prior years stockholders equity, resulting
from adjustments such as cumulative foreign currency translation adjustment and unrealized
losses on long-term investments. Such special reserve is not available for dividend
distribution. In the subsequent year(s), if the year-end balances of the cumulative
foreign currency translation adjustment and unrealized losses on long-term investments no
longer result in a net reduction in the stockholders equity, the special reserve
previously set aside will then be available for distribution.D.
    The Taiwan imputation tax system requires that any undistributed current earnings of
a company derived on or after January 1, 1998 be subject to an additional 10% corporate
income tax if the earnings are not distributed in the following year. This 10% additional
tax on undistributed earnings paid by the Company can be used as tax credit by the
stockholders, including foreign stockholders, against the F - 32




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  withholding tax on dividends. In addition, the domestic shareholders can claim a proportionate share in the Companys
corporate income tax as tax credit against its individual income tax liability effective
1998. As of December 31, 2004, the undistributed earnings derived on or after January 1,
1998 was NT$4,320,831.E.
    As of December 31, 2004, the balance of stockholders imputation tax credit account
of the Company was NT$11,552. The rate of stockholders imputation tax credit to
undistributed earnings is approximately 0.27%. However, the actual stockholders
imputation rate is subject to change since the actual stockholders tax credit rate is
based on the rate on the dividend allocation day. In 2004, the stockholders imputation
rate on the distributed earnings is 0.72%.F.
    During 2004, the stockholders of the Company resolved to distribute cash dividends of
NT$0.35 (in dollars) per share and stock dividends of NT$1 (in dollars) per share; while
no dividend was resolved in 2003.G.
    As of February 18, 2005, the board of directors of SPIL has not resolved the
distribution of the year 2004 earnings. Therefore, any information in relation to the
year 2004 earnings will be posted to the website of the Taiwan Stock Exchanges after the
Boards resolution and the Shareholders approval is obtained. F - 33




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  H.
    The year 2003s earnings distribution for employee bonuses and directors and
supervisors remunerations were as follow: The amount of the actualearnings distributions approvedby the board of directors and theshareholders in 2004NT$(a) The amount of the retained earnings distributed1.Employees cash bonuses
    
    $
    73,6742.Employees stock bonuses(i) Shares (in thousands of shares)
    
    
    21,050(ii) Amounts
    
    $
    210,497(iii) As a percentage of outstanding common shares
    
    
    1.14
    %3.Directors and supervisors remunerations
    
    $
    57,153(b) Information regarding earnings per common share1.Original earnings per common share (note 1)
    
    $
    1.552.Adjusted earnings per common share (note 2)
    
    $
    1.36
   Note 1:
    
    Not retroactively adjusted by the common shares issued on capitalization of earnings in 2004.Note 2:
    
    Adjusted earnings per share = (Net income-Employees bonus-Remunerations to directors and
supervisors)/Weighted average outstanding common shares.  19.
    TREASURY STOCK 2003Reason for acquisition
    
    Beginning
    
    
    Additions
    
    
    Reductions
    
    
    EndingNumber of shares (in thousand)Transfer to employees
    
    
    31,505
    
    
    
    
    
    
    
    (22,957
    )
    
    
    8,548
 2004Reason for acquisition
    
    Beginning
    
    
    Additions
    
    
    Reductions
    
    
    EndingNumber of shares (in thousand)Transfer to employees
    
    
    8,548
    
    
    
    
    
    
    
    (8,548
    )
    
    
    
  A.
    According to the ROC Securities Exchange Act, the number of outstanding treasury
 shares shall not exceed 10% of the total shares of common stocks issued by the F - 34




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  company. The cost of the outstanding treasury stock shall not exceed the total of retained
earnings, paid-in capital in excess of par value and capital reserve arising from
donation. In addition, treasury stock shall not be used as collateral and shall not have
the stockholders rights until transferred.B.
    As of December 31, 2003 and 2004, the Companys treasury stock amounted to NT$150,138
and NT$0, respectively, represented by 8,548,000 and 0 shares which should be sold to the
Companys employees within three years from the date of acquisition. Any unsold treasury
stock after three years shall be considered unissued shares, and shall be charged against
contributed capital and capital reserve.C.
    As of December 31, 2003 and 2004, Siliconware Investment Company Ltd., the subsidiary
of the Company, held 27,016,000 and 29,717,000 shares with book value of NT$794,184 (in dollars) for both years and were presented as treasury stocks.  20.
    Income TaxSPIL and its subsidiaries file separate income tax returns. Reconciliation between the income
tax calculated on pre-tax financial statement income based on the statutory tax rate and the
income tax benefit is as follows: 2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$Income tax expense calculated at the statutory tax rate (25%)
    
    $
    70,373
    
    
    $
    550,877
    
    
    $
    963,892Tax exempt income and other permanent differences
    
    
    (149,813
    )
    
    
    217,377
    
    
    
    (367,301
    )Investment tax credits
    
    
    (281,438
    )
    
    
    (720,436
    )
    
    
    (1,434,949
    )Tax on interest income separately taxed
    
    
    709
    
    
    
    873
    
    
    
    3,671Changes in valuation allowance for deferred tax assets
    
    
    165,045
    
    
    
    (677,818
    )
    
    
    366,341Prior years under (over) provision
    
    
    47,074
    
    
    
    (10,282
    )
    
    
    (3,935
    )Income tax benefit for current year
    
    
    (148,050
    )
    
    
    (639,409
    )
    
    
    (472,281
    )Additional 10% tax on undistributed earnings
    
    
    2,686
    
    
    
    3,117
    
    
    
    15,323Income tax benefit
    
    
    (145,364
    )
    
    
    (636,292
    )
    
    
    (456,958
    )Adjustments:Net change of deferred tax assets
    
    
    196,413
    
    
    
    631,184
    
    
    
    464,386Prior years (under) over provision
    
    
    (47,074
    )
    
    
    10,282
    
    
    
    3,935Tax on interest income separately taxed
    
    
    (709
    )
    
    
    (873
    )
    
    
    (3,671
    )Prepaid income tax
    
    
    (19,359
    )
    
    
    (7,725
    )
    
    
    (20,957
    )Subsidiarys tax payable
    
    
    (3,088
    )
    
    
    (4,255
    )
    
    
    (6,565
    )Income tax refund receivable
    
    
    ($19,181
    )
    
    
    ($7,679
    )
    
    
    ($19,830
    )Income tax payable carried over from prior year
    
    $
    50,162
    
    
    $
    40,608
    
    
    $
    36,352
 F - 35




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  A.
    For the years ended December 31, 2002, 2003 and 2004, significant portion of the
permanent differences derived from gain on disposal of investments and long-term
investment income (loss) accounted for under the equity method and revenue from assembly
of certain integrated circuit products which is exempted from income tax.B.
    As of December 31, 2003 and 2004, deferred tax assets and liabilities were as
follows: December 31,2003
    
    
    2004NT$
    
    
    NT$Deferred tax assets - current
    
    $
    535,402
    
    
    $
    709,093Deferred tax liabilities - current
    
    
    (46,880
    )
    
    
    488,522
    
    
    
    709,093Valuation allowance for deferred tax assets
    
    
    (25,372
    )
    
    
    463,150
    
    
    
    709,093Deferred tax assets - noncurrent
    
    
    2,428,765
    
    
    
    2,873,539Deferred tax liabilities - noncurrent
    
    
    (242,101
    )
    
    
    (390,402
    )2,186,664
    
    
    
    2,483,137Valuation allowance for deferred tax assets
    
    
    (804,884
    )
    
    
    (882,914
    )$
    1,381,780
    
    
    $
    1,600,223
 F - 36




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  C.
    The details of deferred tax assets and liabilities as of December 31, 2003 and 2004 were
as follows: December 31,2003
    
    
    2004Amount
    
    
    Tax effect
    
    
    Amount
    
    
    Tax effectNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$CurrentTemporary differencesUnrealized loss on obsolescence and
decline in market value of inventories
decline in market value of spare part inventories
    
    $
    75,468
    
    
    $
    18,867
    
    
    $
    54,195
    
    
    $
    13,548Unrealized foreign currency exchange
gain arising from bonds payable
    
    
    (187,519
    )
    
    
    (46,880
    )
    
    
    
    
    
    
    Compensation interest from bonds payable
    
    
    390,498
    
    
    
    97,625
    
    
    
    
    
    
    
    Unrealized loss on sales allowance
    
    
    56,556
    
    
    
    14,139
    
    
    
    92,638
    
    
    
    23,160Unrealized foreign exchange loss
    
    
    27,084
    
    
    
    6,771
    
    
    
    165,540
    
    
    
    41,385Investment tax credit
    
    
    
    
    
    
    398,000
    
    
    
    
    
    
    
    631,000488,522
    
    
    
    
    
    
    
    709,093Valuation allowance for deferred tax assets-current
    
    
    
    
    
    
    (25,372
    )
    
    
    
    
    
    
    $
    463,150
    
    
    
    
    
    
    $
    709,093NoncurrentTemporary differenceUnrealized loss on long-term investments
    
    $
    664,403
    
    
    $
    166,101
    
    
    $
    628,009
    
    
    $
    157,002Depreciation expense
    
    
    (968,405
    )
    
    
    (242,101
    )
    
    
    (761,056
    )
    
    
    (190,264
    )Unrealized foreign currency exchange gain
arising from bonds payable
    
    
    
    
    
    
    
    
    
    
    (800,556
    )
    
    
    (200,139
    )Compensation interest from bonds payable
    
    
    
    
    
    
    
    
    
    
    442,090
    
    
    
    110,523Unrealized loss on idle assets
    
    
    142,724
    
    
    
    35,681
    
    
    
    484,413
    
    
    
    121,103Loss carryforwards
    
    
    1,190,242
    
    
    
    297,560
    
    
    
    25,513
    
    
    
    6,378Investment tax credit
    
    
    
    
    
    
    1,929,423
    
    
    
    
    
    
    
    2,478,5342,186,664
    
    
    
    
    
    
    
    2,483,137Valuation allowance for deferred tax assets-noncurrent
    
    
    
    
    
    
    (804,884
    )
    
    
    
    
    
    
    (882,914
    )$
    1,381,780
    
    
    
    
    
    
    $
    1,600,223
  Valuation allowance for deferred tax assets relates primarily to unrealized compensation
interest on bonds payable and allowance for investment tax credits received in connection
with the Companys investment in qualifying investments in significant technology companies
and acquisition of qualifying machinery and equipment.D.
    The income tax returns of the Company through 2001 have been assessed and approved by
the Tax Authority. However, the Company did not accept the reason F - 37




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  and result of the reassessment and has petitioned to the government against the decision of the Tax
Authority of its 1999 and 2000 income tax returns. In addition, the Company did not
accept the reason and result of the assessment of the Tax Authority and has requested for
reassessment of its 2001 income tax return. The Company estimates the aforementioned
petition or reassessment will not have a significant adverse impact to the Company.E.
    The income tax returns of SIC through 2002 have been approved by Tax Authority.F.
    According to the income tax regulation of the People Republic of China applied to
qualifying foreign investment production enterprise, Siliconware Technology is entitled to
two years exemption from income taxes followed by three years of a 50% tax reduction,
commencing from the first cumulative profit-making year net of losses carried forward. In
addition, any foreign investor of an enterprise with foreign investment which reinvests
its share of profit obtained from the enterprise directly into that enterprise by
increasing its registered capital, or uses the profit as capital investment to establish
other enterprises with foreign investment to operate for a period of not less than five
years shall, upon approval by the tax authorities of an application filed by the investor,
be refunded forty percent of the income tax already paid in relation to the reinvested
amount. As of December 31, 2004, Siliconware Technology was still suffering accumulated
deficit.G.
    As of December 31, 2004, the Companys unused portion of investment tax credits,
under the Statue for Up-Grading of Industries, were as follows: Nature of investment tax credit
    
    Deductible amount
    
    
    Unused amount
    
    
    Expiration YearsNT$
    
    
    NT$Acquisition cost of qualifying machinery
and equipment
    
    $
    2,360,472
    
    
    $
    2,311,409
    
    
    
    2005 to 2008Qualifying research and development
expenditure
    
    
    573,760
    
    
    
    573,760
    
    
    
    2005 to 2008Qualifying investments in significant
technology companies
    
    
    233,353
    
    
    
    224,365
    
    
    
    2005 to 2008$
    3,167,585
    
    
    $
    3,109,534
 F - 38




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  H.
    The Company is exempted from income tax for revenues arising from the assembly of
certain integrated circuit products under the Statute for Up-Grading of Industries, for
five years through December 2008.  21.
    Earnings Per Share For the year ended December 31, 2002WeightedaverageIncome
    
    
    outstanding
    
    
    Earnings per shareBefore tax
    
    
    After tax
    
    
    common stock
    
    
    Before tax
    
    
    After taxNT$
    
    
    NT$
    
    
    (in thousand)
    
    
    NT$
    
    
    NT$Basic earnings per share
    
    $
    279,831
    
    
    $
    425,195
    
    
    
    2,008,529
    
    
    $
    0.14
    
    
    $
    0.21
 For the year ended December 31, 2003WeightedaverageIncome
    
    
    outstanding
    
    
    Earnings per shareBefore tax
    
    
    After tax
    
    
    common stock
    
    
    Before tax
    
    
    After taxNT$
    
    
    NT$
    
    
    (in thousand)
    
    
    NT$
    
    
    NT$Basic earnings per share
    
    $
    2,202,424
    
    
    $
    2,838,716
    
    
    
    2,020,464
    
    
    $
    1.09
    
    
    $
    1.40Dilutive
effect of employee stock option
    
    
    
    
    
    
    
    
    
    
    12,723Dilutive
effect of 2nd Euro convertible bonds
    
    
    52,384
    
    
    
    39,288
    
    
    
    233,574Diluted earnings per share
    
    $
    2,254,808
    
    
    $
    2,878,004
    
    
    $
    2,266,761
    
    
    $
    0.99
    
    
    $
    1.27
 For the year ended December 31, 2004WeightedaverageIncome
    
    
    outstanding
    
    
    Earnings per shareBefore tax
    
    
    After tax
    
    
    common stock
    
    
    Before tax
    
    
    After taxNT$
    
    
    NT$
    
    
    (in thousand)
    
    
    (in dollars)Basic earnings per share
    
    $
    3,825,219
    
    
    $
    4,282,177
    
    
    
    2,052,285
    
    
    $
    1.86
    
    
    $
    2.09Dilutive effect of employee stock option
    
    
    
    
    
    
    
    
    
    
    25,631Dilutive
effect of 2nd Euro convertible bonds
    
    
    (116,658
    )
    
    
    (134,373
    )
    
    
    176,700Dilutive
effect of 3rd Euro convertible bonds
    
    
    (286,427
    )
    
    
    (214,820
    )
    
    
    156,174Diluted earnings per share
    
    $
    3,422,134
    
    
    $
    3,932,984
    
    
    $
    2,410,790
    
    
    $
    1.42
    
    
    $
    1.63
 F - 39




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) The weighted average treasury stock held by SPIL and the subsidiary has been deducted in
the calculation of weighted average outstanding common stock for the years ended December 31,
2002, 2003 and 2004. 22. PERSONNEL COSTS, DEPRECIATION AND AMORTIZATION For the year ended December 31, 2002Operating costs
    
    
    Operating expenses
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$Personnel costsPayroll
    
    $
    2,543,907
    
    
    $
    759,584
    
    
    $
    3,303,491Labor and health insurance
    
    
    176,355
    
    
    
    55,549
    
    
    
    231,904Pension expense
    
    
    67,222
    
    
    
    22,957
    
    
    
    90,179Others
    
    
    211,060
    
    
    
    35,627
    
    
    
    246,687$
    2,998,544
    
    
    $
    873,717
    
    
    $
    3,872,261Depreciation
    
    $
    4,450,637
    
    
    $
    124,785
    
    
    $
    4,575,422Amortization
    
    $
    152,284
    
    
    $
    129,207
    
    
    $
    281,491
 For the year ended December 31, 2003Operating costs
    
    
    Operating expenses
    
    
    TotalPersonnel costsPayroll
    
    $
    2,901,902
    
    
    $
    777,646
    
    
    $
    3,679,548Labor and health insurance
    
    
    199,009
    
    
    
    59,358
    
    
    
    258,367Pension expense
    
    
    85,843
    
    
    
    28,431
    
    
    
    114,274Others
    
    
    231,629
    
    
    
    43,782
    
    
    
    275,411$
    3,418,383
    
    
    $
    909,217
    
    
    $
    4,327,600Depreciation
    
    $
    4,746,598
    
    
    $
    107,960
    
    
    $
    4,854,558Amortization
    
    $
    178,074
    
    
    $
    94,748
    
    
    $
    272,822
 F-40




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) For the year ended December 31, 2004Operating costs
    
    
    Operating expenses
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$Personnel costsPayroll
    
    $
    3,490,892
    
    
    $
    1,006,299
    
    
    $
    4,497,191Labor and health insurance
    
    
    232,279
    
    
    
    70,448
    
    
    
    302,727Pension expense
    
    
    132,973
    
    
    
    41,254
    
    
    
    174,227Others
    
    
    347,540
    
    
    
    53,985
    
    
    
    401,525$
    4,203,684
    
    
    $
    1,171,986
    
    
    $
    5,375,670Depreciation
    
    $
    5,586,033
    
    
    $
    141,190
    
    
    $
    5,727,223Amortization
    
    $
    270,576
    
    
    $
    108,338
    
    
    $
    378,914
 23. Related Party Transactions 1. Name and Relationship with Related Parties: Name of related parties
    
    Relationship with the CompanyChipMOS Technologies Inc.
    
    Investee company under the equity methodSigard Microelectronics Corp.
    
    Investee company under the equity methodUniversal Communication Technology Inc.
    
    Investee company under the equity methodPhoenix Precision Technology Corporation
    
    Same chairman of the board
 2. Significant Transactions with Related Parties (1) Sales to related parties: For the years ended December 31,2002
    
    
    2003
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    net sale
    
    
    Amount
    
    
    net sale
    
    
    Amount
    
    
    net saleNT$
    
    
    
    
    
    
    NT$
    
    
    
    
    
    
    NT$ChipMOS
Technologies Inc.
    
    $
    
    
    
    
    
    
    
    $
    101,960
    
    
    
    
    
    
    $
    
    
    
    
    
 The selling prices and collection terms offered to the related parties were generally
comparable to those offered to non-related parties. The collection period is
approximately three months from the date of sale. F-41




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) (2) Purchases of inventory from related parties: For the years ended December 31,2002
    
    
    2003
    
    
    2004% of net
    
    
    
    
    
    
    % of net
    
    
    
    
    
    
    % of netAmount
    
    

purchase
    
    
    Amount
    
    
    purchase
    
    
    Amount
    
    
    purchaseNT$
    
    
    
    
    
    
    NT$
    
    
    
    
    
    
    NT$Phoenix Precision
Technology Corporation
    
    $
    1,716,348
    
    
    
    16
    
    
    $
    2,610,008
    
    
    
    19
    
    
    $
    2,875,934
    
    
    
    18Others
    
    
    428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,716,776
    
    
    
    16
    
    
    $
    2,610,008
    
    
    

    19
    
    
    $
    2,875,934
    
    
    
    18
 The purchase price and payment term provided by related parties were generally comparable
to those provided by non-related parties. The average payment period is approximately
three months from the date of purchase. (3) Accounts Receivable December 31,2003
    
    
    2004% of
    
    
    
    
    
    
    % ofaccounts
    
    
    
    
    
    
    accountsAmount
    
    
    receivable
    
    
    Amount
    
    
    receivableNT$
    
    
    
    
    
    
    NT$ChipMOS Technologies Inc.
    
    
    4,634
    
    
    
    
    
    
    $
    
    
    
    
    
 (4) Accounts payable December 31,2003
    
    
    2004% of
    
    
    
    
    
    
    % ofaccounts
    
    
    
    
    
    
    accountsAmount
    
    
    payable
    
    
    Amount
    
    
    payableNT$
    
    
    
    
    
    
    NT$Phoenix Precision Technology
Corporation
    
    $
    301,496
    
    
    
    14
    
    
    $
    231,044
    
    
    
    11
 F-42




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 24. Assets Pledged as Collaterals As of December 31, 2003 and 2004 the following assets have been pledged as collateral against
certain obligations of the Company: December 31,Assets
    
    2003
    
    
    2004
    
    
    Subject of collateralNT$
    
    
    NT$Buildings
    
    $
    1,377,197
    
    
    $
    1,144,896
    
    
    Long-term loans and bonds payableMachinery and other equipment
    
    
    4,903,444
    
    
    
    818,788
    
    
    Loan-term loansTime deposits (shown in other financial assets  current)
    
    
    172,000
    
    
    
    250,200
    
    
    Guarantees for custom duties  and income tax liabilities$
    6,452,641
    
    
    $
    2,213,884
 25. Commitments and Contingencies  A.
    As of December 31, 2004, the Companys unused letters of credit for imported machinery
and equipment were approximately NT$222,220.B.
    The Company entered into agreements with third parties to construct the plant for
expansion of operations amounting to NT$1,068,035. As of December 31, 2004, the Company
has outstanding obligations of approximately NT$181,172 related to these contracts.C.
    The Company entered into contracts with six foreign companies for the use of certain
technologies and patents related to packaging system of integrated circuit products. The
Company agreed to pay royalty fees based on the total number of certain products sold.
Four contracts are valid through December 2007, November 2009, December 2010 and January
2011, respectively. For the other two contracts, one is valid through when all patents
included in the contract expired, the other is valid until both parties agree to terminate
the contract.D.
    The Companys value-added tax payables are currently under the Tax Authoritys
assessments. The Company has recorded NT$468,000 accrued value-added tax payables and
believes the amount is sufficient to cover the liabilities arising from the tax
assessments. Please refer to Note 12. F-43




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 26. Other 1. Disclosure on Financial Instruments: December 31,2003
    
    
    2004Book value
    
    
    Fair value
    
    
    Book value
    
    
    Fair valueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$Non-derivative financial
instruments:Financial assetsFinancial assets with book value
equal to fair value
    
    $
    17,991,992
    
    
    $
    17,991,992
    
    
    $
    17,156,995
    
    
    $
    17,156,995Short-term investment
    
    
    7,989
    
    
    
    7,771
    
    
    
    1,942,970
    
    
    
    1,950,180Long-term investment in stocks
    
    
    6,386,666
    
    
    
    9,292,064
    
    
    
    6,816,338
    
    
    
    8,465,122Long-term investment in bonds
    
    
    641,350
    
    
    
    950,710
    
    
    
    
    
    
    
    $
    25,027,997
    
    
    $
    28,242,537
    
    
    $
    25,916,303
    
    
    $
    27,572,297Financial liabilitiesFinancial liabilities with book value
equal to fair value
    
    $
    8,761,492
    
    
    $
    8,761,492
    
    
    $
    8,764,904
    
    
    $
    8,764,904Bonds payable
    
    
    7,988,979
    
    
    
    8,938,741
    
    
    
    11,533,146
    
    
    
    11,245,337Long-term loans
    
    
    8,013,164
    
    
    
    8,013,164
    
    
    
    5,106,346
    
    
    
    5,106,346(Prepaid pension expense)/
accrued pension cost
    
    
    (     5,826
    )
    
    
    376,500
    
    
    
    30,898
    
    
    
    232,670$
    24,757,809
    
    
    $
    26,089,897
    
    
    $
    25,435,294
    
    
    $
    25,349,257
  (1)
    Financial assets and liabilities with book value approximate to fair value include
cash and cash equivalents, notes receivable, accounts receivable, other financial assets -
current, refundable deposits, short-term loans, notes payable, accounts payable, income
tax payable, accrued expenses, other payables, current portion of long-term loans and
other current liabilities.(2)
    The fair value of short-term and long-term investments in stock and long-term
investment in bonds is based on the market value of short-term and long-term investments.
If the market value of short-term and long-term investments is unavailable, the net
equities of the investee companies or other financial information is used as fair value.(3)
    The fair value of bonds payable is based on market value.(4)
    The book value of long-term loans is used as fair value because the loans bear
floating interest rate.(5)
    The fair value of prepaid pension expense and accrued pension cost is equal to the
funded status as shown in the actuarial report measured at December 31, 2003 and 2004,
respectively. F-44




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SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 2. Eliminated transactions between parent company and subsidiaries Name of the counter party and amountSiliconware Precision
    
    
    Siliconware Investment
    
    
    SPIL (B.V.I.) HoldingTransactions
    
    Industries Co., Ltd
    
    

Company Ltd.
    
    
    Limited
    
    
    Siliconware USA Inc.NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$For the year ended December 31, 2002Eliminate long-term investment and stockholders equity
    
    ($
    2,113,283
    )
    
    $
    951,947
    
    
    $
    1,161,336
    
    
    $
    Eliminate subsidiarys long-term investment on parent company
    
    
    794,184
    
    
    
    (794,184
    )
    
    
    
    
    
    
    Eliminate accrued expense and accounts receivable
    
    
    22,686
    
    
    
    
    
    
    
    
    
    
    
    (22,686
    )Eliminate commission expense and revenue
    
    
    (269,981
    )
    
    
    
    
    
    
    
    
    
    
    269,981For the year ended December 31, 2003Eliminate long-term investment and stockholders equity
    
    ($
    2,278,920
    )
    
    $
    957,052
    
    
    $
    1,321,868
    
    
    $
    Eliminate subsidiarys long-term investment on parent company
    
    
    794,184
    
    
    
    (794,184
    )
    
    
    
    
    
    
    Eliminate accrued expense and accounts receivable
    
    
    42,259
    
    
    
    
    
    
    
    
    
    
    
    (42,259
    )Eliminate commission expense and revenue
    
    
    (288,869
    )
    
    
    
    
    
    
    
    
    
    
    288,869For the year ended December 31, 2004Eliminate long-term investment and stockholders equity
    
    ($
    2,586,396
    )
    
    $
    932,002
    
    
    $
    1,654,394
    
    
    $
    Eliminate subsidiarys long-term investment on parent company
    
    
    758,684
    
    
    
    (758,684
    )
    
    
    
    
    
    
    Eliminate accrued expense and accounts receivable
    
    
    42,078
    
    
    
    
    
    
    
    
    
    
    
    (42,078
    )Eliminate commission expense and revenue
    
    
    (414,501
    )
    
    
    
    
    
    
    
    
    
    
    414,501
 F-45




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 27. Segment Information  A.
    Operation in Different IndustriesThe Company principally operates in one industry. The Companys operation involves
assembly, testing and turnkey services of integrated circuits.B.
    Operations in Different Geographic AreasThe Company has no significant foreign operations. Therefore, ROC FAS No. 20, Segmental
Information Disclosure, is not applicable.C.
    Export SalesSales by geographic region are identified by the location where the revenue is
generated. Geographic areas
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$U.S. and Canada
    
    $
    11,525,085
    
    
    $
    14,774,924
    
    
    $
    20,001,396Others
    
    
    650,365
    
    
    
    760,995
    
    
    
    1,123,749$
    12,175,450
    
    
    $
    15,535,919
    
    
    $
    21,125,145
  D.
    Major CustomersA major customer is identified as the party that accounts for more than 10% of the
Companys net sales in any given year. 2002
    
    
    2003
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofCustomers
    
    Amount
    
    
    net sale
    
    
    Amount
    
    
    net sale
    
    
    Amount
    
    
    net saleNT$
    
    
    
    
    
    
    NT$
    
    
    
    
    
    
    NT$Customer A
    
    $
    2,895,828
    
    
    
    13
    
    
    $
    3,652,541

    
    
    
    13
    
    
    $
    4,065,553
    
    
    
    12Customer B
    
    
    3,680,731
    
    
    
    17
    
    
    
    3,533,487
    
    
    
    13
    
    
    
    3,002,669
    
    
    
    9Customer C
    
    
    1,147,536
    
    
    
    5
    
    
    
    2,619,265
    
    
    
    10
    
    
    
    4,068,676
    
    
    
    12$
    7,724,095
    
    
    
    35
    
    
    $
    9,805,293
    
    
    
    36
    
    
    $
    11,136,898
    
    
    
    33
 F-46




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SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) 28. US GAAP Reconciliation The accompanying consolidated financial statements have been prepared in conformity with Rules
Governing the Preparation of Financial Statements of Securities Issuers and accounting
principles generally accepted in the Republic of China (ROC GAAP), which differ in certain
material respects from generally accepted accounting principles in the United States (US
GAAP). Such differences involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP. The following is a summary of the material adjustments to net income (loss) and shareholders
equity, which would be required in reconciling the significant differences between ROC GAAP and
US GAAP: F-47




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) Reconciliation of consolidated net income: For the years ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$Net income as reported under ROC GAAP
    
    $
    425,195
    
    
    $
    2,838,716
    
    
    $
    4,282,177
    
    
    $
    134,914US GAAP adjustments:Compensated absences
    
    
    (7,000
    )
    
    
    (1,400
    )
    
    
    800
    
    
    
    25Compensation
    
    
    
    
    
    
    (341,324
    )
    
    
    (699,072
    )
    
    
    (22,025
    )Impairment on long-term investments
    
    
    (212,569
    )
    
    
    
    
    
    
    
    
    
    
    Embedded derivative
    
    
    (52,891
    )
    
    
    236,792
    
    
    
    
    
    
    
    Realized loss on disposal / conversion of
embedded derivative
    
    
    
    
    
    
    
    
    
    
    (84,048
    )
    
    
    (2,648
    )Adjustment to the gain on disposal of available
for sale marketable securities
    
    
    
    
    
    
    
    
    
    
    (1,431
    )
    
    
    (45
    )Trading marketable securities
    
    
    (5,536
    )
    
    
    5,536
    
    
    
    
    
    
    
    Treasury stock transferred to employee
    
    
    
    
    
    
    (154,342
    )
    
    
    (192,498
    )
    
    
    (6,065
    )Equity investments:Timing difference
    
    
    (362,521
    )
    
    
    630,697
    
    
    
    398,686
    
    
    
    12,561Net income (loss) variance between US
GAAP and ROC GAAP
    
    
    21,855
    
    
    
    (29,515
    )
    
    
    (8,322
    )
    
    
    (262
    )Accounting for income (loss) in preferred stock
    
    
    (45,270
    )
    
    
    87,291
    
    
    
    (28,885
    )
    
    
    (910
    )Technology and know-how contributed to
a joint venture investee
    
    
    (6,000
    )
    
    
    (6,000
    )
    
    
    
    
    
    
    (669,932
    )
    
    
    427,735
    
    
    
    (614,770
    )
    
    
    (19,369
    )Taxation effect
    
    
    21,774
    
    
    
    (18,571
    )
    
    
    (260
    )
    
    
    (8
    )Net (loss) income under US GAAP
    
    ($
    222,963
    )
    
    $
    3,247,880
    
    
    $
    3,667,147
    
    
    $
    115,537Earnings (loss) per share under US GAAP (in dollars)Basic
    
    ($
    0.11
    )
    
    $
    1.61
    
    
    $
    1.78
    
    
    $
    0.06Diluted
    
    ($
    0.11
    )
    
    $
    1.43
    
    
    $
    1.52
    
    
    $
    0.05Weighted average number of common
stock outstanding (in thousands)Basic
    
    
    2,008,528
    
    
    
    2,020,463
    
    
    
    2,060,474
    
    
    
    2,060,474Effect of
dilutive securitiesEmployee stock option
    
    
    
    
    
    
    12,723
    
    
    
    25,631
    
    
    
    25,6312nd Euro convertible bonds
    
    
    
    
    
    
    233,574
    
    
    
    176,700
    
    
    
    176,7003rd Euro convertible bonds
    
    
    
    
    
    
    
    
    
    
    156,174
    
    
    
    156,174Diluted
    
    
    2,008,528
    
    
    
    2,266,760
    
    
    
    2,418,979
    
    
    
    2,418,979
 F-48




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) Reconciliation of consolidated shareholders equity For the years ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$Total shareholders equity as reported under
    
    $
    26,178,552
    
    
    $
    29,698,209
    
    
    $
    33,493,043
    
    
    $
    1,055,232ROC GAAPUS GAAP adjustments:Compensated absences
    
    
    (19,700
    )
    
    
    (21,100
    )
    
    
    (20,300
    )
    
    
    (640
    )Compensation
    
    
    
    
    
    
    (341,324
    )
    
    
    (437,841
    )
    
    
    (13,795
    )Impairment on long-term investments
    
    
    (212,569
    )
    
    
    (212,569
    )
    
    
    (212,569
    )
    
    
    (6,697
    )Embedded derivative
    
    
    (52,891
    )
    
    
    183,900
    
    
    
    99,852
    
    
    
    3,146Available for sale marketable securities
    
    
    (14,201
    )
    
    
    2,072,151
    
    
    
    852,678
    
    
    
    26,865Equity investments:Timing difference
    
    
    (371,530
    )
    
    
    259,167
    
    
    
    657,853
    
    
    
    20,726Net income (loss) variance between US
GAAP and ROC GAAP
    
    
    126,247
    
    
    
    96,732
    
    
    
    88,411
    
    
    
    2,785Accounting for income (loss) in preferred stock
    
    
    (65,943
    )
    
    
    28,885
    
    
    
    
    
    
    
    Technology and know-how contributed to
a joint venture investee
    
    
    (204,417
    )
    
    
    (210,417
    )
    
    
    (210,417
    )
    
    
    (6,629
    )Acquisition of Siliconware Corp.
    
    
    4,873,500
    
    
    
    4,873,500
    
    
    
    4,873,500
    
    
    
    153,544Taxation effect
    
    
    25,428
    
    
    
    6,858
    
    
    
    6,598
    
    
    
    208Shareholders equity under US GAAP
    
    $
    30,262,476
    
    
    $
    36,433,992
    
    
    $
    39,190,808
    
    
    $
    1,234,745
 Movements in shareholders equity in accordance with US GAAP: 2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$Balance at January 1,
    
    $
    30,262,476
    
    
    $
    36,433,992
    
    
    $
    1,147,889Net income under US GAAP
    
    
    3,247,880
    
    
    
    3,667,147
    
    
    
    115,537Employee stock bonus
    
    
    
    
    
    
    471,729
    
    
    
    14,862Adjustment for investee companies capital reserve
    
    
    617
    
    
    
    (10,862
    )
    
    
    (342
    )Cumulative translation adjustment on long-term investment
    
    
    (24,869
    )
    
    
    (144,331
    )
    
    
    (4,547
    )Change in fair value of available for sale marketable securities
    
    
    2,383,597
    
    
    
    (1,218,042
    )
    
    
    (38,376
    )Conversion of Euro convertible bonds
    
    
    
    
    
    
    307,161
    
    
    
    9,677Treasury stock
    
    
    564,291
    
    
    
    337,625
    
    
    
    10,637Cash Dividends
    
    
    
    
    
    
    (663,066
    )
    
    
    (20,890
    )Cash dividends for treasury stock held by subsidiaries
    
    
    
    
    
    
    9,455
    
    
    
    298Balance at December 31,
    
    $
    36,433,992
    
    
    $
    39,190,808
    
    
    $
    1,234,745
 F-49




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##### Table of Contents



SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) The balance sheet accounts under US GAAP is as follows: 2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$Current AssetsCash and cash equivalents
    
    $
    9,017,750
    
    
    $
    10,722,351
    
    
    $
    337,818Short-term investments
    
    
    3,192,840
    
    
    
    2,143,012
    
    
    
    67,518Notes receivable, net
    
    
    118,531
    
    
    
    72,083
    
    
    
    2,271Accounts receivable, net
    
    
    5,311,273
    
    
    
    5,720,274
    
    
    
    180,223Inventories
    
    
    1,896,966
    
    
    
    1,977,001
    
    
    
    62,287Other current assets
    
    
    1,383,907
    
    
    
    1,672,166
    
    
    
    52,68320,921,267
    
    
    
    22,306,887
    
    
    
    702,800Long-term investments
    
    
    9,245,865
    
    
    
    8,092,145
    
    
    
    254,951Property, plant and equipment
    
    
    24,402,271
    
    
    
    27,188,884
    
    
    
    856,613Intangible assets
    
    
    4,873,500
    
    
    
    4,873,500
    
    
    
    153,544Other assets
    
    
    2,313,045
    
    
    
    2,656,829
    
    
    
    83,706Total Assets
    
    $
    61,755,948
    
    
    $
    65,118,245
    
    
    $
    2,051,614Current liabilities
    
    
    16,492,085
    
    
    
    9,250,669
    
    
    
    291,451Long-term liabilities
    
    
    8,813,164
    
    
    
    16,639,492
    
    
    
    524,244Other liabilities
    
    
    16,707
    
    
    
    37,276
    
    
    
    1,174Total Liabilities
    
    
    25,321,956
    
    
    
    25,927,437
    
    
    
    816,869Total Stockholders Equity
    
    
    36,433,992
    
    
    
    39,190,808
    
    
    
    1,234,745Total Liabilities and Stockholders Equity
    
    $
    61,755,948
    
    
    $
    65,118,245
    
    
    $
    2,051,614
 The significant reconciliation of balance sheet accounts under ROC GAAP to the amounts determined
under US GAAP is as follows: (1) Compensated Absences Under ROC GAAP, the Company is not required to accrue for unused vacation at the end of
each year. However, under US GAAP, unused vacation that can be carried over to the next
year has to be accrued for at each balance sheet date to properly match the expense with
the period in which the employee provided the services. F-50




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) (2) Compensation Net income impact of
    
    For the years ended December 31,compensation adjustment
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$US GAAP adjustment:Remuneration to directors
    
    $
    
    
    
    $
    57,153
    
    
    $
    74,258
    
    
    $
    2,340Employee bonuses accrual
    
    
    
    
    
    
    284,171
    
    
    
    363,583
    
    
    
    11,455Adjustment to fair market value
    
    
    
    
    
    
    
    
    
    
    261,231
    
    
    
    8,230Total employee bonuses
    
    
    
    
    
    
    284,171
    
    
    
    624,814
    
    
    
    19,685Total net income adjustment relating
to compensation
    
    $
    
    
    
    $
    341,324
    
    
    $
    699,072
    
    
    $
    22,025
 Shareholders equity
    
    December 31,impact of compensation adjustment
    
    2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$US GAAP adjustment:Remuneration to directors
    
    $
    
    
    
    $
    57,153
    
    
    $
    74,258
    
    
    $
    2,340Employee bonuses
    
    
    
    
    
    
    284,171
    
    
    
    363,583
    
    
    
    11,455Total shareholders equity adjustment
relating to compensation
    
    $
    
    
    
    $
    341,324
    
    
    $
    437,841
    
    
    $
    13,795
 (i) Remuneration to Directors The Companys Articles of Incorporation require a cash remuneration payment to its
directors. Under ROC GAAP, such payments are charged directly to retained earnings in
the period shareholders approve such payment. Under US GAAP, such cash payments should
be recorded as compensation expense in the period when services are rendered. (ii) Employee Bonuses Certain employees of the Company are entitled to bonuses in accordance with applicable
provisions of the Companys Articles of Incorporation. Employee bonuses are determined
at 10% of distributable retained earnings. Distributable retained earnings are
calculated as retained earnings after various reserves in accordance with ROC regulations
and the Companys Articles of Incorporation and after appropriation for remuneration to
directors. Employee bonuses may be granted in cash, shares, or a combination of both.
Under ROC GAAP, such bonuses are appropriated from retained earnings in the period
shareholders approval is obtained. If such employee bonuses are settled through the
issuance of shares of the Company, the amount charged against retained earnings is based
on the par F-51




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SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) value of the common shares issued. Under US GAAP, employee bonus expense is initially
accrued at the end of the period when services are rendered, at 10% of the distributable
retained earnings. When bonuses are approved by the shareholders in the subsequent year,
an additional compensation expense is recorded for the difference between the par value
and the fair market value of shares granted to employees. The difference between US GAAP
and ROC GAAP in this area would result in adjustments to net income and shareholders
equity as shown in the above schedules. In 2003, the Board of Directors of the Company
resolved to retain the 2002 earnings after setting aside the legal reserve and special
reserve and not to pay employee bonuses. In 2004, the Board of Directors of the Company
resolved to distribute employee bonuses of NT$284,171 from 2003 earnings. In addition to
the adjustments to net income and shareholders equity as shown in the above schedules,
application of US GAAP on employee bonuses would also result in a reclassification from
retained earnings to additional paid-in capital of NT$4,074 million and NT$4,335 million
for the years ended December 31, 2003 and 2004, respectively. (3) Equity Investments Under both ROC and US GAAP, investments representing at least twenty percent of the voting
interest of each investee for which the Company exercises significant influence over
operating and financial policies are generally accounted for under the equity method.
However, there are the following differences in applying equity accounting under ROC and
US GAAP. (i) Timing difference Under the equity method, the Companys proportionate share of the income (loss) of
the investee is generally recognized in the year the income (loss) is earned.
However, under ROC GAAP, if financial statements of an investee are not
sufficiently timely for the Company to apply the equity method currently and such
equity interests are below certain materiality threshold, the Company is permitted
to delay the recognition of income (loss) until the subsequent year. Under US
GAAP, there are no provisions that allow the investor company to delay recognition
of its equity in the investees income or loss. The US GAAP adjustment deducts the
delayed income from subsequent years net income and adds it back to prior year to
arrive at net income F-52




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SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) under US GAAP.  (ii)
    Net income (loss) variance between US GAAP and ROC GAAPThe Companys proportionate share of the income (loss) from an equity investee may
differ if the equity investees net income (loss) under ROC GAAP differs from US
GAAP, resulting differences in the carrying amount of the equity investment
reported under ROC GAAP and US GAAP. The differences between ROC GAAP and US GAAP
for the equity investees include, but are not limited to, accounting for
compensation, joint venture accounting, investment in marketable securities,
deferred tax and compensated absences. Such differences would be recognized when
the Company sells the equity investment.(iii)
    Accounting for income in preferred stockUnder ROC GAAP, when an investment is made in non-accumulative, convertible
preferred shares, investment income is recognized for the amount of actual
dividends when dividend is declared. Investment loss is recognized to the extent
the investees net book value is less than the Companies liquidation preference.
Under US GAAP, if the preferred shareholders own at least 20% of the voting rights,
the investment is accounted for under the equity method. An equity investor
recognizes its proportionate share of both the investees income and losses.(iv)
    Technology and know-how contributed to a joint venture investeeIn 1997, the Company established a joint venture, ChipMOS. Both SPIL and its joint
venture partner contributed cash as well as technological know-how to the joint
venture. The Company contributed cash in the amount of NT$1.4 billion. The
technological know-how contributed had not been carried on the Companys balance
sheet and was valued at NT$0.1 billion, a deemed value agreed to by both parties.Under ROC GAAP, the Company recognized as initial cost of investment for NT$1.5
billion for cash and the value of know-how F-53




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SILICONWARE PRECISION
INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  contributed. The value of know-how was recognized as a deferred gain under other
liabilities and was amortized over a period during which know-how transfer was
completed and implemented.Under US GAAP, generally, an investor initially records its joint venture
investment at cost (i.e. the amount of cash contributed or net book value of
noncash assets contributed) and a gain should not be recognized on receipt of an
interest in a joint venture if some or all of the investors interest was received
for know-how contributed. Therefore, under US GAAP, the Company initially recorded
its joint venture investment at NT$1.4 billion, the amount of cash contributed, and
did not recognize the deemed value for know-how contributed. In addition, the
excess of the Companys cost of investment of NT$1.4 billion over the Companys
proportionate share of fair value of ChipMOS identifiable net assets is being
amortized over a period of 5 years under US GAAP. Effective January 1, 2002,
Statement of Financial Accounting Standards (SFAS) No. 142 requires that we cease
amortization for the difference between the cost of an investment accounted for
under the equity method and the amount of underlying equity in net assets of the
investee. The difference between the cost of the investment and the amount of
underlying equity in net assets of ChipMOS was fully written off in 2002.  (4)
    Taxation EffectUnder ROC GAAP, a 10% tax on undistributed earnings is recognized as a tax expense
in the period when the amounts of undistributed earnings is determined. In addition,
the effect of the 10% tax on temporary differences is not recognized for ROC GAAP
purpose. Under US GAAP, the 10% tax on undistributed earnings is accrued in the
period during which related income is generated and the impact of the 10% tax is
measured for both current and deferred tax perspectives.Separately, under US GAAP, deferred taxation is recognized for US GAAP adjustments that are
taxable or tax-deductible. Such adjustments relate to the equity investment
adjustments in preferred stock of Artest and accruals for compensated absences. F-54




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  (5)
    Earnings Per Share (EPS)In calculating weighted average number of shares outstanding for EPS purposes
under ROC GAAP, employee bonus shares have been treated as outstanding for all
periods, in a manner similar to a stock split or dividend. Under US GAAP, employee
bonus shares have been considered separately from the stock dividend or split and have
been treated as outstanding from the date when they were issued. The numbers of
employee bonus shares issued in 2002, 2003 and 2004 were 0 shares, 0 shares and
21,049,700 shares, respectively.(6)
    Marketable SecuritiesUnder ROC GAAP, marketable equity securities and long-term equity investments in which the
Company owns less than 20% of the voting rights of a publicly listed investee company are
carried at the lower of cost or market value, and debt securities at cost. The market
value of listed stocks is determined by the average closing price during the last month of
the accounting period. Under US GAAP FAS 115, Accounting for Certain Investments in Debt
and Equity Securities, debt and equity securities that have readily determinable fair
values are to be classified as either trading, available-for-sale or held-to-maturity
securities. Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at amortized cost.
Debt and equity securities that are bought and traded for short-term profit are classified
as trading securities and reported at fair value, with unrealized gains and losses
included in earnings. Debt and equity securities not classified as either
held-to-maturity or trading are classified as available-for-sale securities and reported
at fair value, with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders equity. The fair value of listed stock under US GAAP
is generally determined by the closing price at the balance sheet
date. For individual securities classified as either
available-for-sale or held-to-maturity, the Company performs analysis
to determine whether a decline in fair value below the cost is other
than temporary. No such impairment has been identified during the
periods presented.(7)
    Goodwill Acquired from MergerIn connection with acquisition of Siliconware Corporation in 2000, the Company recorded net
assets and goodwill of NT$5,415, respectively, based on independent appraisal report.
Prior to the adoption of SFAS No. 142, goodwill was amortized on straight-line basis over
ten years. Effective January 1, 2002, we adopted SFAS No. 142 and ceased amortization of
goodwill and performed the annual impairment analysis using a fair value approach. As of
December 31, 2004, the net carrying amount of goodwill was NT$4,874 and no impairment of
goodwill has been identified during 2002 to 2004.(8)
    Stock DividendsUnder ROC GAAP, an issuance of stock dividend is recorded at par with a F-55




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  charge to retained earnings. Under US GAAP, if the ratio of distribution is less than 25
percent of shares of the same class outstanding, the fair value of the shares issued should
be charged to retained earnings. This different treatment will result in, under US GAAP, a
reclassification from retained earnings to additional paid-in capital of NT$19,268,573 and
NT$21,619,660 at December 31, 2003 and 2004, respectively. These adjustments have no
effect on shareholders equity.(9)
    Impairment of Long-lived AssetsROC has newly released an accounting standard to account for impairment of
long-lived assets which is effective for financial statements issued for fiscal years
ending on December 31, 2005 and interim periods within the fiscal year. Prior to the
adoption of this new accounting standard, the Company applies US GAAP to evaluate
whether long-lived assets are subject to impairment. Under US GAAP, long-lived assets
are required to review for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The carrying
value of a long-lived asset is considered impaired when the anticipated undiscounted
cash flows are less than the assets carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair value of
the long-lived assets. The estimate of fair value is generally based on quoted market
prices or on the best available information, including prices for similar assets and
the results of using other valuation techniques. During 2002, certain investees
accounted for under the equity method, including ChipMOS Technologies Inc., Double Win
Enterprise Co., Ltd., and Artest Corporation, have incurred significant losses since
our investments and there is no indication of recovery in the near future, we
concluded that the impairment loss was other than temporary. Accordingly, we recorded
impairment charges totaling NT$212,569 on these long-term equity investments to write
off the carrying value of the investments to their fair value. F-56




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  (10)
    Embedded DerivativeUnder ROC GAAP, investment in convertible/exchangeable bond is carried at
amortized cost, which is the par value after adjustment by the unamortized premium or
discount. Under US GAAP, the convertible or exchangeable option is considered an
embedded derivative instrument and must be separated from the host contract and
accounted for separately as a derivative instrument if (i) the economic
characteristics and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the host contract; (ii)
the contract that embodies both the embedded derivative instrument and the host
contract is not remeasured at fair value with changes in fair value reported in
earnings as they occur; and (iii) a separate instrument with the same terms as the
embedded derivative instrument would be a derivative instrument. The bifurcated
derivative would be measured at fair value with changes in fair value reported in
earnings as they occur. Such adjustments to the carrying amount of the embedded
derivative would remain part of the carrying amount of that asset until the asset is
sold, at which point the entire carrying amount of the embedded derivative would be
recognized as the cost of the item sold in determining earnings. If an entity were
unable to reliably identify and measure the embedded derivative instrument for
separation from the host contract, the entire contract would have to be measured at
fair value, with gains and losses recognized in earnings. F-57




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  (11)
    Stock-based CompensationThe Company has elected to measure stock-based compensation expense using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25), as interpreted, with pro-forma
disclosures of net income (loss) and earnings (loss) per share, as if the fair-value
method of accounting defined in FAS No. 123 Accounting for Stock-Based Compensation,
(FAS 123) were used. FAS 123 establishes a fair-value-based method of accounting for
stock-based employee compensation plans. Under the fair-value method, compensation
cost is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Had the Company
determined the stock-based compensation expense for the Companys stock options based
upon the fair-value as determined by Black-Scholes option-pricing model at the grant
date for the years ended December 31, 2002, 2003 and 2004, the Companys net income
(loss) and earnings (loss) per share would have been as the pro-forma amount indicated
as follows: For the years ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$Net income (loss)As reported
    
    
    ($222,963
    )
    
    $
    3,247,880
    
    
    $
    3,667,147
    
    
    $
    115,537Less: Stock
compensation
expense
    
    
    
    
    
    
    (91,244
    )
    
    
    (95,870
    )
    
    
    (3,020
    )Pro forma
    
    
    ($222,963
    )
    
    $
    3,156,636
    
    
    $
    3,571,277
    
    
    $
    112,517
 For the years ended December 31,2002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$Basic earnings per shareAs reported
    
    
    ($0.11
    )
    
    $
    1.61
    
    
    $
    1.77
    
    
    $
    0.06Pro forma
    
    
    ($0.11
    )
    
    $
    
    
    
    $
    
    
    
    $
    Diluted earnings per
shareAs reported
    
    
    ($0.11
    )
    
    $
    1.43
    
    
    $
    1.51
    
    
    $
    0.05Pro forma
    
    
    ($0.11
    )
    
    $
    1.39
    
    
    $
    1.47
    
    
    $
    0.05
 F - 58




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) The fair value of the Companys stock options used to compute the 2003 and 2004
pro forma net income and earnings per share disclosures is the estimated present value
at grant date using the Black-Scholes option pricing model with the following weighted
average assumptions: Volatility
    
    
    59.96% ~67.12
    %Risk-free interest rate
    
    
    1.70% ~3.04
    %Expected holding period
    
    3 -5 yearsDividend yield
    
    
    0
    %
 No options granted in year 2002.  (12)
    Treasury Stock Transferred to EmployeeUnder ROC GAAP, treasury shares transferred to employees are recorded as capital
contribution for the cash amount received from the employees. Under US GAAP, in
addition to the capital contribution recorded for the cash amount received from the
employees, compensation expense would be recorded, for the difference between the
shares transfer price and the fair market value of the shares issued at the issuance
date, during the period when such transfers were made. 29. Additional disclosure required by US GAAP  (1)
    Risks and UncertaintiesThe Company is a provider of subcontract IC assembly and testing services. The
Companys revenues are derived primarily from precision dicing of silicon wafers into
individual ICs, mounting and wirebonding ICs to lead frames, and sealing ICs in molded
plastic packages. The Companys other products include a variety of turnkey services,
including the grinding of wafers to specified thickness, function testing of packaged
ICs, and drop shipment to customers of the IC manufactures. The Company distributes
its products on a global basis but mainly to customers in Taiwan of 40% and North
America of 57%. The Companys largest customer accounted for 13% and 12% for 2003 and
2004, respectively, and its five largest customers accounted for 49% and 45% of the
Companys total sales in 2003 and 2004, respectively.In 2003 and 2004, significant portion of the Companys net operating revenue
were denominated in U.S. dollars. On the other hand, in 2003 and 2004, significant
portion the Companys purchase were incurred in U.S. dollars and F - 59




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) in Japanese Yen. The
Companys capital expenditures are generally denominated in U.S. dollars and Japanese
Yen. The Company did not hedge any portion of the resulting net foreign exchange
position and would be affected by the fluctuations in U.S. dollar, the Japanese Yen
and other currencies. Substantially all of the Companys accounts receivables are due from companies in high
technology industries located primarily in Asia and North America. Further, the five
largest receivables amounted to NT$2,428,722 and NT$2,481,758 as of December 31, 2003
and 2004, respectively. The Company performs periodic credit evaluations of its
customers financial condition and generally does not require collateral. Receivables
are generally due within 90 days. Other factors that could affect the Companys future operating results and cause
actual results to vary materially from historical results include, but are not limited
to, dependence on the highly cyclical nature of both the semiconductor and the
personal computer industries, competitive pricing and declines in average selling
prices, availability of manufacturing capacity, dependence on raw materials and
competition.  (2)
    Impairment of Long-lived AssetsProperty, plant and equipment are subject to review for impairment whenever events or
changes in circumstances indicate that the recoverability of the carrying amount of an
asset may be impaired. Measurement of an impairment loss for assets that the Company
expects to hold and use is based on the fair value of the asset. Idle assets and
long-lived assets to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell. As of December 31, 2003 and 2004, the carrying amounts
of property, plant and equipment held for disposal were NT$131,828 and NT$460,539,
respectively.
These assets held for disposal consist of die bonder, auto-molding machine, laser
marker, die saw and bar code workstation, which were mainly used for production
purposes. The factors leading to disposal include, among others, obsolete technology,
low efficiency and high repair cost. The Company periodically reviews the status of
idle assets and disposes such assets as buyers are identified. The impairment losses
on assets held for disposal for the years ended December 31, 2002, 2003 and 2004 were
NT$17,243, NT$131,828 and NT$460,539, respectively. The impairment charge in 2004 F - 60




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  was mainly related to the Companys decision to dispose certain machinery and equipment
due to technology phase out and replacement.(3)
    Maturity of Long-term LiabilitiesAggregate maturities for the Companys bonds payable and long-term loans as of December 31,
2004 are as follows: Years ending December 31,
    
    AmountsNT$
    
    
    US$2005
    
    $
    4,013,376
    
    
    $
    126,4452006
    
    
    1,908,058
    
    
    
    60,1152007
    
    
    8,381,146
    
    
    
    264,0562008
    
    
    6,352,000
    
    
    
    200,126$
    20,654,580
    
    
    $
    650,742
  (4)
    Cash and Cash Flow StatementUnder ROC GAAP, all certificates of deposit are classified as cash and cash
equivalents. Under US GAAP, cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash and have original
maturities of three months or less. Summarized cash flow information under US GAAP
would be presented as follows: For the years ended December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$Net cash provided by operating activities
    
    $
    8,052,708
    
    
    $
    8,766,648
    
    
    $
    276,202Net cash used in investing activities
    
    
    (4,236,201
    )
    
    
    (8,635,564
    )
    
    
    (272,072
    )Net cash
provided by financing activities
    
    
    2,408,188
    
    
    
    1,659,251
    
    
    
    52,276Effect on foreign exchange
    
    
    
    
    
    
    (85,734
    )
    
    
    (2,701
    )Net increase in cash and cash equivalents
    
    
    6,224,695
    
    
    
    1,704,601
    
    
    
    53,705Cash and cash equivalents at beginning of the year
    
    
    2,793,055
    
    
    
    9,017,750
    
    
    
    284,113Cash and cash equivalents at the end of the year
    
    $
    9,017,750
    
    
    $
    10,722,351
    
    
    $
    337,818
 F - 61




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  (5)
    Comprehensive IncomeComprehensive income under ROC GAAP for the years ended December 31, 2003 and 2004 and
accumulated other comprehensive income balances as of December 31, 2003 and 2004 are
summarized as follows: As of December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$Net income
    
    $
    2,838,716
    
    
    $
    4,282,177
    
    
    $
    134,914Other comprehensive income (loss), net of taxesCumulative translation adjustment on equity investment
    
    
    (32,405
    )
    
    
    (144,331
    )
    
    
    (4,547
    )Remuneration to directors and supervisors
    
    
    
    
    
    
    (57,153
    )
    
    
    (1,801
    )Employees cash bonus
    
    
    
    
    
    
    (73,674
    )
    
    
    (2,321
    )Adjustment for unrealized loss on long-term investment
    
    
    302,780
    
    
    
    
    
    
    
    Adjustment for investee companies capital reserve
    
    
    617
    
    
    
    (10,862
    )
    
    
    (342
    )Resale of treasury stock
    
    
    409,949
    
    
    
    145,127
    
    
    
    4,572Comprehensive income
    
    $
    3,519,657
    
    
    $
    4,141,284
    
    
    $
    130,475
 As of December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$Accumulated other comprehensive income balances
    
    $
    3,278
    
    
    
    ($141,053
    )
    
    
    ($4,444
    )Cumulative translation adjustment on equity investment
    
    
    15,063
    
    
    
    15,063
    
    
    
    475Adjustment for investee companies capital reserve
    
    
    617
    
    
    
    (10,245
    )
    
    
    (323
    )Remuneration to directors and supervisors
    
    
    
    
    
    
    (57,153
    )
    
    
    (1,801
    )Employees cash bonus
    
    
    
    
    
    
    (73,674
    )
    
    
    (2,321
    )Resale of treasury stock
    
    
    61,643
    
    
    
    206,770
    
    
    
    6,514Accumulated other comprehensive income
    
    $
    80,601
    
    
    
    ($ 60,292
    )
    
    
    ($1,900
    )
  (6)
    Employers disclosure about pension benefitAdditional disclosures under FAS132(R) regarding pension benefits are as follows:  A.
    Estimated future benefit payments:The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid: AmountsNT$
    
    
    US$2005
    
    $
    12,124
    
    
    $
    3822006
    
    
    1,804
    
    
    
    572007
    
    
    3,091
    
    
    
    972008
    
    
    6,723
    
    
    
    2122009
    
    
    13,251
    
    
    
    417Year 2010 to 2014
    
    
    184,810
    
    
    
    5,823
 F - 62




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)  B.
    ContributionsThe Company expects to contribute NT$ 12,124 to its pension plan in 2005.  (7)
    Indirect guarantees of indebtedness of othersIn July 1997, the Company entered a joint venture agreement with Mosel Vitelic, the
primarily shareholders of ChipMOS, to establish ChipMOS. Under the joint venture agreement,
if ChipMOS requires guarantees of its indebtedness to obtain financing, SPIL and Mosel
Vitelic are required to provide these guarantees in the ratios of 30% and 70%, respectively.
As of December 31, 2004, SPIL had not provided any guarantees with respect to ChipMOSs
indebtedness.(8)
    Recent Accounting PronouncementsIn May 2003, the Financial Accounting Standard Board (FASB) issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. The statement establishes standards for how an issuer classifies and measures
certain financial instruments that are within its scope as a liability. Many of those
instruments were previously classified as equity. SFAS No. 150 is to be implemented by
reporting a cumulative effect of a change in accounting principle for financial instruments
created before the issuance date of the statement and still existing at the beginning of the
interim period of adoption. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim period beginning after June 15,
2003. We adopted the statement in accordance with the pronouncement. The statement had no
material impact on our results of operations or financial position.In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on EITF No.
03-06, Participating Securities and Two-Class Method under FASB Statement No. 128,
Earnings Per Share. EITF 03-6 is intended to clarify what is a participating security and
how to apply the two-class method of computing earnings per share once it is determined that
a security is participating, including how to F - 63




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) allocate undistributed earnings to such a
security. ETIF 03-6 is effective for reporting periods beginning after March 31, 2004. As
the Company currently does not issue securities other than common stock that contractually
entitle the holder to participate in dividends and earnings of the Company, the adoption of
this pronouncement had no impact on our consolidated financial position, results of
operations or cash flows. In September 2004, the EITF delayed the effective date for the recognition and measurement
guidance previously discussed under EITF Issue No. 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments (EITF 03-01) as included in paragraphs 10-20 of the proposed statement. The proposed statement
will clarify the meaning of other-than-temporary impairment and its application to
investments in debt and equity securities, in particular investments within the scope of
FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity
Securities, and investment accounted for under the cost method.
The Company has evaluated the effect of this proposed statement on its financial position and results of
operations and does not expect the adoption of the accounting
provision of EITF 03-01 will have a significant impact on the Company. In September 2004, the Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board reached a conclusion in EITF Issue No. 04-8 pertaining to including
contingently convertible debt in fully diluted earnings per share. The Companys zero-coupon
convertible notes, which are convertible into its common stock, will be included in current
and prior periods fully diluted earnings per share calculation. As the Company currently
does not issue contingently convertible debt securities, the adoption of this pronouncement
had no impact on our diluted earnings per share. In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material. SFAS No. 151 requires that abnormal
amounts be recognized as current period charges regardless of whether they meet the
criterion of so abnormal. In addition, SFAS No. 151 required that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the
production facilities. This standard does not effect the Companys financial position, cash
flows or results of F - 64




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE) operations. In December 2004, the FASB issued FAS No. 123(R), Share-Based Payment, (FAS 123 (R)). FAS
123(R) requires employee stock options and rights to purchase shares under stock
participation plans to be accounted for under the fair-value method, and eliminates the
ability to account for these instruments under the intrinsic-value method prescribed by APB
Opinion No. 25, which was allowed under the original provisions of FAS 123. FAS 123(R)
requires the use of an option-pricing model for estimating fair value, which is amortized to
expenses over the requisite periods. The requirements of FAS 123(R) were effective for
interim periods beginning after June 15, 2005. The Securities and Exchange Commission (SEC)
has postponed the effective date of FAS 123(R), giving companies more time to develop their
implementation strategies. Under the SECs rule, FAS 123(R) is now effective for public
companies for annual, rather than interim, periods that begin after June 15, 2005. The
Company plans to adopt FAS 123(R) beginning in fiscal 2006 and is currently evaluating the
various transition methods allowed under FAS 123(R). In December 31, 2004, the FASB issued SFAS No. 153, Exchanges of Non-Monetary Assets, an
Amendment of APB Opinion No. 29, effective for non-monetary asset exchanges occurring in
the fiscal year beginning January 1, 2006. SFAS No. 153 requires that exchanges of
productive assets be accounted for at fair value unless fair value cannot be reasonably
determined or the transaction lacks commercial substance. The Company is currently
evaluating the effects on the Companys financial statements. F - 65




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   29.
    SPECIAL DISCLOSURE ITEMS  A.
    Significant Transaction Information  (1)
    Loans to third parties attributed to financial activities:For the year ended December 31, 2004 : None.(2)
    Endorsement and guarantee provided to third parties:For the year ended December 31, 2004 : None.(3)
    The ending balance of securities are summarized as follows: December 31, 2004Number of
    
    
    
    
    
    
    
    
    
    Market valueThe relationship of the issuers
    
    
    
    shares
    
    
    
    
    
    % of
    
    per shareInvestor
    
    Type of securities
    
    Name of securities
    
    with the Company
    
    General ledger accounts
    
    (in thousands)
    
    Book value
    
    ownership
    
    (in dollars)Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    Siliconware Investment
Company Ltd.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    177,000
    
    
    $
    932,002
    
    
    
    100.00
    %
    
    $
    9.50
    
    
    Note (1-5)Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    Sigurd Microelectronics Corp.
Company Ltd.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    35,121
    
    
    
    617,264
    
    
    
    24.75
    %
    
    
    21.32Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    Double Win Enterprise
Co., Ltd.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    6,760
    
    
    
    101,712
    
    
    
    24.14
    %
    
    
    13.47
    
    
    Note (2)Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    ChipMOS Technologies Inc.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    254,863
    
    
    
    2,995,619
    
    
    
    28.73
    %
    
    
    11.59
    
    
    Note (2)Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    SPIL (B.V.I.) Holding Limited
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    57,800
    
    
    
    1,654,394
    
    
    
    100.00
    %
    
    
    28.62
    
    
    Note (1-5)Siliconware Precision
Industries Co., Ltd.
    
    Preferred stock
    
    Universal Communication
Technology Inc.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    7,600
    
    
    
    76,000
    
    
    
    9.87
    %
    
    
    10.00
    
    
    Note (3)Siliconware Precision
Industries Co., Ltd.
    
    Common stock
    
    Universal Communication
Technology Inc.
    
    Investee accounted for under
the equity method
    
    Long-term investment
    
    
    25,375
    
    
    
    161,894
    
    
    
    32.95
    %
    
    
    2.83
    
    
    Note (1)Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    Phoenix Precision
Technology Corporation
    
    Same chairman of the board
    
    Long-term investment
    
    
    94,030
    
    
    
    1,382,794
    
    
    
    17.44
    %
    
    
    18.23Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    ThaiLin Semiconductor Corp.
Company Ltd.
    
    
    
    Long-term investment
    
    
    6,691
    
    
    
    190,512
    
    
    
    3.15
    %
    
    
    22.28Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    King Yuan Electronics
Co., Ltd.
    
    
    
    Long-term investment
    
    
    69,738
    
    
    
    910,270
    
    
    
    9.08
    %
    
    
    21.95Siliconware Precision
Industries Co., Ltd.
    
    Stock
    
    Others
    
    
    
    Long-term investment
    
    
    130
    
    
    
    3,891
    
    
    
    
    
    
    
    
    
    
    Note (4)
 F-66




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2004Number of
    
    
    
    
    
    
    
    Market valueThe relationship of the issuers
    
    
    
    shares
    
    
    
    
    
    % of
    
    per shareInvestor
    
    Type of securities
    
    Name of securities
    
    with the Company
    
    General ledger accounts
    
    (in thousands)
    
    Book value
    
    ownership
    
    (in dollars)Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    JPMorgan Fleming Taiwan
Bond Fund
    
    
    
    Short-term investment
    
    
    15,997
    
    
    $
    237,051
    
    
    
    
    $
    14.86Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    JPMorgan Fleming First
Bond Fund
    
    
    
    Short-term investment
    
    
    2,980
    
    
    
    40,558
    
    
    
    
    
    13.70Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    ABN AMRO Bond Fund
    
    
    
    Short-term investment
    
    
    26,811
    
    
    
    391,836
    
    
    
    
    
    14.67Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    ABN AMRO Selected
Bond Fund
    
    
    
    Short-term investment
    
    
    44,388
    
    
    
    488,295
    
    
    
    
    
    11.03Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    The First Global Investment
Trust Duo Li Bond Fund
    
    
    
    Short-term investment
    
    
    12,420
    
    
    
    200,000
    
    
    
    
    
    16.22Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    The First Global Investment
Trust Duo Li-2 Bond Fund
    
    
    
    Short-term investment
    
    
    6,370
    
    
    
    90,230
    
    
    
    
    
    14.25Siliconware Precision
Industries Co., Ltd.
    
    Mutual fund
    
    Fuhwa Bond Fund
    
    
    
    Short-term investment
    
    
    38,287
    
    
    
    495,000
    
    
    
    
    
    12.97
  Note (1):
    The market value is not available, therefore, the net equity per share based on the audited financial statements as of December 31, 2003 was used.  Note (2):
    The market value is not available and recognition of investment income (loss) is delayed until the subsequent year, therefore, the net equity per share as of December 31, 2003 was used.  Note (3):
    The market value is not available, therefore, the redemption price was used.  Note (4):
    Combined amount for individual security less than $100,000.  Note (5):
    The amount has been eliminated in the consolidated financial statements. F-67




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (4) Securities for which total buying or selling exceeding the lower of NT$100,000 or 20 percent of
the capital stock: For the year ended December 31, 2004: TheName of
    
    relationship
    
    Beginning balance
    
    Addition
    
    Disposal
    
    Ending balanceGeneral
    
    the
    
    of the issuers
    
    Number of
    
    
    
    
    
    Number of
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number ofledger
    
    counter
    
    with the
    
    shares
    
    
    
    
    
    shares
    
    
    
    
    
    shares
    
    
    
    
    
    
    
    
    
    Gain (loss)
    
    sharesInvestor
    
    Name of the securities
    
    accounts
    
    party
    
    Company
    
    (in thousands)
    
    Amount
    
    (in thousands)
    
    Amount
    
    (in thousands)
    
    Sale price
    
    Book value
    
    from disposal
    
    (in thousands)
    
    AmountSiliconware Precision
Industries Co., Ltd.
    
    Sigurd Microelectronics,
Corp. stock
    
    Long-term
investment
    
    
    
    
    
    
    29,174
    
    
    $
    520,843
    
    
    
    2,042
    
    
    $
    77,602
    
    
    
    2,000
    
    
    $
    100,746
    
    
    $
    35,412
    
    
    $
    65,334
    
    
    
    35,121
    
    
    $
    617,264Siliconware Precision
Industries Co., Ltd.
    
    United Microelectronics
Corporation bond
    
    Long-term
investment
    
    
    
    
    
    
    1,000
    
    
    
    346,350
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    364,884
    
    
    
    346,350
    
    
    
    18,534
    
    
    
    
    
    
    Siliconware Precision
Industries Co., Ltd.
    
    SPIL (B.V.I.) Holding
Limited stock
    
    Long-term
investment
    
    
    
    
    
    
    41,300
    
    
    
    1,321,868
    
    
    
    16,500
    
    
    
    540,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,800
    
    
    
    1,654,394Siliconware Precision
Industries Co., Ltd.
    
    Phoenix Precision
Technology
Corporation stock
    
    Long-term
investment
    
    
    
    
    
    
    67,610
    
    
    
    1,087,794
    
    
    
    23,047
    
    
    
    295,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,030
    
    
    
    1,382,794Siliconware Precision
Industries Co., Ltd.
    
    Phoenix Precision
Technology
Corporation bond
    
    Long-term
investment
    
    
    
    
    
    
    2,950
    
    
    
    295,000
    
    
    
    
    
    
    
    
    
    
    
    2,950
    
    
    
    295,000
    
    
    
    295,000
    
    
    
    
    
    
    
    
    
    
    Siliconware Precision
Industries Co., Ltd.
    
    JPMorgan Fleming
Taiwan Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,851
    
    
    
    1,285,000
    
    
    
    70,854
    
    
    
    1,050,000
    
    
    
    1,047,949
    
    
    
    2,051
    
    
    
    15,997
    
    
    
    237,051Siliconware Precision
Industries Co., Ltd.
    
    JPMorgan Fleming
First Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,308
    
    
    
    290,000
    
    
    
    18,328
    
    
    
    250,000
    
    
    
    249,442
    
    
    
    558
    
    
    
    2,980
    
    
    
    40,558Siliconware Precision
Industries Co., Ltd.
    
    ABN AMRO
Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,942
    
    
    
    1,620,000
    
    
    
    84,131
    
    
    
    1,230,000
    
    
    
    1,228,164
    
    
    
    1,836
    
    
    
    26,811
    
    
    
    391,836Siliconware Precision
Industries Co., Ltd.
    
    ABN AMRO
Selected Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,506
    
    
    
    588,000
    
    
    
    9,117
    
    
    
    100,000
    
    
    
    99,705
    
    
    
    295
    
    
    
    44,388
    
    
    
    488,295Siliconware Precision
Industries Co., Ltd.
    
    The First Global
Investment Trust
Duo Li-2 Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,492
    
    
    
    290,000
    
    
    
    14,122
    
    
    
    200,000
    
    
    
    199,770
    
    
    
    230
    
    
    
    6,370
    
    
    
    90,230Siliconware Precision
Industries Co., Ltd.
    
    The First Global
Investment Trust
Duo Li Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,420
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,420
    
    
    
    200,000Siliconware Precision
Industries Co., Ltd.
    
    Fuhwa Bond Fund
    
    Short-term
investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,287
    
    
    
    495,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,287
    
    
    
    495,000
 F-68




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (5)
    Acquisition of real estate with an amount exceeding the lower of NT$100,000 or 20 percent of the
capital stock:For the year ended December 31, 2004: Related party as counter partyOriginalowner which
    
    Thesold the
    
    relationship of
    
    
    
    
    
    The bases orRelationship
    
    property to
    
    the original
    
    Date of the
    
    
    
    reference used
    
    Purpose andDate of
    
    Transaction
    
    Status of
    
    
    
    with the
    
    the counter
    
    owner with
    
    original
    
    
    
    in deciding the
    
    status of theName of the properties
    
    transaction
    
    amount
    
    payment
    
    Counter party
    
    Company
    
    party
    
    the Company
    
    transaction
    
    Amount
    
    price
    
    acquisition
    
    Other commitmentConstruction in progress
    
    December 2003
    
    $
    354,430
    
    
    $
    325,737
    
    
    Chin-Biau Construction
Corporation Ltd.
    
    
    
    
    
    
    
    
    
    $
    
    As specified in
contract
    
    For operating
use
    
    Payment made according
to construction progressConstruction in progress
    
    January 2004
    
    
    206,300
    
    
    
    185,670
    
    
    Chung-Rui Construction
Corporation Ltd.
    
    
    
    
    
    
    
    
    
    
    
    As specified in
contract
    
    For operating
use
    
    Payment made according
to construction progressConstruction in progress
    
    August 2004
    
    
    207,000
    
    
    
    155,700
    
    
    Sheng-Hui Construction
Corporation Ltd.
    
    
    
    
    
    
    
    
    
    
    
    As specified in
contract
    
    For operating
use
    
    Payment made according
to construction progress
  (6)
    Disposal of real estate with an amount exceeding the lower of NT$100,000 or 20
percent of the capital stock:For the year ended December 31, 2004: None.  (7)
    Related party transactions with purchases and sales amounts exceeding the lower of NT$100,000
or 20 percent of the capital stock:For the year ended December 31, 2004: Description of andreasons fordifference intransaction termscompared to non-
    
    Notes or accounts receivable/payableDescription of the transaction
    
    
    
    related party
    
    
    
    % of notes or% of net
    
    
    
    transactions
    
    
    
    accountsRelationship with the counter
    
    
    
    
    
    
    
    purchase /
    
    
    
    Unit
    
    Credit
    
    
    
    receivable /Purchase / sales company
    
    Name of the counter parties
    
    parties
    
    Purchase / sales
    
    Amount
    
    sales
    
    Credit terms
    
    price
    
    terms
    
    Amount
    
    payableSiliconware Precision Industries Co., Ltd.
    
    Phoenix Precision Technology Corporation
    
    Same chairman of the board
    
    Purchase
    
    $
    2,875,934
    
    
    
    18
    %
    
    Three months
    
    $
    
    
    
    Accounts payable
$231,044
    
    
    13
    %
 F-69




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (8)
    Receivables from related parties exceeding the lower of NT$100,000 or 20 percent of the capital stock:

As of December 31, 2004: None.(9)
    Transaction of derivative financial instruments:For the year ended December 31, 2004: None. F-70




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS     B.
    Related information on investee companies(1)
    Basic information on investee companies:For the year ended December 31, 2004: Income (loss)Original investments as of
    
    The Company / majority owned subsidiary owns
    

    Net income
    
    recognized byDecember 31,
    
    December 31,
    
    Shares
    
    % of
    
    
    
    
    
    (loss) of
    
    the CompanyInvestor
    
    Name of investee
    
    Location
    
    Main activities
    
    2004
    
    2003
    
    (in thousands)
    
    ownership
    
    Book value
    
    investee
    
    Note(5)Siliconware Precision
Industries Co., Ltd
    
    Siliconware Investment
Company Ltd.
    
    Taipei
    
    Investment activities
    
    $
    1,770,000
    
    
    $
    1,770,000
    
    
    $
    177,000
    
    
    
    100.00
    %
    
    $
    932,002
    
    
    $
    7,309
    
    
    $
    7,309
    
    
    Note (2-8)Siliconware Precision
Industries Co., Ltd
    
    Sigurd Microelectronics
Company Ltd.
    
    Chu-Tung, Hsin-Chu
    
    Testing and assembly of
  integrated circuits
    
    
    325,395
    
    
    
    266,031
    
    
    
    35,121
    
    
    
    24.75
    %
    
    
    617,264
    
    
    
    393,494
    
    
    
    89,614
    
    
    Note (1)Siliconware Precision
Industries Co., Ltd
    
    Double Win Enterprise
Co., Ltd.
    
    Ping-Chen city,
Tao Yuan
    
    SMT process and hand
insert
    
    
    152,100
    
    
    
    169,000
    
    
    
    6,760
    
    
    
    24.14
    %
    
    
    101,712
    
    
    
    21,121
    
    
    
    4,410
    
    
    Note (1)
Note (3)Siliconware Precision
Industries Co., Ltd
    
    ChipMOS
Technologies Inc.
    
    Science-based Industrial
Park, Hsin-Chu
    
    Testing and assembly of
  integrated circuits
    
    
    2,332,768
    
    
    
    2,332,768
    
    
    
    254,863
    
    
    
    28.73
    %
    
    
    2,995,619
    
    
    
    860,557
    
    
    
    247,238
    
    
    Note (1)
Note (3)Siliconware Precision
Industries Co., Ltd
    
    Taiwan Hi-Tech
Corporation
    
    Science-based Industrial
Park, Hsin-Chu
    
    Plating of IC lead frame
    
    
    
    
    
    
    186,728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    493
    
    
    
    95
    
    
    Note (1)
Note (3)Siliconware Precision
Industries Co., Ltd
    
    SPIL (B.V.I.) Holding
Limited
    
    British Virgin Islands
    
    Investment activities
    
    
    1,976,769
    
    
    
    1,436,719
    
    
    
    57,800
    
    
    
    100.00
    %
    
    
    1,654,394
    
    
    
    (108,446
    )
    
    
    (108,446
    )
    
    Note (2-8)Siliconware Precision
Industries Co., Ltd
    
    Universal Communication
Technology Inc.
    
    Hsin-Chu
    
    RF IC test
    
    
    329,750
    
    
    
    329,750
    
    
    
    32,975
    
    
    
    42.82
    %
    
    
    237,894
    
    
    
    (61,026
    )
    
    
    (16,225
    )
    
    Note (1)Siliconware Investment
Company Ltd.
    
    Artest Corporation
Company Ltd.
    
    Sunnyvale, CA USA
    
    Testing and development
of   integrated circuits
    
    
    165,048
    
    
    
    165,048
    
    
    
    6,000
    
    
    
    30.09
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    Note (4)Siliconware Investment
Company Ltd.
    
    Taiwan Hi-Tech
Corporation
    
    Science-based Industrial
Park, Hsin-Chu
    
    Plating of IC lead frame
    
    
    
    
    
    
    46,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    493
    
    
    
    
    
    
    Note (3)
Note (4)SPIL (B.V.I.) Holding
Limited
    
    Siliconware USA, Inc.
Company Ltd.
    
    San Jose, CA USA
    
    Sales solicitation, marketing,
ordering and collection for
sales in North America
    
    
    68,464
    
    
    
    68,464
    
    
    
    1,250
    
    
    
    100.00
    %
    
    
    61,597
    
    
    
    16,300
    
    
    
    
    
    
    Note (6-8)SPIL (B.V.I.) Holding
Limited
    
    SPIL (Cayman) Holding
Limited
    
    Cayman Islands, British
West India
    
    Investment activities
    
    
    998,954
    
    
    
    458,904
    
    
    
    30,050
    
    
    
    100.00
    %
    
    
    756,445
    
    
    
    (135,981
    )
    
    
    
    
    
    Note (6-8)SPIL (Cayman) Holding
Limited
    
    Siliconware Technology
(Suzhou) Limited
    
    Suzhou Jiangsu, China
    
    Designing and
manufacturing of
transistor and
electronic component
    
    
    997,280
    
    
    
    457,230
    
    
    
    30,000
    
    
    
    100.00
    %
    
    
    755,987
    
    
    
    (135,340
    )
    
    
    
    
    
    Note (7-8)
 F-71




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Note (1): The Companys investee accounted for under the equity method.Note (2): The Companys majority owned subsidiary.Note (3): Recognition of investment income (loss) is delayed until the subsequent year.Note (4): An investee accounted for under the equity method of Siliconware Investment Company Ltd., a majority owned subsidiary of the Company.Note (5): Amortization of premium or discount is not included.Note (6): An investee accounted for under the equity method of SPIL (B.V.I.) Holding Limited, a majority owned subsidiary of the Company.Note (7): An investee accounted for under the equity method of SPIL (Cayman) Holding Limited.Note (8): The amount has been eliminated in the consolidated financial statements.(2)
    The ending balance of securities held by investee companies:As of December 31, 2004: December 31, 2004MarketNumber of
    
    
    
    
    
    
    
    
    
    
    value perType of
    
    
    
    The relationship of the
    
    
    
    shares
    
    
    Book value
    
    
    % of
    
    
    shareInvestor
    
    securities
    
    Name of securities
    
    issuers with the Company
    
    General ledger accounts
    
    (in thousands)
    
    
    Note (2)
    
    
    ownership
    
    
    (in dollars)Siliconware Investment Company Ltd.
    
    Stock
    
    Siliconware Precision Industries Co., Ltd.
    
    The Company
    
    Long-term investment
    
    
    29,717
    
    
    $
    794,184
    
    
    
    1.41
    %
    
    
    25.53
    
    
    Note (3)Siliconware Investment Company Ltd.
    
    Stock
    
    Others
    
    
    
    Long-term investment
    
    
    41,055
    
    
    
    386,464
    
    
    
    
    
    
    
    
    
    
    Note (1)SPIL (B.V.I.) Holding Limited
    
    Stock
    
    Siliconware USA, Inc.
    
    Indirect subsidiary of the Company
    
    Long-term investment
    
    
    1,250
    
    
    
    61,597
    
    
    
    100.00
    %
    
    
    40.56
    
    
    Note (2 - 3)SPIL (B.V.I.) Holding Limited
    
    Stock
    
    SPIL (Cayman) Holding Limited
    
    Indirect subsidiary of the Company
    
    Long-term investment
    
    
    30,050
    
    
    
    756,445
    
    
    
    100.00
    %
    
    
    25.17
    

    
    Note (2 - 3)SPIL (B.V.I.) Holding Limited
    
    Stock
    
    Siliconware Technology (Suzhou) Limited
    
    Indirect subsidiary of the Company
    
    Long-term investment
    
    
    30,000
    
    
    
    755,987
    
    
    
    100.00
    %
    
    
    25.20
    
    
    Note (2 - 3)
  Note (1): Combined amount for individual security less than $100,000.Note (2): The market value is not available, therefore, the net equity per share as of December 31, 2004 was used.Note (3): The amount has been eliminated in the consolidated financial statements.(3)
    Securities for which total buying or selling amount exceeding the lower of NT$100,000 or 20 percent of the capital stock:For the year ended December 31, 2004: Beginning balance
    
    
    Addition
    
    
    Disposal
    
    
    Ending balanceTherelationshipName of
    
    
    of the
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gainthe
    
    
    issuers with
    
    
    Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    (loss)
    
    
    Number ofcounter
    
    
    the
    
    
    shares
    
    
    Amount
    
    
    shares
    
    
    
    
    
    
    shares
    
    
    
    
    
    
    
    
    
    
    from
    
    
    shares
    
    
    AmountName of the securities
    
    General ledger accounts
    
    party
    
    
    Company
    
    
    (in thousands)
    
    
    (Note 1)
    
    
    (in thousands)
    
    
    Amount
    
    
    (in thousands)
    
    
    Sale price
    
    
    Book value
    
    
    disposal
    
    
    (in thousands)
    
    
    (Note 2)SPIL (Cayman) Holding Limited
    
    Long-term investment
    
    
    
    
    
    
    
    
    
    
    13,550
    
    
    $
    389,030
    
    
    
    16,500
    
    
    $
    540,050
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    30,050
    
    
    $
    756,445Siliconware Technology
(Suzhou) Limited
    
    Long-term investment
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    387,890
    
    
    
    16,500
    
    
    
    540,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    755,987
 F-72




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Note (1): Issue new shares which are funded by cash.Note (2): The amount has been eliminated in the consolidated financial statements.C.
    Information of investment in Mainland China(1) Information of investment in Mainland China: The
    
    
    The ceiling ofinvestment
    
    
    investment inThe
    
    
    
    
    
    
    balance
    
    
    Mainland ChinaInvestment
    
    
    
    
    
    
    investment
    
    
    
    
    
    
    approved by
    
    
    according toOwnership
    
    
    income (loss)
    
    
    
    
    
    
    income (loss)
    
    
    Accumulated
    
    
    Investment
    
    
    InvestmentAccumulated
    
    
    
    
    
    
    Accumulated
    
    
    held by the
    
    
    recognized by
    
    
    Ending
    
    
    remitted back
    
    
    remittance
    
    
    Commissions,
    
    
    Commissions,remittance as
    
    
    Remitted or
    
    
    remittance as
    
    
    Company
    
    
    the Company
    
    
    balance of
    
    
    as of
    
    
    from Taiwan
    
    
    Ministry of
    
    
    Ministry ofName of investee in
    
    
    
    
    
    
    
    Investment
    
    
    of December
    
    
    (collected)
    
    
    of December
    
    
    (direct or
    
    
    during
    
    
    the
    
    
    December 31,
    
    
    to Mainland
    
    
    Economic
    
    
    EconomicMainland China
    
    Main activities of investee
    
    Capital
    
    
    method
    
    
    31, 2003
    
    
    this period
    
    
    31, 2004
    
    
    indirect)
    
    
    the period
    
    
    investment
    
    
    2004
    
    
    China
    
    
    Affairs
    
    
    AffairsSiliconware Technology
    
    Designing and manufacturing
    
    $
    949,800
    
    
    Note(1)
    
    $
    427,410
    
    
    $
    522,390
    
    
    $
    949,800
    
    
    
    100.00
    %
    
    ($
    135,340)
    
    
    $
    755,987
    
    
    $
    
    
    
    $
    949,800
    
    
    $
    1,583,000
    
    
    $
    8,198,609(Suzhou) Limited
    
    of transistor and electronic
    
    Note(2)
    
    
    
    
    
    Note(2)
    
    Note(2)
    
    Note(2)
    
    
    
    
    
    Note(3)
    
    
    Note(2)component
  Note 1: The Company set up a subsidiary in Cayman Island to invest in Mainland China.Note 2: Transactions denominated in foreign currencies are translated into New Taiwan dollars at the exchange rate prevailing on the balance sheet date.Note 3: The amount has been eliminated in the consolidated financial statements.(2) Material transactions occurred directly between the Company and its Mainland China investee
companies and material transactions occurred indirectly between the Company and its Mainland
China investee companies via enterprises in other areas: None. F-73




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##### Table of Contents



MOORE STEPHENSCERTIFIED PUBLIC ACCOUNTANTS(CHINESE CHARACTERS)
 The Board of Directors and Shareholders
ChipMOS TECHNOLOGIES INC. We have audited the accompanying consolidated balance sheets of ChipMOS TECHNOLOGIES INC. and
subsidiaries (collectively the Company) as of December 31, 2003 and 2004, and the related
consolidated statements of operations, changes in shareholders equity, and cash flows for each of
the three years in the period ended December 31, 2004, all expressed in New Taiwan dollars. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of
China and the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of December 31, 2003 and
2004, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, in conformity with accounting principles generally accepted in the
Republic of China. Accounting principles generally accepted in the Republic of China vary in certain significant
respects from accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of net income (loss) for each of
the three years in the period ended December 31, 2004, and the determination of shareholders
equity and financial position as of December 31, 2003 and 2004, to the extent summarized in Note
22. -s- Moore Stephens Moore Stephens
March 3, 2005
Taipei, Taiwan
Republic of China F-74




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value) December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(Note 3)ASSETSCURRENT ASSETSCash and cash equivalents (Note 2)
    
    
    1,155,662
    
    
    
    2,818,156
    
    
    
    88,873Restricted cash and cash equivalents (Note 17)
    
    
    282,378
    
    
    
    146,746
    
    
    
    4,628Short  term investments  net (Notes 2 and 4)
    
    
    437,446
    
    
    
    2,815,127
    
    
    
    88,777Notes receivable
    
    
    7,522
    
    
    
    62,205
    
    
    
    1,962Accounts receivable  net of allowance for doubtful receivables and
sales return allowances of NT$43,180 in 2003 and NT$262,399 in 2004
(Notes 2 and 5)
    
    
    961,884
    
    
    
    1,825,845
    
    
    
    57,579Receivables from related parties (Notes 2, 5, 7 and 16):Notes and accounts  net of allowance for doubtful receivables and
sales return allowances of NT$12,823 in 2003 and NT$13,353 in 2004
    
    
    1,307,321
    
    
    
    1,419,319
    
    
    
    44,760Others receivable  net of allowance for doubtful receivables of
NT$39,606 in 2003 and NT$5,914 in 2004
    
    
    679,853
    
    
    
    31,575
    
    
    
    996Other receivable  net of allowance for doubtful receivables of
NT$1,679 in 2003 and NT$10,385 in 2004 (Notes 2 and 5)
    
    
    1,082,700
    
    
    
    169,680
    
    
    
    5,350Other financial assets
    
    
    339,700
    
    
    
    
    
    
    
    Inventories  net (Notes 2 and 6)
    
    
    310,483
    
    
    
    607,213
    
    
    
    19,149Deferred income tax  net (Notes 2 and 15)
    
    
    184,946
    
    
    
    590,475
    
    
    
    18,621Prepaid expenses and other current assets (Note 16)
    
    
    365,509
    
    
    
    121,991
    
    
    
    3,847Total Current Assets
    
    
    7,115,404
    
    
    
    10,608,332
    
    
    
    334,542LONG  TERM INVESTMENTS (Notes 2 and 7)
    
    
    1,288,350
    
    
    
    663,040
    
    
    
    20,909PROPERTY, PLANT AND EQUIPMENT (Notes 2, 8, 11 and 12)CostLand
    
    
    
    
    
    
    530,862
    
    
    
    16,741Buildings and auxiliary equipment
    
    
    2,749,442
    
    
    
    4,251,564
    
    
    
    134,076Machinery and equipment
    
    
    14,529,479
    
    
    
    22,159,513
    
    
    
    698,818Furniture and fixtures
    
    
    241,949
    
    
    
    502,681
    
    
    
    15,852Transportation equipment
    
    
    12,404
    
    
    
    21,667
    
    
    
    683Tools
    
    
    930,834
    
    
    
    1,359,212
    
    
    
    42,864Leasehold improvements
    
    
    1,238
    
    
    
    50,574
    
    
    
    1,595Total cost
    
    
    18,465,346
    
    
    
    28,876,073
    
    
    
    910,629Accumulated depreciation
    
    
    (10,282,138
    )
    
    
    (14,451,706
    )
    
    
    (455,746
    )Construction in progress and advance payment
    
    
    746,492
    
    
    
    2,289,058
    
    
    
    72,188Net Property, Plant and Equipment
    
    
    8,929,700
    
    
    
    16,713,425
    
    
    
    527,071INTANGIBLE ASSETS  NET (Notes 2 and 9)
    
    
    45,038
    
    
    
    102,297
    
    
    
    3,227OTHER ASSETSEmployee dormitory building  net of accumulated depreciation
of NT$41,484 in 2003 and NT$50,611 in 2004 (Note 2)
    
    
    120,861
    
    
    
    112,208
    
    
    
    3,538Refundable deposits
    
    
    12,674
    
    
    
    14,858
    
    
    
    468Idle assets
    
    
    
    
    
    
    27,011
    
    
    
    852Total Other Assets
    
    
    133,535
    
    
    
    154,077
    
    
    
    4,858TOTAL ASSETS
    
    
    17,512,027
    
    
    
    28,241,171
    
    
    
    890,607
 F-75




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value) December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(Note 3)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESBank loans (Note 10)
    
    
    1,314,045
    
    
    
    800,593
    
    
    
    25,247Notes Payable
    
    
    
    
    
    
    49,072
    
    
    
    1,548Accounts payable
    
    
    312,045
    
    
    
    526,003
    
    
    
    16,588Payables to related parties (Note 16):Accounts payable
    
    
    17,586
    
    
    
    17,428
    
    
    
    550Others
    
    
    19,757
    
    
    
    61,031
    
    
    
    1,925Payables to contractors and equipment suppliers (Note 16)
    
    
    166,910
    
    
    
    312,561
    
    
    
    9,857Accrued expenses and other current liabilities
    
    
    560,956
    
    
    
    916,889
    
    
    
    28,908Current
portion of longterm liabilities (Notes 11 and 12)
    
    
    650,090
    
    
    
    3,026,974
    
    
    
    95,464Total Current Liabilities
    
    
    3,041,389
    
    
    
    5,710,551
    
    
    
    180,087LONGTERM LIABILITIESLongterm bonds payable (Note 11)
    
    
    1,200,000
    
    
    
    333,195
    
    
    
    10,507Longterm loans (Note 12)
    
    
    2,161,372
    
    
    
    4,601,747
    
    
    
    145,120Total LongTerm Liabilities
    
    
    3,361,372
    
    
    
    4,934,942
    
    
    
    155,627OTHER LIABILITIESDeferred income tax  net (Notes 2 and 15)
    
    
    368,035
    
    
    
    546,050
    
    
    
    17,220Accrued pension cost (Notes 2 and 13)
    
    
    42,866
    
    
    
    102,674
    
    
    
    3,238Deferred credits
    
    
    91,785
    
    
    
    626,196
    
    
    
    19,748Guarantee deposits
    
    
    593
    
    
    
    1,124
    
    
    
    35Total Other Liabilities
    
    
    503,279
    
    
    
    1,276,044
    
    
    
    40,241Total Liabilities
    
    
    6,906,040
    
    
    
    11,921,537
    
    
    
    375,955Minority Interests
    
    
    
    
    
    
    3,204,177
    
    
    
    101,046COMMITMENTS AND CONTINGENCIES (Note 18)SHAREHOLDERS EQUITY (Notes 2 and 14)Capital stock  NT$10 par valueAuthorized  970,000 thousand sharesIssued  887,227 thousand shares in 2003 and 2004
    
    
    8,872,272
    
    
    
    8,872,272
    
    
    
    279,794Capital surplus
    
    
    2,097,822
    
    
    
    2,325,224
    
    
    
    73,328Retained earnings:Appropriated as legal reserve
    
    
    424,007
    
    
    
    424,007
    
    
    
    13,371Unappropriated earnings (accumulated deficits)
    
    
    (788,093
    )
    
    
    1,534,667
    
    
    
    48,397Unrealized loss on longterm investments
    
    
    
    
    
    
    (805
    )
    
    
    (25
    )Cumulative translation adjustments
    
    
    (619
    )
    
    
    (3,634
    )
    
    
    (115

    )Treasury stock
    
    
    598
    
    
    
    (36,274
    )
    
    
    (1,144
    )Total Shareholders Equity
    
    
    10,605,987
    
    
    
    13,115,457
    
    
    
    413,606TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    17,512,027
    
    
    
    28,241,171
    
    
    
    890,607
 The accompanying notes are
an integral part of the consolidated financial statements. F-76




---



##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars, Except Earnings
(loss) Per Share) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)NET REVENUES (Notes 2 and 16)Related parties
    
    
    3,665,384
    
    
    
    4,693,771
    
    
    
    4,847,570
    
    
    
    152,872Third parties
    
    
    2,860,481
    
    
    
    3,774,894
    
    
    
    10,020,307
    
    
    
    315,998Total Net Revenues
    
    
    6,525,865
    
    
    
    8,468,665
    
    
    
    14,867,877
    
    
    
    468,870COST OF REVENUE (Note 16)Related parties
    
    
    3,004,306
    
    
    
    3,405,646
    
    
    
    3,236,183
    
    
    
    102,055Third parties
    
    
    3,707,400
    
    
    
    3,505,392
    
    
    
    7,508,045
    
    
    
    236,773Total Cost of Revenue
    
    
    6,711,706
    
    
    
    6,911,038
    
    
    
    10,744,228
    
    
    
    338,828GROSS PROFIT (LOSS)
    
    
    (185,841
    )
    
    
    1,557,627
    
    
    
    4,123,649
    
    
    
    130,042OPERATING EXPENSES (Note 16)Research and development
    
    
    326,753
    
    
    
    295,033
    
    
    
    295,777
    
    
    
    9,328General and administrative
    
    
    180,396
    
    
    
    219,101
    
    
    
    480,596
    
    
    
    15,156Marketing
    
    
    66,898
    
    
    
    127,990
    
    
    
    323,300
    
    
    
    10,195Total Operating Expenses
    
    
    574,047
    
    
    
    642,124
    
    
    
    1,099,673
    
    
    
    34,679INCOME (LOSS) FROM OPERATIONS
    
    
    (759,888
    )
    
    
    915,503
    
    
    
    3,023,976
    
    
    
    95,363NON-OPERATING INCOMEGain on sales of investments (Note 2)
    
    
    50,370
    
    
    
    91,017
    
    
    
    
    
    
    
    Rental (Note 16)
    
    
    35,473
    
    
    
    24,960
    
    
    
    28,467
    
    
    
    898Interest
    
    
    36,864
    
    
    
    50,844
    
    
    
    31,463
    
    
    
    992Subsidy income
    
    
    8,982
    
    
    
    12,057
    
    
    
    6,100
    
    
    
    192Investments income recognized by equity
method  net (Notes 2 and 7)
    
    
    
    
    
    
    22,364
    
    
    
    
    
    
    
    Gain on disposal of property, plant and equipment
(Note 2)
    
    
    37,698
    
    
    
    100,101
    
    
    
    45,520
    
    
    
    1,435Other
    
    
    9,964
    
    
    
    36,042
    
    
    
    163,096
    
    
    
    5,143Total Non-Operating Income
    
    
    179,351
    
    
    
    337,385
    
    
    
    274,646
    
    
    
    8,660NON-OPERATING EXPENSESLoss on sales of investments (Note 2)
    
    
    
    
    
    
    
    
    
    
    6,561
    
    
    
    207Interest
    
    
    241,096
    
    
    
    237,357
    
    
    
    257,144
    
    
    
    8,109Allowance for loss on short-term investments (Note 4)
    
    
    168,604
    
    
    
    24,902
    
    
    
    52,274
    
    
    
    1,648
 (Forward) F-77




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars, Except Earnings (loss) Per Share) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)Investments loss recognized by equity
method  net (Notes 2 and 7)
    
    
    93,199
    
    
    
    
    
    
    
    29,160
    
    
    
    920Impairment loss for long  term investments
(Notes 2 and 7)
    
    
    
    
    
    
    
    
    
    
    264,236
    
    
    
    8,332Financing cost
    
    
    17,108
    
    
    
    14,623
    
    
    
    15,369
    
    
    
    485Loss on disposal of property, plant and equipment
(Note 2)
    
    
    640
    
    
    
    16,283
    
    
    
    21,447
    
    
    
    676Foreign exchange loss  net (Note 2)
    
    
    60,846
    
    
    
    93,940
    
    
    
    141,496
    
    
    
    4,462Other
    
    
    12,887
    
    
    
    10,776
    
    
    
    43,278
    
    
    
    1,365Total Non-Operating Expenses
    
    
    594,380
    
    
    
    397,881
    
    
    
    830,965
    
    
    
    26,204INCOME (LOSS) BEFORE INCOME TAX AND
MINORITY INTERESTS
    
    
    (1,174,917
    )
    
    
    855,007
    
    
    
    2,467,657
    
    
    
    77,819INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 15)
    
    
    (97,862
    )
    
    
    5,550
    
    
    
    132,599
    
    
    
    4,182INCOME FOR MINORITY INTERESTS
    
    
    
    
    
    
    
    
    
    
    (305,151
    )
    
    
    (     9,623
    )PRE-ACQUISITION EARNINGS
    
    
    
    
    
    
    
    
    
    
    27,655
    
    
    
    872NET INCOME (LOSS)
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    2,322,760
    
    
    
    73,250EARNINGS (LOSS) PER SHAREBased on weighted-average number of shares
outstanding of 887,227 thousand shares in 2002, 2003
and 2004
    
    
    (1.43
    )
    
    
    0.97
    
    
    
    2.62
    
    
    
    0.08Based on weighted-average number of shares
outstanding  retroactively adjusted
    
    
    ( 1.43
    )
    
    
    0.97
    
    
    
    2.62
    
    
    
    0.08
 The accompanying notes are an integral part of the consolidated financial statements. F-78




---



##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY For the Years Ended December 31, 2002, 2003 and 2004 (In Thousands of New Taiwan Dollars, Except Number of Shares) CAPITAL SURPLUS (Notes 2 and 14)
    
    
    RETAINED EARNINGS (Note 14)UNREALIZEDUnappropriated
    
    
    
    
    
    
    CUMULATIVE
    
    
    
    
    
    
    LOSS ONCAPITAL STOCK ISSUED
    
    
    
    
    
    
    Gain on
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings
    
    
    
    
    
    
    TRANSLATION
    
    
    
    
    
    
    LONG-TERM
    
    
    TOTALShares
    
    
    
    
    
    
    Additional Paid-in
    
    
    Disposal of
    
    
    Long-term
    
    
    
    
    
    
    
    
    
    
    (Accumulated
    
    
    
    
    
    
    ADJUSTMENT
    
    
    TREASURY
    
    
    INVESTMENT
    
    
    SHAREHOLDERS'(Thousand)
    
    
    Amount
    
    
    Capital
    
    
    Properties
    
    
    investments
    
    
    Total
    
    
    Legal Reserve
    
    
    Deficits)
    
    
    Total
    
    
    (Note 2)
    
    
    STOCK
    
    
    (Note 2)
    
    
    EQUITYNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$BALANCE, JANUARY 1, 2002
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    6,132
    
    
    
    
    
    
    
    2,090,889
    
    
    
    424,007
    
    
    
    (374,200
    )
    
    
    49,807
    
    
    
    (687
    )
    
    
    
    
    
    
    
    
    
    
    11,012,281Net loss in 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,272,779
    )
    
    
    (1,272,779
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,272,779
    )Adjustment of equity method for long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,057
    
    
    
    1,057
    
    
    
    
    
    
    
    (7,210
    )
    
    
    (7,210
    )
    
    
    
    
    
    
    598
    
    
    
    
    
    
    
    (5,555
    )Reversal of
gain on disposal of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,132
    )
    
    
    
    
    
    
    (6,132
    )
    
    
    
    
    
    
    6,132
    
    
    
    6,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    (47
    )BALANCE, DECEMBER 31, 2002
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    
    
    
    
    1,057
    
    
    
    2,085,814
    
    
    
    424,007
    
    
    
    (1,648,057
    )
    
    
    (1,224,050
    )
    
    
    (734
    )
    
    
    598
    
    
    
    
    
    
    
    9,733,900Net income in 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860,557
    
    
    
    860,557
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860,557Adjustment of equity method for long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,008
    
    
    
    12,008
    
    
    
    
    
    
    
    (593
    )
    
    
    (593
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,415Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115BALANCE, DECEMBER 31, 2003
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    
    
    
    
    13,065
    
    
    
    2,097,822
    
    
    
    424,007
    
    
    
    (788,093
    )
    
    
    (364,086
    )
    
    
    (619
    )
    
    
    598
    
    
    
    
    
    
    
    10,605,987Net income in 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,322,760
    
    
    
    2,322,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,322,760Adjustment of equity method for long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,402
    
    
    
    227,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,402Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,015
    )
    
    
    
    
    
    
    
    
    
    
    (3,015
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,872
    )
    
    
    
    
    
    
    (36,872
    )Unrealized loss on market value decline of long-term
equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (805
    )
    
    
    (805
    )BALANCE, DECEMBER 31, 2004
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    
    
    
    
    240,467
    
    
    
    2,325,224
    
    
    
    424,007
    
    
    
    1,534,667
    
    
    
    1,958,674
    
    
    
    (3,634
    )
    
    
    (36,274
    )
    
    
    (805
    )
    
    
    13,115,457
 The accompanying notes are an integral part of the consolidated financial statements. F-79




---



##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    2,322,760
    
    
    
    73,250Adjustment to reconcile net income (loss) to net cash
provided by operating activities:Depreciation
    
    
    2,688,374
    
    
    
    2,614,137
    
    
    
    3,353,537
    
    
    
    105,756Amortization
    
    
    129,901
    
    
    
    52,287
    
    
    
    104,150
    
    
    
    3,285Investment loss(gain)  net
    
    
    93,199
    
    
    
    (22,364
    )
    
    
    293,396
    
    
    
    9,253Allowance for loss on short-term investments
    
    
    168,604
    
    
    
    24,902
    
    
    
    52,274
    
    
    
    1,649Loss on sales of investments
    
    
    
    
    
    
    
    
    
    
    6,561
    
    
    
    207Gain on disposal of property, plant
and equipment  net
    
    
    (37,058
    )
    
    
    (100,009
    )
    
    
    (60,997
    )
    
    
    (1,924
    )Deferred income tax  net
    
    
    78,682
    
    
    
    (10,223
    )
    
    
    (174,527
    )
    
    
    (5,504
    )Accrued pension cost
    
    
    6,988
    
    
    
    16,672
    
    
    
    22,619
    
    
    
    713Deferred credits
    
    
    
    
    
    
    91,785
    
    
    
    534,412
    
    
    
    16,853Changes in operating assets and liabilities:Notes receivable and accounts receivable
    
    
    (215,841
    )
    
    
    (579,354
    )
    
    
    (420,188
    )
    
    
    (13,251
    )Other receivables
    
    
    (133,663
    )
    
    
    (1,145,191
    )
    
    
    1,630,417
    
    
    
    51,416Inventories
    
    
    6,876
    
    
    
    (145,105
    )
    
    
    (55,812
    )
    
    
    (1,760
    )Prepaid expenses and other current assets
    
    
    (214,406
    )
    
    
    206,779
    
    
    
    286,919
    
    
    
    9,048Notes Payable and accounts payable
    
    
    25,267
    
    
    
    184,279
    
    
    
    (12,914
    )
    
    
    (407
    )Other Payables
    
    
    1,098
    
    
    
    16,098
    
    
    
    (611,407
    )
    
    
    (19,281
    )Income tax payable
    
    
    (35,731
    )
    
    
    
    
    
    
    
    
    
    
    Accrued expenses and other current liabilities
    
    
    119,438
    
    
    
    187,476
    
    
    
    222,988
    
    
    
    7,032Minority Interest
    
    
    
    
    
    
    
    
    
    
    139,575
    
    
    
    4,402Net Cash Provided by Operating Activities
    
    
    1,408,949
    
    
    
    1,550,473
    
    
    
    7,633,763
    
    
    
    240,737CASH FLOWS FROM INVESTING ACTIVITIESDecrease in restricted cash and cash equivalents
    
    
    157,013
    
    
    
    396,234
    
    
    
    146,632
    
    
    
    4,624Decrease (increase) in short-term investments
    
    
    (73,600
    )
    
    
    630,683
    
    
    
    (1,976,291
    )
    
    
    (62,324
    )Proceeds from sales of:Property, plant and equipment
    
    
    218,757
    
    
    
    424,644
    
    
    
    382,177
    
    
    
    12,053Long-term investments
    
    
    
    
    
    
    
    
    
    
    869,421
    
    
    
    27,417Acquisitions of:Long-term investments
    
    
    (1,271,038
    )
    
    
    (33,024
    )
    
    
    (140,788
    )
    
    
    (4,440
    )Property, plant and equipment
    
    
    (1,963,825
    )
    
    
    (2,161,675
    )
    
    
    (7,568,722
    )
    
    
    (238,686
    )Intangible assets
    
    
    (26,387
    )
    
    
    (46,205
    )
    
    
    (89,795
    )
    
    
    (2,832
    )Employee dormitory building
    
    
    (310
    )
    
    
    
    
    
    
    (475
    )
    
    
    (15
    )Decrease (increase) in refundable deposits
    
    
    (43
    )
    
    
    (338,835
    )
    
    
    52,160
    
    
    
    1,645Decrease (increase) in other financial assets
    
    
    
    
    
    
    (339,700
    )
    
    
    339,700
    
    
    
    10,713Cash inflow from acquisition of subsidiary (Note 19)
    
    
    
    
    
    
    
    
    
    
    94,337
    
    
    
    2,975Net Cash Used in Investing Activities
    
    
    (2,959,433
    )
    
    
    (1,128,178
    )
    
    
    (7,891,644
    )
    
    
    (248,870
    )
 F-80




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2003 and 2004
(In Thousands of New Taiwan and U.S. Dollars) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM FINANCING ACTIVITIESPayments on:Bank loans
    
    
    
    
    
    
    (718,586
    )
    
    
    (863,204
    )
    
    
    (27,222
    )Commercial papers
    
    
    
    
    
    
    (159,427
    )
    
    
    
    
    
    
    Long-term loans
    
    
    
    
    
    
    (352,133
    )
    
    
    
    
    
    
    Proceeds from:Bank loans
    
    
    965,869
    
    
    
    
    
    
    
    
    
    
    
    Commercial papers
    
    
    159,427
    
    
    
    
    
    
    
    
    
    
    
    Long-term loans
    
    
    1,214,184
    
    
    
    
    
    
    
    2,784,163
    
    
    
    87,801Increase(Decrease) in guarantee deposits
    
    
    132
    
    
    
    132
    
    
    
    (584
    )
    
    
    (18
    )Net Cash Provided by (Used in) Financing Activities
    
    
    2,339,612
    
    
    
    (1,230,014
    )
    
    
    1,920,375
    
    
    
    60,561NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    
    
    789,128
    
    
    
    (807,719
    )
    
    
    1,662,494
    
    
    
    52,428CASH AND EQUIVALENTS, BEGINNING OF THE YEAR
    
    
    1,174,253
    
    
    
    1,963,381
    
    
    
    1,155,662
    
    
    
    36,445CASH AND EQUIVALENTS, END OF THE YEAR
    
    
    1,963,381
    
    
    
    1,155,662
    
    
    
    2,818,156
    
    
    
    88,873SUPPLEMENTAL INFORMATIONIncome tax paid
    
    
    56,766
    
    
    
    469
    
    
    
    834
    
    
    
    26Interest paid (excluding the amounts of NT$30,549
capitalized in 2003 and NT$34,972 capitalized in 2004)
    
    
    243,652
    
    
    
    237,567
    
    
    
    259,947
    
    
    
    8,198NON-CASH INVESTING AND FINANCING ACTIVITIESCurrent portion of long-term loans
    
    
    352,160
    
    
    
    650,090
    
    
    
    3,026,974
    
    
    
    95,458Credit balances of long-term investments presented as
part of other receivables from related parties
    
    
    (1,755
    )
    
    
    2,336
    
    
    
    5,429
    
    
    
    171Reclassification of property, plant, and equipment into long-term
investments
    
    
    
    
    
    
    
    
    
    
    648,248
    
    
    
    20,443Reclassification of property, plant, and equipment into other
assets
    
    
    
    
    
    
    
    
    
    
    36,846
    
    
    
    1,162Reclassification of long-term investment into short-term
investment
    
    
    
    
    
    
    218,099
    
    
    
    
    
    
    
    PARTIAL CASH PAID FOR INVESTING ACTIVITIESCash paid for acquisition of property, plant and equipment:Total acquisitions
    
    
    1,763,818
    
    
    
    2,169,835
    
    
    
    7,633,275
    
    
    
    240,721Decrease (increase) in payables to contractors and
equipment suppliers
    
    
    200,007
    
    
    
    (8,160
    )
    
    
    (64,553
    )
    
    
    (2,035
    )1,963,825
    
    
    
    2,161,675
    
    
    
    7,568,722
    
    
    
    238,686
 The accompanying notes are an integral part of the financial statements. F-81




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ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    GENERALChipMOS TECHNOLOGIES INC. (ChipMOS Taiwan) was incorporated on July 28, 1997 as a joint venture
company of Mosel Vitelic Inc. (MVI) and Siliconware Precision Industries Co. Ltd. (SPIL). Its
operations, which began on August 12, 1997, consist of research, development, manufacturing,
testing, and assembly of integrated circuits, LCD and other Flat-Panel Display Driver
Semiconductors. ChipMOS Taiwan also provides semiconductor testing and assembly services on a
turnkey basis, in which ChipMOS Taiwan purchases fabricated wafers and sells tested and
assembled semiconductors to application and system manufacturers.On January 12, 2001, the holders of an aggregate of 583,419 thousand common shares of ChipMOS
Taiwan executed a Purchase and Subscription Agreement whereby they transferred their shares to
ChipMOS TECHNOLOGIES (Bermuda) LTD. (ChipMOS Bermuda) in exchange for 58,342 thousand newly
issued common shares of ChipMOS Bermuda. The selling shareholders, who previously held in an
aggregate 70.25% of the outstanding common shares of ChipMOS Taiwan, thus, became the holders of
the entire outstanding common shares of ChipMOS Bermuda. As of December 31, 2004, ChipMOS
Bermuda owned 70.34% of the outstanding common shares of ChipMOS Taiwan. (FLOW CHART) F-82




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As of December 31, 2004, ChipMOS Taiwan owned 100% of the outstanding shares of both
ChipMOS Japan Inc. (ChipMOS Japan) and ChipMOS USA Inc. (ChipMOS USA), 68.04% of CHANTEK
ELECTRONIC CO., LTD. (CHANTEK), 30.08% of ThaiLin Semiconductor Corp. (ThaiLin), 56.10 % of
ChipMOS Logic TECHNOLOGIES INC. (ChipMOS Logic) and 67.83% of FIRST SEMICONDUCTOR TECHNOLOGY,
INC. (FST).ChipMOS Japan was incorporated in Japan in June 1999, and ChipMOS USA was incorporated in the
United States of America in October 1999. The two companies engage in sales and customer
services and all the expenses incurred from these activities are charged to current income.
ChipMOS Japan began generating revenue in 2000, while ChipMOS USA began generating revenue in
2001.CHANTEK was incorporated in Taiwan in May 1989, and is listed on the GreTai Securities Market in
Taiwan. It provides semiconductor assembly services for low-density volatile and non-volatile
memory semiconductors, consumer semiconductors and microcontroller semiconductors. ChipMOS
Taiwan acquired its 34% ownership interest in CHANTEK on September 16, 2002. On April 1, 2004,
PlusMOS was merged into CHANTEK in a stock-for-stock merger pursuant to which shareholders of
PlusMOS received 1.1 common shares of CHANTEK in exchange for one common share of PlusMOS. The
merger was approved by the shareholders of CHANTEK and PlusMOS in December 2003. Upon
consummation of this merger, ChipMOS Taiwan became the controlling shareholder of CHANTEK. Under
applicable accounting principles, we are required to consolidate CHANTEK subsequent to its
merger with PlusMOS. ChipMOS Taiwan increased its ownership in CHANTEK during 2004 and held
68.04% interest as of December 31, 2004.ChipMOS Logic was incorporated in Taiwan on January 28, 2004, with ChipMOS Taiwan holding 62.5%
interest and ThaiLin holding 37.5% interest. On March 29, 2004, ChipMOS Logic issued additional
shares to institutional investors. As a result, ChipMOS Taiwans interest in ChipMOS Logic was
diluted to 44.44% and ThaiLins interest was diluted to 26.67%. ChipMOS Logic is engaged in
logic testing services. On April 30, 2004, WORLD WIDE TEST Technologies Inc. (WWT) merged into
ChipMOS Logic, with ChipMOS Logic as the surviving entity, in a stock-for-stock merger pursuant
to which shareholders of WWT received one common share of ChipMOS Logic in exchange for 10
common shares of WWT. As of December 31, 2004, ChipMOS Taiwan and ThaiLin owned approximately
56.10% and 24.62%, respectively, of ChipMOS Logic.ThaiLin was incorporated on May 15, 1996 and is listed on the GreTai Securities Market in
Taiwan. ThaiLin is engaged in wafer and semiconductor testing services. On December 31, 2002,
ChipMOS Taiwan acquired an equity interest of 41.8% in ThaiLin. As of December 31, 2004,
ChipMOS held a 30.08% equity interest in ThaiLin.FST was incorporated in the United States of America in June 1998 and engaged in IC logic
testing services. ChipMOS Taiwan acquired its 67.83% ownership interest in FST on November 1,
2004 and held 67.83% as of December 31, 2004.Chantek International Investment Ltd. (Chantek International), a 99.99% owned
subsidiary of CHANTEK, was incorporated in Taiwan on June 11, 1998. Chantek
International is engaged in investment. F-83




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##### Table of Contents



Hua Shen Investment Company (Hua Shen), a wholly-owned subsidiary of
ChipMOS Logic, was incorporated in Taiwan on July 24, 1998. Hua Shen
Investment is engaged in investment.2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentationThe consolidated financial statements include the accounts of ChipMOS Taiwan and major
subsidiaries, including CHANTEK, ThaiLin, ChipMOS Logic and FST, in which ChipMOS Taiwan
(hereinafter, referred to individually or collectively as the Company) holds a controlling
interest or voting interests in excess of 50% in accordance with the requirements of ROC
Financial Accounting Standards (FAS No. 7) and the regulations of the Taiwan Securities and
Futures Commission (SFC). All significant intercompany accounts and transactions have been
eliminated.The consolidated total assets were NT$28,239,715 thousand as of December 31, 2004 after the
Company consolidated all subsidiaries including aforementioned companies, together with ChipMOS
Japan, ChipMOS USA, CHANTEK International and Hua Shen. The difference between consolidated
assets for consolidation of all and major subsidiaries are too nominal, thus it was not included
in the consolidated financial statement.The consolidated financial statements were prepared in conformity with Guidelines for
Securities Issuers Financial Reporting, Commercial Accounting Law, accounting principles
generally accepted in Republic of China (ROC), other relevant laws and regulations. The
Company significant accounting policies are summarized as follows:Classification in the balance sheetA year is used to classify assets/liabilities as current or non-current in the balance
sheet.Cash equivalentsCommercial papers acquired under resale agreements with original maturity dates of less than
three months are classified as cash equivalents.Short-term investmentsShort-term investments are stated at the lower of cost or market value. An allowance of losses
is provided when the carrying value of the investments exceeds the total market value with the
related provision for losses charged to income for the current year. Any recovery of the market
value to the extent of the original carrying value is recognized as
income. F-84




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Costs of investments sold are determined using the weighted-average method.Allowance for doubtful receivablesAllowance for doubtful accounts is provided based on
evaluation of the collectibility of the
receivables evaluated based upon the overall financial condition and payment history of the
individual customers as well as the age of the receivables.Allowances for sales returns and discountsAllowances for sales returns and discounts are provided based on the sales returns from the past
experience; such provisions are deducted from sales and the related costs of products are
deducted from cost of products sold.InventoriesInventories are stated at the lower of standard cost (which approximates actual weighted average
cost) or market value. Market value represents replacement cost for raw materials and net
realizable value for other inventories.Long-term investmentsInvestments in shares of stock of companies wherein the company exercises significant influence
on their operating or financial decisions are accounted for using the equity method. Under the
equity method, the investment are initially carried at cost and subsequently adjusted for the
proportionate equity of the company in the net income or net loss of the investees.The company will discontinue its recognition of its equity in the net loss of the investees when
the carrying value of the investment (including advances) is reduced to zero. However, in cases
where the company guarantees the obligations or is committed to provide further financial
support to an investee company, or if the investees losses are temporary and evidence
sufficiently shows imminent return to profitability in the foreseeable future, then, the company
continues to recognize its share in the net loss of the investees. The resulting credit
balances of the long-term investments are presented as part of other receivable from related
parties.Translation adjustments resulting from the process of translating the investees financial
statements into the functional currency of the company are recorded as cumulative translation
adjustments in the statement of changes in shareholders equity.Gains or losses on transactions with investee companies wherein the company owned at least 20%
of the outstanding common stock but less than a controlling interest are deferred in proportion
to ownership percentage until realized through a subsequent transaction with a third party. The
entire amount of gains or losses on sales to majority-owned subsidiaries is F-85




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deferred until such gains or losses are realized through the subsequent sale of the related
products to third parties.Other stock investments (listed stocks or stocks traded over the counter) are accounted for
using the cost method. These investments are stated at cost fewer declines in market
value, which is considered temporary, and a credit is made to an allowance for decline in
value with a corresponding debit to shareholders equity. The allowance is then reduced
for any subsequent recovery of the market value to the extent of the balance of the
allowance. However, if the decline in value is considered irrecoverable, the decline in
values is recorded as a charge to income.Cash dividends are recognized as income in the year received but are accounted for as a
reduction in the carrying value of the long-term investments if the dividends are received in
the same year that the related investments are acquired. Stock dividends are recognized only as
an increase in the number of shares held on the ex-dividend date.The costs of investments sold are determined using the weighted average method.Property, plant and equipment and non-operating propertiesProperty, plant and equipment and non-operating properties are stated at cost less accumulated
depreciation. Major additions, renewals and betterment are capitalized, while maintenance and
repairs are expensed currently.The initial estimate of the service lives of the property, plant and equipment is as
follows: Machinery and equipment, 1 to 9 years; buildings and auxiliary equipment, 1 to 55
years; furniture and fixtures, 1 to 9 years; tooling, 1 to 5 years; transportation
equipment, 5 to 6 years; and leasehold improvements, 1 to 10 years. The foregoing service
lives plus one year to represent the estimated salvage value are used to depreciate the
property, plant and equipment using the straight-line method. The carrying value of
property, plant and equipment, which were fully depreciated using the foregoing service
lives, but are still being used by the Company are depreciated over their remaining
estimated service lives.Upon sale or disposal of items of properties, the related cost and accumulated depreciation are
removed from the accounts, and any gain or loss is credited or charged to current income.GoodwillGoodwill arising on consolidation represents the excess of the cost of acquisition over the
groups interest in the fair value of the identifiable assets and liabilities of a subsidiary,
associate or jointly controlled entity at the date of acquisition. Goodwill is recognized as an
asset and amortized on a straight-line basis over its useful economic life.Goodwill arising on the acquisition of an associate or a jointly controlled entity is included
within the carrying amount of the associate or jointly controlled entity. Goodwill arising on
the acquisition of subsidiaries is presented separately in the balance sheet. F-86




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Intangible assetsIntangible assets are amortized using the straight-line method over the following periods:
Technology know-how, 5 years; technology license fee, and deferred charges, 3 to 5 years; bond
issuance cost are amortized using the average method.Revenue recognitionSales are recognized when titles of products and risks of ownerships are transferred to
customers, primarily upon shipment.Pension costsPension costs are recorded based on actuarial calculations. Unrecognized net transition
obligation is amortized over 15 years.Income taxThe Company adopts inter-period income tax allocation method. Deferred income tax assets are
recognized for the tax effects of deductible temporary differences, unused tax credits, and
operating loss carry forwards and those of taxable temporary differences are recognized as
deferred income tax liabilities. Valuation allowance is provided for deferred tax assets that
are not certain to be realized. A deferred tax asset or liability is classified as current or
non-current based on the classification of the related asset or liability. However, if a
deferred asset or liability cannot be related to an asset or liability in the financial
statements, then it is classified as current or non-current based on the expected reversal dates
of the temporary difference.Any tax credit arising from the purchase of machinery, equipment and technology, research and
development expenditures, personnel training, investments in important technology-based
enterprise are recognized by the flow-through method.Adjustments of prior years tax liabilities are added to or deducted from the current years tax
provision.Income taxes (10%) on unappropriated earnings generated are recorded as expense in the year when
the stockholders have effectively resolved that earnings shall be retained. F-87




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Derivative financial instrumentsForeign currency forward exchange contracts (forward contracts), entered into for purposes other
than trading, are recorded as follows: the differences in the New Taiwan dollar amounts
translated using the spot rates as of the contract date and the amounts translated using the
contracted forward rates are amortized over the terms of the forward contracts using the
straight-line method. At the balance sheet dates, the receivables or payables arising from
forward contracts are restated using the prevailing spot rates and the resulting differences are
recognized in income. Also, the receivables and payables related to the forward contract are
netted and the resulting net amount is presented as either an asset or liability.The aggregate amount of the foreign currency to be acquired or sold under European option
contracts, entered into as hedge of anticipated transactions, is not recorded as assets or
liabilities. The amounts received on options written and the amounts paid on options purchased
are amortized using the straight-line method over the term of the contract. The gains arising
from the exercise of the options or the losses arising from options not exercised are recognized
as adjustments to the carrying values when the hedged transaction occurs.Foreign-currency transactionsForeign-currency transactions, except derivative financial instruments, are recorded in New
Taiwan dollars at the rates of exchange in effect when the transactions occur. Gains or losses
resulting from the application of different foreign exchange rates when cash in foreign currency
is converted into New Taiwan dollars, or when foreign-currency receivables or payables are
settled, are credited or charged to income in the year of conversion or settlement. On the
balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the
prevailing exchange rates and the resulting differences are charged to current income except
those foreign currency denominated investments in shares of stock where such differences are
accounted for as translation adjustments under stockholders equity.ReclassificationsCertain accounts in 2002 and 2003 have been reclassified to conform to 2004 classifications.3.
    TRANSLATION INTO U.S. DOLLAR AMOUNTSThe Company maintains its accounts and expresses its consolidated financial statements in New
Taiwan dollars. For convenience purposes, U.S. dollar amounts presented in the accompanying
consolidated financial statements have been translated from New Taiwan dollars at the mid-price
of the USD as quoted by Bank of Taiwan as of December 31, 2004, which was NT$31.71 to US$1.00.
The convenience translations should not be construed as representations that the New Taiwan
dollar amounts have been, or could in the future be, converted into U.S. dollars at this or any
other rate of exchange. F-88




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4.
    SHORT-TERM INVESTMENTS December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Stocks
    
    
    478,810
    
    
    
    494,593
    
    
    
    15,597Open-ended funds
    
    
    118,172
    
    
    
    2,570,442
    
    
    
    81,061Corporate bonds
    
    
    33,970
    
    
    
    
    
    
    
    Allowance for loss
on short-term
investments
    
    
    (193,506
    )
    
    
    (249,908
    )
    
    
    (7,881
    )437,446
    
    
    
    2,815,127
    
    
    
    88,777Market value
    
    
    437,446
    
    
    
    2,817,587
    
    
    
    88,855
  The market value of open-ended funds is based on the market price at year-end.
During 2004, ChipMOS Taiwan sold its investment in common stock of ProMOS Technologies Inc.
(ProMOS) at a gain of NT$10,316 thousand and later acquired 7,559 thousand shares of ProMOS at
NT$104,173 thousand.As of December 31, 2004, ChipMOS Taiwan held 7,780 thousand (2003: 13,396 thousand) shares of
common stock of MVI 7,559 thousand shares of common stock of ProMOS and ChipMOS Logic held 1,357
thousand shares of common stock of SPIL.The investment in corporate bonds is Kolin Euro Convertible bonds with a par value of USD 1,000
thousand (NT$ 33,750 thousand) in 2003.5.
    ALLOWANCE FOR DOUBTFUL RECEIVABLES Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Balance, beginning of year
    
    
    30,000
    
    
    
    44,856
    
    
    
    97,288
    
    
    
    3,068Additions
    
    
    25,821
    
    
    
    52,432
    
    
    
    194,763
    
    
    
    6,143Write offs
    
    
    (10,965
    )
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    44,856
    
    
    
    97,288
    
    
    
    292,051
    
    
    
    9,211
 F-89




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##### Table of Contents



6.
    INVENTORIES  NET December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Finished goods
    
    
    5,829
    
    
    
    25,876
    
    
    
    816Work in process
    
    
    141,300
    
    
    
    155,501
    
    
    
    4,904Raw materials
    
    
    204,900
    
    
    
    536,910
    
    
    
    16,932352,029
    
    
    
    718,287
    
    
    
    22,652Less  allowance for losses
    
    
    (41,546
    )
    
    
    (111,074
    )
    
    
    (3,503
    )310,483
    
    
    
    607,213
    
    
    
    19,149
  The changes in the inventory valuation allowance are summarized as follows: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Balance, beginning of year
    
    
    100,933
    
    
    
    86,608
    
    
    
    41,546
    
    
    
    1,310Additions
    
    
    
    
    
    
    
    
    
    
    150,231
    
    
    
    4,738Write offs
    
    
    (14,325
    )
    
    
    (45,062
    )
    
    
    (67,002
    )
    
    
    (2,113
    )
    
    
    
    
    
    
    
    (13,701
    )
    
    
    (432
    )Balance, end of year
    
    
    86,608
    
    
    
    41,546
    
    
    
    111,074
    
    
    
    3,503
 F-90




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##### Table of Contents



7.
    LONG-TERM INVESTMENTS December 312003
    
    
    2004Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofValue
    
    
    Ownership
    
    
    Value
    
    
    OwnershipNT$
    
    
    
    
    
    
    NT$
    
    
    US$(In Thousands)Equity method:ChipMOS Japan
    
    
    (530
    )
    
    
    100
    
    
    
    179
    
    
    
    6
    
    
    
    100ChipMOS USA
    
    
    (6,883
    )
    
    
    100
    
    
    
    (1,984
    )
    
    
    (63
    )
    
    
    100PlusMOS Inc. (PlusMOS)
    
    
    83,358
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    CHANTEK
    
    
    80,696
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    ThaiLin
    
    
    707,174
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Advanced Micro Chip Technology
Co., Ltd. (AMCT)
    
    
    28,272
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    Ultima Technology Corp. (Ultima
Technology)
    
    
    
    
    
    
    
    
    
    
    374,625
    
    
    
    11,814
    
    
    
    30Chantek International
    
    
    
    
    
    
    
    
    
    
    19,588
    
    
    
    618
    
    
    
    100Hua Shen
    
    
    
    
    
    
    
    
    
    
    922
    
    
    
    29
    
    
    
    100Cost method:G-Link Technology Corp., Taiwan
    
    
    
    
    
    
    
    
    
    
    9,709
    
    
    
    306
    
    
    
    2DigiMedia Technology Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    81,480
    
    
    
    2,569
    
    
    
    19Best Home Corp. Ltd. (Best Home)
    
    
    89,850
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Sun Fund Securities Ltd. (Sun Fund)
    
    
    299,000
    
    
    
    17
    
    
    
    165,950
    
    
    
    5,233
    
    
    
    17CDIB High Tech Investment Inc.
(CDIB)
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    284
    
    
    
    2Vigour Technology Corp. (Vigour)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Integrated Silicon Solution Inc.
    
    
    
    
    
    
    
    
    
    
    1,587
    
    
    
    50
    
    
    
    1,280,937
    
    
    
    
    
    
    
    661,056
    
    
    
    20,846Credit balances of long-term investments (presented as part of
other receivables from related parties) (Note 16)
    
    
    7,413
    
    
    
    
    
    
    
    1,984
    
    
    
    631,288,350
    
    
    
    
    
    
    
    663,040
    
    
    
    20,909
  The equity in net income or loss of investee companies which is based on audited financial
statements for the years ended December 31, 2002, 2003 and 2004 were as follows: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)ChipMOS Japan
    
    
    791
    
    
    
    445
    
    
    
    704
    
    
    
    22ChipMOS USA
    
    
    1,011
    
    
    
    1,776
    
    
    
    4,584
    
    
    
    145PlusMOS
    
    
    (1,712
    )
    
    
    32,386
    
    
    
    
    
    
    
    ThaiLin
    
    
    (2,368
    )
    
    
    29,127
    
    
    
    
    
    
    
    CHANTEK
    
    
    (90,921
    )
    
    
    (36,618
    )
    
    
    
    
    
    
    AMCT
    
    
    
    
    
    
    (4,752
    )
    
    
    (24,953
    )
    
    
    (787
    )Hua Shen
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    (2
    )Chantek International
    
    
    
    
    
    
    
    
    
    
    (9,411
    )
    
    
    (298
    )(93,199
    )
    
    
    22,364
    
    
    
    (29,160
    )
    
    
    (920
    )
 F-91




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Certain changes on the shareholders equity of investee companies result in the
adjustments on ChipMOS Taiwans equity according to its ownership to the respective accounts,
which in 2003 decreased unappropriated earnings by NT$593 thousand and in 2003 and 2004
increased capital surplus by NT$12,008 thousand and NT$227,402 thousand respectively.CHANTEK sold 3,846 thousand shares of AMCT during the year. The gain from disposal of each
investment was NT$8,803 thousand.In October 2004 AMCT was liquidated.The difference between the costs of the investment and ChipMOS Taiwans proportionate share
in the net assets of the investees at the date of acquisition is amortized using the
straight-line method over five years.In 2003, ChipMOS Taiwan reclassified its investment in Ultima Electronics Corp. (Ultima)
from long-term investments to short-term investments, which were revalued at lower of cost or
market value at transferal.In 2004, Sun Fund and CDIB reduced their issued capital by 17% and 50% respectively. A
loss of NT$49,833 thousand was recognized in respect of the reduction in capital in Sun Fund.
The investments of NT$9,000 thousand were returned to ThaiLin in respect of the reduction in
capital in CDIB.Impairment losses of NT$89,850 thousand, NT$83,217 thousand and NT$41,336 thousand have
been recognized in 2004 in respect of investments in Best Home, Sun Fund and Vigour.On May 5, 2004, ChipMOS Taiwan acquired a 30% interest in Ultima Technology for US$11,250
thousand (NT$374,625 thousand). In accordance with ROC SFAS 5, ChipMOS Taiwan deferred its
recognition of the proportionate share of income (loss) of Ultima Technology to the subsequent
year.The summarized financial information for equity investees is as follows: December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)ChipMOS USA:Current assets
    
    
    2,214
    
    
    
    3,021
    
    
    
    95Non-current assets
    
    
    7,491
    
    
    
    9,333
    
    
    
    294Current liabilities
    
    
    16,207
    
    
    
    14,323
    
    
    
    203Non-current liabilities
    
    
    381
    
    
    
    16
    
    
    
    1ChipMOS Japan:Current assets
    
    
    5,689
    
    
    
    5,324
    
    
    
    168Non-current assets
    
    
    654
    
    
    
    1,280
    
    
    
    40Current liabilities
    
    
    6,882
    
    
    
    6,425
    
    
    
    203Non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
 (Forward) F-92




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##### Table of Contents



December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)PlusMOS:Current assets
    
    
    496,625
    
    
    
    
    
    
    
    Non-current assets
    
    
    125,405
    
    
    
    
    
    
    
    Current liabilities
    
    
    282,689
    
    
    
    
    
    
    
    Non-current liabilities
    
    
    5,911
    
    
    
    
    
    
    
    CHANTEK:Current assets
    
    
    486,134
    
    
    
    
    
    
    
    Non-current assets
    
    
    1,202,037
    
    
    
    
    
    
    
    Current liabilities
    
    
    865,308
    
    
    
    
    
    
    
    Non-current liabilities
    
    
    287,963
    
    
    
    
    
    
    
    ThaiLin:Current assets
    
    
    757,823
    
    
    
    
    
    
    
    Non-current assets
    
    
    1,938,859
    
    
    
    
    
    
    
    Current liabilities
    
    
    586,527
    
    
    
    
    
    
    
    Non-current liabilities
    
    
    90,995
    
    
    
    
    
    
    
    AMCT:Current assets
    
    
    42,165
    
    
    
    
    
    
    
    Non-current assets
    
    
    91,007
    
    
    
    
    
    
    
    Current liabilities
    
    
    49,928
    
    
    
    
    
    
    
    Non-current liabilities
    
    
    2,016
    
    
    
    
    
    
    
    Hua Shen:Current assets
    
    
    
    
    
    
    3,900
    
    
    
    123Non-current assets
    
    
    
    
    
    
    
    
    
    
    Current liabilities
    
    
    
    
    
    
    
    
    
    
    Non-current liabilities
    
    
    
    
    
    
    
    
    
    
    Chantek International:Current assets
    
    
    
    
    
    
    26,359
    
    
    
    831Non-current assets
    
    
    
    
    
    
    
    
    
    
    Current liabilities
    
    
    
    
    
    
    103
    
    
    
    3Non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
 Year Ended December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)ChipMOS USA:Net revenue
    
    
    22,864
    
    
    
    36,765
    
    
    
    1,159Cost of revenue
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    22,864
    
    
    
    36,765
    
    
    
    1,159Net income
    
    
    1,776
    
    
    
    4,584
    
    
    
    145ChipMOS Japan:Net revenue
    
    
    11,851
    
    
    
    15,212
    
    
    
    480Cost of revenue
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    11,851
    
    
    
    15,212
    
    
    
    480Net income
    
    
    445
    
    
    
    704
    
    
    
    22
 (Forward) F-93




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##### Table of Contents



Year Ended December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)PlusMOS:Net revenue
    
    
    2,089,052
    
    
    
    
    
    
    
    Cost of revenues
    
    
    1,799,229
    
    
    
    
    
    
    
    Gross profit
    
    
    289,823
    
    
    
    
    
    
    
    Net income
    
    
    129,546
    
    
    
    
    
    
    
    CHANTEK:Net revenue
    
    
    882,468
    
    
    
    
    
    
    
    Cost of revenues
    
    
    956,362
    
    
    
    
    
    
    
    Gross loss
    
    
    (73,894
    )
    
    
    
    
    
    
    Net loss
    
    
    (132,963
    )
    
    
    
    
    
    
    ThaiLin:Net revenue
    
    
    923,173
    
    
    
    
    
    
    
    Cost of revenue
    
    
    776,358
    
    
    
    
    
    
    
    Gross profit
    
    
    146,815
    
    
    
    
    
    
    
    Net income
    
    
    54,187
    
    
    
    
    
    
    
    AMCT:Net revenue
    
    
    104,409
    
    
    
    
    
    
    
    Cost of revenues
    
    
    115,835
    
    
    
    
    
    
    
    Gross loss
    
    
    (11,426
    )
    
    
    
    
    
    
    Net loss
    
    
    (16,466
    )
    
    
    
    
    
    
    Hua Shen:Net revenue
    
    
    
    
    
    
    1
    
    
    
    Cost of revenues
    
    
    
    
    
    
    24,522
    
    
    
    773Gross loss
    
    
    
    
    
    
    (24,521
    )
    
    
    (773
    )Net loss
    
    
    
    
    
    
    (25,442
    )
    
    
    (802
    )Chantek International:Net revenue
    
    
    
    
    
    
    17,301
    
    
    
    546Cost of revenues
    
    
    
    
    
    
    26,501
    
    
    
    836Gross loss
    
    
    
    
    
    
    (9,200
    )
    
    
    (290
    )Net loss
    
    
    
    
    
    
    (11,189
    )
    
    
    (353
    )
  8.
    PROPERTY, PLANT AND EQUIPMENT  NETAccumulated depreciation consists of the following: December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Buildings and auxiliary equipment
    
    
    963,720
    
    
    
    1,315,342
    
    
    
    41,480Machinery and equipment
    
    
    8,361,731
    
    
    
    11,840,591
    
    
    
    373,402Furniture and fixtures
    
    
    188,884
    
    
    
    305,968
    
    
    
    9,649Transportation equipment
    
    
    7,837
    
    
    
    13,944
    
    
    
    440Tools
    
    
    758,728
    
    
    
    969,819
    
    

    
    30,584Leasehold improvements
    
    
    1,238
    
    
    
    6,042
    
    
    
    19110,282,138
    
    
    
    14,451,706
    
    
    
    455,746
  As of December 31, 2004, certain of the above buildings and machinery were mortgaged as F-94




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##### Table of Contents



collateral for the bonds and the long-term loans (Notes 11 and 12).  9.
    INTANGIBLE ASSETS - NET December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)CostTechnology knowhow
    
    
    750,000
    
    
    
    750,000
    
    
    
    23,652Technology license fee
    
    
    41,890
    
    
    
    67,081
    
    
    
    2,115Software
    
    
    109,089
    
    
    
    173,899
    
    
    
    5,484Bond issuance costs
    
    
    57,205
    
    
    
    28,526
    
    
    
    900Goodwill
    
    
    
    
    
    
    2,099
    
    
    
    67958,184
    
    
    
    1,021,605
    
    
    
    32,218Accumulated amortizationTechnology knowhow
    
    
    (750,000
    )
    
    
    (750,000
    )
    
    
    (23,652
    )Technology license fee
    
    
    (19,953
    )
    
    
    (51,480
    )
    
    
    (1,623
    )Software
    
    
    (94,308
    )
    
    
    (102,459
    )
    
    
    (3,231
    )Bond issuance costs
    
    
    (48,885
    )
    
    
    (15,369
    )
    
    
    (485
    )(913,146
    )
    
    
    (919,308
    )
    
    
    (28,991
    )Carrying value
    
    
    45,038
    
    
    
    102,297
    
    
    
    3,227
  Pursuant to a Joint Venture Agreement entered into between MVI and SPIL on July 28, 1997,
MVI and SPIL contributed, as payment for their subscription to shares of stock of ChipMOS
Taiwan, technologies related to testing and packaging integrated circuits at an agreed
valuation of NT$750,000 thousand.10.
    BANK LOANS December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Unsecured loan:Working capital loansNT$50,000 thousand,
repayable by January 2005,
annual interest at 1.65 -
1.9%
    
    
    
    
    
    
    50,000
    
    
    
    1,576NT$52,000 thousand,
repayable by April 2005,
annual interest at 4.595%
    
    
    
    
    
    
    52,000
    
    
    
    1,640NT$60,000 thousand,
repayable by March 2005,
annual interest at 4.5%
    
    
    
    
    
    
    60,000
    
    
    
    1,892NT$65,000 thousand,
repayable by October 2005,
annual interest at 1.5%
    
    
    
    
    
    
    65,000
    
    
    
    2,050NT$755,000 thousand,
repayable by March 2004,
annual interest at
1.65%~3.00%
    
    
    755,000
    
    
    
    
    
    

    
    
 F-95




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December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Loan for imports of machineryEUR$72 thousand and JPY$1,749,463
repayable by September 2004,
annual interest at
0.57%~2.87%
    
    
    559,045
    
    
    
    
    
    
    
    JPY$1,826,874 thousand,
repayable by June 2005,
annual interest at 0.5986% -
1.1628%
    
    
    
    
    
    
    565,052
    
    
    
    17,819EUR$82 thousand repayable by
April 2005, annual interest at
2.71% - 2.8052%
    
    
    
    
    
    
    3,541
    
    
    
    112Secured loans:Working capital loans:NT$5,000 thousand,
repayable by October 2005,
annual interest at 1.5%,
collateralized by land and
buildings (Note 12)
    
    
    
    
    
    
    5,000
    
    
    
    1581,314,045
    
    
    
    800,593
    
    
    
    25,247
  Unused credit lines as of December 31, 2004 aggregated approximately NT$2,169,593 thousand,
which will expire from January 2005 to October 2005.11.
    LONG-TERM BONDS PAYABLE December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Long-Term Bonds Payable
    
    
    1,200,000
    
    
    
    1,200,000
    
    
    
    37,843Convertible bonds
    
    
    
    
    
    
    333,195
    
    
    
    10,507Less: current portion
    
    
    
    
    
    
    1,200,000
    
    
    
    (37,843
    )1,200,000
    
    
    
    333,195
    
    
    
    10,507
  On August 3, 2004, ThaiLin issued a NT$1,000,000 thousand secured convertible bonds due on
August 3, 2009 with zero interest rates. Those bonds have been convertible since September 3,
2004 at conversion price NT$17.1 for each share. As of December 31, 2004, NT$574,900 thousand
of the bonds had been converted. The compensation interest rates applicable are as follows:Redemption within one month to three years: 1.50% per annum;Redemption after three years until 40 days before the due date: NilChipMOS Taiwan on January 26, 2000 issued secured bonds with face value of NT$1,200,000
thousand. Those bonds are due on January 26, 2005 and bear annual interest at 5.95% that
are payable annually. F-96




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##### Table of Contents



Under the guaranteed facility agreement for the long-term bonds, ChipMOS Taiwan is required
to maintain certain financial ratios.On June 8, 2004, a supplemental agreement was signed between ChipMOS Taiwan and Taishin
International Commercial Bank to remove the restrictive covenant pursuant to which ChipMOS
Taiwan was required to ensure that MVI and SPIL maintain a percentage of direct or indirect
ownership in ChipMOS Taiwan of at least 28.8% and 18%, respectively and pursuant to which
ChipMOS Taiwan was required to notify the banks in writing and get approval in advance in cases
where additional shares were issued in connection with an initial public offering of its shares,
if either MVIs or SPILs ownership would have dropped below the respective percentage level as
a result of the initial public offering.ChipMOS Taiwan was in compliance with the financial ratio requirements as of December 31,
2004.As of December 31, 2004, certain buildings with an aggregate net book value of NT$438,761
thousand was mortgaged as collateral for the long-term bonds.12.
    LONG-TERM LOANS December 312003
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Bank loans,
collateralized by
equipment and
building, repayable
semi-annually from
November 2000 to
December 2004,
interest at floating
rate (5.375% as of
December 31)
    
    
    276,500
    
    
    
    
    
    
    
    Bank loans,
repayable quarterly
from November 2004
to February 2007,
interest at fixed
rate (3.4% as of
December 31, 2004)
    
    
    
    
    
    
    270,000
    
    
    
    8,515Bank loans,
repayable
semi-annually from
March 2005 to
September 2006,
interest at floating
rate (3.3% as of
December 31, 2004)
    
    
    
    
    
    
    200,000
    
    
    
    6,307
 (Forward) F-97




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##### Table of Contents



December 312003
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Syndicated bank
loans collateralized
by equipment,
repayable
semi-annually from
September 2004 to
September 2007,
interest at floating
rate (4.275% and
4.375% as of
December 31, 2003
and 2004,
respectively)
    
    
    2,000,000
    
    
    
    1,714,280
    
    
    
    54,061Syndicated bank
loans, repayable
semi-annually from
September 2004 to
September 2007,
interest at floating
rate (4.40% and
4.50% as of December
31, 2003 and 2004,
respectively)
    
    
    500,000
    
    
    
    428,570
    
    
    
    13,515Syndicated bank
loans collateralized
by equipment,
repayable quarterly
from June 2004 to
March 2008, interest
at floating rate
(3.7% as of December
31, 2004)
    
    
    
    
    
    
    1,845,000
    
    
    
    58,184Research and
development subsidy
loan, collateralized
by time deposits in
amounts of NT42,450
thousand, repayable
quarterly from July
2003 to July 2006,
with zero interest
rate
    
    
    34,962
    
    
    
    18,522
    
    
    
    584Research and
development subsidy
loan, repayable
quarterly from
January 2006 to
April 2010, interest
at fixed rate (1% as
of December 31,
2004)
    
    
    
    
    
    
    29,120
    
    
    
    918Bank loans
collateralized by
equipment, repayable
quarterly from
December 2004 to
September 2007,
interest at floating
rate (3.65% as of
December 31, 2004)
    
    
    
    
    
    
    180,000
    
    
    
    5,676Bank loans
collateralized by
equipment, repayable
quarterly form
August 2005 to
August 2009,
interest at floating
rate. (4% and 3.7%
as of December 31,
2003 and 2004,
respectively)
    
    
    
    
    
    
    35,695
    
    
    
    1,126General loans
collateralized
repayable quarterly
from August 2005 to
August 2009,
interest at floating
rate (3.7%as of
December 31, 2004)
    
    
    
    
    
    
    58,715
    
    
    
    1,852Bank loans
collateralized by
equipment, repayable
quarterly form
August 2005 to
August 2009,
interest at floating
rate. (3.7% as of
December 31, 2004)
    
    
    
    
    
    
    285,000
    
    
    
    8,988General loans due
and deferred for 5
years, repayable in
July 2009, interest
at floating rate
(3.7% as of December
31, 2004)
    
    
    
    
    
    
    43,500
    
    
    
    1,372Bank loans
collateralized by
equipment, repayable
quarterly from April
2001 to January
2006, interest at
floating rate
(5.655% and 5.755%
as of December 31,
2003 and 2004,
respectively)
    
    
    
    
    
    
    17,500
    
    
    
    551
 (Forward) F-98




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##### Table of Contents



December 312003
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Bank loans
collateralized by
equipment, repayable
quarterly from
February 2005 to
November 2008,
interest at floating
rate (2.8% as of
December 31, 2004)
    
    
    
    
    
    
    350,000
    
    
    
    11,037Syndicated bank
loans collateralized
by equipment,
repayable quarterly
April 2005 to
January 2011,
interest at floating
rate (3.088% as of
December 31, 2004)
    
    
    
    
    
    
    620,000
    
    
    
    19,552Syndicated bank
loans collateralized
by equipment,
repayable quarterly
December 2003 to
September 2008,
interest at floating
rate (3.088% as of
December 31, 2004)
    
    
    
    
    
    
    320,417
    
    
    
    10,106General loans,
repayable from April
1, 2003 to March 31,
2007. Payable in 42
monthly
installments,
commencing on
October 1, 2003.
Effective interest
rate was 9.658%
    
    
    
    
    
    
    12,402
    
    
    
    3912,811,462
    
    
    
    6,428,721
    
    
    
    202,735Less: current portion
    
    
    (650,090
    )
    
    
    (1,826,974
    )
    
    
    (57,615
    )2,161,372
    
    
    
    4,601,747
    
    
    
    145,120
 According to the agreement signed by ChipMOS Taiwan with Industrial Development Bureau
(IDB) in respect to the research and development subsidy loan, ChipMOS Taiwan is obligated to
pay the IDB a certain percentage (2%) of sales of the product developed for 3 years after
completing the project. Under the syndicated bank loan facility agreement, ChipMOS Taiwan is required to:  (1)
    Ensure that ChipMOS Bermuda and SPIL maintain a percentage of direct ownership in
ChipMOS Taiwan of at least 50% of outstanding shares and have control over its operation.  (2)
    Maintain certain financial ratios.ChipMOS Taiwan was in compliance with the financial ratio requirements as of December 31,
2004. As of December 31, 2004, certain fixed assets and idle assets with an aggregate net book
value of NT$7,950,502 thousand and NT$14,406 thousand and time deposits in an aggregate amount
of NT$54,120 thousand were mortgaged as collateral for the long-term and short- term loans. Future minimum principal payments under the Company long-term loans as of December 31, 2004 are
as follows: F-99




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##### Table of Contents



AmountNT$
    
    
    US$(In Thousands)2005
    
    
    1,826,974
    
    
    
    57,6152006
    
    
    2,012,415
    
    
    
    63,4632007
    
    
    1,746,467
    
    
    
    55,0762008
    
    
    516,087
    
    
    
    16,2752009 and thereafter
    
    
    326,778
    
    
    
    10,3066,428,721
    
    
    
    202,735
  13.
    PENSION PLANChipMOS Taiwan, ThaiLin, ChipMOS Logic and CHANTEK have established defined benefit pension
plans for all of their regular employees, which provide benefits based on the length of service
and the average monthly salary for the six months period immediately before retirement.ChipMOS Taiwan, ThaiLin, ChipMOS Logic and CHANTEK make monthly contributions, equal to 2% of
salaries and wages, to a pension fund that is administered by a pension fund monitoring
committee and deposited in its name in the Central Trust of China in the Republic of China.Certain pension information is as follows:a.      Net pension cost Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Service cost
    
    
    21,323
    
    
    
    32,102
    
    
    
    56,065
    
    
    
    1,768Interest cost
    
    
    3,529
    
    
    
    4,275
    
    
    
    8,038
    
    
    
    253Projected return on plan assets
    
    
    (2,802
    )
    
    
    (2,581
    )
    
    
    (5,304
    )
    
    
    (167
    )Amortization
    
    
    27
    
    
    
    689
    
    
    
    (143
    )
    
    
    (5
    )Unrecognized net (gain)/loss
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    2122,077
    
    
    
    34,485
    
    
    
    59,311
    
    
    
    1,870
  b.
    Reconciliation of the fund status of the plan and accrued pension cost F-100




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##### Table of Contents



Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Actuarial present value of benefit
obligationsVested benefit obligation
    
    
    
    
    
    
    
    
    
    
    (374
    )
    
    
    (12
    )Nonvested accumulated benefit
obligation
    
    
    (55,647
    )
    
    
    (81,658
    )
    
    
    (169,835
    )
    
    
    (5,356
    )Additional benefits based on
future salaries
    
    
    (66,501
    )
    
    
    (86,321
    )
    
    
    (143,915
    )
    
    
    (4,538
    )Projected benefit obligation
    
    
    (122,148
    )
    
    
    (167,979
    )
    
    
    (314,124
    )
    
    
    (9,906
    )Plan assets at fair value
    
    
    66,005
    
    
    
    84,821
    
    
    
    174,349
    
    
    
    5,498Projected benefit obligation
in excess of plan assets
    
    
    (56,143
    )
    
    
    (83,158
    )
    
    
    (139,775
    )
    
    
    (4,408
    )Unrecognized net transition obligation
    
    
    511
    
    
    
    484
    
    
    
    3,043
    
    
    
    96Unrecognized net loss
    
    
    29,438
    
    
    
    39,808
    
    
    
    34,058
    
    
    
    1,074Accrued pension cost
    
    
    (26,194
    )
    
    
    (42,866
    )
    
    
    (102,674
    )
    
    
    (3,238
    )
 c. Actuarial assumptions Year Ended December 312002
    
    2003
    
    2004Discount rate
    
    3.5%
    
    3.25%
    
    3.25%Future salary increase rate
    
    3.5%
    
    3.25%
    
    3.25%Expected rate of return on plan assets
    
    3.5%
    
    3.25%
    
    3.25%
 d. Changes in pension fund Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Contributions
    
    
    15,332
    
    
    
    17,813
    
    
    
    55,177
    
    
    
    1,740Payment of benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  14.
    SHAREHOLDERS EQUITY Under ROC Company Law, the capital surplus can only be used to offset deficits, except that
capital surplus generated from (1) donations (donated capital) or (2) the excess of the issue
price over the par value of capital stock (including stocks issued for new capital and mergers,
and the purchase of treasury stock) can be transferred to capital as stock dividends when no
deficit remains and shareholders approve such distribution. ChipMOS Taiwans Articles of Incorporation provides that the following may be appropriated, from
the accumulated net income after deducting any previously accumulated deficit and 10% legal
reserve, subject to shareholder approval: (a) 10% as bonus to employees, F-101




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##### Table of Contents



(b) not more than 2% as remuneration to directors and supervisors, (c) a special reserve, if
deemed necessary, and (d) dividends to shareholders. These appropriations and the disposition of the remaining net income shall be resolved by the
shareholders in the following year and given effect in the financial statements of that year. The aforementioned appropriation for legal reserve shall be made until the reserve equals
aggregate par value of ChipMOS Taiwans outstanding capital stock. The reserve can only be used
to offset a deficit; or, when its balance has reaches 50% of the aggregate par value of the
outstanding capital stock of ChipMOS Taiwan, up to 50% thereof can be distributed as stock
dividend. Under the Integrated Income Tax System that became effective on January 1, 1998, ROC resident
individual shareholders are allowed a tax credit for the income paid by ChipMOS Taiwan on
earnings generated from the effective date. An Imputation Credit Account (ICA) is maintained by
ChipMOS Taiwan for such income tax and the tax credit allocated to each shareholder. The
maximum credit available for allocation to each resident shareholder cannot exceed the balance
shown in the ICA on the date of distribution of dividends.  15.
    INCOME TAX EXPENSE (BENEFIT) a. A reconciliation of income tax expense  current before tax credits and income tax
expense on income before income tax at statutory rate is shown below: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Income tax expense on
income before income tax
at statutory rate
    
    
    (293,729
    )
    
    
    213,742
    
    
    
    674,082
    
    
    
    21,258Tax effects of adjustments:Permanent difference
    
    
    58,879
    
    
    
    (17,042
    )
    
    
    (19,795
    )
    
    
    (624
    )Temporary difference
    
    
    (72,383
    )
    
    
    (9,000
    )
    
    
    (251,779
    )
    
    
    (7,941
    )Income tax expense
(benefit)  current before
tax credits
    
    
    (307,233
    )
    
    
    187,700
    
    
    
    402,508
    
    
    
    12,693
 F-102




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##### Table of Contents



b. Income tax expense (benefit) consists of: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Income tax expense (benefit) -
current before tax credits
    
    
    
    
    
    
    187,700
    
    
    
    402,508
    
    
    
    12,693Separate and foreign income tax
    
    
    4,217
    
    
    
    1,309
    
    
    
    86
    
    
    
    3Income tax credits
    
    
    
    
    
    
    (187,700
    )
    
    
    (355,923
    )
    
    
    (11,224
    )Income tax for the current year
    
    
    4,217
    
    
    
    1,309
    
    
    
    46,671
    
    
    
    1,472Net change of deferred income
tax assets (liabilities) for
the yearTax credits
    
    
    119,312
    
    
    
    48,014
    
    
    
    (70,003
    )
    
    
    (2,208
    )Temporary difference
    
    
    77,295
    
    
    
    8,127
    
    
    
    (128,593
    )
    
    
    (4,055
    )Valuation allowance
    
    
    181,633
    
    
    
    (66,405
    )
    
    
    (560,053
    )
    
    
    (17,662
    )Loss carry forward
    
    
    (299,558
    )
    
    
    41
    
    
    
    584,122
    
    
    
    18,421Adjustment of prior years taxes
    
    
    14,963
    
    
    
    3,364
    
    
    
    (4,743
    )
    
    
    (150
    )Income tax expense (benefit)
    
    
    97,862
    
    
    
    (5,550
    )
    
    
    (132,599
    )
    
    
    (4,182
    )
 ChipMOS Taiwan under Science Park Regulations is entitled to an exemption from ROC
income taxes for a period of four years on income attributable to the expansion of its
production capacity as a result of purchases of equipment funded by capital increases. Such
tax exemption will expire on December 31, 2005. c. Deferred income tax assets and liabilities are summarized as follows: December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Net current deferred income tax assets:Unrealized foreign exchange loss
    
    
    8,613
    
    
    
    16,599
    
    
    
    523Unrealized loss provision on
sales allowance
    
    
    6,385
    
    
    
    9,455
    
    
    
    298Loss of market price decline and
obsolete and slow-moving
inventories
    
    
    10,387
    
    
    
    27,768
    
    
    
    876Tax credits
    
    
    143,905
    
    
    
    241,141
    
    
    
    7,605Loss carry forward
    
    
    
    
    
    
    504,365
    
    
    
    15,906Others
    
    
    15,656
    
    
    
    74,065
    
    
    
    2,335184,946
    
    
    
    873,393
    
    
    
    27,543Less: valuation allowance
    
    
    
    
    
    
    (282,918
    )
    
    
    (8,922
    )184,946
    
    
    
    590,475
    
    
    
    18,621Net non-current deferred income tax
assets (liabilities):Tax credits for investment in
machinery and equipment and
R&D expenditures
    
    
    647,607
    
    
    
    763,336
    
    
    
    24,073Loss carry forwards
    
    
    811,485
    
    
    
    756,419
    
    
    
    23,854Depreciation differences
    
    
    (590,007
    )
    
    
    (555,627
    )
    
    
    (17,522
    )Other
    
    
    3,108
    
    
    
    140,985
    
    
    
    4,446872,193
    
    
    
    1,105,113
    
    
    
    34,851Less: Valuation allowance
    
    
    (1,240,228
    )
    
    
    (1,651,163
    )
    
    
    (52,071
    )(368,035
    )
    
    
    (546,050
    )
    
    
    (17,220
    )
 F-103




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##### Table of Contents



The rate at which deferred income tax components are measured was 25% as of December
31, 2003 and 2004. d. Integrated income tax information ChipMOS Taiwan, the balances of the ICA were NT$94,153 thousand and NT$94,239 thousand as
of December 31, 2003 and 2004, respectively. ChipMOS Taiwan, the imputation credit allocated to each shareholder shall be based on the
balance in the ICA on the date of distribution of dividends. Tax creditable ratio was
6.14% for 2004. e. The balance and year of expiry of unused investment tax credits and loss carry forwards
as of December 31, 2004 are as follows: Machinery &
    
    
    R&D
    
    
    Loss CarryYear of Expiry
    
    Equipment
    
    
    Expenditure
    
    
    ForwardsNT$
    
    
    NT$
    
    
    NT$(In Thousands)2005
    
    
    30,912
    
    
    
    87,959
    
    
    
    160,0862006
    
    
    173,613
    
    
    
    72,947
    
    
    
    526,3622007
    
    
    337,568
    
    
    
    60,073
    
    
    
    412,5932008
    
    
    239,809
    
    
    
    1,596
    
    
    
    79,0132009
    
    
    
    
    
    
    
    
    
    
    82,730781,902
    
    
    
    222,575
    
    
    
    1,260,784
 The deferred tax assets related to the investment tax credits on R&D expenditures and
purchases of machinery and equipment will expire from 2005 to 2008. Under ROC tax
regulations, tax credits can be utilized to reduce current income tax obligations only to
the extent of 50% of such income tax obligations except in the year when such tax credit
will expire, in which case, the entire amount of expiring tax credit may be utilized to
reduce the current income tax obligation. However, tax credits generated in the current
year have to be utilized before prior year tax credit can be utilized to reduce current year
income tax obligations. The foregoing limitation on the utilization of tax credits, the
expiry dates of the tax credits, the level of tax credits expected to be generated from
future operations and the level of non-taxable income attributable to the four-year income
tax holiday on capacity expansion led management to conclude that it is unlikely that these
investment tax credits will be fully realized. Loss carry forwards can be used to deduct
current income tax obligation up to the extent of taxable income and will be expired after 5
years if not fully utilized by the Company. Accordingly, a valuation allowance on deferred
tax assets is recognized as of December 31, 2003 and 2004. F-104




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##### Table of Contents



The tax authorities through 2000 have assessed the income tax returns of ChipMOS Taiwan,
ThaiLin and CHANTEK, 2001 and 2002, respectively. According to ROC tax law, unappropriated earnings generated in 1998 and thereafter are
subject to a tax of 10% in the year when the shareholders resolve that such earnings shall
be retained. The retained earnings (accumulated deficit) of ChipMOS Taiwan as of December
31, 2003 and 2004 were generated during and after 1998.  16.
    RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parties: Name
    
    RelationshipChipMOS Bermuda
    
    A major shareholderSPIL
    
    A major shareholderMVI
    
    An indirect major shareholderChipMOS Japan
    
    A 100% owned subsidiaryChipMOS USA
    
    A 100% owned subsidiaryPlusMOS
    
    A 25% owned investee.  It merged
with CHANTEK in April 2004.ThaiLin
    
    A 30% owned investee. It became a subsidiary of ChipMOS Taiwan in 2004.CHANTEK
    
    A 68% owned investee. It became a subsidiary of ChipMOS Taiwan in April 2004.Ultima
    
    A 4% owned investee; the chairman
of ChipMOS Taiwan was a member of board of directors of Ultima (resigned in June 2003).ProMOS Technology Inc. (ProMOS)
    
    An investee of MVIDenMOS Technology Inc. (DenMOS)
    
    An investee of MVIBest Home
    
    A 19% owned investee; ChipMOS
Taiwan is a major shareholder.Sun Fund
    
    A 17% owned investee; ChipMOS
Taiwan is a major shareholder.ChipMOS Far East Ltd. (Far East)
    
    A subsidiary of ChipMOS BermudaAMCT
    
    A 100% owned investee. It was
liquidated in October 2004.Chantek International
    
    The chairman of ChipMOS Taiwan is a member of board of directors of Chantek International.MouFu Investment Ltd.
(Mou-Fu)
    
    An investee of MVI
 The significant transactions with the aforementioned parties, other than those disclosed in
other notes, are summarized as follows: F-105




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##### Table of Contents



Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)During the yearSalesMVI
    
    
    2,285,348
    
    
    
    1,680,986
    
    
    
    14,274
    
    
    
    450Ultima
    
    
    1,218,265
    
    
    
    745,562
    
    
    
    
    
    
    
    PlusMOS
    
    
    9,010
    
    
    
    19,642
    
    
    
    16,751
    
    
    
    528ProMOS
    
    
    
    
    
    
    1,748,326
    
    
    
    4,231,658
    
    
    
    133,449ThaiLin
    
    
    
    
    
    
    1,722
    
    
    
    
    
    
    
    CHANTEK
    
    
    
    
    
    
    469
    
    
    
    
    
    
    
    Far East
    
    
    
    
    
    
    234
    
    
    
    17,845
    
    
    
    563SPIL
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    AMCT
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    DenMOS
    
    
    152,761
    
    
    
    496,480
    
    
    
    567,042
    
    
    
    17,8823,665,384
    
    
    
    4,693,771
    
    
    
    4,847,570
    
    
    
    152,872Rental revenueMVI
    
    
    8,800
    
    
    
    4,800
    
    
    
    4,800
    
    
    
    151DenMOS
    
    
    693
    
    
    
    922
    
    
    
    455
    
    
    
    15ThaiLin
    
    
    2,212
    
    
    
    8,118
    
    
    
    
    
    
    
    ProMOS
    
    
    
    
    
    
    
    
    
    
    14,057
    
    
    
    44311,705
    
    
    
    13,840
    
    
    
    19,312
    
    
    
    609Other revenueThaiLin
    
    
    
    
    
    
    10,571
    
    
    
    
    
    
    
    DenMOS
    
    
    
    
    
    
    2,647
    
    
    
    
    
    
    
    CHANTEK
    
    
    
    
    
    
    900
    
    
    
    
    
    
    
    PlusMOS
    
    
    
    
    
    
    27
    
    
    
    41
    
    
    
    1Far East
    
    
    
    
    
    
    16
    
    
    
    4,455
    
    
    
    140ChipMOS USA
    
    
    
    
    
    
    1,343
    
    
    
    526
    
    
    
    17Ultima
    

    
    305
    
    
    
    
    
    
    
    
    
    
    
    ProMOS
    
    
    
    
    
    
    
    
    
    
    507
    
    
    
    16AMCT
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    4305
    
    
    
    15,504
    
    
    
    5,655
    
    
    
    178PurchasesAMCT
    
    
    
    
    
    
    4,758
    
    
    
    10,732
    
    
    
    338Far East
    
    
    
    
    
    
    4,654
    
    
    
    89,599
    
    
    
    2,826PlusMOS
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    MVI
    
    
    
    
    
    
    12
    
    
    
    637,089
    
    
    
    20,091ChipMOS USA
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    5
    
    
    
    9,946
    
    
    
    737,569
    
    
    
    23,260Subcontract expensesSPIL
    
    
    
    
    
    
    101,847
    
    
    
    
    
    
    
    Far East
    
    
    
    
    
    
    11,804
    
    
    
    214,127
    
    
    
    6,753ThaiLin
    
    
    
    
    
    
    33,515
    
    
    
    
    
    
    
    
 (Forward) F-106




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##### Table of Contents



Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)CHANTEK
    
    
    2,719
    
    
    
    230
    
    
    
    
    
    
    
    2,719
    
    
    
    147,396
    
    
    
    214,127
    
    
    
    6,753Operating expenses:Administrative expensesMVI
    
    
    4,550
    
    
    
    4,387
    
    
    
    1,950
    
    
    
    61Mou-Fu
    
    
    
    
    
    
    
    
    
    
    2,275
    
    
    
    724,550
    
    
    
    4,387
    
    
    
    4,225
    
    
    
    133Service feeChipMOS USA
    
    
    20,046
    
    
    
    22,864
    
    
    
    32,175
    
    
    
    1,015ChipMOS Japan
    
    
    9,498
    
    
    
    11,851
    
    
    
    15,045
    
    
    
    47429,544
    
    
    
    34,715
    
    
    
    47,220
    
    
    
    1,489Rental expenseMVI
    
    
    2,811
    
    
    
    2,586
    
    
    
    2,218
    
    
    
    70CHANTEK
    
    
    
    
    
    
    7,699
    
    
    
    
    
    
    
    ThaiLin
    
    
    
    
    
    
    8,125
    
    
    
    
    
    
    
    2,811
    
    
    
    18,410
    
    
    
    2,218
    
    
    
    70Fee for stock registry serviceSun Fund
    
    
    540
    
    
    
    540
    
    
    
    
    
    
    
    Mou-Fu
    
    
    
    
    
    
    
    
    
    
    1,977
    
    
    
    62540
    
    
    
    540
    
    
    
    1,977
    
    
    
    62Other expensePlusMOS
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    3MVI
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    5ProMOS
    
    
    
    
    
    
    
    
    
    
    1,027
    
    
    
    32
    
    
    
    
    
    
    
    1,263
    
    
    
    40
 December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)At the end of yearNotes and accounts receivableMVI
    
    
    13,952
    
    
    
    1,098
    
    
    
    35Ultima
    
    
    216,242
    
    
    
    
    
    
    
    PlusMOS
    
    
    5,506
    
    
    
    
    
    
    
    DenMOS
    
    
    123,932
    
    
    
    120,043
    
    
    
    3,786CHANTEK
    
    
    431
    
    
    
    
    
    
    
    ProMOS
    
    
    959,561
    
    
    
    1,303,250
    
    
    
    41,099ThaiLin
    
    
    107
    
    
    
    
    
    
    
    
  F-107




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##### Table of Contents



December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)SPIL
    
    
    315
    
    
    
    
    
    
    
    Far East
    
    
    98
    
    
    
    8,281
    
    
    
    2611,320,144
    
    
    
    1,432,672
    
    
    
    45,181Other receivableChipMOS Bermuda
    
    
    640,950
    
    
    
    3,733
    
    
    
    118ChipMOS USA
    
    
    16,787
    
    
    
    15,378
    
    
    
    485MVI
    
    
    424
    
    
    
    420
    
    
    
    13ChipMOS Japan
    
    
    6,444
    
    
    
    5,937
    
    
    
    187Ultima
    
    
    104
    
    
    
    
    
    
    
    ThaiLin
    
    
    690
    
    
    
    
    
    
    
    CHANTEK
    
    
    19,693
    
    
    
    
    
    
    
    DenMOS
    
    
    375
    
    
    
    885
    
    
    
    28Far East
    
    
    1,855
    
    
    
    7,776
    
    
    
    245ProMOS
    
    
    11,271
    
    
    
    5,344
    
    
    
    169AMCT
    
    
    28,279
    
    
    
    
    
    
    
    726,872
    
    
    
    39,473
    
    
    
    1,245Credit
balances of long-term investments (Note 7)
    
    
    (7,413
    )
    
    
    (1,984
    )
    
    
    (63
    )719,459
    
    
    
    37,489
    
    
    
    1,182PrepaymentsChipMOS USA
    
    
    
    
    
    
    621
    
    
    
    20Other payableChipMOS USA
    
    
    1,200
    
    
    
    1,507
    
    
    
    48MVI
    
    
    730
    
    
    
    356
    
    
    
    11ChipMOS Japan
    
    
    927
    
    
    
    915
    
    
    
    29PlusMOS
    
    
    142
    
    
    
    
    
    
    
    CHANTEK
    
    
    102
    
    
    
    
    
    
    
    Sun Fund
    
    
    45
    
    
    
    
    
    
    
    Far East
    
    
    11,566
    
    
    
    32,641
    
    
    
    1,029ThaiLin
    
    
    5,045
    
    
    
    
    
    
    
    ChipMOS Bermuda
    
    
    
    
    
    
    23,783
    
    
    
    750Mou-Fu
    
    
    
    
    
    
    1,829
    
    
    
    5819,757
    
    
    
    61,031
    
    
    
    1,925Accounts payableCHANTEK
    
    
    242
    
    
    
    
    
    
    
    ThaiLin
    
    
    12,710
    
    
    
    
    
    
    
    SPIL
    
    
    4,634
    
    
    
    
    
    
    
    Far East
    
    
    
    
    
    
    17,428
    
    
    
    55017,586
    
    
    
    17,428
    
    
    
    550Payables to contractors and
equipment suppliersCHANTEK
    
    
    714
    
    
    
    
    
    
    
    
 F-108




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The payment terms for purchases from related parties are the same as those from other
suppliers. The collection term for MVI and Ultima is 90 days after month end, ProMOS is 75 days after month
end while other related parties have the normal collection terms. The selling price is on the
same basis as those to other customers. As of October 11, 2002, ChipMOS Taiwan signed an agreement entrusting Best Home with the
construction for a central kitchen. ChipMOS Taiwan has paid NT$216,000 thousand in advance to
Best Home for the purpose of acquiring a place and equipment. However, ChipMOS Taiwan entered
into a contract to transfer the claim to Prudent Holdings Group Ltd. on December 17, 2003 and
collected on November 19, 2004.
As of December 31, 2003, ChipMOS Taiwan provided commercial paper acquired under repurchase
agreements as collateral for a loan amounting NT$600,000 thousand (excluding the interest)
obtained by Ultima. On April 7, 2004, ChipMOS Taiwan entered into a semiconductor packaging technology license
agreement with ChipMOS Bermuda. Under the agreement, ChipMOS Taiwan agreed to pay a license fee
of US$20,000 thousand in installments of US$250 thousand in every three months over 20 years,
starting from March 30, 2005. As of April 7, 2004, ChipMOS Taiwan entered into a technology transfer agreement with ChipMOS
Bermuda for a period of 20 years, starting from effective day. The total price was US$19,700
thousand, recorded as deferred credits. As of December 31, 2004, the unamortized amount was
NT$626,195 thousand. In 2004, ChipMOS Taiwan acquired 255 thousand shares of ChipMOS Logic from CHANTEK International
at the cost of NT$2,527 thousand. In 2004, ChipMOS Taiwan purchased machineries from ProMOS and AMCT at the cost of NT$46,284
thousand and NT$84,027 thousand respectively. ChipMOS Taiwan also sold machineries to Far East
with the proceeds amounted to NT$5,574 thousand and recognized gain on disposal of properties
amounted to NT$2,834 thousand.  17.
    RESTRICTED CASH AND CASH EQUIVALENTS December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Time deposits (matures
from January 2005 to
November 2005)
    
    
    282,378
    
    
    
    146,746
    
    
    
    4,628
 Time deposits are pledged as collateral for the Companys customs duties payable, letter
of credit, and research and development subsidy loans. F-109




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18.
    SIGNIFICANT COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2004 a. As of December 31, 2004, ChipMOS Taiwan leases parcels of land from the Hsinchu and
Tainan Science Based Industrial Park (SBIP) under several agreements expiring on various
dates from 2002 to 2017, with renewal options. The future minimum lease payments under the above-mentioned leases as of December
31, 2004 are as follows: Year
    
    AmountNT$
    
    US$(In Thousands)2005
    
    16,226
    
    5122006
    
    16,226
    
    5122007
    
    16,226
    
    5122008
    
    16,226
    
    512Thereafter
    
    146,032
    
    4,605Total minimum lease payments
    
    210,936
    
    6,653
 b. The Company has unused letters of credit aggregating approximately US$3,270 thousand,
JPY$3,169,899 thousand, EUR$28 thousand and GBP$9 thousand as of December 31, 2004. c. In 2004, tax authorities have assessed and increase the 2000 income taxes of ChipMOS
Taiwan by NT$30,526 thousand. ChipMOS Taiwan has filed an appealing for the assessment. d. On April 20, 1999, ChipMOS Taiwan entered into a semiconductor packaging technology
license agreement with TESSERA INC. Under this agreement, ChipMOS Taiwan agreed to pay a
license fee of US$500 thousand and a royalty fee at a certain percentage of the net sales
of certain products. ChipMOS Taiwan paid the total license fee of US$500 thousand
(NT$15,888 thousand) in 1999 and amortized the amount over 5 years using the straight-line
method. ChipMOS Taiwan also paid US$500 thousand (NT$15,870 thousand) in 2004 as the
cumulative production and sales quantity of products bearing Tessera Compliant Chip
packages did not meet the commitment schedule as set in the agreement. e. ChipMOS Taiwan acquired testing and assembly technology for tape carrier packages under
a licensing agreement with Sharp Corporation. The term of the agreement is for five years
beginning February 10, 2000. Sharp licensed to the company tape carrier package-related
technology and intellectual property rights. The company in turn pays F-110




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a royalty fee to Sharp ranging from 3% to 5% of the service fee paid to the company by its
customers minus the material cost incurred from providing tape carrier package-related
services over the licensing agreement. Sharp has granted the company a grace period, which
expired in September 2004, during which the company may defer the payment of a portion of
the royalty fee due to Sharp until the expiry of the grace period or until the amount of
deferred royalty fee exceeds JPY150.9 million. We have incurred royalty payment obligations
of JPY22 million and JPY16 million for the years ended December 31, 2003 and 2004 to Sharp
which was paid in October 2004.  19.
    NOTES TO THE CASH FLOW STATEMENT Acquisition of subsidiaries December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Net assets acquired:Cash and bank balances
    
    
    
    
    
    
    280,910
    
    
    
    8,859Current Assets
    
    
    
    
    
    
    1,528,849
    
    
    
    48,213Long term investment
    
    
    
    
    
    
    106,488
    
    
    
    3,358Property, plant and equipment
    
    
    
    
    
    
    3,691,657
    
    
    
    116,419Intangible assets
    
    
    
    
    
    
    71,614
    
    
    
    2,258Other assets
    
    
    
    
    
    
    205,831
    
    
    
    6,491Current liabilities
    
    
    
    
    
    
    (1,813,210
    )
    
    
    (57,181
    )Long term liabilities
    
    
    
    
    
    
    (845,343
    )
    
    
    (26,659
    )Other liabilities
    
    
    
    
    
    
    (38,303
    )
    
    
    (1,208
    )Minority interest
    
    
    
    
    
    
    (2,206,550
    )
    
    
    (69,585
    )
    
    
    
    981,943
    
    
    
    30,966Goodwill on acquisition
    
    
    
    
    
    
    (51,623
    )
    
    
    (1,628
    )
    
    
    
    930,320
    
    
    
    29,338Satisfied by:Cash
    
    
    
    
    
    
    186,573
    
    
    
    5,884Reclassification to interest in subsidiary
    
    
    
    
    
    
    743,747
    
    
    
    23,455
    
    
    
    930,320
    
    
    
    29,338
 An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of
subsidiary is as follows: F-111




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December 31,2003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Cash and bank balances acquired
    
    
    
    
    
    
    280,910
    
    
    
    8,859Less: cash consideration
    
    
    
    
    
    
    (186,573
    )
    
    
    (5,884
    )
    
    
    
    94,337
    
    
    
    2,975
  20.
    DERIVATIVE FINANCIAL INSTRUMENTSChipMOS Taiwan had entered into forward exchange contracts or foreign currency options for the
years ended December 31, 2003 and 2004, to hedge its exchange rate risk on foreign-currency
assets or liabilities and anticipated transactions. Information on the derivative transactions
is as follows:  a.
    Forward, exchange contractsAs of December 31, 2003 and 2004, There were no outstanding forward contracts. Net exchange
gains on forward exchange contracts were NT$4,710 thousand for the year ended December 31,
2004.b.
    European optionsChipMOS Taiwan expects to receive U.S. dollars from its export sales and to pay Japanese yen
for its importation of materials, machinery, and equipment. It has entered into foreign
currency option contracts with banks to hedge exchange rate risks. As of December 31, 2003
and 2004, ChipMOSTaiwan had no outstanding foreign currency option contracts. For the years ended December
31, 2003 and 2004, ChipMOS Taiwan didnt realize premium income.c.
    Interest Rate RisksChipMOS Taiwan has entered into interest rate swap agreements to manage interest rate risk by
exchanging a quarto stepping interest rate for a floating rate and keeps records when
transactions are settled. The difference of the interests is calculated quarterly and is
credited or charged to the income in the current period. The benefit of interest rate swaps
recognized as non-operating income in 2004 is NT$151 thousand. As of December 31, 2004, ChipMOS Taiwan has the following interest rate swap agreements: Derivatives
    
    Notional Amount
    
    Effective Date
    
    Termination DateIRS
    
    NT$500,000 thousand
    
    July 28, 2004
    
    July 30, 2007IRS
    
    NT$300,000 thousand
    
    October 13, 2004
    
    October 15, 2007
  d.
    Transaction risks  1)
    Credit risk. The banks with which ChipMOS Taiwan has entered into the above
contracts are reputable and, therefore, ChipMOS Taiwan does not expected to be F-112




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exposed to significant credit risks.2)
    Market risk and hedge strategy. ChipMOS Taiwan is exposed to market risks
arising from changes in currency exchange rates due to U.S. dollar denominated
accounts receivable, Yen denominated accounts payable and U.S. dollar denominated
debt. In order to manage these exposures, ChipMOS Taiwan entered into forward
contracts and option contracts occasionally.3)
    Liquidity and cash requirements. The cash flow requirements with respect to
ChipMOS Taiwans forward contracts are limited to the periodic premium payments and
the net differences of the contracted settlement rates. On the other hand, call/put
options may not have to be exercised at all in cases where the strike price is
higher/lower than the related market price at exercise dates.  e.
    The estimated fair values of the Company Taiwans financial instruments are as follows: December 31, 2003
    
    
    December 31, 2004Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)Non-derivative financial instrumentsAssetsCash
    
    
    1,155,662
    
    
    
    1,155,662
    
    
    
    2,818,156
    
    
    
    2,818,156Restricted cash and cash equivalents
    
    
    282,378
    
    
    
    282,378
    
    
    
    146,746
    
    
    
    146,746Short-term investments
    
    
    437,446
    
    
    
    437,446
    
    
    
    2,815,127
    
    
    
    2,817,587Notes receivable
    
    
    7,522
    
    
    
    7,522
    
    
    
    62,205
    
    
    
    62,205Accounts receivable
    
    
    961,884
    
    
    
    961,884
    
    
    
    1,825,845
    
    
    
    1,825,845Receivables from related partiesNotes and accounts
    
    
    1,307,321
    
    
    
    1,307,321
    
    
    
    1,419,319
    
    
    
    1,419,319Others
    
    
    679,853
    
    
    
    679,853
    
    
    
    31,575
    
    
    
    31,575Other receivable
    
    
    1,082,700
    
    
    
    1,082,700
    
    
    
    169,680
    
    
    
    169,680Long-term investments
    
    
    1,288,350
    
    
    
    2,294,089
    
    
    
    663,040
    
    
    
    669,708Refundable deposits
    
    
    352,674
    
    
    
    352,674
    
    
    
    14,858
    
    
    
    14,858Other financial assets
    
    
    399,700
    
    
    
    399,700
    
    
    
    
    
    
    
    LiabilitiesBank loans
    
    
    1,314,045
    
    
    
    1,314,045
    
    
    
    800,593
    
    
    
    800,593Notes payable
    
    
    
    
    
    
    
    
    
    
    49,072
    
    
    
    49,072Accounts payable
    
    
    312,045
    
    
    
    312,045
    
    
    
    526,003
    
    
    
    526,003Payable to related partiesTrade
    
    
    17,586
    
    
    
    17,586
    
    
    
    17,428
    
    
    
    17,428Others
    
    
    19,757
    
    
    
    19,757
    
    
    
    61,031
    
    
    
    61,031Payables to contractors and
equipment suppliers
    
    
    166,910
    
    
    
    166,910
    
    
    
    312,561
    
    
    
    312,561Long-term loans (including current
portion)
    
    
    2,811,462
    
    
    
    2,811,462
    
    
    
    6,428,721
    
    
    
    6,428,721
  F-113




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December 31, 2003
    
    
    December 31, 2004Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)Convertible bonds (including
current portion)
    
    
    
    
    
    
    
    
    
    
    333,195
    
    
    
    333,195Long-term bonds payable (including
current portion)
    
    
    1,200,000
    
    
    
    1,008,970
    
    
    
    1,200,000
    
    
    
    1,200,000Guarantee deposits
    
    
    593
    
    
    
    593
    
    
    
    1,124
    
    
    
    1,124
  Fair values of financial instruments were determined as follows:1)

    Short-term financial instruments  market values.2)

    Short-term investments  market values.3)

    Long-term investments  market value for listed companies and net equity value
for the others.4)

    Refundable deposits and guarantee deposits  future values.5)

    Long-term liabilities  based on forecasted cash flows discounted at current
interest rates of similar long-term liabilities. Bonds payable are discounted at
present value, using an annual interest rate of 5.95%. Other long-term liabilities are
their carrying values as they use floating interest rates.  The fair values of non-financial instruments were not included in the fair values disclosed
above. Accordingly, the sum of the fair values of the financial instruments listed above does
not equal the fair value of the Company.21.
    SEGMENT AND GEOGRAPHIC INFORMATIONThe Company engages mainly in the research and development, manufacturing, assembly, testing and
turnkey of semiconductors. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosure About Segments of an Enterprise and Related Information, the
Companys chief operating decision maker has been identified as the Chief Executive Officer, who
reviews these segment results by Testing, Assembly, Testing and Assembly for LCD and other
Flat-Panel Display Driver Semiconductors and Turnkey when making decisions about allocating
resources and assessing performance of the Company. Financial segment information required by
SFAS No. 131 is as follows:  a.
    The Company provides semiconductor testing, assembly, turnkey services and LCD and
other flat-panel display driver semiconductors services. 2002Segment
    
    
    Corporate &
    
    
    ConsolidatedTesting
    
    
    Assembly
    
    
    Turnkey
    
    
    LCD
    
    
    Totals
    
    
    Other assets
    
    
    TotalsNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)Revenues from
customers
    
    
    2,331,057
    
    
    
    1,415,196
    
    
    
    1,787,838
    
    
    
    991,774
    
    
    
    6,525,865
    
    
    
    
    
    
    
    6,525,865Cost of revenues
    
    
    2,684,654
    
    
    
    1,394,291
    
    
    
    1,766,985
    
    
    
    865,776
    
    
    
    6,711,706
    
    
    
    
    
    
    
    6,711,706Segment gross profit
    
    
    (353,597
    )
    
    
    20,905
    
    
    
    20,853
    
    
    
    125,998
    
    
    
    (185,841
    )
    
    
    
    
    
    
    (185,841
    )Depreciation and
amortization
    
    
    2,055,221
    
    
    
    443,718
    
    
    
    
    
    
    
    310,239
    
    
    
    2,809,178
    
    
    
    9,097
    
    
    
    2,818,275Segment assets
    
    
    5,724,785
    
    
    
    2,035,886
    
    
    
    
    
    
    
    2,209,521
    
    
    
    9,970,192
    
    
    
    6,433,868
    
    
    
    16,404,060Expenditure for
segment assets
    
    
    531,434
    
    
    
    68,421
    
    
    
    
    
    
    
    1,164,630
    
    
    
    1,764,485
    
    
    
    
    
    
    
    1,764,485
 F-114




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2003Segment
    
    
    Corporate &
    
    
    ConsolidatedTesting
    
    
    Assembly
    
    
    Turnkey
    
    
    LCD
    
    
    Totals
    
    
    Other assets
    
    
    TotalsNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)Revenues from
customers
    
    
    3,072,739
    
    
    
    314,744,581
    
    
    
    1,075,319
    
    
    
    1,683,490
    
    
    
    8,468,665
    
    
    
    
    
    
    
    8,468,665Cost of revenues
    
    
    2,614,901
    
    
    
    373,944,573
    
    
    
    1,061,109
    
    
    
    1,155,322
    
    
    
    6,911,038
    
    
    
    
    
    
    
    6,911,038Segment gross profit
    
    
    457,838
    
    
    
    60,314,814
    
    
    
    14,210
    
    
    
    528,168
    
    
    
    1557,627
    
    
    
    
    
    
    
    1,557,627Depreciation and
amortization
    
    
    1,886,241
    
    
    
    27,454,3382
    
    
    
    
    
    
    
    451,710
    
    
    
    2,651,801
    
    
    
    14,623
    
    
    
    2,666,424Segment assets
    
    
    4,656,948
    
    
    
    5,94,361
    
    
    
    
    
    
    
    2,150,940
    
    
    
    8,929,700
    
    
    
    7,690,240
    
    
    
    16,619,940Expenditure for
segment assets
    
    
    1,382,018
    
    
    
    399,888
    
    
    
    
    
    
    
    387,929
    
    
    
    2,169,835
    
    
    
    
    
    
    
    2,169,835
 2004Segment
    
    
    Corporate &
    
    
    ConsolidatedTesting
    
    
    Assembly
    
    
    Turnkey
    
    
    LCD
    
    
    Bumping
    
    
    Totals
    
    
    Other assets
    
    
    TotalsNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)Revenues from
customers
    
    
    5,950,174
    
    
    
    5,734,592
    
    
    
    473,588
    
    
    
    2,655,201
    
    
    
    54,322
    
    
    
    14,867,877
    
    
    
    
    
    
    
    14,867,877Cost of revenues
    
    
    3,744,781
    
    
    
    4,795,074
    
    
    
    466,676
    
    
    
    1,615,799
    
    
    
    121,898
    
    
    
    10,744,228
    
    
    
    
    
    
    
    10,744,228Segment gross profit
    
    
    2,205,393
    
    
    
    939,518
    
    
    
    6,912
    
    
    
    1,039,402
    
    
    
    (67,576
    )
    
    
    4,123,649
    
    
    
    
    
    
    
    4,123,649Depreciation and
amortization
    
    
    2,445,481
    
    
    
    410,721
    
    
    
    
    
    
    
    578,835
    
    
    
    22,650
    
    
    
    3,457,687
    
    
    
    
    
    
    
    3,457,687Segment assets
    
    
    12,352,842
    
    
    
    4,634,992
    
    
    
    
    
    
    
    2,961,478
    
    
    
    504,130
    
    
    
    20,453,442
    
    
    
    7,394,399
    
    
    
    27,847,841Expenditure for
segment assets
    
    
    4,698,036
    
    
    
    1,028,155
    
    
    
    
    
    
    
    1,380,372
    
    
    
    526,712
    
    
    
    7,633,275
    
    
    
    
    
    
    
    7,633,275
  In providing turnkey services, the Company purchases fabricated wafers and sells
tested and assembled semiconductors to application and system manufacturers. The
process of conducting testing and assembling for the fabricated wafer is at a very
limited level, which only uses a very small portion of facility capacity. Therefore,
the Company allocated no specific assets to the turnkey segment and accordingly, no
related depreciation and amortization was allocated.The corporate and other assets constitute the total current assets, long-term
investments, long-term restricted cash equivalents, intangible assets of bond issuance
costs, employee dormitory building and refundable deposits.b.
    The Company has no significant foreign operations.c.
    Net revenues: F-115




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##### Table of Contents



Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$(In Thousands)AreaDomestic
    
    
    5,755,406
    
    
    
    7,061,812
    
    
    
    12,182,691Export
    
    
    770,459
    
    
    
    1,406,853
    
    
    
    2,685,1866,525,865
    
    
    
    8,468,665
    
    
    
    14,867,877
  d.
    Net sales to customers representing at least 10% of net total sales: Year Ended December 312002
    
    
    2003
    
    
    2004Customer
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %NT$
    
    
    
    
    
    
    NT$
    
    
    
    
    
    
    NT$(In Thousands)MVI
    
    
    2,285,348
    
    
    
    35
    
    
    
    1,680,986
    
    
    
    20
    
    
    
    14,274
    
    
    
    Ultima
    
    
    1,218,265
    
    
    
    19
    
    
    
    745,562
    
    
    
    9
    
    
    
    453,698
    
    
    
    3ProMOS
    
    
    
    
    
    
    
    
    
    
    1,748,326
    
    
    
    21
    
    
    
    4,231,658
    
    
    
    29
  22.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY CHIPMOS
TAIWAN AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATESThe accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the Republic of China (ROC GAAP), which differ in the
following respects from accounting principles generally accepted in the United States of
America (U.S. GAAP):  a.
    Bonuses to employees, directors and supervisorsAccording to ROC regulations and the Articles of Incorporation of ChipMOS Taiwan, a portion
of distributable earnings should be appropriated as bonuses to employees and
remuneration to directors and supervisors. The remuneration to directors and
supervisors is paid in cash, while bonuses to employees may be granted in cash or
stock or both. These appropriations, including stock bonuses, which are valued at par
value of NT$10, are charged against retained earnings under ROC GAAP, after such
appropriations are formally approved by the shareholders in the following year.Under U.S. GAAP, such bonuses and remuneration are charged to income currently and
included in operating expenses as compensation expenses. Since the amount and form of
such bonuses and remuneration are not finally determinable until approved by the
shareholders, the total amount of such bonuses and remuneration is initially accrued
based on the amount to be paid as provided by ChipMOS Taiwans Articles of
Incorporation. The percentage to be paid in stock is determined at the next
shareholders meeting in the following year. The number of shares to be issued is
determined by dividing the amount to be paid in stock by the par value of the shares.
Any difference between the initially accrued amount (the cash portion plus the par
value of the shares) and the fair market value of the bonuses settled (the cash
portion plus the fair value of the shares) is recognized in the year of approval by
the shareholders.b.
    Marketable securitiesUnder ROC GAAP, marketable equity securities are carried at the lower of aggregate cost F-116




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or market value, and debt securities at cost, with only unrealized losses recognized when
losses are irrecoverable. Under SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, debt and equity securities that have readily determinable fair
values are to be classified as either trading, available-for-sale or held-to-maturity
securities. Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at amortized cost.
Debt and equity securities that are bought and traded for short-term profit are classified
as trading securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either held-to-maturity or
trading are classified as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate component of
shareholders equity; however, unrealized losses relating to declines in fair value deemed
to be other than temporary are recorded in earnings. The adjustment below relates to the
Companys equity securities that are classified as trading and available-for-sale
securities under U.S. GAAP.c.
    Long-term investmentsUnder both ROC and U.S. GAAP, investments in shares of companies wherein the Company
owns over 20% of the outstanding common stock and exercises significant influence over
operating and financial policies of the investee companies are generally accounted for
under the equity method. However, there are differences in applying equity accounting
under ROC and U.S. GAAP. The Companys proportionate share of the income (loss) from
an equity investee may differ if the equity investees net income (loss) under ROC GAAP
differs from that under U.S. GAAP. The differences between ROC GAAP and U.S. GAAP for
the equity investees have been adjusted and included in the reconciliation below.Under the equity method, the Companys proportionate share of the income (loss) of
the investee is generally recognized in the year the income (loss) is earned. However,
under ROC GAAP, if audited financial statements of an investee are not available for
the Company to apply the equity method due to time constraints and such equity
interests are below certain materiality threshold, the Company is permitted to delay
the recognition of income (loss) until the subsequent year. Under US GAAP, there are
no provisions that allow the investor company to delay recognition of its equity in the
investees income or loss. The US GAAP represents the current periods
proportionate share of loss of long-term investment.d.
    Technologies transferred in payment of capital stockAs discussed in Note 9, MVI and SPIL contributed, as payment to their subscription in the
shares of stock of ChipMOS Taiwan, technologies relating to the testing and assembly of
semiconductors at an agreed value of NT$750,000 thousand. Under ROC GAAP, such technology
transfers in payment of capital stock are recorded as an intangible asset, and amortized by
systematic charges to income over the periods estimated to be benefited. As permitted
under ROC GAAP, ChipMOS Taiwan uses a 5 years amortization period. Under U.S. GAAP, the
technology contribution cannot be recognized due to the unavailability of a fair value for
the technologies. Therefore, the carrying value of the technologies has been adjusted to
zero under U.S. GAAP.e.
    Start-up costs F-117




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ROC GAAP requires start-up costs to be deferred and amortized in a systematic manner over
the periods of the expected benefit. Start-up costs include all costs incurred prior to
production readiness. On the other hand, U.S. GAAP primarily requires that start-up costs
be expensed as incurred.f.
    Depreciation of fixed assets and employee dormitory buildingUnder ROC GAAP, the estimated life of a building can be as long as 55 years based on the
ROC Internal Revenue Code. For U.S. GAAP purpose, building lives are estimated to be 25
years.g.
    Transfer of building and facilities from MVIChipMOS Taiwan purchased building and facilities from MVI in 1997. The actual costs of
assets purchased from MVI were based on MVIs book value of such building and facilities on
a specified cut-off date plus an additional payment of NT$173,174 thousand representing
compensation to MVI. ChipMOS Taiwan capitalized, allowed under ROC GAAP such additional
payment of NT $173,174 thousand. Under U.S. GAAP, assets acquired are recorded at amounts
that do not exceed their fair values. Also, generally under U.S. GAAP, the transferee
should evaluate the assets transferred from related parties with significant influence at
the predecessors basis. Therefore, the assets transferred from MVI were evaluated at
MVIs predecessor cost basis and the NT$173,174 thousand was deducted from the capital
surplus and building and facilities for U.S. GAAP.h.
    InventoryAs discussed in paragraphs e. f. and g., the amortization of start-up costs, the
depreciation on fixed assets and employee dormitory building, and the depreciation on the
assets transferred from MVI were reconciled for U.S. GAAP purposes. Some of such expenses
were recorded in the manufacturing expenses and therefore affect ending inventory balances
under U.S. GAAP.i.
    Capital surplusUnder ROC GAAP, the following items are treated as capital surplus: (a) premium on
issuance of common stocks; and (b) gain, net of applicable income tax, on disposal of
properties. Under U.S. GAAP, item (a) is the same as in ROC GAAP; and item (b) is recorded
as part of net income, which is then included as a component of retained earnings.
However, starting in 2001, the treatment of item (b) under ROC GAAP has become the same as
under U.S. GAAP.j.
    Impairment of long-lived assetsUnder U.S. GAAP, impairment losses for assets to be held and used are recorded in
current period earnings and create a new cost basis for related assets going forward,
and F-118




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cannot be reversed subsequently. Under U.S. GAAP, in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived
assets held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed by comparing undiscounted net cash flows of the
assets to the net book value of the assets. If the recoverability test indicates that
impairment has occurred, the impairment loss is the amount of the assets net book
value in excess of the related fair value. Under ROC GAAP, there is no requirement to
provide for impairment of long-lived assets. Based on an assessment by the Company
there were no impairment losses for 2004.k.
    Derivative financial instrumentsUnder ROC GAAP, there are no specific rules related to accounting for derivative
financial instruments, nor criteria for hedge accounting. Therefore, companies have the
flexibility in choosing when to recognize derivative financial instruments and when to
follow hedge accounting versus fair value accounting for such instruments. U.S. GAAP has
restrictive rules on hedge accounting under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and SFAS No. 138, Accounting for Certain Derivative
Instruments and Hedging Activities. SFAS No. 133 and SFAS No. 138 are effective for
fiscal years beginning after June 15, 2000, and establish accounting and reporting
standards for all derivative financial instruments. The Company adopted those statements
on January 1, 2001. The adoption of SFAS No. 133 and SFAS No. 138 had no material impact
on the Companys financial statements. Under U.S. GAAP, the Company did not apply hedge
accounting and derivatives have historically been, and continue to be, recorded on the
balance sheets at fair value, with the changes in fair values recorded through current
period earnings. In addition, the Company has no embedded derivatives from January 1 to
December 31, 2004. The reconciling adjustments for all periods presented reflect those
reconciliations from hedge accounting under ROC GAAP to non-hedge accounting under U.S.
GAAP.l.
    Earnings per share (EPS)In calculating the weighted average number of shares outstanding for EPS
purposes under ROC GAAP, employee bonus shares have been treated as outstanding for
all periods in a manner similar to a stock split or stock dividend. Under U.S. GAAP,
employee bonus shares have been considered separately from the stock dividend or split
and have been treated as outstanding from the date of shareholder approval.m.
    Interest capitalizationUnder ROC GAAP, interests on borrowings during construction conceptually should be
capitalized in the assets that are constructed or produced for a companys own use.
However, if equity capital is raised during a year, no capitalization interest is recorded
for the amount of property acquired up to the equity capital raised in that year. Under F-119




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U.S. GAAP, SFAS No. 34 Capitalization of Interest Cost, interest is generally
capitalized on assets until they are available and ready for use.n.
    GoodwillUnder ROC GAAP goodwill arises as the difference between acquisition cost and the
equity of the subsidiary and is amortized using a systematic method, whereas under
U.S. GAAP such goodwill is not amortized, but is subject to impairment tests.o.
    Pension expensesSFAS No. 87, Accounting for Pensions, and the SFAS No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, were effective no later than the beginning of the first period
for which an U.S. GAAP reconciliation is required for foreign issuers. A portion of
the unrecognized net transition obligation on the adoption date is to be allocated
directly to equity. The Company started to adopt SFAS No. 87 and SFAS No. 88 in 1997
and 2002, respectively. ROC SFAS No. 18, which is similar in many respects to SFAS
No. 87 and SFAS No. 88, was effective in 1996. However, the treatment of certain
expenses that comply with ROC SFAS No. 18 is different from SFAS No. 87 and SFAS No.
88. The following reconciles net income (loss) and shareholders equity under ROC GAAP as reported in
the accompanying financial statements to net income (loss) and shareholders equity amounts
determined under U.S. GAAP, giving effect to adjustments for the differences listed above. Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Net income (loss)Net income (loss) based on ROC GAAP
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    2,322,760
    
    
    
    73,250Adjustments:Amortization of technology transfer in
payment of capital stocks
    
    
    95,833
    
    
    
    18,334
    
    
    
    
    
    
    
    Amortization of start-up costs
    
    
    14,699
    
    
    
    14,796
    
    
    
    9,916
    
    
    
    312Depreciation of fixed assets and
employee dormitory building
    
    
    (14,270
    )
    
    
    (14,206
    )
    
    
    (14,444
    )
    
    
    (455
    )Transfer of building and facilities
from MVI
    
    
    15,634
    
    
    
    2,104
    
    
    
    1,299
    
    
    
    41Marketable securities-trading
    
    
    (31,139
    )
    
    
    1,916
    
    
    
    10,567
    
    
    
    334Interest capitalization
    
    
    43,329
    
    
    
    
    
    
    
    
    
    
    
    Depreciation of interest capitalization
    
    
    (4,254
    )
    
    
    (5,728
    )
    
    
    (19,793
    )
    
    
    (624
    )Equity accounting for long-term investment
    
    
    
    
    
    
    (3,867
    )
    
    
    (3,358
    )
    
    
    (106
    )Effect of U.S. GAAP adjustment on
income taxes
    
    
    (38,217
    )
    
    
    (3,825
    )
    
    
    5,755
    
    
    
    181Net increase (decrease) in net income (loss)
    
    
    81,615
    
    
    
    9,524
    
    
    
    (10,058
    )
    
    
    (317
    )
  F-120




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Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Net income (loss) based on U.S. GAAP
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    2,312,702
    
    
    
    72,933Earnings (loss) per share
    
    
    (1.34
    )
    
    
    0.98
    
    
    
    2.61
    
    
    
    0.08Number of weighted average shares outstanding
under U.S. GAAP
    
    
    881,467
    
    
    
    887,227
    
    
    
    887,227
    
    
    
    887,227
 December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Shareholders equityShareholders equity based on ROC GAAP
    
    
    10,605,987
    
    
    
    13,115,457
    
    
    
    413,606Adjustments:Technology transfer in payment of capital
stocksOriginal cost
    
    
    (750,000
    )
    
    
    (750,000
    )
    
    
    (23,652
    )Accumulated amortization of
technology transfer in payment of
capital stocks
    
    
    750,000
    
    
    
    750,000
    
    
    
    23,652Start-up costsOriginal cost
    
    
    (73,329
    )
    
    
    (61,124
    )
    
    
    (1,928
    )Accumulated depreciation of
start-up costs
    
    
    53,554
    
    
    
    51,193
    
    
    
    1,614Net effect on inventories
    
    
    (206
    )
    
    
    (134
    )
    
    
    (4
    )Depreciation of fixed assets and employee
dormitory buildingDepreciation of fixed assets and
employee dormitory building
    
    
    (71,239
    )
    
    
    (85,648
    )
    
    
    (2,701
    )Net effects on inventories
    
    
    252
    
    
    
    217
    
    
    
    7Transfer of building and facilities from MVIOriginal cost
    
    
    (173,174
    )
    
    
    (173,174
    )
    
    
    (5,461
    )Depreciation and gain on disposal
of building and facilities from
MVI
    
    
    166,789
    
    
    
    168,076
    
    
    
    5,300Net effects on inventories
    
    
    (34
    )
    
    
    (22
    )
    
    
    (1
    )Marketable securities  trading
    
    
    (3,576
    )
    
    
    6,991
    
    
    
    221Pension expenses
    
    
    (1,898
    )
    
    
    (1,898
    )
    
    
    (60
    )Interest capitalization
    
    
    118,757
    
    
    
    118,757
    
    
    
    3,745Depreciation of interest capitalization
    
    
    (12,183
    )
    
    
    (31,976
    )
    
    
    (1,008
    )Long-term investments
    
    
    (14,087
    )
    
    
    (16,376
    )
    
    
    (516
    )Effect of U.S. GAAP adjustment on income
taxes
    
    
    (2,297
    )
    
    
    3,458
    
    
    
    109Net decrease in shareholders equity
    
    
    (12,671
    )
    
    
    (21,660
    )
    
    
    (683
    )Shareholders equity based on U.S. GAAP
    
    
    10,593,316
    
    
    
    13,093,797
    
    
    
    412,923
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Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Changes in shareholders equity
based on U.S. GAAPBalance, beginning of the year
    
    
    11,072,313
    
    
    
    9,801,202
    
    
    
    10,593,316
    
    
    
    334,069Reversal of unrealized loss (gain)
on available-for-sale securities
    
    
    (153,621
    )
    
    
    (79,277
    )
    
    
    5,618
    
    
    
    177Unrealized gain (loss) on
available-for-sale securities
    
    
    79,277
    
    
    
    (5,618
    )
    
    
    (805
    )
    
    
    (25
    )Cumulative translation adjustments
    
    
    (47
    )
    
    
    115
    
    
    
    (7,564
    )
    
    
    (239
    )Adjustment for long-term investments
    
    
    (5,556
    )
    
    
    6,813
    
    
    
    190,530
    
    
    
    6,008Net income (loss) for the year
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    2,312,702
    
    
    
    72,933Balance, end of the year
    
    
    9,801,202
    
    
    
    10,593,316
    
    
    
    13,093,797
    
    
    
    412,923
 A reconciliation of the significant balance sheet accounts to the approximate amounts
determined under U.S. GAAP is as follows: December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Current assetsAs reported
    
    
    7,115,404
    
    
    
    10,608,332
    
    
    
    334,542U.S. GAAP adjustmentsMarketable
securities - trading
    
    
    (3,576
    )
    
    
    6,991
    
    
    
    220Effect of inventory adjustments:Start-up costs
    
    
    (206
    )
    
    
    (134
    )
    
    
    (4
    )Depreciation of fixed
assets and employee
dormitory building
    
    
    252
    
    
    
    217
    
    
    
    7Transfer of building
and facilities from
MVI
    
    
    (34
    )
    
    
    (22
    )
    
    
    (1
    )As adjusted
    
    
    7,111,840
    
    
    
    10,615,384
    
    
    
    334,764Long-term investmentsAs reported
    
    
    1,288,350
    
    
    
    663,040
    
    
    
    20,909U.S. GAAP adjustmentsCumulative
translation adjustments
    
    
    
    
    
    
    (4,549
    )
    
    
    (144
    )Adjustment for investment income
    
    
    (8,469
    )
    
    
    (11,827
    )
    
    
    (372
    )Unrealized gain (loss) on available-for-sale
security
    
    
    (5,618
    )
    
    
    
    
    
    
    As adjusted
    
    
    1,274,263
    
    
    
    646,664
    
    
    
    20,393Property,
plant and equipment - netAs reported
    
    
    8,929,700
    
    
    
    16,713,425
    
    
    
    527,071U.S. GAAP adjustmentsStart-up costs
    
    
    (19,775
    )
    
    
    (9,931
    )
    
    
    (313
    )Depreciation of fixed assets
    
    
    (62,969
    )
    
    
    (75,747
    )
    
    
    (2,388
    )Transfer of building and facilities from MVI
    
    
    (6,385
    )
    
    
    (5,098
    )
    
    
    (161
    )
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December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Interest capitalization
    
    
    106,574
    
    
    
    86,781
    
    
    
    2,736As adjusted
    
    
    8,947,145
    
    
    
    16,709,430
    
    
    
    526,945Other assetsAs reported
    
    
    133,535
    
    
    
    154,077
    
    
    
    4,858U.S. GAAP adjustmentsDepreciation of employee dormitory building
    
    
    (8,270
    )
    
    
    (9,901
    )
    
    
    (312
    )As adjusted
    
    
    125,265
    
    
    
    144,176
    
    
    
    4,546Other liabilitiesAs reported
    
    
    503,279
    
    
    
    1,276,044
    
    
    
    40,241U.S. GAAP adjustmentsPension expenses
    
    
    1,898
    
    
    
    1,898
    
    
    
    60Effect of U.S. GAAP adjustment on income taxes
    
    
    2,297
    
    
    
    (3,458
    )
    
    
    (109
    )As adjusted
    
    
    507,474
    
    
    
    1,274,484
    
    
    
    40,192
 As a result of the adjustments presented above, the approximate amounts of total assets
under U.S. GAAP were NT$17,503,551 thousand and NT$28,217,951 thousand as of December 31, 2003 and
2004, respectively. The following U.S. GAAP condensed statements of operation for the years ended December 31, 2002,
2003 and 2004 have been derived from the audited financial statements and reflect the
adjustments presented above. Certain accounts have been reclassified to conform to U.S. GAAP.
Reversal of allowance for doubtful receivables, gain (loss) on disposal of property, plant
and equipment and loss on lease rescission are included as operating expenses. Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Net revenue
    
    
    6,525,865
    
    
    
    8,468,665
    
    
    
    14,867,877
    
    
    
    468,870Cost of revenue
    
    
    6,700,265
    
    
    
    6,911,268
    
    
    
    10,746,166
    
    
    
    338,889Gross profit (loss)
    
    
    (174,400
    )
    
    
    1,557,397
    
    
    
    4,121,711
    
    
    
    129,981Operating expenses
    
    
    397,700
    
    
    
    541,145
    
    
    
    1,095,053
    
    
    
    34,533Income (loss) from operations
    
    
    (572,100
    )
    
    
    1,016,252
    
    
    
    3,026,658
    
    
    
    95,448Non-operating income
(expenses)  net
    
    
    (482,985
    )
    
    
    (147,896
    )
    
    
    (574,814
    )
    
    
    (18,127
    )Income (loss) before income tax
    
    
    (1,055,085
    )
    
    
    868,356
    
    
    
    2,451,844
    
    
    
    77,321Net income (loss)
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    2,312,702
    
    
    
    72,933
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23. ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP  a.
    Recent accounting pronouncementsThe Company is required by SEC Staff Accounting Bulletin No. 74 to make certain
disclosures about the effect that recently issued accounting standards will have on the
financial statements adopted for future periods.In June 2002 the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. This standard
requires companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 nullifies Emerging Issues Task Force 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). SFAS No. 146 is
applied prospectively to exit or disposal activities after December 31, 2002. The
Company adopted SFAS No. 146 on January 1, 2003, which has not had a material impact on
the accompanying consolidated financial statements.In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 (FIN 46), FIN 46 clarifies when a
company should consolidate in its financial statements the assets, liabilities and
activities of a variable interest entity. FIN 46 provides general guidance as to the
definition of a variable interest entity and requires a variable interest entity to be
consolidated if a company absorbs the majority of the variable interest entitys
expected losses, or is entitled to receive a majority of the variable interest entitys
residual returns, or both. In December 2004, FASB issued a revised Interpretation of
FIN 46 (FIN 46-R), which supercedes FIN 46 and clarifies and expands current accounting
guidance for variable interest entities. FIN 46 and FIN 46-R are effective
immediately for all variable interest entities created after January 31, 2004, and for
variable interest entities created prior to February 1, 2004, no later than the end of
the first reporting period after March 15, 2004. The adoption of FIN 46-R did not have
a material impact on the accompanying consolidated financial statements.In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. In particular, this
Statement clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative and when a derivative contains a financing component that F-124




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warrants special reporting in the statement of cash flows. This Statement is generally
effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 did not have a material impact on the Companys financial reporting and disclosures.In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 changes
the accounting for certain financial instruments that, under previous guidance, could
be classified as equity or mezzanine equity by now requiring those instruments to be
classified as liabilities (or assets in some circumstances) in the statement of
financial position. Further, SFAS No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. The guidance in SFAS No. 150 generally
is effective for all financial instruments entered into or modified after May 31, 2003,
and is otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. We have evaluated SFAS No. 150 and determined that it does not have an
impact on our financial reporting and disclosures.In December 2003, FASB issued SFAS No. 132 - revised, Employers Disclosures
about Pensions and Other Postretirement Benefits. This Statement revises employers
disclosures about pension plans and other postretirement benefits plans. This
Statement requires additional disclosures about the assets, obligations, cash flows and
net periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The required information should be provided separately for
pension plans and for other postretirement benefit plans. This Statement also requires
new disclosures for interim periods beginning after December 15, 2003. The Statement
was effective for fiscal years ending after December 15, 2003. The Company adopted
this Statement for the year ended December 31, 2003. (Refer to Note d, pension plans).In December 2003, the Staff of the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, which supercedes SAB
101, Revenue Recognition in Financial Statements. SAB 104s primary purpose is to
rescind accounting guidance contained in SAB 101 related to multiple element revenue
arrangements and revises the SECs Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers that have been codified in Topic 13. SAB 104
was effective immediately and did not have a material impact on the Companys financial
reporting and disclosures.In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Under SFAS No.

4, all gains and losses from extinguishment of debt were required to be aggregated and,
if material, classified as an extraordinary item, net of related income tax effect.
This Statement eliminates SFAS No. 4 and, thus, the exception to applying Accounting
Principles Board (APB) Opinion No. 30 to all gains and losses related to extinguishments F-125




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of debt. As a result, gains and losses from extinguishments of debt should be classified as
extraordinary items. The adoption of SFAS 145 did not have a material impact on the
accompanying consolidated financial statements. This FASB has issued SFAS No. 147, Acquisitions of Certain Financial Institutions,
which is effective for certain transactions arising on or after October 1, 2002. SFAS
No. 147 will have no impact on the Company. The FASB has issued SFAS No. 148 Accounting for Stock-Based Compensation -
Transition and Disclosures. SFAS No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company has adopted the disclosure
requirements of SFAS No. 148. The Company currently accounts for stock-based employee
compensation in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, the alternative methods of
transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation mandated by SFAS No. 148 are not applicable to the
Company. FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others -
an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34, was issued in November 2002. FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 does
not prescribe a specific approach for subsequently measuring the guarantors recognized
liability over the term of the related guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, irrespective of the guarantors fiscal year
end. The disclosure requirements in FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company has made the
disclosures requirement required by FIN 45. In December 2004, the FASB issued Statement of Financial Accounting Standard No.
123R (SFAS 123R) Share-Based Payment. Under previous practice, the reporting entity
could account for share-based payment under the provisions of Accounting Principles F-126




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Board Opinion No. 25 Accounting for Stock Issued to Employees and disclose share-based
compensation as if accounted for under the provisions of Statement of Financial Accounting
Standard No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation. Under the
provisions of SFAS No. 123R, a public entity is required to measure the cost of employee
services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The cost is recognized over the period during which an employee is
required to provide service in exchange for the award. The Company expects to adopt SFAS
No. 123R, effective with year ending December 31, 2005. Adoption of the standard is
currently expected to reduce future earnings by an amount consistent with the reductions
shown in the disclosures in 28h below provided under the provisions of SFAS No. 123.
Application of this pronouncement require significant judgment regarding the assumptions
used in the selected option pricing model, including stock price volatility and employee
exercise behavior. Most of these inputs are either highly dependent on the current economic
environment at the date of grant or forward-looking over the expected term of the award. As
a result, the actual impact of adoption on future earnings could differ significantly from
our current estimates.b.
    Marketable securitiesOn December 31, 2003 and 2004, certain investments carried at cost under ROC GAAP were
revalued for purposes of U.S. GAAP presentation: (ROC GAAP)
    
    
    (U.S. GAAP)Carrying Value
    
    
    Fair Value2003
    
    
    2004
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Thousands)
    
    
    (In Thousands)Investment in
trading securities
(Note 4)
    
    
    437,446
    
    
    
    2,815,127
    
    
    
    433,870
    
    
    
    2,822,118
 The Company uses the weighted-average cost method for trading securities when
determining the cost basis. The following table shows the gross unrealized losses and fair value of
short-term investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category that individual
securities have been in a continuous unrealized loss position, at December 31, 2004. December 31, 2004Less than 12 months
    
    
    12 months or greaterUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses/(gains)
    
    
    Fair value
    
    
    losses/(gains)NT$
    
    
    US$
    
    
    NT$
    
    
    US$
    
    
    NT$
    
    
    US$
    
    
    NT$
    
    
    US$(In Thousands)Stock
    
    
    228,012
    
    
    
    7,191
    
    
    
    24,165
    
    
    
    762
    
    
    
    19,449
    
    
    
    613
    
    
    
    222,967
    
    
    
    7,031Open-ended funds
    
    
    2,574,657
    
    
    
    81,194
    
    
    
    (4,215
    )
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,802,669
    
    
    
    88,385
    
    
    
    19,950
    
    
    
    629
    
    
    
    19,449
    
    
    
    613
    
    
    
    222,967
    
    
    
    7,031
 F-127




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c.
    Income tax expense (benefit) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Income tax current payable
    
    
    4,217
    
    
    
    1,309
    
    
    
    86
    
    
    
    3Deferred income tax
    
    
    116,899
    
    
    
    (6,398
    )
    
    
    (133,697
    )
    
    
    (4,216
    )Adjustment of prior years
income taxes
    
    
    14,963
    
    
    
    3,364
    
    
    
    (4,743
    )
    
    
    (150
    )Income tax expense (benefit)
    
    
    136,079
    
    
    
    (1,725
    )
    
    
    (138,354
    )
    
    
    (4,363
    )
 Reconciliation between the income tax calculated on pre-tax financial statement
income based on statutory tax rate and the income tax expense (benefit), which conforms to
U.S. GAAP as follows: F-128




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Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Tax on pretax income at ROC statutory
rate (25%)
    
    
    (263,771
    )
    
    
    217,079
    
    
    
    670,129
    
    
    
    21,133SBIP tax exemption (5%)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax on pretax income at SBIP
statutory rate
    
    
    (263,771
    )
    
    
    217,079
    
    
    
    670,129
    
    
    
    21,133Other tax and assessed additional
income tax
    
    
    4,217
    
    
    
    1,309
    
    
    
    86
    
    
    
    3Tax effect of:Tax-exempt income
    
    
    (3,149
    )
    
    
    (1,469
    )
    
    
    (426,870
    )
    
    
    (13,462
    )Permanent differencesNon - taxable gain on sales
of investment
    
    
    2,820
    
    
    
    (22,571
    )
    
    
    (12,557
    )
    
    
    (396
    )Non-deductible investment
loss(gain)
    
    
    65,902
    
    
    
    6,613
    
    
    
    (12,246
    )
    
    
    (386
    )Others
    
    
    6,478
    
    
    
    
    
    
    
    (714
    )
    
    
    (23
    )Temporary differences
    
    
    
    
    
    
    
    
    
    
    50,418
    
    
    
    1,590Tax credits - utilized
    
    
    
    
    
    
    (187,700
    )
    
    
    (355,923
    )
    
    
    (11,224
    )- deferred
    
    
    119,312
    
    
    
    48,014
    
    
    
    (70,003
    )
    
    
    (2,208
    )Valuation allowance
    
    
    181,633
    
    
    
    (66,405
    )
    
    
    (560,053
    )
    
    
    (17,662
    )Loss carry forward
    
    
    7,674
    
    
    
    41
    
    
    
    584,122
    
    
    
    18,421Adjustment of prior years income tax
    
    
    14,963
    
    
    
    3,364
    
    
    
    (4,743
    )
    
    
    (149
    )Income tax expense (benefit)
    
    
    136,079
    
    
    
    (1,725
    )
    
    
    (138,354
    )
    
    
    (4,363
    )
 F-129




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December 312003
    
    
    2004NT$
    
    
    NT$
    
    
    US$(In Thousands)Deferred income tax assetsCurrentUnrealized foreign exchange loss
    
    
    8,613
    
    
    
    16,599
    
    
    
    523Loss of market price decline and obsolescence and slow-moving
inventories
    
    
    10,387
    
    
    
    27,768
    
    
    
    876Sales allowance
    
    
    6,385
    
    
    
    9,455
    
    
    
    298Tax credits for investment in machinery and equipment and R&D
expenditures
    
    
    143,905
    
    
    
    241,141
    
    
    
    7,604Loss carry forward
    
    
    
    
    
    
    504,365
    
    
    
    15,906Others
    
    
    15,656
    
    
    
    74,065
    
    
    
    2,336184,946
    
    
    
    873,393
    
    
    
    27,543Valuation allowance
    
    
    
    
    
    
    (282,918
    )
    
    
    (8,922
    )184,946
    
    
    
    590,475
    
    
    
    18,621Non-currentTax credits for investment in machinery and equipment and R & D
expenditures
    
    
    647,607
    
    
    
    763,336
    
    
    
    24,073Loss carry forward
    
    
    811,485
    
    
    
    756,419
    
    
    
    23,854Transferred assets from MVI
    
    
    1,605
    
    
    
    1,280
    
    
    
    40Start-up costs
    
    
    4,995
    
    
    
    2,516
    
    
    
    79Others
    
    
    3,108
    
    
    
    140,985
    
    
    
    4,4461,468,800
    
    
    
    1,664,536
    
    
    
    52,492Valuation allowance
    
    
    (1,240,228
    )
    
    
    (1,651,163
    )
    
    
    (52,070
    )228,572
    
    
    
    13,373
    
    
    
    422Deferred income tax liabilitiesNon-currentDepreciation differences
    
    
    (572,260
    )
    
    
    (534,270
    )
    
    
    (16,849
    )Interest capitalization
    
    
    (26,644
    )
    
    
    (21,695
    )
    
    
    (684
    )(598,904
    )
    
    
    (555,965
    )
    
    
    (17,533
    )(185,386
    )
    
    
    47,883
    
    
    
    1,510
 F-130




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d.
    Pension plansIn accordance with to SFAS No. 132 - Revised Employers Disclosures about
Pensions and Other Post-retirement Benefits, pension information is disclosed below: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Components of net periodic benefit costService cost
    
    
    21,323
    
    
    
    32,102
    
    
    
    51,970
    
    
    
    1,639Interest cost
    
    
    3,529
    
    
    
    4,275
    
    
    
    7,599
    
    
    
    240Projected return on plan assets
    
    
    (2,802
    )
    
    
    (2,581
    )
    
    
    (4,892
    )
    
    
    (154
    )Net amortization and deferral:Unrecognized net transition obligation
    
    
    28
    
    
    
    28
    
    
    
    (477
    )
    
    
    (15
    )Unrecognized net loss
    
    
    
    
    
    
    695
    
    
    
    809
    
    
    
    25Net periodic benefit cost
    
    
    22,078
    
    
    
    34,519
    
    
    
    55,009
    
    
    
    1,735Changes in benefit obligationBenefit obligation at beginning of year
    
    
    70,572
    
    
    
    122,148
    
    
    
    167,979
    
    
    
    5,297Service cost
    
    
    21,323
    
    
    
    32,102
    
    
    
    51,970
    
    
    
    1,639Interest cost
    
    
    3,529
    
    
    
    4,275
    
    
    
    7,599
    
    
    
    240Actuarial loss (gain)
    
    
    26,724
    
    
    
    9,454
    
    
    
    20,751
    
    
    
    654Acquisition of subsidiary
    
    
    
    
    
    
    
    
    
    
    65,825
    
    
    
    2,076Benefit obligation at end of year
    
    
    122,148
    
    
    
    167,979
    
    
    
    314,124
    
    
    
    9,906Changes in plan assetsFair value of plan assets at beginning of year
    
    
    49,610
    
    
    
    66,005
    
    
    
    135,893
    
    
    
    4,285Actual return on plan assets
    
    
    1,306
    
    
    
    1,003
    
    
    
    1,796
    
    
    
    57Employer contribution
    
    
    15,089
    
    
    
    17,813
    
    
    
    32,160
    
    
    
    1,014Transferred from the merge company
    
    
    
    
    
    
    
    
    
    
    4,500
    
    
    
    14266,005
    
    
    
    84,821
    
    
    
    174,349
    
    
    
    5,498Funds status
    
    
    (56,143
    )
    
    
    (83,158
    )
    
    
    (139,775
    )
    
    
    (4,408
    )Unrecognized actuarial loss (gain)
    
    
    28,043
    
    
    
    38,352
    
    
    
    48,918
    
    
    
    1,543Net amount recognized (recognized as accrued
pension cost)
    
    
    (28,100
    )
    
    
    (44,806
    )
    
    
    (90,857
    )
    
    
    (2,865
    )Actuarial assumptionsDiscount rate
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %
    
    
    3.25
    %Rate of compensation increase
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %
    
    
    3.25
    %Expected return on plan assets
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %
    
    
    3.25
    %
 The Company has no other post-retirement or post-employment benefit plans. The
company expects to contribute NT$33,164 thousand to its pension plans during 2005. The
plan assets are all invested in the Central Trust of China. F-131




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e.
    Statements of cash flowsROC SFAS No. 17, Statement of Cash Flows has been applied. Its objectives and principles
are similar to those set out in the SFAS No. 95, Statement of Cash Flows. The principle
differences between the standards relate to classification. Cash flows from changes in
short-term investments, refundable deposits, other assets and guarantee deposits and bonus
to directors and supervisors are included as operating activities under SFAS No. 95.
Summarized cash flow data by operating, investing and financing activities in accordance
with SFAS No. 95 are as follows: Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Net cash inflow (outflow) from:Operating activities
    
    
    1,335,128
    
    
    
    1,842,453
    
    
    
    5,764,200
    
    
    
    181,779Investing activities
    
    
    (3,042,493
    )
    
    
    (1,816,260
    )
    
    
    (6,169,297
    )
    
    
    (194,554
    )Financing activities
    
    
    2,496,613
    
    
    
    (1,435,656
    )
    
    
    2,067,591
    
    
    
    65,203Change in cash and cash equivalents
    
    
    789,248
    
    
    
    (1,409,463
    )
    
    
    1,662,494
    
    
    
    52,428Cash and cash equivalents at the
beginning of year
    
    
    1,775,877
    
    
    
    2,565,125
    
    
    
    1,155,662
    
    
    
    36,445Cash and cash equivalents at the
end of year
    
    
    2,565,125
    
    
    
    1,155,662
    
    
    
    2,818,156
    
    
    
    88,873
  f.
    Statements of comprehensive income (loss) Year Ended December 312002
    
    
    2003
    
    
    2004NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(In Thousands)Net income (loss) based on U.S. GAAP
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    2,312,702
    
    
    
    72,933Other comprehensive income (loss):Reversal of unrealized loss
(gain) on
available-for-sale security
    
    
    (153,621
    )
    
    
    (79,277
    )
    
    
    5,618
    
    
    
    177Unrealized gain (loss) on
available-for-sale security
    
    
    79,277
    
    
    
    (5,618
    )
    
    
    (805
    )
    
    
    (25
    )Translation adjustment
    
    
    (47
    )
    
    
    115
    
    
    
    (7,564
    )
    
    
    (239
    )Comprehensive income (loss)
    
    
    (1,265,555
    )
    
    
    785,301
    
    
    
    2,309,951
    
    
    
    72,846
 Components in other comprehensive income (loss) refer to investments in Ultima. Under
ROC laws, those losses and gains are not subject to income tax. Therefore, no tax expense
or benefit is allocated to such investments. F-132




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g.
    Statements of accumulated comprehensive income (loss) Unrealized
    
    
    
    
    
    
    AccumulatedGain (Loss) on
    
    
    
    
    
    
    OtherLong-term
    
    
    Translation
    
    
    ComprehensiveInvestments
    
    
    Adjustment
    
    
    Income (Loss)NT$
    
    
    NT$
    
    
    NT$(In Thousands)Balance, as of January 1, 2002
    
    
    153,621
    
    
    
    (687
    )
    
    
    152,934Addition in 2002
    
    
    (74,344
    )
    
    
    (47
    )
    
    
    (74,391
    )Balance, as of December 31, 2002
    
    
    79,277
    
    
    
    (734
    )
    
    
    78,543Addition in 2003
    
    
    (84,895
    )
    
    
    115
    
    
    
    (84,780
    )Balance, as of December 31, 2003
    
    
    (5,618
    )
    
    
    (619
    )
    
    
    (6,237
    )Addition in 2004
    
    
    4,813
    
    
    
    (7,564
    )
    
    
    (2,751
    )Balance, as of December 31, 2004
    
    
    (805
    )
    
    
    (8,183
    )
    
    
    (8,988
    )
 F-133